Debt Crisis Will Collapse U.S. Economy

in this video I interview macro monetary analyst John Rabino John is also an author and is the founder of dollarcollapse.com and you're about to hear his invaluable Insight on what we should expect in regard to inflation implications of printing more money our nation's debt crisis bank failures and bailouts we also discussed the Federal Reserves plan to lower interest rates and what will happen should they decide quantitative easing to keep the economy moving forward we also discussed the false job reports in 2023 and the potential for supply chain disruption as the Red Sea crisis heats up John also talks about the US housing market we're about to enter the spring market and typically this is the absolute busiest time of the year for buyers and sellers but this year year it may be everything but typical and John knows a lot about the housing market he wrote the book on it back in 2003 John wrote a book predicting the 2008 housing market crash and he was right so when John talks I listen with complete respect now without further Ado I'm honored to introduce you to Mr John Rabino John welcome to the show and thanks for your time tell everyone a little bit about yourself and uh and I want to know why is it that you are right all of the time about predicting the markets hey Todd well that's that's kind of you to say but actually I'm wrong most of the time when I try to predict the market so especially anything to do with timing okay so if I happen to slip up and mention what I think is going to happen in the next three months either ignore it or do the exact opposite and you'll be fine but um so a little of my background I'm I've been a finance nerd forever got an MBA um in the80s and worked on Wall Street for a while and then started writing and um have written or co-written five books on investing and ran a website for like 15 years called dollarcollapse.com which was a basic Gloom and doomy finance and investing site just sold that a couple of years ago to some crypto guys you know who had a lot of crypto money and and came in and made me offer I couldn't refuse and now I'm doing a substack newsletter at Rubino dos substack docomo to prepare for what's probably going to be a really contentious and stressful decade based on all the debt we're taking on and all the other mistakes we're making so so far so good with the substack it's it's an interesting Community to be part of and uh and I'm enjoying the job well I happen to think that you're pretty dag on good at uh calling this stuff you know I've read your books a couple of your books anyway and uh especially the one about leading up to the housing market crash and that you wrote in 2000 or you published I think in 2003 so that was well before uh the market collapsed and I know it's not easy you know talking about this stuff but I do value your opinion and you know John it doesn't matter really where we stand politically or geopolitically I think that we can all agree as a nation that we have more financial debt right now than any other time in history and so let's kind of start off talking about inflation you know something that's been big in the news and mainstream media now is trying to say that we've successfully you know landed the plane uh or they're alluding to that no recession kind of thing and that they're considering you know uh uh pivoting dropping rates but um we know that inflation is really what is behind devaluing the dollar and most analysts believe that the US is in this financial mess today due to removing gold as the backer of the dollar and so now that we're not dependent on this finite supply of gold limiting you know how much money we can actually print create the government can decide to print more dollars and just keep pumping liquidity into the US and global economy and and of course that's creating more debt and from history we've seen how this Behavior has caused market bubbles overvaluing like the stock market and what I'm in the housing market and what you wrote a book about so you know is it true that printing more dollars is really the culprit of inflation or is this a a result of big government with like Reckless spending habits that we know they have too so can I mean can you talk about that well Todd those two things are connected when um when we went off the last vestages of the gold standard in 1971 we basically handed all the world's governments especially the us but everybody else too unlimited credit cards in effect they could basically via a monetary printing press create as much new currency as they wanted to and use it for whatever they wanted so naturally the governments of the world got bigger and bigger and bigger because there was no restraint on their growth and um you know they now we've got insane amounts of debts pretty much everywhere in every sector of every major society which is the inevitable result of allowing governments to create as much new currency and encourage the creation of much new as much new debt as they want um and so we're where you would expect us to be given what rational people know about human nature and uh and it's a really bad place because we've been taking on so much new debt that basically what we found out in the last couple of years is that this is all the higher interest rates can go because when you've got huge amounts of debt Rising interest rates increase your interest expense and so if you look at a chart of um government for instance the US government's interest costs totally SP from like um $200 billion a year to over a trillion now and they've got another stat called um personal interest cost which is the indiv the costs that you and I and other individuals have to carry what we have to pay on our debts and that also spiked it went from a few hundred billion dollars a year up to 600 and some just lately so those are debilitating numbers in other words you can't have your interest cost soaring like that without going broke and so we basically figured that out and that's why the FED has stopped raising interest rates and it's going to start cutting them pretty soon not because inflation is below their target rate which is not yet but because higher interest rates are going to bankrupt everybody you know all the major governments um most individuals now who have credit card debt or adjustable rate mortgages or adjustable rate business loans anything like that their interest costs are soaring and it's going to become debilitatingly expensive unless they get interest rates back down and this is a huge deal because it means we can never again raise interest rates and when the markets figure that out um people are going to act accordingly and they're going to Panic by anything that can't be inflated away and there's the investment thesis you want to get ahead of that process so what about um the debt I mean when we're talking about inflation do we need the inflation to actually deal with the debt you know I look at um you know in our Modern Age with computers with you know um automation the way that we are able to produce things now certainly you know much more efficient than before we had this technology um you know you take a look at like the television for instance I mean you know what was $3,000 you know just five years ago or 10 years ago is now $200 um you know why is it I mean what is the point of creating in I guess all of this inflation is it because we need it in some way to deal with the debt and you know how is the decision made you know if we're if devaluing the dollar is increasing more of it and we need more of it and we need inflation to deal with the debt who decides when to print more money well the um the central banks of the world um BAS basically whenever they feel like things aren't growing fast enough they create a lot of new currency and they hand it to the big Banks the big Banks then give that money to their preferred customers with which they then go out and buy real estate and stocks and bonds and make those things go up in value so the rich get even richer um and the rest of us suffer with higher cost of living but there there's this group of people called Keynesian economists who would tell you that this is right and natural and how it should be and that we should always have a you know background rate of inflation because that kind of greases the skids of capitalist economy they're clueless you know they they're fundamentally and totally wrong um for a variety of reasons but the biggest one is that you know once you start a little bit of inflation it become that leads people to borrow more money because if you if you see your currency being um devalued the logical thing to do is go borrow money and then pay that debt back in devalued currencies so a little inflation leads to a lot of new debt which leads to the need for even more inflation and so on until you spin out of control and that is true always and everywhere and that's where we are right now we're in the U the mid to late stage of that process so um no you know we don't need inflation in fact we uh we in a healthy economy the thing you mentioned about TVs getting cheaper and computers getting cheaper um that should be the dominant factor in the economy and we should have deflation in other words as we get better at making things and smarter um at doing it more efficiently the price of stuff should go down and in the the 200 years we had something called the classical gold standard which basically ended in 1914 or 1971 depending on how you um you date it um the general price trend was down in other words we had kind of steady deflation for centuries not decades um but centuries because we were a healthy economy that was getting more and more productive with a constrained money supply and that meant the prices of things went down the cost of living went down for people and it was a really healthy time financially and economically U we're the opposite of that now and we're going to pay a horrendous price for screwing up like this you know the the experiment with non goldback currency is only 50 years old for all of the first 10,000 years of human history um money was a real thing usually it was gold sometimes it was silver sometimes it was other things but mostly gold and silver um and that constrained the ability of governments to just go out and spend you know invade their neighbors with borrowed money stuff like that you couldn't do that up until 1971 basically um and so we're trying this experiment right now with a form of money called fiat currency which exists by government Fiat or government degree decree and is worth whatever they tell us it's worth um and that is failing on a Monumental scale right now so we're heading into the the really chaotic part of the process when everything breaks down and then we have to start looking at some kind of a monetary reset where we we go back and and figure out how we want the monetary system to work now that it's broken and um decide whether to go back to the old style of commodity based currencies or do something new you know so it's going to be a very fun debate but it's going to be preceded by a horrendous stretch when you know if you thought 2022 was bad from an inflation standpoint you ain't seen nothing yet it's going to be much much worse and much much more chaotic and much more destructive for regular people so that's that's the decade we have in front of us well I definitely want to talk more about what you just mentioned because uh I have a couple questions about your book The Money bubble and you know how what you think how you think things will end but um all right so now since the dollar is no longer back John by gold instead now it it's said that the dollar is actually backed by the government's ability to create revenues from the dollar what does that mean to Ordinary People that's just Economist speak for let us do whatever we want because we enjoy having power don't don't think in terms of the dollar being backed by anything really I mean people value dollar right now because we are perceived to be the safest country even though we're you know we're not in any Financial sense safe but we're better than the rest of the world so people still want dollars they choose to use dollars in international trade um but that's starting to end and there you know there's the whole bricks Coalition thing and dollarization that's going on right now and um all right wait let me answer your your question first um what backs a currency what makes a currency value valuable is the perception that the people running the currency are competent and honest and that they intend to maintain its value in other words um maintain its Supply at a fairly stable level and in that way make its value value also be stable um that's not something you can say about our current government anymore and that's the problem that yeah dollars are still considered valuable relative to euros and Yen and and pound sterling that's because those other currencies are in even worse shape we're basically all headed off a financial cliff but just at varing speeds um so so let me end here with that and see if you got another question going forward on on that subject so how do they create more dollars I mean they aren't just I mean they don't print them anymore it's basically a journal entry can you explain like dollar creation and how is it actually infused I know you were talking about they take that money that extra money that they're dollar that they're making and they Infuse it into the banks but can you just kind of break that down a little bit I mean how do they make it and you know what's the travel from there yeah the the FED can create currency out of thin air with a mouse click you know some somebody at the FED prints or types in hundred billion and then they hit send and that money shows up on JP Morgan's balance sheet now from there JP Morgan is able to make effectively unlimited loans against that um little bit of reserves they have because there's there's nobody really paying attention to um to bank leverage they have some rules but Banks evade them very easily with derivatives and things like that so basically the banking system um creates money out of thin air by lending money like if um if your bank lends you a million dollars they didn't go get a million dollars and hand it to you they just made that million dollars up out of thin air and put it in their in their accounts um and all the banking system is doing that right now so the money supply is what economists call flexible in other words it can be created in infinite quantities and it can be destroyed in infinite quantities and since we've created absolutely insane amounts of debt and currency out there in the system the Destruction part is what has everybody terrified because for instance if a bank calls in a loan that money that never really existed in the first place but was spent by the recipient of the loan disappears it goes to money Heaven as the the phrase goes or if um for instance in the housing market it's housing is a really interesting example of this because you've got let's say you've got um $50 million worth of houses at today's prices in your neighborhood well you decide to sell your house at a 20% discount because you want to get out right away well then that becomes part of the comps and all the other houses in the neighborhood become less valuable and so let's say you know a several million dollars worth of housing quote unquote wealth just evaporates it just doesn't exist anymore and that's the way the whole economy works is all these things are just notional there's all these um Financial assets out there that have value because we think they have value you know because they're going to pay us dollars let's say if in the case of a bond over the next 20 years uh therefore as long as dollars stay value valuable that Bond stays valuable we'll let the dollar fall in value and that Bond crashes in value and um and all the other bonds crash too so you get this huge amount of what we think of as wealth just evaporating and that's the big danger going forward is everything that we felt thought was real money just ceases to exist and uh you know we're headed that way so a lot of it has to do with confidence so let's get back to the backing of the dollar now once again the dollars back we'll just say are guaranteed to speak of by the government's ability to create revenue from the dollar so they're putting it into circulation with hopes that you know they're confident that whoever the money's lent to will pay back the debt um but I mean the US is in debt and isn't there deficit spending going on right now I mean John do you have confidence that the government has the ability to create revenue from the dollar no I mean some tax revenue will come in but um that that covers not a whole lot more than half of the government's deficit right now so the rest of it is just made up out of thin air and that's only going to expand because a couple of things are happening right now that we probably should have seen if uh you know there was a brain in the head of the people running the system one is that uh we have a demographics problem where Baby Boomers My Generation we we're all starting to retire so we're not making any money anymore but we're drawing down on Social Security and Medicare so the government has this huge bill all of a sudden that's not covered by any kind of tax revenue um and they're G to they're just going to borrow that money they're just going to make the money out out of thin air in order to pay baby boomers the other thing that's happening is that with interest rates going up the interest cost on the extent debt which uh is is a little more than a um trillion dollars a year right now um that also has to be borrowed so we're in sort of a death spiral now where we're borrowing to pay our interest on our debt and uh if you're an individual and you're doing that or a small business you're headed for bankruptcy right you you know if you have to borrow more money to pay your interest you're not a going concern well the the federal government in the US and a lot of other governments around the world have reached that point where there's no way we cover retirement costs and military spending because that's uncuttable um and interest costs anymore we just can't do it without creating trillions of new dollars every year and that then has to be paid off you know that creates interest costs which makes uh the next deficit even bigger and so on and the term for that is a death spiral you know it's where your finances are so out of control that you're you're you know at 10,000 ft and doing Barrel rules and heading straight down for the ground financially and there's no way out of it so yeah the The Government Can generate tax revenues and some people especially those Keynesian economists look at that and think well okay we're solvent because we've got all these tax revenues coming in but that can evaporate in a heartbeat if um like during the pandemic millions of small businesses cease to exist or if we continue to borrow to cover our own interest costs and the interest cost swamps tax revenues then that doesn't work either and you know we're headed for all of that um so wherever you look there will be big financial problems that swamp the ability of governments to paper them over and Welcome to our next decade is it really that complicated for the government to create Revenue I mean you know you and I being in business you know you borrow money or you take on debt and you hope that through budgeting balancing a budget you know Common Sense spending that you would be able to pay off your bills balance your budget and make money I mean is it is it really that challenging for the government are we at a position in other words where this death spiral that you're talking about is I mean ultimately that's just how it's going to end or is there a way for you know the right individuals to be able to make the proper decisions to eventually balance the budget and make money with the revenue that they generate no the short answer is no it's not possible and uh for well remember austerity from a few years ago that was a government policy where um they they were going to try to do what you just said is to get their finances in order by cutting spending well that didn't work politically they all voted out of office because austerity Hur popular a broad section of the economy yeah yeah you know mo most people suffer from that so if you um if you try to broaden it out and you hurt the middle class and working classes um there's a majority voting block that's going to kick you out if you try to put the pressure on rich people say have a wealth confiscation tax or something like that like Bernie Sanders would do if he could well the uh the rich just make sure you have an accident and U and I'm not really that that's not hyperbole they will literally kill you if you're a politician and you try to confiscate you know 30% of billionaires net worths or something like that um so the numbers can never be made to work um either mathematical mathematically or politically once you've borrowed a certain amount of money and that's where we are now so we tried austerity we tried cutting spending that flat out didn't work so the other alternative is to try to really juice growth you know you borrow a bunch of money and you spend it and you hope that that generates enough tax revenue to more than pay for the interest on that debt and that doesn't work either we've tried that a bunch of times or we've tried that actually continuously since the 1980s and it doesn't work either you um you cannot generate tax revenues at a level that pays off large amounts of new debt you basically just end up with new debt higher interest expense and that zeros out the benefit that you would have gotten from revenues and so on so there there's really no way out of something like this um the basically what happens you know in in human history countries have tried this a bunch of times um where they screw up their own currency they borrow too much they debase their currency they have a currency crisis they collaps um and then they start over with sound money but what's different today is that the whole world is doing it it used to be like one country would do it in in the context of a sound money world everybody else was on the gold standard and this one country tried a new experiment with fiat currency and it did blew up on them and um they either got invaded because they were so weak or they had to hunker down for a long time to kind of rebuild uh the semblance of a working state but this time every major government is doing the same thing so there is no broader sound money World um in which this this is going to happen it's going to happen all at once or on a rolling basis across the world and you know that that makes it new so it's hard to predict You can predict you know that everything will happen to everyone as it did to individual countries in the past but that's not guaranteed could be much worse because it's happening everywhere and there's nobody to rely on to bail out anybody else you know I want to talk about how I believe most people view the dollar you know we teach very little in the US on financial literacy and I think think with limited education on the dollar you know we we like the government maybe sometimes spend more than we make and most probably you know think about the dollar this way I mean if you have it's like I said it's confidence if you have the money in your pocket you can buy what you need to live on today tomorrow next month and perhaps next year this is also why people take out loans they believe that they'll have the money in their pocket to continue to make the loan payments with the dollars in your pocket you also have the confidence that if you walk into a restaurant and pull out your dollars that they will probably gladly accept your dollars to pay for your meal you know but what if they no longer want your dollar or when Rising prices suddenly cause the dollars in your pocket to no longer be enough and this is kind of what's happening right now as the money in our pocket is literally disintegrating so you know what that's called right inflation Rapid or hyperinflation causes a dollar to disintegrate even faster as wage growth doesn't keep up and John that's a big problem that we've had you know this is one of the reasons why we have this debt crisis we take out these loans we buy more than what we should because our confidence in the dollar that's in our pocket so you know I mean you spoke a little bit about it earlier on about the debt crisis we speak of the government being in debt and now consumers being in debt but I mean just how bad are we right now I mean is this something that we you know people want to say you know 2024 this is going to be massive you know terrible times big recessions then other people are saying the fed's successful and our economy strong I mean where do you think we are well uh um remember what I said early on don't ever trust me about timing you know so if I talk about the year ahead um that's that's coming from somebody who uh who tends to get the next six months wrong pretty regularly but uh my take on where we are right now is that um we have a bunch of people politicians and economists saying wow look at these headline numbers unemployment is this and inflation fell to that and we're actually in great shape but there in Keynesian economics which is their framework for viewing the world you don't look at debt you don't pay any attention to debt you only look at something called aggregate demand which is how much stuff people are buying and um they don't care how much you have to borrow to get people to buy that you know 3% more each year um amount um and that's why Keynesian systems tend to blow up because they're not paying attention to debt debt goes up and up and up and eventually it becomes unmanageable and I would say that that's um that's kind of where we are now because we borrowed huge amounts of money um even over and above what we were borrowing before which was a lot um and and during the pandemic we borrowed even more and um we caused inflation to spike because eventually an increasing supply of currency will make prices go up and that's what happened in 2022 so we got this whole category of people a big category of people in the US who um were just making ends meet in say 2019 but then we had this first of all the pandemic lockdowns and then we had this burst of inflation um and all of a sudden the people who were just making ends meet are now trying to decide um whether to or which to choose and which to shine on you know whether they U are going to drive to work this week and put gas in the car whether they're going to feed their kids or whether they're going to pay the rent they don't have enough money to do all three of those things and you can see that in the the statistics which no Kian economists are paying attention to but which we should be paying attention to um in for instance personal credit card debt and the interest that is being charged on that debt right now you got a growing number of people who are putting day-to-day life on credit cards and then carrying balances at 25% on those credit cards um and that you know clearly you go bankrupt in a heartbeat if you're trying to do that but we've got a growing number of people who are doing that what that means for the economy going forward is that you know doesn't matter um what inflation is it doesn't matter what the UN well I'll get to the unemployment numbers in a sec because they're patently absurd but um basically if a growing number of people are putting their lives on plastic and carrying these big um um credit card balances then consumer spending is going to be slow going forward right because those people are not going to go out and buy a new car or take a nice vacation or anything they're they're going to you know decide whether to feed their kids or not that's that's the extent of their spending um and that's going to slow the economy down so I think in the year ahead there's a decent chance we have a consumer driven recession when consumer spending just falls off a table now those unemployment numbers that make the economists think everything's okay um here's what the government does they'll they'll report a headline jobs number and they'll say oh last month we added $250,000 new jobs this is great and then the New York Times And The Washington Post will pick up on it with optimistic headlines and so everybody will think things are okay two things will happen at that point one is that in subsequent months the government will go in and um revise those nice headline numbers into much lower numbers that would be seen as disappointing if they were the headline number the other thing is that analysts will dig into the unemployment numbers and they'll they'll see that one um full-time jobs are shrinking and part-time jobs are rising and that's not a sign of a healthy economy when people are losing their full-time jobs and having to Cobble together a few part-time jobs in order to pay the bills and the other this is a new stat that I'd never seen before but just showed up this last jobs report um the number of people carrying two full-time jobs is soaring and now part of that is that you got techies out there who are good enough to do one Tech job in in 20 hours a week so they go out and apply for another tech job and so they've got two full-time jobs and they're they're able to fit it into 40 or 50 or 60 hours a week um but it's also probably true that a lot of people just can't pay their bills with one full-time job and they feel forced to take a second full-time job which is a recipe for a nightmarish life right you know imagine working two 40 hour a week jobs or living with somebody that's doing that you know you could never make a noise because whoever that you know whoever's got those two jobs anytime they're home they're sleeping so you need to be quiet you know it it would just sound like a terrible life and so that's what they're calling a good strong economy when it's really not if you dig into the numbers so combine you know deterioration in the jobs Market with a Slowdown or a contraction in consumer spending and you get a garden variety recession next year along with a prob an equity bare market so stock prices will tank house prices will tank to get to your area of expertise um and a lot of people will be thrown out of work you know that's how recessions work and we haven't really had a serious one since 2008 so we're overdue in any event for one but uh when when this one happens um it's going to happen with an immense amount of debt out there that can go bad so this this might be one for the record books it might be scary on a lot of different s that um the the mainstream media and the government economists are not yet expecting yeah and John you know and also combined with the fact that I just recently uh saw on yahoofinance.com that like I think know was like 439,000 of those jobs they were touting about last year were silently erased from the report um you know so that they were well overstated and and we see that with nonfarm payroll you know they're constantly adjusting that down they come out with the raah ra session so you know do you think that we're going to see a big uptick in consumer loan defaults and bankruptcies oh we already are seeing that you know um credit card delinquencies are spiking car loan um delinquencies are way up and I'm not sure in the housing market but I I think the housing market is coming for for reasons that we can go into more depth in if you want to but yeah Consumer Debt has reached a record high um and um wages aren't keeping up with that debt so you're going to see a lot of people default on their debts and credit cards obviously like if you're carrying a 25% credit card balance you basically need to just stop paying those debts you know and um my my son had a little bit of credit card debt a while ago and I advised him just to stop paying you know and just um what can they do they can mess with your credit rating that's all you know who cares it's probably better to have a bad credit rating because then you aren't tempted to take on more debt um so that's coming and you know have you seen the videos about the car market lately there's a really interesting sub genre of of guys walking around car lots and going look it's pickup trucks to the Horizon nobody's buying pickup trucks you know and and basically their point is that the car market which was very strong three years ago because there was a shortage of parts and everything so you just you couldn't get a car because of supply chain issues now there's an overs supply of cars and because of that prices used car prices are coming back down and new car prices are going to have to come back down because nobody's buying them and and U that's a recessionary signal when you've got people walking around making videos out of stuff like this and assuming they're telling the truth but um I I kind of think they are to an extent was it was it you John that uh has the RV theory is that your is that your work I think I I heard a podcast with you talking about um you know you're following the RV market and when that slows down it's a recessionary signal yeah this came from yeah that that that is me you know this came from me um living in Suburbia for a while and in the suburbs you it think of the RV indicator as more of a a big toy indicator because basically what happens if you're living you know in a nice house in the suburbs and um you got your job is going well and everything you know you buy yourself a boat then you buy yourself some jet skis to go with the boat because you want your kids to think you're you're extremely cool and then maybe you get a motorcycle if your your wife will let you but if not you start thinking about an RV and so the RV usually comes at the very peak of the cycle after you've already bought the other stuff um and so you buy this basically house on Wheels which I you know there's an RV subculture of people who more or less live in their RVs and they travel around and they have friends everywhere that's cool but the um the big toy aspect of RVs is uh is people who are overconfident because things have been good for so long buying extremely big toys that they probably don't need and then two years later having to sell them for 40% off or whatever because the job didn't work out as well as they thought you know they maybe they're going to sell their boat maybe they're going to sell the jet skiis maybe the RV you know they start dumping their big toys um so you can tell from a market like the RV Market where we are in the economic cycle when RVs are just um flying off the Lots at you know MSRP plus prices you know we're at the peak of the cycle and what's happening now with our Vis is that they're they're harder to move you know and you can you can get good deals on them because so many people are having to sell them and they're taking whatever they can get and that means we've we've peaked and we're heading into some kind of a slow down and you know I suspect that it's the same for boats and Jet Skis but I'm not really watching them as much as the the RV Market all right John so we're going to dive into your book here I have it it's called The Money bubble and uh a book that you wrote with your co-author and uh one of the interesting paragraphs that I found was where you talk about over time and I I want to kind of get where you're thinking you know how where we're going from here so over time beyond our typical lifespans over the centuries hundreds of societies you touched on it earlier have borrowed and created debt in whichever currency uh was denominated and this debt seems to run a repeat cycle which you just mentioned a while ago beginning from an excessive borrowing phase an inflationary bubble of some sort and then the Final Phase of our economic cycle um we have have some type of economic crash we know that from where you predicted the 08 crisis the housing market and real estate crash what phase are we in today are we still in the cycle of inflating debt are we in the bubble or are we entering into the phase of economic crash well we are in the blowoff phase of a um 70-year debt super cycle in other words the the economy of the past 70 years has been defined by um Finance more and more debt being taken on to finance bigger and bigger things um and we're close to the end I think based on the recent numbers and the way interest costs are starting to spike and basically what has happened now we don't have the tool of tightening money temporar rarily to um um to kind of take some of the steam out of a credit bubble because we know if we tighten an interest rates go up then debt costs just sore and starts bank they start bankrupting everybody in sight so all we have is easy money right now and if that's appropriate like in the next recession we'll cut interest rates like crazy and and we'll uh we'll start creating a lot of new currency out of th a in order to stop the system from falling into a 1930s style deflationary CR cash um and then we see if it works and I suspect it won't because the amount of new currency that's going to take to keep all that bad debt at Bay you know to paper over all our past mistakes will be so immense that it'll cause inflation and so we'll get a spike in inflation and we'll realize there's nothing we can do to fix it because we can't tighten ever again because that just makes things worse so we're we're right at the end point of the credit expansion and we're getting ready to tip into the um the Great Depression era part of this process you know there there's um a thing called a longwave theory and they have different names the fourth turning and Elliot wave and kraf wave that talks about this how um long Financial Cycles are basically psychological Cy cycles for humans we start out very um um we start out Shell Shocked from the past crash that's still kind of recent in our minds and then we're very conservative for a while but then we find out it's okay to borrow a little bit of money because that helps in the moment and then we have to borrow more to cover our debts on the and then the credit cycle really starts to ramp up well we've been doing that for um a really long time now and we're at the end point where our debts become so immense that there's no way to fix it and we just collapse and that was the Great Depression in the 1930s um and those longwave the theories say that really we should already be in a great depression but this time we've been able to bail ourselves out thanks to us all having monetary printing presses we were able to run the inflationary engine longer and hotter than we would have been able to do in past Cycles so we bought ourselves an extra 20 or so years but we didn't um we we didn't violate the laws of Finance those laws of Finance still apply which is to say when you borrow too much money your life spins out of control so we're pretty much there now and you know you can't say it happens next year can't even say it happens in the next five years when things just crash but based on human history we're heading into that stage of the credit cycle of the credit super cycle and at some point everything falls apart and uh that's uh you know on my substack the actionable part of the stuff that I write about is basically how do you prepare for that kind of an eventuality you know what what should be you be doing with your job and your Investments and um and your general prepping you know how should you behave in your in your community with you know facing something like that in mind and so it's an interesting intellectual challenge like how do you completely prepare for something like that which is maybe as bad as the Great Depression or maybe as bad as the Yar Germany hyperinflation in the 1920s you know something that is just inconceivable to most people really destructive for most people's lives and how do you get through it in good shape and maybe even make money in the process you know and uh that has been done in the past and how do we do it in the the near future how do you feel that the FED has done through the last several years I mean you know pal specifically I mean um do you think he's done a good job do you think that they are making mistakes do you think that um you know you spoke earlier of uh it's expectant that interest rates will come down they'll they'll drop rates there he spoke about it uh I mean what do you think do you think he's done a nice job do you think that he can land This Plane for not having a recession in the near term no no the FED I'll give you two um matter for of the fed the the FED is a um a drug dealer whose um purpose in life is to shoot more heroin into a group of addicts which is the economy and uh the only thing he can do is keep raising the dose because that's how addiction works you need higher and higher doses until it kills you um the other analogy or or is it metaphor you tell me after I say it um the the fed's the arsonist who sets fire to your house and then we call him you know we call the FED to come and put the fire out and if they put the fire out we tell them they did a good job but they set the fire in the first place and they'll set the next bigger fire too because they're they are arsonists that's what they do so there you know there's no way you have to go back all the way to the 1980s for an example of the FED doing a good job you know ever since Paul vulker um the FED has been um catastrophic ically incompetent Andor corrupt and you know the FED that we have now is is an example of that what why are they raising interest rates right now because it's an election year you know if they were actually trying to ring inflation out of the system and get inflation back down below 2% well it's like 3% in change right now so they'd still be raising rates if they were actually trying to stabilize the value of the currency but basically I'm I'm pretty sure this this happened you know um pow the chair of the FED got a phone call from the White House and they told him listen if you want to be part of the financial establishment for whatever's left of your life you don't want to be raising interest rates right up to a presidential election where we need to be reelected so you need to start cutting and you need to start doing it now so the FED is doing it now you know or they've stopped raising and they're going to start cutting pretty soon uh but not because they're competent or anything it's because they got some marching orders from the people who sign their paychecks that's that's all there is to it you know um a lot of talk about rates dropping I mean I think that is just a mess how they calculate CPI and inflation in the first place uh sampling of the data and how they come up with these numbers but one of the things that we have and and I agree I mean we're in the middle of an election cycle I mean you know um the worst thing that we need right now uh for the current Administration is you know uh housing foreclosures and you know Rising unemployment rates people losing their job um how do you feel I mean right now we have a you know issue in the Red Sea that seems to be ramping up I mean we have you know um the Panama canals dry you know we're we're looking at some major potential uh supply chain issues some major problems with getting our imported you know Goods to the states what do you think that will do I mean do you think that is going to push inflation higher at the same time that the FED is trying to make these Cuts saying that inflation's great I mean how are they going to get around that well supply chain issues are definitely a real thing we you know we saw what have messed up supply chain was like during the pandemic right where you just you know not not only were prices High you you couldn't get stuff you know if you wanted something you you'd have to go on a waiting list and in six weeks you could get whatever it was like if you needed a washing machine for your house or something well we've got issues like that still and and part of it is geopolitical you know there's there's Wars everywhere you look right now and a lot of the combatant are part of complex Global Supply chains like agricultural or microchips whatever um you know you can't necessarily get those things that used to be just obvious you know and and your Birthright as an American to get whatever kind of computer you want it's not as easy now as it used to be um the other thing is that because of recent geopolitical issues in other words the US picking fights with everybody out there in the world and and sanctioning them and everything there's um there's a process going on called reshoring or friend Shoring where um it doesn't make sense anymore to have 10 company um Global Supply chains for a given product because you take one link out of that chain the whole thing breaks so now everybody wants to bring their factories back home and that's you know I think it's a good thing because that means your factory workers who get to unionizing make good money at home um making real stuff but uh it's very expensive to get from here to there because the old Global Supply chains used to be incredibly efficient and prices were really low because of that now we got to pay to set up these factories and the factories are almost by definition not going to provide things as cheaply as say a Chinese Factory where the average worker makes five bucks an hour right you're going to be using um unionized workers in the US these guys are going to be making 30 or 40 or $50 an hour um all inclusive uh so the products they make are going to end up being a little more expensive so you got inflation coming from two different directions there that can't be avoided so we we've got builtin structural inflation while we're in this transition um and you know let's say it's two or 3% extra inflation a year as this goes on well that that's just the way it is um and we have different ways of dealing with it one would be to raise interest rates dramatically um to start paying Savers and punishing borrowers you know which is the way a healthy economy ought to work and just you know eat the effects of that but in that way you help you know people get good jobs in factories here and their savings that they uh generate from their paychecks um get a good return you know so you you're creating a just economy by doing that and that's probably good policy but you got inflation as that happens and I don't think there's any way around it because there are too many reasons for there to be inflation and we can't fix them all well you that doesn't sound good for the banks you know if people can pay cash and actually you know not be in debt to the bank um you know speaking of the banks a lot of people say that they are in trouble the the banks themselves um you know are feeling as we said you know pain from high interest rates you know in the great financial crisis the Treasury Department and I think this is crazy bailed out hundreds of Banks and invested back then about $200 billion into these hundreds of Banks and we look at it today and we go well that doesn't sound like a whole lot of money uh but they did so through its capital purchase program and an effort to prop up the the capital and support new lending um as you have said in March of 2023 Silicon Valley Bank failed two Days Later Signature Bank failed May 1st First Republic Bank failed and then July 28th Harland Tri State Bank failed and then finally last year on November 3rd Citizens Bank failed John who's next and you know besides you know printing money I mean what do you think's going to happen to you know the banking sector over the next 12 months well the the the problem with the local and Regional Banks which is the vast majority of banks in the US though in number but not in assets but um they take in deposits from locals and then they lend that money back out to local businesses and local homeowners and um so they they and whatever's left over they buy bonds they buy like government bonds so what happened when interest rates went up um is that made the value of those government bonds on the bank's balance bance sheets go down because interest rates and and the the value of a bond are reciprocals of each other higher interest rates mean lower value for the bonds um so the the little banks have all these unreported losses on their balance sheets and as long as interest rates stay where they are um at some point the the banks have to take those losses and Report those bad numbers that scares away their depositors who pull all their money out and then those little banks have to sell their investment Assets in order to pay off the depositors and they have to take even bigger losses on those Force sales and so you get this death spiral um for the banking sector and that's what we were kind of looking at with Silicon Valley Bank we were afraid the government was afraid that all the little Banks would have to do a fire sale of their assets uh and it would destroy them and the government would have to bail them out to the tune of you know three and a half trillion dollars or whatever um so they step in and stopped the bleeding right away but they didn't fix the problem or anything those um those loans are still on the bank balance sheets and now we've got commercial real estate heading into a big crisis here if you look at what's happening with Office Buildings um to the extent that they're being sold they're being sold at huge discounts like 50% off the price from 2018 or whatever and that the reason part of the reason that's happening is because during the pandemic a lot of people got to work at home they found out they really like working at home they don't want to go back to the office so all of a sudden there's a lot of extra office space out there that's empty and that isn't gener generating any cash flow for the landlord of the building uh which means the building is worth way less which means every sale involves some big huge public loss uh and a lot of that debt is on the um the balance sheets of these little Banks so they're not out of the woods yet they they could still have a really big banking crisis as these Office Buildings and to an extent apartment buildings start being sold at Big losses and the banks have to take those losses so that's a potentially a 2024 story you know that could happen in the coming year you mentioned Office Buildings I have a client right now that um we looked at an office building where it's in receivership for Wells Wells Fargo and the tax assessment right now is 6.9 million and there trying to get somewhere around 3 and A5 million for the building so I mean almost half of what it's assessed value is uh which is I mean that's massive and to be honest with you I don't even know if it's worth that because you know it's like you know 40,000 square F feet of office space and who wants that and uh but it yeah so it's a mess there would if we look at a massive banking crisis here in 2024 let's just say you know we see commercial loans implode and by the way I know um you know uh people that have had their commercial loans balloon I was one of them I had a uh building that I had to pay off because it was you know a 10-year balloon and the bank was unwilling to refinance uh a bank that I have a great relationship with and I'm a really good borrower and uh but I made a decision rather than try and put it out to another bank they just didn't have an office space you know uh appetite um and they're trying to reduce especially a lot of their less expensive um you know uh um loans so but I know for a fact that I have clients and friends of mine that have ballooned and their Bank hasn't done anything about it they just gave them 120-day extension they don't want to rock the boat they don't want the property they don't want to refinance it um the financials don't look good because of high vacancies and they're not making money on them um so the banks just saying okay we're just going to sign an extension so that is building um like you said but what do we do I mean what what do you see coming so if we look at Consumer Debt being outrageous and we have and we're going to get ready to talk about the housing market but when we look at you know people struggling to make their uh loans FHA right now almost 10% in delinquencies after multiple modification rounds and you know uh different types of stimulus and things like that and so we see a crisis on the horizon for consumers we see a crisis on the horizon for our businesses our commercial property owners apartment owners I mean we can see all of this and we could talk for days about it but when we get down to it the way I look at it and I don't know what you think about this if this will be a possibility as we're in an election cycle do you think they're going to create more stimulus for consumers to actually get rid of some of this debt you know the student loan didn't pass right where they were I mean a lot of people had many years to pay down their student loans at 0% interest but they didn't you know many of them didn't so now they're looking at paying $5 $600 a month on that uh you know that started last year end of last year I mean what do you think the answer is here if we're looking at this massive implosion and you're saying that it may be another several years before the endgame where we have a dollar collapse what do they do in the interim print more money and hand out consumer stimulus well I think they'll try but the numbers are so big that they risk reigniting inflation and people remember what inflation was like it was just two years ago so as soon as people start start seeing eggs go to $7 a dozen and you know a loaf of bread $6 when they see that again or they or they see it rising from already high prices you know they see the acceleration start again people will panic and they'll start um you know they'll start Panic buying stuff like we did at Costco there for a while where everybody just Hoards and that makes prices go up even more so things will spin out of control very quickly if inflation picks back up because everybody's got it so fresh in their mind so yes they will try to um juice consumers up to keep us from dipping into a recession or or they'll miss that signal and they'll try to pull us out of a recession by easing aggressively but they don't have the same tools they used to because we already know what inflation is like so I think it doesn't work as easily this time and I don't think you fix commercial real estate with any of that I think um the only thing you can do when collap Al has plunged in value is liquidate it take the loss and move on and the problem is that we're talking multiple trillions of dollars in this case uh but there's no other way to do it physically I mean the government can step in and bail all the all the Office Buildings out for instance like they did with houses back in 2008 but um that's a massive amount of money and that this time around is liable to Spook people in and cause them to do things that are counterproductive from the government's point of view well I think with the housing market I mean they gathered up all of those uh foreclosures and sold them to Wall Street um I think they fueled a much bigger problem back then um you know I'm kind of curious to see what you know happens now but let's talk about the housing market many many believe that we've already seen the Bottom now that's my business and we're now talking about John what I do for a living and a lot of people you know um I'm very very bearish by the way on the housing market I think that um the numbers don't make sense we're we're at that point where you know when when houses are trading at8 and nine times earnings uh you know median income uh it doesn't work right but a lot of people feel that the end you know uh we've seen the end and that you know if they drop interest rates and the bond you know uh Market you know the tenure treasury lowers that we'll see maybe 4% mortgage rates again who knows um but we know that let's just say close to 80% of the home buyers out there um they can't afford the mortgage payments now for the price of the home what is your take on the US housing market and my take is you should try to sell all your real estate to those optimistic people right away as soon as you can do it because there there's no way this is the bottom for housing um houses are more like you said they're more unaffordable now in other words house house prices are are high relative to um the incomes of the average PE of average American um and to an extent that we've never seen before so we most people just can't buy houses even if they want to um and then there are three big reasons why we could see a housing crash and one of them is demographic you know baby boomers um we're kind of at the midpoint of the retirement process now the average Boomer is like 67 um normally the way it happens when a Generation Um reaches retirement age is that they downsize right you don't want a three story 4,000 foot house if you're 75 years old and you need a hip replacement right you just that that's the wrong place for you to be um so Boomers have not yet started dumping their real estate but the time is coming when they kind of have to because they just physically are in inappropriate places and maybe financially because they don't need that 4,000 square feet right they can get by on 1500 square feet if it's just the two of them because they're empty nesters um so the normal demographic process has yet to kick in but there's no reason to think that it won't in which Boomers start dumping their mcmansions that's going to be huge because who's going to buy the Boomers mcmansions right well Millennials highly unlikely um another thing is the Airbnb entrepreneurs because this this is the first cycle in which individuals went out and bought like 17 houses to um to Airbnb um and it's now turning out that um Airbnb is not as good of business as a lot of them were led to believe and uh because of that they're not making nearly the money they thought they were going to to and a lot of them you know they have debts and things that got to pay off which are rising in cost so a lot of Airbnb entrepreneurs are going to have to dump their houses too so you got those two sources of supply and then you got Wall Street where these um hedge funds and and Equity private Equity guys came in with 0% money and bought up entire neighborhoods to where they were going to jack the rents up and rent out rent them out and everything and um that's not working out quite as well um remember I mentioned there there are all these um these videos with guys going to car lots and saying hey look at all the pickup tracks there's there's um another version of that with Realtors walking around their neighborhoods whether it's Vegas or um where else Seattle someplace like that and and going hey uh you know just the other day or or just just a couple of years ago a private Equity Group bought this house for a million dollars and now it's back on the market for $650,000 you know this Market is gonna tank so there that's a sub genre of YouTube videos too and I think it's valid you know the um the supply demand situation in housing is about to change in a Monumental way where a flood of new Supply comes out that um that people still can't afford you know because the initial prices that say Airbnb guys or or hedge funds are going to put on their houses the asking prices will still be far Out Of Reach of the average person working three jobs just to cover um the rent you know so house prices have to come down by 40% before they reach what would normally be thought of as affordable you know average affordability um and interest rates also have to fall dramatically before your mortgage rate is low enough to make that house affordable so all of that has to happen and it's going to be brutal for housing so I think the the next couple of years are just going to be well funny if you're on one part of the market and horrifying if you're part of the the other part of the market so we just have to you know see where we're positioned for this yeah I think l horrifying for the Baby Boomers that don't have mortgages you know and and they can they still you know they bought their homes 25 years ago so they still have plenty of equity you know horrifying for anyone that has purchased a home in the last several of years that all of a sudden now needs to sell because they're changing jobs and going to a different state or you know they're struck by some other financial crisis or life circumstance that where they just can't stay in their their home um yeah I I saw where uh one article called it a silver tsunami about the Baby Boomers and you know people want to say very quickly and we have amnesia and that's part of what you know reading your money Bubble book which I recommend everybody read in fact I'm going to drop the link in the show notes below um as well as your substack I'm a I'm a subscriber to that I love your work but I think that you know when we look at people want to quickly say that home prices are will never come down because it's a supply and demand issue and what I mean they're really what they're really not considering is what you just said I mean we could see 30 million houses in the next couple of years go on the market now in a world where a normal Market would be 6 to7 million homes sold a year which would be a very healthy real estate market this year we didn't hit and this existing inventory we didn't hit 4 million in sales way down even from last year which was low um but people quickly they get amnesia and in your book you I think you called it something like you know we forget about our grandparents sort of thing and you made mention to it about how you know we go through a depression and we're directly related to that it's because it was our parents or you know and then two generations later you know we we have amnesia to it so I think most of the people in the real estate industry that are cheerleading it didn't go through o08 most of the loan officers most of the real estate agents today and a lot of the people that have bought Homes at these higher prices they don't they don't know how quickly things can change but if we see you know 15 20 million uh houses go on the market in the next 12 months it would be catastrophic to home prices and the housing market so the buyers of course would be very happy I want to get to one last thing as we kind of you know Land This Plane today John you know I feel like you believe we'll eventually see a complete Fiat C crash here in the United States maybe globally it will be a massive event maybe even worse than the Great Depression um but ultimately nevertheless it'll have a global impact and certainly if we if it happens sooner than later A lot of people are really going to be caught by surprise but getting back to your book U the money bubble um you talk about the end game the destruction of Fiat currencies is inevitable and you talk about how we get there and you mentioned a few possibilities one was cracked up boom one was currency War catastrophic failure cyber War uh debt Jubilee now that your book is you know was written 10 years ago now we're 10 years down the road um and you're seeing how everything is playing out which do you believe of those things I mentioned will cause the ultimate dollar collapse you know the jury's still out because all of that stuff is is a possibility you could the crackup Boom is a term from the Austrian School of Economics um which is the point at which people realize or a critical mass of people realize that it's the official policy of the government to inflate away the currency in other words prices are going to keep going up from here and so they act according inly they um they hoard everything in sight and every time they get paid they dump their currency by buying real stuff that governments can't inflate away that manifests as hyperinflation but it's really a loss of faith of the currency in the currency and you know I think that's we're in the process of something like that happening already um the other stuff you know the monetary reset is what comes after the crackup Boom in other words um the currencies just stop working and um nobody wants to hold them their value plunges the price of things go through the roof and then we have to kind of sit down and figure out what to put in its place the old monetary system is broken what do we do now and um that'll be a very interesting conversation I I personally think a a new gold standard is probably what we'll end up with because that's understandable you know when you're in kind of Uncharted Territory it's comforting to go back to something that worked in similar circumstances way back when and uh so probably what'll happen is we just uh you know some Sunday night we just announce that henceforth the the dollar is just a name for one 10,000th of an ounce of gold and then going forward boom you know we're on a a sustainable system although everybody who kept dollars and trusted the government they're they're all impoverished and you're going to have some serious civil unrest as that works itself out but something like that would be the least painful way of getting from here to there but uh you know the civil unrest violent revolution kind of thing which frequently happens during financial crisis that's always possible I hope not that would be horrible if it did happen and uh you know we can hope that at some point the people in charge just decide that the least bad option is a Currency Reset with a new sound commodity-backed currency going forward and hopefully that's what we get but there is you know there there's no guarantee of anything once things start spinning out of control so all you can do because we can't stop that we can't um really do anything about the momentum that the the world's Financial systems have as they head towards that Cliff uh but we can manage our own lives in ways that increase the odds that we come through it in pretty good shape and I think that's the that's the intellectual challenge for most people you know once you figure out that okay the world's going to hell what do I do and what you do is something you can control so that's a psychologically healthy way of approaching this well John we really appreciate your time this is really packed with great information and we thank you so much thanks Todd enjoyed it wow I hope you enjoyed John's interview if you did you can smash that thumbs up it'll let John and I know that you did and I'd love to hear from you you can drop your comments below as to what you think is going to happen do you believe in John's analysis uh or what are you thinking for the year ahead as always guys I appreciate you thanks for watching and if you haven't subscribe to our Channel please consider doing so now hit that alert Bell you'll know every time we upload content just like this and please don't keep this information all to yourself the best compliment that you can do for me and sax realy is to share this video with your family and friends see you next time Sax Roy Maryland broker number 67720 office number 443 318451 4 Equal Housing Opportunity

Channel: Sachs Realty

Views: 639,790

Keywords: us economy 2024, us economy news, us economy 2024 predictions, us economy recession, us economy explained, us economy update, us economy documentary, us economy forecast, us economy history, housing crisis usa, housing market 2024 forecast, housing market news, housing crash 2024, housing bubble, federal reserve bank, federal reserve interest rates, federal reserve news, john rubino, recession explained, recession 2024, real estate news, housing news, housing market

Id: nc8fg0X1AqQ

Length: 73min 32sec (4412 seconds)

Published: Sat Jan 20 2024