Judging Freedom - Kevin DeMeritt: What a War Economy Looks Like

Episode Date: March 25, 2024

Kevin DeMeritt: What a War Economy Looks LikeSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Thank you. Hi, everyone. Judge Andrew Napolitano here for Judging Freedom. Today is Monday, March 25th, 2024. Kevin Lear returns to the show again today. Kevin, it's always a pleasure to have you, my dear friend. Thanks very much for joining us. You know, you and I have talked many times about government influencing economic factors, and it's always fascinated me. So let's go back a few years to what the government did to wreck the economy in its overreaction to COVID when it shut down so many businesses and told people they had to stay home and made life almost unbearable for those of us who wanted to get out and work. Have we overcome yet the harm that was caused by all that government overreach? Well, no, from an economic standpoint,

we absolutely have not because they've had to raise interest rates to stop the inflation that was caused by all the free money that they printed up in COVID and splashed it around in the economy. But I just went back and tried to look at what the inflation has done since COVID. Since January of 2020, the inflation, if you compounded it, is 24%, meaning that for the four years from 2020, 21, 22, and 23, the average consumer has lost 24% of their purchasing power, meaning they would have to make around 9% per year to make up that difference. I don't think anybody did. And I say 9%. I know nine times four is not 24,

but you had to pay tax on whatever the interest rate that you were getting. So you need to go with nine to get back to six. And you've lost 24%. I don't think anybody feels more wealthy than when COVID started. Do you think people understand, Kevin, that the cause of inflation is too much money chasing too few goods? Stated differently, when the government prints cash, or today it doesn't actually print it, it just adds zeros onto the bank accounts of the favorite banks that do business with the Federal Reserve. When it does that and it's adding cash

into the money supply and that naturally causes the price of everything, goods and services, not necessarily salary, but goods and services going up. Yeah. So there's two parts to an inflation equation. The one you brought up, which is too much money chasing too few goods. And the other part of that equation is the velocity of money, meaning that we need to go out and spend that money. So Japan had a problem where they printed up a bunch of money, but nobody went out and

spent it. So it didn't turn into inflation. But when you have everybody sitting at home and you're forcing people to do that, everybody gets on Amazon and other places, and they go buy everything with free money. That's what's caused this inflation rate to skyrocket. And once inflation starts, it's very, very difficult trillion. In a couple of years, the debt service on that will be $1 trillion. $1 trillion is roughly one quarter of what the government collects in income taxes and other sources of revenue that it has. Do you think the American people understand that, you know,

first five months of the year, they're working for the government. And the first month and a half of those five months, the government is paying debts incurred by previous governments? Yeah. No, no one gets it. And I ask this question all the time. And if I ask this question, because a little bit of a nut. So I figured out how many

seconds is 1 trillion seconds? Now, if you had to guess, guess high, how many years, years is 1 trillion seconds? A million years. Now, well, 31.6 years. 31.6 years is a trillion seconds. We are printing a trillion dollars every hundred days in the United States. We are drowning in a record 34 trillion in government debt. Interest payments alone, as you said, will be a trillion dollars in the next few years and expected to be one and a half trillion in the next 10 years. We are borrowing $2.7 billion a day just for interest on our national debt. So we will never, at this rate, we will never ever catch up. We will either be driven by debt or the government won't be able to pay its bills because people won't pay their taxes and the government will collapse. Well, first of all,

the people can't pay any more taxes than we're paying. Personal debt is hitting record highs. Credit card debt is at record highs. Corporate bankruptcies have gone up. Debt is slowly killing our economy. So if you raise taxes, you're just literally putting us right into a recession, which we may be headed to regardless. So there's only a couple of ways the government can pay back debt. They can pay it back through taxes, which I don't think that's going to happen. They can balance the budget and pay it back with a lower budget. That's never going to happen. Or they can inflate it away, which is exactly what they are doing. Keep the inflation rate a little bit high and just reduce the debt purchasing power over time. You know, the attitude of members of Congress, even though

they seem to hate each other, Republicans not wanting to cooperate with Democrats and vice versa. I'm not blaming either party here. I blame both. The attitude of both is who cares about the future? We'll just spend what we need to spend in order to stay in office, in order to please the various interest groups that affect the money that comes into our campaigns and affects our ability to stay in office. And we'll let the future worry about all the borrowing we're doing now. There's maybe, maybe a handful, maybe a dozen or two libertarian Republicans in the House and maybe three or four in the Senate who really believe we should balance the budget and actually start using cash to pay down debt. But I don't see any way out of this with that mentality and that attitude so prevalent among 95% of the members of Congress.

Yeah. Like I said, there's only a few ways to pay down this debt and there isn't a good option. So it's either a combination of increasing taxes, which Biden seems to want to do, or balancing the budget, which I think is an impossibility. So you're left with basically inflating in a way. So that's why I think you're hearing Jerome Powell talk about, hey, look, we're okay with a little bit higher than 2% inflation. Sure you are. You're just going to inflate the debt away. That's the easiest way to do it. That's kind of what Japan and some of the other countries have done. And that's exactly the way that we're headed. But to slow down this debt, when you really look at it, Judge, the money that we're borrowing isn't even going to help our economy. It's going for war. It's going for a whole bunch of stuff outside the United States that has nothing to do with us.

And we've got to control that situation because that's really going to put you in the drink. I mean, it it's out of absolutely out of control. You cannot spend three trillion dollars a year and not expect something horrible to happen in the economy. And I think we're going to get a recession later on this year. It may surprise people because nobody's talking about it. But I think there's some great indicators out there that a recession is right around the corner. So what will happen when we have a recession? Will it look like 1929 all over again? Well, I think you're going to go back to double digit unemployment rates. Look,

there's a couple of indicators that I look at. an inverted yield curve, which when people say that, some people don't know what that is. It's basically the short term interest rates are higher on government bonds than the longer term interest rates. Usually that would not be the case because you would expect to get paid more for money out 30 years rather than out five or six years. Usually when that happens, the long-term bond people that are very, very smart investors are saying, we don't believe the economy is going to be strong for long. We believe that they're going to have to lower interest rates because of some sort of recession. If that inverted yield curve stays inverted over a 12-month time period, 100% of the time, not 95, not 85, 100% of the time it's

been accurate with the recession. However, we're talking about money and there's two other indicators that I look at when we look at a recession. One indicator is the money supply. It's called M2, which is basically your cash in your savings account, checking account, money markets. Okay, so that's M2. If M2 shrinks by over 2%, which has only happened four times in the past 150 years, then you get double-digit unemployment and a recession. At the beginning of this year, M2 shrunk by over 2% for the first time. What causes M2 to shrink? Well, when you raise interest rates and you have to pay more for the interest, then the money in your checking account and your savings account are going to shrink because you're paying more for goods and services and you're paying more for interest all at the same time.

So the M2, the money in your checking account, savings account and money market is going to shrink. When the government raises interest rates, doesn't that obviously make it more expensive for business people like you to borrow money? So you would borrow less money. So you have less money to invest and you're doing less building and hiring fewer people. Well, that's 100% correct. So if you look at commercial lending, which is the other indicator that I look at, again, if that shrinks by 2%, which since 1973 has only happened three times, and I'll give you the three times, 2001 in the dot-com bubble, 2008 in the Great Recession, and now. So you're 100% correct. If

you raise interest rates, commercial lending is going to go down, the money supply is going to go down, and then you have an inverted yield curve. Each one of those has been 100% accurate for a recession. I'm going to bet that after June, July of this year, you're going to start to see the economy start to roll over here. We're going to take a break. When we come back, I'm going to talk to Kevin about the influence of war on your everyday economic factors. And we're going to talk about the growing war drums, beating of the war drums in Europe and what Europe is doing to engage them. Are you ready for this? Collective borrowing and collective debt. But first this. How do you really feel about your financial future right now today? Stable or uncertain?

Despite all the happy talk that the Fed and the banks want you to buy into, I believe that 2024 is going to be a very unstable year politically and financially. That's one of the reasons I decided to buy physical gold and silver. And I suggest you should do the same and do it now. Why? Because throughout times of economic uncertainty, gold and silver have rightly earned a reputation for stability. Owning precious metals has made me feel more stable and it can do the same for you.

Reach out to my friends at Lear Capital and get their free wealth protection guides. You can reach them at 800-511-4620. Lear has earned an excellent reputation by helping thousands of customers just like you move portions of their retirement savings into Lear gold and silver IRAs. It's easy to do and it's tax and penalty free. Don't be caught off guard. Experts predict the

markets may tank again. You'll be happy if you have protection in place. So call Lear at 800-511-4620, 800-511-4620 or go to learjudgenap.com and tell them your friend the judge sent you. Kevin, does war help the economy or does it just produce damage and destruction and death? Yeah, so in my economics class, there was a theory called the broken window theory, meaning that if you ran around and threw rocks at windows and broke all the windows and then they had to go buy new windows, that would increase the economy. Completely false. If you took a rock and you broke all of the windows, all those people are out the money that they need to go spend on that new window. So you're only swapping money from one place to another. This war, there is no swapping. The bombs blow up, they're gone. The people's lives are gone. The economies are gone.

You have to then rebuild, which is a bunch more borrowing of money, very similar to what we had to do in Japan. It costs us an enormous amount of money to fight the war and then we went and rebuilt those countries because they didn't have the capital to go rebuild so this is a one-way street for money down the toilet so when the government says it wants to send spend another 61 billion on Ukraine what it really means is that $45 or $50 billion of that is going to go directly to the military-industrial complex here in the United States to start building more armaments. It's not $50 billion going to Ukraine. It's more destructive power in the hands of the United States government to replace what it has already sent over there. If you take this $50 billion and instead of

building bombs, built houses or roads or delivery trucks or even widgets, things that can be used to further the economy rather than destroy somebody else's economy, wouldn't that be a more productive use of that cash? 100%. You have productive assets and you have unproductive assets. War is an unproductive asset unless you take over an entire country, which we just aren't doing anymore. I mean, the old way of wars was take over a country, gather people, other assets, natural resources, things like that, that were productive. That isn't happening anymore. The countries are just rebuilt and it just costs money to do that. But look, when they say we need $60 billion, what they really mean is we need $600 billion, not $60 billion, because it's a never ending process. It just keeps going and going and going. They don't want it to stop

because they just can keep printing money to go buy more tanks and helicopters and airplanes and everything else so uh it's a like i said it's just a one-way street for money getting flushed down the toilet there isn't anything productive coming back unless you believe that hey we're saving the people in ukraine uh which is debatable over the weekend, thank you for that answer, Kevin. Very, very enlightening. Over the weekend, the head of the EU warned the countries that are members of the EU, which is nearly all of them in Europe, that they better be ready for a war footing. And at the same time, our friends at Bloomberg came out with a very, very interesting report on the phenomenon of common borrowing, whereby the EU, which is just like a holding company for the European countries, borrows money in its own name and then decides how much debt it's going to allocate to each of the member countries. It's a very, very interesting report. It's a little under 90 seconds. Take a listen. I'd like your thoughts on it.

As the coronavirus pandemic sparked a public health crisis in Europe and emptied the streets of capitals around the world, the EU took unprecedented action. 750 billion euros of joint debt for the first time ever to save a flatlining economy. The issue of common borrowing has long been a political battle in Europe. But as real war rages on Europe's eastern flank, the debate is back, this time to fund defence. As US support for Ukraine falters and NATO skeptic Donald Trump could regain the White House, Europe faces the possibility of going at it alone.

France's Emmanuel Macron and other EU officials have already signalled support to pay for defence spending with jointly issued bonds. I don't see any reason not to continue for common targets to have common funding. How much is in play? Well, Estonia's prime minister has called for 100 billion euros to be issued. But there is also opposition. Germany's finance minister is among those to reject the idea. One group decidedly in favour?

Investors. The first auction under the EU's COVID recovery programme back in October 2020 recorded the largest order book ever for a single deal, in part because it's AAA rated, so very safe, and carries a higher yield than not only German debt, but also French. So the market is thirsty for more. And two years into the war, the urgency is increasing for European leaders

to fund defense priorities, with joint borrowing back on the table. Why do you think these liberal elites that are the heads of state in Europe are in favor of all this borrowing and all this debt? They're not going to have to pay it back, but their children and grandchildren will be saddled with it, just like we're saddled with the money that FDR borrowed. Yeah, this is how you get reelected, right? Just push the economy, keep pushing the economy, keep it growing, keep free money. Talk about this universal payment program where everybody gets $2,500, or if you're below a certain limit, you get free money. This is the way politicians get reelected. It really is. Just print money, give it to the people, give it to this majority of people who

are going to a vote and they're going to get voted back in. The other situation that I think is going on here is you're just pushing different countries to make a decision who they want to join, because it just seems like we are walking a straight line right into World War III here. Let's get a bunch of people together and put some money together to go fight a war. And then Russia and China and some of the Middle East is going to put some money together and retaliate. And next thing you know, it's Taiwan or some other country. And everybody, it's like the playground, right? You got people over here on that side of the playground and people over here on this side of the playground, they don't like each other and they're battling back and forth. Thank God the playground just didn't have money. We had marbles.

I know you're in the business of precious metals, but how do they help you preserve your wealth for the future? Well, that's a great question. If you print up $34 trillion, you have $34 trillion, 34 trillion reasons to purchase gold. Each time they print a dollar, a paper dollar, the dollar you're holding in your hand is worth less. I just gave you the statistics since 2020, inflation has evaporated 24% of your purchasing power. Precious metals have increased over 20%. If you would have owned gold, you could have sold that gold, repurchased paper dollars, and went and spent the same amount of purchasing power, had the same amount of purchasing power as you had in 2020. There is a direct correlation judge between the national debt and the value of gold.

The value of gold today should be around $3,200 based on the deficit being $34 trillion. There's a 92% correlation. I do not need a crystal ball to figure out what the price of gold is when I have a 92% correlation from debt and the value of gold. And if people understood that, then they would have some portion, in my opinion, in precious metals, silver, hard assets, real estate to offset the amount of money printing that the government and governments around the world, quite frankly, are moving forward at right now. Kevin, it's a great service that you provide, educating the world, quite frankly, are moving forward at right now. Kevin, it's a great service that you provide, educating the public and demonstrating to people how they can insulate themselves in what seems to be a universal clamor for more debt and more borrowing and more spending.

It's almost like we can't help ourselves. The government is obviously doing what it thinks it needs to do in order to stay in power. It doesn't care about basic economic principles. Kevin DeMeritt, always a pleasure, my dear friend. Thank you very much for joining us. Will you come back again soon, sometime after Easter, and we'll see what the state of affairs is then? Oh, absolutely. Always a pleasure. Okay, my friend. Thank you. Thank you so much. All the best, Kevin. Judge Napolitano for Judging Freedom. Thank you.