Monetary Policy

The New Great Depression: What Happens In A Post-Pandemic World With James Rickards

TWS 75 | The New Great Depression


2020 will forever live in history books as the COVID-19 year. More than the health crisis, it has brought on an economic crisis that will greatly impact the future. What did people do to survive it? What lessons can we learn from those who did that will help us face the challenges that are to come? Patrick Donohoe has someone with the answers. In this episode, he sits down with none other than James Rickards—an American lawyer, economist, investment banker, speaker, media commentator, and author on matters of finance and precious metals. He brings with him his book, The New Great Depression: Winners and Losers in a Post-Pandemic World, to share what you can do to not only survive but also thrive during these uncertain times. From predicting this economic chaos in his 2019 book, James is now pointing us towards the future, telling us about the things to anticipate this 2021 and what we can do to get through it and prosper.

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The New Great Depression: What Happens In A Post-Pandemic World With James Rickards

Thank you for reading this episode. You are going to enjoy this one. I’m glad you’re here. I’m glad that you had dedicated time to inform yourself, becoming more aware of what’s going on and subsequently prepare yourself for a strategic response as opposed to an insane emotional reaction, which seems to be the rule these days. Hopefully, you find yourself in the group of exceptions. My guest is Jim Rickards. Jim has written a number of books. He’s held some internal roles with the government. He has worked with the CIA, has worked with central banks. He’s worked as a consultant in other areas as well. He’s had a front-row seat for several decades to be able to speak intelligently about monetary policy, fiscal policy and what’s going on, not just in the US economy but also the global economy.

His books include Currency Wars, The Road to Ruin, The Big Drop, The New Case for Gold. Aftermath is his other one. He has a brand new one called The New Great Depression. Not the rosiest of titles but at the same time, sometimes we need to be smacked a little bit in the face in order to become aware of something that was already there. Jim is a great guy. He spoke at our Cashflow Wealth Summit a few years ago, and he has some interesting things to say. We get into a lot of that and give a preview of his new book if you can go to You can also go to Amazon and purchase all of his books. We operate our lives in an economy and environment that is already established and being aware of it allows you to position yourself to respond to circumstances, respond to experiences strategically, as opposed to what has become the rule, which is to emotionally react.

I understand and I can sympathize to an extent. It has been a challenge and that challenge is not going to go away. That’s part of life. It’s a little bit more extreme now but I look at what’s occurred in 2020 and what that has done to create some ripples into what’s going to happen in 2021 and beyond. The world has changed. From a psychological perspective, from an environmental perspective, your awareness is going to allow you to show up. Show up to be successful, show up to make wise investments and overall show up to live a more meaningful life. I hope you enjoy this episode. Jim’s website is You can also go to Amazon where all of his books are available and I believe he has all of them on Audible as well for you, audiobook listeners. Thank you for joining. I appreciate the support. Now, onto my interview with Mr. Jim Rickards.

Jim, thanks for joining me. It’s a pleasure. I have spoken extensively about your books. I went up and found a couple of books that you’ve written in the past. I don’t have all of them here. A couple of them were at home but you have a new book that’s coming out and it is timely because it relates to COVID-19 and what impact that has made on the economy. We’re seeing some impact right now but also there’s a lot more to come. I’m excited to talk to you about your new book. Congratulations.

Thank you, Patrick. It’s great to be with you and thanks for showing the other books. The great thing about having a new book is that a lot of people, if they haven’t read my books before, they like it or they’re interested, they’ll go back and look at the old books and that’s helpful too. Those are all still timely. The book is called The New Great Depression: Winners and Losers in a Post-Pandemic World. It’s available on Amazon, Barnes & Noble and bookstores. It’s doing well. It’s interesting, even in pre-order on Amazon, we’re the number one ranked book on money and monetary policy, the number one ranked hardcover in economic policy and the number one ranked hardcover in wealth management. Those are the three categories or buckets that Amazon puts me in. We’re number one in all of those number one hardcover, number one new release. We’ll see how it goes but we’re off to a good start. The book is generating a lot of interest.

That’s a great tailwind going into a new year. The timeliness of the election and potentially new president and new makeup of Congress. There’s going to be a lot going on. I know you’ve spoken to monetary policy in the past in all of your books but you do it in a way that is understandable. I’m hoping for those new readers, they’ll also go back and look at what you have written in the past. Also, it was your book before this one, Aftermath, where you actually talked a little bit about the potential pandemic and how that could be one of those tipping points to create some chaos in the economy.

Not just the economy but also riots in the streets. You’re right, that was my last book, Aftermath. Thank you for mentioning it. It came out in July 2019 but if the readers have it or you’ll get a copy of it, turn to page 290 and right there it says, “The odds of a pandemic in the next several years are 100%.” The way I put it, the odds of not having a pandemic are close to zero, meaning there’s going to be a pandemic. That will be followed by armed militias and riots in the streets. There’s nothing that’s happened in 2020 that you should have been surprised by if you had read that book in 2019. Now the question with the new book, The New Great Depression, we’re taking it forward, talking about what’s going to happen in 2021 and 2022. We’ll prepare you for what’s coming, which is what I aim for in all my books.

We're not getting back to normal; we'll get through it. Life will go on, but it will not be the same. Click To Tweet

Let’s speak to that. Is this a continuation of some of the previous books that you’ve written or is this something that speaks to what’s going on based on COVID-19?

It’s surely both. Pandemics don’t come along every day, certainly not of this magnitude. It’s interesting. There was one of the studies I cited in the book and I tease people. I say Amazon or Barnes & Noble has a certain price then that’s fine. The more books they sell, they lower the price. You’d think they’d do the opposite but the price gets lower, which is a good sign in terms of sales. One of the things I mentioned to people is that the pandemic didn’t cause the depression. The pandemic is a pandemic. The virus caused the pandemic. It was the policy response that caused the pandemic because you didn’t have to make all the choices we made. There was one study I cited in the book and I tell people it’s worth the price to get the endnotes.

I hope you love the book and I enjoyed writing it. In the end, those are a valuable source of primary material for people who want to look a little bit deeper. There was a paper prepared by the economists of the Federal Reserve Bank of San Francisco. Two academics flew there from the University of California, one of the top schools and some collaborators, and they had a 650-year time series. That’s my time series. A lot of people will do a one-year, two-year time series, do the correlations and regressions. I consider that junk science because 1 or 2 years is not long enough to identify trends. With 650 years, now you’re talking. They went back to the Black Death in 1350 and they look at every pandemic beginning with the Black Death in which 200,000 or more people died.

There were only fifteen. I guess fifteen is a lot but they identified fifteen that met those criteria. The two biggest of course were the Black Death, in which about 75 million people died and the Spanish Flu of 1918 in which about 100 million people died according to the best estimates. After that, there were two with about two million fatalities and then it drops off. They were looking at 100,000 or more, there were fifteen pandemics that made the list. COVID is going to end up being number three. Right now, it’s about 1.8 million fatalities but it’s nowhere near over. It’s going to go past two million. It’s going to be the third greatest, third-most fatal lethal plague pandemic in 650 years. That’s how bad this is and what they show is that, because they were economists but they had the pandemic data, they said, “When did the economy get back to ‘normal?’” We’re not getting back to normal. We’ll get through it.

Life will go on but it will not be the same. When did interest rates, employment rates, output things normalize after the pandemic? The answer is it took 30 to 40 years, not 30 weeks. It’s not 30 months but 30 years. When I hear J Powell say, “We think interest rates are going to be zero until 2023,” I’m like, “Fine, J. Why don’t you try 2043 because that’s more like it?” The effects of this will be intergenerational. As an example, I grew up in the 1950s, early ‘60s, which was a very prosperous time in the US economy. I did not live through The Great Depression but my parents did and my grandparents did.

I was raised with a Depression mentality, even though I didn’t live through the Depression. We used to go out as nine-year-olds with our wagons and go door-to-door and collect tin cans and newspapers. We weren’t doing it for environmental reasons. Maybe it was good for that but we were recycling. There was steel in that tin. You could melt it down and make battleships and airplanes. We had that mentality. That didn’t change until the late 1960s when the Baby Boomers came of age. It was like party, rock and roll, credit card, spend. Things changed but the Depression mentality, the adaptive behavior, lasted through the ‘50s and ‘60s. That lasted for 30 years, which is exactly what these economists have demonstrated using other examples.

I make the same point. I have a number of grandchildren. While they get ready for school in the morning, the mother says, “Put on your hat, your coat and put on your mask.” They put a mask on because they’re very adaptable but that is going to have a lifetime impact. You’re going to remember, “When I was a little kid, I wore masks to school because there were germs in the air.” It affects everything you do for the rest of your life. The effects will be intergenerational. They’ll last for decades, not years. Another example, in 1929, the stock market crash. A lot of people know that was the start of The Great Depression. The stock market went down 89.2%, almost 90% between 1929 to 1932.

You ask me, “When did it get back to normal? When did the stock market get back to where it was before the crash?” The answer is 1954. It took 25 years to get back to where it was. It doesn’t mean you couldn’t make money in the meantime. If you bought the bottom in 1932, you could have made a lot of money in 1933 and some people did, but the point is it didn’t recover. It’s all high for 25 years. A lot of people around 1929 were dead by then. Don’t believe in the V-shape recovery. Don’t believe it when you hear about pent up demand. None of that is true. It’s going to be a long, slow recovery. We’re probably in another recession right now. We’re probably in a double-dip recession. We had a recession from the first and second quarter of 2020. We’re probably in another recession after a partial recovery in the third and fourth quarter. That’s the world we’re living in.

TWS 75 | The New Great Depression

The New Great Depression: Winners and Losers in a Post-Pandemic World

The 650 years of history is incredible. Was there a trend where the recovery sped up because now, arguably, we have a different way in which society operates? From a communication standpoint, from an innovation standpoint, is that going to have an impact on the potential? I agree, we’re not going to recover to where we were, but is there going to be a speedier rebound than there has been in the past?

I doubt it. There’s a good book on the subject by professor and author, Robert Gordon. It’s like a 700-page book. It’s a doorstop but I read the whole thing and a lot of others have as well. He makes the point that the greatest period of productivity in US history, roughly 1870 to 1940 and then the continuation of that as late as 1970 so about 100 years. This was the age of the light bulb, the phonograph movies, airplanes, etc. That transformed things. For 5,000 years of civilization, prior to 1870, what did women do? Women or 50% of the population spent 75% of their time hauling water. We had to get it from a well, a stream, a lake, a pond or someplace and you hold the water in. You used it for cooking, bathing, cleaning, boiling and lots of other things. Half the population spent three-quarters of their time hauling water.

1870 was when indoor plumbing began. It took 70 years to network everything. There’s a network for you. The plumbing network is way more powerful than the internet when it came to the impact in terms of productivity. All of a sudden, half the workforce with a lot of brainpower, women specifically, didn’t have to haul water. They could do a million other things and they did. In the last few years, productivity has been declining. Everyone’s like, “Look at all this technology. We’re going to be more productive than ever.” It’s not true. It doesn’t show up in the numbers. Why is that? I talked to one guy who is a guru of technology and he said, “We have a lot of technology but we’re using it to waste time.”

How much online shopping do we need? How many emails do you answer where you’re being polite but it’s not exactly what I was planning to do? I’m not necessarily talking about playing video games. That’s an even bigger waste of time. There’s some evidence that all the technology that we’re connected and we’re networked, sure but we’re not using it for productive purposes. That may be dragging down productivity. That’s the best case. The worst case is that because of lockdowns and shutdowns and the failure of small businesses and unemployment going up, it’s not the unemployment rate. Remember, it’s the labor force participation.

There are over ten million able-bodied Americans between the ages of 25 and 54 who are not working but they’re not counted as unemployed because they’re not looking for a job. They’re not in the labor force. That was always a good reason for some people not to be in the labor force. You could be a student, you could be a spouse with three kids at home and that’s your job so to speak but not to that extent, not that number. If you add that group, able-bodied, working-age Americans not looking for a job, add them to the unemployed, the unemployment rate is more like 15%, not 7% or 8%. That’s the reality.

Look at the impact. You’re alluding a lot to the psychological impact of previous pandemics where lots of people died and it was a big scare. Even in 1929 with stock market fallout and very tough economic times, it impacts psychology long-term and it takes a while to get out of that. As I reflect on 2020, we were, in essence, forced into behaving a certain way whether it was staying home, wearing masks, not being near people, not being in an office. Fear sometimes solidifies in people an understanding of how things are. It’s not going to go away anytime soon. You’re right. From collective psychology, you’ve had so much distraction where even though there was a lot of fear and people were home, they were distracted by entertainment, Netflix, games, etc.

That does not lead to productivity and solutions. It’s interesting. What are some of the primary ways in which our global society has been impacted in this psychological way that won’t necessarily come back? You and I were talking before we started about the commercial real estate market. That people aren’t going to go back to work and be willing to work in an office the same way they’ve done in the past, which is going to impact prices. Where do you see some of those primary areas that are going to be impacted long-term?

First of all, you’re right about the mental health and behavioral aspects of this. I have an entire chapter on that in my book, The New Great Depression. Chapter Five talks about the mental health aspects. Normally, when you start writing a book, you start with your research and then you build your outline and then you write the book but this is the first book that connects the pandemic and the Depression. There weren’t any other books I can pick up. Here’s another book on this. This is the first book that tackles the subject. To form a baseline, I went back to the Spanish Flu of 1918, which there were five or more excellent books on that.

Lockdowns don't work. They do not stop the spread of the virus, and they kill more people than they save. Click To Tweet

Interestingly, they’ve mostly been written in the last twenty years. You would think that people in the 1930s and 1940s would have been writing about this, they weren’t. It was almost as if there was general amnesia about it or people didn’t want to talk about it. It was probably too horrific with 100 million dead. Now scholars and journalists have tackled this and there were some good books on that. In looking at that, I realized that one of the great under-reported, underestimated aspects of it were the mental health aspects of this. I make the point that the lockdowns, first of all, lockdowns don’t work. They do not stop the spread of the virus and they kill more people than they save. In theory, you could find some people who were saved arguably but they kill a lot more people.

Here’s why. Suicide rates have tripled, drug abuse, alcohol abuse, domestic abuse. The mental effects, the psychological effects of the lockdown are anger, depression, anxiety. Sometimes it manifests itself in violence. When I look at the summer of 2020, Antifa and other groups burning down US cities, Kenosha, Seattle, we all know the stories. We saw it on the news and supposedly all that related to George Floyd. George Floyd might have been a catalyst. At least some of it was this pent-up depression and anxiety that came out and manifested itself in this violence. We’re saying it now that violence has broken out on Capitol Hill, the demonstration, turned into an assault. I see breaking news and I see somebody was shot.

They got the vice president out of there and took him to another location. Violence is bad. Property destruction is bad. I’m not condoning any of it, period. The fact that it’s happening comes as no surprise because it is one of the effects of everything we’re talking about. That’ll stay with us. That was the point I was making, which is we won’t get back to normal. It will be a new normal. As far as investment decisions are concerned, one of the anecdotes I tell in the book and this is in chapter five going into chapter six. A lot of the readers will be familiar with the Weimar Republic Hyperinflation in Germany in the early 1920s. That story is well-known but there was an individual, his name was Hugo Stinnes, and he saw it coming and he took out massive loans.

He borrowed a ton of Reichsmarks, which was the currency and invested in hard assets. He bought coals, steel, railroads, shipping lines, transportation, etc. Hyperinflation came. He paid back his loans, I would say pennies on the dollar but it was like thousands of a penny on the dollar. Basically, it was worthless but technically he paid back the loans in worthless Reichsmarks and he kept the assets. He became the richest man in Germany. I don’t speak German but his name in German was the Inflationskonig, which means the Inflation King. I tell that story to make a point, which is that even in the most horrific hyperinflation devaluation in the history of developed industrial economies, one guy became the richest man in Germany because he saw it coming and made the right moves.

Joseph P. Kennedy was another one. Joseph P. Kennedy, what did he do in the 1920s? They got together in a gang with big Mike Meehan and a few others. They ramped the stocks. They bid them up and then all the suckers came in and bought them. They dumped them on the suckers and walked away with all the profits until October 1929. He could see the crash coming and he’s short of the stock market and made another fortune in the early ‘30s. He was one of the richest people in America. One guy becomes the richest guy in Germany in horrific hyperinflation and Kennedy becomes one of the richest people in America during the greatest stock market crash in history. My point is that even in adverse markets, even in disaster scenarios, if you have the right analysis and you can anticipate the move, then you can at a minimum, preserve wealth and possibly even prosper enormously.

I look into 2020 being one of the highest retail sales in history, yet you had a lot of those in-person retailers go bankrupt. There have been entrepreneurs who have bought those and bought branding and use the internet and have crushed it. There’s always an opportunity. The environment is always going to change, maybe not to these extremes but now we’re in it where there’s no going back. Now it’s having the right mindset and mentality to look for those opportunities. Where else do you see things changing? I heard a statistic too, which is one of those unintended consequences because when you locked down these Western countries, even Europe and Asia, you inhibit travel, you inhibit tourism, which economies around the world rely on. Those aren’t probably going to come back for a long time and people are dying of starvation, let alone mental illness-wise. Where else do you see these cloggings of the economy that you write about in your book that is going to have an impact eventually? They may not seem that dire but the wheels were in motion so that there are going to be some dire end results.

That’s why the subtitle of the book, The New Great Depression: Winners and Losers in a Post-Pandemic World. We have both. We know who a lot of the losers are, air transportation, cruise ships, resorts, gambling casinos and a lot of others. We moved and bought a new TV set for our new apartment. I was in Best Buy. I was talking up to the salesman. I said, “How’s business?” He goes, “Never better because everyone’s staying homes. They’re buying TVs, stereos, DVD players, whatever.” I said, “That makes sense.” They’re one of the winners. The airline industry is a good example because it was originally down 80% to 90%. It’s come back a little bit but nowhere near all the way.

TWS 75 | The New Great Depression

The New Great Depression: In 2020, we were, in essence, forced into behaving a certain way.


It’s still down over 50% from where it was this time in 2020. The bigger question is will it ever come back? This is where the doubt of behavior comes in. Once people get used to working from home using Zoom or maybe the airlines say, “We’ve got plans. We’re back to our normal schedule,” nobody wants to go anywhere because they’re still worried about the virus. The pandemic is far from done, by the way. We’re not even out of the pandemic stage. In fact, it’s getting worse. The caseload and the fatalities and the hospital utilization right now are worse than they were last March and April 2020. Obviously, things were pretty bad but some of these things may never come back. Even if restaurants reopened, they made it this far or people racing to go out to dinner.

I like going out, I’m not sure most people are. A lot of people are afraid. They’ve been scared. They’d been lied to by government officials and others who don’t know what they’re talking about. By the way, I tell people, whenever anyone wags a finger at you and says, “Follow the science or the science is settled,” they don’t know anything about science. If you know anything about science, you know that science has never settled. Einstein didn’t think Newton had the last word, and Neils Bohr didn’t think Einstein had the last word and they’re still debating it. That’s okay. That’s what good science is. The idea that there’s some science standard out there and can pull it off the shelf and wave it at somebody and tell them what to do, it’s not true.

The politicians go through the motions and it does have, as I say, very disastrous consequences. Commercial real estate is a disaster. It will stay that way for a while. I wouldn’t touch it until maybe 2022, maybe later at the earliest. We’re depopulating the cities. The cities are the greatest wealth-creating mechanisms in the history of civilization. What is the city? You bring together all this diverse talent. You’ve got bankers, lawyers, accountants, engineers, artists, writers, dancers and everyday people with all different backgrounds. You bring them all together and then the ideas start flowing. As I say, they’re these incredible wealth creation machines. The cities are depopulating. We’re seeing an exodus as we’d never seen before. Where are they leaving? They’re leaving New York, Los Angeles, San Francisco, Portland, Seattle, Chicago, Baltimore, Philadelphia and a few other cities.

Where are they going? They’re going to Miami, Austin, Boise, Nashville, Phoenix, Scottsdale, etc. We know where the flow is. Talk a little bit more about residential real estate instead of commercial real estate. Residential real estate is collapsing in places like New York and Los Angeles but it’s booming in Miami and Nashville. I’m up here in New Hampshire. We have no income tax, no sales tax. That’s a little bit hard to beat but people like the weather. I like cold weather but if I feel like warm weather, I go to Florida, Texas. The fastest-growing city in the United States is Nashville because Tennessee has no income tax. You could do well in residential real estate in the places people are moving to. Commercial real estate is bad across the board. Let’s say, for example, you had ten floors, you’re a big company.

You have ten floors in a prime office building in Midtown Manhattan or any other major city. Companies would never have voluntarily adopted the work-from-home model but they had to do it. They had no choice because of the pandemic. What they discovered is that it works, and it works well. I like socializing with people but everyone did what they had to do. It’s not that the company is necessarily going to pull out but they’ll go from 10 floors to 2 floors and they’ll say, “We’ll have a locker room. It will be a nice one. It won’t be like a high school locker room but every employee will have a locker to keep your laptop, sport coat and tie or scarf or whatever you’ve got in there. It will be nice offices that you’ll reserve in advance like a hotel room.

You’ll say, “I need two days next week because I have some out-of-town clients coming in.” You’ll show up, go to your locker, grab your laptop, your sport coat, sit down, have the meetings and then go back and work from home. You go from 10 floors to 2 floors in my example. The landlord takes it on the chin, but what about the maintenance people, the cleaning people, reception, the food trucks, the restaurants, the bars, the shopping, the lunchtime shopping, public transportation, that whole ancillary cloud around the fact that you’ve cut your office space capacity by 80%? That all goes down 80%. The ripple effects of this are huge.

It impacts all those derivatives.

I like residential real estate in places people are moving to. I don’t like commercial real estate at all for the reasons we mentioned. I always recommend gold for about 10% of your portfolio. People want to put words in your mouth like, “Jim Rickards sells everything and buy gold.” I’ve never said that. I don’t believe that. A 10% allocation is about right. I recommend a big allocation to cash, about 30%. That surprises people like, “Why would I want cash? It has no yield.” A couple of things. Number one, deflation is a greater danger than inflation right now. In deflation, cash could be your best performing asset because it has no yield. If you have 2% deflation, the real value of your cash went up 2% because your purchasing power is greater. Number two, cash is the opposite of leverage. Leverage increases volatility. That’s good if you’re making money but it’s horrible if you’re losing money.

Leverage increases volatility. Click To Tweet

Cash is the opposite. You can have volatile assets over here, gold or fine art or whatever and volatile assets over here, stocks and bonds. That’s crazy enough. If you have cash, it reduces the overall portfolio. Volatility helps you to sleep at night but this is the third benefit to cash. It has embedded optionality. You can be nimble. Right now, visibility is not great but it will improve over time. You could throw your money into a private equity fund or venture capital hedge fund or something right now. I’m not saying that’s a horrible decision but what you can’t do is get it out. Try getting your money back from Henry Kravis before seven years, you can’t do it. You’ve got to cross the bit off or pay extra fees or maybe you can’t do it at all.

If you’re the person with cash, visibility improves, you can pivot into whatever might be a lot more attractive based on some later information. That’s valuable in and of itself. Gold, cash, residential real estate, ten-year treasury notes will do well. Trade yield to maturity is probably going negative. That has nothing to do with the fed funds policy rate. I don’t think the Fed will go negative on the policy rate but ten-year notes, the yield to maturity is set in secondary market training. You get principal and interest back. You know what that is but if I’m selling a ten-year note, the minute somebody buys it from me and pays a premium that’s greater than the coupon and the principal, they have a negative yield to maturity. They’re not going to get all their money back. They’re going to get the principal and interest but they paid more than that. They’re not going to get all their money back.

Why would you do that? Two reasons. One, you might think you could sell it to somebody else. Maybe you can. Two, if you’re a European investor, you could lose money on the other maturity but make it on the currency because the dollar could get stronger against the Euro. In Euros, you would have more profit that way. It’s not as crazy as it sounds. Ten-year German government bonds and Japanese government bonds have negative yields. The US isn’t there yet. Now we’re about 95 basis points on a ten-year note, take down to negative 50, it’s going to produce huge capital gains on your ten-year note.

Do you think that’s where we’re going?

I do.

The monetary policy, that was a question that I had because it seems that’s going to be the general response as the economy sputters along into this post-COVID world. Now you have Janet Yellen most likely go in as Treasury Secretary. Do you see monetary policy changing? Where do you see it going? Do you speak to that in the book?

I do. In chapter four, I talked about what monetary policy will be, what fiscal policy will be and why neither one of them will work. Don’t call us stimulus. You can print money and you can have deficit spending but it will not stimulate the economy. It won’t work. There’s a reason for that. Let me be very specific. The Fed’s balance sheet was about $3.6 trillion at the start of the pandemic. Now it’s around $7.5 trillion. They’ve printed $3 trillion of money. That’s real money. They did print it. They did give it to the banks but money does not cause inflation. Money does not stimulate the economy. Milton Friedman was wrong about that. The Austrians, the Neo-Keynesians, they were all incorrect. It’s spending. It’s the turnover.

TWS 75 | The New Great Depression

The New Great Depression: If you have the right analysis and you can anticipate the move, then you can, at a minimum, preserve wealth and possibly even prosper enormously.


Velocity is the technical term. The Fed prints the money by buying treasury notes from dealers. They take the treasury notes, put them on the balance sheet and give the money to the dealers. What do the dealers do with the money? They give it back to the fed as excess reserves. It sits down on the balance sheet. I tell people, “Nominal GDP equals money supply times velocity.” What’re $7 trillion times zero? It’s zero. Meaning if you don’t have velocity, you don’t have an economy. That’s the problem. Velocity has been declining for many years, by the way. It started in 1998. Money printing can be done.

My friend, Stephanie Kelton, she’s the big brain behind Modern Monetary Theory. She was Bernie Sander’s economic advisor. She’s a big voice in the Biden administration. They may take their balance sheet to $10 trillion. I wouldn’t rule that out but it won’t work because there’s no turnover. When you get to fiscal policy, the same problem. The Keynesian multiplier. I borrow $1, I spend $1 and I get $1.25 of GDP because of turnover. That’s the Keynesian multiplier but the evidence is now in. This is Ken Rogoff, a professor at Harvard and Carmen Reinhart, who was at Harvard, now chief economist of the World Bank and their collaborators. They’ve shown very convincingly that Keynesian multiplier does exist in different measures up until around a 90% debt to GDP ratio. Take the total debt divided by GDP. That’s your debt to GDP ratio. Up to 90%. Beyond 90%, you’re through the looking glass. Now what happens is you borrow $1, you spend $1 and you get $0.90 of GDP, not $1.25.

You don’t even get your buck back. It goes $0.80, $0.70, etc. Why is that? It’s because people see the debt to GDP ratio. They know that’s not sustainable. They start doing what’s called precautionary savings. People are saying, “I don’t know what’s going to happen. I don’t have a PhD in Economics but it’s going to be bad. They’re either going to raise my taxes or to fall on the debt, there’s going to be inflation or something. I better save more or invest in inflation hedges like gold and real estate.”

When you do that, you’re not consuming. It’s a consumer economy. Where are we? If 90% is through the looking glass, where are we now? The answer is 130%. You’ve got about $24 trillion, $25 trillion of debt. This is federal government debt. I’m not talking about total debt. $24 trillion of debt in a $22 trillion economy. That comes out to about 130%. It’s about $25 trillion of debt at this point, so you’re way through the looking glass. What other countries in the world had that debt to GDP ratio? I can tell you. Japan is one but the other three are Lebanon, Greece and Italy. You’re in the super debtor’s club.

What makes Japan different?

There are a couple of things. Number one, they’re free-riding on the dollar because the dollar does stabilize the entire global financial system. The Japanese can piggyback on that. Number two, the Japanese are a homogeneous society. They generally buy their own debt. The Japanese hold Japanese debt. I would say that’s not true. About 17%, 18% of our debt is held by the Chinese, the Japanese and the Taiwanese and some others. We’re much more vulnerable to foreigners basically dumping the US debt. Now the US banks can buy it up. I’m not saying that interest rates are going to go sky-high. They’re going to go lower actually. The point being, Japan is a special case. They’re all in it together.

I had an interesting conversation with Sakakibara who was the assistant finance minister of Japan in the 1980s. He was known as Mr. Yen if you ever heard the phrase “Mr. Yen” back in the day. We were talking in Korea and I said, “Sakakibara-san, we’re worried about the lost decade in the ‘90s. You’re starting your fourth last decade. What’s going on? What are you missing?” He said, “All your gross statistics are correct but the population is declining. When you calculate it on a per capita basis, instead of an aggregate basis, we’re actually doing okay.” I said, “You’re right. That’s true.” Japan is performing better on a per capita basis than on an aggregate basis because of fewer people. The philosopher in me came out. There was due ad absurdum. Sakakibara said, “Japan ends up with one person who owns the whole country and she’s the richest woman in the world.”

If you don't have velocity, you don't have an economy. Click To Tweet

He laughed but it wasn’t that funny. That’s not going to work in the United States. We’re not going to have 30 years of no growth. We’re not going to have a declining population. If we will, people are not going to be very happy about it. I put Japan to one side, but the debt is not sustainable and is now a headwind to go. To summarize, you will have money printing and you will have deficit spending. You can print money and you can spend money but don’t call it a stimulus because it’s not going to stimulate anything.

Where’s it going to go? You look at this next administration and Janet Yellen going in there. I’m not sure what impact she’s going to have but looking at the fiscal policy especially if there’s control of House and Senate, where do you see things going? To me, it seems like the writings on the wall but where will that lead? Additional printing and programs to try to stimulate, which won’t but will try. Do you see that same thing?

I talked about this in Chapter Six and also the conclusion of the book. I had this debate with my editor when we started writing. She goes, “Jim, you can’t write a book about a pandemic and a depression and not have a happy ending. You’ve got to give the reader something.” I said, “I agree with that. I don’t like that. I like being accurate and realistic. I don’t consider myself a mean person. I’m an optimistic person but I get this doom and gloom reputation. When I write, I don’t consider myself an optimist or pessimist, I consider myself a realist analyst.” We go through the pandemic and go to the depression but you have to give people something concrete. I do talk about that.

I talk about how to solve a problem in the conclusion. I tell people, “Central banks don’t understand this. They can buy my book if they want to figure it out. I doubt they’ll do it. Here’s the answer. Here’s the blueprint. I doubt they’ll do it but you can do it yourself. You don’t have to wait for central banks.” The answer primarily is to buy gold. I recommend 10% allocation. The only way out of the debt crisis is inflation. I’m not saying inflation is a good thing. I am saying that it’s the only way out if you’re not going default. There’s no reason for the US to default because we can print the money and taxes will too. If you think you can tax your way out of slow growth, good luck with that. Inflation works.

I talked about two cases in the twentieth century when that’s exactly what we did. Two different presidents, one Democrat, one Republican who did it. That’s my policy recommendation for the government in a way to be constructive. I say to individuals, “If the government doesn’t do it, you can. You can go out and buy your gold right now. It is going to go to $10,000 to $15,000 announced in a couple of years.” I tell people like, “We’re going to go to $15,000 now.” It will but it’s got to go to $3,000 before it gets to $15,000. You can be along for that ride. The sooner you buy, the better.

There’s a logic there similar to what it’s been in your previous books where there’s that price increase because people no longer trust what’s going on with monetary policy and fiscal policy.

In Chapter Four, I talk about Modern Monetary Theory. By the way, Janet Yellen is the bridge there. It’s the Fed, it’s owned by the banks. It’s got a board of governors appointed by the president. Here’s the treasury, it’s a cabinet-level executive department, separate institutions, separate functions, etc. Modern Monetary Theory says nonsense, mash them up. The way you stimulate the economy is to have the treasury spend money, borrow the money by issuing notes and people won’t buy the notes. The Fed can buy the notes, put them on the balance sheet and hold them for twenty years. What’s the problem? I actually had a hard time answering that question. I’m like, “That’s all true. What is the problem?” The answer is there’s no legal prohibition on what I said.

TWS 75 | The New Great Depression

The New Great Depression: If you’re losing money, cash is the opposite.


The Feds could take the balance sheets of $10 trillion. There’s no legal limit but there is a psychological limit. There comes a time when people wake up every day and say, “I’m not a PhD. I don’t get it but get me out of here. Get me out of the dollar. Get me into gold and silver land, real estate, fine art, natural resources, water, ag, something, anything other than the dollar where I know I can preserve wealth and possibly make money.” When that happens, the whole house of cards collapses but you want to be in like Hugo Stinnes. You don’t want to wait for hyperinflation. You want to do it first, be ahead of the curve, and the way to do it is now.

I have one more question for you and then I know you have to go because you’re on this blitz of interviews. Did anything surprise you? What were maybe 1 or 2 things that stand out that surprised you in 2020 based on what happened?

I would say that nothing happened that I didn’t anticipate, but it happened faster than I thought. It’s the tempo of things. Even my wife, we talk about things over dinner or whatever. I told her a couple of years ago, “Do you know what this is going to come to? I know what the left-wing is doing. You’ve got to see the right-wing with open carry, which is legal, except in DC. Surround the Capitol.” I didn’t say storm the Capitol but I said, “What if one million people from Pennsylvania, Wisconsin or whatever showed up with shotguns and ARs over their shoulders, which could be illegal assembly and they looked like they were going to storm the Capitol?” They did storm the Capitol. I always hope I’m wrong but my track record is pretty good at getting these things right. If you asked me what surprised me, I would say the tempo was faster than I thought.

Jim, it has been awesome. We could probably keep going but I know a lot of this is in your book. Any final words before we sign off?

I hope people buy the book and I hope you enjoyed it. I’ll let people enjoy it. I love the feedback but again, it’s a lot of grit in terms of bad news but there is some very concrete, optimistic investment advice at the end. Even in tough circumstances, you can at least preserve wealth, if not make money. Hopefully, the book will show you. I always tell people, “Maybe you can’t solve all the problems in the world but if you can shine a light on it, it’s a source of comfort for people.” I hope that’s the case.

I think that there still remains a significant amount of ignorance out there as it relates to some of the underlying activities of government and central banks. People aren’t taught those principles and it’s evident. Hopefully, there is enough contingency to make an impact. Anyway, thank you for what you do because I know you’re trying to get the word out there and shine that light. Best of luck with your book launch. We’re going to do our best to get the word out.


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About Jim Rickards

TWS 75 | The New Great DepressionJim Rickards is Editor of the Strategic Intelligence newsletter, bestselling author of Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos, Currency Wars: The Making of the Next Global Crisis, The Death of Money: The Coming Collapse of the International Monetary System, The New Case for Gold, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, and the new books The New Great Depression: Winners and Losers in a Post-Pandemic World and The Ravens: How to prepare for and profit from the turbulent times ahead, which was co-authored with Robert Kiyosaki.

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The Monetary System And The Power Of The Fed With Andy Tanner

TWS 52 | Monetary System


There is so much going on in the economy right now that many of us are not familiar with that it’s often anybody’s guess what’s going to happen next. What are the things that we need to learn to be able to navigate this uncertainty? There is not much in monetary policy that we can control, but there are things we can do to thrive in our business. Renowned paper assets expert, successful business owner, and investor, Andy Tanner, discusses these things with Patrick Donohoe from the standpoint of practicality. He encourages you to learn about Modern Monetary Theory and understand the Federal Reserve’s power in commanding monetary policy. By arming yourself with this knowledge, you enable yourself to utilize information that is of practical importance in your own sphere.

Watch the episode here:

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The Monetary System And The Power Of The Fed With Andy Tanner

Thank you for reading this episode. It’s a fun one and it’s with someone that I’ve had on a number of times and his name is Andy Tanner. He’s one of the most informed guys that I know and also a very deep thinker. He lives in Utah close to me. We have to block out the entire day because we essentially get into all theories and perspectives. There aren’t many thinkers out there that are open-minded to the point where they can explore their own perspectives, their own opinions, and be willing to be challenged. He is definitely one of those people. We have a great conversation about the economy in general, where things are going, investment opportunities, what to look for and given what’s going on, it’s anybody’s guess how things are going to shake out. Some of the things we discuss are what you can start paying attention to and hopefully start to identify opportunities when they arise. I’m going to get to the interview. You are going to enjoy it. He is an incredible guy and great speaker, very well-articulated, and can explain things in very simple terms.

This is going to be a very appropriate conversation given what’s going on in the economy and there’s a lot. I include myself in the group that feels somewhat paralyzed, deer in the headlights, and trying to figure out what to do. I thought of no one better to pick my brain apart and help me understand what’s going on than Andy Tanner.

Patrick and I get together and when we do, it’s like the Smorgasbord Feast of reflection, sharing, and perspective. Patrick spends so much time learning and researching. We often say we live in an echo chamber but we share a lot of common relationships. Our friend Richard Duncan who’s a former IMF consultant, an economist, and one of the smartest guys that I know, I had a conversation with him and I think you had one shortly after that. We’ve come back together to talk a little bit about what we got from Richard. That’s what we’ve been chatting about and we thought, “We should do a show.”

The nuggets that we want to pull from it are what would be most valuable to you because there’s much going on in the economy that most people are not familiar with. In talking to Richard, I became clearer about certain things and I’ve had lots of response to it. That’s why we want to speak to him because the response isn’t necessarily what’s happening and what system do we operate in. It’s more geared to the system that we should operate in. That’s valuable. Andy, I’ll throw it on you first because in your business, what you teach is paying to what markets are doing, what asset prices are like and what impact do interest rates have on value. You’re looking at this every single day. When you talk to Richard, what stood out most to you that would help you better educate your audience and understand the economy at a deeper level?

The context you set around that is one that we should maybe dwell on is the idea of practicality. We can give our opinions and talk about concepts, but what is it that I can put into practice? Where’s the practicality? What we find, studied and learned, that’s the most valuable nuggets and the stuff I can use because, at the end of the day, when you learn something, you have to be able to say, “It isn’t about learning what’s right or what’s wrong, or what should be, but it’s what can I use, what should I study and what can I do in my own sphere?” That’s an important thing.

The thing I took away from Richard to answer your question, is we talked a lot about the idea of what are the consequences of stimulus in terms of money creation and debt? What are the consequences of the Fed? The right or wrong question is, should the Fed have this much power? Is that what should be? That’s up for debate, but the reality is they have it. Whether I agree with printing a lot of money or don’t, what’s the practicality of it?

I decided during COVID-19 very early on after I spoke with Richard during the pandemic that I was going to increase my study for monetary policy because the decisions I need to make practically are staying in stocks or buying protection stocks, or even buying new stocks and selling others. I’m making those practical day-to-day decisions based on watching much of the Fed than any other factor in the world. From a practice stallion standpoint, what is after the practice? Protecting stocks, holding stocks or buying new stocks, and you’ll have other asset classes too that matter. That’s where the rubber meets the road for me because I have to know that stuff.

That’s what I said to you in preparation to this. Ray Dalio’s video that I’ve mentioned on the show before, it became clearer to me about what he was saying. The main thing I walked away from my conversation with Richard is there’s this ideal way of that things should work according to me or another person, but then there’s reality. There are things you can control and things you can’t control. I can’t control the monetary system that I live in.

It comes down to what can I understand about it and subsequently, what can I do about it to improve my business, my lifestyle, to increase wealth, to help the audience? A lot of the feedback I’ve gotten was, “It should be like this,” “The Feds and the government should do this.” In the end, whether they should or shouldn’t, they’re going to do things that are outside of your control. If the Fed is going to do this, if you pay attention to this news, then you can subsequently see what the next domino is in that stack and make a decision accordingly.

The alcoholics and anonymous people are in a rough spot in their lives and so how do you find serenity? That serenity prayer for an investor is as good for an investor. It would be for someone that’s trapped in a substance abuse situation. With my wife and my sons during COVID-19, there’s unrest politically and a war of racism that’s raging. You look at a little 14 or a 12-year-old mind who’s very connected to media, sees the news, and this is an interesting time for family and that idea of serenity, where does it come from? It doesn’t come from maybe advocating so much as it is beginning here. Not that you shouldn’t advocate but, “What can I control and not control?” Let’s get the wisdom to know the difference, except the stuff you can’t and change the stuff you can. As I learn about things like MMT, Modern Monetary Theory, and the amount of printing money, I don’t have any control over the stimulus. I have a vote and that’s for another day. For July 2020, there’s absolutely no impact that I can have at least in my sphere of influence on whether or not we do another trillion dollars.

Accept the things that you can’t change and change the ones that you can. Click To Tweet

From a practicality standpoint, what does that mean to you as a reader? If you’re in stocks or an investor, you have to decide whether it’s right or wrong or whether we should be bailing ourselves out, or we should let the forest fire burn out for new growth, or should we spend money to fight the fire? Meaning, do we let COVID-19 burn through or do we keep trying to flatten the curve? Do we overwhelm the hospital system or not? All those decisions are out of our control. What I can control is, “Am I going to buy puts to protect stocks, or am I going to short to market?” For me, the answer is no because if they put another trillion dollars, which I think they’re going to have to do, clearly the stock market has made the decision to go with the Fed as opposed to any other number.

You and I looked at some charts going back to 2018 and everything was fine, coin’s rolling, unemployment’s low. At the end of 2018, the Fed says, “Maybe we should reload our gun a little bit. Maybe we should raise interest rates so we can lower them again in the rainy day, and the vicious market thing.” We had a chart and I looked at that and it showed, “We were more afraid of a market crash when the Fed raised the interest rates a half a point and we were of COVID-19 in terms of how it might affect the market.”

The Fed is the first domino in our monetary system, whether they expand or contract the money supply. That sets in motion as a cascading effect. I’m not saying that there aren’t consequences and whether that’s the right thing to do or not, it’s done. Knowing that, you can start to look at, “How is that going to impact unemployment, or impact housing, or my job, the company I work for?” You start to ask questions of, “What domino is next, and what’s after that?” What that does is it helps you to either play a more defensive role or play an offensive role. Defensive in which is, “That can negatively impact employment, therefore I should probably stock up on some reserves and maybe look at other places to live or another company to work for.”

To use your domino metaphor, it’s not only the first one to fall. It weighs more than every other domino on the table. When it falls, it doesn’t trigger one, it smashes half the dominoes on the table. From a practicality standpoint in making these decisions, it’s not only important to understand what it does, but what’s the magnitude of those decisions? You talk about this idea of whether it’s right or wrong in your opinion. I mentioned that the thing I would communicate with people if they want to study this is understand the power of the Fed. I understand how big that is. Not that it’s just the first one. How big is it to where it’s able to overwhelm the worst economic data that I’ve ever seen years of doing this and then I could look back and see?

We looked at those charts. We looked at the velocity of money which is you have productivity measurements at the lowest in history.

We’ve never had money halt like this in the US and that’s probably an extrapolation globally. We’ve never seen business haul like this and the Nasdaq is at new highs. COVID-19 didn’t even happen as far as the Nasdaq concerned. Think of the power of the Fed, we have the worst unemployment since 1929. If you’re talking about velocity, people should understand this. Gross domestic product is hard for people to understand because the number gets bigger and smaller. It can be very tricky. People think it’s a function of volume, but it’s not. It’s a function of speed. What it is, if you had a counter, they clicked every time money changed hands, the number on that counter would go up, that’s GDP.

I go and mow your grass and you give me $50. The government says to chain taxes me and then I take the remainder of that $50 and I go to R&R BBQ. Click, another transaction. That same $50 has been transacted twice. Now, the GDP has gone from $50 to $100. R&R takes it and they pay one of their employees. They take it and they go to a movie. None of those things are happening. I might mow your grass, but I’m not going to R&R because I’m scared of COVID-19. Even if I did, that employee is not going to the movies because they’re not open.

There’s been a halt to the velocity in those counters. Our GDP shrinks not because the amount of money is less. It’s because we’re not doing business, we’re not consuming what’s being produced. There’s something called the producer index, manufacturer’s index, and purchasing manufacturer’s index. If I’m a purchaser of raw materials to be manufactured into goods. I work at Tesla and I’m the guy in charge of buying the raw materials to make a Tesla. If I spend money to buy those materials to make a Tesla, I don’t think I’m going to sell Tesla’s. Now, all my money is caught in inventory, which is devastating to a business if you have money caught in inventory that you can’t sell, because that’s money you’ve got to pay on. If you’re leveraging, it halts.

When you look at the purchasing manager’s numbers where they all report what they’re buying, they’re the lowest I’ve ever seen because they don’t think they can sell anything. All of this stuff starts to grind to a halt and all these numbers should say, “Businesses are not going to be profitable. They’re not going to be able to pay dividends. They’re going to suck. Why would you want to buy businesses like that?” Because the Fed’s going to buy them up and drive the price higher with supply and demand. From a practicality standpoint, I see a detachment from fundamentals. I see an increase in supply and demand activity. That’s practical knowledge I can use to make decisions on where I want to be. Do you want to fight the Fed? That’s a big domino to fight.

You said supply and demand and its artificial demand based on fundamentals whether you’re going to get gain from it and dividend forum, long-term growth. The Fed stepping in that’s going to create artificial demand.

You could say that’s a bubble, but the thing of it is whether it’s artificial demand or real demand, the transactions are not artificial. The stocks are going to be bought and the price goes up and the stocks are bought. I talked with Richard Duncan and we disagreed on it. What should happen is the Fed probably should’ve stuck to buying US treasuries, but the Fed decided to buy corporate bonds and consequence at that. Janet Yellen comes out and says, “We should expand the Feds’ power to buy equities.” Richard said, “I agree. That’ll prop up the stock market.” I’m like, “Now you’re buying companies that suck. It’s like you bought all the crappy debt, now you can buy a crappy company in the name of keeping their stock price high. What if the company sucks?”

TWS 52 | Monetary System

Monetary System: The Fed is not just the first domino in our monetary system. It is the largest domino. When it falls, it smashes half of all the other dominoes on the table.


If you’re a technical guy and if you care about dividends, that’s probably going to be ugly, but if you care about buy low, sell high, the stock market is probably going to boom. That’s the power of the Fed. I gave you the analogy of Batman where he’s trying to find the Joker so he taps everyone’s cell phones. Lucius comes in and says, “This is immoral and illegal.” He says, “Yes, but I need this much power to get things done because we’re an emergency. The emergency deems that I use this power and abuse this power to find the Joker.” Lucius says, “No one man should have this much power.”

From a moral standpoint, we can talk all day about whether the Fed should be able to do all this crazy stuff and whether we should have that much power, but in reality, practically, there’s nothing I can do about that. I got one vote. That’s not much power and I can spend my time marching or I can spend my time preparing. That’s a big deal. I’m not going to march against the Fed, that’s a waste of time. I’d rather march for equality and racism.

Who knows if this monetary system is going to continue? It’s massive and it’s the entire world. What Ray Dalio talks about is, you have those three core factors. If you understand them, you can see how things are going to end up. If you have the productivity, then you have a short-term and long-term debt cycle. The long-term debt cycle is a new monetary system which comes around every so often. Who knows if it’s going to adjust, it’s going to be worldwide? When that happens, then you’ll know what to do about it.

Preparing for it to happen is one thing, but then acting after it happens is another. I look at acting after it happens is understanding the anticipation factor, which is seeing what they’re going to do, and then subsequently, what are the dominoes that fall after that? I look at trying to take a moral stand against the Fed is a losing battle every single time. Now that you have an understanding about how markets work, how the debt cycles work, how the Fed works and what they’re going to do if they stimulate, what’s going to happen? If they don’t stimulate, what’s going to happen?

They’re going to stimulate. It’s clear to me, even at the risk of the dollar, the more deflationary events that they see and historically in 2007, 2008 this happened, they have more confidence by balancing deflationary circumstances with inflationary policies, because they have made a total commitment not to go to 1929. A total commitment not to do that. These numbers are worse than 1929. They said, “It worked in ‘08. It’s going to work again.” We’ve got a $3 trillion debt in three months.

We’re going to put another trillion on top of that. They’ve made a total commitment to doing that. The dilemma someone has as an investor in a 401(k) holder is, “How does that affect things for me? What’s going to happen to my retirement?” I’m less scared for the entrepreneurs that are savvy. There will be some small business owners who are going to fly by night, but the entrepreneurs know what they’re doing. High-level investors, they study this stuff, they get it. The average person of 401(k), they’re not talking about what you and I are talking about. They’re distracted by other stuff. There has never been a more important time for financial education in the history of mankind.

Specifically in markets, because when there are leverage and unprecedented actions, you have big swings and that’s what good long-term investors don’t get. The bigger the swing, the worst the average. If you lose 30% in a month and then you gain that 30% the next month, you’re not back to where it’s even.

If you lose 50%, you’ve got to have a 100% increase to get back to even. We looked at the numbers on debt. Just the private debt alone in corporate stuff is bigger and then a GDP already. If you have national debt to GDP. The national debt is about $22 trillion, $23 trillion, and $25 trillion. Corporate is bigger than that. The GDP is shrinking because the velocity of money is stopping. How important is it to know the power of the Fed? It says you’ve got unemployment bad, all those producer indexes, all those, consumer indexes, the debt is high, GDP shrinks and the Nasdaq’s at an all-time high. That’s the power of the Federal Reserve.

In hindsight, look at how quickly they responded.

If you look at the subprime meltdown of ‘07 and in ‘09, it hit the bottom. Over three years, they say, “We’re going to do this much a month.” On the way up, they still thought we were struggling and say, “We’ll do $50 billion a month.” It took years to put that amount. In COVID-19, $3 trillion in a week.

If you look at what the mortgage industry did where within days or week automatic forbearance, “Here’s what you can do. You can defer it,” the last thing they want is default because if they default, then you have all the credit swaps. They get triggered if there’s default on the mortgage bonds. They’re at a different level. They learned a lot from 2007, 2008, 2009. They’re using all of those tools to combat this and it’s almost immediate.

What’s frightening is you use the word artificial. Think about this. All the people who did get laid off are not working. What I’m saying is, is the paycheck is artificial because the work’s not being done. We’re getting paid and they’re going to take that money and go up. It’s the transaction that matters, not the artificiality of it. These are not artificial transactions. It’s artificial wealth. In other words, “I got laid off, get my signature check. I’m still going to the grocery store, but that’s not a true representation of my standing. It’s borrowed money from the government.” That works with assets too, “I decide to buy stock and that money is coming from borrowed money, but yet whether it’s a real demand or an artificial demand, the transaction is still happening.”

Underneath all this, you also have people who are employed or unemployed. What I mean by that is you have the Paycheck Protection Program, the PPP loan. If you take that money, Patrick, are you allowed to lay people off? If no, your check is an unemployment check now. It’s coming from you instead of the government because you have people that are not working and when they don’t work, you lay them off. The government says, “No. We’ll send money to you to keep them employed, but they’re not working.” Our unemployment is higher than we think because they’ve got the government unemployment program, but PPP is a corporate unemployment program. The number of unemployed is higher.

The best thing to do as an investor right now is to study Modern Monetary Theory and the Fed. Click To Tweet

I’ve got a lot of friends who learned how to trim and learn how to innovate and been forced to economize. A lot of them have been telling me, “This is one of the best things that ever happened because we got smarter as a business.” They’re not going to hire those people back. It isn’t like when we go back to a new normal, it’s like, “We need everybody again.” They’ll say, “No. We’ve learned to use technology.” “This telecommute stuff is cool. There are technology and online meetings and I have this manager, I realized he didn’t do a $100,000 worth of work.”

Here’s the thing, even though there was no intervention by the government, there were stimulus, unemployment benefits, PPP loans and other programs, disaster relief programs. Those helped at the same time, the psychological impact. You can’t paper over that. Even though it wasn’t the impact of loss, it was pretty close. What happened is in those moments, that’s where the greatest lessons are and that’s where you learn to be more efficient.

You’re smarter. You asked different questions. You’re aware of different things and you no longer tolerate what you may have tolerated in the past. That’s going to change the nature in which businesses operate, regardless of what happens with the Fed if they continue to stimulate. This is still in motion. The dominoes are in the process of being hit or falling. Who knows how they’re going to land or when they’re going to land? Regardless, these things are in motion.

If you understand that, “It could fall this way or it could fall that way,” you’re not going to be able to control that, but hopefully, you can get a grasp on, “If they do fall, what am I going to do?” or, “If I think they’re going to fall, what’s a way in which I can mitigate my risks or have additional options?” It’s an incredible time for learning and introspection. I would say the one thing that’s in Ray Dalio’s How the Economic Machine Works is the idea of productivity. That’s one thing that is, you’re creating the money or the currency that people are spending, but productivity is probably at the lowest level ever and it’s continuing. It’s hasn’t necessarily come to fruition yet.

Richard Duncan talked about productivity and creditism. When I talked to him, he says, “There’s no capitalism anymore. It’s creditism because you can’t have productivity without expansion credit.” Dalio talks about expansion contraction though. That’s inevitable and he’s right. MMT, Modern Monetary Theory believes in expansion without contraction. They believe as far as debt goes, you can expand it. That the expansion-contraction comes through money supply, not debt. If you can run deficits to high heaven, it doesn’t even matter.

There is no problem with the debts because we can print money, it’s all inflation for them. From a practicality standpoint, it’s like the book, Rich Dad Poor Dad, where it talks about go to school, get a job, save money. You can’t do that. If the MMT is all about inflation and saving money, you have to be smart about saving money because it can be a bit devalued quickly from a practicality standpoint. The occupation that is scariest is a teacher.

I’ve never homeschooled my kids before. I always thought, “A lot of people do it, but I don’t want to spend time.” Name one person you know that’s homeschooled their kid and regretted it. Name one person you know that’s homeschooled their kid and said, “I think I’m going to put him back in public school.” With homeschool, all of a sudden, I realized, “This is a good quality time with my kid, where he’s not playing a video game and I get to be his teacher.” There are dopamine hits by being a teacher and having victories with your kids.

I also realized that if he has a question, I don’t ask the teacher. I go to Khan Academy, google it and I realized, “All the teacher is doing is grading the assignments. I’m getting a better relationship with my kid. This is time well spent. I can do this.” The school boards are screaming for people to go. From a practicality standpoint, what do I practice in my life? People are going to find they’re not relevant and that their skillset wasn’t as valuable as they thought it was. “I think you’re going to see a private tutor.” A private tutor is going to be more valuable than a public school teacher in a hurry.

That’s again going into the dominos. If that could happen, it may not happen or it may happen, but if it doesn’t and you’re a teacher, what do you do to prepare again? How do you position yourself to capitalize on what happens? Whether it should or shouldn’t happen, something’s going to happen and you’re going to ask her what to do.

You are going to produce more values to teacher but you’re going to hire private teachers for your kids and we’re going to be more involved in that.

“That’s so expensive. We can’t afford.” It’s like, “These are $15 to $20 per hour.”

A public school teacher says, “I’m going to become a private tutor for five families.” They’ll probably make more money than they ever made in school. Who am I going to pick? The one that’s kind to my kid, makes things in a simple form, does a good job, and goes the extra mile. You can’t hide behind tenure professors.

There’s never been accountability in education until now. I’m not saying it’s perfect accountability, but they’re being challenged. There are other options and that’s the nature of a market.

To our readers, “What is your education hierarchy?” In my education hierarchy, there are four levels. There’s stuff that’s vital, important to know, interesting to know, and stuff that’s trivial. For most people, when they think of education, a school board determines what is where. If I say, “Dissecting a frog,” they put that as vital. Every kid should dissect the frog, not just the surgeons, nor the doctors, but every kid cuts up Kermit. That’s vital to them. How about financial education? Trivial?

TWS 52 | Monetary System

Monetary System: The Fed is where the power is. Study it.


This is the opportunity. If you want to have practical knowledge you can use, you certainly worry about moral hazard, how things should be, and what is your education hierarchy from a practicality standpoint? What is the knowledge and skills that can help you in your situation? What do you need to learn? What do you want to learn? Take that away from the board of education and say, “I’m a graduate now. I’m 50 years old. What am I learning right now? I now get to choose what I want to learn,” “I’m going to give you my counsel, what should I learn?” “I’m not your school board of education. You’ve got to decide that.” If you’re not studying Modern Monetary Theory, don’t know who Warren Mosler is and haven’t watched his video about his business card and guido out in the hall with the gun, better google that.

That’s what we’re going to do, whether you like it or not or whether you think it will work or not. In my echo chamber I live in, most people think MMT won’t work. I’m not afraid of it not working, because if it doesn’t work, it will fail, we’ll start over and forest fire, new growth grade. What I’m more scared of is that it does work because you have Batman with unlimited power and no Lucius. He’s retired, resigns. That’s frightening to me, but it’s the world I have to live in. I got to buy stocks in that world of MMT.

At the same time, looking at our monitoring system as it stands, there’s a different level of accountability. However, we’re straying from that because the whole world would have to completely transform in order to have enough tax revenue to pay debt back. There’s probably enough to pay back the interest.

When you take a civics class in high school, you learn legislative branch, judicial branch, executive branch, that’s about it. In understanding how the Federal Reserve works, if I ask people, “Who’s Jerome Powell, Janet Yellen, Ben Bernanke, Alan Greenspan?” Half of them don’t know, maybe more. “How are they appointed?” “The president appoints them.” “Who has oversight?” “Congress.” That’s all a facade because the fact of the matter is, even if I disagree with them empty, we’re so far down the road that even if you choose me, I probably have no choice in what my policies are because we’ve chosen that road and the only way to do is go further down that road.

You have to prepare for that. “How long does it last?” Look at Japan. They’ve invented the generational mortgage for 100 years. Part of the legacy you give your kid is the mortgage or the house has to be sold, paid off with a sale. “What’s wrong with that?” That’s what they say. They’ve also innovated in that they have a 235% or 250% debt to GDP. They had it for a lot of years. It hasn’t seemed to bother them. If you’re predicting that this stuff will crash and the big short, the biggest stress those guys had was their timing of it because they thought it would happen sooner. It wasn’t happening fast enough and they look like geniuses. How many other people were doing the same thing, they had the time too early or too late? Look at those lines like geniuses. That could have been 1,000 other traders. They happen to guess right on the time.

They needed somebody to help them broker and negotiate it. It wasn’t $1 on the dollar.

A lot of those derivatives were invented by their negotiations. They didn’t exist before they broker them. The world we live in, if people think, “There are turmoil and all this type of stuff.” The smartest thing you can do, in my opinion, study Modern Monetary Theory and the Fed because that’s the biggest domino in the world. We mentioned that chart of the volatility index, which is the fear gauge. I looked at where we are and where we are at the end of 2018. Based on that index, we’re more afraid of the Fed pulling back stimulus that will cause more fear of a market crash than a global pandemic will. Think about that.

Look at where the VIX was going into 2019 and December of 2018. It’s at a higher level then than it is, with the worst employment numbers we’ve ever had. The worst economic numbers, the GDP is going to suck. We got social upheaval in the United States to a degree that I’ve never seen in my young 50-year life and yet we have less fear of the market going down, less fear of a market crash for the global pandemic, social upheaval, and unemployment. Less fear than we did when the Fed started tightening policy. The Fed is where the power is. Study it.

Let’s do some takeaways. You stated that there will be stimulus. What makes you think that?

From what I’ve been able to read and ascertain, the velocity of money stops. Picture currency as a current, like a river. The dam is a stoppage of that. COVID-19 stops it. The currency stops. That velocity that we talk about stops. How do you break through that dam? You pour more money in and put pressure to move things forward. In other words, COVID-19 stops me from having a business and going to the movies. We’ll pour money into that so those people still have money to buy groceries and do stuff. We pushed through. All we did is kick the can down the road.

COVID-19 is still there, it’s getting worse in a lot of places, all the loss in money isn’t stopped again. That’s where it is and that’s where this money has gone through and pushed it as far as it goes. It still stopped, got to have another round. We’ve got to have another round to businesses in business, to keep payroll on the payroll, to keep unemployment gone. Unemployment in six months, that’s more of the fall, but there’s still not enough money. From where I’ve read and seen, it is going to take another quarter trillion of stimulus to get us through. Who knows what happens in the fall?

What impact is the second quarter in earnings going to have?

It’s been a mixed bag because one person’s tragedy is another person’s opportunity. How much business do you think Zoom is worth? Some of the ones that have been wild that I haven’t understood is like Wayfair. Why does Wayfair do well? People are sent in the home and they’re, “Let’s repaint,” “Let’s buy new furniture.” How come Wayfair is up? You have companies that have done very well in this time. It’s like technology has been great or earnings have been good, others like banks are not so well. It’s a mixed bag earnings-wise.

What about GDP?

It’s going to shrink.

TWS 52 | Monetary System

Monetary System: Our GDP shrinks not because the amount of money is less, but because money velocity is slow.


Do you think that’s priced in already?


Is the Fed intervention priced then?

Yes, which is scary because a couple of things happen. The biggest thing is the Fed. They keep money pouring, things will be okay. You’ve got a small amount of stock market propping up. You’ve got Robinhood who got three million new accounts, E-Trade had another 300,000 accounts, Ameritrade had 600,000 accounts out in the first quarter. That’s new money coming in from everyone’s check. The real stuff is from the Fed. It’s the trillions, not the millions that are being brought up.

The GDP is going to drop and it’s probably priced in. Also, people see the opportunity in a low market. When you see a drop in the market, it’s tough because you know that the Fed might pour another trillion into it. It’s hard for people not to buy dips, thinking that in the short-term, it’s going to do well, because they think it’s on sale and I think they’re right. Instead of the Fed is going to put in that much cash, how can you not have got exposure to equities if there’s that much cash being dumped in? I do know that all investors are watching the Fed and if they dump money in, regardless, “Does the number matter anyway? “GDP and unemployment were bad.” None of those numbers matter. It is the Fed. As long as they keep pumping money in, what do I care with GDP and unemployment?

The other thing too is they have a good bet. What narrative do you use that keep people at bay?

If you’d asked me what the most important number in the economy was, I would say, GDP, number one. Employment, number two. Corporate earnings, number three. Growth, number four. Those are the top four numbers I would care about. If you asked me that now, I don’t care about any of those numbers. How much money is the Fed going to print? That domino blows away. It creates a detachment from fundamentals, in my opinion. I said that to Richard Duncan, “If they start using money to buy equities, does that create a detachment from fundamentals?”

He goes, “Where have you been in years? The 401(k) caused a detachment from fundamentals because people are buying broad-based indexes with no evaluation on schedule. Every two weeks they’re put on by broad-based index economies with no Warren Buffett research on the companies.” The detachment fundamentals mean that I care less about the GDP, earnings, employment, and all the stuff we used to care about. I got one question, “How much money is the Fed going to print?” None of the other numbers matter if they print.

This is my big takeaway from what I’ve learned. Now that we know that, what are the practical things somebody can do? We’ve mentioned them already, but I would say the first thing is you need to understand the monetary system that we’re in and also a monetary system that we may go into in the future. You alluded to the MMT and Warren Mosler who propagated that, what are the best ways to understand how the economy works? I’ve referenced Ray Dalio. I think it’s a good introduction to it. What else would you recommend as far as understanding how our monetary system works?

I love Richard Duncan stuff. His stuff is complex. It’s not something that someone walks into and says, “That was an easy class to take.” He has on monetary policy, $500. I’ve referred a lot of students there to learn that. Even bigger is what you said before even start trying to learn is what your context. The first thing I sit down and do, as I say, “How am I thinking about this? What can I control and where do I want to put my energy first before I even do any of that?” The second thing I look at, “What value I give to the world, where do I fit in the value I give to the world, and is there a threat to me of obsolescence risk?”

Can you name those levels again?

As far as your hierarchy, “What is vital for me to know right now?” I can’t give an answer to everyone, because everyone’s in a different situation.

People can categorize the value they bring.

They have to ask that question of themselves as, “What’s vital? What’s important?” People say, “What’s the difference between important and vital?” I always tell the joke with this. I say, “It’s very important that my wife gives me a present on my birthday.” “It’s vital that I give my wife a present on her birthday.” The word ‘vital’ means, is it important for me to have my hand? If I lost my hand, would that bother me? Yes. It’s important that I have my hand, but it’s not vital.

The difference between vital and important is vital is without it, you die. Important is it’s a huge advantage to know it. Interesting is interesting, “It engages me. It’s fun to observe.” Trivial is trivial, trivial pursuit. It’s meaningless. Barely even interesting, that’s trivial to me. Value is in the eye of the beholder. The reason that is, is everyone’s circumstance. On my wall is a wristwatch from the 1993 NCAA tournament.

The only way you get one of those is if you played in the tournament. That’s probably worth $300 if I sold on eBay, that’s their value on it. You gave me $1 million for it, it’s yours, but for $100,000 I don’t do it. Value is in the eye of the beholder. What’s vital to you? What’s important to you? I have to say, “What’s my occupation. What value do I give the world? Do I need to change that? Do I need to enhance that? How do I do this with me and the world?”

It doesn’t have to be a completely new career. It could be, “I’m a teacher,” the circumstances or the environment in which you teach.

What’s wrong with innovation? People want security. They want it the same. They want to hold on to ten years. It’s like, “I want to do this,” “I had this plan in my life and I don’t want to change it.” Change is not a word people like, but improvement is a nice word and improvement is a form of change. “Do you want to change things about your life?” “No. I don’t want to change anything in my life.” “Would you like to improve your circumstances?” “Yes.” That’s a form of change.

Understand the rules of the game so that you can play it. Click To Tweet

What’s wrong with thinking about that? I would say if you’re an investor, which is the guys I speak to or your 401(k) guy and you’re worried about retirement. First thing, top of your list is sovereign fundamentals, MMT, and monetary policy. What can be the single most and the important thing to learn is? Start studying that. I have courses on it that I teach, but I’m still changing my courses because I’m still a student learning more. I know this is the thing that I learned, that I do know. It’s ultra vital to understand that. Not to change it, not to advocate against it, not to agree with it, but understand the rules of the game so I can play it.

That’s the most important piece of is rules of the game. There are certain rules in our life that we can have control over, but there are some universal rules as far as the global economy is concerned, you don’t choose. They’re laid out and said, “Do you want to operate in this type of economy using this currency and these resources, these are the rules.” Most people are waking up and living the same Groundhog Day every day. Understand what’s going on and then wish things were in a different way and want to advocate that. This is where the wisdom comes in as far as the serenity prayer, which is understanding the differences that are out there and understanding the actual environment that you’re in, and how you would behave in that specific environment. Also, anticipate environments to come and how you can prepare yourself.

I don’t like to always go back to what I’ve taught in the past, because is what I taught in the past valid now? Are there universal generalized principles that are true in all cases? I don’t know. Are they there? I don’t know. There are three that I’ll leave everyone with. The first one was the hierarchy, what’s valuable to you? What’s vital? That helps you determine what you want to study. It’s vital to remove yourself from a context of advice.

It’s one of education. They’re different. Advice is when you’re asking people what to do. If you’re finding yourself saying, “I wish I knew what to buy right now.” Tell me what to buy. You’re going to lose your money because advice is usually changeable, wrong, and cost too much. Get out of asking, like going to a planner and saying, “What should I buy?” He doesn’t know any more than you do. If you say, “Should I buy Bitcoin?” If I say yes, how much smarter did you get about Bitcoin? By saying, no, how much smarter did you get about that?

You’re asking for fish, you have no fishing skills. The third one you mentioned is once I do learn something, and I do feel I have some knowledge, temperament is huge because it’s your temperament that allows you to execute and do what you’re supposed to do instead of what your God or all this is telling you to do. When I read the book, The Intelligent Investor, the first time I read it thinking, intelligence was knowledge. The second time I read, intelligence is temperament. Intelligence is thinking, not being emotional, not freaking out. That’s what I would say. Temperament, education, no advice, learn what’s important to you. That’s where you’d start.

I hope the readers got a lot out of this. It’s something that I think I have. You’ve been curious about as far as understanding where we’re at, where things are going, and then using that law deductive reasoning, where you’re able to understand things. I think that’s the nature of the world that we live in and there’s so much information, but if you focus on information that can potentially impact you, your employment, your assets, your lifestyle, your wellbeing, that stuff is the most important. It should be at the top of the list. You have to avoid some distractions from other entertainment and information out there.

We’re in a very interesting time. A time when there are lots of things going on at the same time and it’s more important than ever to understand things for yourself, as opposed to relying on others for their opinions and their perspectives because sometimes they may maybe right. The one thing they may get wrong might impact your life in a negative way. Now is the time to take ownership, take stewardship of your life, your wealth, what you understand about it. Hopefully, that leads you to make great decisions.

I wish everyone well. What a difficult time for our human family and I feel like an empath. I feel like when they’re hurting, I’m hurting. It’s been more difficult to have prosperity. It’s more fun to have prosperity when everyone else is being prosperous. It’s tough for people. If there’s something we can do, email us, ask us and if there’s a way we can lift and serve, let us know. Thank you, Patrick.

We mentioned a lot of things, books, other people, and blogs. If want to go there to access those it’s If you haven’t checked out the Resources Section yet, we’ve got a lot of cool resources on there that you’re going to want to know about in relation to episodes that we’ve had, but also some other interesting things I think you guys would benefit from. Hope you guys are having fun and enjoying this different type of lifestyle that we’re in. Take care. We’ll talk to you later.

Important Links:

About Andy Tanner

TWS 52 | Monetary SystemAndy is a renowned paper assets expert and successful business owner and investor known for his ability to teach key techniques for stock options investing. He serves as a coach to Rich Dad’s Stock Success System trainers and as the Rich Dad Advisor for Paper Assets.

As a highly sought after educator, Andy has taught tens of thousands of investors and entrepreneurs around the world. He often speaks to students at the request of Robert Kiyosaki, showing how paper assets can fit into the Rich Dad system of investing. In 2008, Andy was key in helping develop and launch Rich Dad’s Stock Success System, which teaches investors advanced technical trading techniques to profit from bull and bear markets.

He is the author of two books: “401(k)aos” and the soon-to-be-published “Stock Market Cash Flow,” a Rich Dad Advisor book on paper asset investing.

Andy has also created an online investing course called “The 4 Pillars of Investing.”


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Understanding The Markets, Washington, And The Economy with David Stockman

TWS 09 | The Markets


David Stockman is an American politician and former businessmen who served as a Republican US representative from the State of Michigan from 1977 to 1981. He is the ultimate Washington insider-turned-iconoclast. David reveals some of the secrets that politicians tend to hide while sharing the milestones in his life that brought him to understanding markets, the economy, fiscal policy, and monetary policy. He takes us back to the events that changed the economy in history to that of the financial crisis in 2008, sharing what he understood about Wall Street and how things came to be from then on. Tying it up to the issue at the heart of capitalism and the prosperity it creates, he talks about the markets and creative destruction.

Watch the episode here:

Listen to the podcast here:

Understanding The Markets, Washington, And The Economy with David Stockman

TWS 09 | The Markets

The Great Deformation: The Corruption of Capitalism in America

I have the pleasure and the honor to have David Stockman on with me. David, welcome.

I’m happy to be with you.

For those of you who don’t know David Stockman, he is an American politician and former businessman who served as a Republican US representative from the State of Michigan from 1977 to 1981. He also served as the director of the Office of Management and Budget under President Reagan. David is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become director of the office that under President Reagan. After leaving the White House, he had a career on Wall Street. You’ve had quite the experience, David. You also authored an incredible work, which I would say a treatise of what your principles really are called The Great Deformation: The Corruption of Capitalism in America. You also have a book that you just released, Peak Trump: The Undrainable Swamp and the Fantasy of MAGA.

David, thank you for your work over the years. I’ve followed you for a long time. The empath in me cringes sometimes and I see you on TV trying to advocate principles of liberty, principles of free market and certain monetary policy principles, fiscal policy principles. It doesn’t seem to get through. Honestly, it says a lot about who you are that you continue to advocate for principles you believe in despite the resistance you get most often. Give the audience an idea of what are the milestones of your life that brought you to the point where you understood what you do about markets, the economy, fiscal policy and monetary policy.

You summarized my career at length. Half of the time I was a politician and half of the time, I was an investment banker on Wall Street, so I never had an honest job in my whole life. I learned something big during that two-phase career and that is about debt. Washington loves debt because you can keep the can down the road and put the cost on future generations and pretend that the interest carry is not all that bad and you can get away with. There are no offsetting institutions and principles that mitigate against that. You’re going to end up with a $22 trillion national debt that we have. As I show in my new book, Peak Trump, we’re heading for $40 trillion before the end of this coming decade and that will be just a devastating burden on the economy. As near as I can project, it would amount to about 140% of GDP. We only know of three economies that have more government debt than that are Japan, Greece and Italy. It doesn’t bode well for where we’re heading, especially because we have this oddity in our demographics here in America and that is the Baby Boomer. It was a giant aberration in terms of the number of babies that were born in 1946 when I was born.

In 1962, there are 80 million people. If you do a little math, you’ll realize that all of them will be retiring in the 2020s. In the early 2030s, they’ll be hitting the Social Security trust funds and Medicare and a lot of the other so-called welfare state supports massively just in terms of numbers. What politicians don’t let you know or maybe don’t even know and don’t acknowledge is that it’s a built-in Ponzi scheme, Social Security and the rest of the welfare state. They build in higher and higher real benefits over time relative to what people earn during their working career and put into the trust fund. It’s nothing like insurance, it’s nothing like actuarial balance. It’s a Ponzi. If you have this debt already baked into the cake and you have the demographics baked into the cake and then you have this escalation of real cost per beneficiary, you’re in big trouble. That’s what the politicians have ignored. Wall Street used to know a lot better. Back in the ‘50s, ‘60s and the ‘70s, you had a decent level of prosperity. Wall Street understood a little bit about what sound money was in what fiscal rectitude was.

If you got heading off the deep end, it happened in 1967 or 1968. It was Johnson’s, Guns and Butter. It’s the Great Society on the Mekong River. It was a disaster, but finally, Wall Street rose up and said, “You can’t do this.” They forced Johnson to raise statutes to balance, which is out of control. William McChesney Martin who was the chairman of the Fed at the time believes, “You can’t print your way to prosperity.” We were on the grades and we had a recession and people learned their lessons. I say all this because after 1971, when Nixon took us off of the gold standard, it was mainly nothing to do with the magic of gold. It had to do with discipline on the central banks and the financial system. It’s accountability and discipline. You couldn’t create credit and money at will in any quantity. That went away and it took a little while for people to realize that we were on a total fear system and nothing could stop the central bank if they want to print like crazy.

Wall Street learning to love money burning because, in the short run, it helps to inflate financial assets. It made interest rates lower. It made capital rates and our P/E multiple times and everybody lived happily ever after except Main Street. Here is the point where the rubber meets the road. Since Greenspan took over the Fed in 1987, we had been off in something I called bubble financer Keynesian central banking. In which we’ve had tremendous booming prosperity on Wall Street and increasing stagnation and flat-lining failure on the Main Street. Let me give one statistic on that and then we can move on because it summarizes what I learned through my years in Washington and in the second half of my career in Washington. If you go back to the days right before the great crisis that shook the rafters in September 2008, everybody thought the world was coming to an end. If you look at where Main Street was as measured by industrial production and that’s everything. That’s manufacturing, that’s energy, coal mining, oil shale and all the utilities, gas, electric, water. It’s a fundamental measure of output on the Main Street economy.

You couldn't just create credit and money at will in any quantity. Click To Tweet

The reason I dwell on it is that if you go to the level that existed in November 2007 and compare it to where it is now, we gained 3% in the last eleven years. That’s the same thing. If you divide that out by eleven years, you might as well fall flat. Look at where the NASDAQ-100 was on November of 2007. NASDAQ-100 is the leading edge of the casinos or the stock market. You take the inflation out of it. We’re talking apples to apples here because of the industrial production is physical and it has inflation in it. On an inflation-adjusted basis, the NASDAQ-100 last fall peak up to 200% and Main Street production output is at 3%. That doesn’t make any sense because often the price of equities and other financial assets reflect the output and income capacity and growth of Main Streets. What we have is a totally bifurcated economy on unbelievable prosperity down on Wall Street and that’s a great bubble that’s gearing the labs.

Trump made a mistake of embracing it. The stagnation and increasing resistance to growth on around Main Street because we have so much debt. We can get into that but the amount of debt, not just on the government sector that I talked about, but also in the business and financial institutions, add up in total to $70 trillion, which is three and a half times net income. I don’t think that stable is sustainable, but it does mean that you’re lugging so much debt that growth becomes harder and harder. That’s also why we woke on a ten-year rolling basis. Our real GDP growth rate now is 1.5% compared to 3% to 4% back in the heyday before 1971 when Nixon took us down the path we’re on. That’s some big-picture views that I put together and assess over my years in Washington and then on Wall Street.

The first thought that comes to mind is I think it did work relatively speaking for bankers over the last years. At the same time, if you look at the fundamental side of things. I don’t think most people understand the fundamentals. If you will dig to look at what occurred 2008, it started with Greenspan and what he started to do, especially with the dot-com bust. It comes down to the artificial influence of markets because markets are supposed to be a clearinghouse. If you look at profit and you look at capital and you look at valuations, you buy companies that are profitable, that have good cashflow and that have good fundamentals. You don’t buy those data. They’d have poor operations and poor balance sheets and poor financial statements.

If you look at what has been done is the injection of capital into society. It has artificially increased the demand and the flow of capital into businesses. That’s why a lot of the bond issuing by corporations to buy back their stock is just one example of that manipulation. It’s not understood from the average American’s perspective because they don’t have this background in economics, unfortunately. A lot of the stuff that’s happened has been, not necessarily behind the scenes. What’s occurred into the narrative around it that you explained is that this is a good thing. That we’re here to save the economy, we’re here to bail out banks and we’re here to do this and this for your benefit, but ultimately it was just to the benefit of them.

TWS 09 | The Markets

Peak Trump: The Undrainable Swamp And The Fantasy Of MAGA

This is where I want to get into the idea of capitalism and economics. I interviewed a guy who wrote a book called The Coddling of the American Mind. The book is about the higher education system and how free speech has gone from one side of the spectrum where the epitome of free speech and now it’s the complete opposite. The Coddling of the American Mind is trying to protect those from emotional harm than anything else. What it does is it robs people of the experience of figuring things out on their own. The point of capitalism and economics fundamentally is to have a system in where things are innovated and solutions come up. People are able to express themselves through capital and through resources, but if they fail, they’re out of business or they learn. That’s ultimately been completely removed from the equation in most cases and has created what we have now.

In terms of the things I look at, I don’t pay that much attention to the way that they’re paddling all the snowflakes on college campuses but I totally understand that. At another level, at the level of the macroeconomy and Washington policy and Wall Street, it’s the same thing. Wall Street wants to be cargo. We saw the Christmas Eve and they had a hissy fit because they finally said, “After eight years of negative real interest rates, the money market rate, the Fed funds rate is less than inflation for eight years running.” They finally said, “We’re going to normalize interest rates. This big bloated balance sheet we have that inflated with stock and bond market is going to continue on automatic pilot.” That’s what follows it. They have a hissy fit and the next thing you know, it does a U-turn. The Fed-heads are out there singing about, “We can be patient. We can defer delay.” I said, “What are they thinking about? They have been deferring for ten years.” We’ve had unreal Central Bank policy. Go grab this balance sheet level and it’s manipulation of interest rates in the yield curve. Yet, we get just a modest correction or wakeup call a couple of weeks before Christmas Eve. At the big sell-off on Christmas Eve, all of a sudden, all the crybabies on Wall Street are asking for their safe room.

If you go back to 1970 or even the mid ‘80s, when I left Washington, the Reagan administration when I was budget director and I joined Salomon Brothers, which was a rough and tough place then. It was run by John Gutfreund. He was called the king of debt. It was a huge trading house with all debt securities. You didn’t see this snowflake attitude on Wall Street. People expected that there were going to be cycles. That they were at risk if they’re going to chase the latest and greatest stock bubble phenomena. There was no presumption that if there’s a big meltdown, Wall Street would be bailed out or that we would get to a situation like 2008 when Morgan Stanley was insolvent. It should have been forced into Chapter Eleven. Merrill Lynch was insolvent, it was put into a shotgun marriage. The Bank of America didn’t want to buy Merrill Lynch, but they were forced but it and Merrill Lynch should have gone bankrupt. Frankly, Goldman Sachs could have gone bankrupt as well. All of them were way over their skis with all kinds of sticky, risky, long-term assets that they were funding with overnight money. The panic came in, the overnight money dried up. They faced over putting crisis they couldn’t get out of and the market should have been allowed to work.

What I said in my previous book, which I think still is a lesson that’s been lost because we’ve had this phony stock recovery. The recency bias obscures everything that we allegedly learned back then. What I showed is, there was no danger of a meltdown in the banking system on Main Street. There were no lines with the banks other than a few high that were in the subprime mortgage business that should have gone out of business anyway. The key point is the bailouts were of the big Wall Street gambling houses. It wasn’t of the banking system. We should have allowed the crisis to burn out in the canyons of Wall Street. All those firms who will be gone on there, they would have been reorganized. The same people that were running them, then we’ll be running the reorganized Wall Street now. All of their phony wealth had been built up and now consist of some realistic appreciation about the danger of too much debt and risk and too much gambling down in the canyons of Wall Street, but none of that happened. If we did the snowflake thing, Wall Street will go to all these banks, the same way with the car companies and a lot else in the US economy. As they say, it was a wasted crisis.

We did nothing but double and triple down on what Greenspan had already been doing, which was bad enough. Now the Central Banks led by the Fed have painted themselves into a corner. Let me just give one little illustration of how aberrant all this is. If you listen to what I call bubble vision and let’s say CNBC are both the same, you would think that everything is normal and stable and will forevermore be when in fact, we’re in a giant crazy experiment. Anybody who looks at it objectively with historic notions of sound finance and financial discipline will say, “What are they doing?” On the eve of the Lehman bankruptcy, September 15, 2008, the balance sheet in the Fed was $138 billion. It had taken 94 years from when the Fed opens its doors in 1914 to build that balance sheet off into Ohio State and test and business cycles and so forth. It had taken 94 years to build that up. Even then, it wasn’t perfect and you were creating separate bank credit out of thin air. In the next 94 days after Lehman went under, Bernanke and his merry money creditors at the Fed created 145% more balance sheets in 94 days that all their predecessors had gone into previous 94 years. They took the balance sheet and earned $30 billion to $2.2 trillion in 94 days.

After they had supposedly rescued the economy when the only thing they did was suspend the laws and supply and demand and financial discipline. After they’d done that, they kept on going and they invented Q2 and Q3 and the twist and other central bankers baloney. They eventually took the balance sheet to $4.5 trillion. That means that in roughly nine to ten years, they create $3.5 trillion of Central Bank credit out of thin air and pumped into Wall Street. That caused the price of bonds to soar because of all of this artificial demand from the debt. They paid for it with something for nothing digital credits made out of thin air. When the bond markets soared and long-term interest rates went lower and lower beyond the 1.35% here and even lower abroad, that’s the capitalization rate for all financial assets. When the long-term interest rate gets pushed down before the board, the P/E rate or the price-to-earnings ratio is the inverse of its source for equities. The stock market waves off and then you get all kinds of financial derivatives, options and futures and the whole rest of the complex going for a huge ride.

The point of capitalism and economics fundamentally is to have a system where innovated solutions come up. Click To Tweet

They didn’t fix anything. They violated even more laws than anybody had done before and get on the financial laws. They created with the third-grade bubble of this century that we’re in right now. I want to relate this because I don’t think it’s sustainable. I think we’re going to have an even bigger and more thundering crash for some reasons that we can get into. The reason I call my book Peak Trump is that Trump, for all his defects and lack of preparation and know-how to do the job that he was running for, at least he called it one big crowd ugly bubble during the campaign. When he was elected, the S&P 500 was 21.40. Fast forward to two years, the peak was 29.40. The problem is that big fat ugly bubble now became the trance of Trump and economics. It was a huge mistake to embrace that bubble in the economy that went with it because they’re both going to go down for the count. They’re going to splatter over the White House and Donald and all the rest of it and we’re going to be in for big-time crisis in the years ahead.

What keeps circling through my mind is it’s like a violation of the principles of humanity or behavior. We’re here having an experience of life and we learn by going through difficult things and learning how to make decisions and being responsible and being self-reliant. That cycle happens throughout our entire life. Going to the example I was using, it’s evident that the higher education model, the coddling of a mind, ruins and destroys the mind. It’s not allowed to have the experiences that form their perspective, their intuition, their opinions and figuring things out using a rational brain. It’s the same thing monetarily where you had these companies and you also had influences that failed, yet you didn’t allow them to fail and it magnified the problem.

It’s not even making the problem worse. It’s worst times two because now they didn’t learn and they’re going to just keep using the exact same behavior that they used before. Now, it’s a much bigger problem and it affects the whole world. It’s not the US. This has gone through the entire world. What happened is it’s on the backs of the American people. The citizens meet Main Street as they are called, but the unfortunate thing is that the majority of people don’t know what economic policy is and monetary policy. They’re just following what the status quo has been for the last 30 or 40 years. The unfortunate thing is that we’re past the point of no return as far as having to learn a lesson the hard way. That’s part of making mistakes. It’s a little difficult in the transition and it’s unavoidable. I agree with you. It’s a matter of time. That’s just one of those things where it just keeps sputtering along and people were like, “If I believed you or if I stuck to the fundamentals and principles ten years ago, then I wouldn’t have made any money.” What the view is right now and one of the things where in hindsight, the lesson is always learned. It’s never learned in foresight.

This gets to the issue of the heart of capitalism and the prosperity that it creates, is the money and capital markets. That’s where the financial flows crisscross. That’s where capital is raised. That’s where savings are put to work. You need very honest, efficient and discipline money in capital markets. If you have those, it will spread out to the rest of the GDP and the Main Street economy. The great trade market economist Joseph Schumpeter has this concept of creative disruption and that’s all capitalism progresses. Buggy whips go by the wayside and you get a horn on your automobile, your Ford, your model-T or whatever it is. That is important, but creative disruption is not working efficiently and productively if the financial markets are falsified by central bank manipulation and intervention. When they’re falsified and you get stock prices that are way too high, people are rewarded for doing the wrong thing where they should be doing something else.

I use this as a way of working up to Amazon. Amazon is turning the retail world upside down. It’s an amazing machine. In some ways, created a destruction like there’s never been before, but the stock market is so out of control because of the central bank manipulation that Amazon is drastically overvalued. It doesn’t produce any profit. The profits that you make are nothing to do with that big eCommerce business, the profits that may come out with the cloud business and that’s a tiny piece of it. The people running Amazon from Jeff Bezos are being told, “Don’t worry about pricing for profits, simply price for expansion, a price for sales growth or price in order to destroy the next industry that you decided to penetrate.”

TWS 09 | The Markets

The Markets: An artificial influence is always going to create unintended consequences.


It trades off and on at 150 or 200 times income. It trades multiples of cashflows that never made any sense of history. As a result of that, we’re not getting just creative destruction, we’re getting just pure destruction where it’s all these empty malls and all these failing retail chains. All these people whose livelihood was invested in the bricks and mortar retail sector are being prematurely thrown overboard or impaired and injured. Amazon is going too fast because Amazon is way overvalued. These are maybe worth the peak, but if the company were valued rationally and a preset template or preset type of machine, it might’ve been worth $5 billion.

At $5 billion, he would have one kind of business model and growth strategy, a modus operandi for Amazon and $150 billion is one that is something totally different. All the people who work for it will have some piece of the action in the stock options and so forth. If you take that example and you multiply it over and over by hundreds and thousands of times and we’re getting all kinds of bad signals to all our economies. People are making bad decisions and at the end of the day, they’re going to meet less growth, less prosperity, lower living standards and more trouble down the road. The worst case is the signal for Washington. If you tell the politicians and I was one of them for more fifteen years so I understand the mindset. If you tell him that you can borrow almost unlimited money at less than 2% interest, they’re going to borrow as if there’s no tomorrow. They’re going to say, “Debt spend is bad things. How many will get to the deficit in the volume buy?”

We’ve been kicking the can for 25 years and it’s because they have been totally mis-signaled and misled. The reason I know that’s true is that I was there. When I became the budget director in January 1981, the tenure bond rate is 16%. The 30-day trade rebill 20%. Our mortgages were up in the high tens and the bank rates are up for pushing 20%. In that environment, the deficits and debt scared the hell out of politicians because at least they could do the math. If you borrow $1 trillion and you’ve got a 15% bond yield, that’s $150 billion a year of interest you’re going to have to pay. It’s going to squeeze out your favorite book or project for education or some do-gooder thing that all the politicians glom onto. Some favorite war has happened to the warmongers so they’re either domestic do-gooders or foreign warmongers, but they want money and they don’t want to have to spend it on interest so they get reasonably disciplined or prudent fiscally if there are real interest rates.

We can call it price discovery and we can call it honest pricing, but the systematic effect are in central banking. I used the word because it means they’re trying to run the economy on the theory that capitalism was a total failure on its own. We’re constantly stumbling far in the recessions, depressions and all kinds of organizations, which is total baloney but that’s the view. Therefore, they’re in the middle of what I would call the central nervous system of capitalism. It’s Wall Street. It’s the financial markets and they should get out of there. They should let interest rates find their own level. Let supply and demand clear the market. If the stock market gets all enthusiastic, let there be a couple of crashes and let a few people be carried out on their shield. By the way, we have the greatest prosperity known to man. In 1870 to 1914, real GDP growth of 4% per year on average for 44 years. There’s nothing like it since and we had no central bank. We had nobody saying what the interest rate should be and we had nobody targeting GDP or the equation rate or anything else. We had just capitalism well.

It all comes back to that principle of accountability. When you have signals or you have influences, it’s an artificial signal. It’s an artificial influence and that always is going to create unintended consequences and they’re everywhere. You mentioned some empty malls and so forth. I’m not going to argue that Bezos or some of these tech guys have created value because they have, but at the same time, what value has been destroyed somewhere else? If I look at my local economy here where I’ve had a hard time trying to hire people over the last two years because there are hundreds of tech companies here now and they are not profitable. They price everything with tremendous amounts of VC funding or private equity funding and I can’t afford the developers. I can’t afford the project managers. It’s insane how much wages have been pushed up.

We're here having an experience of life and we learn by going through difficult things and learning how to make decisions. Click To Tweet

That’s one of those things where it seems good on some measurements because of what artificial demand is doing. At the same time, you’re not looking at the unintended consequences. I don’t think a lot of those consequences have manifested. On paper they have whether it’s a default of automobile loans, whether it’s the student loan bubble. They’re yet to manifest, but those are going to be some of those signals like, “Maybe it was good over here, but look at all the crap and chaos it caused over here.” That’s where I would say that difficult time is ahead of us. We all have it in our prayers that hopefully at this point, they understand the fundamentals of it and make the right decisions. You can’t just keep deferring the fundamental issue. The fundamental issue is you use debt to manipulate behavior, manipulate prices and manipulate growth and it wasn’t true growth. That’s what hopefully people will get, but time will tell.

You’re getting right to the heart of the trouble with bubble finance. There’s a lot of hidden rot in the financial and operating economy as the bubble gets larger and larger. People don’t see it either because it’s a new phenomenon or because there’s a suspension of disbelief. There’s been such a huge boom in the total value of the equity market and the bond market together that it’s generated enormous amounts of investible venture capital. Now, venture capital is flowing in tens of billions of investible funds. They’re looking for every top of maybe startup they can find and they’re all being funded. These are what I call burn babies. They are not paying the rent and the lights and the payroll out of revenue, they’re paying it out of venture capital. We’ve seen it before but this time it’s going to be the worst ever.

When the market goes into a big correction and the venture capital world dries up and freezes up and there are no third, fourth, fifth rounds or new fundings, all of a sudden, all of these burn babies out there are going to run out of cash. They’re going to turn off the lights, nail the door shut, get out of dodge and it’s going to cause a huge negative sucking sound. Voices like Brooklyn or Silicon Valley or Austin, Texas or a lot of others. For instance, take my favorite, WeWork. If there was ever a poster boy for the insanity of the current bubbles, it’s WeWork. They raised billions of dollars in the junk bond market and elsewhere to buy fixed office building assets that have a long life of 40 years or to lease them on long-term leases and to improve them will all kinds of fancy gigs. They attract people to come in and they’ve got all kinds of flavored coffee and all the rest of it there. On the other side, their tenants are on one week, 30-day or three-month leases. That is the most mismatch book in human history and it would never see the light of day if you have financial discipline. When the money is flowing in unlimited ways, the risk is totally ignored. You create a ridiculous oddity aberration like we were.

I’ve been to WeWork and they’re cool. They have a cool office space. It’s open. It’s a cool concept. I’m not saying that they’re not creating value, but at what price and what’s the consequence of how they’ve done it. That’s the point you’re trying to make. There are good sides to it, but nobody ever focuses on the bad and what the consequences are. It’s super convenient to order stuff from Amazon instead of having to go to the store. At the same time, it’s like, “What is that done the way in which they’ve been able to fund that and do that?” The consequence of being able to do it in the way they’ve done it hasn’t necessarily been manifested yet. That’s going to be worse than having the benefit of what they offer as a product.

I’m not pointing that WeWork is a bad idea. It’s a great idea but it can mismatch your work. You can’t be writing twenty-year leases on one side and day-tenancies on the other side. If you want to do it that way, then you’ve got to charge your tenants in the arm and the leg so you build up reserves. When the next downturn pumps, half the people occupying desks in WeWork are going to be gone. They’re going to be ionized because they’re burned babies. They have no revenue, they have no profit and they have no reason for being that only if they could raise capital because at the moment, anything goes. Now, you get a half-empty office building on twenty-year leases and all your tenants are disappearing or bankrupt. You’ve got a mess.

TWS 09 | The Markets

The Markets: The ignorance of individuals has been preyed on. Ultimately, we’re the ones who are going to have to pay a big share of the price.


I have one final question for you. If you had 60 minutes inside of a room of your choosing with Alan Greenspan, Ben Bernanke, Janet Yellen and Powell, what would be some of those first questions you would ask them or statements you would make to them?

For me it wouldn’t last very long because I would say, “You’re dead wrong and you’re not needed.” The idea of activist central banking and setting every price on the meal curve from overnight to 30 years, which directly or indirectly they attempt to influence. This idea of a Central Bank board is counterproductive. It’s negative and it’s not needed. We should go back to the banker’s bank that was created in 1940. You’ll see a legal Fed to buy any government debt, not bonds or anything. It did not have any mandate of full employment or 2% inflation. It was simply meant to be a backup source of liquidity to regional banks. Liquidity was to be provided to commercial banks only if they presented sound collateral based on receivables or finished inventory that could be converted to cash. What you need are central bankers where they would pair green eyeshades that could work through balance sheets and financial statements and determine whether or not the collaterals that are being brought to the window is sound and mostly loanable. We didn’t need Alan Greenspan and we didn’t need Ben Bernanke and his PhD and all these ridiculous models that they used. We didn’t need any of that. We need good accountants and lending officer. I would say, “We don’t need you but thanks for your service.”

It’s one of those things where they have this iconic status it seems. I look at the core and root of the problem and the unfortunate thing is the awareness that people have regarding monetary policy and the role of a Central Bank is nonexistent. It’s going to take some hard times for people to wake up. That’s behavior in general. When you start to experience pain, you’re like, “I don’t like that. I should change what I’m doing to get the pain.” That’s when change happens. As a society, it’s unfortunate that the narrative that we’ve been fed for the last 30 years is that all of this is good for us. That’s the saddest part. The ignorance of individuals has been preyed on. Ultimately, we’re the ones that are going to have to pay a big share of the price, but time will tell.

It’s bad and it’s also good because they put their credibility on the line. They said they fixed everything. We know what we’re doing. We need a monetary policy and geniuses on the Federal Open Market Committee and we’ll make everything better. When this bubble collapses, they will not be able to rescue the market. People are going to lose trillions of dollars. They’re going to be mad and angry. Some people are going to be totally financially ruined and there is going to be a day of reckoning then maybe the way will be open. We understand this to tell the American public. We don’t need this massive central bank intervention. It’s got to be house clean with echoes building and a totally curtail back to its original mission. There’s a chance that it could happen, but it will be painful getting from here to there.

David, thank you so much for your time. This has been a fascinating dialogue. I appreciate you teaching me and teaching the audience. What’s the best way we could support you? What’s the best way to follow you and see what you’re up to?

The lesson is always learned in hindsight; it's never learned in foresight. Click To Tweet

If you’re interested, I have a daily blog. You can Google it and sign up. It’s a modern subscription-based service or you can read my books. My newest is Peak Trump: The Undrainable Swamp and the Fantasy of MAGA. It’s important to understand what’s going on right now because we’ve all been totally misled by all the boasting and bragging coming from the White House about the Trumpian economy. It’s a house of cards and a house of debt.

Thank you for what you’re doing. Thank you for your service. We’ll talk to you next time. Thank you, David.

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About David Stockman

TWS 09 | The Markets

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He is the author of The Triumph of Politics (1986), New York Times best-seller The Great Deformation (2013), TRUMPED!: A Nation on the Brink and How to Bring it Back (2016), and most recently, PEAK TRUMP: The Undrainable Swamp and the Fantasy of MAGA (2019). He is the editor of David Stockman’s Contra Corner:


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