Real Conversations: Jim Rickards - How To Protect Your Wealth When This Bubble Bursts

[Music] hi I'm Keith McCullough and welcome to another real conversation is with one of my favorite not only authors but thought leaders somebody who comes up with stuff before other people do that is actually timely topical and over time becomes quite accurate there are very few things Jim that are as or were as timely topical is this book currency wars 2011 I'm a hundred percent certain that that's when he wrote it because this morning's early look I think guys you can pop that up there I write this every day than my rant you know my daily rant so you're part of my rent today jump so I just started with just the very basic and the most eloquent thing that you you usually do this but none of this happens in a vacuum right and I use that quote and I also brought it back to the night to you you you started by framing this 1977 teen 70s to nineteen seventy right and just saying look we do this we taught the world to do this yeah and I often find that people just are probably in belief of that but not enough of us talk about that as a matter of fact right do you think that that's because the banks and and everyone else doesn't want to take responsibility for it well they they don't but I think it's bigger than that I mean I just I'm concerned that in general you know attention spans are shorter I've got I've got three millennial kids they're all really bright really doing well in life but I'm so I'm kind of pretty well acquainted with the generation through their friends so forth they're they're really smart they can we they don't like to read they the rise of podcasts you know videocasts and other media that's fine I do that I do them all but you know I like to write and I like to read and you're not you're not a good you can't be a good writer unless you're a voracious reader then every every writer has said so so you know I love writing books in that you know currency wars was the first book one of the things I said in currency wars so 2011 that's right it was it was triggered by a Guido Montaigne the finance minister who went to a IMF meeting he was little bit rude he said you know we're in a currency war the u.s. is leading a currency war and everyone was like please don't say that you know that's that's bad for him but it was true and he was right he's unfortunately been arrested in the mean time but I don't put that comment but so I started work writing the book came out in the fall 2011 what I said was that commercial Wars don't happen all the time but when they do they can last for 15 or 20 years and I had a lot of historical examples of that so I'm not at all surprised that here we are in 2019 and we're talking about currency wars now journalists always act like it's a new currency or say no it's the same currency rate that started in 2010 book came out in 2011 they just don't end easily because there is no logical ending to it what happens is and this is happening I talked about this in the new book currency wars don't work that they they happen and people try them they think that but they don't really work and they morph into trade wars trade wars don't work either again short-term effects simply to suppress his trade etc and then they morph into shooting wars and that's what happened in the 20s 30s and up to 1939 Steve Curren who were in the 20s early 30s master trade war in the 30s and then world war ii broke out at the end of the 1930s so where we were ten years into the currency war 90% of the currency war the trade war started in earnest about a year and a half ago when President Trump through the the tariffs on the solar panels and refrigerators well washing machines - well sorry washing machines well yeah it sounds generic but the same did the Chinese and it's escalated from there to tariffs and 200 billion dollars of the goods it won't work we'll win the kind of but Chinese we present a Chinese that we hurt more than we will but it doesn't really solve any of the problems and then you have to worry let's hope it doesn't turn into a shooting war but that just the history and that's that's what I talked about in the book people just finally the inequality gaps and wedges drive people to the final stage of frustration I mean that's that's a big part of this we're already there I mean obviously in the US but if you think about the currency war like is just in them and I know this is hard because we're taking the cyclical moment within the secular trend where you're as good as anybody on the on that secular picture but you have Trump and you have Powell and Trump you know aiding and abetting you know Powell to try to devalue got to devalue the currency we got to get asset price reflation that's right but then you have the UK and what we call quad for growth and inflation slowing at the same time yeah Europe will not recover so you have Draghi fully committed who's one of the greatest currency war players of all time I'm I totally agree yeah yeah and you have all these latin-american currencies that are down in a ball flames so like how like how can they actually get it done like in the fed and live what happens at the Fed is cutting rates and the dollar won't go down well yeah where they're cutting waste and you can't get inflation which is the other thing there yeah two sides of the same coin no pun intended yeah I'd look I just got back from Bretton Woods I was up there earlier in the week it was the 75th commemorating 75th anniversary of the original Bretton Woods we're at the Mount Washington Hotel which I've been to before I just love the hotel if it has been cool it was very cool yeah you walk around the halls and like yes Ben it's got you know Wi-Fi and amenities and all that stuff but it's built in 1902 it's the same hotel wooden floors and columns and you're walking around like wells where John Maynard Keynes walk you know it's where Harry Dexter white Lee Soviet agent when I walked there they're all here comes Jim Rickards well they might have been saying that but what was interesting is that it was it was a great group we had Larry Summers former Secretary of Treasury economic adviser stephanie kelton she's the chief economic adviser to Bernie Sanders 2020 so if he wins you know might be a long shot but he wins she's got some senior position Ben steel brilliant scholar brilliant writer had one of the top scholars to the Council on Foreign Relations so you know a couple doors down from Barbara so he's pretty plugged yeah it was it was a great group but at the same time there was a large crypto element which is fine you know a big fan of Bitcoin but I think blockchain will play some role in the future so that was a younger group they had yoga mats for everyone I don't think John McCain said yoga mat you know so you got and then there was some shamanism and and incense and all that and I think the only incensed that in 1944 with cigar smoke yeah but so I was a little bit maybe more from the old school but it was all very interesting it was it was a great group but more more to the point Keith there was one panel technically off the record so I can't give you the names or exact quotes but two very senior Fed officials and one very senior ECB officials this was the real deal and what surprised me okay the feds going to cut rates 25 basis point next week everybody everybody knows that it's priced in but it's pretty much of a lock if there's a wild card next week they may nqt quantitative tightening two months early supposed to end in September anyway if they want to give the market a little double dose they'll ended in July so we'll see what happens there but this panel was was just hate weights are coming down in Europe and the United States and it wasn't like they didn't think it was like front-page news they didn't think it was you know some you know arcane there's a yes it's they've got to come down and the US well the Fed people were talking pretty in a pretty relaxed manner about negative rates now they that nobody said they're gonna be negative rates or that's on the horizon and we obviously have you know two and a quarter points to go but they they didn't treat it like a tableau subject or something that we consider and they were making the distinction and I rarely hear this because everyone's like you know rates are at an all-time low I was like well nominal rates are close to lows real rates or not I got my first mortgage in 1980 and it was 13% and I told my mother and she cried her first more usually four percent of three and a half percent but I said mom you know say yes 13 percent but inflation is 15 percent and it's tax deductible and taxes at the time were 50 percent so my real rates only six and a half so it's it's a negative you know negative eight eight percent they're paying me to borrow and I tripled my money on the deal but yes sir nominal rates have come down from from you know thirteen or fourteen to to got it but real rates have not come down I mean depending on your they're 22 for inflation metrics but I just took it a PCE core year-over-year because that's what the Fed looks at and that's one point six percent and if use I use tenure note you have the maturity except it's a good proxy for different business investment and mortgages so that it's about two point one now so yeah it's it's half a point positive well which is within my day was you know three points negative so surreal rates are still high and they kind of acknowledge that and so so we got to get real rates down well particularly if they're seeing their with a senior official at the ECB I mean yeah if they're trying to get along they're at least gonna entertain the very basic fact that they have negative interest rates as far as the eye can see and that that's what they think works and he was he was relaxed about going more negative it was a that's going to happen so so yeah they're gonna go more negative now here's the thing the idea of negative rates as a stimulus is is just not true it's a complete failure an economic stimulus economic stimulus it simply doesn't work in the research is coming in and and here's here's where the markets to be able to spies well Marcus Lycus stocks like no they didn't place a certain values but I'm talking about economics the real growth and what happens is it's a furious you know the low and get it a little quiddity trap it's gonna lower interest rates and you're gonna want to spend your money but if I make them negative you're really going to want to spend your money because you put a hundred thousand in the bank and negative 1% and come back a year later there's you know ninety nine thousand in the bank and where'd your money go so the idea is it will cause people to spend money land to spend get the aggregate demand up get the Lindt you know the one they spending a machine and gear again that's not what happens what people say is you know this is Modigliani people have lifetime goals you know your retirement parents health care of your health care kids education whatever it is if you're saving for that and I give you a negative rate you actually save more yep so it adds to the liquidity trap so why would you do it well there are two reasons one is currency wars and the other one is just to prop up the banks and certainly Europe me is that so you know the lower the rate you know the lower the funding for the banks they charge a little something he leveraged a ten to one and get twenty percent returns on equity with very low risk so the reasons to do it but economic stimulus is not one of them but you know the Fed was again they did they didn't predict negative rates we still have a ways to go but they were you know that could have they seem it's an interesting shift and it's I guess predictable to a great extent I mean even if you go back and we have our Fed connections to don khon who you know um works for hedge I former vice head of the Fed but even at the Hoover Institute this year which is maybe one of the last places that you would have seen it I know if you were there but there was the talk of mm T was was becoming fluid right it used to be are you kidding me yeah now it's like hmm maybe I could be the next famous central banker central planner whatever you want to call it central market planner right to go there and why wouldn't Trump and Elizabeth Warren want that well Elizabeth Warren does I mean I she hasn't spoken about specifically but certainly well it's like the 2020 Democratic presidential candidates you don't hear them say mmm tea you hear that from where Moser and stephanie kelton and Paul McCulley is an advocate of Mt presidential candidate can't really say mmm tea doesn't mean anything to your normal current person but judge from their behavior in their policy so in the past so what do we have giving a green new deal a free health care child care for all free tuition student loan forgiveness get down the list and I don't want to debate the policies I'm just this all out there they've said that and it used to be you could shut down the debate in about two seconds you say well that's interesting stuff but we can't afford it and they would and then people yeah you're right we can't afford it you know but now you say interesting we can't afford it and they say yes we can and the reason is because of MMT mmt posits that you can spend as much as you want and I'm not exaggerating I'm actually it's painful but I've actually read their literature because I have a whole chapter in my book after bath about mm tea there's mm tea in aftermath oh yeah okay by the way for those of you that don't know this is this could be my second favorite book from records we're gonna have to see have to actually read it and dog you're like I do everything else but I mean aftermath this is Jim records new book and ostensibly you're going you're basically and say how do you protect your assets well if we're to go through mmm tea so you go through that yeah well I have a whole chapter on mmm say are the chapters go free money loggia is there money to be made in mmm t you just it's not gonna be the people that don't manage it's gonna be you know the 80 or 90% of those poor bastards which is the rest of America is going to pay the bill well look if it becomes policy it'll it'll affect markets so there's money to be made or lost depending on what you want so the said chapters cope free money little tribute to Patti Smith and so what mmt says well first of all they integrate the balance sheets of the Treasury in the Fed like there's not we know there's separate institutions ones executive branch ones independent cetera but they said now it's just one big happy family here the in Washington so they integrate the balance sheets of the Treasury in the Fed and they say literally spend as much as you want borrow the money and if the bond markets get itchy the Fed can buy it and monetize the debt put it on the balance sheet wait 30 years and get paid what's the problem and of all the things I debated three years of in Dragon's bull versus Bitcoin debates which I think a ridiculous I like old but but the debates kind of ridiculous but this is one where it took me a while to develop the critique because when you first hear it and you're first understanding like well what is the problem and they say here's the proof Japan's debt to GDP ratios 250% u.s. is 106 percent highest since World War two that's problematic for a lot of reasons we can get into but I hate Japan more than twice the size so what's the problem and by the way if you want empirical evidence we've got Ben Bernanke is what did Ben Bernanke do he took the Fed balance sheet from 800 billion to almost four and a half trillion dollars all printed money I understand some zero and it's it was put back from users I get all that but but the fact is he printed almost four trillion dollars to do two things one bail out the banks and prop up Jamie Thomas bonus that was I think it was the main objective and then it theory there's a wealth of fact well he got the he got the higher asset prices but you never got the wealth effect it just concentrated wealth made made the income inequality worse but so so they said Bernanke proved that you can print four trillion dollars and nothing bad happens there was no inflation I think significant the world didn't come to an end there was not another financial crisis so the fact that he wanted to print four trillion to help Jamie Dimon well okay we want to print four trillion to do the green new deal where forgive student loans or health care for all and Bernanke proved you can do it so when you get to the first item data point yeah Japan is more than twice as high to burn Aki did print four trillion nothing bad happened there's no legal impediment I mean the Fed can take to bounce you whatever wherever they want and they can there's no and I had a think I fretted this before it was a a small private Jana with one of the members of board of governors and I said the after a glass of wine and said you know you you work for me to solve an institution on a mark-to-market basis that the Fed doesn't want to market they used to start Koster said you're institutions to solve it now or not I said no one's done that math I said well actually I haven't I think others have as well and she kind of erupted and said well maybe but central bank's don't need capital mmm that was an exact quote central banks don't need capital illegally they don't there was it was it's true a true statement query the impact on confidence down the road but that's that's a separate issue so the point is you actually could take the balance sheet to ten trillion you could finance a couple years worth of greener deal and burn Aki does something like it for different reasons and nothing bad happened so that's that's their argument and then you know seventy counts the big range is a very nice lady a professor at Stony Brook just State University of New York out of Long Island and she said and by the way if inflation emerged we can deal with that we know how to deal with inflation her way of dealing with the places to raise taxes so like okay we got say got an economic meltdown inflation and you want to raise taxes that doesn't sound like a good formula but but their theory in modern monetary theory was nothing modern about this goes back over a hundred years it's not a theory it's a you know it's just a wacky idea I mean it's not it's not a theory in the scientific sense for you you have falsifiable propositions that they don't I was modern it's my it's modern its new yeah well but it's like I told you trace the origins back to the early 20th century and what you find are German monetarist scholars who created what they call the state theory of money we never hear the word state and I get a little nervous but the state theory of money and it says the following money will always be good if we say so we the state because we require in taxes so whether you like it or not whether you've confidence you have to earn it because that's the only thing we take for taxes don't give us gold silver land or rare wine you got to pay the money therefore you have to earn it you have to like it whether you like or not and I and I debated Marshall are back one of the other kind of scholars and I said so just play that out Marshall so you know I'm not advising this by the way but so you don't pay your taxes what happens well you get a nasty letter from the IRS and you still don't pay you get another letter then you get a lien on your your house your bank account and all that if you keep going they show up at your house with guns and they arrest you and put you in jail so I said this is monetary confidence at the at the point of the barrel of a gun mm-hmm which sounds pretty neo-fascist to me and then people get all upset when you when you start talking like that and I'm not named Connie fascism means state powers that's that's what mostly in her head that meant so so they don't want to really talk about that and so so here's my rebuttal so that's that's the argument and this being implicitly adopted by all the Democratic candidates because you can that you cannot be coming out with these programs that will cost between 5 or 95 million dollars or sorry trillion dollars for the green new deal you cannot come out with these programs unless you think that we have a lot of headroom with it we have a lot of fiscal headroom but we can increase the deficit we can double the dose or the debt rather we can take the debt to 40 trillion dollars 220 percent of GDP that's ur threshold without without problems you have to believe that to believe I don't believe that to me here's the here's the the critical point first of all yeah you gotta pay your taxes but you know how much is some Mark Zuckerberg is worth like 100 billion dollars right how much taxes he paid on the hundred billion dollars almost not he's paid some but if you don't sell the stock you don't owe the tax so your founding a founders cherished it goes to 100 billion are you so you give it to foundations you hold on to it but you'd want oh it Niccolo tax unless you sell it same thing is true of gold by the way so so the wealthiest people don't pay taxes they pay very little just to be fair poor people don't pay taxes because you yeah you don't make enough money we have a zero bracket amount in the standard deduction so who pays taxes it's the middle class in the upper middle class working people so the Democrats are kind of sticking it to them saying you have to take the dollar no matter what but it's not true there are alternatives so maybe you you're talking after tax dollars or maybe have some tax shelters or you get capital gains treatment or the pharoah there one or more ways of minimizing and reducing your taxes including things like 401 k's but at the end of the day you don't have to stay in the dollar you can buy gold or silver you can buy the land you can buy a natural resource place there are a lot of things you can do or if you just say you know get me out of here oh I'm gonna buy a new car because whatever and then the car dealer you know takes a spouse out to dinner or whatever you can increase velocity inflation can come out out of nowhere and the idea that professor kellton can deal with that by raising taxes because we're gonna make it you know we're really gonna make you like the dollars you gotta pay more taxes will not work especially in the current in the currency by which you're compensated I mean people I don't know how this is a debatable point or even a point that people don't take as a given but you know the very basic statement that the central bankers trying to devalue your purchasing power buy the currency right and raise the prices by of the things that you're buying dummy that is like it's the most basic reality it's also what's driven the inequality gap of course we're gonna get the asset price inflation they're gonna get the higher cost of living that's the trade and now mmt is effectively but an offset that by paying off your student loans like you say giving you a free to free education etc in my head like Trump would love that maybe not the same goodies thing but but spend spend spend and print print print is the same thing for every Republican every Democrats Clinton is the last one where the rate of change of debt actually declined right and that's because the actual real level of growth was so high right but every every party believes in this why wouldn't Trump go for just a different bag of goodies well you're right Keith and I say this in the book don't I don't rule out Trump getting behind mmm see you don't know I think yeah he's a real estate guy loves leverage Jeff loves borrowing you know what's not to like no instead of spending on green you'll spend on the military it's it's just maybe not in this election cycle but no down the road or actually maybe maybe if you never know what is gonna say one of these debates or something he might just come and say what's wrong with that so so this is the problem it was a little bit like Bitcoin when it first came out it was like it's going up what's the problem it's like well it could go straight down which it did and and I said that in December 2018 I started December 2017 it was about 8,000 but was going up $1,000 a week or more and I said look I'm not gonna roll out this thing go into 20,000 but it's going to come straight down and that's exactly what happened so that the same thing with the flan mmm tea is confidence you know you get it in you know we always start with money what's money you know and I always say hey well the Fed has you know m0 m1 m2 so even the Fed doesn't know what money is because they got three different definitions but you know then anything can be money feathers beads digital gold silver credit cards debit cards m0 they're all forms of money and then people go well they're not backed by anything you know bitcoin is not backed or anything or the dollars not backed by anything and I say no they're all backed by one thing and it's the same thing which is confidence mm-hm if you and I think something is money and I tender it to you for goods or services and you're confident that you can tender it to somebody else for goods and services it's money and it doesn't matter what it is but the problem is confidence is fragile it's very easily lost and impossible to gain regain so when you're messing around with money you have to ask yourself am i doing anything to damage confidence am i doing anything which could very quickly lead to this not being money or or being worth less because of inflation yeah and the assets by which you own things I mean this is quintessentially what happened in in and throughout oh eight but they you couldn't be more aggressive than Bernanke was well and then he figured out that you know the move is moving out or then high yield spreads are blowing out at the same time Treasury bond ball goes up when bond yields are going down that fast and he's like we need more I need I need Hank I need the bazooka I need more and more and more and and as people realized that the more more more became the panic yeah then they started selling even gold I mean they sold everything I mean it's it's all up and it came back but it came back I mean so you're like this this is a very that's why I'm and I appreciate your giving people a historic historical tutorial on this because that to me is the straw that breaks the camel's back it's actually when people believe that the Fed can and will by you know even through the aiding and abetting of whoever the president is to devalue the dollar like Bernanke did right there's a 40-year low when currency wars came out it was a 40-year low in the US dollar index and an all-time high in gold and go yeah which is not surprising I mean the dollar price to gold is the inverse of the dog yeah week tower high dollar price for gold but also really ilds collapsing I knew you were basically you know look at the move Gold's had recently and that's what the dollar strong right you think that I mean people sit there saying oh a nice call on gold because we've made the pivot in October yeah and it's like I mean I just I just buy more of it when real eels are falling and I sell when real yields are rising right but imagine a scenario where people fundamentally believe there's a bipartisan support for mmt yep I mean what probability is there there's a high probability of that is there not well there's a hundred percent in close to a hundred percent probability of a Democrat way exactly and then and then why would I do that the Trump could get on board look how quick he was to waive the debt ceiling yeah like today's GDP report is like ah ha like where did the hedge I predictive tracking algorithm get the 30 basis points wrong no government spending was at 35 basis points right and and you know with trillion-dollar deficits were last seen in the early Obama administration so oh nine oh nine 2010 2011 we had trillion-dollar deficits then they got a little bit under control all relative down to five hundred billion or so and everyone say yeah problem solved they're back chumps they're back with two trillion dollar deficits back to back and you know the Mott the metric I watch is debt to GDP because you know say well you know $25,000 on your MasterCard is that a problem or not well if you're making $20,000 you're probably heading for bankruptcy yeah but if you're making $300,000 you can probably pay it off with one check so you cannot understand debt in isolation you have to compare to the capacity to pay yep and that's the GDP but I have a whole chapter in my book after math it's the you know the history of the debt the United States history of debt in the United States and the rate of change of that debt growth as relative to your GDP decline right so people miss the point that when you devalue the currency and you get economic stagflation instead of you can really cannot makgeolli what you end up is you know your your your denominator starts doing the wrong thing relative to what you're trying to do with the debt right and it's like ah 1970s yep and it's actually worse than that you're exactly right Keith I agree but it's actually worse than that sorry I traced it from George Washington to Donald Trump okay and ever he would think that that's very very appropriate well when I was there yeah and they put him in the same category when I was researching it people people kind of have a naive assumption like George Washington comes in no dad and it goes up and up and up and up and up and here we are style Trump 23 trillion dollars that is not the story when George Washington came in we already had we had a national debt before we had a nation it was the Revolutionary War debt and they turned to the Congress and said what should we do and the Congress said well we know what to do just default why would you pay it and Alexander Hamilton stood up and said no let's borrow more money yep pay off the old debt and then we'll borrow more money down the road and pay off the new debt and as long as the economy is growing in a way the support that was the creation of government bond market has been going strong for 230 years hmm but Hamilton presupposed growth the other thing is it never went straight it went up and down and object went down it's a sine wave so then you explore that and say well what was the dynamic behind the sine wave and this is one where an answer which is war that went up in times of war and he came down in times of peace and and it was sort of dry powder for the next war which do come along it was worse to come along and then rip it up again and down again and I was struck by the bipartisan nature of it and the the the most fascinating example was at the end of World War two when FDR died he you know he didn't I was he didn't finish his term but the debt was debt to GDP ratio was about 120 percent the highest in US history well from the time Harry Truman came in until the time Ronald Reagan came in 1980 over that 35-year period that debt to GDP ratio went from 120 percent to 30 percent which is very manageable well with investment but it was Democrats and Republicans the Fed and the Treasury working together yet Truman Kennedy Johnson and Carter but you had the Republican side had Eisenhower Nixon and Ford they all work together on it this was never a partisan issue it was okay we got to get this down now Reagan comes in and this idea was a fiscal conservatives nonsense he was the last to commit spenders he took the debt to GDP ratio up again to 50% but to his credit he won the Cold War I mean you know 600 ship Navy Star Wars and the Soviets just the Soviet Union Russia they just threw and threw in the towel said we can't compete with this so let's give Reagan credit for winning the Cold War George HW Bush Bush 41 and Clinton didn't get it down but they kept a lid on it so for those 12 years of Bush and Clinton they kept it around between 50 and 60% and and when Clinton left office the national debt was five trillion dollars okay Bush 43 doubled it to 10 trillion dollars Obama doubled it again to 20 trillion dollars so 15 and then and Trump's thrown on two more to mortuary so 17 of the 22 trillion dollars is in the last 13 years from looking years so this idea that goes up and down and up and down is now off the rails that hasn't changed okay you know we had 9/11 and war and Afghanistan war in Iraq was a war of choice Obama didn't starting new worst Trump hasn't started any new worse so this was a time when historically Obama and Trump in theory would have worked to get the deficit back down didn't happen didn't happen so now we are off the rails now it is out of control we've broken with this president I said we used to have bipartisan competence now we have bipartisan incompetence that deal was just another example well it's it's the only way that they believe that they can provide a solution don't forget that's what government is way-hey I'm here to help as opposed to just leaving it alone and here's the irony and I introduced the research of a Carmen Reinhart and Ken Rogoff what they show they have the the book covers 800 years but they've done a lot of studies National Bureau of Economic Research they cover more recent periods and they break it down between developed and developing so you can really target what's going on the results are the same no matter what so they study which is that 90% is a critical threshold it notices debt-to-gdp 90% at GV and a deficit greater than 10% is these are the double digits and then triple digits are the two correct bogeys so so the Keynesian ideas okay we're in a liquidity trap recession or depression government spending as the only alternative increases aggregate demand there's a multiplier effect so if you borrow a dollar you spend a dollar and you get a dollar 50 GDP that actually works in very limited circumstances but it can work at least for a short period of time but there's diminishing marginal returns so you get to a point where you borrow a dollar spend a dollar you get a dollar I what's the point of that but past 90% this is what Reinhart and Rogoff show you borrow a dollar you spend a dollar and you get 90% there were certain 90 cents in G we actually get less GDP than the amount you bar so now what's going on back to your fraction well now the debts going up but the growth is less than the increasing debt so the debt to GDP ratio is getting higher and getting closer to a loss of confidence I mean I guess every I mean Neil Howe or demographer is very good at reminding me of this he talks in 25 to 30 year cycles or generational cycles and the politics embedded therein you just forget that that happened before right I mean in the 1960s everybody knew that inflation was the illusion of growth not not real growth right and now that's the only option for both parties it's a bipartisan solution and it's to what degree are you willing to go there but it's there is there is no other option right and so how do you how do you break the cycle so you're in a society to break the dollar for real when the Europeans and the British and the Asians and the Latin Americans are all trying to do it at the same time well we know Chris this is the problem the currency wars in back to 2010 to 2011 you had Krugman and Stiglitz and Rubini you know running around with the hair on fire saying you know the euro is falling apart Greece has to be kicked out Spain should quit and devalue the peseta and lower the unit labor costs they'll be in northern tier and southern tier and I said no it's all nonsense nobody's getting kicked out nobody's quitting they're not breaking it up and the euro I said strong and getting stronger and went to a dollar 60 at the time in 2011 yes yeah the low wait way down there since that but and actually when I said there were 16 members of the eurozone today there were 19 members and a couple of applications pending I figured I think Scotland will be the next next country to join the Europe but the the point is you can't you can't have a weak dollar and a weak euro at the same time it's mathematically impossible to devalue two currencies against each other at the same time and so if you were gonna have a weaker dollar and that was the policy you're gonna have a stronger year which it can't be any other way mathematically so that's where that and that's what I mean I mean you truly Elaine to further 4pe Powell I call more and Trump and and or Elizabeth Warren or Bernie whoever it is they have to start to win that currency where and you have to do a lot more than 25 beeps you got to do a lot more than 25 then 50 beeps what and fed balance sheet reduction etc I really I mean I don't think the market it's gonna especially if I'm right that the economic cycle peaked the triple people but GDP peak inflation peaked profits peaked all in q3 of last year so you're gonna slow against that anyway right so again what are you gonna do for me is what is what Wall Street's gonna say yeah every meeting I have I still have to run around and you do an institutional meetings sure you get to go to cool places like Bretton Woods but I you know every single one has FOMO but they're not talking about well what if we're all long FOMO like you know and I I always go it's like god forbid with my models right like or if the beta test drives the models right if if the data continues to slow after the first cut after the second cut it's actually very consistent with what happened in no.1 and what happened throughout a wait but is that people started say wow this is a problem yeah this is a problem this is a real big problem because the government there or whatever you know in the definition of government spending and or money printing and now we could have both but it just isn't enough so that's why I do see that mmt as the only real thing that could break the dollar yeah a lot of people the way my books and they run another than they say Jimmy I really hope you're wrong and I say it's turtle I yeah I don't think I am I would never written the book but yeah I hope I'm wrong because because what's what's out there is as pretty pretty bad so so you have this debt problem we just be talked about so what are the three ways out well one way is growth out of what out of a excessive debt to GDP yeah and when I think rising debt of GDP the impact of that the potential loss of confidence etcetera how do you get out of it out of what I guess Dahlia would call the ugly and deflation right so one way out is growth but Reinhart and Rogoff say you're not getting the growth the debt is actually a headwind of growth the debt the debt is hurting your ability to grow your way out of the debt because the debt itself is a headwind of growth even if even if everything else was coming up roses the the death slows you down I guess when we got second way out default we're not gonna default we print the money we print the money so we're not going to default the third way out and the only way out is inflation now it's a sad day when the central bank wants inflation can't get it but we've seen this movie before we've seen this happen at both times 1971 with Richard Nixon in 1933 with Franklin Delano Roosevelt you massively devalue the dollar yep now they both had gold standards of different kinds but they divided the dollar against gold well they basically raised the price of gold FDR took it from $20 an ounce to 35 Nixon took it from $35 an ounce to jump all but ended up to $800 by January 1980 but but so that these were like 80 90 percent devaluations of the dollar you could do it against gold the problem today is we don't have a gold standard you know I tell people you can get a personal goal standard just go buy some gold and you know all the gold bugs like that we need a ghost standard I was like be careful what you wish for if you're if you want to make money and go gold standard is the last thing you want because that's a fixed price and it's the last thing that people are long what is the total global asset or US asset allocation and global asset allocation institutionally or otherwise it's tell me well institutional money manager asset allocation is less than half a percent okay you know I mean with that yeah global asset okay so so maybe that's I mean well maybe that's the point I mean if they were actually long it like the Russians or whoever else you're buying it as much as they can well I had the occasion to ask Larry Summers at dinner a couple of days ago and I had my I knew the answer I wanted I wanted to hear what his answer was he's a big brain and I said okay so in the last ten years Russia has more than tripled its gold reserves and China has more than tripled its gold reserves probably more because they're tripled they've tripled yeah in the last ten years where she's come from 600 times to 2,300 tonnes China's gone from 600 tonnes to about 2,000 tonnes but but they have a lot more off the books but let's take the official number and I said why are they doing it I didn't turn the question into a you know discussion I didn't give a speech I said why are they doing it and he sort of thought about it for a second and he said well diversification and I thought well it's actually technically a good answer the answer it's not a bad answer but that means the you know like the dollar so much and then he said this is a quote he said maybe they think the price would go up no I said I got Larry Summers on the record saying the higher go prices I'm on board with that but it needs thoughtful and and those were the real reason is that they're preparing for a non dollar based system and they're doing this in conjunction with development of a permissioned blockchain and the crypto currency that maybe the Russians are the rush and the Russians and the Chinese that maybe caught the Putin coin to the G coin or whatever and with a with a permission but this is permissioned blockchain which is like joining a club you you only get in if the Membership Committee says you're in otherwise you're out on the street so permission blockchain by ourselves a host of scalability and sustainability problems that open bar chain currencies have but I so it's Club so who's in the club well Russia China Iran Turkey God North Korea Venezuela and but maybe they'll send some invitations to the BRICS and maybe Brazil has interest and China can prevail in Hong Kong see of a money center and now Iran cells or of the China China cells infrastructure to Russia Russia sells natural gas to Turkey North Korea sells weapons to Iran all this is going on and what's missing from that trading network the dollar there's no dollar in it and then here's where the gold comes in so you cryptocurrency what's that well but you just uses the way to keep score you can use baseball cards to keep score but uses way to keep score and you have to have assistant surplus in training Network and then periodically once a year twice a year you settle up please settle up in gold and the importance of that is you need a lot less gold if you're settling on a net basis instead of gross basis if every time I buy weapons I'm gonna give you a gross gold okay but but if I'm buying something from you and you're buying something from me then that's a lot smaller you need a lot less cool yeah completely feasible heading in that direction that's this is what we told the Pentagon ten years ago when we did the financial war games it also solves I mean could over the you know Bitcoin I don't wanna get into crypto or Bitcoin but I mean one of the biggest problems that the Bears have is that there's nothing behind it there's no government behind it right if you backstop a government crypto with gold right that's what we're talking about now we're talking about crypto that I really like yes you like if I have my gold this is not Bitcoin now this is a new currency permission distributed ledger backed by gold settled on that basis so you don't need as much gold yep and you can only buy more I mean I I I told the Treasury uh I talked to the government officials all the time and I said and I want to be do about that do about this I said well you ought to buy gold it's just an open market operation what does the Fed you now they buy Treasury notes you know so I buy Treasury notes from never you goldman sachs i put the money in your account and you go you probably deposit back with maybe that's up to you so just by some goldman and print the money mm-hmm you we get two things you get inflation and you would front around the Russians in the Chinese and then I recommended the intelligence services take it closer look at refineries that's really all the refiners and that's where the gold goes they get all those jumps you know from the Federal Reserve back in New York you know these gnarly old 19:20 bars they melt them down put them into one kilo bars and ship them off to China get in the middle of that so you need better intelligence the US Fed should conduct open market operations in gold the price will go up yeah that makes it harder for your enemies to get more what they're trying to use to defeat you but this is a little nobody you know what it's it's out of the box at the next part of the movie or in the next yeah in the next move this is like but maybe we should start a brand like Marvel where there's endless comics of content yeah and you have to just keep going down the line to get to that part of the line the US or whoever the administration is at that point have to react to what you're set essentially saying is already in motion at the other part of the line but it's not I don't know if you'd agree with isn't it a little bit like the u.s. taking over as the world's reserve currency from the British in the Europeans at a different point in time we're basically it's like oh I'll just let you guys all beads as dysfunctional as you can be while George Soros like publicly shorts you and we use the power of our own bank balance sheet it's called citigroup call you know could Soares do I mean it's like it was a coordinated effort you know cozner every one of these guys oh yeah we're gonna short the pound we know that they have to devalue it's it's it's basically balance of power which historically has always followed the base of GDP and the growth of GDP well should Chinese think they'll have by 2025 they think will be number one in the world yeah Bethany be the source story is true although what's less known is that Soros got a back-channel heads-up from the deutsche bundesbahn at the time said we don't have their back so he even into a little out of air cover so to speak yeah but what do you want but it works exactly the way it sure the whole country if you have we go with it with our guys yeah and quite clearly the group of guys that you stated if it's Russian Chinese and Iranian is not our guys yeah and by the way Iran had got a not clear but maybe as much as a hundred tons of gold for the United States when Obama did that payoff when they dropped the stuff on the palace II yet he had to do way I gave Mike a hundred fifty billion dollars had to go to the idea of the Netherlands to get euros because the Iranian said we don't want dollars so mom's like alright here's dollars give us the euros so they they were just you know they wrapped him up in big in a million dollar a million euro bundles put him on a pallet you know just shoved him off a cargo plane with a bunch of gold no one knows exactly how much but Iran could have as much as a hundred tons which is a lot of gold but hanging onto it no so Iran is a gold power but they haven't disclosed it but they're in this network and Turkey is as a major gold buyer right now Russia's reserves the total of reserve accounts back on its way to five hundred billion is twenty percent gold not two percent of five percent so as a percentage of GDP that side oh yeah no Russian Russian geez well that's another good good point key that's another metric I use gold to GDP and the theory is by country gold is by countries that in your new it's in the the prior book the road to ruin okay but so if gold is real money I think it is a gold remember and GDP is your real economy yeah so gold to GDP kind of says all right how much money do you have relative to the size of the economy the US and China are about 1.6 or 7% Russia's over 6% so they they are they're very little external debt highest gold to GDP ratio of any major economy and they've got 20 percent of the reserves in gold and the other thing about gold physically gold soon my people excuse me you're just trying to sell you know I'm not a dealer I don't sell gold dean bright or not it's up to you but I have an analyst I do look at it and do you think of it in a geopolitical any did author a book called the new bull case for gold I had to write that but because I was so fed up with I don't mind criticism and debate I'm all for it but the criticisms were all wrong I mean they were just purely historically wrong so I had to write a book just to kind of you know push all that to one side even at Bretton Woods a couple days ago what's a framework I mean it's it's and it's important that we have multiple frameworks if we're gonna have a multi factor multi duration debate right you know so yeah god bless you for putting a framework out there supposed to just spewing one-liners the amount of people on Twitter that tell me that I'm gonna get trainwreck long gold because inflation is coming back I'm sick I'm actually what's the gold for real yields falling you idiot I mean it's it's it's like people's preconceptions about gold it's it's good on you for doing that that's also one of my favorite books but and it doesn't mean you have to be long X amount of gold all the time it helps you understand gold right which is what you you taught yourself so the you can't you can introduce it into a monetary debate if you so choose if you want it very enthusiastic about Judy Sheldon going on the Federal Reserve boy you like her oh yeah I do she's she's going for like if she must have my economic outlook because she wants 50 basis point cut she's a smart lady she reads a lot and she everyone's like oh she gets on the world likes you yeah yeah we kind of have it you know a Twitter back and forth and as she's actually featured in Chapter six of my new book oh yeah that that chapter is called the mar-a-lago a core and basically I posited a new Bretton Woods and the point I make is well what better actually the mar-a-lago in a cell Marjorie Merriweather Post is the National stork landmark but it bears a resemblance to the palace in Genoa where they had the 1922 international monetary conference early kind of old school but but the point is I spoke to Ben Bernanke personally and john lipsky on the piano John but John was the head of the IMF yeah for a period of time the first American ever to run it because dsk got arrested and they weren't ready with Christine Lagarde's too he had to step in but they but they separately in two conversations 101 nine thousand miles apart they both said the international monetary system is incoherent and I know they didn't rehearse that for my benefit that's it just told me that that word is in the air among the the super elites and it is because there's no accurate not doesn't mean you go back to a gold standard tomorrow but you have to confront the problem we this is what we're talking about with the dollar in the euro it's two kids on a seesaw yep they can't both devalue the only way to currencies can devalue at the same time is if they devalue against a third anchor like that you can take that and the door down this is why this is a I mean it it it doesn't have to be right on any specific duration that would be completely arrogant to time it but there there is a map to get there right and you know all of global macro trades particularly quantitative strategies trade and all my processes operate off the u.s. dollar index price right you know so the US dollar index is basically the euro yeah I mean so yeah you just have to knock that balance of power over to another power right and then that power if it's credible I mean Chinese China is going to if they if they live for long enough they'll have they'll have the number-one GDP in the world by 2025 mm-hmm whatever they decide to denominating or have their currencies and credit back stopped in currently they have to buy it funded in dollars right they have a current account deficit that's developing after having a current account surplus for as far as the eye can see which was great when you're running 10 12 percent made-up growth yeah now you're running half of that still made-up you're running a current account deficit and you're running your debts in dollars right so they would love nothing more than not to have to do that yep and can't they can't even go ee now because the dollar strong right the PBOC guy goes yeah I see the Fed going dava SH but yeah we can't do it right yeah they can't they could in 2016 when the dollar was going down yeah and the the problem with China is a good example of let's go good hearts law and good hearts law says that whenever a metric becomes the object of policy it loses meaning as a metric in other words if it's just out there you can study it put it put it in a factor analysis or whatever but the minute you target the metric it's no longer valid as a metric it becomes just an expression of policy and Chinese GDP is there China's GDP means nothing because first of all it's I'm not saying they totally lie I'm saying they make it whatever they want to by policy so when it's coming in a little bit low just build some more ghost cities let's GDP it's a complete waste if you had a general accepted accounting principles you'd write it off the same as soon as the building was done but but it is technically GDP because they're steel concrete glass construction etc in it and so driven by credit funded by wealth management products that people think are bank deposits but they're not really so it's a massive Ponzi not to mention the fact that the investment component they're about 45 45 % of GDP is investment in the u.s. it's more like 22 percent which is normal for a developed economy but forty five percent of GDP is investment of which half is wasted so if you take that percentage you know if your hair cut it by that amount you'd get quickly to a number like four or five percent and a lot of analysts I think it's even lower than China's GDP maybe it's 3 percent or maybe less so but on this massive credit bubble so that's that has its own instabilities but it also has its own sentence in there long term I mean G's in it to win it the guy used to live in a cave he wants to come out and stay out of a cave or not get it okay we have some and we we're hashtagging it I believe what are we saying guys ask Jim asked Jim records so I got a ton of questions and I started asking him elate Jim just because I could talk to you for the rest of your day but we're gonna tons of questions on gold and I think people like say okay you know look tell me how and how many different ways you you would buy it and is is this in aftermath actually do go through its yeah it's in after some people are like they're scared of the ETF should they own the physical should they own both I mean there's a lot of questions with that right so first of all if you're like you're a day trader security strip the ETF is is a good proxy I don't view it as a store value but I don't be able to protection against kinds of things we're talking about in the book but if you know you just need to trade it a day in day out that that's fine at least for the time being I recommend physical bullion now they the new standard gold standard no pun intended is the one kilo bar so it used to be the four hundred ounce bar that's it that's still the LBMA good delivery bar well by the way well that's well that's not what's intentional that was done around World War one when they created it and they did it on purpose they wanted something that was so heavy it couldn't carry it around so yeah we're still on the gold standard sort of but you know all the goals in the vaults and we control them so no one was working and prior to World War one if you were you know Brit and you went from London to Bombay at the time now Mumbai you had a purse to go coins you know you might put it in the ships safe they were you know British sovereigns and they weren't one ounce they were like a quarter ounce you know so spendable and that's how you and that's we after World War one forget it nobody walked around with gold coins because there weren't any gold coins were four hundred ounce bars that are I've lifted quite a few there they're the thirty five pounds I could say I smile for the camera but stick my arm hurts but it's like you know it's a heavy free weight but but the new standard established by the Chinese is a four nine so 99.99% pure one kilo bar okay so that's a that's they're about $50,000 piece at the market so I see you buy those and if you're an individual I like the one ounce American Gold Eagles and they're very high quality counterfeiting problems go away but that's that's the way to own it and yeah I run into you know living having lived in this neighborhood we're out here in Fairfield County for 35 years you know you run into your share of billionaires and I've never met one who like they can trade stocks and bonds all day but they all have gold and they don't say it publicly but they all got go old it's all involved and then I run into the ones that I should go they go well it's in Singapore you know and a good jurisdiction tax-free and all that is if well how you gonna get there I got a private jet over Westchester well how you gonna fuel it when the power goes down you know it's like why is the pilot gonna fly even leave his family you know it's like people think they've got these plans will worked out but they don't really think it through yeah they do own it Jim but if China Russia create this internetwork coin don't they need you at this is a good question I don't think need dollars to buy gold at least the deficit traitor inside their network that need to balance with with the other well that's why hey that's very good question it's why they're buying as much gold as they can right now that's why China does not that's why the Russians and Chinese the Russians are trying to buy a gold handle Chris the country that should be buying gold that isn't is the United States yes but Russian China is buying asbestos like who was the country that bought a shitload of gold back before when the British had the world's reserve currency you know the US right I mean well in 1950 the United States had 20,000 tons of gold yes by 1970 we were down to nine thousand tons today it's a little bit over eight where did the 11 thousand tons go well it went to France Germany Italy Netherlands our trading partners Japan etc because in those days you could hand in your dollars and get gold so China comes along 30 years later 40 years later they're the dominant mercantilist power there that they've got to use trade surpluses and they're looking around like where's the gold we don't get gold anymore we just get Treasury now so you know these other guys got gold we get paper and so they just set out on their own gold standard and they're pursuing as fast as they can mm-hmm now here's um I mean Ash and I got I got to give it to a lot of people but for putting in these questions but a lot of people just have a thing that they state particularly if you enter what you do enter political names and political periods like people have a view that is often politicized on what actually happened right it's just a view it's not a multi-factor multi durational right mathematical view often it's just an assumed view so you've it agitated those people well done this one is kind of in between I actually think that this this one isn't isn't completely politicized decline of debt to GD P from Truman to Reagan was not due to the down payment of debt due to growth and inflation was not inflation the primary vehicle well it is true no we didn't put it on the debt all the time not but what we did is we grew the economy yes and that was real growth yep the numbers I'm talking about that's what we say yeah so so yeah the same thing with Clinton yeah the the the numerator grew the death is rarely going to talking about nominal value the debt has rarely gone down mhm Andrew Jackson 1836 paid off the national debt we had Andrew Jackson's legacy was zero national debt and no central bank he got he destroyed the second bank of the United States and paid off the national debt so thank you we had 80 years of great prosperity with no central bank and starting out with a low debt level so now you know it's not no it's not because you paid down the debt is because you have real growth real growth and I can't say this enough times to people I mean because I'm not a Republican or Democrat I'm Canadian and if even if I was American it wouldn't be either it's like an embarrassment to be but these political parties because they do the same thing in my world I mean they've it's bipartisan but you know 1993 to 1999 or 1983 to 89 if Reagan's your guy here dem pick it the the average real GDP growth rate was around four and a half percent and the average price of oil was sub 20 well the dollar was strong in both periods yeah strong dollar strong America period but strong dollar in any country perpetuates the purchasing power of the people correct so you know our policies have to go I mean a cent they don't have to but there's no you know I'm not gonna nobody wants me to run for a Canadian and run for the president United States at some point don't want to write history but you don't it's it's it's inconsistent with history too and it's also if you look at any period where debt as a percentage of GDP went down right it's a function of those periods that I just mentioned that's right so it's you know it's it's it's an interesting thing is there a hope in hell that anybody runs on that political platform no can't because Trump is running for the Republicans which is basically like a Democrat running on mmt right and you have the Democrats like you said running on empty well right get away for the next one they're not running on it and and the reason is that there's a lot of pain involved but my view is the pain is unavoidable if you want real growth in the future and a sustainable debt level and a doesn't be a strong dollar it just has to be a solid stable non-volatile stable dollars if you say that in volatility speak which is by the way what is the least volatile asset class you could own right now gold right you know the ball on gold is is like falling towards 7 mm-hmm oil vols even at 33 and there's and they're trying to cut rates but I mean the lack of volatility is also something that creates the confidence is another way to think about that right and they have cash does the same thing maybe that's why the Russians Chinese want the low vol to back it and it's kind of a Larry Summers said you know it's like yeah if you're Treasury notes are bouncing around you're euros or your buns are bouncing around cetera and you know haven't helped you if you have stocks in a reserve positions okay for a portfolio yeah Gold's a stabilizer and and but that's why I use ratios because I don't yeah I don't have to get into the numbers here the debt all pretty much always goes up the question is are you growing faster that's the key okay here let's see what else do we got I just fell off here if Jim is correct how can Japan do it with 2% debt to GDP and actually just keep on going right well they as the answer in Japan is there to answer is number one they owe most of the debt to themselves they don't have a large it's all internal so there's I compared to a bunch of people in a lifeboat you know in the middle of the ocean sharing the food like so far so good but you know keep going and I had an interesting conversation with a Sakakibara who it was known as mr. yen he was a I think Deputy Minister of Finance that's a great nickname yeah yes mr. yen and but there was a recent conversation he was he was a household name and in these circles in the in the early 90s but I met him a couple years ago and I said I kind of asked the same question I said you know the Lost Decade is now free lost decades year you have periodic recessions low-growth disinflation you're not growing and he's never going to get to 2% inflation he said we're absolutely not going to get to him 2% inflation so he agreed with that assist think what he gonna do but it was true that when I go to the Ginza like the lights are on the restaurants are open everyone's having a good and he made a profound point he said our population is declining so our per capita GDP figures are outperforming our total GDP figures and I see the math as a yeah that's right interesting so I said so the so the end game is you have the third largest economy in the world with one citizen who's like the richest person in the world even though it's gone down and but his point was that on a per capita basis they're doing a lot better yeah and I hear this a lot I'm sure you do too I mean social harmony yeah but again that's like Canadian came to an American in the 1990s me because of free-market capitalism right to be clear bipartisan policy on mmt if it is to be Japanese is not free market capital right yeah again Trump Trump likes low rates leveraged you know the minimum equity declare bankruptcy when you have to and move on so I don't I don't exclude the possibility that he could by the way mm tea is not that different from New York in Jainism now the neo-keynesian will say well you can't go unlimited and by the way you guys set priorities and the priorities are always political and the mmm tears like well there really is no limit and we spend money and everything all right that's a difference but the basic idea that you can just fund everything we debt there's no constraint yeah and you know name your own priority is the same yeah here's it here's a good move only maybe this is one of the last questions I knew where somebody was gonna mention this and I don't know if you have thoughts but yeah Jim what's up with Kudlow wasn't he the strong dollar guy look larry cudlow is a really nice guy personally and a very very decent and a smart individual his forecasting record is not and I think you know not I wouldn't disparage him but he let her have some pom-poms when he comes out because he is he is a cheer look now maybe that's his job if you're the head of the National Economic Council that's probably your job but you know today's GDP figure just reminded me of Wall Street where you know you lower the expectations on earnings and then you beat them and everyone on the same PC is like oh it's a beat you know it's like yeah but look at the actual number is high or low what's the trend here but you know you you rigged the expectations you beat it whatever and your stock goes up a penny the other pump on B's so so okay so the 2.1% beat the 1.8 or 1.3 I understand that two point one percent is lower than the ten-year average growth since the end of the last recession you go June 2009 to June 2019 or now in July the average is about 2.2 slightly higher about 2.2 this quarter came in at 2.1 you're below the 10-year average yeah so I wouldn't get to and most importantly you're well below where we were when you hashtag us growth was accelerating correct you mean that this was you know if you're if you're data-driven you saw that last year I mean guys show slide 14 I think it is in the global macro deck where you can see you know we banged a four-state it you know three point four now we're - and falling and taking out the the q4 Restatement was a disaster by the way so Larry should just call those like they're ready to up there on the screen they are what they're are everybody should know them there shouldn't be any political obfuscation over these numbers I think I think the bigger question when it comes to Kudlow has to do with the conservativism because what I'm basically saying is and by the way the 2.1 beat the 1.8 that we're at because of government spending was cert the 30 the Delta listen Larry Kudlow is not a big government or wasn't a big government spending guy and he certainly wasn't a dollar devaluation guy yeah by the way that government spending Capone's gonna go up right now looking down the road and it's all about 2020 election and deputy election politics and all that but my first reaction was it's lower than the 10-year average and that's that's not healthy yeah and the most important thing like I always say this is the only thing I really care about it's the secret to the universe of course is calculus which is the rate of change the rate of change just slowed again yeah and this on a sine curve slows again and again that's what that's what economies do exactly and and the promise is that a central banker and I think that's our cartoon of the day can can part the heavens and and manage the Seas and eliminate economic gravity right and this is that's exactly right Kate and this is what I heard from the Fed officials have written was that rates are coming down this wasn't like a whisper in the hall is this signal this has to happen real rates have to come down nominal rates have to come down the zero bound may not be a bad I mean they were just so how can guys like Jeff maybe the last question for me just cuz I get to ask the like how guy is like Jeff gone lakh and all the people that were telling us that the 10-year yield is gonna go to for only ten months ago yeah we're - but how do they fight like how do you fight the Fed on that they always tell me not to fight the Fed how are they gonna like how do they do that well yeah after my career at a Citibank yeah retired from Citibank and then I joined I went to Wall Street went to the dark side and I was that I was at one of the major government bond dealers for ten years and that's when I got my immersion and you know fiscal policy and finance and derivatives and all that all that kind of stuff and some of those guys are still around still trading that's fine good for them that one by one they're getting carried out feet first and the reason is that when we started this firm is back in the early eighties you know interest rates were 13% you could buy a 30-year bond maturing in 2016 at 15% it was a good good buy but the point is so nominal rates came down from thirteen fourteen percent to two percent so they just kind of intuitively said we can't believe it it was we've never seen a solo it can't go any lower it's got to go up so they shorted the bus sorry nominal rates came down really it's didn't yeah number one number two look at Germany and why is why could Germany be negative forty or fifty basis points for the buns well there are only a couple explanations for that one is you think the euro is going to get less stronger because if you're a US dollar based investor and you want to go long euros for five years you can't do it can't do it the futures market you can do it you can roll a position but the one way to lock in your position for five or ten years is to buy buns so now a negative break yeah that's what that's so like that's like paying an option premium for a five-year five-year call on the Euro so one it would be if the aura got stronger that would work and the other one is that the US raids are going to come down a lot more so I maybe even go negative yeah that's that's where we're heading that's a big euro dollar position that people have on people say a Keith good call it's a consensus so now it's like well consensus can remain yeah particularly both parties in the US agree right that's um thanks for illuminating that and and most importantly I think you're the only party only person by the way you're the author of it so it doesn't surprise me but you're the only person I've spoken to in months that's tied this this developing interest in mmt which is to your point not new to what the other team is going to do which is exactly what currency war is the a it's it's the a against the blue team did you felt that way and I think that that's like whenever and I go back to the quote that we started with you know this doesn't happen in a vacuum so thanks for that if you haven't read currency wars or any of jim's books you absolutely have to do that it'll help you be a student of the game to start and then you could try to help get better at the game which we all do as we go further in time after math is is the most recent book and thanks for your time you can follow up both Jim and I on Twitter you [Music]

Channel: Hedgeye

Views: 123,474

Rating: 4.7621188 out of 5

Keywords: finance, wall street, markets, stocks, trading, macroeconomics, hedgeye, keith mccullough, bloomberg, options, day

Id: -_oZ_A6C8JM

Length: 66min 53sec (4013 seconds)

Published: Tue Aug 06 2019