PBD Podcast - The Father Of Quantitative Easing - Richard Werner | PBD Podcast | Ep. 161

Episode Date: June 3, 2022

In this episode, Patrick Bet-David is joined by Tom Ellsworth and Richard Werner to discuss past & current economic policy, Cryptocurrency, Communism and much more... Richard Andreas Werner is a German banking and development economist who is a university professor at De Montfort University. He has proposed the "Quantity Theory of Credit", or "Quantity Theory of Disaggregated Credit", which disaggregates credit creation used for the real economy on the one hand, and financial transactions on the other hand. TOPICS 0:00 - Start  4:43 - Breaking down the Japanese economy   10:40 - Who holds banks accountable   48:30 - The truth about interest rates   57:42 - Bitcoin/Crypto/biggest concerns   1:14:47 - Bailing put the students   1:25:26 - QE & Communism   1:37:50 - What happens if we don’t do anything to the economy? Check out Richard's documentary: https://bit.ly/3x7KbhB Buy Richard's book, Princes of the Yen: https://bit.ly/3ahD4tU Check out Richard Werner online at https://bit.ly/3fT6uPR Text: PODCAST to 310.340.1132 to get added to the distribution list About Co-Host: Adam “Sos” Sosnick has lived a true rags to riches story. He hasn’t always been an authority on money. Connect with him on his weekly SOSCAST here: https://youtube.com/playlist?list=PLw4s_zB_R7I0VW88nOW4PJkyREjT7rJic Patrick Bet-David is the founder and CEO of Valuetainment Media. He is the author of the #1 Wall Street Journal bestseller Your Next Five Moves (Simon & Schuster) and a father of 2 boys and 2 girls. He currently resides in Ft. Lauderdale, Florida.   To reach the Valuetainment team you can email: [e-mail] --- Support this podcast: https://podcasters.spotify.com/pod/show/pbdpodcast/support

Are you out of your mind? Here's the debate. You're upset. They're saying, we believe you. This is it. I thought that. Okay, we're officially live episode number 161 with the one and only Richard Werner. If you don't know who he is, episode number 161 with the one and only Richard Werner. If you don't know who he is, let me give you a little bit of background.

You're going to wanna listen to today's podcast. But sometimes you bring a guest in where maybe you're not in the world where you follow a name like that. You're like, yeah, I've never heard of him before. In 2003, the World Economic Forum, Davos, selected him as a global leader for tomorrow. He, in 1995, proposed a program, or he labeled these two words, it was called quantitative easing, and it was written in NICCAY, which is the Dow of Japan, but also the largest financial

newspaper in the world, with 3 million subscribers talking about the way to address some of the challenges that's being faced as possibly quantitative easing, which later on in 2008, we ended up announcing November of 2008 in U.S. that we're going to do quantitative easing. And by 2009, we ended up, I don't know, $1.25 trillion of mortgage-backed securities, $200 billion in agency debt and $300 billion in long-term treasury that was bought by the government to help us bail out.

And some say that was a good idea. Some say it was a bad idea. They were gonna talk about him. If he was happy about the proposal and that quantitative easing that U.S. took. And then I asked him off camera, and he did a documentary a few years ago in regards to Japan's economy and what happened in Japan.

And some of the statistics that some of you that are listening to this, the reason why this is we're having a lot of conversations right now with Marquis Crash. There are those that say it's not going to happen. It's just fear mongering is gaslighting. You guys are just people are just talking about that stuff because it's a business model fine. There are those who are sincerely concerned. Japan from 1990 to 2003, over 200,000 companies filed bankruptcy.

The market dropped 80% and I want to know why and I want to know if there's any similarities with what happened then to what happened now. So all the way from UK, Richard Werner, thank you so much for being a guest on the podcast today. Thank you very much. Thanks for having me. It's a great pleasure. Yes, so for some people that don't know your background, if you don't mind taking a moment and just kind of tell them some of the things you worked on so they know your background. All right. Well, I'm originally from Germany, did my first degree in the UK at the London School of Economics in economics, doctorate from the University of Oxford in economics.

But I wanted to find out how the world really works. So it was a bit disillusioned with the academic economics that the university very abstract mathematical and not really very much connected to reality. So I took the chance while being at Oxford in the early stages of my postgrad in doctoral work to go to Japan and was there initially as an intern for Deutsche Bank and then as actually a government scholar at the University of Tokyo and also doing a part-time job at the Nomura Research Institute, learning Japanese, doing a bit of Japanese archery, and also trying to speak to as many people as possible to find out what's really happening and what are the mechanics

and what's going on and then what's this year again what's the year you did that that was in 1990 okay the following year I became the first Shima Murafelo at the Japan development bank now called the development bank of Japan um government bank um Shimawara actually is an interesting character, we have time, we can return to him, but he's very little known and they certainly also didn't tell me much about him at the time. Anyway, and so I spent, well, in total in the end, I ended up in Japan for 12 years and developing in the early stages, my first paper that was out in 1991, the big puzzle then was,

where's all this Japanese money coming from? Because in the 1980s, Japanese money had been flooding the world, buying up everything in the US, why in Europe, plants, factories being established, all of the world. Man, Japanese money, yes, Manhattan, Pebbles Beach Golf Course, the World Trade, what was it? And Manhattan, the one of the big billion?

I mean, also the land under Rockefeller Center. Exactly. Yeah. I remember that. All sorts. And so the intriguing thing was, where did all this money come from? Because it was actually more money than any economic theory would tell you should be coming from Japan. And also, they weren't really earning much money on it. So it was against the economic incentives.

And nobody could explain it. And they had the standard models of capital flows didn't work. And so I wanted to solve that puzzle. And at the peak in 1987, Japanese long-term capital outflows were, I mean, it was a world record amount, unprecedented. It was twice as large as the already world record current account surplus. Where was the money coming from? And so I researched that and the answer to that gave me an answer to many other things, including enabled me to warn later in 1991 that Japanese banks, which at that time were the biggest

in the world, and the top 20 banks in the world, were all Japanese by assets, you know. Top 20 banks in the world were all Japanese. That's 1990, 1990, 1991. Exactly. This was right at the end of Regans' two terms. Yes, and at the end of this, you know, Japanese economic boom and also Japanese money flooding the world, and people were talking about the Japanese century now beginning, which didn't quite happen, but it took people a long time to realize this. But so at that time, when Japanese banks were top

and the economy's growing is 7%, there was a bit of a glitch in the stock market. Stock prices had fallen a bit, 20%, 25%, 30% bit more. But then the bank of Japan in 91 was lowering interest rates. And most people thought, well, that's the signal now by Japanese stocks. That's when I put out my first paper, my conclusion was don't buy Japanese stocks. Japanese banks are likely to go bankrupt and Japan is likely to move into the biggest recession since the Great Depression. And you should short Japanese stocks, which

you also did at the time. And they knew it, which is why they were buying hard assets all around the world, like real estate. And the answer to the question, where did they get the money from is actually they just created it out of nothing. Because I uncovered at the time the process that actually drives all of our economies. And of course, I found out in the Japanese case, economic growth is something you get only when there's also money creation going on. But money creation for GDP, your economy,

gross domestic product, that's how we measure the economy. So money creation that is used for investment and so on in the economy for transactions fueling GDP. If that increases, you get more GDP, more nominal GDP. Of course, if money creation goes into asset purchases, you get an asset bubble. So I discovered this mechanism and what is the money creation? Most people think it's the government that creates the money supply. Actually, much later, I did a survey with my students in Frankfurt. We asked over a thousand people. Sort of, you know, in central Frankfurt, it's probably above average educational levels. And the question was, who do you think creates and allocates the majority of the money supply?

And then give them some options and of course being in Frankfurt includes the Bundesbank, the German Central Bank, the ECB at that time as well as in Frankfurt, but the German government, all sorts of options. And most, I mean, 84% responded, well, it's either the government or the central bank, you know, one of those ECB bond, you know, on this bank. That's what 84% thought. And of course, that's wrong because the reality is governments don't create any money these days. That task has been given away, delegated, that power has been given away by the people from the people to somebody else. Central banks, well, they do create some money, essentially the paper money, the cash, but that's usually around only 2-3% of the money supply. So the

question is, who creates the 97% of the money supply that is fueling the economy, asset markets, if you do it correctly, create the economic growth. Well, it comes from the banks. Banks create money. When a bank gives out a loan, it's not using existing money, it's not using deposits, it is actually newly creating money out of nothing. So a bank loan is always new money creation, new purchasing power is given to the borrower and added to the money supply. And this is new purchasing power that didn't exist before.

Now once you understand that, then you start to see how things fit together. Don't they have certain limitations on how much money they can lend based on reserves? Yeah, lever limit, right? Right. It's 40 cents on a dollar. I want to say insurance is 40 cents. I don't know.

Banks obviously can leverage a ton more where the numbers, the expectation isn't as high, but they have a certain number. They have to go off, right? Well, it does depend. And really, this point that you're raising is an important one. You know, what's the story of these bank reserves and reserve requirements? And isn't that a way for the central bank to actually control it? So ultimately, the central bank is really fine-tuning the money supply.

Well, it doesn't quite work that way. And you can see this immediately when you look at many countries such as the UK, but also Australia, New Zealand. In fact, many countries nowadays have zero reserve requirements. So then you realize, well, okay, the reserve requirements can't be the key story, the zero. What we many countries have zero reserve requirements. Yes. Any of these countries are any the bigger, you know, countries in the world, yeah, such as the UK, UK zero.

It's been zero for a decade. So who holds them accountable on the amount of money they can lend? Yes. Well, there is actually another variable that's being used to influence banks. And actually, it's a good point, perhaps let's go quickly through this. I mean, I'm a professor of banking and I was astonished to find that the experts,

the textbooks, the researchers, weren't even sure how banks actually work. And I found that there's three theories of banking, three theories of how banking works. And when found that there's three theories of banking, three theories of how banking works. And when we talk about banking, the key function that distinguishes banks from others is actually in their lending operations. And the key question there is, where does the money come from? Actually, one of my books, where does money come from? You know, he has this title. So where does the money come from that the banks

use when they give out a loan? And that's where the three theories of banking are different from each other. Now the currently dominant one, the mainstream theory that is pushed in the textbooks is, or banks, they're not very special, you know, nothing to see here move on. There's nothing special about banks, they're just financially intermediaries. know, nothing to see here move on. There's nothing special about banks. They're just financially intermediaries. That's the financial intermediation theory of banking. And they say banks lend out their deposits. Right. Savings on the left, loans on the right, and trust in the middle. Yes, yes, exactly. And with that theory, what regulatory tool to control banks is being used is actually capital requirements. So since the Basel Accords in the late 1980s, it's been capital that's been used mainly to get a handle on what banks are doing.

And the idea is that this will control and restrict bank's activity, so we won't have banking crises. Well, has that worked? Have we had banking crises since 1988? Tons of them. In fact, dozens and dozens, if you look at the whole globe, we had... For some of that, don't know, you were with better students for 14 years

or 13 years, right? So, not that long, but I was at best turns, asset management, senior managing director, senior portfolio manager. I was also best earn asset management senior managing director senior portfolio manager I was also at John D. Fleming securities before in Japan as chief economist So the reason why I say that is to say you're not just a professor because sometimes you know professor is seen as You know the intellect who just stands up and talks and has never been in the operating room that's doing the work You've been you know in both places. Yeah, precisely and in fact that's doing the work, you've been in both places. Exactly.

In fact, that's the whole point because I realized these academics and their theories are mostly wrong. We have to hold them to account and we have to actually ask the question, what is reality? How do things really work? This theory that banks are just intermediaries, they gather deposits, they lend out those deposits, and we can use, therefore, bank capital requirements as a tool to keep the banks under control, is plain wrong. But let's come to that. There's a second theory, and that's an older one.

That was dominant from the 1930s to 1960s, and that is the fractional reserve theory of banking. Now, a lot of people have heard this and I'm sure you have because you mentioned the reserve requirement and that's important in this theory. This theory says when a bank lends money it needs to have some excess reserves and it will be using those for the new lending and you know if banks are all loaned up with their reserve requirements they can't give out new loans so first need to have some excess reserves. That could be from the central bank helping them, but that's the mechanics. Now, that theory was dominant until the 60s, and he did have an interesting feature that got a lot of people interested in this, namely the so-called money multiplier. So it says that each individual

bank is just an intermediary. They gather deposits and lend them out, but in aggregate, as banks interact using this reserve requirement, somehow there is leverage money creation happening, and therefore there's a money multiplier there. Now, that theory actually gave away the fact that there's something strange happening and banks create money, and that was too much for the powers that be to handle. That's why

since the 60s, they've pushed the financial intermediation theory, which says, oh, there's nothing to see here at all. Money creation? Oh, no, no, it's not happening. But there's a third theory, and that's the oldest. And as it turns out, the one that's really true, it's the one that sounds initially slightly crazy. But it was dominant until the 1920s, 1930s. And that one said that, no, banks are not intermediaries. They're not financial intermediaries. Banks are creators of money. If you get a loan, this is new money creation.

And the bank will create new money into existence. That's the one that you're getting when you take out a loan. We can talk about how this actually works and how they make it work. But there's these three theories, and that one has been suppressed quite a lot, but you also find, actually, for each of the three theories, you find famous economists supporting them. Cain's, John Maynard Cain's the famous 20th century British economist, he actually supported all of them in sequence. Now, he moved, first he supported when he was young, the credit creation theory, the bank's creative money out of nothing, later he moved on to the fractional reserve theory

and then even the financial intimidation theory. So, he moved away from the truth as it turns out. Now, I thought, well, this is ridiculous. We've got three theories. Which one is true? What's a scientific thing to do? Let's look at the data, let's look at the facts. Let's do an empirical test.

So I conducted the first empirical tests of banking and how do banks actually work? And which of the theories of banking is true? Which was the first empirical test in the 5,000 year history of banking if you want. You can actually get this online, if you just Google, one paper is entitled, Can Banks, individually create money out of nothing.

Can Banks create money out of nothing? Individually create money out of nothing. Yes, because in aggregate, you see that will be one of the theories, but actually individually out of nothing, that's the most radical one, that's the credit creation. I'm going to be doing that. Absolutely. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that.

I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that.

I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. I'm going to be doing that. That one also has the three theories of banking. It has another empirical test. These are two different types of empirical tests.

And that's the one. And the conclusion is that the current dominant theory that banks are just financially intermediaries, that one is rejected by the empirical evidence. And also the theory that the fractional reserve, argument money multipliah, has also rejected. And the only one that is supported by the empirical evidence is the credit-creation theory. Banks create money out of nothing.

There's now an empirically established fact. But again, who holds them accountable, though? So banks create money out of nothing. Who holds them accountable? Everybody has somebody to be held accountable to. Who are they being held accountable to? That's right. Now that's where it gets interesting and we can go back to Japan now Because once you realize well, wow, this is how powerful banks are

Because that you see that their decision who gets new money who gets alone, you know Means somebody gets new money that didn't exist before and that will have an impact on the economy. And the question is also, what is it going to be used for? Which types of transactions? Is it going to be for consumption? And banks usually copy each other. So if the banks lend a lot for consumption, then you will get inflation. That's something we need to talk about later because that's what we're currently getting.

And you know, I've been warning since 2020 that we'll get significant inflation now, unlike, for example, after the 2008 crisis and the bailout measures then, it's very different now. This is inflationary. If banks create money and it's used for purchases of ownership rights, such as property, real estate, or financial assets, all these loans to do financial deals. That will push up asset prices, because it's like creating new money. Say, let's look at real estate property. Banks give out a lot of property loans, real estate loans.

It's like printing money and pumping it into the property market. Which can happen. You don't need to be a rocket scientist. No, okay. They're pushing up asset prices. And the third possibility, and there's only these three really, the third possibility, that's the redeeming feature of banks. If banks give a loan, that means they create credit, they create money, and give it to

affirm for productive business investment, that implements new ideas, new technologies, increases productivity. That gives us economic growth without inflation. That gives us job creation, that gives us really what we want without all the negatives, you know, without asset price inflation, without consumer price inflation, without banking crises. Whereas the other type, lending for consumption, and also bank credit for asset purchases, you know, get the asset bubble. And after the asset bubble, you will always get, and this is also what happened in Japan,

of course, most dramatically, you'll get a bust asset bubble and then a bust banking system. And when a bank's shut down, they don't lend at all, then you also don't get economic growth because for growth, we need new money creation in the system. And so I formalized that and tested that in the early 90s on Japan. It's the general quantity theory or the quantity theory of credit, of this aggregated credit, where you recognize money creation. Money is actually credit, bank credit. That's how you measure the money supply correctly.

Central banks will always tell you, money supply, we don't know what the money supply is. We don't really know. The textbooks also say that we don't know what money is. Come on, get it, be kidding me. They just didn't want to tell you the true story. It is bank credit, we can measure it, it can be identified quite clearly. And the question is, what is this being used for? And so if it's used for productive purposes, that's when you get job creation growth, no inflation. You get all the positive things, and not the negative things, asset bubbles, banking crises,

increased inequality and inflation, all that, these things. That's when it's used for unproductive and they're for unsustainable purposes. And of course, there's something we should talk about later as well. How can you have a banking system that does the right things and therefore supports the economy best? It's when you have many, many small banks, local banks, community banks, and that explains why the US economy, despite the various bad government policies that have been going on

for long time, is still fundamentally quite strong. The strength, the secret of the strength of the US economy and also actually the German economy for the last 200 years and also the Japanese economies because they've got hundreds, if not thousands of small local community banks, banks that lend mainly to small firms because the small firms mostly engage in productive business investment, which crazed jobs gives you growth without the bad stuff, without the inflation, without the asset bubbles, and banking crisis and so on.

But of course, things can also go wrong, particularly again, when the central banks intervene. So back to your question, so who's controlling these banks? I mean, how does it work? Well, what I found out in Japan, and it was a bit of a detective story, because first I realized, wow, this house of cars is going to come down now, because they had all these property loans, real estate loans in the 80s, pushing up land prices to stratospheric levels. In central Tokyo, the imperial palace garden,

part of that is a public park, and people calculate it, okay, that's a central Tokyo public park, not that big, but, you know, okay. What is the value if we use central Tokyo land prices? In the turnout that the value was the same as the entire, all the property real estate of the state of California, including Los Angeles, San Francisco, everything, which was crazy.

That was in 1989. That was... Can you say that one more time? I don't think the audience would say that one more time. So the asset prices were pushed up. The land price in Japan were pushed up through this mechanism. Bank credit for land purchases and property transactions. So much that at the peak, which was 1989, the only a tiny speck of land in central Tokyo,

namely the Imperial Palace Garden that calculated the size, the footage. It's this big. What is the value using market prices of central Tokyo? And it turned out it was the same value as the entire state of California, including all real estate. It's not a long time ago, this was 33 years ago. Exactly. And how big is that place, the garden?

How big is it? It's not as big as Central Park in New York. It's not as big as Central Park pocket New York. No, it's not as big a central park in New York. Yeah, like one like one third So so apart like it is some okay, so so while I'm watching the documentary and you know We've read a lot on a Japan and how a lot of people would send their business man from here to Japan Hey the Toyota way, you know look at Toyota what they're doing in a great job. Japan is done and they've done this and they've done down in capables and business And and they have a very rich history of business, you know They they like building companies that have been around for a hundred plus years

I think they're the leading country in the world. They got 50,000 businesses that have been around for a hundred plus years And the oldest company in the world is based out of Japan. That's something that we all know about. So we typically as entrepreneurs and businessmen, when you're really like, oh, Japan's got strong, they're long-term thinkers, they're business plan, short-term business plan is 20 years, you know, an America short-term business plan is one year.

So we see, we study how they think, right, for business. But when I was looking at how they went from a democratic socialist model, they almost they had their own Bernie Sanders or an AOC, which you'll talk about here in a minute. And then they went from being nationalized to decentralized, then when it got decentralized, it took off and it did well. Then they got back involved of wanting to be nationalized to get the bigger banks to get bigger by not doing smaller loans They got paid to do the bigger loans. You know, let's not give away $20 million or 50 million dollars. Why don't we do it? 200 million dollars 100 million dollars

That's the bigger payday so brokers started buying two three homes because they had that kind of money these young brokers that are coming up And then all of a sudden boom they realize this is not working out from 1990 to 2003. Market drops 80%. You know, 200,000 companies fall bankruptcy. Five million people lose their jobs, the leading cause of death in Japan and men ages 20 to 44 years old with suicide. And that happens, right? My concern is we in America have become oblivious

to these things that we can study to make sure we don't repeat history that other countries have made. And the case studies of these things are out there, Japan being one of them. So for somebody that's watching this and it's fully open to, open minded to want to hear your perspective. Give us the similarities and concerns you may have because later on I want to get into inflation,

I want to get into gold, I want to get into crypto, I want to get into gas prices, I want to get into all of that stuff that I want to talk about with the time that we have here together. But what similarities are you seeing with the growth that Japan experienced and then the major fall that they had to what's going on right down America?

Yes, well, first of all, as exactly as you say, we have these case studies out there. And as it turns out, the number of very different cases, is actually quite small, because most of the time we see the patterns repeat and repeat and repeat. And so there are a lot of similarities. So what are the things that make Japan strong?

It is indeed, as you said, the companies, of course also, you know, education and so on, but to have a large number of small firms is one of the key ingredients of success. And this is true. If you look at the whole world, two thirds of employment is with small firms. Small enterprises, even micro businesses, they account for the majority of employment everywhere that's true in the US, in Germany, Japan. That's one thing. And actually, it's an interesting comparison. If you look, for example, at the UK today, they've been saying for the last, well, I don't know, five, ten years,

constantly, how we have a problem, our productivity is so low, why is productivity so low? And it's because... It's not because they don't have inventions, lots of patent, you know, registrations, lots of ideas. But somehow, the business sector is not very productive and is also successful in terms of exports. And then you've got its comparison

very close to the UK's Germany and it's very different. Proactivity is very high, very successful, strong exports until 2009, German exports in absolute terms were larger than Chinese exports. And of course Germany is tiny compared to China by any measure. So how is that possible?

And if you study that, you find that a big percentage of those exports are by small firms, family-owned businesses, local small firms, which are very important in the Germany economy just like in the US. So how do they manage to be so productive and the same story is true in Japan? They manage to be very very productive and we can contrast this with the UK where they're not very productive and the difference is actually in the banking sector. Just to give you an example, say here's a small firm in Germany, a new technology appears in their industry.

Some new mechanisms, some new technologies, they didn't develop it, but they know it's out there. If we don't get it, our firm is going to fall behind. We're going to lose market share. We've got a quickly upgrade. Now, this costs money. That's the main thing. The small firms are not the ones usually that have the new patterns. They don't have to. They just need to implement the latest technology, but that costs money. So in Germany, where we have thousands of small community banks, and historically, we've had very, very large number of community banks, and historically always had very, very large number of community banks,

thousands. And the principle is they only lend locally, so they know all their local small firms very well and have known them for years. So the owner of the small company would go to the bank and say, look, we've got this new technology coming out in our market. We need to get this. We need money to upgrade. Otherwise, we'll start losing market share. The banker will already know the company. They know that they're reliable. Maybe check this out a little bit and they will quickly come to the conclusion. Yeah, that's true. They need the money. We'll give it to them

and get a decision on the same day, maybe the next day because that's their main business. And off they go, they upgrade and they stay highly competitive. There is actually a measure of such successful small firms. I mean, there's a small firm definition, employee number, you know, less than a hundred or something and by capital and so on. It's just using the international small firm definition. Small firm that is globally successful has top market share, like a champion in the Olympics, goal silver bronze. So, and they're known as hidden champions. They've got top number one, two or three market share

in their niche, but they're small firms that we don't know the name, so like hidden, you know, there, small firms that fairly unknown by their names, they're not household brands, right? So these hidden champions are these globally successful small firms and studies have been done, okay, which country has most of these hidden champions in the world? What do you think?

Which country has the most hidden champions in the world? So do you think? Which country has the most hidden champions in the world? So small firms that are global leaders in their market. Are you asking today? Yes, today. I mean, it has been true for decades. It hasn't changed for long time. Germany? I don't know. Yes, that's the one. Germany is number one by far. Number two, and the other one that you'd think about is actually the US because we know small firms are also very strong in the US and it is number two, but there's a huge gap. So Germany's around 1,500 hidden champions. The US has around 350 Which is not bad, but it's yeah, there's a big five eggs exactly. So why how's that possible?

Is it because of the banking system? Germany has so many small local Community banks 80% of all banks in Germany are not for profit local community banks cooperative banks savings banks that lend only to these Small firms locally That's how they're so strong and they constantly can upgrade And that's why job creation is so strong. Now, Japan is a similar system and the US historically has had a similar system. It's strongest in Germany because it remained unchanged in Germany for 200 years and none of these small community banks has ever gone bust.

None has ever needed a government bailout and they never changed the formula. They only lend locally. Once you start to change the formula, like in Spain, they had them and then they said, oh no, they should be able to lend across Spain. You know, you bust the system. Now in Japan, and that's what you mentioned earlier, they also changed the formula. And the big banks started to dominate. There's lots of bank mergers. The banking system getting more concentrated. And of course, this was part of the movement in the 1980s as banks were lending too much money. They're for creating too much money. Now, I studied this mechanism. And because the question

is still, you know, how, how, you know, I still want to know that exactly who or what I want to know. I still want to know what I want to know. I want to know like specific. What happened in Japan to have that massive of a crisis that they had 80% and 13 years, 200,000 companies file bankruptcy, five of them. What happened there? And I know where you're going with the small banks right now, but for the audience that listing before we get to just

give the climate, here's what they did, this is what took place. Here's what happened. They need to know that history and then we can get into something. Exactly. Because I want them to know exactly what happened then. Exactly. Well, I wanted to know that too. Particularly once I predicted this huge bust that Japanese banks will now go bankrupt

and the whole Japanese economy is going to come to a halt. I knew that and from 1991 onwards, I went back to Japan, actually, to the Bank of Japan. I was visiting research at the Central Bank. My goal was to find out the answer to that question. At that time, most people didn't think it's going to get that bad, but I knew this is going to be really bad. So the question is going to be so important. How do we ever get here? Who's responsible? What's the mechanism? And of course, the mechanism is the excess bank credit in the 80s when they're revved our bank lending for property, for real estate,

creating this huge asset bubble, property bubble, which is unsustainable. There's bank lending, therefore money creation, just for asset purchases. It's a Ponzi scheme like a pyramid scheme snowball system While banks keep creating credit for new property purchases everything will go up everyone is happy everyone makes money Even the tax man gets more revenues everyone's happy, but it's a it's a game of musical chairs once the music stops once banks Stop creating credit for these asset purchases then asset prices don't rise anymore.

They start to fall. Then the late coming speculators will already not have profits, they'll go bust. You start to get non-performing loans more and more, and then the banks will of course reduce bank credit further until you get a full-blown banking crisis because non-performing assets just need to reach 10% of banks portfolios and the banks are bust because it's also bought it by capital. If you go non-performing loans, it's a hole in the on the asset side of your balance sheet. Where does the money come from? You got to take it from capital. But bank capital is 10% or less. So while in an asset bubble, you push up asset prices by 100, 200,

300, 400%. From the peak, they only need to fall by 10 percent or a bit more than that, 15 percent. And the banking system is bust. That's why we have these recurring banking crises after the asset bubbles. So the question is then why and how was bank credit expanded so dramatically for land purchase and property transactions. So I researched that. And the standard tools that I researched by economists and researchers and this interest rates and central bank tools, reserve requirements, all sorts, they didn't yield any answers because nothing unusual was happening that could explain this dramatic development. And I kept asking people and reading more and I started to hear that people say, oh no, there's another tool. Oh, but let's not talk about it. What do you mean? Another

tool? Oh no, that's not official. Well, I don't care. You know, I would afford that. Oh no, that's not an official tool. It's a sort of, it's a sort of a hidden tool. Alright, tell me more. In Japan, if you really want to find out what's happening, they will always tell you that you've got to go for dinner and there has to be a bit of sake. And because it's off the record after six o'clock, they will tell you. You're not supposed to quote it and attribute it to them But they will tell you the full story and the full story is that of course

The there is there is a secret monitor policy tool that has been used by almost all central banks But is not written about very much because central banks don't want people to look at it Academic economists. I mean many of them, of them get assignments with central banks or are ex-central bankers and they know what to write about it, what's good for your career and what not to write about, which is not good for your career. Writing about this is considered slightly dangerous for your career. There's almost nothing at the time when I researched this on this topic. And then I did my, again, empirical research.

I said, okay, I want to interview bankers that, personally, as individuals were in the late 1980s at a bank, and they were at the big banks, and they were dealing with the central bank concerning this tool. And I want to interview central bankers that were implementing this tool vis-a-vis the banks. And I want to hear their stories and actually I recorded them. I managed to do this because at the time I was visiting research at the bank of Japan, I had my name card, Bank of Japan.

And you go to the bank, you know, they will, they will make time for you. So I went to the banks and also to the central bankers meeting them for lunch and so on. And some actually agreed, yeah, I can record this, that's fine. Now starting with the banks, actually I started by initially asking people that were in the branches of the banks, loan offices, just ordinary loan offices, I started with those. And they told me the story already, well, the beginning of the story.

And so they were saying, well, the 1980s was a crazy time. I was giving loans, left, right, and center, property loans, real estate lending. I mean, I was actually cold calling companies and owners of companies, or just, you know, people who I thought are wealthy enough. I was cold calling them and saying, look, we found a property for you. We've done the calculation. We'll give you the money.

Please sign here. Next year is gonna go up by, you know, 60, 70%. You're gonna make this much money. Please sign here. And you'll get the money, you'll get the property. That's how aggressively the banks were pushing this. This is 80s. This was second half of the 80s.

And these people would also say, and while we did this, we were very concerned because I think we were creating an asset bubble. Oh yeah, you surely were. Well, so my question then was, okay, so why were you doing it? You realize this is kind of risky. Well, I was just doing as I was told, oh, by who were you told?

Well, our branch manager gave us loan increased quotas for every quarter, every three month period. We had to increase lending by this much. So we're just doing that, you know, fulfilling our quota. So then I asked the branch managers, I wanted to get introductions to branch managers, then the late 80s were managers, heads of branches of banks, and I interviewed those. And the story was the same. They were saying, oh, late 80s,

crazy time. I did all this in 19293. So it was still fairly fresh, you know, in people's minds. And at the same time time people didn't realize the enormity of what has happened yet Okay, so they don't know what's about to happen. Yeah, okay It hadn't really hit the fan yet, so and asked those And they they would say crazy time we were really I was telling my my my loan officers to increase lending dramatically property We were really pushing up as a price this way. It was kind of risky. I think we're creating a bubble. So why did you do it? Well, I was just doing as I was told, oh, by who? Oh, by the head office strategic planning department gave us the the lone increased

plans. So then I interviewed people at the headquarters of the big banks in the strategic planning department. And what I heard there was, oh, late 1980s, crazy time. We were pushing out those loans left, right, and center. We were really pushing up asset prices by telling our loan officers to increase lending this much. I think we're creating a bubble. It's kind of risky. All right. Okay. So why did you do? What? We're just doing what we're told. By who? Like the chairman of the bank? No, no, chairman in Japan, Richard, you must understand. They're just figureheads, you know?

No, no, they're not involved. We do, you know, we make the decisions for the bank. So who told you to do this? Well, the bank of Japan, of course. The central bank. Oh, yes, the central bank bank because we were given credit loan you know increase quotas as part of the window guidance central bank informal extra legal monetary policy control tool. Oh that's very interesting. Actually some of the bankers already told me, oh yeah, and that was decided at the central bank in the planning department,

in the actually the banking department where they deal with the banks, and head of the banking department, and then the second half of the 80s was somebody called Mr. Fukui. He, by the way, this was in 92 when I asked these questions, he will be governor of the Bank of Japan, maybe in 10 years' time or so. Oh, really? Are you sure? Yes, he's one of the princes of Japan, maybe in 10 years' time or so. Oh really? Are you sure? Yes, he's one of the princes. What do you mean? And they were using the English word.

I mean, these were interviews conducted in Japanese, but they would suddenly use the English word prince. What do you mean? He's a prince. Oh, he's been selected to be governor of the Bank of Japan 20 years ago, you know, when he was in his 30s of age, he was selected to 30 years later become governor. And there's a very small number of people who have selected this way. They're known inside the Bank of Japan and in the financial circles, there's the princess because of

this unusual, very early selection. So then I interviewed the central bankers. And I managed to find some of those who were at the central bank in charge of meeting out those central bank long-growth quotas to the banks. And they told me of their jobs. And because at that time it wasn't yet controversial, they just freely told me what they're doing. Well, we were telling the banks to increase their lending. It was kind of risky.

We're really asking them to increase their property lending quite a lot. I guess we were creating an asset bubble there, weren't we? Oh, right. So why were we doing it? Well, I was just doing what I was told by who? By the head of the banking department, I see. And from 1986 to 1989, just when there's huge asset bubble and this huge, you know, massively inflated property prices were created. It was somebody called Mr. Fukui, completely under the radar. At the time nobody in Japan book, princes of the Yen, would be future governor.

And the book came out before he became governor. A lot of people doubted that he will become governor, but of course he did become governor of the bank. He was one of the princes. So the bank, so the answer is the bank of Japan using its very much hidden control tool of directly directing bank credit because that is the key variable and therefore of course it does make sense. If you want to run the show, you directly tell the banks how much to lend. They also did this by industrial sector to some extent whenever they wanted to. With this window guidance, they forced the banks to create this property bubble, which then had to completely blow up the banking system and create a situation

where you then can have a 20-year recession if you want, because the banks will be paralyzed. Now, the only way out and to sort of reliquify the banks and get the economy going again is actually only if the central bank wants to. And the central bank can get out of this very, very easily at no cost to the taxpayer if it wants to. And the bank of Japan chose not to do this. That's detailed. In the book, Princes of theen, quantum publishers.com is actually where you can get it. It's slightly hard to get, but there you'll get it very easily and cheapest. The reason why they wanted this, of course, was the next question. I mean, it was the next question. What is that reason? Why were the central bankers doing this?

And I found that, so Mr. Fukui was in charge of this window guidance in the 80s, and his boss, who was at the time deputy governor, Mr. Mieno, the earlier prince, in the 1990s, they both moved up. Mr. Mieno became governor of the central bank, and Mr. Mienoiene became in the second half of the 90s deputy governor, you see. And then during the 90s they insured that the bank which bank kept a bank credit tight. And they did not solve this emerging banking crisis, but it was clearly festering would get bigger and bigger. And then in the 2000s, again, they didn't really solve the problem. So we had, and therefore banks didn't create credit,

new credit for business investment. And therefore there was a 20-year recession. It was these two guys, Miano and Fukuia. And I studied this in detail on what they said. And actually, it's certainly not a conspiracy, because they very clearly said in their speeches. In the 90s, they said, well, we don't really want to recovery now because the recession is good for the economy because it forces structural change on the economy. Do you agree with that? No, I don't. I think it's not right to have an artificial recession.

No, not artificial recession, but how about a... Okay, so you said, let me take you back a little bit. I got that idea. So 1990, 1991, you are curious at this point on what's going on and you start investigating. You went all the way down from the bankers, the way to the top of the you know the bank of Japan and you kind of Realized for Kui what's going on great So in 86 if you can for 30 seconds if you can just kind of give us some perspective from 86 to 89 How much was value of real estate going up and what kind of money were these guys making just for us to kind of get a visualization Well property prices were rising by several hundred percent per year.

Well, in total. So in this three, three, four, you mean to tell me like a half a million dollar property could end up being a two million dollar property. Oh, yeah, of course. You're serious. Yes. Yeah. Yeah. Okay. So, and this has happened in specifically three years. Okay, so and this has happened in specifically three years. Yeah, maybe four if you yeah, half a year on both ends. So, so then then how similar were interest rates? Like, you know how we dropped the rates down to zero and we had 128 monochemic expansion. Oh my gosh, what a great time it was.

And then, you know, what were they doing with interest rates? What did inflation look like? What did gas prices look like? What did unemployment look like? Was it like a 1.2% unemployment interest rates? What did inflation look like? What did gas prices look like? What did unemployment look like? Was it like a 1.2% unemployment interest rates were really low? What were the conditions there? Unemployment has always been low in Japan.

That started to rise only from the second half of the 1990s when the recession started to get bad. And then in the 2000s, we hit peak unemployment. Which by international standards is still low, but by Japanese standards was the highest ever in the post-war era. Inflation in the 80s was very low as well, because most money creation was going into asset prices. And well, so the normal measure of inflation

is consumer prices. Consumer prices stayed fairly constant, fairly flat. In fact, there was some deflation because the yen was rising in poor prices were going down. And so you didn't see what was happening. And then that's actually the reason why, as Japan, if we quickly moved to capital flows briefly, Japan was creating all this money via the asset markets, invlating asset prices. And some of that spilled

over as capital outflows, that explains this flood of money. And I saw that puzzle. This flood of money from Japan was this bank credit creation in asset markets. Now normally you'd see that and you say, well, they're just printing money and they're buying foreign assets, the yen should go down. But it's not an automatic mechanism. You know, market players have to understand this

and realize, oh, they're just printing the money. That's why we're gonna sell the yen and they start to sell the yen, but this didn't happen. They saw consumer price inflation zero or negative. Well, the yen, they're obviously not printing money and the yen should be strong. And it stays strong while they went around the world buying up assets everywhere. Now, you mentioned interest rates. Of course, that's an interesting question always because any central bank watcher, I mean, in the mainstream, will focus on interest rates.

And central banks themselves will always try to get your attention focused on interest rates. And it's a bit like the magician on stage when they're performing a trick. And of course, they don't want you to see what really does the trick. When they do that hand movement, they will distract you attention with the other hand and

say, look here, this is happening. Maybe you have a little diversion story. And that's what interest rates are. But it's such a huge diversion. It's worthwhile spending a few moments on this because actually, famously, there's so many different schools in economics right different schools of thought different economies they all have different ideas they always argue and squabble well there's one idea that all the different schools of economic thought of the last 200 years in English language economics agree on namely they all say if you lower rates this is good for the economy growth will go up. If you raise interest rates, this will slow the economy. You can go back to David Riccardo, classical economists,

Alfred Marshall, neoclassical economics, Keynes certainly said that, that monitors, said that, you know, all sorts of neoclassical economics, neovixialing, all the schools of thought agree on this point, and central bankers for the last 30 years have been saying this on a daily basis, watch interest rates, because when we raise them,

it's gonna slow things. If we lower them, it's gonna stimulate. They say this constantly. Now, because this has repeated so many times, we all assume quite reasonably that, of course, this has been empirically tested and checked hundreds of times, and be thousands of times. So we don't need to check this, right?

Well, how many empirical studies exist that demonstrate this relationship? Five. Zero. Wow. There isn't one because I did the first empirical check of this. It's very hard to publish this. Nobody, you know, the economists don't want you to see this. What I found is it's not true.

It's just not true. There is no empirical evidence for this. So the officials show what we're doing today in the States when we're increasing rates to prevent from inflation taking place, that makes zero sense to do. It's not gonna help it. It's not gonna help if the real cause of inflation,

which is not interest rate, is still in place. And that is money creation for unproductive purposes for consumption. If they keep doing that, and you can do that at higher rates, you can still push out the credit creation in the banking system, you will get accelerating inflation. And in fact, then you will find that the higher interest rates make certain things more expensive, more gages and whatever, rents will start to move up, you know, it's not going to end inflation if the credit creation continues. So I did, but I wanted to show this because you can always have scenarios where maybe, you know, you think it could work or not. So it's an empirical

question. Now did the first empirical test using data on the US, the UK, Germany and Japan for half a century. And it was open-ended. My question was simply, what actually does the data tell us? Is the relationship between interest rates? And we tried together with a colleague, econometrician. And we asked, well, looking at three different types of interest rates, short rates, long term, 10-year government

bond yields, and so on. What is the relationship between interest rates and economic growth? The official story is a negative correlation. Lower rates higher growth, higher rates lower growth, a negative inverse relationship and causation, supposed to be from interest rates to growth. There's supposed to be some causation there. What we found was diametrically opposed to this on both dimensions. The correlation is actually positive.

So higher rates and higher growth always go hand in hand. Lower rates and lower growth always go hand in hand. And the causation, statistical causation that you can test for, runs from growth to interest rates, interest rates follow growth, and therefore they can't be the cause. And that tells you there can't be the best monetary policy tool at all. That paper is published, you can also look it up. That's called, it's also open source, reconsidering monetary policy. The only journal that will publish this, fairly good journal

still, but it was ecological economics. It's in there, peer reviewed journal. And then empirical examination of the relationship between interest rates and GDP growth. We've got another paper coming out now, which looks at real growth, industrial production for 19 countries. It's the same conclusion. So reality is, interest rates work differently and they're not really the cause of what's happening. So, essential banks love to talk about it because that way they distract your attention, you focus on something that's not key and they can then use that to make sure you don't really understand.

So, what they're doing. Can I challenge you? Please do. So, here's my challenge. I'd like you to, for the next questions I asked, speak to us as if people don't have an MBA in finance Okay, I want you to explain to the average person that's listened to this because I know sometimes when I'm around Intellectors or professors or teachers they speak in that language and they never know how to take the hat off of that language Right, we had who was a professor that we had that flew out here that we had on the podcast a

couple months ago, extremely smartly. Yeah, Berlinsky, who I'm like, can you, you know, speak at the level of the average person as the someone? I ask you some questions, like, and I'm really, yeah, because I've watched, I know how much value there is and seeing this. And, you know, today in US the US, a lot of people were sitting there historically, we've been told when a market crash happens or too much of dollars being printed, gold prices go up. Nothing happened. The gold crusaders were like, oh, you're

going to see what's going to happen with gold and gold's going to go to 5,000 Okay, all right sounds good. Why if you look at the numbers with gold any time we've done this golds gone up It's time for the gold version. We print a 40% American money. We print it last or so. We've never done this before Okay, fine sounds good the crypto community says well, let me tell you decentralized people have been asking for decentralized We have it here, right? And it's decentralized. And the reality of crypto is the fact that, you know, it's different than everything else where recently a paper came out,

if you can zoom in here, shown that Bitcoin has been trading with the stock market this year. So for the Bitcoin community that's pitching the fact that if the stock market goes down, Bitcoin goes up or whatever, you know, it's not the same. I'm sorry, if you go a little lower to show the data, go a little lower if you show the data right there, go a little lower to the second paragraph.

The data right there shows of the 98 trading days we've had so far, Bitcoin and SMP 500 index have moved in the same exact direction, 73 of them while moving in the opposite only 25 times. So is there anything unique about Bitcoin compared to the stock market, or is Bitcoin just now a digital goal? That's just another stock, right? So okay, so we were thinking Bitcoin if the market was gonna tank

and we're gonna print money, Bitcoin's gonna go to 100,000, 200,000. Nope, it's at 29,000 today. Okay, well, if we increase interest rates and Powell's gonna increase interest rates, that means inflation's not gonna go up and it's gonna stay at around four or five percent. Nope, it's at eight and a half percent

and we keep increasing interest rates. But if we increase interest rates, real estate value is gonna take a hit and bubblegum. But it's okay, so out of all the things that we're looking at today, what are the main data we ought to look at to say, listen, we know the definition of a recession is two quarters in a row, right? It's the numbers two quarters in a row.

When COVID happened and the market dropped, what, 50% or 40% in a span of a month, it came back up. That's not a recession. That's a market crash, okay? It's got to be two quarters in a row. Fine, we know that. What are some of the most concerning data that you see in America today that you're sitting there saying things are not going to be good?

If it's something where you are saying things are not going to be good, how bad are things going to be in the US economy the next 12, 24, 36, 60 months? Okay, well, there's a good comparison. And that is 2008. And then, you know, what happened since 2020. In 2008, we had essentially a bubble collapsing that was more similar to the Japanese situation. So the banks were creating a lot of credit that was used for property but also various financial instruments. So you had your asset price surge.

And once bank credit suddenly tightened, which happened very dramatically September 2008, and the banking system was essentially shut down, then the asset bubble collapses. And we saw that. then the asset bubble collapses and we saw that. Now at that time, the Fed Reserve acted very quickly. In fact, internationally among central banks, it was the one that reacted fastest and also in the most proactive way. But the key thing is bank credit shrank after that for a year. Bank credit just did not expand and that's the biggest part. The key thing is bank credit shrank after that for a year.

Bank credit just did not expand. And that's the biggest part. That's the money supply. The fur reserve stepped in. It created a lot of credit on its own. A lot of people said that this would create inflation now and the dollar would collapse because look what the Fed is doing. I was one of the few who were saying, no, the dollar is not going to collapse and

there's not going to be inflation. Why? Because the Fed is a small cog and the big wheel is the banking system and they're shrinking. So the total money supply was actually not expanding, despite the Fed being hyperactive. Now, the Fed did implement one of my policy recommendations from the true quantitative easing that had formulated in 1995, which is, and then my true definition of true quantitative easing of course, is to increase bank credit creation for the real economy. How do you do that? And there's some steps that the central bank can take to do this. And one is to help the banks restore the problems on their balance sheet, which they didn't do in Japan for a long time. And I told them many times and many publications, and my book, Princes of the End, was a number one best seller in Japan ahead of Harry Potter for

six weeks. I was on the Japanese media very regularly, 2001, 2002, 2003. I was invited by Parliament, I was advisory to various government committees, but the central bank never did this, whereas the Fed, and you see, at the time in the 1990s, when it was proposing this first from 95 onwards, Ben Bananke, as academic, was participating in these debates about Japan. And he, as head of the Fed, did implement one of my key recommendations.

And that was the only central bank in the world that did that in 2008, was the Fed. Namely, he took away these non-performing assets from the banks, from the big banks very quickly, by simply, and this was my recommendation, by simply having the central bank buy them up. Of course not at market value, at something, you know, 20 cents on a dollar or higher. Much higher.

Maybe not at a hundred, though. Why? Stress assets, right? So why, though? Because the banks are special, they create the money supply and you need them if you want an economic recovery. And while they're impaired, you could have a 20 year recession. That's what Japan demonstrated, right? And so my recommendation was the central bank should go and buy these non performing assets. Let's say at face value at 100, they're only worth 20, but the central bank goes out and buys them at 100. What happens?

The banks, of course, are immediately restored. I mean, they're more liquid than ever. Their balance sheets are super strong. They can now go out and create credit to their normal business. And of course, you should impose some conditions. You guys stop the bank lending for the asset purchases, give out loans for productive business. They didn't, they didn't do it. Well, that's what we could impose. The Fed didn't do that.

No. But to help banks increase lending again, if you get rid of the non-forming assets, you buy them up, that solves the problem. There's no tax money involved, and there's no cost to society. And you might say well Hang on there could be two types of cost the central bank now has the non-performing assets

That's a cost, isn't it? Yeah, but the central bank is a special institution First of all, it doesn't have to mark the market So you won't see this also You know, it's central banks always profitable because they create the money supply or they At the core of the money supply process, let's say. So, I mean, if you want central banks to be profitable, you should arrest all the central banks for insider trading. Of course, the central bank will always be profitable. So, it's not a problem that the central bank is perjury, but actually, they're not even having any losses.

Why? If the central bank buys these non-performing assets from the banks at 100, they're worth only 20. It is possible to book this in the accounts of the central bank as a loss of 80, but that wouldn't reflect reality. And accounts should reflect reality as much as possible. What is reality? What is the true gain or loss that the central bank has? It doesn't have a loss.

It has a gain of 20. It owns something worth 20. And what did you pay? Well, the cost of funding is zero to the central bank. So that's why you don't have to worry about that. It's a gain to the center bank to buy anything. But where's the money from central bank coming from? You could say the central bank creates it.

Now, that will raise the red flag for you to say, well, hang on, there's another cost, inflation. And that's where we come full circle. No, this does not create inflation because inflation can be created when the central bank and the banking system create and inject money into the non-bank economy and they do this for unproductive purposes, they do this too much, you get inflation, or acid inflation,

right? But this is not what happens here. What happens is a booking exercise within the banking system, the central bank and the banks are together, the banking system. And always saying is, oh, the central bank is now going to use its powers to clean up the balance sheets of the banks. That in itself doesn't inject any money into the non-bank economy.

And therefore cannot lead to inflation. There's not a single dollar this is injected into the non-bank sector as a result of this. And that's what happened. So bank credit recovered after a year, 4%, 5%, 6% bank credit growth. America was the first country to recover after 2008 crisis. And so you think it was the right move?

It was the right move. If, well, I mean, I would have done it even better because they should have imposed certain rules. We know when you bail out the banks, you have a lot of power. And they could have used this to say, OK, from now on, we're going to do this properly. They didn't do that.

Secondly, they could have not favored the big banks so much. They really favored the big banks, and really you should have done this. You believe in socialism? No, I don't. But it's a crisis. You see, I believe in the principle of moral hazard. That is, who is responsible for this crisis?

It's the central bank. They should pay up and end it. It shouldn't have happened in the first place. Yeah, but central banks is getting money. The more they put into it. My dollar goes lower. So you're hurting me. No, if you're doing that, it's not creating. And you're delaying a time bomb. And now you're getting rid of this as a capital. I'm a capitalist. I'm a full blown capitalist. I believe in capitalism. Well, then we must abolish central banks and I would agree we don't need central banks. But now that we have them and they're creating asset bubbles. Well, then we must abolish central banks and I would agree we don't need central banks

But now that we have them and they're creating asset bubbles. Yeah, but you're feeding them You're feeding the machine though. You're making it you delaying the time bomb for the next generation That's paid a price for you see compared Japan and the US in Japan the central bank didn't do this So then we had a 20 year recession all these suicides you mentioned That's the result of the central bank. Let me ask you question. If you see because the central bank power is increased when they have boom bust. I have a hard time with this. Abolishes the boom bust cycle. Can I push you back and you push me back? Just push me back and what I'm saying. So, okay. So let's keep creating fake success. So the current people of power don't take a lot of hit

because God forbid the too big to fail companies, take a big hit. Let's protect those guys. And then you get the average guy that's sitting there saying, well, you definitely believe in capitalism, but it's capitalism for the poor and socialism for the rich. Let's protect the big women.

And when a person gives me that argument, I sit down and I said, you're partially right because we keep doing this. So it's okay. So today, let's go the bigger one. And when a person gives me that argument, I sit down and I said, you're partially right because we keep doing this. So it's okay, so today, let's go to today. But I'm not saying, what we should do is, this is not success. The central banks have created the asset bubbles. They should then use the tools that they have

to quickly delete their mistakes. That's what I'm saying. That's affecting me in my generation. It's, but it's not. You see, if the central bank does it in this way, there's no money creation, there's no inflation. In fact, that's the big difference to today, 2020. So let me compare that.

What do we need? There's a money creation. Where does a money go to the bank? If they're going to buy a $20 stock rather than pennies on a dollar, they bid at $100. Where did they get the money to give it to the bank? There's no money injected as a result of this bailout, say the Fed through its maiden lane 1, 2, 3, purchasing the non-voting assets of the banks.

That in itself doesn't inject a penny into the non-bank economy because it's cleaning up the banking sector. It's an intra-bank transaction. You see, inside the banking system, It's an intra bank transaction, you see, inside the banking system between the Fed and the banks. Therefore, that in itself doesn't create money, and the proof is in the pudding, you know? The, there was no inflation. As I was saying, mostly it was saying,

oh, the Fed balance. No, but that's not proof in the pudding though. I disagree. Because just because there's no inflation right off the bat the first year, second year, third, that doesn't mean it is not coming. That doesn't mean winter is coming. All you did is you delayed winter for 10 to 15 years. Okay. And then

severe winter is coming. Okay, then let me give you two more examples, please, where this was done. And then I think you'll, you get the point that it is a limited measure for emergency situations. But it doesn't actually create inflation. Therefore, once you are in the situation, you should do it, but of course, you should also see why did the central banks get us here in the first place and avoid that. So the two examples are Japan 1945.

What was the state of the banking sector? Well, it was actually worse than in, you know, 1989, 1990, when the bubble burst. It was worse. In 1990, the non-performing assets in the bank system were 25% of the bank balance sheets, which is a lot. That is a lot. Anything more than 10% is enough to bankrupt the banks. But in 1945, the non-performing assets in the Japanese banking

system were like 100% because they had two types of assets they had Greater East Asian prosperity bonds war bonds forced on the banks of a country that just lost the second world war and Secondly forced lending to the munitions industry of munitions companies there were also bust many now, not even in Japan anymore because, you know, Manchuria, Korea, Taiwan are not part of Japan anymore after 45. So, 100% non-performing assets. Fine. Now, the bank of Japan decided, okay, we've just been defeated, devastated. The cities have been eradicated. A lot of, you know, incendiary bombs,

flat earth here where they're used to be a city. It's not a good moment to have a banking crisis. Let's not have a banking crisis. They always have this option. So what are we going to do? We will purchase the non-performing assets from the banks at face value. It was actually a bit less than face value whether these are details and that's what they did. And so there was, so after the 1945, much bigger banking crisis, how long was the recession, how long was the period in which banks did not lend to businesses anymore?

Only one year, then they revved up lending, they're kind of recovered, you're doing well. In the 1990s, when the non-performing asset problem in the banking system, which much smaller, how long did it take 20 years? Why? Because they still had their non-performing assets. The banks continued to be risk-averse.

They reduced, they did not increase bank lending. The reason for the 20-year recession is very simply, look at bank credit to the economy, negative for 20 years. That's why there was no recovery. It's because they constantly had these non-performing assets, this obstacle on their balance sheet. Second example, August 1914. The United Kingdom of Great Britain and Ireland declared war on Germany, Austria, Austria and Hungarian Empire and the Ottoman Empire, the first world war had begun. Now, the city of London, bankers came to the government and the Treasury and the bank villain is at, oh, by the way, we're bankrupt now. Why? What happened? Well, London already

was the world's financial center. So all the paper, security's traded between Germany, Austria, Istanbul, and so on, was going through London. A lot of it was going through London. They were holding what then was considered irredeemable enemy paper, and it was too much value zero because of the war they were based. What did the Bank of England do?

Just declared war, the first war was beginning. Let's not have a banking crisis. So they purchase the non-performing assets at face value. And by the way, you can actually even make a profit with standard accounting out of this as well. So what I'm saying is that when you are in such a bad situation, created by the central banks, and we should hold them to account why we're here, but then they do have responsibility. You get us out of this in the quickest possible way without a long recession, without su-sites by business people as we saw in Japan because of the recession, because the bank

stone lent to them. So more and more firms go bust. That can be avoided. And it is this obstacle called non-performing assets on the bank balance sheet and you can just take them away at zero cost to the tax pay. I don't, I, I, okay, so let me, let me ask you questions. So say the economy at the time where in March of 2009 we put $1.25 trillion into the market, quantitative easing. How much was in the market at that time? How much money was circulating at that time? Give me a number, give or take whatever, let's make a number up. Ten trillion. Twelve trillion. I look at it on a flow basis, because credit creation is actually a flow concept.

And where is, you know, you're asking about the stock of money, but really the question is how much new money is created. Now that in 2008 was actually negative, because banks didn't create credit at the end of 2008 and the central bank Yes, put in trillions, but in total that was still less than the shrinkage of the money It doesn't matter. It doesn't matter. All I'm asking is I'm asking if if we had 10 trillion and we put 1.25 trillion plus Another 200 plus another 300 billion so add that to 1.75 trillion and if we have a 10 10 trillion that's 17 and a half percent

My money devalued one but it's not that is not what a hundred dollars became eighty three dollars You have to understand the transaction. I'm saying is is a transaction to shift assets from a to b Inside the banking system and that does not create any money in the economy. It does not increase the money supply at all. At all. And that's why. So where did money show up? Or where did the two children show up? It doesn't show up anywhere. Because you're immediately retiring it,

you're putting it into these non-performing assets. It's the central bank saying, let's delete these non-performing assets. Was there money given from central bank to banks? That's right. Was there money that was from someone? Okay, so where did that money that the central bank tie it? It was retired by writing off those non-performing assets. The central bank is just writing.

But that's still money, though. The money went. No, it didn't. It just solved the bookkeeping problem. What am I missing here, Tom? Well, you have to understand that. I think that you need, excuse me, I think the point we're missing here,

and you need to help us. And when Pat says, let's take the hat off the complexity for the average person. So right now I have a toxic asset. I'm having to pay interest because that's levered. So that has a cost to me. I have, correct?

I'm collecting from you a payment on this trillion dollar asset All of a sudden you can't make the payment anymore Well, I've got a little tiny payment over here that I was paying to the central bank on the original On the original Dollars so what you're saying is the central bank knows that you're gonna stop paying me So now this is toxic or non-performing asset, right? No performing anymore. Just stuck. So they'll say, I will take it off your balance sheet. So you no longer have to pay the interest on the underlying capital. And I'll just take an oneness. A minute later, that doesn't show up on my balance sheet. And a minute later,

I don't have to make the cost payment. And I'm not getting the revenue payment from you. So therefore, it's off my balance sheet. Is that what you're talking about? Yes, that's right. Okay, so for a consumer, help us understand this because we're talking in United States about student loans and you're the student and they're saying, well the students are going to be able to pay these so. This is bullshit. Let me tell you why this is pissing me off. Here's why I'm getting upset with this. I'm not agreeing. I'm saying, no, I'm getting that. But let me tell you why this is pissing me off. Here's why I'm getting upset with this. You're not agreeing, I'm saying. No, I'm not agreeing.

I'm saying that. But let me tell you what has happened. And so the one and a half trillion dollars of student debt that we have right now, whatever the number is, we got, I think it's a trillion dollars of credit card debt, a trillion and a half of student loan debt. So I'm here defending not to bail out student loan debt, right? Because you're weakening the economy if you keep bail bail out student loan debt, right?

Because you're weakening the economy. If you keep bailing the average person out, right? I'm defending not doing that, because I'm defending capitalism. But at the same fricking time at the top, you guys are doing deals to getting your essentially bailing out the fricking big banks. How do you expect people to not get pissed off? That's essentially true.

And so now, so now, that's where I was going. Who are about to go into the next phase today that we're sitting there, oh it's okay, oh it's okay, we keep printing money, oh it's okay, oh it's okay, the government keeps getting bigger and bigger and bigger. It's okay, don't worry about it,

it doesn't affect you, don't worry about it, it doesn't affect you, and these banks are doing buy back stocks. And then you're essentially the people that are the small business owners that are sitting there saying, no, man, go out there, make your money. You can do it on your, you can be a small business owner. The market is not unfair. The market is not this. And the average person sitting there saying, but Pat, do me, dude, okay, fine. I want to agree with you, but at the same time, look at these suckers getting bailed out. How about me, the money never flowed to me.

I remember during that time, real legitimate small business owners in 08.09, after these guys got bailed out, like, okay, great, money's gonna flow out. Do you know how difficult it was to get a $200,000 loan from Chase? Chase was saying, no, no, no, no, no, no, no, no, no, no, what do you mean? No Bank of America, no, no, no, no, no, no, you just got this money to build people out to I can see how this produces the level of division To get the average person to say here's why I'm pissed off and by the way, they have a point and and the people that are trying to do it the right way, saying, listen, man, I don't have that kind of access to capital.

So to say, yeah, don't worry about it. The money doesn't do anything. It's not what you think it is, but is it being printed? Yeah, but it's not the way you think it is. It's a distressed asset. And they're buying 20 out of 100 bucks. So you're not really going to feel it. I am going to feel it.

There's two trillion dollars. Nobody's not so. So if people like you who are the intellectuals that have gone and done this research, this is not my world. This is your world. This is why we have this, this is why I'm asking you the questions, you're not asking me the questions, right? You're the expert, I'm the guy that's trying to learn from you. My concern is, then the market now is going to have a correction.

Let me give you what I think is going to happen and then give me your argument on what's the right solution now. Just before then, just to point out where we, you know, that we actually do agree, because you see, the, there were two problems with this bailout in 2008, 2009, by the Fed, and one was that it was mainly the big banks that were being bailed out, and that is unfair, and that should be criticized, and that is the game capitalism. And also, that's where Siffy came from. And you see, but the central bank did that because most central banks actually have another

agenda, which is not a good one, and that is to concentrate the banking system. And they used that to help the big guys, whereas the small banks, they were not helped and they had to merge. And so in the last 25 years, 5,000 banks have disappeared in the US and 5,000 banks have disappeared in the Eurozone under the ECB. And that's the agenda. They want to have fewer and fewer and bigger and bigger. Right, this is the bad.

That's not good. We should found constantly new small local community banks, which is something I'm doing actually, working on that. We have to hold against this. So that is one problem of the way they did it, and I wouldn't have done it the way they did it. That's the old Rothschild built the Bergargament, right?

That they're gonna concentrate everything at the top. Am I correct? Well, I'm just looking at the data, and the data says in the eurozone, since the ECB arrived, 5,000 banks have disappeared, and it's not the big ones. It is the small ones, they're being forced not good.

But you know what I'm asking about, right? There's a long standing, there's a long standing thing, this is world economic forum, Davos, is that there are shadow organizations that date back to the Rothschilds and the Bilderbergs, which is aimed toward ultimate elimination of country boundaries and consolidation of the banking system under a single global pattern.

Actually, you can go back even further. Read the communist manifesto by Karl Marx of 1800 and something. And it says, Marx came after this part. Right, but it says, it says what they want is one, um, one bank, which is the central bank. And so get rid of all these banks. Unfortunately, that very much seems to be the agenda, at least of the ECB. But the second point I wanted to say, where we, you know, where we also very much agree, um, is the way it was done since 2020 has been very different

and even worse. There we have all the bad sides of this intervention, namely in 2020, what they did is, they forced the banks to increase lending at a time when bank credit was already growing by six, seven percent and the Fed expanded. So we had massive, massive money creation in the economy and therefore inflation. And that's a big difference in 2008, 2009.

So I was forecasting since May 2020, we will get significant. So can I ask you about that? Can I ask you about that? And that hurts the small guys, in particular, and ordinary people. Yeah, and I'm sorry to interrupt you. It's just sometimes it's hard to follow you

because you're doing a period of breath, right? Take a breath between sentences. So in 2020, and during COVID, we basically just printed money and gave it to the common man. So what you're saying is what I'm listening to you is once upon a time, value of money was tied to gold. Gold had a supply. Supply was finite. And there was a value on that gold. So the value of the finite gold supply determined the value of the money or therefore the money supply at the time. Over time, gold became property

and asset bubbles associated and the banks were actually lending against that at some percentage, right? And so the money supply would go exponentially as banks were making quotas in issuing loans. So I can see how there is also always an asset tie. And then all of a sudden we come to COVID and we print a whole bunch of money in the United States and we give it to the common man. You're saying that's inflationary, because it wasn't tied to an asset. And that in 2008, the problem was

that the market market on the asset created an insolvent point for the bank because now the asset flipped, am I correct? Well, we don't need the asset. So in my analysis, the asset here is not the key. You know, money creation, banks can always create money and always could in the past, even in the gold stand. I'm not declaring I was following you

and make sure I understood. Are you saying the question? Are you verifying what he's saying? I'm verifying what you're saying, but then I ask you a question. The question is, therefore, because the banks are on quotas to make loans against things and for businesses.

You said that, they said, what's going on? Well, you know, it's the central banker, right? You know, Fouquille. You know, Fouquille is out there telling us, and we have a quote, and we have to make loans. That you said was not inflationary. What wasn't inflationary was printing a bunch of money and giving it to the common man.

That's my question. In Japan, it was creating acid inflation, which is bad. And you know, that, do you see my question, Pat? I'm saying, I get it. What I'm trying to, so for you, what you say, what you're saying is, yeah, quantitative easing is good if done, if I would have done it, I would have done it differently, right?

Okay, so what's the difference between that statement you're making versus the socialist and the communist that say, yeah, I know everybody says communism doesn't work and socialist doesn't work, but if I would have done it, I would have done it differently. No, it doesn't work. Quantitative easing doesn't work.

This system doesn't work what they're doing because again, today we're gonna enter, I know my prediction is, I've been in the financial sector for 21 years. Now, I got started day before 9-11 with Morgan Stanley. I'm serious, 76, 36, 31, 26 life and health. This has been my world for the last 21 years since I got out of the military. Okay.

Am I a redolio, of course not. Am I a economist? No. Am I the guy that went to MIT or any of the university's Oxford? No, I don't have a four-year degree. Nor do I have a two-year degree. I'm the regular guy that's concerned and asks questions who works as asof and has got big dreams and is curious.

That's where I'm at. So I know my prediction, I may be wrong. Shots about to hit the fan. July 1st, it's officially going to be announced. My prediction is recession, okay? Q3, it'll be two quarters and it'll be announced is recession I don't think they can do anything about it at this point They'll announce recession July 7 July 14th, but in the first week or second week of July they're gonna announce recession

Okay, so now they announced so the powells of the world and a Janet Yellen's of the world who are sitting here saying on October 29th when she did this interview with Wolf Blitzer I don don't know if you've seen this before. If you can just play the video, I just want people to see the 20 seconds of it. So she's supposed to be the person who's the former Fed chair. She's supposed to be the secretary of treasury. She's supposed to be the person that we all trust and she's brilliant and she's a genius and she's this. October 29th, Wolf Blitzer rewinded a little bit and posicited and hear it. On October 29th, she says when she's asked about inflation, she downplays it.

So watch this here for 30 seconds. And so today she says, well, sorry. Tom, go back again, because Tom spoke so we miss a go back a little bit. Clearly, Madam Secretary, this inflation problem in the US is not temporary, right? Well, I still would say it's temporary, although I don't need just a matter of a month or two.

Although monthly inflation rates have substantially declined from where they were just for a five month. Secretary, downplay this inflation risk. Did that contribute to the problem is we're all seeing right now well um look i i i think i was wrong then about um your who we are i think would take as i mentioned there have been you can pause as if people want to see this can see the rest so so so okay so we go, say, first or second week of July, then they're going to come out and they're going to say, oh my God, you know, it's a show or session.

And then they're going to come out with numbers. And what we have to do is Powell's going to come out with yelling and biting and all these guys, you're quantitative easing is what we have to, but you may make, so then we go and print another $3 trillion for it. It's not a big deal. No one's going to see it. So this keeps getting delayed, and delayed, and delayed, and delayed.

Because a guy like you, whom I want to believe, you know this is not gonna work long-term. Temporarily, it could work. But for us to prevent inflation, I guess where I'm trying to get to is, if we leave it alone, we don't do any quantitative easing. There's gonna be many guys like you that are gonna say, do quantitative easing. But I'm not saying that. But not saying what

should do. In fact, I've said the opposite. In since May 2020, I've been warning, they are creating inflation. They need to stop. They are creating inflation. They need to stop. Idea 95 though. Yeah, but it's for different purposes. It's when you have a bus banking system after an acid bubble and you've deflated it and now bank credit is shrinking. In 2020, bank credit was growing already in February, January, February by 6%. You don't need this QE, the QE was the wrong policy

and I was very clear on that. Say we don't do QV, say we don't do QV, say we don't do any QV, okay? We naturally let it say, you said a quote on your documentary that was, there's not a country who's changed its social or economic system without a crisis. This is a new documentary, which I recommend everybody watch and right, okay, sounds good. So okay, I agree. I actually agree fully with that statement, but I also think that we've been extremely

spoiled. It's like kids who all of a sudden get into a rich family and they've been in it for a while. They don't know what hard work is. They don't know what's going on. And then daddy or mommy loses all the money and they have to go through the pain. And you can't just band-aid, put a band-aid on it, right?

You kid, listen son, we lost everything. Yes, you have to go get a job, you have to go make money. I no longer have that $100,000 that I'm paying you every year as a allowance. You no longer have that kind of a luxury that you've been living for the last 15 years. But dad, what are you talking about? You know, what am I gonna do?

My girl's gonna leave me, she's going to leave you, bro. And you're gonna lose a lot of friends, you party with them, you get all the tab at the bar. You're right. You're gonna lose that car of yours, that you go on a date with all the time, that you look at, and you look good. You ain't gonna be as cool as you've been in the last 10 years.

The coolest you've had in the last 10 years has been fake, son. Son, you're actually not cool. You have to go earn. The coolness is what you gotta earn. America has millions of people that have been cool in the last 10 years that should not be cool. They need to lose it. So for me, if we don't do nothing, they're going to propose another quantitative easing.

They're gonna propose it. If we do nothing, okay, no quantitative easing. And we have to go through this without anything being put into the system from Federal Reserve, Without anything being put into the system from Federal Reserve, without anything being put into the system and bailing out the next bank that's going to be going down, what happens if we do nothing and how long will that last? Well, if already since 2020 they had done nothing, it would have been much better. Because what they created and these were government decisions and central bank

decisions is they on the one side restricted the supply artificially, which was unnecessary. And at the same time, created money and gave it into people's hands. And the Federal Reserve forced the banks to increase credit by purchasing assets from the non-bank sectors. It puts a lot of money into people's hands. So you receive supply, you increase demand, you create a lot of money, you will get inflation. That was very clear from May 2020 onwards and I warned about this and I said this is wrong.

And unfortunately we are still in that path and it could now move towards accelerating inflation. We have a period of stackflation that's being created artificially. And that's the key thing. That means, however, we can at any time end this and have proper policies. And the proper policies are when banks mainly and ideally only create credit for productive purposes. And that is when banks, small banks, lend to small businesses for business investment, increase productivity, implement new technologies.

That should be increased and everything else should be reduced. If people want to mortgage, they should get it from a non-bank lender and banks should not be allowed to invest in that. So that's how you make sure only existing money is used for asset transactions. Then you don't get asset inflation. And you make sure small businesses have enough money by helping the small local community banks. America has a lot of those. They need to be supported by the central bank, not the big banks. Now, actually, we can compare now to China, I think, which is an interesting example,

because they used to be essentially Stalinist type, Soviet Union type economy in the 60s and then early 70s. Then in 1978, Deng Xiaoping came to power. And you know what he did? What was the biggest thing he did that created this success of the Chinese economy? He traveled to Japan. He went going to these evenings, these dinners with the Japanese drink a lot of sake and and multi and he got the truth out of them About window guidance and that you can use this window guidance tool for good

If you make sure banks First of all that there's a lot of banks a lot of small banks and the banks create credit mainly for business investment. And so, when he came back, and he rose to power after 1978, in China, what he did is he created a lot of banks. He started with this Soviet system of one bank, monobank, the central bank. But then he created thousands of banks, small banks, community banks, savings banks, regional banks, provincial banks, a few national champions as well. But now China has almost 5,000 banks,

almost as many as the US. And that created these 40 years of double digit economic growth, multiplying national income. So, and that is very capitalist to have small local banks. That generates a capitalist economy. Why? Because you see, the money supply creation process actually belongs to

all of us. It's our privilege. And if a central institution is making these decisions, that's never good, it needs to be decentralized. And the best way is to have small local banks, you can watch what they're doing. You can attend their meetings. You can ask, you can hold what they're doing, you can attend their meetings, you can ask, you can hold them to account. If they, if they suddenly support a strange project, locals can influence them. Because they're small. But they're small.

You just flipped. You just flipped. In 20 minutes, you just flipped. Because 20 minutes ago, you said what they did was right because the money wasn't felt or seen in that situation where we already have the wrong system, which is so centralized. But I'm against the centralized system that's I'm telling you. I agree. I see you quote you said this massive government integration rather than the economy.

The economy says that the more relevant comparison is what happened from March 2020 is much more akin to certain certainly centrally planned Stalinist Soviet Union types restrictions in what scenarios. what we have is massive integration by the government and the economy by introducing restriction, including price controls on so many parts of the economy as we've never seen before in the UK, right? We're seeing that also in the US. Well, exactly. And that's what I'm criticizing.

I know you are, but you also saying what they did with 2008 was the right move. And you said, if you would have done it differently, you would have done it slightly differently, but you're still supporting the central bank getting more powerful. But you see, there's a sequence. They had created this asset bubble with their centralized bad system and bad policies. Once you have created this,

it's like you're falling over your bike, should I not help you? So you don't crash? Yes, I help you quickly. And you're saying, oh, you should intervene and shouldn't help me. Well, look, I know you can quickly solve this problem But the bigger story is we need to shift away from the centralization that the central planners love

That's not good and we need to decentralize and the best way to do this is establish local community banks new small banks then we get the centralized the new small banks, then we get the decentralized system. And that's what made even China successful. They moved from the Soviet system. I would have only done it in a way of, let all the however many companies you got, like I remember when AIG was going through, AIG had a fleet of planes that they're sitting on.

AIG once planes, yes, go look it up. AIG had a fleet of planes that they're sitting on. AIG owns planes? Yes, go look it up. AIG had a fleet of planes that the new CEO is like, Bob and Moshe, what are we doing? What business are we in? Bob and Moshe comes in and cleans house and does what he does, the $183 billion and the $21 billion of interest he pays back within three to five years, seven years,

whatever the timeline was. But if some of these companies that are bigger companies, I'm sitting there saying, do you specialize in planes? No, sell them. Do you specialize in this? What is your core competency? What are you doing? Here's, if you want any kind of help,

I'm okay with your hundreds big companies, small companies within a big company. I'm okay with you selling these to these other people, but you can't sit around doing this because you don't know how to operate companies. I want more companies than a few people that are controlling the entire marketplace, which is what happens every time we bail out. They end up buying some of these other companies and get more and more powerful.

But going back to it, say we don't do anything today in US. 40% of the dollars have been printed whatever the last two years that they keep talking about. Say we don't do nothing. How bad are things going to be and how long would it last? Well does that include not to increase the money supply any further, which would be good. I mean, we should not increase it any further. Nothing else. We vote on nothing. We say we're going through this. We're going to buckle down and go through this. How long will it last and how ugly will it be? It will depend on the strength of the community banks, the local banks, and they are quite strong in the US, so I think the US will weather this, because small firms will still receive

backing from their community banks, whereas in more centralized economies where you also don't have these many small local banks, things would look much worse. I think that is actually a good policy at this stage. Of course, we should have done that already in 2020. They took the wrong policies. They created too much money for unproductive purposes. You know, all my work shows that that is wrong. You should only create money for productive purposes. And when I say create means inject into the economy, the bailout I mentioned before doesn't inject new money, you see. That's why on the specific circumstances, it can help you have a healthy banking system, but it should then also have the right incentives to lend

for productive purposes. So say, say, say they don't do anything. So let me go back to my question. In 2020, you said they shouldn't have done it. They shouldn't have done lockdowns because if you forced you to lock them, then you have to pay me. So they should have not done the lock. That's why you don't have to give them money. Exactly. Because when you did the lockdown, you heard the restaurants. But today, say we somehow, Democrats and Republicans both agree on one thing. I don't want any more bailouts. Okay. And we drive the hell out of this messaging.

We want no more bailouts to these bigger companies. We don't do nothing. We're going to unite and we're going to go through this time. And these bigger guys that have been spoiled for the longest time and they've not been working, let them go through the pain to see what we went through to come to the top. Because you don't know what it is to go through, right? If we don't do nothing, how ugly will it be? How long will it last? And when I ask ugly, here's what I'm asking, Jimmy Carter era, you know the interest rates. Where they hit, right?

16, 17, 18%. It's pretty ugly what happened during that time, right? And then Reagan came in and he did what he did. Why did this happen? I studied the 70s. And most people think, oh, it was an external shock, a supply shock. Even like today, there was a war and then energy price shock.

That's the reason. No, it's not true. Already over one year before, because all the prices only started to rise from late 73, 1973. But I can already see in the data of the central banks and bank credit creation. What's the answer? A central banks and bank credit creation. Old standard.

A massive expansion from 1971, 72, all of them. And that's what created that inflation. They then were looking desperately for a cover so that the focus is not on them, but they created this inflation. It was only sold and marketed to people as, oh, it's the oil price, shock, it's energy, it's the Middle East, blah, blah.

It's not true, it was the central banks shock, it's energy, it's the Middle East, blah, blah. It's not true. It was the central banks. That is a fact. And you know, they should take your son's pills for you. Unfortunately, they're doing the same thing again now. So the inflation is again created by the question that becomes the policy. So central banks. Yes.

Okay. But say we didn't do any creative policies during that time. How long would have those high interest rates last it and how different would the economy have been? You see, the high interest rates, what I showed with my earlier study, you know, reconsidering the monetary policy, is interest rates follow growth and they follow nominal growth. So the money creation was revved up a lot in 1971. So one and a half, two years later, you get nominal GDP rising and huge inflation.

And that's why interest rates had to go up. Interest always follow growth. That's what's happening now. It's all predicted. So your concern is not interest rates. You're not worried about interest rates. It will be painful for people clearly with mortgages that are floating mortgages and so on.

And that's something one should look at as policy makers. But in general, just looking at the macroeconomy and giving a quick answer, it's clear that what's happening now is the result of these bad decisions from 2020. We should stop making bad decisions. Doing nothing would be better, that we are better policy than what they're likely to do, which is create even more money and accelerate the inflation, which could be very disastrous. So it is time to change policy, but also then to actually question this, why do we have such a system where these wrong policies are taken? What can be done?

And we should look at the strengths of the US economy and one of the great strengths is that there's thousands of small local banks. We need to help them and make sure that they won't be squeezed out because the big guys want to kill them. That's what's happening in Europe. Of course. But they are what's needed to make sure that your local small firm will survive. They need

that supply because even a tiny local community bank will create money when it lends. That's like your own local money creation. It should be done for productive purposes by giving it to a business small firm that is doing something productive. Then it's fair and transparent. How many meetings are being had right now, Tom? You think with these big bank guys that funded the campaigns of different candidates that are saying, oh, okay, you don't want to do anything? Oh, okay, no problem. Yeah, don't do anything.

See what we're going to do when it comes on to reelection time. How much you think the policymakers are afraid of not bailing out the bigger guys because the bigger guys have bottom through campaign support and different kinds of things? Or do you think that does not play a role? I think candidates are scared of death at big banks. I think both sides of the aisle are scared of death. To Patrick's question, can you follow up one part that you haven't addressed yet? So he was saying, how bad could it be?

How do we get out? How long will it last? Can you go to how long will it last? Because you've said how bad could it be? How do we get out? How long will it last? Can you go to how long will it last? Because you've said how bad could it be? Could be reasonably bad on this just rates and the average guy with the mortgage. And then how do you get out? We need strong local community banks helping local businesses

that helps job creation, local growth, local economy, taking the pain off the people who just got hit with their credit card interest and their mortgage interest, right? Main street, as we call it. How long do you think this will take? That was the third part of Pat's question. I'd love to take on that.

Yes. Well, if the scenario is that we are not increasing the money supply further for the big guys, and we don't have this inflationary policy anymore, then it's just going to be one and a half years for the previous money creation to feed through and then stop. And then inflation will stop because inflation needs constant expansion in money creation. And you'd think this is so obvious that when you have inflation, they would actually stop the money creation.

But the history shows, no, they keep going and they keep creating more money, sadly. But we're talking about the scenario where you do nothing and you don't increase the money supply, well then also the inflation would stop after one and a half years. Okay, so you're saying, if I, this is just clarification, that okay guys, it'll take about a year and a half,

let your strong local bank support local economies. That 1.4 trillion was like food poisoning and you gotta get it to the body. You gotta go throw up, you gotta go to the bathroom, you got to get it through. But once it's through, largely all these things are turned to nominal and inflation on things, everything from milk to gasoline, which hurts the average person is going to moderate. You're saying it's about a year and a half?

That's right. Historically speaking, Pat, what's very interesting, if you look back, even the great recessions, not depressions, but great recessions have usually only been about 18 months. And so you're saying that historical norms, that the peak impact of the recession, because remember, there's a lot that happens into it. But when we all admit, yeah, crap, it's a recession.

18 months, that's what you're saying. 18 months, yes, yeah. Okay. That is the lead time. That's also one in 2020. I was forecasting Significant inflation to hit us one and a half years later, which is you know, which has been this year It also goes with the thought that says oral sessions are three years from the moment you know something's happening

And you don't emit it politically pat you know like you know Milk is going up gas is going up, but you don't admit it No, it'll be like Janet Yelenaer and half ago just speaking to TV. Oh yeah, maybe a month or so, two months. So from that moment to when we really see growth again, it's a 36 month cycle. And what we really have in the United States is we have a year of denial by the political folks that are speaking to voters. So there's a year of denial, then there's 18 months of, oh my God, this is real. And then we have evidence of growth. Yeah, and of course the problem is being lack of accountability.

You know, if you take wrong knowledge of the... Which is the year of... There is accountability at the voting booth, which is why you start with a year of denial. But not by this, you know, there's no accountability of the central planners. The ECB has been saying, oh, there's no inflation, it's transitory. You know, they're all speaking the same reading of the same script. Well, they need to be held accountable. You know, they all, all the top layer needs to go because they want to last some you watch your own documentary. Prince of the end, the whole one, well, I've watched bits and pieces because

people make me aware of this part and that part. But the whole one that goes a few years back. You haven't watching it. The whole watch is late. It's not a finish. How many years? How many years has it been? The whole one that goes a few years back. You haven't watched it. The whole actually started to finish. How many years has it been? The whole one, well, maybe I don't know, three years or something. Who owns that documentary? It's, I think it's open source.

Oh, it's open source. Yeah, you can see it on YouTube. But so there's nobody that owns, owns the data. There wasn't a media company or network that did that that until I started. Well, it was done by two guys what are they called something with politely you'll see you'll see it it does mention it you know Michael hovert and Michael Oswald if they are these guys you're you're in contact with or no yes okay I'd be interested in buying the documentary if

they would like to speak I'd like to speak to you about bind the documentary because I think it reveals a lot of what's going on in America today. I thought it was very well done and I think people are, we're a little bit oblivious the last few years and we've been too overly confident about how much money has been made thinking we are that smart and we're that brilliant of money makers. But I think pruning process is coming. I think some people are going to be exposed the next 18 to 24 months and I wouldn't mind some of these bigger guys that keep getting build out and I wouldn't mind it being some of them to go through it because it is unfair for the guys that are trying to do it the right way who are constantly being categorized

in the same level of these other bankers that get bailed out and these small businesses that are doing the work because when crisis comes, the founder, the CEO and the C-suite during the next 18 to 24 months, if you thought you were working a lot the last three years, you were not working the last three years. Matter of fact, I'm willing to bet that most people had the least hardest working season the last two to three years. Okay? Most people because it's been as hard as it may sound. Oh my God, it was so hard. We've not really worked that hard. We've actually gone lazier if we were to look at, again, I may be wrong. No, I'm with you. 100%. but I think the next two years because you're what Elon Musk said yesterday

Elon Musk said look if you're going to pretend that you're working 40 hours from home come pretend at the office that you're working from home and if you're not coming to the office anymore you're fired go to another company right that process is coming very soon and we're gonna know who was actually working the last two years and who wasn't This is an email that we send out right? I don't know. Did you see the email he sent out or no? I saw a comment on it. So yeah, yeah, he says go pretend somewhere else No, here it is. He says anyone who wishes to do remote work must be in the office for a minimum of 40 hours per week or Depart Tesla or a minimum of 40 hours per week or depart Tesla. Prentice is, and I mean minimum.

Yeah, this is less than we ask of factory workers. Okay, so meaning if the frontline guys are working at art, you are as well. If there are particularly exceptional contributors for whom this is impossible, I will review and approve those exceptions directly. Moreover, the office must be a main Tesla office, not a remote branch office unrelated to job duties.

For example, being responsible for free-month factory human relations, but having your office to be in another state. So I think the next two years, people are going to be actually working. The last couple years, we haven't been working. Folks, if you listen to this, if you claim you're a worker and if you're not a worker, you're going to pay price next two years. But if you are a worker, the market is going to definitely recognize you the next couple years because winter is coming. Sometimes we have to be able to sit down and have serious conversations with our family, with our friends, with our peers, with our kids, with our business partners to say, okay, guys, buckle down,

you know, we're gonna see what these guys gonna be doing. The reality of it is we're not presidents, we're not governors, we're not policy makers, we gotta kinda do what we're doing right now, and hopefully we'll get through the season together. But, appreciate you for coming out. I thought this was great. I want you to know, I'm truly interested in that documentary. So, if you do speak to guys,

I'd love to have that conversation with them. If I can just say a few more things, some of the things you raised, which I haven't responded to gold, I like gold, I think it's a good hedge against inflation. It's, I think the price is totally artificially suppressed. Central banks are the biggest owners of gold and there's a lot of ways of paper

gold you can manipulate the price. And I think what we're seeing is simply it's artificially low, which in a way is a great opportunity. You know, people that have been slow, they can still get into gold. Crypto, well, I think that's part of the, at least, as part of the central planners' goals to establish central bank digital currencies, which we also should work against, because that's going to be very dangerous. It's a control tool, not a currency. So you're against digital currencies? You're against the point of theory.

Against central bank digital currencies. Oh, central bank digital currencies. I'm very much for decentralization. And if people want a decentralized system, they want to start their own. I'm all for it. So I'm actually backing Valhalla network, Ollie, start heading it, one of my associates and we're setting up a system with decentralized autonomous organization and where people can vote.

And also we're using this to set up community banks. So everything needs to be decentralized. We need to hold against this current very strong pressure by the central planners. They're using all these crises to centralize everything. And that is really bad. That is communism. What we're seeing is increased Sovietization of one thing after another.

We have to hold against them. I think decentralization, decentralization is the key setting up local community banks. We're doing this with the Valhalla network as well. So in that sense, I like, you know, cryptocurrencies when they're decentralized and that's a key part of their strategy. We'll see what's gonna happen there.

I'm just curious when this recession hits and we go through the next six, 12, 18 months. I'm so watching all the triggers to see how crypto is gonna respond, how gold's gonna respond, is gold actually gonna have its vertical move here, where they're gonna go to 2500, I think gold is cheap right now, if you ask me. Yeah, same as me. You gonna go to 2500 I think gold is cheap right now if you ask me

Yes, you agree with that I think gold I think gold is cheap right now and I think if the crypto community stays strong And they vote more people into office Whether it's congress senate governor whatever it is they get more pro crypto people that go into office I think they'll be able to hold off long term, but if we go through the central bank, Federal Reserve Baylor, not all these other guys, I hope that doesn't happen, but I feel a messaging coming that we have to do this or else in an X-23456 month. I don't know, I hope I'm wrong. But anyways, we're going to put a link below to the documentary. We're going to put a link below for your book and how to find you.

Couple of those papers that he mentioned. If you can put that in the description as well, I think you mentioned four or five papers for those that want to read it. It doesn't need to be in the chat box, but put in the description that people can find. Tyler, Tyler came up with the idea of us introducing membership him and Mario talked about it. We just launched it because many of you guys were asking about it. So now we're doing that. If you saw a few people that became members here today, Tyler, can you take a quick moment?

I mean, I can recognize some of the names. We have Underwood, we have Yimmy, Marino, we have Doug, a few other people that became members of the P.B.D. podcast. Can you share with them the benefits and what this is gonna look like, what access they have, what different things we'll be doing with this?

Yeah, so it's, I mean, it's just a really good way for us to give back to the people that support the podcast and most, like everybody that tunes in every day watches, et cetera. There are certain things that you can get through YouTube memberships that you just can't get anywhere else, like custom badges, denoting, how long you been a member, custom emojis, we're doing members only polls,

members only call into the show, access to a private YouTube community that we're gonna set up, only members can be a part of, members only questions, we're really trying to give back to these guys, we're even gonna try to set up a monthly webinar with you just for people that are subscribed

to the YouTube membership. So we're really trying to- And is it one that we can communicate? They'll be able to ask me questions. Absolutely. It's going to be a monthly Zoom with you. They can ask questions, they can send in their questions. You'll spend time with them.

They'll get to be on a call with you once a month. It's really we're really trying to give back to people that we know who supports the channel. And it's always here and always watching. Yeah. We want to do something special for them. Well, I love it. So how do they find out more about it?

Is there a link to presses? Is there something to do or no? Yep. So we're going to put a link in the description. Anytime they go to the channel, there's a button that says join. If you click the button that says join, you'll see we have a few different tiers offered.

And we'll make sure that this is everywhere. It's easy to access, easy to get to. And we'll get back to you guys. Appreciate you. It's not, is that mine or is that yours? It's not mine. OK. Appreciate you. And folks not, is that mine or is that yours? So it's not mine. Okay, appreciate you and folks, you know, as you guys go through this journey

with myself and us here by Tame and the PBRD podcast, I'm simply a regular guy that's curious and wants to learn. And I ask the questions, and I wanna know what the hell is going on. So if you're somebody that's also curious and sometimes maybe I'm asking a question that you're thinking about, we appreciate your support, and sometimes I may ask a question that you're not and sometimes maybe I'm asking a question that you're thinking about, we appreciate your support.

And sometimes I may ask a question that you're not thinking about or I may ask a question, make a comment that you don't agree with. But this podcast isn't created for us to agree. This podcast is created for us to be able to have this course. Yesterday, a guy sent me a message on Twitter saying, you motherfucker, you know, can't believe you're saying this about guns,

did I share that with you or no? And then he says, and I respond back to him, you're fucking moron. I said, your approach is why we can't make progress. Give me your solution to the problem on guns and try your best not to insult. Well, your sarcasm on Twitter involves comparing cars, made to transport to guns, made to kill,

I'm stooping to your level I said take a deep breath and try giving solutions. We're not enemies kids So then he says ban on automatic weapons No civilian needs and that and he gives all this stuff. It's a great. How about adding training? Thanks for sharing your ideas It gives me insight on how you would approach a complex issue that you watched a video and anyways We finished it off on good note and we're laughing and talking to each other right per Purpose of this podcast is for discourse and And anyways, we finished it off on Good Note, and we're laughing and talking to each other, right? Pur...

Purpose of this podcast is for discourse. And many times I'll be wrong, many times we'll challenge the guests like we did today, and many times we'll be right, and many times the guests will be right, but regardless, we will all leave, hopefully, thinking, saying, huh, that was an interesting conversation that I was a part of earlier today on the podcast.

So hopefully you enjoyed the podcast as much as I did. And if you did, give us a thumbs up and subscribe to the channel and follow our yesterday Richard Werner. Once again, thank you for coming out and being a guest on a podcast. This was great. Thanks for having me. I enjoyed it. Thanks for having us. Take everybody.

Saturday, we have a special podcast that we're doing with Nikki Fried. If you don't know who she is, you may want to join us. Saturday. Yeah. Take care, everybody. Have a great weekend. Bye bye.