the rebel capitalist show all right guys it gives me a great deal of pleasure to welcome someone back to the rebel capitalist show he is a good buddy of mine and in my opinion he is one of the smartest guys out there in the macro space you all know him well from his youtube channel wall street for main street his name is jason burke jason welcome back to the rebel capitalist show thank you so much george i’m really glad to be back i think it’s been about six months since i was back and bitcoin was i think around nine or ten thousand dollars and i remember talking about it with you in june or july telling people that it was an interesting speculation i thought it was uh fairly cheap and it had a good upside and then we had the stanley druckenmiller comments about it what not too long ago two months ago and the last two months bitcoin has just taken off yeah so tell me about your opinion on that we go back and forth on twitter all the time and as you might recall maybe i don’t know what was it three weeks ago or something like that i started just commenting on not really bitcoin as far as the price but the probabilities of bitcoin becoming the new global money like taking over all fiat currencies and my personal opinion was i i think the probability is good that bitcoin over a long period of time goes to a hundred thousand i don’t know if it happens tomorrow probably not maybe happens in the next two or three years five years something like that but i i think the probability of bitcoin becoming global money and there being nothing else uh is probably a little lower than it going to a hundred thousand and i i just presented some of my rationale for that uh more specifically because uh if you’ve got in something with limited supply which is obviously the one of the main benefits of bitcoin scarcity the the market’s going to struggle with that because they’re always trying to match up the supply of debt with the demand for productive loans so i i’ve talked to snyder about that quite extensively and pretty much everyone that i talk to whether it’s snyder or ralph paul regardless of how bullish or not they’re on bitcoin they all kind of agree with that what’s your take on that well first i think it’s ridiculous how the gold community and the bitcoin community a lot of people in there and it’s not everyone i think it’s ridiculous how a good amount of people in there just hate each other because um i think in people’s portfolio i think people should own physical gold physical silver um selected gold stocks some silver stocks and then also a small amount of bitcoin and maybe some other cryptocurrencies for speculative purposes although i don’t have a large percentage of my overall net worth in uh in bitcoin and other cryptocurrencies i did buy ethereum at eight many many years ago um i don’t own ethereum anymore i sold it before um it went up enormously i think i got a 10x return on it but i’m not a tech expert and i’m not an i’m not a computer programmer but i i think there’s an enormous um pro technology bias george and you’re seeing this with all these technology stocks that are not profitable and we were talking about this before we started recording with the special purpose acquisition companies and jim chino says address this with total uh total addressable marketer tam stocks and story stocks and bitcoin kind of fits in there so anything and it’s human nature to do this anything that’s already going up starts getting more tension then you have bubble vision on cnbc so i think cryptocurrencies like bitcoin i think they complement physical gold and silver so the majority of people’s savings for insurance and wealth preservation can be in gold and silver and then people can speculate on bitcoin and cryptocurrencies i think where people are going to get in trouble is the people who are buying bitcoin and these other cryptocurrencies chasing the price higher in heart and selling all of their gold and silver and all their gold stocks now and i’m starting to see that online people lamenting why they ever bought gold and silver even though there’s massive amounts of paper price manipulation right now and jp morgan’s only getting fined 928 million dollars and no senior banksters are going to prison for manipulating markets and i’m using air quotes and the paper price despite a weak dollar the paper price well silver has rallied strongly but the price of gold up until the last 24 hours the gold price hasn’t done very much and it’s been in a trading range and a correction since the first week of september and gold stocks have underperformed um the majority of gold stocks have underperformed the gold price and other commodities and other commodity stocks even worse than that yeah well i think your point is valid i totally agree that we’re all in the same team here i mean we all don’t like fiat currency we see the flaws i don’t know why someone would be super pro gold and not bitcoin or vice versa i just see them as totally different asset classes and that or i see them having completely separate purposes in my personal portfolio gold for me is just an insurance policy period where bitcoin is a great speculation and i i want to be clear to all the the bitcoin bugs out there i’m bullish on bitcoin long term short term i’m a little leery because of the emotion that i see to say the least but long term i’m bullish i’m just i see some potential issues out there with it taking over with the bitcoin network if you will competing with the dollar and with the digital one and it potentially winning i i definitely think it’ll be a long term store of value but i just don’t know that bitcoin fixes everything you see that meme out there in fact whenever i post something on twitter i’m sure when you do the same thing you’ll get someone in the comments or multiple people saying oh bitcoin fixes that well okay but i mean it doesn’t cure cancer it doesn’t do all these things so again i’m very bullish on the price i’m just i think we need to think through the probabilities a little bit better for uh bitcoin becoming global money maybe i’m i hope i’m wrong i hope i hope the probability is 100 because i’m a huge fan from a philosophical standpoint well governments and central bankers and politicians and bureaucrats all the things that are involved in the status quo and the government if bitcoin threatens the government and the central banks monopoly on money you’re going to see roles changes you’re going to see potentially windfall profits taxes you’re going to see people that made a lot of money on bitcoin turned into criminals who aren’t criminals and unfortunately this is the new normal the orwellian even this what we have george over the last since this pandemic started and governments all politicians and central plan central planners and bureaucrats at all levels have just taken enormous amounts of power since the pandemic it’s more orwellian i think than george orwell could have even imagined at this point i totally agree let’s go back to what you’re talking about as far as the risk curve and the fed just artificial interest rates dropping them so low and or artificially low interest rates excuse me and just pushing everyone out to take more and more and more risk whether it’s a pension fund whether it’s a retail investor we talked about spax and let’s go through that explain it for everyone out there that might not have a good understanding as to what they are and maybe try to parlay that into showing or maybe giving us an example as to how frothy the markets are right now and what i’m really trying to go over in my own mind is are we at peak risk curve does that make sense i mean can the fed push the the retail investor any can they push them to take any more risk than they’re already doing without just going to a casino or playing the lottery well it depends how many 2 000 a month universe universal basic income or mmt checks people are gonna get because the fed is maybe hoping that people are gonna gamble uh open up a robin hood account and gamble on stocks or buy call options on tesla or by crypto so um it really depends on how much monopoly money at this point in in general george um and and spax which are special purpose acquisition companies are also called blank check companies um i really think this is a symptom and you’ve been talking about this and i’ve been talking about this for a long time too and if you talk about this on wall street this will get you fired uh the cantalon effect right so the special purpose acquisition companies are just another example of the cantalon effect and this is where you have the large banks hedge funds private equity large corporations all getting artificially cheap currency and credit that is either the political insiders and the financial insiders yes and the the lobbyists so the and you saw this with the pork that was in the new it’s called stimulus is really the bailout bill the new stim the new bailout bill that congress just passed here in the district of criminals which i live right outside of you like that new nickname the district of criminals i love it the the largest collection of white collar criminals in the history of mankind all with multiple all with multiple degrees and law degrees so they know how to if the rules aren’t right they change the rules they all they know the legal loopholes and there was more pork in the new bailout bill than the wendy’s baconator [Laughter] it was it was kickbacks to the military industrial complex companies and the and the uh consultants and the military subcontractors so really the special purpose acquisition companies and we’re talking about this before we start recording paul ryan who’s a key political insider speaker the former speaker of the house uh mittens romney mittens romney’s a former vice presidential candidate he raised 300 million dollars for a special purpose acquisition company in was it february or march i believe so there is an insane amount of spax there are some useful companies that are special purpose acquisition companies there are some electric vehicle charging stations and some others but the overwhelming majority of these are rich people that have contacts and access to currency and credit business contacts some of them george don’t even have a business plan these are shell companies there are comments out there from lloyd blankfein who i guess is taking a break from doing god’s work and he actually did an interview on cnbc i think it was in october it was about 30 minutes long where he was actually honest about all this currency and credit sloshing around all the asset price inflation all the wealth disparity how the wealth effect has it worked and then talking about how ridiculous all these extra specs are i think there’s a spack of us back now there was a new uh spac etf that just launched it’s getting it’s getting ridiculous um i think there’s about four monday through friday there’s about four new uh securities and exchange filings for potential uh spac ipos and a lot of these companies george don’t have a business plan they have assets that they bought cheaply they’ve been packaged up together they’re coming up with ridiculous names for these specs because i guess they’re running out of names so maybe they’ll call one like the enrons back or the bernie madoff’s back and then they’ll finally just and maybe that will be the peak risk yeah and to be clear for the people listening or watching who who might not have heard of a spec or you’ve probably heard of it but don’t know exactly what it is it’s it i think the the blank check company is a great way to describe it it’s basically you have a shell entity that often has no assets has no business has has nothing it’s it’s zero except for a guy like paul ryan that says oh trust me give me your money and i’ll within the next two years i’ll find a business to buy and we’ll we’ll make a ton of money we’ll we’ll give you a great return and then here’s some equity and here’s a warrant or two and the people just give them their money with no cash flow with no business with no business plan with no assets with nothing just on a hope and a prayer that this person at the top can find some investment that will make them money or some acquisition target within the next two years and but other than that it’s just pixie dust it’s um it’s a story stock so yeah that’s what jim chinos is saying the goal is to get in early so if you’re a key insider you get those warrants you get in early at a cheap valuation and it’s been this way in silicon valley with all these unprofitable companies revenue only revenue growth only companies that have no chance of being profitable some of these companies as they scale up they lose more and more money look at uber and lyft and all these other and not airbnb the other we work the you know all the long list of all these silicon valley um unicorns now and a unicorn used to be a billion dollar company i mean there’s so many of these things with valuations over a billion dollars that have no hope of achieving profits 10 20 years from now but uh business i mean at least there’s like humans and like revenues there’s or maybe sometimes there’s not revenues i don’t know but uh at least there’s a business though with these specs there’s no business there’s nothing there’s just an idea it’s like it’s like fugazi’s like wolf is cheap and as jim chino says total addressable market so there they create a story saying they’re going to go after this enormous market that’s tens of billions per year or hundreds of billions total or at some point it’s going to be that way but the company doesn’t have any type of business plan to achieve uh profits free cash flow you know the normal things that are normal business how things used to be but ultimately the peak risk what you’re talking about ultimately the goal is for the insiders to get out and dump this stuff onto retail investors before it crashes and we’ve seen this with a lot of ipos the last few years how wall street has brought so many and wall street’s collecting enormous fees for this bringing these unprofitable companies ipo and then lying about the potential of these companies these companies after the lock-up period expires whether it’s a tilray the marijuana company and you know at a certain price if the stock is a buck maybe it’s cheaper but i think tilray was way uh it was an enormously high stock at one point and i spent a couple years ago going through their prospectuses and their um their prospectus excuse me and their sec filings annual report and their other sec filings and there was admissions in there by with uh by the lawyers and the executives that the company might never be profitable and the company was losing even more money so the more the company scaled the more money it lost and yet this the story was being sold about the total addressable market for legalized marijuana and the shares crashed so you’re you’re seeing this repeat over and over and the retail investor is just falling for it hook line and sinker unfortunately more often than not and it all goes back to the fed and the reason i say that jason is just for the the average listener out there or viewer in my opinion and i’d love to get your feedback on this if interest rates were still at let’s say five percent fed funds five percent or six percent which is by the way historic norm would any of this be happening no i don’t think so yeah well i i think i think the the ponzi scheme and george this whole thing this whole system that we have now and we’re at over 270 trillion debt globally if you add it up at all levels of society the majority of the debts government debt and corporate debt this is a ponzi scheme okay because and people ask me why is this a ponzi scheme and i love the kyle bass quote a rolling loan gathers no loss now kyle says that’s for the chinese banking system and chinese corporate debt but now it’s for everything yeah so our global economy it’s it’s it’s the entire global economy there’s an enormous bond bubble i could give you countless examples of this asset price inflation distortions with the kentilon effect and the bond bubble of these central banks subsidizing big government subsidizing this bond selling scheme that these large banks have this bond trading scheme that leverage hedge fund traders and other financial professionals do and so corporations can sell artificially cheap debt with the help of credit ratings agencies that won’t downgrade them and the reason this is a ponzi scheme in my opinion is because newer and larger amounts of debt is issued to roll over existing amounts of debt that cannot be ever be mathematically paid off so that is the problem the problem or even the normal interest rate exactly well the even at zero even at one percent or zero the debt can’t be serviced look at japan japan cannot even have a one percent rise in interest rates they’re bankrupt if that happens so the problem is cash flow all this debt george has been used unbelievably unproductively so if the debt was for infrastructure or new products and services that would increase cash flow new products and services for a company that would increase cash flow that could be used to service debt pay off debt and that is not happening right so that is the problem the problem is you cannot grow debt without cash flow because normally your real estate investor you know this and we’re friends with me and you are both good friends with jason hartman and how real estate investors use cash flow is you take out a mortgage on a rental property and then you use the cash flow and you pay back your mortgage and then you repeat it like in the game of monopoly yeah exactly let’s talk about the uh some of your recent videos first i’d i’d like to have you go over what you’re seeing in the world in regards to stagflate tax and lie and that’s just such an awesome awesome phrase that you came up with probably what nine months ago and it’s so applicable and then go into uh the ecb this bond bubble and the the currency wars and the dollar tug of war okay so stack fleet tax lie um my position is that if you believe government economic data whether that’s the us government the chinese government the european union uh you still if you believe that it is a hundred percent accurate you pretty much believe at this point in santa claus the easter bunny and the tooth fairy [Laughter] so um in terms of gdp in terms of um unemployment numbers in terms of inflation at this point it’s just about putting out numbers and they’re just going to say whatever they have to say so the governments can keep borrowing they can keep the size of government maintained they can keep the asset prices whether that stocks or bonds propped up real estate prices propped up and the real inflation rate in the real economy is closer to the chaplain inflation index which um you have covered i saw that in a recent video yeah thanks for pointing that out by the way you’re the one that that turned me on to that well in here on main street um we’re just getting killed with shrink-flation uh i just went to target in the last couple weeks and it was 150 bucks and half not even half my shopping cart was full i go to a normal regular grocery store not whole paycheck whole foods or any of those and i buy a handful of things and it’s like 50 or 60 bucks yeah yeah you know anecdotally my health insurance went up by like like 150 a month i mean it’s up by like whatever 20 percent or something like that and i just i i went you know i don’t spend much time in the united states but i went to chick-fil-a the other day which i haven’t been to in years but i went there just to get like a grilled chicken sandwich and just a little cup of yogurt and it was almost like fourteen dollars for and i’m like what is going on here look at my receipt i thought they overcharged me and the little cup of yogurt was like five dollars and fifty cents and i’m like what is going on here so anyway keep going but that was my anecdotal uh story there a chick-fil-a in my health insurance well the the other part of this story is shrink fallation and that’s a term that dr pippa malngram coined and that’s where either restaurant or the grocery store or a food company that packages or processes food they keep the price relatively the same so the price may stay the same or the price may only go up a little bit but what is really happening is the portion size of the amount of food you get so if it’s a box of cereal there’s enormous amounts of air in the plastic bag that the cereal is in so it’s you have to check the weight or the cost per unit um it’s like this with potato chips and many other goods also um i and i don’t eat this anymore canned soup campbell soup used to put in in their old uh many many years ago in their cans of soup they used to put in a lot of chunks of chicken and uh chunks of meat and beef and those are gone there’s like one one piece of chicken in some of these cans of soup and i’ve seen people just post this all you’re finally starting to see news agencies in australia and canada and elsewhere start to kind of cover shrink fellation and that’s definitely not being covered in the consumer price index unfortunately and um just anecdotally again from having discussions with people in the restaurant industry from contacts and at grocery stores and also uh people listen to my podcasts who are work for food packaging and processing companies they’re telling me and this is again not being covered in the consumer price index that the grocery stores are going to them telling them that you can’t raise prices and you have to change the packaging size you have to reduce it a lot because if they raise the price too much the sales of those items at the grocery store is going to collapse and then that’s going to hurt the grocery stores profits so what the way they get around this and more people are starting to wake up to this thankfully although hopefully they don’t blame capitalism because if the companies don’t figure out how to protect their profit margins they’re going to go bankrupt too especially with rising costs and currencies being devalued and all these other countries just trying to devalue their currencies against the dollar there was actually uh the reserve bank of india which was india’s central bank there was a there was a reuters article that came out and i covered this on my youtube channel a couple in the last month or two where uh leaked information came out from an employee at the reserve bank of india that they were intentionally creating enormous amounts of their own currency to buy dollars and to buy their own government bonds to devalue their currency to boost exports and then also that was allowing them to run enormous trade surpluses so this is like the currency wars that jim rickards was talking about in his 2010 book we’re seeing it play out now and all these devalued currencies and the dollar is weak but all these other currencies are um some of these countries have tried to prop up the dollar is going into supply chains and it’s leaking in there and it’s not being properly accounted for by uh government economic data go over the ecb’s balance sheet because that video that you just did on that in the european bond bubble that that was staggering yeah so the ecb’s balance sheet and this was before the new bond buying program is over 60 of their gdp and they just announced a new bond buying program and they’re subsidizing in my opinion they’re subsidizing big government so all these european economies uh european countries they’re subsidizing so they can get artificially cheap debt there is no way some of these countries like greece and portugal should be able to borrow so cheaply and yet that is exactly what is happening um i’ve been talking about for months and i think some of your other guests like van meter and others would disagree with me but there is an enormous plan for a while now from the central banks and big government for a bond scheme and asset price inflation to subsidize and prop up the price of bonds and wall street the large banks whether that’s large banks in the us or large banks in europe make enormous profits selling corporate debt selling um taking their fees as primary dealers on government bonds so they make money selling bonds that should not be sold at low yields the bond traders are gambling that the central banks like the european central bank will buy these bonds at a hundred cents on the dollar or overpay so what these uh professional investors are doing is they’re leveraging up on their bond trades and they’re making money from that so they’re making money off the cantalon effect off currency and credit being created to prop up bonds so the central banks are subsidizing bonds so the part of the the bond scheme is for selling massive amounts of corporate debt and government debt that should not be sold at these low interest rates and then the traders are all doing leveraged trades these professional traders or leveraged trades on these bonds a lot of them anyway and then the central banks then subsidize things further and if there’s a problem like what we saw in february and march or what the european central bank is doing then they just go and buy the bonds yeah excuse me the central bank just monetizes or just buys the bonds directly or indirectly through the primary dealer banks and i think a lot of people get hung up on this because they say why on earth would someone buy a bond that was yielding less than zero that or a bond that was yielding zero or a bond is you you have 10 basis points when you when you’ve got that for 10 or 20 or 30 years and you’re guaranteed to lose money against inflation or you’re guaranteed just to lose money in the sense that it’s yielding a negative rate but what they’re not understanding is the people who are buying these bonds the speculators they’re not buying for yield they’re buying for capital appreciation and it’s in it’s this it’s this upside down world that we live in where where people are trying to buy equities for yield and they’re trying to buy bonds for capital appreciation well the the other part of this story george and this is why things broke so bad in february and march it and credit markets froze and the bond market froze the bid and ass froze like literally i was hearing from contacts who were bond fund managers that there was no bid things went no there were there was stuff that went no bid in february march that’s how bad things were and this is because of leverage so not only are they buying bonds for capital gains but they’re leveraging these trades up so this is where the repo market and the euro dollar come in with all these sophisticated leverage bond trades whether it’s the um basis trade or the risk parity trade and it’s all the leverage it george it is always when things break bad like they did in 2009 and february and march it is always there’s always a combination of two things normally it’s too much leverage and then also the derivatives market breaking and then the fed has to come in because the fed is the liquifier in terms of the the uh liquidity dispenser of last resort then the fed has to come in with currency swap lines normally it’s to the european central bank that’s their largest amounts of currency swap lines but it’s also to other other uh central banks all over the world and then they give out these enormous loans with for tens of billions hundreds of billions sometimes even a trillion if things are that bad and then they just weigh the loan so i think this is something that a lot of the deflationists and brent johnson and others are missing and i found evidence of this because the fed was claiming in 2009 and 10 that the currency swap lines went out and they were only temporary and they were paid off and that was it and then i found in the may 2020 financial stability report and i’ve talked about this in a past interview with you as well just mention it again that um in the footnote that the european central bank went to permanent currency swap lines at the federal reserve in 2013 which was not supposed to have happened so you know things were bad and people keep bringing up why has the derivatives market not collapsed and the derivatives market for those of your listeners who are not aware is around 1.2 quadrillion in gross notional value and this is how the banks all the large banks whether it’s jp morgan goldman sachs the large european banks this is how they make the majority of their profits each year how tens of billions per year in profits it’s insulated from the real economy this is why the banks can make tens of billions per year in profits and the real economy can implode it can get worse and worse and the banks don’t have to worry about velocity money or giving out nearly as many loans unless it’s a large corporation or they’re manipulating a market or they’re selling bonds into the real economy is because over the last couple decades large banks have figured out the wealth effect asset price inflation and how to make all this money off the derivatives market yeah and the fed put being there so the bottom line is the risk reward for the big banks when the fed prints up all these they’ll call them bank reserves and expands the balance sheet of the primary dealer banks they’re incentivized not to lend productively like we were talking about before where those loans go to create more stuff but they’re incentivized to lend to financial institutions who create derivatives and just further financialize our economy and you talked about the fed there being the firefighter with liquidity but i want to point out that jim grant always says they’re not only the firefighter but they’re definitely the arsonist as well and i i i want to make sure that uh that we don’t forget that because it’s not just all about banksters it’s it goes in my opinion it almost always goes back to the fed oh i 100 agree because if the fed wasn’t going to bail out these large banks and senior bankers were actually going to do prison time for fraud creating mortgage-backed securities trading on inside information you know all this all these there’s tons of laws on the books okay we just don’t have rule of law now that’s the problem so we have laws that are selectively enforced if you’re a senior banker or a corporate executive or you’re a political insider here in the district of criminals or you have the right lobbyists you won’t go to prison for felonies no so that’s a problem there’s tons and tons of laws on the books for fraud you just have selective enforcement or no enforcement at all of felonies laws that are already on the books that’s the problem yeah so the bottom line is moral hazard so your last video you talk about the dollar tug of war and i know that uh this is something that you’ve been using is kind of like a theme like stagflate tax and line it definitely makes a lot of sense to me so can you explain the dollar tug of war and then tell us what’s going on with the dxy yeah so the dxy is very close to falling out of its five-year trading range um long-term the trading range is long-term there’s other support levels below the current levels but the five-year trading range is almost at it it’s uh very close to leaving the five year trading range and really the way the financial system is designed george is the large banks sell enormous amounts of dollar denominated debt especially when the dollar is weak so during the last period when the dollar index was this week or weaker there was an enormous amount of dollar denominated debt taken out in the 2009 to 2011 period with ben bernanke the dollar index was in the low to mid 70s back then and the amount of dollar denominated debt over like a ten year period starting then exploded at about double globally and then you had because of that as brent johnson correctly says when you have that much dollar to nominate you have enormous demand for dollars however the fed can get around this and this is why the derivatives market has not blown up and why we need more transparency or well actually we shouldn’t have any central banks at all but that’s not going to happen in my lifetime i wish it i wish we had small government and no central banks but the the um the uh currency swap lines are given out and then the loans are given out and then they’re waived so the fed has put out countless fires in the derivatives market for european banks for foreign governments that are gambling in derivatives because you have central banks like brazil central bank and others doing crazy forward dollar swaps prior to the bolsonaro election and other shenanigans that have been going on for years you have the problems with greece what in 2013 and when they almost blew up there with their with their problems and all the european banks that were holding uh emma and then the mf global problems we don’t know because there is no transparency how much the fed had to go in and issue bailouts and do all these things and the dollar tug of war what you have is the people here in dc and the new york fed they wanted a weaker dollar and we almost had an enormous dollar rally we almost had brent johnson’s scenario play out perfectly in february and march and actually he would have been right except as usual here unfortunately and this is a theme of stagflate tax lie part of the lie component the government and the central banks and the treasury department change the rules so you saw all these press releases and you’ve covered this george they actually didn’t buy a lot of stuff so they just issued press releases to manipulate markets saying they were going to buy these things and they ended up not actually having to buy a lot of these things they restarted credit markets wall street started selling enormous amounts more leveraged loans collateralized loan obligations selling more bonds um now that the dollar is weaker again george you have an explosion again for the last eight months of dollar dynamic debt in china and elsewhere on this week dollar that started in may when the dollar started to slide so you have people gambling on a weak dollar again and this is why it’s in a trading range for now but the reason the dollar is going to ultimately get weaker is because foreigners are not going to subsidize the budget deficits the budget deficits in my opinion george are too big so meaning the fed has to buy all that by creating additional bank reserves which if the government is spending those checks or using those bank reserves to bank back up the stimulus checks and it’s going to find its way into the real economy well i was listening to the interview with um stephanie pomboy well it was their show stephanie palmer and grant williams the latest one and she was going through all the different data points and couldn’t understand why the dollar index was so weak i think she was overthinking it i i just think it’s supply and demand and because of the budget deficits there is way too much treasury supply relative to global demand and that’s because you have the chinese government and many many of these other countries that in the past were running enormous trade surpluses when the global economy was doing better they were recycling those trade surpluses back into treasuries and that’s not happening right instead china’s stockpiling massive amounts of commodities all different types of commodities industrial metals energy agriculture across the board do you think the lack of demand for treasuries is the reason we have seen the fed’s balance sheet go parabolic while at the same time we’ve seen m2 go parabolic and uh almost in lockstep and just for those who aren’t familiar with those charts that’s rare we’ve seen the fed balance sheet go up go down and it there’s not a direct correlation to m2 at least the way it’s measured but recently in 2020 we’ve seen or it kind of looks like a correlation as the fed’s balance sheet goes straight up and m2 has done the same thing do you think the reason we’re seeing that is because the fed is pretty much buying all of the treasuries i don’t think that the the fed’s balance sheet has gone parabolic yet let’s talk after the fed’s balance sheet doubles from here in under five years so at the current pace george unless something drastically changes so either the size of the u.s federal government budget deficits drastically decrease or the demand the net demand for treasuries from china and other foreign governments drastically increases or maybe the u.s federal government changes the rules again part of stagflate tax lie and forces people in their retirement accounts americans here to hold u.s treasuries which would create more demand and then they could inflate them away kind of like how the us government was during the wars was selling war bonds and they were trying to get people to buy war bonds well they might force you to this is the thing with government and having too many lawyers here in dc they just change the rules when things don’t go right so i wouldn’t say that the fed’s balance sheet has gone parabolic yet it is up substantially um in terms of a percentage of gdp it is nowhere near what the european central bank’s balance sheet is as a percentage of their gdp so the the fed’s balance sheet as of right now i have to say the current pace of the federal government budget deficits and george the fed’s gonna have to buy a lot more toxic garbage there is a ton of bad financial assets i don’t think any of the write-downs really there’s maybe a small amount of the write-downs for commercial real estate for these commercial real estate mortgage-backed securities i could see a scenario and there’s rumors that wells fargo and we talked about this on our last interview six months ago i think where wells fargo has potentially a trillion dollars in a special purpose vehicle of toxic garbage i could see the fed buying all of it at 100 cents on the dollar and we might not even know unless the fed issues a press release telling us they bought it so this is how bad things are the federal government and what the central banks and wall street and the federal government here can get away with we might see the uh federal government excuse me the uh federal government right now uncle sam or john uncle sam as you call him they don’t have to use generally accepted accounting principles this is where people don’t really understand how large the budget deficits are so people see the number right over three trillion headed towards a four trillion pace but people think but that’s the debt went up by over five trillion or right around five trillion well that’s because if you uh the the us federal government only has to use cash-based accrual accounting they do not have to account for all this off-balance sheet spending so they’ve been cheating for years all right so the the real debt numbers if you account for unfunded liabilities the off-balance sheet items the budget deficits with uh with using gap accounting would be much much larger than the 3 trillion plus with 3.7 trillion i’m not sure the exact numbers i’ve just been i keep saying that it’s a 5 trillion dollar deficit and i know technically it’s not but i’m just going on how much i’m going off of how much the debt has actually increased this year so to me that’s a deficit but well i guess according to the your drunk insolvent uncle sam’s accounting numbers it’s not the fed will subsidize the treasuries but what really worries me is all the financial assets the fed’s gonna have to buy are they how much how much percentage of corporate bonds are the fed is the fed gonna have to buy how much leveraged loans how many collateralized loan obligations how many commercial real estate mortgage-backed securities you know all that all this toxic sausage and then if we do have the predictable bankruptcy wave now that christmas is over of all these other bricks and mortar retailers and restaurants and all these other ones that are getting their butts kicked by amazon walmart target costco and the large grocery store chains because the rules are rigged by politicians and bureaucrats for those large companies is the fed going to bail them out is the fed then going to get into the cantalon effect and then do what they did in from what 2009 to 2012 before you started buying real estate where hedge funds private equity blackrock were able to borrow almost basically at zero either at zero or near zero and buy entire tracks of homes to either rent them out or just wait for the property values to start going back up and again that’s the that’s the cantalon effect because the fed just a selected partner you’re blackrock you’re a hedge fund you’re a large hedge fund hey ray dalio or whatever other large hedge fund we like you you can borrow cheaper or you can at least post collateral and we’re going to allow you if you wait a couple years we’re going to inflate these real estate prices back up and you’re going to make enormous billions easy and that’s how the system the system is inherently unfair yeah did i tell you that story about when i was in st bart’s and i was over at hugh henry’s place and i was you know he’s he’s got a you know hugh by the way is one of the nicest guys you’ll ever meet just i’m so grateful to how kind he was and i consider him a lifelong friend but uh i was over there at one of his dinner parties and a lot of his buddies there you know investment bankers and hedge fund guys and whatnot and i was talking to this guy who i became actually very good friends with and uh we were talking about real estate i said yeah i got back i got into real estate back in 2012 when the market was really down and and um i i bought a few that this was my words a few homes in the midwest he said oh yeah i did the exact same thing i love real estate i think it’s a great asset class i bought a few homes back in the 2011-2012 time frame as well and you know we had a couple beers there just bs and back and forth and it kind of came up i’m like okay well you bought a few quote unquote how many did you buy he goes oh boy i think around four thousand and i go okay your definition of a few is slightly different than mine but uh a few billion there soon it’ll be real money i mean we’ve gone from last crisis was hundreds of billions and trillions and now we’re talking about many many trillions yeah exactly so one thing i wanted to ask you you talk about the fed coming in and bailing everyone out by buying their debt or whatever it takes basically what do you think the catalyst is to that so i’m trying to kind of take a nuanced approach like it would the fed by commercial the debt of commercial real estate let’s say mortgage-backed securities if the stock market was at all-time highs you see my question do you think the stock market would have to be crashing in order for them to do all these other things or do you think that it’s not just about the stock market that even if commercial real estate was crashing since our economy is so predicated upon all asset prices that they’ll come in no matter what in in what where do you think the line in the sand is so if your argument is that the stock market could still be at all time highs and they’ll still bail out xyz corporation or mortgage-backed securities in the commercial real estate space how far do you think it would have to go down in order for the fed to finally step in i mean 10 20 30 what do you think that’s a good question i mean everything is so leveraged so maybe 20 or 30 percent the fed would start to panic i don’t know if they can let everything just collapse 40 or 50 percent they haven’t really shown the willingness to allow that i mean for small businesses on main street you know the mom and pops they’re going to allow bankruptcy but for larger entities they haven’t um with the commercial real estate market though uh jim chanos has actually talked about this publicly he said that right now the large banks and the medium-sized banks are getting away with enormous amounts of new egregious accounting fraud so he said that the banks are not writing down off any they’re not taking any they’re not massively moving up loan loss reserves they’re not taking enormous write downs on commercial real estate loans they’re counting loans that haven’t been paid in months as good still so if they can if these large banks and medium-sized banks can still get away can get away with even new levels of accounting fraud then i don’t know how much the fed has to do yet see this is again part of stack fleet tax lie right so in the past a decade or two ago more of these companies that were committing these levels of accounting fraud would have risked prison but nowadays these companies get away these publicly traded companies get away with such aggressive accounting they get a fine maybe i mean general electric was repeatedly fined by the securities and exchange commission for accounting and pro improprieties it was disclosed in footnotes for over a decade now and hardly anyone even reads the annual report or cares yeah yeah i mean whenever you talk about accounting i mean the first thing comes my mind is we work and just how bananas their accounting was where they basically just took out all of their expenses and just added it back in as uh what was it um oh i forgot the term that they used it was they made up their own metrics too they had their own growth they made their own accounting and growth metrics they just invented them because because the normal stuff that people look at for businesses to see if the business is healthy made the business look horrible so they just invented it and they got away with it well for a while anyway they didn’t they didn’t dump the shares on an ipo well they should have done a spec they they would dennis back and there was no problem they would have just offloaded all that nonsense onto onto the retail investor but yeah i guess uh the the softbank is holding the bag on that one but we’ll see how that pans out hey man i know we’re running a little short on time and so before we go i wanted to open up a can of worms that i know we could probably talk about for the next three hours and that’s the chinese digital currency the dc ep uh the digital one have you been giving this much thought and what if you have how do you see this integrating if at all with the belt and road initiative the foreign direct investment with the chinese in south america africa india eastern europe and how do you see that maybe playing out in the future i’ve been giving this a lot of thought lately well the chinese are still addicted to dollars there’s i i just said this earlier in the interview now that the dollar was weak they’re back to borrowing record amounts of dollar denominated debt so if the dollar has a rally they’re going to have problems too they’re going to drain their trade surpluses and the reserves paying that off so and the other thing is the the belt and road initiative george when they set up these things with foreign governments they set up dollar denominated debt and borrowing dollars too so a lot of these other governments are not taking massive amounts of chinese yuan or chinese yuan-denominated debt so it’s it’s more complicated than that so i’ve seen some of your videos where the amount of the dollar being used um for global trade is declining but it’s not declining rapidly right so i i think with the um they’re obviously the davos crowd the world economic forum they prefer the the chinese model okay so it has control um large corporations are getting immense amounts of economic dominance now and power that they shouldn’t they’re getting their debt subsidized now here in the us and europe and uh they prefer china they prefer the chinese model so they don’t like free speech they don’t like a small government they don’t like low taxes this is um we’re gonna have to see i i have mixed thoughts about what’s been going on in china uh the chinese economy is exporting a lot and they are stockpiling commodities but there’s some real weird things going on with their currency and again if china’s exporting so much and doing so well george and yes they’re selling massive amounts of ppe and um equipment that’s real medical equipment and other things but what is the the u.s consumers tapped out if you look at the data for the us consumer the savings rate has spiked so there’s not savings glut like these keynesians are saying there’s this there’s a saving spike for the consumer a lot of it is from the checks that people got and then people are paying down credit card debt and people don’t have jobs or they’re losing their small business so i don’t see an enormous amount of demand from the us consumer or european consumers for chinese goods and there are a lot of people especially in polling george so the i think there’s a disparity here between the technocrats people running these governments a lot of these governments and large heads of large corporations and banks who prefer the china model you know world economic forum davos crowd versus the average person on main street here in the us and europe that is not as favorable to the chinese government and buying chinese products now because you’re starting to see in polling and i know that china’s you know they’re they’re doing 300 million in transactions for the digital yuan inside china and they’re making these steps and they’re doing it incrementally but what you’re also seeing on the other side of this is the polling about how americans now 70 percent of americans hold a very unfavorable view of the chinese communist party and how they will if they can they don’t want to buy goods made in china or assembled in china they still do all their shopping at walmart target and home depot that’s that’s you just that might as well be uh chinamart and target mark and china target and china depot i mean every single good in there is from china almost you have a good point and over time this is not going to happen right away so this is over the next 10 or 15 years and we’ll see what happens with the crazy stuff going on in dc with congress and how if the tariffs on china stay or they’re dropped so that could uh play a part as well i think one kind of dimension i wanted to go over there with the pboc but it doesn’t matter what the pboc or the fed or any of these central bank digital currencies how does this work when we eliminate the middleman meaning the commercial banks to where you can go directly to the fed for lending you meaning the average joe and maybe small business and mid-size business and huge corporations but you’re borrowing from an entity that has an infinite balance sheet and has no problem being insolvent and doesn’t really have a p l i mean how much of a game changer is that in the long run well what really worries me is that they’re gonna see all of our purchases and then they could just track and tax every single transaction right and then they could change the rules x post facto that george you bought something on your credit card or debit card and we’ve decided six months later after you bought it that now we’re gonna find you or we’re gonna penalize you on a social credit score or we’re gonna put you on a list or we’re gonna make sure that you get fired from your job because you bought this so that’s what worries me is now the government is getting so intrusive so invasive and that’s what’s happened in china since the social credit score has been implemented so now more than the government being able to hand out universal basic income checks what worries me is that they’re going to be able to track and tax every single transaction and then they could decide arbitrarily subjective and congress won’t even have a say in this probably they’ll be able to decide if you’re doing something they don’t like they can hurt you really bad financially i mean at some point they may just shut down um well i’m here in the u.s still you’re you’re not here full-time they could just shut down my credit cards or my debit card they could just shut them all down do you think that they could use your social credit score or the information they’re receiving from all of us having an account with the fed or all entities having an account with the fed to determine your ability to get a mortgage and if so your interest rate meaning if you have a better social score that you have a better chance of getting a mortgage and if you do get a mortgage you’d have a lower interest rate basically what a credit score would be today that is exactly what’s been going on in china george with the social credit score so if you are if you say nice things about the government and your government employee you work for the you work somewhere in the chinese communist party government at one of the levels and you’re obedient you you do a good job there you can get cheaper interest rates to borrow to buy a car or buy a house right or start a or start a side business that is exactly how credit scores and cheaper debt are being used in china already so you see that playing out here in the united states possibly possibly i mean there’s there’s a lot of people starting to wake up now there’s a lot there’s there’s a an enormous amount of people now that are i guess the term is red pill that’s overused i don’t want to get you in trouble i said the the phrase there in the keywords and algorithms that might get you in trouble the red pill even though it’s from the matrix but there’s a bunch of americans now that are starting to get red pill because a lot of them are small business owners george and they want to have the chance to survive they think that they can protect their customers and their employees and we have these dictators these totalitarian politicians at all levels and bureaucrats telling them changing the rules tens of thousands of dollars spent making their restaurant or shop compliant with all the new roles and then the rules are changed again right so i i think there is at the grassroots level people are waking up is it too late i don’t know only time will tell all right buddy fantastic conversation as always for my viewers and listeners who want to find out more about what you do where can they go definitely tell us about your youtube channel tell us about your twitter tell us about your patreon and anything else that you want uh people to be a part of sure one last thing that i forgot to cover was what i think the west other western countries are headed towards with stack fleet tax lie and one of the most perfect examples of this is the stories we’ve been seeing coming out of the united kingdom for the last couple months and i’ve been covering this in videos in a number of different videos on my youtube channel yeah so what the united yeah so what the united kingdom has done is really since the pandemic started they’ve paid out 80 of wages with a version of mmt and universal basic income so this is just currency creation they’re monetizing government debt um taxes it looks like taxes george are about to be raised across the board even though the economy is not doing well there um the inflation formula was just changed there again to screw over retired pensioners and it looks like over 100 billion pounds per year in retirement payments there are going to be the pensioners are going to be screwed out of that and they have government reports from their office in national statistics about bad tranflation in a lot of different products uh so food items consumer staples um whether that substitution of quality of goods so the size of a candy bar and the the quality of cocoa the amount of cocoa and the candy bar declines drastically so there’s all those different examples and it’s it’s coming to canada it’s unfortunately it’s going to be coming to canada a lot of western countries uh other uh european union countries canada australia the us a version of that it looks like if the people in power get their way a similar model to that and then as that gets implemented then they can further accelerate the china model um in terms of the rest of my work they can check out my youtube channel which uh youtube unfortunately for now my live stream shows are blocked i can’t even change any of the stuff on my software on the back end so youtube’s tech support has been um really screwing me over there i’ve tried for the last couple months to get them to help and they just keep giving me ridiculous excuses but my youtube channel has a lot of good content hopefully in the next couple weeks i will start interviewing big name guests again and then i have my patreon which is only five bucks a month there’s around 150 articles behind the paywall there on a lot of interesting topics there is an article there for your listeners about that i wrote i think in june or july about the commodities etfs so jim rogers came out with the rogers raw materials etf which is uh excuse me it’s not etf it’s the rogers raw material fund the index and unfortunately he doesn’t have an exchange traded fund he has a mutual fund which is high fee but there’s a number of other mutual funds that have similar balances to his commodities uh i’m so used to seeing etf commodities index yeah and it uh tracks similar to that so if your listeners want to have trades with the weak dollar and they want to protect themselves from higher imports uh higher cost imports for americans which is going to happen with a weak dollar if this trend continues and the commodities price rally then that article from june or july will be good and i also have many many articles about uh gold stocks which are cheap and their balance sheets are superb and they’re increasing dividends and oil stocks yeah everybody’s forgetting about the gold stocks with bitcoin taking all the headlines everyone’s forgetting about uh gold miners so that that could be interesting congratulations on your success it’s really unbelievable what you’ve accomplished in the last year well i appreciate it and everyone you gotta check out jason’s youtube channel for sure i just watched his last couple videos in preparation for this interview and even though he’s not doing the live stream stuff the content is still absolutely fantastic so check that out check out his patreon page we’ll put a link in the description below and jason i want to thank you for your time i appreciate all the hard work and the content you produce i’m a huge fan and i can’t wait to have another conversation great and i’m glad that people are promoting uh small government and austrian school economics because the stuff we’re getting out of wall street and the mainstream financial media is just absolutely horrible couldn’t agree more all right buddy have a good one [Music]
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