TFTC: A Bitcoin Podcast - #139: George Gammon

Episode Date: March 10, 2020

Join Marty as he sits down with George Gammon to discuss: - Why George started his YouTube channel - The Oil Wars - Was Russia's move over the weekend a kill shot directed at the US? - Corporate Debt - Buybacks - Junk bonds - The Fed's reaction to recent market movements - Fed policy and the erosion of the Nuclear family - Deflation - Sounds money standards of the past - George's thoughts on Gold v. Bitcoin - much more Check out George's YouTube channel Follow George on Twitter Shoutout to this week's sponsors. Cash App. Start #stackingsats today. Use the promo code: "stackingsats" to receive $10 and contribute $10 to OWLS Lacrosse you download the app.

What's up freaks, it's your boy Marty Bent here to introduce this week's episode of Tales from the Crypt. I had the immense pleasure of sitting down with George Gammon, a retired serial entrepreneur and somebody who is creating an incredible YouTube channel, one that I found recently and have become somewhat addicted to. George is creating YouTube videos where he breaks down a lot of macro themes and events that are going on in the world. Most recently, he broke down the oil wars that broke out over the weekend between Russia,

opec and the u.s and anybody else is producing oil quite frankly um he's doing it in a way that is incredible for visual learners and is digestible for the layman so if you guys are interested in learning more about the macro themes that i talk about in the bent and on this podcast definitely go check out george's youtube channel again george gammon g-a-m-m-o-n that's the name of his channel uh the immense pleasure of sitting down with him for an hour to go over a bunch of these topics and i think you guys are really going to like it it was one of my favorite episodes in recent memory we hit on everything it was a very dense episode uh and somebody who is outside of bitcoin who understands bitcoin very well uh he he understands it very well you'll you'll see

this episode of tales from the crypt is brought to you by the cash app you freaks already know all about them but if you don't let me tell you about them they're letting you do many things They're letting you stack sats, most importantly. You can stack sats, send sats, receive sats, sell sats if you want to. I'm not recommending it, but you can. On top of that, they have their boost program. You get a nice little debit card. You get to personalize it with your signature, and then you get to go and spend it at merchants.

If you go to one of their partner merchants, you hit the boost, and you save some money. Then you can stack sats with that. On top of that, they have cash app investing. If you want to stack slivers of stocks, probably not the best week to do that unless you're a dip buyer. They're letting you do that now. If your favorite company's stock is just a little too expensive, you can buy as little as $1 via Cash App Investing. Cash App Investing is a subsidiary of Square and member SIPC. And because it's connected to your bank account, there are no four to five day waiting periods. You can start investing today. You can start boosting today.

you can start stacking sats today as always use the code stacking sats and you're going to get ten dollars and ten dollars is going to go to our good friends at owls lacrosse that's stacking sats one word you're going to get ten dollars and ten dollars is going to go to owls lacrosse go to your local app store and download the cash app today and enjoy this episode you've had a dynamic where money's become freer than free when you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor

I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be. Sup freaks, it's your boy Marty Bent here for another edition of Tales from the Crypt. Sitting down with somebody who I'm very excited to speak to today, particularly considering everything that's gone on in the markets over the weekend and the beginning of this week. It's been a pretty tumultuous time. It seems like a lot of things are hitting ahead. and we're sitting down with somebody who's come onto my radar more recently,

particularly his YouTube channel, which does an incredible job of breaking down complex macro themes and finance topics in a visual way. As a visual learner, I've been learning a lot, even as somebody who thinks they know a lot about finance in the macro landscape already. So I'd like to introduce you freaks to George Gammon. George, welcome to the podcast.

Thank you for having me. I'm looking forward to diving into all these great topics. It's an incredible time to be an observer of the markets right now, for sure. It definitely is. And like I said, you're doing an incredible job of breaking down these complex topics on YouTube. You stand in front of a whiteboard and really dive into the nitty gritty of what's going on and make it digestible for a layman.

And if somebody tries to do that with this podcast and the newsletter I write, I'm just interested to see or learn what the impetus was for you to start the YouTube channel and start teaching people about these topics? Yeah, sure. I'll try to make it short. I retired in 2012. When I did, I knew absolutely nothing about the Fed or interest rates or the bond market, but I had to learn because I had to invest my own money. So I just started studying as much as I possibly could, just totally OCD. I went from spending 80 hours a week as an entrepreneur to 80 hours a week studying macro. I got into real estate investing and I started doing that in the Midwest. I started doing that overseas and I started investing in Columbia in 2015.

I've been here. I've got a full team. We do remodels. I've got properties I keep in a rental portfolio here and in the States. And in 2019, at the beginning, we were doing all these remodels and i said why don't we do a tv show and i thought man they're so popular back in the united states i'm sure they'd be popular in medellín colombia we're doing all the projects anyway so i went to the local tv station i pitched it and they said okay fine we'll do it we love the idea but you need to produce a show i said no problem like i knew what i'm talking about right and i'm sure the entrepreneurs in your audience can relate to just shooting first and asking questions later type of approach. So I had to just, in three weeks, I had to figure out how to produce a TV show.

I hired a bunch of editors, great camera people. We did the show for a season. It was really popular. Everyone loved it. I didn't really like dealing with the network too much. So I thought, let's go ahead and do a YouTube channel to leverage the human capital that I have here, all these great editors and camera guys. So that's why I started the YouTube channel. Initially, we were doing real estate videos, which are okay, but I really like talking about macro the most, as most of any of your viewers have seen my channel can totally understand. But I didn't think anyone would watch a macro video. And about a month or two into the channel, I said, yeah, I really want to talk about the repo market. It was something like that. Ray Dalio came out with that long blog post on

LinkedIn. And I wanted to go through that. And so I did that in the video just completely took off. And every time I did a macro video, it was hugely popular. And now if I do a real estate video, no one watches it. So, and the catalyst for the whiteboard video or starting to use the whiteboards is I'm like you, I'm a visual learner. I'm really not a book guy. I almost flunked out of high school so i'm i'm by no means one of these kind of phd economists i've never taken an econ class in my life or a finance class so i tried to um yeah right a lot of guys that i interview like mark i interviewed mark faber the other day and he said well that's probably why you're so good at econ because you've never taken an econ class but i i was just terrible at doing these videos

where I was just talking right into the camera. So just as a crutch, I started using the whiteboard because it was a lot easier for me to just explain what I had already written on the whiteboard as opposed to just looking right at a camera. And same thing. Everyone just really, really loved the whiteboard videos. So everything kind of fell into place. And we've been uploading videos for maybe five or six months. We just crossed over 70,000 subscribers, getting 1.5 million views per month. And it's just, uh, it's just growing. You got a tiger by the tail and this is what I do in retirement. So that, that's kind of the short story there. Yeah. It's incredible that you're retired and giving back to people in this way. And that's pretty insane growth for,

for a channel it's only five months old 70 000 subscribers if you freaks out there aren't subscribed yet go check it out just search george gammon on youtube uh youtube channel is your name correct yeah that is correct it's typical spelling george last name g-a-m-m-o-n it'll any of my videos should pop right up yeah and i guess we can transition right into the video i believe you posted it yesterday on what's going on in the oil market so over the weekend we had russia come to the table with opec and opec was expecting them to curb production with uh with saudi arabia and the rest of the opec cartel and putin and crews came to the meeting and said no we're not going to cut production and this led to some chaos uh a black swan that is coupled with

the coronavirus black swan and you laid out uh pretty clearly in a video everything that's going on. So I think we could start with exactly what happened, why this is affecting oil prices the way it is, and then what are the second and third order effects, particularly on corporate debt markets? Yeah. Well, the reason it's affecting the oil market so much, because Saudi Arabia's rebuttal to Russia kind of walking away is fine. If you want to play hardball, instead of reducing the production, we're just going to increase production. We're going to flood the market with oil, because we think we can survive and handle a lower oil price than you can. So obviously, the market saw that. And that's why we got that drop from 40 or low 40s all the way

down to 30. I think the futures over the weekend even got down to like $27 per barrel. That was the trigger for all this. And of course, the catalyst for that was the issues that we're having with the coronavirus, and there being a demand side shock, as well as potentially a supply side shock. And I don't think anyone is thinking about that either. I don't want to go off on that tangent. Maybe we can circle back to that later. But going back to the corporate bond market, a lot of the the triple B rated debt, which for your listeners who aren't familiar with how there's two main categories of corporate debt, junk debt, high yield, and investment grade. I would say 15% roughly of the market is junk debt. It's a little over $1 trillion. You've got

6.5-ish or so in investment grade. $4 trillion roughly of that is BBB. BBB is the last rating before you get into junk. So that includes a lot of the oil producers, about 11% of that 4 trillion is in the energy sector. So over 400 billion. Then of course, a lot of these shale producers are in the junk bond market, but there's a lot of big corporations that aren't in oil that have gone from your standard blue chip AAA rating maybe 20 years ago. So that double B bucket, or excuse me, triple B bucket, because they've taken on so much debt over the past 10 years just to buy back their own shares. I know that you had Raul on, Raul Paul, and I actually learned from watching one of his videos and looking at one of his charts that since 2010,

the main net buyer in the stock market has been corporations just buying their shares back. So in layman terms that means if the corporations wouldn't have bought all these shares back the market would be most likely at the same point today or two weeks ago at its all-time high than it was back in 2010 that's really what that that means so that that's a really big deal and that's your main buyer in the stock market where your main buyer in the corporate debt market are pension funds. And the reason they had to go so strong into that market, which is riskier than what they would typically do is because the Fed drops rates down to zero for call it six, eight years. We had zero interest rate policy and the pension funds have to have a 7% return in order to meet their

liabilities. Well, typically they'd go into a treasury 10 year call, maybe get five, 6% and really close to that 7% they need. They just have to have a couple of good equity trades and they've got their mark. Well, if the 10-year goes down to call it 2%, well, now they've got a really big problem. And how do they meet that return? So what they decided to do is go from treasuries into the corporate bond market with leverage. And that's key. They didn't just go in and get pushed further out the risk curve by the Fed, they went in with leverage. So taking it back to layman's terms, if a pension fund buys a bond with a face value of $1,000 and they have 50% leverage, if that bond gets downgraded to junk, it could pretty much wipe out their entire equity.

And these are pension funds that are already massively underfunded. I mean, we're talking about 50% underfunded. And those are optimistic numbers. Most of those numbers are assuming that they're going to make 7% on a moving forward basis. And it's just, it's not realistic. So anyway, what happens with the oil market, that pushes or can push a lot of the triple B debt into junk. The problem with that is that you're bringing potentially $4 trillion of supply into a liquidity pool of maybe $1 trillion. Well, that doesn't work. When you have that much supply hitting the market, that means that prices of those bonds are going to plummet. And as you know, the prices plummet, the interest rates skyrocket. And then it has these knock-on effects where

you've got to look at the other companies in the junk bond market, such as a Tesla. And I'm not here to say they're a bad company or a good company or their cars are bad or good. That's a completely different discussion. The bottom line is in the future, Tesla will most likely have to generate more cash. And that means going back into the debt market or selling more equity. If they go to the debt market, then their interest rate on what they need goes from call it 5% to 10%. A lot of these companies aren't going to be able to afford to pay that extra price for that debt. When you combine this with the fact that we're most likely, not 100% guarantee, but we're most likely going into recession. What happens in a recession, corporate profits and revenues,

cash flow, decrease dramatically. So you get this situation where you've got all this triple B debt going down into junk. The interest rates rise. That makes it harder for them to fund their borrowing or their liquidity needs. And at the same time, their cash flows are going down, making it even harder for them to service that debt. And that's the real problem here. Yeah, and what in 2008 was caused by a collateralized debt obligation, sort of a run on that market. It seems that this time around it could be a run on the collateralized loan obligation market, which a lot of these corporate bonds are bundled up and tranched into. And so what are your thoughts on Russia making this move?

You were talking in your video that they're playing 4D chess. Do you think the emergence of coronavirus sort of grinding supply chains to a halt and economies to a halt around the world provide an opportunity for Russia to recognize this, a country that's been building its balance sheet with gold and other assets due to the sanctions that it's under? Do you think it saw what the coronavirus was causing as an opportunity to sort of give a kill shot to the U.S. and the West? I don't think you can argue that, or I don't think you can dismiss that. I think that's a great argument. You've got on face value, you say, okay, well, Russia needs this. They need these dollars coming in. And a big part of their economy is oil production. So if oil goes from $50 a barrel down to 30, well, in order to meet their budget needs, they're going to have to sell more oil. They need that revenue. But to your point, you say, well, let's connect some dots

here. They've got a big problem with the U.S. shale industry, which, by the way, is a result of the Fed dropping interest rates so low for so long. But that could be a knockout punch to them. The shale providers, and I had a chart in that video that, and I've read different numbers, But that chart said seventy three dollars is their production cost on a barrel of oil. You compare that to Saudi Arabia at nine dollars or ten dollars. And what I saw Russia, I think, was around twenty dollars. That's a real big delta. And if you're having to spend $73 to get that barrel of oil out of the ground and you can only get $30 for that barrel of oil, you got problems. You're not going to last very long. And then you can take it a step further.

And if you if you really want to think Putin's playing 4D chess, then you can say, OK, he knows that's going to knock out not only the shale providers, but he also knows that right now the U.S. economy is extremely vulnerable because the stock market has gone down so much. And that means the corporate bond market is vulnerable. So this could be a death blow to not only the shale producers, but quite potentially the corporate bond market, the stock market. And because the U.S. economy has been so financialized over the past 20 years, it's now the tail wagging the dog in the sense that most people, most Americans, think that if the stock market's going up, well, the economy must be doing well because the stock market is a reflection of the economy. That's not true. That decoupled a long, long time ago. The economy can be tanking and the stock market can be going up potentially because it's all a matter of liquidity. So my point is that there's a chain reaction because once that decoupling happens, people, the average Joe on the street, look at that and say, well, I can get ahead.

I can increase my purchasing power a lot more by going into the stock market or by speculating in real estate than I can by producing more at my job or by starting a business or doing something that's going to actually increase the value in the real economy. I call it the financial economy and the real economy. So all of these resources have been diverted over into the financial economy. That's why I say now the U.S. economy is so predicated or is really completely revolves around three things. That's asset prices, debt and confidence. Yeah, it's actually one thing I've been writing in my newsletter the last couple of weeks. There's the age old question out there. do you want to have an economy on the bike or on its own two feet where if you're on the bike

you really can't stop or uh more particularly you can't have a couple years without growth whereas if you're an economy on your own two feet that is more viable and it seems like we are an economy on the bike dependent on growth and growth for growth's sake and we have a couple of factors hitting the markets right now that are are really uh making it so that bike is about to tip over it seems um so in your opinion yeah i think it's a fantastic analogy it's just you i think the average person to put this in terms that they can really understand it's you just have to ask yourself what would the u.s economy look like if mortgage rates were 12 percent what what would how much consumption would we have if the stock if the stock market went from i don't know what it

this today, but if the S&P went back down below a thousand and interest rates on homes were 12%, how much would that decrease the level of consumption in the United States? And if consumption is 70% of GDP, it doesn't take long to see an environment where the United States from a level of consumption would look a lot more like mexico than it does the united states right now and i'm not saying that that that the u.s is going to be mexico or the all i'm saying is that the amount of the level of consumption that the united states has enjoyed over the last i mean you want to take it back to bretton woods we can take it back that far easily so if but i'll just focus on the last 20 years or so, the amount of consumption that the average American has enjoyed

has far exceeded the amount of goods and services that they've actually produced. And that's because the dollar being the reserve currency, our bond market having artificially low interest rates, the petrodollar, all these things that we could talk about for the next two weeks, probably uh we could we i could go on for yes weeks talking about this stuff because it is uh there is so much to there's so much so many layers of the onion to peel back to really understand the interconnectivity of the global economy and how america is positioned within that interconnectivity and so going back to growth at all costs and uh the need to create uh that growth and stoke that growth let's uh let's touch on the reaction to the fed to all this right so

they they are highly incentivized to make sure um people are uh confident enough to go out and consume and last week they came out and made an emergency rate cut the first in quite a while they cut their target by 50 bps um and it proved to be uh pretty ineffective i believe markets rallied for a few minutes and then quickly continued their, their plummet. Um, so it seems like the fed is, uh, sort of losing ammo in their ability to react to these crises. And so we have their, uh, FOMC meeting coming up in eight days, seven, eight days, I believe. Uh, can I get your thoughts on, uh, their cut last week? It's an effectiveness, uh, what you think will happen, at the FOMC meeting next week

and what's going on in the repo markets. Yesterday, they came out and announced they're going to increase the amount of repo offers, I believe, one day from $100 billion to $150 billion and two weeks from $20 billion to $45 billion. On terms, yeah. Well, as far as their rate cuts, I think they're just pushing on a string.

If you look at what they're trying to combat, they're trying to combat people staying in their homes, everything being canceled, flights being canceled, the NBA not having spectators, the Olympics being canceled, the entire country going into lockdown. So that's what they're trying to combat. I don't know how in any percentage rate cut, 150 basis points, take it down to zero. I don't care what you take it down to. At a certain point, it's not going to make someone go outside if they're concerned about their health. or even if this is a virus that's really most harsh on elderly people okay do you as a as a as a healthy 30 year old or whatever do you really want to get sick not know you're carrying the virus go over to your grandmother's house she gets sick and dies do you really want to roll those dice? I don't think so. So, and to think that that would, if you see interest rates going from a percent down to zero percent or negative one or wherever they go, to think that that would

change your behavior in light of what's happening with the coronavirus, I think is just, it's nonsense. And other than MMT or helicopter money, that's something they could do that might do something. It'd do a heck of a lot more than a rate cut or typical quantitative easing. But I don't know that that's on their, in the horizon or in the cards right now. I've heard Australia talk about potentially going into the equities market and starting to buy equities. And we've heard that floated around i think brainerd was talking about that the other day a couple of the the fed people would they go into the equity markets i don't know i think they'll probably bail out some of the u.s industries before it gets to that when i mean bail out i'm guessing

they just go and take the debt off their balance sheet so they go to the shale industry as an example let's say they've got 300 billion worth of debt they can't pay so the fed just says okay okay, we'll buy that from you. We'll give you the cash. We'll take that garbage debt. We'll put it on our balance sheet because we don't have a P&L and it really doesn't matter to us. They go to American Airlines. They do the same thing. Who knows what's going to happen as far as bailouts. My point is that the Fed doesn't have a tool, whether it's quantitative easing, dropping interest rates, printing money, that's going to combat that. Yeah. And it's something we talk a lot about on this podcast. The Fed has been trying to micromanage a complex system for quite some time now. And it's becoming glaringly obvious that it's lost control of the Frankenstein it's created.

yeah i always compare it to i always compare it to nature in the sense that you always hear those stories about them having a problem with mosquitoes or something in florida so what they do is they bring in some weird frog from australia to take care of the mosquito problem and the next thing you know the frog problem is 10 times worse than the mosquito problem is and now you've got to bring in alligators or whatever to eat the frogs. And then the alligator problem becomes 10 times worse than the frog problem. And that's because you've got human beings who are far from perfect trying to manage a complex system, to your point. I see the economy as the exact same thing as nature. This complex system has billions, literally billions of transactions happening

on a daily basis. So anything the Fed does to come in and try to micromanage that I see as not only being ineffective, but most likely making the problem a lot worse in the long run. I think what they've done since 2008 is a fantastic, not even that, let's take it further back, going back to Greenspan, what he did in the late 80s and the 90s and how that just carried on through to 2001, the housing bubble 2008 i don't think you can look at that objectively and say that they've made things better as opposed to trying to smooth out the business cycle yeah or by trying to smooth out the business cycle yeah yeah i would wholeheartedly agree and i guess that's the question on everybody's mind at least people that have been paying attention uh like yourself and

myself, is what is the end game and how long can they perpetuate this type of system? I'm highly skeptical that, especially after 2008, moving forward, if we have another recession or, God forbid, a depression, that people will have as much faith in the Fed's ability to sort of fix these problems. So do you see any looming crisis of confidence in the Fed or the federal government's ability to react to this stuff? Absolutely. I think you'd hit the nail on the head. A lot of my videos lately and on Twitter, I've been talking about how important confidence is. And the way I see it in my head is it's the Federal Reserve and the government versus reality. And they're in this tug of war for the confidence of the American consumer. So the Fed has the money

printing the government has trump and his twitter feed or coming out and saying they're going to do a fiscal stimulus or don't worry it's just the flu and then reality you see them canceling south by southwest or you see all that's happening in seattle or you see what's going on in china or italy or spain iran any of these places and so i think especially right now i'm going to bet on the side of reality winning that confidence battle if reality wins and confidence goes in the united states the the house of cards of that the economies or the house of uh yeah it's really what the economy is it's a house of cards all that that really comes tumbling down so i think that's what you have to understand first and foremost and it goes back to what i was saying about asset

prices debt and confidence but the asset prices in the debt really revolve around the level of confidence because in order to get the asset prices up to a certain degree unless the fed wants to come in print money to buy the markets that's a completely different topic we'll shelf that for the moment but in order to get the money flowing velocity up in the money supply in the real economy that's due to the commercial banks lending and so there's got to be a willingness to lend And there has to be demand for that lending. That's how they increase the money supply, because the lending is what actually creates the deposits. So I don't see that happening in this type of environment. And I think it's just something that the Federal Reserve has built. They've built this type of economy that's completely removed from the underlying fundamentals. And I think, honestly, going back to your point where you're talking about walking instead of just taking a bicycle where you have to have that momentum and that positive growth constantly.

If we were, you think about what the economy looked like back in, let's call it the 1800s, the late 1800s, where we were in a deflationary environment and everyone was getting richer as a result of that. So what would have happened if, let's say, the stock market was at 100 back then and no one really bought bonds? They had to invest money. They'd invest in a real company. They'd invest in buying another acre of land to produce more stuff. So what happens if the coronavirus comes through? And yes, obviously, it could have devastated the population from a health standpoint. I'm not talking about that, but from an economic standpoint, or how much would it have affected the economy back then for the stock market to be cut in half or for real estate prices to be cut in half? Probably not much. People might not even have really noticed too much. So it's all about what the Fed has done since 1913 by increasing the rate of inflation 2000 percent, decreasing the value of the dollar by 98 percent. Going back to Bretton Woods, Bretton Woods creates this system of euro dollars offshore where they have to have funding and they can't do it when the when the dollar is supposedly pegged to gold.

and then you release that with in 71 with the fiat just going totally fiat and then you have a 40-year down cycle in interest rates so this creates this perfect storm where the financial economy goes from just a little speck to almost being insignificant to completely dominating the entire global economy and and if if not the entire global economy at least the the developed economies. And that's one of the reasons why I think Bitcoin is so fantastic. And what it represents, because you've got a limited supply of a means to transact. And most people, they look at it and say, well, it's great because the government can't get in and increase the money supply. That is good. But I think it's just, I always try to reverse engineer an argument. And

I'm sure you know the argument for having fiat currency is that we can expand the money supply as the economy needs it. Well, I've never heard an argument for actually keeping the money supply the same, but just decreasing the actual or increasing the number of units. So what I'm saying is instead of having a dollar, instead of printing two dollars, well, why don't you just create 10 dimes or take it to Bitcoin instead of creating 42 million Bitcoin. Well, you just do Satoshi's, right? So now you've got more things that you need to transact to keep the economy going. But the value of the savings in the economy continues to get bigger and bigger and bigger. And so does the purchasing power. And I don't think people really recognize how beneficial that is

and how many problems that would actually solve. And if you really go down that rabbit hole, it all results or it all stems from inflation. The increase of the money supply, inflation, now we have stable prices at 2% per year, and that's complete nonsense. But if you compound that at 2% or 3% per year, pretty soon you get to a point where in order to get ahead, you've got to invest in speculative financial assets, where back in a deflationary state, like the 1800s, when prices went down by 50%, 50% from 1800 to 1900. You guys just think about that. You don't need financial assets to get ahead. All you do, save money, put it in the

bank, you get an incredible return. And even if you don't get a big pay raise, your expenses are going down and down and down every single year your quality of life improves your standard of living gets better your purchasing power grows without having to have all this financial engineering so i think i went off on a massive tangent right there sorry about that tangent is going to be well received don't worry and it's and you touch on something exactly right like the the individual's ability to accumulate capital has been completely devastated by fed policy over the course of a century now, more than a century. And that creates the inequality too, because if you don't have the asset prices that the Fed is increasing, all you have is savings. You're just

getting crushed because we have negative interest rates in the United States when you adjust for inflation. And I'm sure a lot of your viewers have been on shadow stats or they understand how inflation was measured in the 70s. It changed again in the 90s. And then it's changed again now to where if you measured inflation the same way that it was measured in the 1970s, it would be very close to 10%. And then you have to look at inflation as though it pertains to a specific group of people and what they buy, right? If you're someone that's making 100 grand a year or 200 grand a year, you have a much different rate of inflation than someone that's making 30 grand a year. And unfortunately, the prices that we've seen increase most dramatically

over the past 10, 20 years are the prices of the stuff that the $30,000 a year worker actually has to buy and use 95 percent of their paycheck to buy that that's that's food that's health care if they can afford it that's education it's just um it's a it's really unfortunate and as long as long as we keep the fed as long as they continue to drive for this inflation and we see it as a necessity and that this deflation is this boogeyman it's going to continue to exacerbate the level of inequality that we have in the United States. And that goes, okay, so then what's the end game there? Well, the end game with equality is social unrest.

And I did an interview with Grant Williams, who's done extensive research, you know, Raoul's partner, and has done extensive research on the history of social unrest. Typically, that happens when one of two things happen in the economy. that's food prices go up or they take away some sort of subsidy that people have been accustomed to. So in the United States, that means your Chipotle burrito goes from six bucks to 12 bucks and, or your, your, you know, your, your welfare check just gets cut or the, the section eight housing voucher doesn't work anymore. Something along those lines in the United States. That's what i use an example but obviously they have different examples where you're seeing all this

social unrest in areas like chile and um well really all over the world it's exploded but that's really the end game of that uh of the fed's policies yeah no it's getting to the point where it's it's a real moral issue right like the fed policy has i would argue destroyed the family Over the course of the last five decades, it's forced what at one point was a single earner in the family. At one point in the 70s, 60s, 70s, 50s, 60s, 70s, a husband could go out, work a job, provide for his family. But slowly but surely over the last five decades, via the Fed's policy, both parents have been forced into the workforce, sometimes having to work two jobs, and they're still barely getting by. And what's the stat? 60% of Americans couldn't afford a $400 emergency expense if they had to. And at the same time, the people closest to the monetary spigot, and this is another great video that you have out there describing how inequality is created, and the people closest to spigot of money creation benefit unduly and asymmetrically, and it's just by proximity to the Fed's window.

And, uh, that's what I try to do here on the podcast, try to wake people up like, Hey, this is, uh, becoming extremely immoral and something that everybody should pay attention to. And a lot of, uh, the trouble in America is framed as left versus right, red versus blue. Uh, what really the problem is we need to fix the money and the way money's created. oh man i couldn't agree more i i just could not agree more with what you just said and you can peel back the layers of the onion and say that the fed has disrupted the nuclear family i would totally agree but boy you could really take it further than that and let's say they've disrupted the nuclear family well that means there's a lot of uh single mothers raising sons, let's say. If you look at the psychological component of that, and I've got all the respect for all the moms out there. I was raised to a certain degree by a single mom, and I've got a ton of respect for what they do. But the bottom line is if you've got a son that is going home

and just has that female figure to look up to, and they go to school, and their teacher is most likely female, that that's going to have an effect on on a young male. And when they grow up, it's it. And again, I don't want to say that, that what they're having a single mom is bad. Absolutely not. I'm saying the opposite. I got a lot of respect for it. But you have to look at the psychological consequences that that has. When you look at a whole entire population, And you look at the incarceration rate, you look at all these things that you could point to that could suggest that the male population in the United States has struggled a bit in certain areas, right? And you could point that back to the Fed because they've disrupted that nuclear family. There's so many things. In fact, I've said in a few videos that if you really analyze any of the major problems, let's look at poverty. I mean, let me go back to that 1800s example.

So I did a kind of a thought experiment with someone working in McDonald's. And let's just assume, and I use the numbers between 1970 and pretty much 1900 as far as the rate of deflation, price deflation, but also you had nominal GDP growth, and you had nominal wage growth at the same time, which is like the perfect scenario. So using those numbers, if someone's working at McDonald's right now, let's say they're making $1,500 a month to take home. And let's say they're just barely eating by their expenses or $1,500 a month as well. Now, let's say they work there for the next 20 years doing the exact same job and their wage only increases at the national level called 1% per month like it did from 1870 or not per month per year, excuse me, from 1870 to 1900. Okay. At the end of 20 years, their wage has gone from $1,500 a month to $1,800 a month. Most people would look at that and say, wow, that's horrible. Right. But let's look at what they buy. What they buy has gone down from $1,500 down to $800. So they now have an extra $1,000 a month that they can put into their pocket. And oh, by the way, that $1,000 now buys a lot more goods and services than it did just 20 years earlier. So think about how, and I'm not saying

that we could eradicate poverty, but think how much we could, of the entire percentage of poverty that we could dramatically reduce if we had that type of environment, which by the way, it's not rocket science. It's letting the free market do what it does best because in the free market as an entrepreneur, as an entrepreneur for many years, I get it. What you do every single day you wake up is you think of how can I increase the quality of my good or service and how can I sell it at a cheaper price. So you have all these entrepreneurs competing against one another on how they can make things faster, better, more efficient, and cheaper. And you let that just play out, let it work. It gradually goes down, but then that compounds on itself as well. So it's not

just deflation of 3% per year. You've got that compounding curve, right? So the goods and service is my point, is they just get cheaper and cheaper and cheaper. The standard of living goes up and up and up. And that's even if you don't have wage growth, where what we saw during that timeframe is that wage growth nominally, not in real terms, nominally even grew while the prices were going down. And that's because for the main reasons, because we're on a very, not a very strict, but the strictest gold standard we've ever been on was during that timeframe. And I think that's why, or another reason why the Bitcoin people should be just even more excited about Bitcoin from a philosophical standpoint, because just from a surface level, we all get it. It can

decentralize money. That's a good thing. We get the Fed out of the picture, the government out of the picture we all the ease of transaction is just incredible but if you take it like three four five steps further you see just to your point to the family to the level of poverty to war how would they how would they fund war if we were on bitcoin there was only 21 million of them how would the government come out and say hey we need to raise xyz money or they can't print it so the only thing they could do is come out and say, listen, we need to tax you. We need you to pay that money right now so that we can go to war. Well, how many wars would we have actually gone into if the consumer, the average American saw that money coming out of their bank account,

as opposed to the Fed just monetizing the debt or us running the national debt up to 23 trillion so okay we're so we haven't even talked about this for over a half hour and we've almost eliminated poverty we've we've got the nuclear family back together and we've eliminated war not too bad you're uh you're naturally uh coming to the bitcoin fixes this meme that's a big meme in the uh in the bitcoin world no and it's and and to take it even further too if you don't have uh two providers forced into the job market and most of them working paycheck to paycheck and and jobs that uh that are unfulfilling frankly imagine the the mental ingenuity that that opens up and the creativity that is untapped that is uh previously untapped that has opened up and

the the wave of entrepreneurship that would come just from the fact that people aren't in the rat race living paycheck to paycheck just thinking about how they're going to get by um they're actually able they're not on the bike they're able to to sit down and think they're on their own two feet and and sort of create from there um it's it's it's fascinating but it's hard it's hard for people to to take that argument at face value like ah it's too good to be true but i i really don't think it is yeah they get caught up in this keynesian philosophy of this deflationary doom cycle where you have prices go down, so unemployment increases, wages go down, there's no demand. But if you think about it, that is nonsense. I mean,

I get it right now. It would be hard to do because of how financialized the economy is. But in a normal situation, in a free market with hard money, it wouldn't be outlandish to to see how that just would not play out because what is someone going to not buy because they can get it at a cheaper price in let's say a month or two because are you are you going to not buy gas probably not are you not going to buy food are you not going to buy clothes for your kids to go to back to school or i mean what are you are you not going to buy your health insurance, your car insurance? What are you not going to buy? Pretty much the only thing you would limit your purchasing of would be assets. Because if you're in the market for buying a stock

or a house, yeah, if you think it's going to go down in price over the next six months, you're not going to buy it. But that's just about it. And if someone wants to argue that they think people would drastically reduce their spending. Like the Fed, you know, they throw that out there all the time because a lot of them are Keynesians and subscribe to this. But you have to ask yourself, how do credit cards exist? Right? So the whole premise of a credit card is that you want something now that you can't afford and you're willing to pay a higher price to get it now than have to wait a week, a month, or two months and pay a lower price then because of the interest that you have to pay on the credit card. So if this was true, that the deflationary boogeyman

really was real, well, no one would use a credit card. And we know that that's insanity. In fact, if you want me to go on another tangent, look at the credit card rates since we've had ZERP. you would think that credit card rates would go down. And I did a study on this in a video as well. When we went down to 1% in 2000, was it three or so? When we were, I think it was 2003-ish, credit card interest rates going back 30 years went all the way down to 11%.

Doesn't sound like a real low interest rate, but for credit cards, it is very low. Well, now, back when I did the studies before they did the 50 basis point cut, but let's say they were at 1.75%, 1.5, whatever their window is. Well, interest rates on credit cards were 17%. They're like at a 30 year high,

even though interest rates were almost at a 30 year low. So there's this huge, and why is that? Because retail banks can't make any money borrowing short and lending long. So they've got to figure out some way to pick your pocket. And they're going to do that with credit card fees. Or another reason for that might be because there's so many defaults that they have to absorb that additional risk by raising the price of their service. But my point is that if you had this, if deflation boogeyman was actually real, no one would use a credit card, especially not at 17%. Yeah, there's a lot of Orwellian framing and wizardry going on. They're trying to make you think something that is good for you is actually bad.

Yeah, stable prices. Oh, we need stable prices. Well, since when is stable price? You know, I'm sorry to cut you off right there, but it's like someone that weighs 500 pounds goes into their doctor and the doctor says, whoa, whoa, whoa, whoa, whoa. We need to stabilize your weight. So we need you gaining only 20 pounds per month. How is that stable, right? It drives me crazy.

Yeah, it's nuts. And it really highlights what their incentives are, right? Again, they need this to persist. So going back and circling back to the end game, do they ever take the hard medicine and let these things fail and let free markets sort of take over and dictate what the real interest rate is? Or do they ride this Titanic into the iceberg and go down with the ship, in your mind? You have to start by asking yourself what tools the Fed has at their disposal. So that would be lowering interest rates, money printing, QE, whatever you want to call it. That's really the only hammer they have.

So put their confidence in faith in this entity that really only has a couple tools at their disposal. So the question becomes, how would the Fed's tools become useless to where they just couldn't use them? And this is when I always say that the Fed, by trying to create inflation, is in the process of creating their own kryptonite. because think of an environment which is hard for a lot of people especially younger people but going back to the 1970s where we had 12 inflation per year well if we have 12 inflation per year how is the fed going to lower interest rates how is the fed going to increase the size of their balance sheet in other words print money increase the money supply to buy stocks to do quantitative easing to bail out companies how are they going to do that

when if they print one dollar interest rates go now obviously i'm exaggerating but if they even hint of the fact that they may print dollars that increases the interest rates let's say on the 10 year and that destroys the economy even more than it's already been destroyed by those interest rates going from sub one which they are today all the way up to you name it eight percent nine ten twelve pick a number so my and again my point is by them using those the only tools that they have at their disposal they exacerbate the problem that renders them impotent that's their kryptonite so I think the question really needs to revolve around not can the Fed keep kicking the road or excuse me not can the Fed keep kicking the can down the road but what would prevent them

from even trying and number one that would be inflation number two that would be interest rates on the 10-year going up just because they're increasing their balance sheet this goes back to psychology and most people don't understand that every time the fed did quantitative easing which is buying the long end of the yield curve in an effort to create more demand for those bonds more demand they have for those bonds theoretically the lower the interest rate goes so they print up all this money create demand for bonds that their goal is to bring down those interest rates to make mortgages more affordable, to increase the amount of debt in the economy, to increase spending. That's their game plan. Well, if you look at a chart of the interest rate

on the 10-year, every single time the Fed did quantitative easing, the rate on the 10-year went up, went up, not down. So what that tells us is that we could have, and it's very likely that we have a situation where the fed every time they increase their balance sheet in order to fix the problem the market might just puke that right back up and the release valve is the 10-year even if we don't get that inflation and the problem with that is that the 10-year a lot of these interest rates in the real economy with consumers revolve around that 10-year yield so if you have that go up above 3, 3.54, we get in some real, real problems within the economy, not only with mortgage rates, but all this debt that we have to continually roll over. Consumer debt is at an

all-time high. Government debt, all-time high. Corporate debt, all-time high. And a lot of people don't realize because they're in the mindset of looking at the government debt as if it's a mortgage, right? They see their 30-year fixed rate mortgage and their monthly payment is $1,000 a month. So they think that that 23 trillion that the government has is also kind of a fixed rate mortgage where they just have this $400 billion a year and that's it. As long as we can handle the $400 billion a year to cover our interest payments, well, we're good to go. What they don't understand is they don't have a fixed rate mortgage. The government is the largest subprime borrower in the history of the world. And the reason I use that terminology is when we go back

to 2008, we all remember that one of the big drivers of the housing crash was the fact that all these subprime borrowers took out these loans with what? An adjustable rate mortgage. So every year, every two years. That rate adjusts. They've got to pay the higher rate. They can't afford it. And that happens at scale. And that takes all the buyers out of the equation. The market collapses. Okay. Well, the government is in the exact same position every single two years. In fact, every year, they've got to roll over a lot of that $23 trillion. I had a conversation with Luke Groman the other day, and he pointed out last year alone, the government had to issue 11 trillion in bonds, 11 trillion. And people say, well, how is that possible when the national

debt's only 23? Because a lot of that, they're just rolling over old debt. So they have to roll over that debt at a new interest rate. Well, luckily, that interest rate was very low. But if we get into a situation where inflation runs hot or they use the inflation doesn't even have to run hot let's say they lose control the short end of the curve that means the repo market we know repo rates spiked up to 10 percent september 17th last year so what that means is if the fed wasn't injecting all of this money into the repo market and you just called it their terms went up to, what was it? 50, their overnight went up to 150 billion. If we know, or we can assume that if they weren't in there doing that, the repo rate would go up to 10%. Well, if the repo rate

goes to 10%, what does Fed funds do? I don't care what the Fed wants the rate to be. The market's not playing ball if the repo rate is at 10%. I can tell you that for sure. So what that means is the government can't roll over that debt. It's called 11 trillion at 2% or lower interest rates. So, I mean, I'm not saying that the short end of the curve goes to 10%, but we know that that's most likely the natural place that those rates would be. So if the government has to continually roll over this debt at much higher and higher interest rates,

And again, it doesn't necessarily have to be due to inflation. Then they go bust and they're just like the consumers were back in the housing bubble. Pretty scary stuff when you put it in those terms. Yeah, but there's a lot of doom and gloom stuff. And it's not that we're trying to paint a scary picture. It's just you're talking about reality. but there's a lot of very exciting things too a lot of people always say oh george you're a perma bear perma first of all i don't know how they know this when i've only been uploading

videos for five months so i don't know how that can make me a perma bear but it's it's not that i'm always bearish i'm just bearish or i'm either bearish or bullish depending on the price it's all a function of price so am i bearish on the market when we have a 30 cape ratio yeah yeah i am or we're at an all-time high and the fundamentals don't make sense i sure am but if i am i bullish if the s&p is below a thousand maybe maybe and right now i'm not buying anything but i'm definitely starting a watch list when you see what's i mean the oil producers just got decimated they got crushed yesterday just blown out a lot of these oil producers although they most likely will cut their dividend, but they're paying like a 10% yield. And even if they cut it

for a year and go back online, you could be getting some great bargains. So I think that it's like that yin and yang. There's a lot that we really should be concerned with. But as long as we're paying attention, I think there's going to be a lot of opportunity as well. I agree. I agree. I do think we need to get back to a sense of sanity here. that's why i focus on bitcoin and bringing people like you on to help explain these complex topics and you do i'm gonna give you a shout out man you do an incredible job of breaking this down in a very succinct and digestible way um thank you for doing what you do hey no problem i appreciate the kind words and what's incredible is i can do it here on audio and i don't have a whiteboard

generally i just stumble around and make a fool of myself if i don't have a whiteboard as a prop well um i think uh my audience is going to enjoy this episode thoroughly uh again i want to be respectful of your time we're an hour in here is there anything you want to any topics you want to wrap up on uh touch on that you think need need to be touched on before we end it here i don't think so i i most people probably want to get my take on on bitcoin i know my audience always is is interested to hear what i have to say on gold or bitcoin and i don't see them as competing asset classes in any way shape or form i always say it's not even like apples and oranges it's like oranges and and ford pickup trucks i don't understand why the the bitcoin guys are

are pissed at the gold guys and the gold guys we're all on the same team here we all don't like quantitative easing. We all want hard money. We all want that deflation I was talking about. We want, you know, we're all, most of us are coming from a standpoint of personal liberty and being able to choose what type of currency we want to transact. We're all in the same boat. So personally, when I look at my portfolio, I don't even look at them as competing asset classes. I see gold as insurance. It's just, it's not a way for me to get rich. It's a way for me to stay rich. And if you're, I don't think you should, the physical is what I'm talking about. And I just allocate a small portion of my portfolio for that insurance policy in case everything goes to

hell in a handbasket. Hopefully that goes up as much as my other stuff goes down. Then the bulk of my portfolio, I like to use as what I consider investments. And that's something that pays me to own it. So a rental property, these oil stocks pay a 10% dividend, that pays me to own it. And then another portion, about 10%, I like in speculations. I don't know of a better speculation right now than Bitcoin. The silver miners are actually very interesting as well, a lot of the miners. But uranium, I think, is another good play. So I would define that as something that I'm buying just because I think it's going up in price, not necessarily insurance, not going to pay me to own it, but I think it's going to go up in price. I think there's some asymmetry there.

And for that part of the portfolio, I think Bitcoin is fantastic. And I don't know why on earth everyone's pissed off at each other. Maybe you can explain that to me. I am on your side. I've been a vocal cheerleader of, hey, let's all get along. We do have the same goals at the end of the day of liberty and sound money uh i've had dave column on dave column is uh tftc's resident gold bug and we we have very good conversations around the topic every once in a while um yeah and no i agree wholeheartedly we we both have on both yeah why not especially if you can um and yeah it's we let's get along we don't need to shit on peter i think i think the uh the contention is mainly peter schiff uh yeah pouncing on bitcoiners and bitcoiners

pouncing on him and uh peter schiff and bitcoiners are uh entangled in this this flame war on on the internet and i'm saying give peace a chance we're all in this we all have the same goals at the end of the day we do we do we do well george again thank you for doing what you're doing and uh especially thank you for taking some time to sit down with me and go over some of this stuff. Uh, again, I think this conversation is, uh, is very topical and, uh, an important one to be having at this particular point in time. No problem. I appreciate you having me on.

I enjoyed it thoroughly and I can't wait to do it again. Yeah, neither can I. We're definitely going to have to do this again at some point. Um, if you freaks haven't done so already listening to this episode, go subscribe to george gammon's youtube channel again go learn about the topics he's talking about and give peace a chance peace and love freaks