TRIGGERnometry - Are We Facing a Great Depression? James Rickards and Pippa Malmgren

Episode Date: April 15, 2020

Featuring Dr Pippa Malmgren (former US presidential advisor and tech entrepreneur) and Jim Rickards (renowned lawyer, economist and author of Currency Wars: The Making of the Next Global Crisis) Support TRIGGERnometry: Paypal: https://bit.ly/2Tnz8yq https://www.subscribestar.com/triggernometry https://www.patreon.com/triggerpod Find TRIGGERnometry on Social Media:  https://twitter.com/triggerpod https://www.facebook.com/triggerpod https://www.instagram.com/triggerpod About TRIGGERnometry:  Stand-up comedians Konstantin Kisin (@konstantinkisin) and Francis Foster (@failinghuman) make sense of politics, economics, free speech, AI, drug policy and WW3 with the help of presidential advisors, renowned economists, award-winning journalists, controversial writers, leading scientists and notorious comedians. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to Trigonometry. I'm Francis Foster. I'm Constantine Kissen. And this is a show for you if you want honest conversations with fascinating people. And fascinating people we have for you today. Two brilliant returning guests to Trigonometry. Here they are Jim Rickards and Pippel Malgram, two expert economists, people who understand finance, people who understand what is going to happen. Tech as well as with all of those things that we're going to get into. Jim, Pippa, welcome back. Thank you. It is great to have you back. So much to talk about. We're sounding very chip. I don't know why. We're in the middle of a global pandemic. Jim, no doubt, is about to tell us we're about to be in the global depression. So, Jim, is that right? Are we about to descend into the biggest financial collapse in the history of living memory, let's say?

Well, maybe since the 14th century, but we're not, I wouldn't say we're about to be. I would say we're in it. The data has not roll. in yet, as you know, data comes with a lag. We don't even have first quarter GDP. We'll have that in about four more weeks or three more weeks. That will not reflect the full impact of that. So it won't be until the end of July, for example, that we get second quarter GDP. So the data lags, but there's enough anecdotal data, and I would say real pain. I mean, we know 10 million people have lost their jobs in about two weeks. We know that. So a lot of the best you can do from inference. So we're in, I think it's, I don't pay homage enough to economists to call it a recession. They'll call it a recession. I call it a depression. Oh, really? And why do you think

we're now in a depression? Is it because of the lack of jobs that have been lost? The amount of jobs have been lost? Is it a lack of economic activity or is it a combination of the two? Well, you know, I've said we've been in a depression since 2007, at least as John Mayer Keynes defined it. And a lot of people don't understand that. The conventional definition of a recession is two consecutive quarters of declining growth with a few other bells and whistles, you know, rising unemployment, the National Bureau of Economic Research makes that call. And they say, well, gee, if recession is two quarters, then the depression must be

10 quarters or something really horrible. And of course, that hasn't happened and probably won't happen this time. But that's not the right definition of a depression. King said that a depression was a sustained period of below-trend growth with no tendency either to complete collapse or a return to normal. In other words, it was depressed growth. From 2009 to 2020, we had, at least in the U.S., 2.2% annual growth. And there wasn't a lot of variation around that.

We had no 3% years. We had no negative years. the degree distribution clustered around 2.2%. And there wasn't much difference between Trump and Obama, as far as that's concerned. But the longer term trend, going back to 1980, was 3.2%. If you go back to the end of World War II, it was even higher. And as we had growth, but it was a significantly lower than trend. A full percentage point, people say, oh, gee, 1% was the big deal.

Sorry, you take 1% times a $20 trillion economy and compounded over 11 years. you get $4 trillion of lost wealth. Now that's where we were going into the epidemic, going into the pandemic. Now you're looking at declines of the second quarter, you know, no one knows, but 20 to 30 percent, not two or three percent, 20 to 30 percent. Unprecedented.

Even, you know, first thing I tell people is, you know, throw away 2008, 34 to killer crisis. Dot-com crash. Throw them all away. None of them are proper baselines for understanding what we're seeing. You have to go back to 1929. But even then, that played out over four years between 1929 and 1933.

This played out over about four weeks. So fair to say, we've never seen anything like it. It's outside the living experience of everyone on the planet. You'd have to be 100 years old to have a living memory of the Depression. We'll deal with it. But to call this anything other than a depression, I think, is misleading. All right. So essentially what you're saying, just to summarize for people who maybe struggle to follow the technical jargon, essentially what you're saying is we never really recovered from the crash in 2008.

And we've been growing, you know, people talk about the squeeze on living standards, earnings, not rising as fast as inflation and the cost of whatever. And we never fully recovered. And now we've come into a huge crisis massively underprepared. Is that a fair assessment? That's exactly right. And you look at, you know, the Fed balance sheet from 2008 to 2014. It went from $800 billion to $4.5 trillion. And of course, rates were zero through most of that period. What the Fed started, what the Fed tried to do, beginning in 2014, they tried to get interest rates back to three or four percent. They tried to get the balance sheet down to about $2.5 trillion or so. And in their view, that would prepare them for the next. recession and because it usually takes about four full percentage points of rate cuts to get the U.S. economy out of a recession. I said at the time that they would fail and just to be specific, I said the act of preparing for the next recession would cause the recession they were trying to

prepare. They would not be able to do it without causing a recession. They came really close at the end of 2018 between October 1st and December 24, 2018. The stock market fell almost 20%. So we almost had our bare market then, not quite. Jay Powell threw in the towel. He said, we're not going to raise rates anymore, which they have been doing. Furthermore, we'll pause. Then he said in May, we're going to cut rates, and he did. Then he said, we're going to end quantitative tightening. That was the reduction of the balance sheet, normalization of the balance sheet, and he did. And then finally, rates are back to zero. So the Fed failed in their primary mission to normalize the balance sheet and interest rates. They have now gone all the way back to zero rates. The Fed balance

sheet today is $5 trillion. It's higher than it was at the peak of QE3. And so there you are. And the depression has just begun. So they're out of bullets. They failed to normalize. We're far less prepared than we were. And now we're in the recession that everyone feared except it's much worse than that. So here we are economically unprepared. Out of bullets, no stimulus from fiscal or monetary policy and we'll see how things work out. I'm really glad I live on a first, on a ground floor flat, Jim, because I'd be tempted to leave by the window otherwise.

Pippa, would you put a little bit of a sunnier spin on it? Well, let me put it a different way, just a different way of understanding the problem. Weirdly, what's happening in the economy is a little bit like what happens to the humans who are getting COVID-19. And of course, that's the,

the trigger that has knocked the economy for six. So with the disease, one of the things that kills you is not the disease itself, but the fact that your body's immune system starts attacking the disease and it ends up attacking itself. That's such a good analogy, people. That is brilliant. You see? And now in capitalism, what's happening is businesses are going, wow, I don't have enough cash flow to last through the, say, whatever this lockdown is going to be, three weeks,

three months. So I'll kill my business before it kills me. And they shut down. And this is why you get the numbers. Jim was quite rightly talking about a sudden spurt in unemployment. It's on such a scale that it literally almost can't be comprehended. And Jim is right. We don't have any data and we're not going to have any data. In the same way, we don't have any data about COVID-19 yet. We also don't have any date about the economy. So I would put it in this way. There is not going to be an average for anyone about this economy. So we can talk about recession, depression, but everyone will be touched by it very differently and very personally. So those who happen to be in a part of the economy that's now going to become massively more efficient may end up in a better situation

than they were before, and I can give you some examples of that. Those who are no longer needed, because, for example, big companies are going, as an example, I talked to the CEO of a major company the other day. He says to me, and I quote him, he says, Pippa, I just realized that I, the middle-aged white guy, was the biggest obstacle to going digital in my company. I didn't believe you could work from home. I didn't believe you could be productive working outside the office. But now that I'm forced to do it, I'm unbelievably productive and I can see my whole team is, and then why do we have all these overheads? Why do we have property? Why do we own physical spaces anymore? And so that company, I guarantee you, is going to emerge much leaner

and meaner, but probably with less staff. So the people that they are firing now, who are showing up in those unemployment numbers, they're going to have to face the world that Jim is talking about, which is a very difficult situation because it's not enough to have a skill set. You have to now shift into this new environment where the skill sets are very different than what was required before. I go further and say that I think policymakers were on the back foot and slow to respond to COVID-19, and now they're doing the same thing with the economy because of their belief system. And their belief system is number one, that you can put the economy,

and snooze mode. It's just like an alarm. You just hit that little snooze mode button and everything stops for whatever length of time and then you can turn it back on again. But this is not how the economy works because of cash flow. And people who don't have enough cash to make it, this is where the societal problem is. And I'm not just talking about businesses that don't have enough cash flow. I'm talking about a world in which something like as much as 60% of people in industrialized countries like the United States and Britain depends on next month's paycheck. And maybe 30% of them depend on next week's paycheck. And I think the stats in the U.S. were something like, actually, I won't quote the exact number because I don't remember,

but it's a huge number of people who only have about $400 in savings. It's about 50% paper, about half the country. Yeah. It's a big number. So now we have to think about the human consequences of this very, very, very much. sudden, this very abrupt halt in economic activity. Now the second mistake policymakers are making is the assumption that if you just chuck a ton of money at this thing, that'll do it. And that is why they announced this unlimited quantitative easing.

And the problem there is that, well, you can announce it, but the mechanism for getting the money into people's bank accounts, whether it's a corporate or a personal, was essentially through the tax office, like Britain, the HMRC, or it was through bank loans. Well, the banks are saying, I'm not lending to anybody in the current situation because everybody's credit quality is collapsed. And so the bank mechanism doesn't work, and the government mechanism just takes too long. So time is the one factor that in markets we tend to take for granted. And this is the one thing that we now have no control over. and can't quantify into any of our models

because the answer to the question, how bad is the economy going to be, is very different for two days from now to weeks from now and two months from now. And I think that's what policymakers haven't clocked and throwing money at it and putting it on snooze mode doesn't fix any of these things. So in conclusion, what I'd say is that

one can fall into a sense of being so, awestruck by the severity of what's happened that they can't think straight. You're just in a place of total fear. How are you going to survive? And we can call that lots of different names, depression, recession, etc. Or we can say, okay, what government has done, at least in the UK, they've said no mortgage payments, no rent payments, no tax payments for three months. So at least in the UK, everybody's got a little time. In the U.S., the government has not chosen to buy time in the same way. And I really mean by time, and this is maybe the thing to think about. So for those who now have a bit of time to think about this, this is a little bit of a gift as well, because we don't

often get time to think about how we're going to manage our future. And I see ways in which we can begin to identify where the new opportunity is going to be. So just like in the 19th, 1920s and 30s, what you did in the 20s is not what you did in the 30s. And just like after the Spanish flu, I'll point out, you know, the big question to my mind is not just the economic question. It's the human psychology question. And I'll finish with this. You know, in the year, after the Spanish flu, but also surviving World War I, what did people do with all that damage to the world economy, I mean, worse than arguably what we're facing now

because many, many more people died, many more businesses were shut down. They basically said, you know what, I want to live. And those who could afford it became the great Gatsby's and spent it on champagne. And the 20s are famous for being an era of excess. And I could see that the era that follows this moment in time could be like that.

But at the same time, 60% of Americans were on or below the poverty line in the 1920s. And I could also see that too. In other words, a bifurcation of the society. And then my thing I would put in front of people, it's a bigger question is, okay, how do you make sure that that doesn't last too long? And the big view in the policy world is that Ben Bernanke is right. He studied the Great Depression. And the answer is the Central Bank just keeps expanding. their balance sheet and you just nationalize everything and basically you end up in socialism.

And I think Amity Slays is right. And she wrote a book saying, no, actually the politicians prolong the slowdown by becoming so interventionist and it would have passed more quickly if they'd let the market sort itself out and clear all these broken assets. And that's the question today is, yes, the assets are broken. They're going to be broken. It's going to get messy. but how quickly can we clear it is the answer to the question, how bad is it going to be?

Well, this is really the question that I wanted to ask. And it's a very simple question for you guys who are experts in this. But a lot of ordinary people would be saying, well, you know, when we had our election in this country in the UK at the end of 2019, the big argument was, is there a magic money tree or is it not a magic money tree? Can you give people free stuff or not? And it seems like the people who said that you can't are now giving people free stuff. And the real question is that people I don't think know the answer to. And this is for both of you is, where is that money coming from? And what is going to be the cost of that money down the line?

So I think this is the key question because you know, and I've been on your show before talking about my concern that inflation was already higher than our policymakers were willing to say. And they were like, inflation's not a problem, it's gone away. You know, we don't even have to read about that in a textbook anymore. It's such an old issue. And anybody who raised it like me is like, you've completely lost your marbles. And I'm like, wait a minute. But, you know, you buy a box of cereal in the market and it's cost the same, but the amount of cereal inside keeps being less. And, you know, your rent is going up and the cost of a whiskey and a bar is going up. And so the data may not say that there's been such a big jump, though the data has said there has been a jump, but not a huge one.

So therefore it's a non-issue. Well, and then they blasted free money through the market with the financial crisis, and, quote, nothing bad happened. And I'm like, okay, but that doesn't mean that all the rules have gone away. And if you flood the market now with free money, the risk is you no longer have the downward pressure on prices that was being caused by the Chinese providing ever cheaper products at ever better quality, that is no longer happening because the supply chain, they call it the supply chain is broken at both ends.

What that means is the willingness from China to sell abroad is diminished, and the demand for their goods is diminished, both. So we no longer have that. In fact, we're seeing the reshoring, onshoreing of production, which, as an aside, I think might be a good thing for the world economy. but it means higher prices for a period of time. And second, tech, and I'm in the tech world. I'm manufacturing drones and autonomous vehicles

and data systems for digitizing. And the reality is that the tech world is being hit by this quite hard, so you're not going to have endless innovation always pushing prices down. So before we had free money pushing prices up, but China and tech holding it down. Now we don't have that, and we have more free money.

Against the backdrop, and I come back to human psychology, against the backdrop of this lockdown where people are willing to pay a dollar or a pound for a single egg, right? Like you've experienced now a run on the grocery store, so you're like, you know what, actually five pounds or five dollars for a loaf of bread, maybe that's okay. And this is the genie that's out of the bottle. It's not inflation.

It's inflation expectations. And where we should look for that is, in humans and in their belief system, rather than in the bond market, usually that's the thing you look at to tell you what the expectations are. The bond market is no longer signaling clearly because everybody has to buy bonds because the stock market falls. So it doesn't give you a clear understanding. But if people start to say, well, you know, I'm going to save a little bit more because I need more security in the future. And I want to be sure I could afford those eggs if we get a second lockdown, this is how inflation expectations begin. So I am concerned that one issue is the

inflation is going to be unleashed a little bit by these policy actions at a time when policymakers are like, don't be ridiculous. That's a complete non-issue. You've lost your marbles. Jim, so the same question for you. Sorry, just I want to get Jim to answer to the same point. Is there going to be held to pay for the money that we are now using to save people's jobs and protect businesses? No, there's no chance of inflation. In fact, the real policy concern is and will be depletion. Now, down the road, when I say down the road, I mean a year, two years from now,

there is a risk of very serious inflation bordering on hyperinflation, but not now and not for at least a year. And here's why. Inflation has nothing to do with money supply. This is sort of a, I've called a myth. or a misunderstanding that's been propagated by everyone from the New Keynesians to the monitors to the Austrians, you know, increase the money supply, too much money chasing too few goods, inflation is right around the corner. It's not true. Money supply has nothing to do with inflation.

What does drive inflation is psychology, which shows up in the form of velocity. So let's say I'm feeling good. I go out to dinner. You know, I tip the waiter. he takes a taxi home and tips the taxi driver and the taxi driver takes the tip and puts guests in her taxi. Well, in that example, my dollar has velocity of three. There was a tip, a taxi tip and gasoline. So velocity of three. Instead, imagine I stay home and watch television. My money has velocity of zero.

Right. And I remind people that $5 trillion times zero is zero. If you don't have velocity, you don't have an economy, period. So the task is, and a Pippet touched on this, she's exactly right. The task is to change the psychology, change expectations. You can print all the money. The Fed can stick the landing on base money, M0. M1, M2 is a different matter, but M0, they can print that to two decimal places.

Not a problem. But they can't get people to lend it. They can't get people to spend it. They can't get people to dis-save, in other words, what are people doing with the money? they are either going to, well, if you have a high marginal propensity to consume, meaning you're living paycheck to paycheck and you need to pay the rent, yes, you'll pay the rent, fair enough. But for many people, they will save it for the reason Pippa mentioned, which is they're worried

about how long is it's going to last, you know, even if you're not laid off, if your neighbor was laid off, you're probably worried about your own job, so you'll save it on a precautionary basis, or you'll pay off, you know, a credit card, pay down an auto loan, which is economically the same thing. It's just another form of saving. So that's what people are going to do with the money. You won't see the velocity from it. Monetary policy is completely impotent. It doesn't mean that there can't be bad consequences from what's happening, and I'll touch on that. But, you know, I say, well, you know, the Fed's printing, you know, $5 trillion. By the way, the Fed's taking this balance sheet to $10 trillion. Let's be clear about that. It's $5 trillion today. Now, about a week ago, a little more,

our Congress passed this $2.2 trillion economic rescue bill, whatever you want to call it, the CARES Act was the technical name. They're probably going to throw another trillion on top of that in a couple of weeks. Buried inside the $2.2 trillion was $450 billion approximately to recapitalize the Fed. And I've said for a long time, you know, because look at what the Fed did in the last couple of weeks. And actually, you can go back to 2008 and say the same thing. They guaranteed every money market fund. They guaranteed every piece of commercial paper. They guaranteed the primary dealers. They're buying corporate bonds. They're buying municipal bonds. They've guaranteed everything. And then I would ask the question, who guarantees the Fed? Well, we now have an answer, which is

the Treasury. So the Treasury took this $450 billion, and they're investing it in the Fed, recapitalizing the Fed. I had dinner with one of the Fed governors, a small group, and I looked to her and said, you know, at the time, interest rates were higher than they are now, and the Fed was technically insolvent on a mark-to-market basis. Now, they don't mark-to-market. I understand that. But if you were a hedge fund, which they kind of look like, you would mark to market, and they were insolvent. So I said, you know, your bank's insolvent. And she said, no, or not. And I said, I think you are. She said, no one's done that work. I said, I've done it. And I think others have done it. And then she looked at me and harrumpt a little bit and said,

central banks don't need capital. That's an exact quote. And I said, well, you might, the American people might disagree. Well, it turns out the Merck do disagree, and they did put $450 billion of capital from the treasury into the Fed. But here's the point. The Fed is some kind of bank, and they're going to leverage it 10 to 1. They're going to take that $450 billion and turn it into $4.5 trillion dollars of balance sheet

on top of the $5 trillion they have as we speak. So that's nine and a half trillion. million make it 10 for a round number. They're taking their balance sheet to 10 trillion dollars. Now, that's not stimulus. It's money printing. It's balance sheet expansion. The Fed is keeping the lights on. They've provided liquidity where it's needed. They've made sure the plumbing of the financial system did not get clogged. So I'll give them credit for throwing liquidity where you need liquidity and, as I say, keeping the lights on. But that's all it is. That's all it is. This is not stimulus. And the same thing is true with a monetary, sorry, fiscal policy. So the U.S. had approximately

$1 trillion deficit for fiscal 2020 going into this. So $1 trillion deficit was your baseline. They threw $2.2 trillion on top of that. They are certain to throw another trillion or more. So we're looking at a $5 trillion deficit, perhaps more for fiscal 2020, which is 25% of GDP. So we've got a 25% of GDP deficit. We've got a Fed balance sheet that will be 50% of GDP. But I just tell people over and over, I said, don't call it stimulus. You can call it spending. It's spending for sure.

But don't call it stimulus. Why is that? Well, here you have to look to the research of Carmen Reinhardt and Ken Rogoff. Carmen was at University of Maryland for a long time. They're both. She's at the Kennedy School, Rogoff, is at Harvard Economics Department. They've done books, studies by themselves with each other, with other collaborators, a whole series of papers, and they're all publicly available. And they've looked at, they've looked over centuries.

They've looked at just the 20th century, developing economies only, developed economies only, various subsets. They got the same result every single time, that when your debt to equity, sorry, your debt to GDP ratio goes over 90%, you've crossed what physicists call a critical threshold. You're in, you're through the looking glass. And whatever Keynesian multiplier might have existed, you know, Keynes called this theory, the general theory of employment interest and money. There's a little bit of Einstein envy going on there with the general theory. It's actually what they call special theory. Special theory means it applies in limited circumstances. And Keynes was right.

If you're coming out of a recession, if you have spare capacity, if your debt is not too high, and if you're in a liquidity trap, then yes, government spending in lieu of private spending, can have a multiplier, kind of going back to my taxi cab example, with high velocity if you get it. And so you borrow a dollar, spend a dollar, and you get a dollar 20 of GDP. And that works, you know, maybe temporary, but it works. But now, once you go past 90%, you borrow a dollar, spend a dollar, and you get 90 cents of GDP. In other words, you don't even get a dollar. So what does that do to the ratio? Well, you're increasing the debt, you're increasing the numerator faster than you're increasing the denominator.

The denominator is going up very slowly. The numerator is skyrocketing. And your debt-to-GDP ratio is getting worse. So the U.S. is going to catch up to Italy before long. Because here's what. We were 106% going into this. And if 90% is a critical threshold, the data says it is. We were 106% going in.

We're going to take it to 116%. You know, Italy is about 122. Lebanon, I think, leads the pack, but they're shutting down. So you're not going to get. the stimulus on this. You will get spending. You will get higher deficits. So if monetary policy can't stimulate because of low velocity, which is a psychological phenomenon, and a fiscal policy can't stimulate because we're past a critical threshold. And the expectation is that, hey, you can borrow all you want, but I'm going to have to pay it back in taxes so I better

save more. You get zero stimulus. That's what you've got. One more point. I'll finish quickly. Pippa talked about the 50-year-old white guy, whatever, who was maybe behind the curve a little bit in tech and has had a wake-up call. He's, oh, you know, college about that. And it does. But think of the, and I think she's exactly right about that. Think of the consequences of that. So I'm a, let's say, I'm a restaurant owner in a medium-sized city, and I've got 50

employees, and I've closed my doors, and all my employees have laid off. They are laid off. They've all applied for unemployment, and I've applied for one of these small business loans, which you would qualify for. Okay. Now let's just say, flash forward to July. Hopefully, you know, the disease is contained. I don't know.

That's not a forecast, by the way, I don't know if that'll be true or not, but it could be true. So let's say by July, August, things are getting back to normal. The restaurants open, customers are returning. Am I going to hire back all of my employees, whether it's 20 or 50, however many, am I going to hire them all back? No. Odds are I had a couple underperformers. Odds are my some clients every turn, but not all of them.

I've got to reduce my tables because I've got to socially distance my table. Maybe I hire back half. Maybe I hire back two thirds. But what about the rest? They're not getting hired back. So this is why I made the point earlier about a depression. Of course, unemployment's going to spike. We know that. The question is how quickly we'll return to normal? I go back to the answer is it won't. I go back to 2009. We all remember it very well. And what were the talking heads on CNBC talking about? Green shoots. Remember Green shoots? You know, Tim Geithner and Joe Kerenin and Larry Cutlow, we're all talking about green shoots. There were no green shoots.

We got brown weeds. We did not get a V-shaped recovery. We got kind of an L-shaped recovery with a slightly upward sloping recovery curve that was sloping at a narrower range than the pre-global financial crisis curve. In other words, that's the 2.2% I talked about. What if it comes back now and it's 1.7%. You see the point. It's not that we're not going to grow.

Yeah, we'll grow off a demolish base. at a lower rate and we will not solve the problem of persistent unemployment. And just one more thing quickly. I'm a sole proprietor. I'm a writer, analyst, public speaker, et cetera. So I qualify for these small business loans. So I put in for one, you know, I'm not, you know, you don't need to shed any tears. But I want to see how it would go.

And it was interesting. The banks for days did not post the Form City Bank. disgrace still has not posted their form. They recommend you apply to the bank where you do your banking because they know you. So I applied to my bank. They were a little bit late. And I got the form. It's kind of a check to box to everything. But my business does not conform to their form. They wanted W-2s. They wanted there's something we call a form 941. That's a quarterly or monthly statement to the IRS. Here are my employees, you know. They wanted my payroll. I don't have a payroll. I hire editors. I hire research assistants. I pay them. I pay them. I see.

send them 1099s. So all of a sudden I'm trying to like, you know, upload a 1099 into a form that wants a 941. You know, my point is they, and I'm not, you know, faulting the banks. This all happened. How do you get, how do you get a $385 billion out the door in five days?

That was sort of the question. You know, the small business administration computers have crashed. The forms that the banks put online don't conform to the reality of what an LLC, imagine you're an LLC or a sole. prior or which I am or whatever. I just wanted to see if this worked. And the answer is it didn't work very well. So, again, I don't care what Larry Cudlow says on TV.

Nice guy, by the way, but worst forecasting record except for the Fed. They cannot get the money out the door. So the rescue package is not getting out the door. When it does, you know, when I was nine years old, as a boy scy, I learned how to apply a tourniquet. Well, a tourniquet stops the bleeding, perhaps at the cost of a limb. You might save a life, but don't think you put the turn. turnigot on and the patient's up and doing a triathlon anytime soon. That's a life-saving exercise.

And all of these programs we've heard about are, first of all, their horizons about two and a half months. They have no stimulative effect whatsoever. I'm not saying they're not needed. I'm not saying they're not needed. They are needed, but the idea that this is going to save the day is nonsense. Look, I spend a lot of time telling you what's wrong with the world. So let me tell you about something that's actually right. Sleep, specifically getting more of it, better quality. The kind where you wake up and feel like a human being, rather than someone who's been thrown down a staircase. Most mattresses are just layers of synthetic foam and crossed fingers. You're spending a third of your life on the thing, and most people have no idea what's actually in it. Avicardo green mattress is

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with real materials to deliver lasting comfort and support. Go to avocado green mattress.com slash trigger to check out their mattress and furniture sale. That's avocado green mattress.com slash trigger. Avocado green mattress.com slash trigger. And Jim, you know when you said about 385 billion, how did you get it out of the door? I think that's for the moment you need a Venezuelan politician. They'd make it disappear instantly, just like that. I'm sure they would volunteer to run the program for us.

Yeah, absolutely. And Jim, do you see it as, and this question to Pippa as well, we had a guest last week who said that in times of crisis, usually war, that is the moment that the government introduced new taxes or in particular higher taxes. Do you think when we come out of this, we're going to get taxed up to the eyeballs, or are the government going to hold back because they're going to realize we've been through major financial trauma,

and we just need to invigorate the economy and we need to grow confidence. Well, there's, I don't think they'll raise taxes in the second Trump administration. They're really not inclined to do that. Although, you know, just jump your head a little bit. I know you like to look down the road a little bit. The market is struggling to, I mean, what markets do? They price news, right? And the bigger the news, the bigger the repricing, we've seen that.

So the market is trying to stock market, that is trying to price. in the pandemic. And they're struggling because no one really knows. But, you know, okay, they're doing a pretty good job with that. Then they're trying to price in, you know, call it a recession, depression, B-shaped, L-shaped. There's a lot of debate about that. But they're trying to price that in. And that's more difficult because the economy is bigger and it's more complex.

And, you know, I have my forecast, but others have theirs. The one thing they have not priced in is President Biden. I have a, you know, I do political, of forecast, predictive analytics in addition to economics. And, you know, I was on TV around the world in late October, 2016, promoting my book. And all the anchors from Australia to London and New York said, hey, Jim, you're the American who's going to win the election? I said, Trump's going to win. So we'll be up late. It'll be close.

But he's going to win after they recovered their breath and, you know, sort of got their demeanor back together. They asked why. And I explained why. This is when Hillary had a 92% probability of winning according to odds and pundits. I have the same model. I've updated it, of course. I had Trump about 75% probability of winning and increasing monthly because it was data in terms of the likelihood of a recession.

Well, Jim, if you remember, sorry to interrupt, last time you were on the show, what you said specifically was if the economy continues to do well, he's going to get reelected. And at the time, the three of us went, well, of course he's going to continue. continue to do well. I mean, I don't know. But here we are. Yeah, it was easier the second time. But the point is the fact that we're in, again, I'll call it a depression, it doesn't mean that Trump's going to lose. If we were not, he would almost certainly win. But just because we are, it doesn't mean he's going to lose. And the reason is that no one blames him for the virus. He will be judged on his handling of this. And that's a separate issue. He won't be judged for

causing it. He'll, the Chinese will, but he'll be judged for handling it. So right now I've got it at 50-50, and I use Bayesian base theorem and as part of the applied mathematics we use. So 50-50, people say, let's wish you wash. You know, that's where you start in a Bayesian equation. If you don't have better information, you start at 50-50, but then you update on posterior information. So we'll see how it plays out. But that means you've got to give Joe Biden a 50% chance also, so it's a coin toss. But the market hasn't priced that in.

I mean, what does the Biden presidency mean? higher taxes, more regulation, you know, kissing up to China and the Green New Deal. How do you think the stock market's going to like that? So just says a long way to go. Pipham, what about you? What are your thoughts about, you know, Francis' point about, and actually it feeds very much into your point, which is if you see taxes coming down the line, you're going to, your psychology is, well, safe, safe, because I'm not going to have enough money in the future.

I need to be careful. And then that creates a vicious cycle. What do you see? I mean, I personally haven't seen some of Joe, you know, I mean, we had the Scott Adams on the show a couple of weeks ago talking about, among other things, Joe Biden. I mean, I don't mean to be unkind, but he's clearly in a cognitive decline. So I don't see him being the next president. I mean, Jim will have his mathematical models, which are much more accurate than my instinctive feeling.

But I just don't see that. But take that out of it. What do you see coming down the line in terms of people's psychology, as you say, and also the government's response? Are we going to see more taxes? And how is everything going to look two or three years from now? I take a point about winners and losers, but there will be a bigger picture to it than that as well. Yeah. Well, you know my last book was about leadership.

And I sort of argued between the lines, we have a lot of leaders who are in cognitive time. you know this is nobody's got a monopoly on that right now um i let me come on this question of taxes all the conversation we're having is very much within the framework we're used to conversing in and what i see is this is such a structural change we're going to have a very different conversation because it's not going to be about tax it's going to be about nationalization and reprivatization For example, as you opened, you said, you know, the Labor Party in Britain was saying, we'll give away free stuff. Then the Conservatives came in and that's exactly what they did. And so Labor's like, wait a minute, that was our program.

Well, then what do the Conservatives say? They're like, well, okay, we have to keep the trains running. And if Network Rail can't afford to do this, well, we can nationalize Network Rail. Well, good luck with running network rail because it's a complex, difficult beast. to run and I'm betting, they won't take them very long to figure out. They have to privatize it. So what you're talking about is not taxes, but a world where expropriation of assets, where government just takes stuff and tries to manage it, can't, and tries to sell it to someone for cash. This stuff happens much more frequently and with less of a kind of overall plan

than we're used to. So it's very bumpy. And also things. like property, you know, there's reasons the Italians always call it immobilia. It's because it's immobile. It can't be moved and this makes it easier for government to seize or tax or already look at, we're seeing because of the crisis, the healthcare crisis, you know, physical establishments get repurposed whether that's the Excel Stadium becomes a hospital, a church in New York, a cathedral in New York, because becomes a hospital. And rightly so.

I'm just saying this is how it begins, the governments say, forget about tax. I'm just taking the thing. We need it right now. And this mentality is exactly what happened and again in the 1930s. So I don't think it's so much the traditional sense of tax. It's the real question is,

what do I actually own? And what private protections of private property really exist? And this is going to test the constitution of the United States, going to test the unwritten constitution of the United Kingdom. And so I think that's one big issue. The second thing that's relevant here is also, it's the relative story. And so what I see is, if I'm going to go back to the COVID-19 medical analogy, again, what kills the patients is pre-existing conditions.

I mean, some of them are dying just straight out from the disease, but a lot of people, what gets them is they already were in bad shape. And that's exactly what happened with the economy. The economy was way overburdened with leverage and debt. The economy had valuations that were off the chart and didn't make any sense in terms of real cash flow and reality. So now the patient comes in and technically what's making them ill is the COVID-19, but the doctor takes one look and says,

this is a heart attack waiting to happen. This is a cancer patient in stage four that's been revealed by the crisis. So in the world of economics, what is causing that cancer? And the answer is the debt. So what I expect is that a lot of debt is going to get defaulted on. Now, this is a very scary thing to talk about. Everybody goes, wow, no, this is the end of the world economy. But maybe we can turn this around and we can look at this as a very positive thing.

You guys know from in the past, I've talked about the different ways that governments can default on their debt, right? Option one is you say, I am never paying you guys back and it's just tough. That's called the Argentine style default. And then the markets hate you, the credit markets put you in the junk bin and you stay there for a decade or more. But a second way is you say, oh, listen, I am absolutely definitely going to pay you back. And I'm so sorry that this act of God got in the way. and it's just, I'm going to pay you a little bit less than a little bit later. And everyone goes, well, that doesn't sound so bad.

And that's how Greece defaulted on a huge proportion of their debt. Now, mathematically, it's a default. But because you don't call a default, you say it's just a delay. We're just buying time. We have every intention of paying you back. Suddenly, actually, the media, the FT will write about that. They'll never describe that as a default. Now, the countries that have defaulted, Iceland, Greece,

Portugal, their economies are actually going vastly, vastly better than they were before. And now countries like Italy, confronted by this terrible weight, this cancer of overwhelming debt, now they have a crisis that reveals just how bad it is. What are the chances that they say, we can, there are a lot of pain for decades to come, paying this back, or we can say there's been an act of God, it was completely out of control, and we're really sorry, but we're definitely going to pay you back just a little bit later. Well, then you relieve them from some of that debt burden. Now, in a world where that's happening, and let's add emerging markets,

because all the emerging markets borrowed in dollars, and now their currencies are weakening and the dollar is strengthening, so the level of debt is going through the roof, and already the IMF is saying we may have to create some kind of a bailout program using, you know, mechanisms we've had in the past that call SDR, but basically it means we're going to have to throw money at them because they're not going to be able to make their loan payments. What are the chances that one of them says, well, let's just not pay it back. Let's do it nicely and say, well, we'll be intended to pay back more later.

We'll do. But, you know, it's health crisis. Now, in that world, you go to the country who you think isn't going to do this. And so even if the United States has this terrible balance sheet, so it's a patient. The blood pressure is off the chart. They're overweight. They've also got cancer. But you go, relatively, you know, I trust the U.S. when the chips are down, when everything

is heading the wall globally, what do you define as safe? And the answer is usually the U.S. Now, we can argue about whether that happens this time or not. I think Britain can also emerge as that safe landing place. But a whole lot of other places, I think, are going to start. defaulting. Now the initial reaction is everybody's scared, a lot of losses. Secondary reaction is, hey, we excise the cancer. The debt is gone. That means actually we can grow again. And so I just wonder whether what's going to happen is we end up getting rid of a lot

of the debt burden on the world economy. And instead of having to blame the bankers or blame the policymakers or we usually have to blame somebody this time we're going to blame a bug and so that can be yeah the perfect scapego and let's take let's look at things globally a lot more and this is a question to both of you you know there's been this trend that we've seen globalization as a universal positive you know it's it's a great thing we're more interconnected than ever with this virus this pandemic that has swept the globe aided and abetted by you know the fact that we travel everywhere, are we now going to look at globalization as being something that we embrace without considering many of the disadvantages and flaws behind it?

Globalization is dead. I mean, it should have died a long time ago, but it, you know, it's kind of struggled on, but we will, you know, this period of globalization we lived through between 19, I would, I make it 1989 to 2010 or thereabouts. It was the second age of globalization. The first age of globalization was 1870 to 1914. And, you know, there was free trade and bankers in London were selling bonds to investors in New York on Argentine credit and, you know, letters of credit were moving, there was trade moving all over the world.

And, you know, it kind of resembled the late 20th century. And then it hit a brick wall at 70 miles an hour called World War I. And the New York Stock Exchange was closed for five months between August and December 1914. And as were most major stock exchanges around the world. And the gold standard ended immediately. People went through the pretence of having gold. What they did is they hoarded the physical gold and just printed money. So that ended.

And then, you know, you know the rest. Hyperinflation in the early 20s, depression in the 19th. 30s, World War II, Cold War, you know, and it wasn't until the fall of communism in stages between 1989 and 1991 that we got back to globalization. But it was the second time, the first time was real. The second time was a fraud. You had people like, you know, Jeffrey Sachs at Columbia and Richard Haas of the Council on Farm Relations and a lot of others promoting this. But what it really was was an enormous theft from the United States of financial capital, intellectual capital, intellectual property, et cetera, for the benefit of China. And I'd like to say that,

you know, the only thing worse than a poor communist is a rich communist. So what we did is we created a lot of rich communists. And here we are. But no, the globalization is dead. It's been completely discredited. Tom Friedman and Richard Haas and Sachs and the rest can go off and write their papers, but the real world has moved on. I wanted to just come back for one second on Pippa's description of how you default. And she was exactly right. I actually wrote, negotiated and wrote, along with a few others, the first sovereign credit default swap. We did this in the early 90s. When I was at Long-Term Capital Management, we bought a $1 billion insurance policy on Italian default from Sumitomo Bank, Milan, because they had the assets, they didn't mind the liabilities.

But this was long before ISDA and automation. I mean, ISDA was around, but they didn't have standard credit default swap forms. So I had to do it on a blank sheet of paper. And my colleague did the math, but my job was to figure out how many ways can a government screw you over? How many ways can you default? And Pip was right. First one is just, I don't pay you. That's easy.

But we had, I had like 20 different ways because I knew if I left one out and it never happened, I'd be in trouble. But, you know, they can say, well, I'll pay you, but I've grossly devalued my currency. So good luck buying a loaf of bread. Another one is I'll pay you, but I put on 100% capital control. So, as they said, at Gilead, come and take it, you know, et cetera. There are many, many ways to do it. But, and Pipp is right. But, and by the way, what she was describing goes back to antiquity.

And there was explicit biblical references, but even earlier in Babylonian kingdoms, it's called a Jubilee. And the idea in, at least in the Bible, in the book of, Leviticus, every 50 years, all the deaths would be forgiven. Because they knew the people overbarrow, they knew that people landed recklessly. They knew that the system was overburdened by debt. This is all very clear. And they say, every 50 years are wiping out the debt. And so you say, well, wait a second. Isn't that a little unfair to the creditors, the lenders, you know, but the point is the lenders weren't dopes. So in the first, after the Jubilee, in the first year of a new expansion, I would be very comfortable making a five-year loan, you know, secured by land.

But when you get to year 40 in a 50-year cycle knowing what's coming, you're not going to make a 10-year loan and you're 40. You'll probably make a one-year loan. And by your 45, you know, you're not making any loans. But here's the point. And this really gets into the physics of it. The system with foresight, knowing the rules, voluntarily de-leveraged itself in stages so that the Jubilee was not a train wreck. It was like there wasn't that much debt around because people saw it coming. And so what you were really doing was setting the thermostat in such a way that it would be self-regulating.

Right. I'm sure some. Whereas what we've done is the opposite. We've taken the brakes off the train. That's because we got rid of the Jubilee concept. Now, we have something better than a Jubilee that Pippa did not mention. And it is, look, everyone else can default on their debt, including their dollar dominant debt through an emerging market, etc. and you have Argentinian train racks all over the place, and she's right about that.

But it all comes back to the United States. How does the United States default? There is no reason for us to default because we can print the money. The way the U.S. defaults is inflation. And in other words, even modest inflation, you know, 3% inflation for 18 years cuts the value of the dollar in half, which means the real value of the debt goes down by half. And by the way, we did this. In 1945, the U.S. debt to GDP ratio was 120%.

the highest in history. And I like to say, yeah, but at least we won the war, you know, along with our allies. So we got something for it. We were the, the, the, the, we had 50% of the world economy. But between, um, between 145 and 1980, the debt to GDP ratio declined from 120% to 30% when Ronald Reagan was sworn in, the debt to GDP ratio was 30%. And he was, he was the first of the big spenders and it's been going up ever since. Today we're back to the World War II levels. But how did we do that? We did it with a couple of things. What's called financial financial or fiscal dominance, which has been explained by Rick Michigan, where basically the Fed is the handmaiden of the Treasury, and they keep rates slow. And all you need is negative

real rates. Basically, if inflation is just slightly higher than the nominal rate. So we had nominal rates of 2-3% in most of the 50s in the early 60s, but inflation was just a little higher than that, which meant that it was like an ice cube melting in your hands. It didn't, it wasn't abrupt. It wasn't like blatant theft like FDR did when he confiscated the gold in 1933, although he gave you $20 in paper monies to not violate the Fifth Amendment. But the point is, that's how you do it. Now, here's the dilemma. The Fed has been trying to engineer this for 12 years, and they failed. I like to say it's a sad day when a central bank wants inflation and can't get it. everything we talked about, including all the employees at my hypothetical restaurant does not hire back,

and all the, I forget which presidential candidates said, well, who cares if manufacturers get laid off? We can teach them to code. Good luck. There's no evidence that people in mid-life, mid-career, with one skill set, which could be valuable, can somehow retool themselves and become coders, and that's probably a good thing, but they can't do it. There's no evidence for that. So how do you get out of this embedded, high unemployment, embedded? it deflationary psychology, classic liquidity trap, you know, name your, you know, put out your

descriptor, they all apply. How do you get out of that? The answer is inflation. But how do you get inflation when the inflationary psychology is so bad? It has been done twice, and I could do it in 15 minutes and I explain this in a couple of my books. You call an emergency meeting at the Federal Reserve Board. You go in the room, you close the door, you take a vote, you come out, you walk up to the microphone, you say, ladies and gentlemen, As of today, the price of gold is $5,000 per ounce. If you think that's cheap, come and get it. We got a lot in Fort Knox.

If you think that's expensive, serve it up, we'll pay you for it, and we've got the printing press. And it was if you use the gold in Fort Knox in West Point, that's where most of the gold is, if you use the gold, the physical gold in storage and the printing press to conduct basically an open market operation in gold, this is how we pay interest rates. We buy securities with printed money,

and we sell them back and make the money disappear. But if used the printing press and the physical gold to maintain a, say, $5,000 per ounce price of gold, it's not to enrich gold investors. It's to get the price of everything else up. FDR did this. When he took, you know, in the greatest period of sustained deflation in U.S. history from 1927 to 1933, the price of gold went up 75 percent from roughly $20 an ounce to $35 an ounce. Why was that? Well, FDR did it. The government made it happen on a kind of gold standard at the time.

But what he was really doing, this is what people don't understand, when the price of gold goes up, 75%, nothing really happened to gold. It's atomic number 79. It's a metal. What happened was the dollar was devalued by 80%. And the price of everything else went up. FDR wanted the price of oil, corn, wheat, copper, everything to go up. And it did.

1933 was one of the greatest years in the history of the stock market because he bent the curve on deflation. Richard Nixon did the same thing by accident. Richard Nixon wasn't trying to do it the way FDR did, but he did it anyway by suspending the redemption of dollars into gold in 1971. But what happened by 1980? I mean, I took out my first mortgage loan in 1980. It was 13%.

My poor mother cried. You know, her first mortgage was like 2%. But I said, mom, inflation is 15%. So my pre-tax rate is negative 2. That's cheap money. That's better than free money. And we had 50% taxes in New York at the time. So my after tax real rate was negative seven.

So they were paying me a lot to be a borrower. So I see what you're saying, Jim. So basically the government is going to, the only option in terms of what you're saying is the government is going to have to somehow induce inflation. And you would not be Jim Rickards if the answer didn't have something to do with gold. It's not me. It's history. But here's the problem. We have two generations of monetary scholars who are completely ignorant of gold.

I'd like to say, if you're younger than I am and you know anything about gold, you either went to mining college or you're self-taught. Because the university stopped teaching it. It's a disreputable subject. We have all these. That's why I wrote my book, The New Case for Gold, to explode all these myths, but they persist because, you know, the PhDs don't read my books, but everyday Americans do. So it will come to that. The reason I'm saying that is because it's the only thing that works. FDR and Richard Nixon both proved it.

I see. I see, Jim, let me stop you there because I do want to move on to globalisation and PIPAA. And I just need to stop you there as well. So I quibble there, Jim. You'll find that we won the war. You assisted it.

But apart from that... I did mention R&A. Actually, can I just say at this point that we won the war and you guys tried to take the credit? All three of you. You know, guys, nice job at Tuberk. You did it.

We were fighting on the Eastern Front. But anyway, Pippa, talk to us about globalization. Because, I mean, I think one of the, absolutely, I couldn't agree more with Jim. I think globalization as constructed up to this point is dead. But as you said, in terms of individuals, there will be winners and losers. I think also in terms of nations and in terms of kind of how we relate to each other, there will be that as well. So what do you see on that front going forward?

So the definition of words is very amalleable over time. I think what we're going to find is the old definition of globalization was all the stuff gets made in China and all the jobs get moved to China. The new definition of globalization is that stuff will be made everywhere in the world and that people will relocalize their supply chains. They'll want to buy from more physically local suppliers. And that means we're going to end up with a lot more competition globally. So actually, this isn't a lot. It isn't at the end of globalization. It's a transformation into an entirely new definition of what constitutes globalization.

It's a world where I think people like me, I don't know if you guys know, Etsy, which is an online craft shop in the United States. It's been huge. And I think there's going to be a need now for a global Etsy because you want to buy some beautiful necklace made by a Maasai warrior in Kenya. And you don't want to have to fly all the way there to get it. And you want to support those local communities by buying the products that they make. And actually now the new internet world will facilitate this. So weirdly, we may become more global in our spending patterns on an optional basis, but in terms of, you know, grocery stores, you're going to say, you know what, I'd rather rely on local British food. For example, there's a fishmonger in Notting Hill, and their sales

have gone up like 2,000% since this crisis began because everybody wants to work with the local fish shop that gets their fishermen locally. So that's a localization that supports the local economy, but that doesn't mean that there won't be a market for some of their fish products ending up in France or North America. We live in a world where it's highly, highly adaptive. So what I do see is that globalization by the old definition was ending for a lot of different reasons. And one of them was that China wasn't supplying cheap stuff anymore. The quality was falling and their wages were going up so dramatically that the cost base was too high. So it became more efficient. I mean, I make physical things. I make autonomous vehicles and drones and I can do that

less expensively with higher quality in London than I can in China. That has been true for more than six or seven years now. So there's been a radical shift in where is the cheap place to make things. Second, the labor content of most things is very, very tiny and getting smaller all the time. It has more to do with your design, has to do with coding, it has to do with a lot of things that aren't the person that you're employing. And also, you can have people working remotely on a lot of things, especially if they're working on the coding side. The other thing is that people were becoming much more cognizant of green issues and the planet and they didn't want to travel so much. And I don't think they're going to want to travel in this new environment because of the carbon

footprint, because of the cost. I mean, I am one of the road warriors, right? I am one of the people who literally was doing five countries a week when that was still possible. I mean, and frankly, when you talk about how bad can this virus be, you know, I am like the model for what could be the typoid Mary of the situation because I'm capable of being in five countries in a week. And I don't know whether I've had it. I think that I may have had it, but until we're all tested, nobody knows. And so this is why this can travel much faster in a modern world economy than it did in 1918 when it was only soldiers that were on the move. Now it's the whole cadre of globalistas like myself. So what sort of risk?

do we present for the world? And then there's the personal health risk because everybody who's over 30 who tries to travel like that finds that they end up having health issues from doing it. So in that sense, I think globalization is not dead, but it is radically transformed into an entirely new definition and a more positive, productive definition. But the other thing, if I can take a second to talk about that debt jubilee idea, because I think this is what everybody is going to be talking about. And people are going to start to say, yeah, I would like to be the beneficiary of that. And I put up on Twitter the other day that when the Sumerians first did this, it was literally, I'm looking at the number now, is the year 42, 72 BC.

I mean, this is an ancient way of handling things. And the point is, if it reaches the point that the person you've lent the money to is dead, you're not getting the money back. If they have no money in their bank account and they're nearly dead, you're not getting your money back. So what's your priority? Is it to get paid back or is it to save the society? And what will happen is we're going to shift our orientation from the I got to get paid back to I need humanity to live and not to fall into conflict.

Hey, I've got 20 years left on my mortgage. I'm sold. I'm sold. I've got 20 years left on my mortgage. Pippa, before Francis jumps in, let me ask you this because you're a former advisor to two years presidents. If you're sitting in the Oval Office right now and you're looking at the fact and this, I come back to the issue of globalization here.

You're looking at the fact that 97% of your antibiotics are made in China. A huge quantity and percentage of your essential supplies are made in China. A lot of particularly right-leaning commentators have been banging away at this point. We've become reliant on China

for essential supplies in a world where, you know, I mean we don't know exactly what's happened with this virus, but there's some evidence to suggest that, you know, it's not without China's at best incompetence that this has spread

the way that it has, right? So if you can't trust them, and when the proverbial hits the fan, countries tend to lock down and go, I need this, and you're not having that. Are we, you know, as a president of the United States or the Prime Minister of Britain,

are you going to go, we need to onshore, not just manufacturing of widgets and iPhones, we need to onshore manufacturing of medical supplies, syringes, Venta everything. Yes. And it's not only because, you know,

China didn't handle it well. I think probably most countries wouldn't have handled it well. I'm not sure that the British did so much better and they were loaded with a lot more information and they were still slow. But the point is your... But Pippa, sorry, the British didn't lie

to the rest of the world about the extent of the deaths, the infections, you know, etc. I hear you. I hear you. And we can talk about that, you know, the first point. is that China doesn't even know how to produce accurate data because they basically, you know, I remember a policymaker in China said to me, would you like to know next year's

GDP because I have it here in the drawer? They don't even know how to gather data. It's like a Western magic art that they don't really get. They just, you know, it's a political process. So the fact that we even trusted their numbers is kind of our problem. But we're leaving that aside. The main thing is what you're talking about, is a trade-off between efficiency and resilience and for many years we have gone after efficiency and cheaper prices ever cheaper prices that that was our driver now we're faced with this reality that resilience is is interfered with by that and I'll come I'd like to use the example in Formula One racing it's a constant race between resilience and efficiency

and what you're doing is you rip that car apart every single day and you You try to shave one gram of weight off of the thing so that you improve its chances of winning. But that one gram may be the thing that breaks the piece you're working on. So it's either correct or catastrophe, right? You're on the borderline all the time. Well, this is where we are with the economy. We chose efficiency, efficiency, efficiency, and we shaved off that extra gram of cost by outsourcing it to China. And now we see a break.

And therefore, now we're going to have an emphasis on. resilience. Now what does that mean? That means inflation. That means higher prices. It means you say, I'm willing to pay more for a British sourced product or an American sourced product so that I'm sure to get it. Then I care about its reduced costs. And that's another channel through which higher prices begin to warm their way forward. Now this in the light of the current president, let's just keep in mind who the current president is. The current president of the current president is a property guy. Property guys make all their money on inflation. They love inflation. And so what is his inclination going to be is always going to be, we should just have more debt. And the way you

deal with the debt is you basically inflate. And that's okay. And by the way, inflation, they do tend to make asset markets go up, which means stock markets. And I would argue we've had that inflation has shown up in recent years as higher asset prices, and everybody loved that part about it. And they ignored the fact that a consumer had to go from 1% inflation at the time of the financial crisis to say two and a half at the time of the COVID crisis. And that just sounds like nothing. But to Jim's point, that's a ton of inflation that lets you completely erode the debt you owe the world. And the U.S. is particularly privileged in that because everybody's still willing to buy dollars from the states, even though we behave this way. And by the way, we have

behaved this way throughout history, because how do we pay for the American Revolution? On inflation, how do we pay for the Civil War? A much bigger inflation. How do we pay for Vietnam? Another inflation. And how are we going to pay for this mess on inflation? And so that's why I said at the opening, I think that we're heading into inflation. So then the question becomes, what's the speed and magnitude of that thing. And I agree with Jim. Usually great inflations are preceded by a puff of deflation. And whether that lasts a year, 18 months, two years, I don't know, but we have seemingly set the stage for prices to begin creeping up. And for people to say, again, it's a psychological phenomenon, to say, you know, like in my world, I have companies who are saying, you know,

the Chinese drones may be cheaper, but I'd rather buy British. or the Chinese drones, you know, maybe I can buy them, the supply chains there, but I'd rather work with someone who's closer and speaks English and can work with me to produce what I really require for my business. That means they're telling me they're willing to pay more for this. And I think they'll pay more for these things now that they go, I need to be digital, and I need to not travel, I need to be more localized, not globalized. So in this sense, it all comes together to form a full circle that what Jim and I have written about inflation, which everybody says is a dead duck and never coming back to life, is distinctly quacking in the background.

Fantastic. And I think we've come to the end of the interview. Well, before we do, if you guys have another five minutes, Jim, I think it's fair to describe you as a China horse. if that's a reasonable description. What do you think will be the implication on the U.S.-China relationship and actually the kind of the way that the rest of the world or perhaps the Western world relates to China going forward? Yeah, I don't think on a hawk-dove spectrum, I think on a realist idealist or ideologues spectrum

with the ideologues and the idealist getting it wrong. So China, there's very good, There's visual, video, anecdotal evidence that while the virus was raging in Wuhan, they put live people in body bags and cremated them. In other words, the bags were so wiggling and screams emerged when they went into the crematorium because they expected the people to die and they said, why waste beds and resources, they're going to die? So just throw them in the furnace, which they did and they didn't care. They also have large concentration camps in Western China that are, where they round up,

people on a religious basis or based on their dissidents. They try to brainwash them, but in cases of failure, they strap them to a table and do organ removal without anesthetic to supply an organ transplant industry. And then, of course, those people die and they're sent to the crematorium. Also, something about concentration camps in crematorium that should give people pause in terms of doing business with China. When Pippa said that Chinese quality is falling, I disagree, because it was already rock bottom. You can't fall from the zero base. Chinese, Chinese make garbage and they lie about it and why our globalists ever believe them other than the fact that they don't like America is very hard for me to describe. So the point is if you go back to October, I'm going to say 2019, yeah, Mike Pence's speech to the Hudson Institute.

And basically we declared a new Cold War on China called Cold War II. That's where we are. Pippa is certainly right about Kenya bracelets and fishmongers, but let's talk about the pharmaceutical industry. Turkey is not going to have a thriving pharmaceutical industry. Kenya is not going to have a thriving pharmaceutical industry. Pharmaceuticals being the U.S., Switzerland, Canada, China can just, China will hit a dead end because their inability to steal more intellectual property will grind this to a halt. And no one's going to want their stuff anyway. I mean, the UK just took a huge delivery of testing kits from China and the National Health Service.

And the laboratories rejected them within days because they said they don't work. You know, welcome to the world of Chinese imports. So a ruthless, atheistic, murderous, lying society has lost its place in whatever's left of globalization. You can have trade. It doesn't mean that there won't be any trade. Of course they will. Or the people won't go back and forth. Of course they will.

But globalization is a byword for extended supply chains that basically, basically rob the United States and other wealthy countries of their wealth for the benefit of China. That's over. And just to anticipate one question, Constantine, you said, what's coming or what's next that no one's thinking about? Well, that's always our last question. Sorry, I'll leave it to you. Not my show.

You already started, so you might as well finish, Jim. What is the one thing that we're not talking about? And we'll get to PIPA after your answer as well. And I have the last word. So we've talked about the pandemic. We've talked about the economic impact. We've talked about an economic way out, which is inflation. Jubilee works, but I don't expect it to happen.

Inflation works, but it's not happening, except as I described, they'll have to devalue the dollar. And since you can't devalue it against other currencies, because they want to devalue also. Gold is your only numeral. Gold is your only form of money that's not a national currency. and therefore it kind of stands there and takes it. So, you know, look for gold at, you know, $10,000 an ounce sooner than later, which has nothing to do with gold, has to do with 90% evaluation of the dollar. But what people are not talking about that is coming,

just to lean forward a little bit, is social disruption, the breakdown of society. People forget that the veneer of civilization is paper thin, and it's torn very easily. and we're starting to see it fray. Because of, and Pippa at the very beginnings made a very profound point, she said, averages don't mean anything because they disguise the degree distribution. She's absolutely right. The averages will be horrendous, but the reality for many people will be even worse.

So I would look for, you know, we already saw it with the riots in France and Champsouzae and Hong Kong and Santiago, Chile, and Beirut. these were breaking out anyway, and that's going to get worse. And over to you, Pippa, what is the one thing that we're not talking about that we really should be? We'd be very happy if it's on a lighter note, but you do whatever you want. I know. And the thing is, I actually do see the economy that we're going to have. I do see, because I'm talking to tech firms, I'm talking to investors, the world's biggest investors.

everybody is still having meetings, they're making investments, they're picking things that they think will work well in the new world that we've described. They're anticipating debt defaults and figuring out how do I make money out of that. So I am fundamentally optimistic. We are going to have an economy tomorrow. It is being defined today. And people will be able to participate in it, but they're going to have to change. And people don't like change, but this is going to force a lot of people to change.

but this is going to force a lot of people to change what they do and how they do it. And there's a lag. So I agree we're going to have a very tough period, especially for people who kind of fall through and don't have support and don't have the backing of a good network and education and all sorts of things. So I think we have a big social issue ahead of us. But the thing that worries me that we're not talking about is something that happened in the run-up to World War II,

which is if you create enough dislocation, and I'm not just talking economic dislocation, I'm talking about the fact that, you know, the United Nations considers it torture when you're put into solitary confinement for 72 hours. And now we have a whole society of people, many who are alone, single, elderly, even the young, who are suddenly forced to spend a lot of time,

alone. And they're afraid and they're worried. And so one of the things that happen in the pre-World War II period was people just said, you know what, I just want somebody who will establish order. I just want somebody who's in charge. I can't solve these huge problems. And there's a great book by Eric Fromm about this called Escape from Freedom. And he basically describes the circumstances under which a very authoritarian leadership was able to sow its seeds and you ended up with Hitler. Now, in the current environment, Yuval Hariri, who wrote Sapiens and Homo Juice, he just wrote a really brilliant editorial in the Financial Times about this, where he talked about the use of digital methods to track citizens,

like Google gives the information to governments you can see where everybody's been and then you can track the virus. great but what kind of door does that open to a more state-driven authoritarian society? And I think that this question about surveillance capitalism, that's the word that we use to describe that, should be thought about now because we could very easily slip into a more authoritarian digital command economy that would diminish the kinds of personal freedoms that we've for many generations to have, and which we don't need to lose just because we're having a moment of economic crisis.

And you say no one is talking about it. Actually, the last time you were on the show, you spent an hour talking to us about it. So someone is talking about it, thankfully, and we'll continue to do that. But thank you both so much for your time. It's been an absolute pleasure. I just want to finish by saying that it's an interesting time when you talk about winners and losers, because I think most people, particularly in the world, West have never really lived through this particular people of my age. But for me, growing up in

early 1990s, Russia, the concept that the world was one way and then overnight it was another way. Actually, it's quite familiar. You're both nodding. People won't be able to see that, but you're both nodding. And so there will be winners and losers. And the people who did well in that time were people who adapted, people who were willing to learn and to change their behavior in the new environment. So it's, well, it's been a depressing conversation, but I think there's also interesting times ahead. But thank you very much both of you for coming back on the show. It's been an absolute pleasure.

If you enjoyed this conversation, make sure you go and follow both people and Jim on Twitter. We'll put all the links in. They both have brilliant books out, which they've talked about, a whole number of books, and go back and watch the previous interviews that we did with both of them. Absolutely. So thank you very much for coming. coming on and we will see you in a few days guys with another fantastic episode. See you then.