So, James, even during the darkest moments of the Biden administration, you said of America’s debts, deficits and decline that this is still fixable. And once Trump was elected that you expressed a lot of optimism that now that we at least have this chance during this very narrow window to fix some of America’s problems. We’re less than two months in and there’s been a lot of big moves, but also a lot of chaos.
So do you think this is the right trajectory to fix America’s problems? You’re right. In those days where Joe Biden was shaking hands with thin air and orchestrating what I would say is the most humiliating military fiasco probably in U.S. history, certainly modern American history, that withdrawal of Afghanistan and guys dangling from the landing gear of airplanes, the border crisis, the inflation crisis. I mean, it’s just sort of one thing after another.
And even with all that, I said, look, this is fixable. This is fixable. And there is it’s it’s conceptually not difficult, but it’s going to require concerted effort, focus, attention.
Unfortunately, I didn’t see anything. I said, look, I don’t see anything right now on the horizon that there’s any appetite to fix it. But there it is fixable.
There’s a very, very narrow window of opportunity. They need to start taking action right away. They don’t have time to mess around and wait.
And look, that very narrow of opportunity was why you were saying that if Kamala gets elected in four more years, that window is closed. Well, yeah, I mean, you had somebody who said, I don’t see anything. I wouldn’t do anything differently than Joe Biden.
So, I mean, you kind of knew what you were getting into there. That woman was a dingbat who didn’t have any concept or clue of what do you actually need to do? What is the what does the government need to do or more specifically stop doing to liberate the private sector, to unleash economic growth and productivity and prosperity? She didn’t have a clue about any of that stuff. And so when, you know, when when when the election went the way that it did, I said, OK, like this is this is this is at least you have somebody else.
And I think there’s there’s a chance. And I said, I think there’s actually a pretty decent chance they could pull this off. And we we said, here’s the things that need to happen.
We’ve talked about this on previous podcasts. I mean, I mentioned, for example, we talked about in order to unleash productivity, you’ve got to embark on a pretty aggressive deregulation and not in some radical way where it’s some, you know, kind of anarchic business environment or anything like that. It’s just really I think any any normal human being would probably agree that there are way too many rules and regulations that go on for hundreds of thousands of pages.
And if you look at what I would say to people, I said, if you look at the growth and regulations and you can see the amount of regulations over the past 15, 20 years has basically doubled. Right. It’s basically doubled.
So the code of federal regulations is so much bigger than it was before. And so the idea is that regulations somehow make us better off. They make us safer.
They make us more prosperous. You have to just kind of go back and say, are we actually are we twice as safe as we were 15 years ago? Are we twice as better off as we were 15 years ago? Are we twice as prosperous because all these regulations? No, of course not. Of course not.
And so I think just that that empirical evidence is enough for at least any rational person to say, OK, geez, maybe we probably need to to deregulate the ideas and to go so crazy and say, let’s let’s get rid of all regulations and kind of have an anarcho capitalist paradise. The idea is really to say, look, let’s just we just got to be sensible with this stuff. And so anybody that wants to say that there’s no regulations you can cut.
We’ve talked about some of this before. What was the one about the sexual odor of swine? We’ve got bureaucrats that are sniffing the pigs and trying to determine whether or not there’s too too pungent of a sexual odor. Do we really need this regulation? I mean, there’s just so many of these that you’ve got to really look at and say, OK, we can cut this stuff.
And we talked about this actually in twenty eighteen. We did the math on if they had just kept the budget the same in twenty eighteen, even adjusting for inflation, there would be no deficit right now and the United States would not be adding any more debt every single year. It’s the same.
That’s so hard. It was twenty eighteen like some crazy. It’s the same logic and spending.
Spending keeps going up. And I think any rational person should have to step back and say, am I actually better off if if government spending creates prosperity, if government spending gives us all these wonderful services, are we better off as a society because of all this additional government spending? I don’t think I don’t know that. I mean, unless you’re unless you’re a union boss or, you know, somebody that gets to abuse many of these government paycheck programs, I think for most people, especially people who are taxpayers, I think the answer is no, I don’t think people would feel that they’re so remarkably better off because government spending has gone up.
And so that’s kind of fundamentally the the premise in all of this is that you’ve got to roll back the spending. You’ve got to roll back the regulation. And I thought there was no appetite for that under the under the last administration.
There would have been no appetite for that under a camel administration. Now, it’s pretty clearly an appetite for that. And I think that’s obviously there’s a lot of momentum on that.
There’s some things that are going right. There’s some things that aren’t going right. But I think it’s I think it’s certainly better off than it than it probably could have been if it had gone the other direction.
And that’s what we saw last night when Trump addressed Congress is the resistance. What are they resisting? They’re resisting something that needs to happen in order to save America’s finances. Yeah, I mean, those people are deranged beyond belief.
I mean, it’s it’s it’s it’s it’s I’m glad everybody I’m glad it was this primetime special and everybody could see it. I know there were tens of millions of people that were watching. And people could sort of see I mean, you’ve got you’ve got you know, they make this announcement.
They say, oh, the terrorist who is responsible for masterminding the plot that killed all these soldiers in Afghanistan, and we’ve caught him and he’s on his way back to the US to stand trial. No applause on the left. Nobody’s happy.
Terrorist. Nobody’s excited about that. Right.
You know, you’ve got this poor woman that stands up whose daughter is was brutally killed by criminals that should have never entered in the United States. And, you know, people kind of give her an outpouring of support. No applause, no support from the left.
I mean, it’s just like, how how deranged do you have to be to to just you, you can’t even give a little bit of support to a grieving mother. You can’t you can’t be happy that there’s a known terrorist who’s going to get brought to justice. You can’t be happy.
But oh, we’re gonna we’re gonna go and shut down the border and stop the criminals. No, no applause. No, I mean, it’s it’s those people are so beyond deranged.
And the fact that there’s so many of them, they’re holding up the little signs. You know, one of these people that these people have been in Congress for decades, and they hold up a little sign, they said, save Medicare. And it’s like, well, wait a minute.
What the hell have you been doing for 30 years in Congress? And now now all of a sudden, you know, you you didn’t want to save Medicare under Joe Biden. You didn’t want to save Medicare under Barack Obama. Now, all of a sudden, you want to save Medicare.
And like, oh, I guess you have nothing to do with that. That’s that’s, as a congressperson, you have absolutely no say in that. I mean, it’s just the derangement of these people.
One of these entitlement spending programs that’s required spending, mandatory spending. So it’s one of those difficult things to cut. And you were telling me that the fact that very little attention has been given to Social Security is one of those things that you see as not one of better signs.
Social Security and Medicare. Yeah, remember, you got basically three buckets of federal government spending. So the first one is mandatory entitlement spending.
And so that’s, you know, your biggest chunks of that are Social Security and Medicare. And basically, everybody, including the president, everybody, pretty much everybody in Congress, everybody said, we’re not going to touch it. We’re not going to touch it.
Okay, well, that’s a problem. And the reason that’s a problem is because the Social Security and Medicare trustees, they put out annual reports, and geeks like us actually read those reports, pretty much cover to cover. And we actually we look at the assumptions, we say these, these assumptions that they’re making are actually a little bit optimistic.
But even under their rosier, optimistic assumptions, they still say, hey, our trust funds are going to these because they have these giant trust funds. And now every year that these programs are losing money, so they have to dip into the trust fund, just to keep be able to keep paying benefits. It used to not be that way used to be the program is collecting more in tax revenue than they were paying out in benefits.
And so the trust fund was increasing. Well, now it’s the opposite, the program’s losing money, they’re paying out more in benefits than the generating in tax revenue. So they’re actually dipping into the trust fund.
And now that they’re at the point where the trust fund is, is hemorrhaging so much cash, the trust fund is going to be fully depleted over the next several years. And so you get to the early 2030s. So we’re talking six years from now, seven years from now, you know, I mean, and that’s that’s under kind of relatively optimistic assumptions related to inflation, and some of these other things, those trust funds are going to run out of money.
And when the trust funds run out of money, there’s going to be problems for anybody who’s depending on Social Security and Medicare, they they’ve said, for example, in Social Security, that there’s this one, the trust funds run out of money, and they give you a date, they say, here’s the date, circle it on your calendar. This is when this trust funds are going to run out of money. And immediately, there’s going to be a reduction, a significant reduction, probably around 25% reduction in your Social Security benefits.
And that’s going to be, that’s going to be really, really difficult for millions of people that depend on Social Security, there’s some people that they get Social Security, it’s like kind of a joke, and they don’t really need it. Other people, they absolutely depend on Social Security. And the fact that they’re going to get a 25, immediate 25%, on the order of 25% cut, that’s a really big deal.
And frankly, that cut is going to get worse and worse and worse. And so that’s something that already sucks up such a huge part of the federal budget. And now it’s it and even with all that, it’s going broke, that program is going broken, it’s going to run out of money, and people are going to take a benefit cut.
And that alone is going to require trillions of dollars more in bailout spending and deficit spending just to kind of just as a temporary bailout for Social Security and Medicare. It’s a really, really big deal. And nobody’s talking about that.
Nobody wants to touch it. If only they had allowed Nancy Pelosi to invest the money from Social Security, then I think you’d be doing fine these days. I mean, just to be clear, that’s actually, it’s a joke, but you’re actually right.
That’s one of the issues with Social Security and Medicare is you have these trust funds that have trillions of dollars in these trust funds. Now, the United States has some of the best asset managers in the world. And if you had taken trillions of dollars, and sort of divvied it up among these asset managers and said, here you go, go and invest this money safely, etc., you have a lot of penalties.
If you lose any money, if you lose a single dollar, there’s going to be all these penalties. But if you do well, we’ll give you a piece of the upside, etc. I think you could easily have guys go out and make 6%, 7%, 8% on this money.
And instead, where’s all that trust fund money invested? U.S. government bonds earning basically nothing, basically nothing. So there’s a lot of opportunity costs that was a lot of potential investment return that was left on the table. Because they didn’t invest that money properly, they didn’t actually invest that money, they just basically gave it back to the government.
So it makes the deficit problem even worse. Because for the longest time, Social Security and Medicare, these trust funds, were actually net buyers of U.S. government securities. Now they’re net sellers, right? Because they’re drawing down on the trust funds, now they actually have to let those bonds that they own mature and get that money back just so they can pay out Social Security and Medicare beneficiaries.
So it’s a huge problem. And you’re right, if they’d actually turned that money over, and maybe they should give it to Nancy Pelosi, because she makes Warren Buffett look like a rank amateur by comparison in terms of the investment return. Just give it to Pelosi, go with the Pelosi option strategy.
The Paul Pelosi option strategy invests trillions of dollars. Man, they have so much money, they pay off the goddamn national debt in like three months. Did you see that Elon was taking flack for calling Social Security a Ponzi scheme? Man, I’m not surprised.
Yeah, like anything this guy says and does now that people have to go, oh, he’s a crook, he’s a thief, he’s a Nazi, he’s whatever. The article I read- Let’s hold up your track record against his track record. Here’s a guy who, you know, forget about catching rockets with chopsticks and all that.
Here’s a guy who’s actually gone out and found, depending on who you ask, billions, tens of billions, hundreds of billions, whatever it is, but at least he’s gone out on his own dime, on his own time, on his own accord, and found fraud, waste, and abuse to cut. And these people in Congress that are calling him a crook and calling him a Nazi, these are the people that are contributing to the problem. And it’s just like, I mean, normal people see this.
Normal people see this. It’s also the definition of a Ponzi scheme. You need more people paying into the system than are taking right now.
You need that base of the pyramid to continue to get larger in order to keep paying benefits. And the article I read was like, it’s not a pyramid scheme. This is how most retirement programs around the world work.
Well, I mean, most of them are pyramid schemes. That’s right. I wouldn’t call it a Ponzi scheme because the idea of a Ponzi scheme is that its intent is to defraud people.
But I mean, he’s directionally accurate when he says it, because what he’s ultimately saying is it is like a pyramid. You have to have more people, constantly more and more people to have one guy to be paid. The reason this is directionally accurate is because Social Security tracks this.
They call this the worker to retiree ratio. You need a certain number of workers in the system paying for each and every retiree. And the amount of that that you need, the higher, the better, right? If you have one guy in the workforce paying taxes to pay one retiree, obviously that one person in the workforce to pay one retiree, that one to one ratio, that poor worker, man, he’s going to have to pay shitloads of taxes in order to generate enough benefit income for the retiree.
If you have two workers, three workers, four workers, if you have a thousand workers paying taxes in the system for every one retiree, well, hey, that’s great because every worker now only has to pay a tiny, tiny part of their income. So clearly, the more workers you have, the better. But the problem is if you have a thousand workers in the system to pay one retiree, then suddenly those thousand workers retire.
Well, now you need a million workers in the system to pay for a thousand retirees. So it just keeps compounding, keeps going up, and that is like a pyramid scheme. And so he’s actually correct when he says that.
And the fact that people call him out on it and give him a tough time about it just shows that they have absolutely no concept of why there’s a problem in Social Security. They just don’t even understand the core basics of the problem. And the basics of the problem are, I mean, they’re numerous.
Number one is that the program is too generous. It’s too generous. It was set up at a time where life expectancy was much lower than it is today.
They weren’t really anticipating that people would be getting Social Security for 30 years, right? That just wasn’t really in the cards. It wasn’t in the calculation. I’m just laughing about you calling this too generous because people are going to freak out over that.
But you know how little they get paid each month? They do get paid little. But the idea is that if you look at the intent for Social Security over time, the idea was, number one, that your usefulness to the labor force was sort of over in your early 60s. And that’s no longer true.
And that was back at a time when they started Social Security. What were so many workers doing? They were out working at the goddamn Tennessee Valley Authority. Right, exactly.
And so you couldn’t do that when you were in your 60s anymore. But now what are people doing in their 60s? They’re consultants and they’re executives and they’re knowledge workers. And sure, there’s still some guys that are bricklayers and janitors and stuff like that.
But so many more people can actually still be productive in their 60s. So the idea was, back then, you couldn’t, most people couldn’t continue working in their 60s and they weren’t living as long. Right.
And so you had to pay people who couldn’t work and you weren’t really, the idea from an actuarial perspective, sort of a life insurance expectancy, life expectancy actuarial table, you weren’t really intended to pay them for that long. And now the idea is like, yeah, people that are, they view this not as like, oh, I have, like, I can’t work anymore. And if I don’t have some supplemental income, I’m just going to starve to death.
Now it’s like, hey, I’m retired. Now I can, now I can, now I can go to Europe and, and, and, and do all these things and travel and whatever. Like that was never the idea.
And Roosevelt was a pretty hardcore, you know, leftist when they, when they created all these programs. And even a guy like Roosevelt, you’ll never find any record of Roosevelt going, hey, you know what we need to do? Let’s make a program where people can go and fuck off to Europe and, and, and travel the world and all this sort of stuff. That was never the idea.
This was the great depression when they started social security. It was the great depression. Let’s help them not die in the streets.
Let’s make sure they don’t die in the streets. That’s what it was. It’s, we need to make sure that people are able to stay alive, just barely, because if we don’t, we’re going to have an even bigger social crisis on their hands.
It’s not, let’s go, let’s let, let’s give everybody the means to, you know, whatever, retire and do all these things. And obviously there’s a lot of people today that there’s, I was reading this, this article in the wall street journal, not long ago, there are some people that for their retirement, they depend exclusively on social security, exclusively on social security. And that’s, yeah, it’s not a lot of money.
It’s not a lot of money. You got to make some difficult choices. And there’s a lot of seniors that have to choose between, you know, make very difficult choices.
I got to pay my electric bill or I got to buy food. I got to buy food or I got to buy medication. I got, you know, and that’s hard, man.
And sure. Like that’s also part of the math is that there are people that are now living into their eighties and nineties. And yeah, obviously like those guys can’t work.
I mean, if you’re in your sixties and you know, you’re, you’re, I mean, you’re healthy enough and you can do a lot of things that was never really contemplated during the great depression when they passed this program. And so this is what I mean by, it’s a lot more generous because it’s, let’s just say, instead of generous, let’s say it’s more costly to the taxpayers than it was ever intended to take people out of the workforce who are still viable workers that can still work, but basically choose not to because they would rather retire. That was never the point.
And, and the idea happens to a lot of government programs though, is that they start with this small intention. It’s the camel’s nose under the tent and they grow and they grow. And then they become something that you can’t do away with because what are we going to do without USAID? What would we ever do without the department of education? Well, with social security, you’ve got, you’ve been making promises to people for 50 years, right? Somebody joins the workforce when, when, when, when he or she is 19, you know, and they go, they go through decades of that paying taxes, believing, okay, when I’m 65 or whatever it is, I’m going to retire.
Maybe I’ll wait until 67, 68, I’m going to retire. And so, you know, moving the goalposts on them all of a sudden you are kind of breaking a social contract. But honestly, if you’re, if you’re, if you’re intellectually honest about it, which is hard to do because sometimes, you know, we’re told these things forever and people go, Oh, how could you say that about social security? If you’re intellectually honest about it, think about the origins, what it was intended to do.
Great depression, 1930s, people are starving the streets. There’s no jobs anymore. And those very few jobs that were going to be, you know, you know, given people that were going to be hired, it wasn’t going to be people in their sixties, right? You have massive, massive unemployment, particularly for lower skilled workers.
And so like day laborers, they’re going to get hired. It wasn’t going to be a 65 year old guy. It was going to be somebody in his twenties.
So the guy in his sixties just didn’t have any chance of getting a job and was going to starve to death. So I said, let’s have a retirement program. That’s where social security came from.
And between then and now it’s a totally different program, totally different expectation, totally different life expectancy, ipso facto, totally different cost to the taxpayer as a result of that. So yeah, it’s a lot more costly than it was ever intended. And this is the biggest budget item that’s, that’s causing these deficits and these debts, but there’s a lot others as well.
So what happens, what are the consequences if the debt and the deficits isn’t reined in and taken under control? Well, we didn’t get to the other buckets, right? So that’s, that’s really what it comes down to. You’ve got mandatory entitlement spending like social security and Medicare. You have, you have interest on the debt, which is just massive $1.1 trillion and rising, right? $1.1 trillion in the last fiscal year.
Then you’ve got the last bucket is discretionary spending. Discretionary spending is basically everything else. This is stuff that Congress argues about the defense spending and homeland security and all these different things that all comes out of the discretionary budget, even aid to Ukraine or aid to Israel, all these things that comes out of the discretionary budget.
And so all that together last year alone in the last fiscal year, 100% of tax revenue, 100% of tax revenue was consumed just on mandatory entitlement spending and interest on the debt. So basically all 100% of discretionary spending was debt fueled. They had the entire budget deficit, just for discretionary spending.
And that’s a pretty big deal. And so the idea is if they don’t get this under control, that’s just going to continue to spiral out of control. The deficit spending is going to continue and rise, which means that all that’s basically going to create more debt, more debt means more interest payments.
And it just creates this vicious cycle because the more, the higher the debt gets, the higher the interest spending gets. And the higher the interest spending gets, the more they have to spend, the higher the deficit spending goes, the more debt and it just becomes this cycle. And pretty soon here, interest on the debt is already basically the number three most expensive line item in the federal government, just behind social security and Medicare.
So social security and Medicare, and then interest on the debt, then defense spending. And in a couple of years at this trajectory, defense spending, sorry, social security and Medicare are going to be surpassed by interest on the debt. So that’s a really, really big deal.
It’s a very, very big deal. That’s what happens if they don’t get this under control. And ultimately, in the long run, that either leads to a massive, massive financial crisis, or it leads to a hell of a lot of inflation.
And I think the most likely answer to that is inflation. And that’s because the federal reserve is going to have to print that money in order to buy that debt because there’s not going to be any buyers left of that debt. Right.
If you’re running a $3 trillion budget deficit every year, which is completely in the cards, I mean, it’s completely in the cards, a $3 trillion budget, where are they going to get that money from? You can go and kind of beg, borrow and steal from individual investors, from companies, whatever. But at the end of the day, there’s still going to be a gap. And so who’s going to come up with that gap? Well, there’s basically one of two things that’s going to happen.
Either the interest rates on federal government debt are going to rise so high because they have to coax capital out of other markets. They have to say, people go, oh, they got all this money tied up in Nvidia stock and Apple stock and all that. And we want people to sell their stock and buy treasuries.
How do we do that? Well, we increase the interest rate. So interest rates are, just as an example, like US government bond yields are like 1%. And somebody’s got a bunch of money invested in the stock market and they feel like their stocks are doing really well and they’re happy with their investment return.
Who the hell wants to sell their really well-performing, profitable businesses to go buy government bonds of the most heavily indebted government in the history of the world for a big fat whopping 1%, which by the way is going to be even less than inflation. Nobody’s going to do that. So the only thing that the government can do in response is to raise the rates, raise the coupon, raise the yields through market forces.
And so the yields go up and all of a sudden, if they go, oh, well, that same government bond is now paying 15%. People go, oh man, that’s pretty attractive. Maybe I will sell some of my stocks to go and buy that.
So the consequence of having really, really, really high interest rates is that interest rate cascades across the entire economy. If government bonds are paying 10%, 15%, 18%, well, guess what happens to mortgage rates? Guess what happens to auto loans? Guess what happens to, I mean, everything, corporate debt, everything goes up and that makes life more expensive for everybody else. People don’t like paying 7% for their mortgages.
Imagine paying 15. It’s crazy. So the other consequence of that, of course, is that the government’s interest bill, if they’re paying 15% of their money, all of a sudden the government’s interest bill is going to go through the roof and it just makes the problem even worse.
Now, all of a sudden, the annual interest bill skyrockets. Now they have to borrow more money just to pay interest on the money they’ve already borrowed because they’re paying freaking 15%. So it just spirals out of control very, very quickly.
And then all this money is just going to stupid stuff like interest and it leaves less money for everything else. You get to a point where the vast majority of tax revenue and even that beyond tax revenue, the money that you have to borrow, all of that goes just to pay interest. And you can’t possibly be a superpower of any kind, an economic superpower, a military superpower, geopolitical superpower, if the majority of your funds, whether it’s tax revenue or even incoming debt, is all going just to pay interest on the debt that you already have.
You’re not a superpower anymore. That’s a big problem. Well, and that was my next question, is that some of the spending that people act like is just a given.
Of course, we should just write blank checks to Ukraine, of course, USAID, whatever it takes to pump into the international community in order to keep America on top and to keep the reserve currency alive as well. Is that one of the goals of this international spending and this bonanza of America is involved in every single thing that happens? This is the concept of soft power. And so the idea is that if you’re the dominant superpower, you have to project that by being the most generous nation in the world.
This is something that Marco Rubio was talking about it recently, Secretary of State in an interview. And he was saying, even USAID aside, we’re going to get rid of all this corrupt spending and America is still going to be the most generous nation in the world. That’s great.
That’s fine. That’s kind of this idea of soft power. You kind of need to be generous with yourself first.
And the idea of I was talking about this too. We had a total access event over the weekend in El Salvador, which we should talk about at some point. Really, really interesting place.
Really interesting place. And I was talking about this idea. It’s like you go and you make these cuts and they say, oh, we found all this waste over here and all this fraud over here.
We’re going to make these cuts. And what are we going to do with that? It’s like, oh, well, we can give over here or we can provide some more spending over here. Or maybe we can give that money to Ukraine and all this sort of stuff.
I made a joke and it’s like you find out, you look at your credit card bill one day, you’ve been spending all this money on your credit card bill month after month. It’s like this auto draft. The money just gets sucked out of your bank account and you never even look at it.
And then all of a sudden, one day you actually look at your credit card bill and go, why am I paying for 25 Netflix memberships? I don’t have 25 Netflix memberships. You’d find out there’s just all, you’d realize like, hey man, people are stealing from me. Somebody got ahold of my credit card and they’ve been charging all this stuff.
I never ordered anything from such and so, whatever. And so you start, you’re calling up Netflix and say, cancel this, cancel that. You call the credit card company.
You say, you dispute a bunch of charges. And then all of a sudden you have all this savings and your credit card bill goes down dramatically because you get rid of all that fraud. And what do you do? You start writing checks to the grandkids.
And it’s like, no man, like you’re in debt up to your eyeballs. Your credit card debt is through the roof. You use that savings to pay down the debt.
You got to pay down the credit card debt. Like that’s how you put yourself in a position of strength. You send the checks to the grandkids later after you pay down the credit card debt, you got to be generous with yourself first before you can be generous with other people.
Because by being generous with yourself is how you put yourself in a position of strength. And there’s some things that I see that I think that’s happening. And there’s some things that I see where I go, that’s not happening at all.
And as you were pointing out, social security and Medicare, there’s no, there’s zero appetite. And this is a multi-trillion dollar ticking time bomb. And this is not me being bombastic.
I’m not being overly dramatic. In fact, I’m actually underestimating the size of the problem. And if you don’t believe me, I would encourage you to, I’m not going to say Google, I’ll say just search.
I use Brave, big fan, and look for the annual trustee report for social security and Medicare. And you’ll see for yourself, they write this stuff up and they say, this is the size of the problem. This is how quickly we’re going to run out of money.
This is what happens when we run out of money. This is how much it’s going to take to bail out the program. And this is a number that goes into the tens of trillions of dollars.
So you cannot possibly gloss over it and just go, Oh, it’s going to be fine. And you know, la la la la la, you stick your head in the sand and just ignore it. That’s a dangerous approach.
And I don’t like it. They need to confront this head on. And you’ve got, you know, on one side, people don’t want to talk about it.
On the other side, people holding up their stupid sign that said, save Medicare. And it’s like, man, you had 30 years to do this in Congress, 30 years, and you did nothing. And now all of a sudden you’re playing the innocent babe.
You’re playing the victim that, Oh, Oh, I never had anything to do with this. And it’s somebody else’s fault. Like that is so intellectually dishonest.
And I don’t think people are stupid enough to think that somebody who’s been in Congress for decades, isn’t got to be held responsible for so many of these issues and so many of these problems. It’s a joke. It’s a total joke.
But that’s a big problem is that there’s on the social security and Medicare front. Nobody wants to do anything about it. There are things that are going very well, but that is a problem.
It’s absolutely a problem. That’s on the side. If I, if I, if I have to sort of make two lists, which I actually did this weekend for our total access members, like here’s the things that are going well, here’s the things that are not going well, the lack of any kind of anything on social security and Medicare.
In fact, the willful decline to do anything on social security, Medicare, that’s square. That’s number one on the list of things that are not going well. Well, what about foreign policy though? Is that something that’s going right? Or is that something that’s going wrong? Because in the past, we’ve talked a lot about maintaining the U S dollar reserve as the, as the global reserve and how that gives America power, but it also gives economic power to Americans who use dollars.
So is that important? And is that happening or is what Trump is doing, you know, stopping Ukraine aid and basically making Europe step up and finally say, okay, this is our problem. And if America is not going to solve it for us, then we’re going to increase our military spending. To me, I say, good, that is your problem.
Maybe it is time that you take this leadership role from the U S but it does represent the United States taking a step back from that leadership. Yeah. I think if you’re, it depends on your perspective, it depends on your priorities, right? The idea of, wow, once and for all, wow, Europe actually has to step up.
Britain, oh, look at Britain with its big fat whopping 25 main battle tanks that it has is taking a leadership role in this conflict and trying to bring it into it and trying to talk tough all of a sudden. I think you could make two arguments if you’re intellectually honest about that. And number one, you could say absolutely, hey, it’s your problem, not our problem, you go deal with it, or at least you take the lead on that.
And that’s, you know, yeah, you could say that argument. On the other hand, you could also say, and I think it’s a valid argument, again, if you’re intellectually honest by seeding all that kind of role and say, all right, Europe, you go deal with it. You are in a way, you are in a way seeding your global, America’s global leadership role.
And so it depends on what do you really prioritize? And I think it’s actually an interesting question to ponder, because in the Democrat response video last night, you had this lady, this new senator come in, and basically, you know, she had, again, the my cousin Vinny approach. It was everything that guy just said is bullshit. And, you know, we’re just supposed to accept that at face value.
And tried to make to some reason, try to reason through the argument, of course, the reason that the thing that the media always loves to say, every time this dude says anything, they always say, the president said, without basis, without evidence, you know, so here’s, here’s somebody that says without evidence that he’s trying to create all this benefit for his billionaire buddies, and all this sort of stuff. I mean, there’s the thing about the leftist is that everything they say, they say as if it were self evident. And it’s so irritating, right? Because they just go, of course, of course, he’s shredding the Constitution.
Of course, he’s, of course, he’s a Nazi, of course, he’s the all these things that they say about him. And they just make these assertions of this as if they’re self evident, and don’t have to provide any evidence. But everything that you know, Elon says, for example, ago, Elon Musk said, comma, without evidence, comma, you know, blah, blah, blah.
So like, Elon apparently has to justify and cite everything that he says. But Nancy Pelosi doesn’t because she’s so honest. I mean, it’s, it’s just it’s such a joke.
But anyways, this, this, this, this senator goes on and basically has this whole view about we can do this. And we can do that. And I don’t remember exactly the quote, but she was basically saying we can do this and still be true to our values.
And the argument was essentially, we can have our cake and eat it too. And the my answer to that is no, you can’t. No, you can’t.
That’s what you tell little kids. You tell little kids, you can be anything. And you can, you know, do all those things in the rallies.
No, actually, you can’t. There’s like certain things that you’ll learn in your life that you’re good at. There’s certain things you’ll have the aptitude for there’s certain things, you know, that I’m never going to be the starting quarterback for the Dallas Cowboys.
And I’m just going to have to be okay with that. And I, you know, realistically, I never had those skills. And it’s just it, you know, it is what it is.
And, and, you know, when you get a certain point in your life, you got to be honest and realistic, and your assessment, and you’re at a point now where you’ve got a $36 trillion debt, you’ve got $1.1 trillion in annual interest, you got a lot of these issues and competing priorities. And so maybe you can’t afford to be this global leader that’s, you know, shoveling hundreds of billions of dollars around the world, maybe you can’t actually afford to do that anymore. And maybe you need to recognize it.
Or maybe you actually need to have a serious discussion about priorities. And you get together as a Congress as a Senate and say, we really what’s our vision? What do we really feel like we need to be? What’s the priority? But is there Have you seen any rational discussion from these people? Have you seen opposing sides sit down and try and determine what’s the priority? What do we want to be as a nation? How do we want to project ourself? No, it’s just I’m this way. Oh, and if you’re that way, then I’m going to be the I’m going to take the opposite position.
And we’re just going to fight. Everything’s always fight. That’s one of the words she kept using over and over again, we got to fight, you have to fight, everybody’s got to fight.
And and I it’s, it’s, it’s those, it’s those little, I believe, the younger generations call them microaggressions. All right, it’s, it’s these little, it’s these little things that people come out and, and use these words. And I think it’s part of those little things that continue to sow the seeds of division.
And I’m tired of being told that I have to fight. Right? I would rather and you never hear them say, we need to agree. Right? We need to agree with one another.
We need to we need to we need to compromise. We need to unify. Hey, you know what, you’re not going to get everything you want.
You’re not going to get everything you want. But there’s a whole lot of part in the middle that we can probably agree on. And let’s let’s start from there.
Let’s agree with one another. No, it’s we got to fight. We got to fight.
And then and then, you know, it’s, it’s, it’s, they, you know, they lead the fight, they go and they, you know, they stand and you get these idiots like Chuck Schumer, you know, every time something goes in the wrong direction, they go and they start calling for the, you know, go, go, go and find those people go out in the streets and get in their face and intimidate them. They’re actually kind of calling for violence, in some respects, at least coercion and intimidation. And that’s, it’s just, I feel like all those people, regardless of what side they’re on, when they keep calling for fighting and fighting and fighting, I think those they all need to be thrown out.
And at this point, I think you need people that are just willing to say, let’s agree and let’s compromise. So that’s a, that’s, that’s a big, that’s a big part of it. But yeah, I think that I think the country first has to start with, are we actually in a financial position to be the superpower to be that to provide that soft power to be the big dog that we once were back in the 90s, when America was the world’s policemen and the Clinton era? I don’t think I don’t, I personally, I don’t think that they’ve got the financial wherewithal to do that.
And if they are going to do that, then it’s got to come at a sacrifice. And all the people are saying, we got to keep shoveling this money to Ukraine. I go, great.
What are you willing to give up then? What are you willing to give up? Or do you want to make such, do you want to make cuts to social security? You know, like sign up for, you know, sign here, sign up for something, pass the hat, you know, put in the money or what do you want? Are you willing to have tax increases, you know, and, and usually if you find the answer is no, it’s like, oh, well, people can pay those taxes, but not me. I get to decide how the money’s spent, but other people should have to pay for it. It’s just, that’s, that’s just a, that’s a ridiculous assertion.
Well, when it comes to the debt, I know we’ve talked about in the past how it requires having buyers. And a lot of those buyers are foreign governments and central banks. And the only reason they really want to buy that debt and continue financing America’s spending is because the dollar is the reserve currency of the world and you need it for international trade and they hold it as a reserve.
Does the, does maintaining the reserve currency status of the U.S. dollar, is that required in order to get America’s debt under control or actually allow it to continue taking on massive debts? We talked about previously that over the next four years, there’s $28 trillion of U.S. debt that’s going to mature. That’s a big number, right? It’s a big number. The, the debt, right, the national debt right now is $36 trillion.
So you’re talking about 28 out of that $36 trillion is going to mature. A big chunk of that is owned by foreigners, right? So if foreign governments and central banks are so fed up with the U.S. right now, and I’m not just talking about Russia and China, I mean, France and Germany, and a lot of people could go, ah, I’m so tired of this guy. And this is, this is, you know, when you talk about foreign policy and say, is this going well? And said, well, it depends.
If your, if your view is, who cares? We’ve got to save money. That’s not our problem. You can make the argument that it’s actually going very well.
What do we, what do we care if France is upset with us? What do we care about if the UK is upset with us? And if that’s your view, then you could say it’s going very well. But there is a consequence. And the consequences is that these people own a lot of U.S. government bonds, and you need them to continue buying U.S. government bonds at a minimum when that $28 trillion of bonds mature, and a big chunk of that matures and has to be paid back to foreigners.
You want those foreigners ideally to go, you know what? Sign us up for another couple of years. You know, let’s extend, let’s refinance those bonds. I’ll buy another five year, I’ll take the proceeds and buy another five year bond.
What happens if they don’t? Well, if they don’t, then you get back to what I was talking about earlier. They got to coax that money. They got to, if it’s private capital, they got to go to investors and say, hey, why don’t you sell your Nvidia stock and buy this government bond? And people are going to go, no freaking way.
And say, well, how about I pay you 12%? How about I pay you 15%? People go, oh, okay. All right. I’ll sell my stock, right? So what happens? Stock market falls, and people go out and buy government bonds.
Real estate market falls. Crypto falls. I don’t think crypto buyers are buying government bonds, but a lot of other asset classes, those, you know, those basically fall.
There’s less money to go into other things, other capital markets, et cetera. And they go into the bond market, buy government bonds. And so that’s, that’s going to be, that’s, that’s one of the consequences is lower asset prices.
And like I said, the other consequence is higher interest rates, which is bad for most Americans, especially people that are heavily in debt, bad for people that want to buy houses, bad for people that want to borrow money to buy a car, bad for businesses that need to borrow money for expansion. And most of all, it’s bad for the federal government because now their interest cost keeps going up and this whole, you know, interest expense, annual interest expense continues growing. But what happens to the $28 trillion? That money doesn’t disappear.
So what did those countries do? No, it’s not going to get paid back, right? So the other, the other, the other answer is that they get paid back because the federal reserve steps in and prints that money. And when the federal reserve goes in and prints money again, they printed a few trillion dollars during the pandemic, we got 9% inflation. So if they have to print another, even if it’s, you know, five, $6 trillion over the next four years, what are we going to get? We’re most likely going to see more inflation for the federal reserve to print the money to buy those bonds.
And then what happens? Those U.S. dollars make their way back overseas to you know, they, they, they get paid back to the foreign governments and central banks, and they’re sitting on, on U.S. dollars and they do with those dollars, whatever it is they want to do, right. They could, they could take those dollars and buy gold, which is what a lot of them have been doing. They’ve been buying gold.
They’ve been buying, you know, various other assets. And I think the question you probably have is, well, eventually those dollars are, are going to end up somewhere, right. Somebody is going to have those dollars.
They go and they buy, you know, they buy gold. Well, whoever sold them the gold, now that person’s going to have dollars and what do they do with the dollars? Right. And it’s a little bit of a hot potato, but at the end of the day, they could just, you know, they end up buying, I mean, you could buy a lot of things, right.
You don’t, you can, you can take U.S. dollars and buy a lot of things other than U.S. government bonds, right. They can invest it in whatever they could, they could put it back and they go, Oh, look, all these investors sold their, their Nvidia stock and their Apple stock. Those look cheap.
Now, maybe they ended up buying those and prop up the stock market. Maybe they buy U.S. real estate. Maybe they just buy various goods and services from the U.S. right.
They import- And balance the trade deficit because- But it would be temporary. It would be temporary. Right.
They would, you know, there’d be a essentially kind of a, it’s not necessarily there’d be a temporary trade balance, right. Because the U.S. would be exporting, they’d still be importing. So it’s hard to say, but eventually you could say somebody sitting on a trillion dollars, they could, they would essentially have a trillion dollars that they could use to import U.S. products and services and pay for that in U.S. dollars.
Right. But eventually it’s like having a gift card, you know, once, once, you know, once your gift card, this is, this is my Prenuvo gift card. I just did a Prenuvo the other day.
It was one of these like kind of MRI screenings, right. They gave me a $200 gift card. Once this $200 gift card has been used up, it’s done, right.
There’s no more, you know, it’s, it’s that, that money is, you know, now back on the Prenuvo books and, and I’m out of that money. So it’s the same way as somebody sitting on a hundred billion dollars of U.S. dollar reserves and they go and import whatever, California raisins and almonds, whatever. And they go through billions and billions of dollars of stuff.
Eventually they run out of that money. They’ve imported all those goods and services. They essentially trading the dollars for U.S. goods and services.
And then eventually it’s done. That money’s run out and all the money ultimately ends up back in the United States. And again, that can be inflationary.
That can be inflationary, right. Represents more money in the system because they have to get it either from investors who pulled that money from a different investment, or they have to create it from the federal reserve. But either way, that’s more liquidity in U.S. dollars.
You have more dollars in the system chasing around the same amount of goods and services. That’s basically it. It’s, it’s, if, you know, if you have an economy where you’ve got, you know, exactly one product, you know, you’re producing one, whatever, air conditioning remote every single year, and you have $1 in the economy, guess how much it’s going to cost? It’s going to cost $1.
Now, if all of a sudden your central bank comes in and floods the system with hundreds, thousands of dollars, but you’re still only producing one thing per year, then the price of that thing is going to go up in price, right? That’s, that’s, that’s what essentially inflation really is. Always and everywhere a monetary phenomenon. So that’s how inflation really gets created.
They conjure lots of money out of thin air. There’s a flood of liquidity into the economy, a sudden flood of liquidity, but your economy isn’t producing any more goods and services. So you end up with inflation.
During the pandemic, we talked about last time, they actually, they shut down the economy, right? So you’re producing fewer goods and services because everybody was cowering in fear in their basements over the virus. So you have fewer goods and services, and then the government starts handing out stimulus checks to everybody. So there’s more liquidity in the system, fewer goods and services.
Oh, what a surprise. We got inflation as a result of that. You have fewer goods and services and more liquidity in the system.
That’s where the inflation comes from. So, so that it’s basically the same effect in this case. We had a, we had a question from a reader that was asking about the trade deficit.
And you were telling me that the trade deficit is inevitable if somebody, if the U.S. has the reserve currency. Why is that? This isn’t my idea. There was an economist long ago named Robert Triffin, and it’s, it’s known in economics as Triffin’s dilemma.
And the idea is basically at the, at the end of the day, it’s that a, a reserve currency is never going to stand forever. And the reason why is because if you’re the reserve currency, because you’re the world’s nation, the most advanced nation, if you’re the richest country in the world, you no longer have a lot of competitive advantages, right? You’re not able to manufacture a lot of things that you used to in any way that’s competitive because a lot of these poorer countries abroad, they’re going to be able to do it a lot less, a lot cheaper than you can. Right.
So they have these competitive advantages in a lot of key sectors. And so they start now having to export to you, you start importing from them. So your trade deficit starts to rise and the rise of your trade deficit starts to make your, your currency look unattractive.
You start importing a lot more, you start going deeper into debt, all these different things because you’re that, that wealthy nation. So inevitably your currency becomes unattractive because of these deficits that end up taking place. And eventually the world just kind of says, you know what? We want another reserve currency because this currency is no longer strong like it used to be.
That’s something that’s called Triffin’s dilemma. And it gets a little bit more complicated where they start getting into capital accounts and current accounts and trade deficits and these things. But at the end of the day, that’s kind of what the, what it is in a nutshell is the idea that you just can’t be in the top spot forever, which is also why no reserve currency in the history of the world has held that spot forever.
No dominant superpower has lasted forever. They’ve always had, you know, they’ve succumbed to their debt challenges and their currencies have gone by the wayside. And the world kind of moves on from that going back to the, you know, the Byzantine gold solidus that got displaced by the Venetian ducat or the British pound that got replaced by displaced by the U S dollar.
So this is something that’s, that’s kind of inevitable. These days, it’s not as inevitable. And in theory, it could last longer simply because as the world’s wealthiest and most advanced nation, you do have certain economic capabilities that others don’t.
Right. So the U S economy is no longer producing socks and underwear, right. To the degree that it used to, I mean, you go back to the 1950s if you ever saw that show, mad men, you know, it’s just like the, the advertising agency in the 1960s.
And so you have all these guys, I remember there’s like one episode where the guy who’s manufacturing like umbrellas and he comes in and he wants this advertising campaign. I’m like, oh my God, just imagine this big umbrella manufacturer in the United States. And of course, it’s, it seems ludicrous today that somebody would be manufacturing umbrellas, at least to the point that it’s like this massive umbrella company who maybe I’m wrong.
Maybe somebody is manufacturing umbrellas, but it’s just those sorts of like low end goods. Those, you know, those went overseas a long time ago, but that’s okay. Because there is, you know, there is this concept of, of comparative advantage in terms of you as a country do things better than we as a country can do.
So, you know, the French are going to be able to do certain things just better than what Americans can do because whatever they got cultural things, you know, they’ve got their cheeses and certain wines and certain things that are just going to be able to do better. You know, the Chinese are going to be able to do certain things better. The Taiwanese are going to be able to do certain things better.
I’m not talking necessarily like because of any kind of cultural things in those places, but just because they have different infrastructure, they have different cost structure, all these things that they’re going to be able to do better, but there are certain things that the U.S. is always going to be able to do better and has a lot of advantages. And the big thing that the U.S. has a lot of advantages in is in intellectual property type businesses, services and intellectual property. And these happen to be extremely high margin businesses, right? If you’re in low end manufacturing, manufacturing umbrellas, your profit margins are really, really low, right? That’s not a high margin business.
Making umbrellas is not a high margin business. And so countries that specialize in that low value, low end manufacturing, those tend to be very low margin and hence not very prosperous countries because they’re involved in these industries that just aren’t that profitable, right? Then you’ve got other types of manufacturing like Taiwan, for example, that does all this very high tech manufacturing. They manufacture microprocessors and semiconductors, and that is actually very high margin.
Taiwan Semiconductor makes a lot of money. Taiwan Semiconductor’s gross profit margin is like kind of on the order of around 60%. That’s good.
That’s pretty high. It’s one of the biggest companies in the world, I think. It’s a very, very large company in terms of semiconductor manufacturing.
They’re pretty much the big dog, right? So they’ve got like a 60% gross profit margin in a manufacturing business. That’s good. That’s really good.
And so this is one of the reasons why Taiwan is more prosperous than, for example, Vietnam, which is also a big manufacturer, but Vietnam’s manufacturing low end products, little knickknacks and little things like that. Those are very low margin businesses. Well, so you don’t need the reserve currency to be prosperous then.
There’s other countries that have plenty of great things going for them, great economies, and they don’t have a reserve currency. So why- Taiwan’s an example. Taiwan is prosperous.
It’s not the global reserve currency. Nobody around the world uses the new Taiwanese dollar for global trade. It’s not happening, right? And yet Taiwan is a prosperous place, and they’ve got a great solid economy and growth and manufacturing sector and all these things, and they’re doing great.
The US has that potential as well. I mean, the US is exporting lots of intellectual property. You’ve got some incredibly intelligent people in the US and engineers and developing software and hardware and all these things as a result of that.
And that, in many respects, is an export that doesn’t really get included in a lot of the numbers. And so that’s a very, very high margin business. It’s extremely high margin business.
You look at the profit margins for a lot of these big tech companies, they’re just off the charts. They’re off the charts. And so you don’t really need to have the global reserve currency in order to be prosperous.
Singapore is another example. Singapore is not the global reserve currency. They’ve got an incredibly healthy economy, vibrant economy.
They’ve got high tech manufacturing. They’ve got services. They’ve got finance.
Switzerland is a great example. I mean, there are a lot of countries in the world that are not the global reserve currency, and yet they do just fine. So should the US bother spending money and getting dragged into every global conflict in order to maintain the global reserve currency? Why bother? That’s a valid argument, right? And it goes back to the idea of where you’ve got to actually have sensible, responsible people that are willing to talk to each other and make a determination of what are our priorities? What is it that we really are trying to accomplish here? And this idea of we can do this and that.
We can walk and chew gum and have our cake and eat it too and all these things. And you go, I’m not so sure that’s true. And if it’s true, it’s only true if you do the things that you have to do.
You’ve got to cut all the regulations to unleash productivity in the country. You’ve got to really cut spending by hundreds of billions of dollars and try and bring the deficit back in line. You’ve got to do these things.
And if you do that stuff, then you might still stand a chance of being able to walk and chew gum. Otherwise, you might need to shrink a little bit. You might need to shrink your global influence.
And maybe you decide you’re not. And by the way, not being the dominant reserve currency doesn’t mean that the rest of the world stops using U.S. dollars. The U.S. is still a massive market.
People are still going to be buying iPhones. People are still going to be doing all these things. And so, of course, there’s still going to be demand for U.S. dollars around the world.
What does it mean? Maybe it means that if Australia is doing business with South Africa, maybe they don’t close and settle that trade in U.S. dollars. Maybe they figure out some other thing by which they can do that. Maybe it’s some other, maybe it’s gold.
Maybe it’s some other super national currency. Maybe it’s some new central bank token, whatever. There’s a lot of different options in that, but nobody really knows for sure.
But I think that there will still be demand for U.S. dollars. Of course, there’ll be demand for U.S. dollars, but not anywhere near the level it is today. And that’s an option.
And it’s what we’ve been talking about. The concept that we have is there would be controlled demolition of the U.S. dollar as the global reserve currency, that while the U.S. is still strong, while the U.S. is still powerful enough, that they would sit down and say, all right, all right, all you guys sit down and let’s hammer something out. But the U.S. would be the one to actually dictate that.
They would be the ringleader where you get the Chinese to the table, you get India to the table, you get Europe to the table, and you sit down and you go, all right, fellas, here’s what’s going to happen. All right, we’re going to do this. We’re going to try and get that.
We’re going to reduce our deficit. But you guys are going to take some of these hundred year bonds. You’re going to have to pony up here because it’s what John Connolly said, who was Treasury Secretary under Richard Nixon.
John Connolly was formerly the governor of Texas. He was the guy that got shot with John F. Kennedy, but survived, went on to become Treasury Secretary. And when Nixon made the big announcement that he was taking the dollar off the gold standard, it was shortly thereafter, he sends John Connolly, his Treasury Secretary, to Rome.
And Connolly took that approach. He looked everybody in the eye and said, the dollar is our currency, but it’s your problem. And people were kind of stunned by that.
And they thought about it and they said, well, geez, you’re right. Because they all had dollars, they’re all doing business in dollars, they all own dollars. And so if the dollar tanked, all of those countries were going to lose.
And Connolly was like, hey, we’re America, we’re still this massive economy, still this huge country. We’re still all these things. We still have all this wealth.
We got oil, we got minerals, we got food, we got all this stuff. What do you got? Nothing. You depend on us.
So what are you going to do about it? What are you going to do? And he was right. And back then, they actually had the power still to pull that off. Today, you’ve got all these competing interests.
India is becoming huge. China is enormous. You’ve got all these different sort of things happening in the world that you can’t necessarily bully anybody into, you can’t bully everybody into a deal, but you’re strong enough, you can get everybody to the table.
And I’ve said this for a long time. I said, if I think that if the dollar loses its reserve status, it’s through a document that has the Treasury Secretary’s signature on it. And probably at a convention that was called by the United States, right? And it could be, if they do it right, then that’s probably the outcome.
If they do it wrong, it’s because they waited too long and it’s the Chinese or Europe or whoever that ends up kind of pushing the issue. But if they want to be proactive about it, they would say, all right, let’s sit down and figure out what the new system is, what it’s going to look like, who’s going to participate, all that sort of stuff. This gets back to that narrow window of opportunity.
So do you think this, based on the behavior of the Trump administration so far, do you think they can’t come out and say that we want to end the dollar as the global reserve currency, but they have said things like they want to balance the trade deficit and they want a weaker dollar in order to do that. Are they setting this up? Could you see them doing this controlled demolition of the dollar’s reserve status? I think it’s possible. I think there’s some very smart guys in the treasury who get it.
I mean, some of whom I know personally. I mean, there’s some very smart guys in the treasury department and people that really understand these issues. So it’s possible.
It is possible. Are they going to do it? I don’t know. I really don’t know.
I mean, this is not something they haven’t really come out and said. I mean, the opposite approach. Anyway, they said, if anybody’s going to stop using the dollar, we’re going to impose tariffs and all this sort of thing.
You go, man, that’s just part of the problem. That just makes the problem worse. It makes people want to stop using the U.S. dollar even more because nobody wants to be bullied anymore.
Nobody wants to be threatened constantly with being cut off. People don’t want to be threatened with sanctions and trade wars and tariffs and all these things. And so that is an issue.
So I think they, in that respect, go back to like, well, what about foreign relations? They go, well, it depends on what your priority is. And if the idea is that you want people to keep using the dollar and you want people to keep buying treasuries, etc., I would say that’s actually going very poorly. That’s going very poorly.
Right alongside Social Security, I would say that’s going pretty poorly because you do have $28 trillion in debt that’s maturing in the next four years during this administration. And a big chunk of that’s owned by foreigners. And so if you care about whether or not foreigners are going to keep buying U.S. debt, then you should care about your partners and your allies and those sorts of things.
You should care about your reputation abroad. If instead your idea is like, screw it, we’re just going to have the central bank print the money, then maybe you don’t care, but the consequence of that is going to be inflation. Or maybe secretly, they’re not saying anything about it yet, but secretly they’re planning on a controlled demolition of the U.S. dollar as the reserve currency.
And they say, all right, we’re going to have a convention. Everybody’s going to agree to certain things, going to benefit America, but in exchange, we’re going to give up certain powers and the reserve status. And so here’s what it’s going to be.
And then they kind of hammer out that agreement. It’s hard to say. I don’t see any evidence of it right now.
So if all I had to do was assess it based on the current trend, I would say it looks like they don’t really care about foreign relations, which means that foreign countries are probably going to be pretty skeptical about signing up for more treasuries, more dollars, continuing to buy U.S. government bonds. And I think that’s negative for the U.S. dollar as the global reserve currency. In the long run, you don’t need the reserve currency to be prosperous, just as Taiwan, just as Switzerland, just as Singapore, just as South Korea, just as lots of countries that are prosperous nations and don’t have the global reserve currency.
I want to get back to that 28 trillion, because like we said earlier, that money has to come from somewhere, but then that’s sitting in the foreign government and central banks’ hands and say they don’t want to buy treasuries with it again. They’re going to have to spend that. Aren’t they going to be sending that back to the U.S., in which case, couldn’t that, in a sense, be the controlled demolition of the U.S. reserve currency? Because then that’s going to stimulate a lot of production from the U.S., wouldn’t it? That’s exactly right.
Yeah, it’s a one-off. It’s a one-off, but yes. So if you got all sudden, let’s say some country is sitting on half a trillion dollars of U.S. government bonds, let’s say they’re sitting on a trillion, right? And they say, you know what, we want to get rid of like half of this.
We still need to hold some dollars because we still do a lot of trade and business with the U.S., etc. People in our country want to hold U.S. dollars in their bank accounts, whatever, but let’s get rid of half of this. So what do they do? They got half a trillion dollars, 500 billion dollars.
What do you do with that? Again, maybe you just use all that to buy almonds and raisins from California. You buy oranges from Florida. You buy whatever stuff that the U.S. produces.
You buy Boeing aircraft. I don’t know why the hell anybody would be doing that these days, you know, to say, hey, I want to see something fall out of the sky. Let me spend a bunch of money on that.
You know, all that kind of stuff. We had all these things the U.S. might produce. You buy that stuff.
Maybe you go out and buy Nvidia stock. You buy S&P 500 index funds, whatever. Maybe you buy, you buy whatever.
So you’re buying stuff from the U.S., but that’s a one off, right? Because once you send that money, that’s what I’m saying. It’s like the gift card. Once you send that money, that money’s gone.
Now it’s come back to the U.S. and what do you have exchange for? You got almonds and raisins and Boeing aircraft and these sorts of things, right? So you have all those things and then you’re done. You’ve spent the money. That money’s come back to the U.S. Maybe it takes you five years.
Maybe it takes you 10 years for that money to make its way back in the U.S., but once it’s done, it’s done, right? And so over that time, sure, it means that there’s more sales and more revenue for U.S. producers and that control demolition is something that sort of takes place over a five to 10 year period. Sure, that’s possible. And in that interim period, yeah, okay, there’s more revenue and so forth that’s taking place.
But I would argue that most likely that’s still inflationary. It’s still inflationary, right? So that’s, in the end, I think there are a lot of signs that do point to inflation. And this is, I think one of the things that people really have to be prepared for.
I’m not saying it’s going to be hyperinflation or even really nasty. I’m not saying it’s going to be 10, 15% inflation, but it’s hard for me to see a scenario in which you’re just consistently landing on their magical 2% number. I just don’t see that happening because you’re going to have this, I think there’s a lot of scenarios where either the central bank’s printing a lot of money and, or there’s a lot of U.S. dollars that make their way back in the United States over a period of time, all these things.
And so like all of those scenarios are inflationary. The other thing I would kind of leave you with is that the government does want inflation. They actually do want a little bit of inflation.
They don’t want 10%, but if they got three and a half, if inflation were three and a half to 4%, 3.8, it’s high. And 3.8, you’re going to be seeing a doubling, I mean, every several years, price is going to be doubling and people are going to get tired of that. But year over year over year, three and a half, three and a half, 3.8, 3.9, 3.2, it’s not so horrible, it’s bad, but it’s not like 9%.
And the government wants that because that’s another way to deal with the debt problem is they can inflate the debt away, right? You got a $36 trillion debt, $36 trillion debt is easier to deal with in the long run, if you have 3% inflation than if you have 1% inflation. So the government does want inflation. So you got that going against you, you got the central bank issue going against you, you got the foreign dollars flowing back in the United States issue going against you.
So there’s a lot of scenarios that do end up with at least some level of inflation. And I think this is kind of one of the messages that we have sort of in our ethos. I think things can go well, they can even kind of land the plane, not to sort of mix my thoughts here, but exactly.
Yeah, exactly. They can have the soft landing here, they can make that happen. You can have the dual, you know, kind of peace and prosperity and all that.
And even with that, still have three and a half percent inflation, right? You avoid the recession, you have peace, you know, you unleash American productivity, all these things, but you still have inflation that’s a little bit high. And that’s a completely achievable scenario. But I think there’s just so many outcomes that inflation is still a part of that.
And I think it’s just something that people need to be prepared for. So no matter what any individual does to prepare for this, inflation should be kind of on the top of the mind. It should be something I think that folks are thinking about.
And there’s a lot of different scenarios. If you have that peace and prosperity scenario, okay, you know, people are doing better, real wages are probably increasing, all that. But yeah, like inflation is going to be, it’s kind of got to be part of the calculation, especially if you think about retiring and, you know, people living on fixed incomes and those sorts of things.
Like you got to, you know, you just, you got to think about inflation. You have to think about inflation, major life events, real estate purchases, all these sorts of things. I think you’ve got to think about inflation.
That’s got to factor into the calculation. It’s hard to imagine. There’s a lot of scenarios.
Most of them tend to involve inflation. It’s interesting too, you said that something those foreign central banks and governments might do with their dollars is buy gold. Because again, they’re still looking for something to have a reserve of, and gold has that long trajectory.
Do you think they would also buy crypto? I don’t think they would buy Bitcoin. I think they would invent their own crypto. Because I think there’s a lot of central bankers that like to, you know, they like to hate on crypto and they go, oh, crypto’s so bad.
This is sometimes when I have to bust Peter’s balls a little bit. I go, you know, man, sometimes you sound like a politician or a central banker when you rail against crypto. You know, Peter and I are of like mind on most things and crypto is not one of them.
But I think that central banks will outwardly say that crypto is bad and that they don’t like it. It’s the playground of criminals and terrorists and all that. I mean, it’s just really simple.
I mean, it’s quite reductive thinking, honestly. It’s just lazy. It’s lazy, lazy, lazy thinking.
But the reality is they actually like crypto. And the reason they like crypto, they don’t like the decentralized aspect of it, but they can centralize crypto. And I think that’s potentially one of the solutions is that you have an IMF or new organization like that.
I think if there’s a controlled demolition and the U.S. gets all these countries together and says, all right, let’s hammer this out. I think there’s maybe a new organization that comes out of it, an IMF-like organization, and maybe that’s their new supranational trade currency is crypto. And maybe it’s an asset-backed thing where you’d say, all right, if you want more of this, you’ve got to stump up some gold.
You’ve got to stump up some platinum. I think platinum is potentially part of it as well, because it is a strategic mineral. I think it’s even something like rare earths.
You’ve got something that everybody universally values. Maybe it’s oil, maybe it’s gas, maybe it’s rare earths, gold, silver, platinum, these sorts of things that’s universally valued around the world. And maybe there’s a list of these things, whatever, I don’t know.
And they say, all right, we’re going to create a… It’s like tether, kind of. It’s like the idea is that we’re going to have this thing and you post up some asset and we’re going to issue more of this cryptocurrency to you that’s used in global trade and international trade settlement. And so this is great if you’re Venezuela.
It’s great if you’re Saudi Arabia. It’s great if you’re an exporting, commodity-rich nation. Something like that would actually be really great for you.
But in many respects, that and people that have net trade surpluses and a foreign reserves like China, it’s not so great if you’re Europe and it’s not as great if you’re the United States. But I think there’s some compromise there. And it’s hard to say really what that system looked like.
This is kind of the Bretton Woods three prognostication. But this is in the meantime, since nobody knows what that looks like, what’s the one thing people can have confidence in where they go, this is the thing that’s always going to have value. It’s gold.
This is why central banks are buying gold. They buy gold because they know, hey, whatever that system is going to be, and who knows, maybe it’s crypto, maybe it’s whatever, who knows? One thing I know for sure, I’m always going to be able to trade this gold for something else of value in this international financial system. I always say this, no central bank is sitting around going, how am I going to get rid of this gold? They always know that there’s going to be a place, there’s going to be something they can do, something they can trade.
They can trade it for food. They can trade it for oil. They can trade it for dollars or yen or whatever the hell they want.
That’s the beauty of it. That’s why they’re buying so much of it. From what I’m seeing, I can see that trend continue.
We’ve been seeing that here. We’ve been talking about this for weeks. Gold’s been moving a lot higher.
Still a lot of gold companies in the dumps, but gold itself has been moving a lot higher. I think there’s a lot of scope for that trend to continue, especially over the next four years, when you think about this $28 trillion refinance problem that the treasury department has. I think that makes a pretty good case for gold still over the next several years.
That’s why gold is one of the best ways to hedge against that inflation. Like you said, even better is some of those gold companies that are pulling it out of the ground and have it on their books. That’s their revenue, but haven’t actually seen the rise in their stock value that would make sense to be equal to gold’s actual value.
Well, we were talking about gross profit earlier and saying, hey, look at TSMC, they got a 60% margin. There’s a lot of gold companies that have those kinds of margins now. They’re pulling the gold out of the ground for $1,200, $1,300.
They sell it for $3,000. That’s a hell of a margin. That’s a hell of a margin.
Gold companies making money hand over fist, they’re trading at laughably cheap valuations. Like I said, that’s not going to last. That’s not going to last.
One of these days, Greta Thunberg is going to get out of it. You got to find a lot of these guys on the climate left have been secretly buying gold and oil companies, because it’s just this obvious money-making play right now that you got super profitable companies, they’re going to do stock buybacks, dividend payments, all sorts of stuff. It’s just not going to last.
It’s not going to last. It’s an area that obviously we’re focused on and we’re going to continue to focus on as long as that trend is there. In the long run, like I said, you got a $28 trillion problem that you’ve got to contend with.
I think a lot, not necessarily every single scenario, because all the permutations are impossible to calculate, but quite a lot of them, they really all end up down the road of inflation in some capacity. Even that’s bullish for gold. Central bank buying is bullish for gold.
I think if you take a step back and look at progress, we can see a lot of things that are going very well. Some things are more on the symbolic side. A lot of the stuff is beneficial, but it doesn’t necessarily get the needle moving on the economy.
There’s other things that are just not going very well at all. Social security is a big economic problem and it’s just literally deliberately not being addressed at all. With the foreign relations, again, it just depends on how you look at it.
If you have a more isolationist approach and say, that’s their problem, not our problem, great, but there are economic consequences of that, because at the moment, $28 trillion has got to be refinanced somehow. If the foreigners decide they want to take their ball and go home and they don’t want to play with America anymore, that’s also going to be inflationary. A lot of these things, there’s a lot of things driving this, a lot of scenarios.
Right now, there’s just not enough information to see exactly how it’s going to play out, but we keep monitoring this closely and trying to expand or contract the range of scenarios that we see. Right now, the conclusion I think we see is a lot of signs point to inflation. Thanks for those insights, James.
All right, bud.
