We Study Billionaires - The Investor’s Podcast Network - TIP365: Has Inflation Peaked? w/ Richard Duncan

Starting point is 00:00:00 You're listening to TIP. On today's episode, I sit down with global macroeconomist and author Richard Duncan. Richard gives a masterclass on global economics and how he believes credit growth is essential to economic growth. So a lot of questions come with that. We discuss things like, is capitalism a thing of the past? How much can our government monetize our debt? Has inflation peaked along with credit?

Starting point is 00:00:25 If you're basing your portfolio strategy off of an inflation narrative, this should be at an intriguing exercise in hearing Richard's counter arguments. I thoroughly enjoyed this and learned a lot, so I encourage you to sit back and enjoy this conversation with Richard Duncan. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, everybody, welcome to the Investors podcast. I'm your host, Trey Lockerbie, and today I have with me, Richard Duncan. Richard, welcome back to the show.

Starting point is 00:01:12 Thanks for coming on. True. Thank you. It's very nice to be back. Well, I'm really excited to have you back because I have been witnessing what I would say seemingly bombastic narratives, mostly around what the Fed is doing, how potentially nefarious it might be. And when I listen to you speak, I tend to hear that you think there's a lot of sound

Starting point is 00:01:35 decision making happening at the Fed. So I want to get into all of that. But first, I think it's important if we take a step back and you could help walk us through how we've kind of arrived where we are. One thing I've heard you say is that capitalism is dead. So what do you mean by that exactly? Well, I would just say that capitalism evolved into a very different kind of economic system that I call creditism.

Starting point is 00:02:00 And here's how that happened. 50 years ago, the United States stopped backing dollars with gold. First, the Fed was no longer required to hold any gold to back the dollars that it created. That happened in 1968. And then in 1971, President Nixon reneged on the United States' pledge to allow other countries to convert their dollars into gold, into U.S. gold. And that was the collapse of the Bretton Wood system. And afterwards, there was no longer any gold backing at all for the dollar. And this, over time, completely transformed the way our economic system works.

Starting point is 00:02:39 Capitalism was an economic system that was driven by saving and investment. Businessmen would invest. They would sometimes make a profit. They would accumulate that profit as capital, hence capitalism. and they would invest their savings, their capital. And that was the dynamic that generated economic growth under capitalism. But under our economic system, what we have today is very different. It's no longer the economy, economic growth is no longer driven by saving and investment.

Starting point is 00:03:14 Instead, it's driven by credit creation and consumption. And that has produced much more rapid economic growth than would have occurred through investing in savings. But the problem is we're hitting the point now where the private sector just can't continue taking on more and more credit. That's what happened in 2008. In 2008, the private sector was so heavily indebted that it essentially blew up. And at that point, the economy came very close to collapsing into a new depression. So once dollars ceased to be backed by gold, something extraordinary happened. Credit growth absolutely exploded. So first, total credit in the United States. And by that, I mean, total credit is equal to total debt. One person's credit is another

Starting point is 00:03:59 person's debt. So total credit is equal to total debt. So you can think about this as all the debt in the country. Not only the government debt, but the household sector debt, the corporate sector debt, the financial sector debt, all the debt. That first went through $1 trillion in 1964. Over the next 43 years by 2007, total credit or total debt had expanded 50 times, a 50-fold increase. It hit $50 trillion in 2007. And that explosion of credit completely transformed our world. It ushered in the age of globalization, for instance, because the United States trade deficit became so large. But in 2008, the private sector couldn't repay all of this debt, and credit started to contract. And at that point, creditism requires credit growth to survive. If credit contracts

Starting point is 00:04:53 significantly, the economy will collapse into a depression because it is driven by credit growth, and it must have credit growth to expand. In 2008, credit started contracting, and the U.S. and the world started tumbling into what was going to be a new Great Depression. But at that point, the government of the U.S. responded with trillion-dollar budget deficits for four years in a row. And all together between 2008 and 2014, government debt in the U.S. doubled from $8 trillion to $18 trillion, or sorry, from $9 trillion to $18 trillion. And also during that period, the Fed carried out three rounds of quantitative easing in which they created $3.5 trillion new dollars, which essentially expanded their total assets or the amount of money in the country, the amount of what we would call high-powered money by five times

Starting point is 00:05:54 between the end of 2007 and when the third round of quantitative easing ended in October 2014. So by creating $3.5 trillion, the Fed effectively monetized roughly a third of all of the government bet that the government incurred as it struggled to prevent the new depression from occurring. So the private sector couldn't take on any more debt after 2008, but luckily for us, the government sector could. And by the government taking on a great deal of more debt, that stopped total credit from contracting. And by the second half of 2009, credit was expanding again on the back of this massive government borrowing. So credit once again started expanding. ending, and the economy reflated, and we didn't collapse into a new Great Depression as a result

Starting point is 00:06:45 of this combination of very large fiscal stimulus, supported by very large monetary stimulus in the form of money creation through quantitative easing. And that's how we survived the crisis of 2008. And here we are, what, more than a decade later. So what we saw, it's interesting that if we look back as far as 1952, anytime the total credit in the United States grew by less than 2% the economy went into recession. This is 2% adjusted for inflation. We need to adjust for inflation because we need to compare apples with apples. So anytime total credit growth in the United States adjusted for inflation grew by less than 2%, the U.S. went into recession. And again, that's because our economic system must have credit growth to expand.

Starting point is 00:07:34 So that happened nine times between 1952 and 2009. And every time credit grew by less than 2%, we had a recession. And the recession didn't end until there was another very large surge of credit growth. So I call this 2% credit growth level, a recession threshold, because if credit grows by less than 2%, then we go into a recession. And that's where we were. In 2008, credit started to contract, and the economy started to go into a depression. But because of massive increase in government borrowing, total credit then started to expand again.

Starting point is 00:08:11 And after 2009, we did have credit growth that was just a little bit above 2% every year. But not very much. It ranged between 2% and 3% credit growth a year adjusted for inflation. And that was really not enough to generate strong. economic growth because in earlier years, credit grew much more rapidly than just two or three percent. So this was just enough to keep us out of a recession. And in fact, it really required the Fed to act to provide an additional supplement to credit growth. The credit growth really wasn't strong enough after 2008 to generate significant economic growth. So the Fed intervened initially through

Starting point is 00:08:52 quantitative easing, money creation, and lowering interest rates to zero percent, they intervened in order to push up asset prices. So the Fed felt it needed to make asset prices expand if the economy was going to grow. So the Fed time and time again, any time the stock market started to wobble, the Fed would do something that would make stock prices go back up again. So what we have seen is massive asset price inflation, since. 2009. Since the bottom, the second quarter of 2009, the total wealth of the American public, this is all of the assets of the Americans minus all of their debt, which is largely comprised

Starting point is 00:09:35 of property and their assets are comprised of property and stocks and their pensions, which are largely comprised of stocks. Net wealth of the Americans has doubled from $70 trillion in 2000. This was the pre-crisis peak, 2007. Net, net. worth in the country then was $70 trillion. It's now doubled. In the first quarter of this year, it was $140 trillion. So the Fed orchestrated higher interest rates. And any time that stock market started to fall, the Fed would do something to ensure that it didn't and push stock prices back up again. So we had the three rounds of quantitative easing. And that ended in October 2014. The next thing that happened is the Fed increased interest rates for the first time in December

Starting point is 00:10:23 2015. But the global economy and the U.S. economy was not so strong at that point. They didn't hike the second time until one year later in December 2016. And then after that, they gradually increased the federal funds rate until it had moved up to a range between 2.5% and 2.5% toward the end of 2018. team. Also, an even more restrictive in terms of monetary policy was the Fed launched quantitative tightening. And at that point, they started reversing quantitative easing. Rather than creating money, they were actually destroying money. So they started destroying dollars through quantitative

Starting point is 00:11:06 tightening. Quantitative tightening is the reverse of quantitative easing. With quantitative easing, the Fed creates money and buys generally government. bonds. But with quantitative tightening, they do the reverse. They allow the bonds that they own already to mature. And when they do, they take payment on those bonds. And in that process, it actually destroys the amount of dollars. It destroys dollars to the extent that they do quantitative tightening. So they started quantitative tightening in the fourth quarter of 2017, and they increased it gradually every quarter through the end of 2018. And by that point, they were destroying $50 billion a month.

Starting point is 00:11:48 And this was too much for the stock market to take. At that point, the stock market started wobbling and going through a number of corrections at one point that was down 20%. And that forced the Fed to announce that it was going to end quantitative tightening. And then in May 2019, there was another wobble in the stock market. And the Fed announced that it was going to end quantitative tightening even sooner. So they did end quantitative tightening altogether in August 2019. And the very next month, they relaunch quantitative easing because of some dysfunction in the repo

Starting point is 00:12:23 market. In September 2019, suddenly for some really unexplained reason, there were problems in the repo market that caused the interest rates that were being charged on repos to be roughly four times higher than they should have been. And so the Fed began pumping enormous amounts of new quantitative easing. They started creating money on a very large scale again in September, 2019. And then in October, they announced that they were going to create $60 billion every month and use that money to buy treasury bills. And that's what they were doing. They were creating $60 billion a month starting in October. And that's where we were when the pandemic started.

Starting point is 00:13:05 The pandemic really hit the U.S. Let's say in February, it really hit the economy in March 2020. And that's where we were. That's where the economy was then. The economy was relatively growing, but not very strongly. And already the Fed had been forced to relaunch very loose and accommodated monetary policy through relaunching what was effectively the fourth round of quantitative easing, even before the pandemic started. So with all of that money printing, it's frequently looked at like a great experiment, but printing money is nothing new per se.

Starting point is 00:13:41 I mean, maybe talk to us about how the government approached the Great Depression and what's different from then with today because I think it ties in really great with how we've come to have all of this liquidity sloshing around. It is very informative to compare what happened in the Great Depression. with let's say first what happened in 2008, and then we can talk about what happened last year with the pandemic. So here's what caused the Great Depression, in my opinion. The origins of the Great Depression occurred in World War I. In World War I, starting in 1914, all the European nations went to war with one another, or most of them.

Starting point is 00:14:22 And of course, they didn't have enough gold to fight the war. So they all went off the gold standard, and they started creating large amounts of fiat money, government money, and they incurred enormous amounts of government debt to fight the war. So all of the government debt and all of the fiat money that was created during World War I, and by the way, the United States entered the war in 1917, all of the money that was, all of this fiat money created a worldwide credit bubble during the 1920s. That's why the roaring 20s roared because of all of the credit that was created when the gold standard collapsed in World War I, and all of these central banks created enormous amounts of liquidity.

Starting point is 00:15:04 So we had the roaring 20s, but then in 1930, all of the credit that was borrowed during the 20s, suddenly the private sector was unable to repay it. And banks started failing all around the world. And in the United States, between 1930 and 1933, early 1933, effectively a third of all the U.S. banks failed. And that caused credit, of course, to contract. And the economy contracted by 45 percent if you don't adjust for deflation. And the unemployment rate shot up to 25 percent in the U.S.

Starting point is 00:15:40 And this depression, the government really didn't know what to do. They believed in capitalism and laissez-faire, and they more or less stepped back and didn't do very much of anything. And they let market forces work, and market forces worked, and market forces did reestablish a market-determined equilibrium. But sadly, that equilibrium was at a level of economic output that was 45% less than it had been in 1929. And this depression went on and on and on for a decade. And during that decade, Nazi Germany took over Europe and a militarized Japan took over Asia. World War II started. And only when World War II started and the United States entered the war, then the government

Starting point is 00:16:23 had massive government spending to fight the war during World War II in just four years. The government debt expanded by five times in four years. and the Fed's balance sheet expanded by almost 100% to help finance the government borrowing. That's what ended the Great Depression, but the government spending. Suddenly people had jobs again. The factories were full. Prices were going up and we got out of deflation. And that was the end of the Great Depression.

Starting point is 00:16:55 After 10 years of depression, massive government spending into the Depression. But of course, during the war, World War II, 60 million people died. So in 2008, we had had a very big credit bubble going on really for decades, but accelerating during the early 2000s. And when that bubble popped, this time the government decided to do everything in its power prevent market forces from reestablishing a market determined equilibrium as had occurred during the early 1930s. This time, the government did everything it could to prevent the bubble from deflating when they succeeded through trillion-dollar budget deficits and $3.5 trillion of quantitative easing, they managed not only to keep the bubble inflated,

Starting point is 00:17:39 but to make it inflate even larger. And as a result, we didn't collapse into a Great Depression after 2008, and we didn't experience World War III, as we might have done if we had replayed the 1930s. They had to sell those bonds to somebody. I guess what I'm leading into is globalization a little bit and just wondering how that picture looked different from around the Great Depression time frame. There's a very important difference between the 1930s, and there were a number of differences. But one of the most important was that the world was a very different place in 2008, because back in the 1930s, we were in a world where trade between countries still was expected to balance. under a gold standard, trade between nations had the balance, because if one country had a big trade deficit with another country, we would have to pay for that trade deficit by sending its gold to the other country.

Starting point is 00:18:37 And since gold was money, if the country lost gold, its money supply would contract, and the economy would go into severe recession, an unemployment would go up, and there would be deflation. And the other country, the opposite would happen. The country with a trade surplus, they would get more gold. So their credit would expand, and their economy would boom, and they would have inflation. And before long, the country with the trade surplus would boom, and they would begin buying more things from the country with the trade deficit, which was in a depression, and trade would balance again. There was an automatic adjustment mechanism under the gold standard that ensured the trade between

Starting point is 00:19:14 countries balanced. But once the Gretton Wood system, which was a quasi-gold standard and worked more or less the same way. Once it broke down in 1971, it didn't take the United States very long to discover that it could buy a lot of things from other countries and it no longer had to pay with gold. It could just pay with dollars or more realistically treasury bonds to nominate in dollars. And there was no limit as to how many of these the United States government could create. So starting in the 1980s, in the early 80s, the U.S. started running very large trade deficits, initially with Germany and Japan. And by the mid-1980s, the U.S. trade deficit had blown out to something like three and a half

Starting point is 00:19:56 percent of GDP. Nothing like that had ever occurred before. And this so frightened global policymakers that they met at the Plaza Accord and deal whereby the dollar would be devalued by 50 percent against the German mark and the Japanese yen. And that succeeded in bringing the U.S. trade back into balance by 1990. But at that point, China entered the global economy and many other emerging markets around the world started supplying U.S. demand. And so the U.S. trade deficit then started growing very much larger. And it became larger and larger and larger. And by 2006, it was $800 billion in that one year alone. And that was roughly $2 million a minute. that the U.S. was effectively going into debt to the rest of the world.

Starting point is 00:20:46 Of course, this was fabulous for the rest of the world. The U.S. had a $800 billion trade deficit that year. That meant the rest of the world had an $800 billion trade surplus, meaning that they were able to buy, produce, and sell $800 billion of goods more than they would have been able to do otherwise. But the importance of the shift was that it meant that the United States was no longer constrained by domestic bottlenecks, as it had always been in the past. In the past, before the Brettonwood system broke down, for instance in the 1960s and 1970s, if the government spent too much

Starting point is 00:21:22 money and if the Fed created too much money, then that would over-stimulate the U.S. economy. And pretty soon there would be full employment, and industrial capacity would be working at 100%. And that would lead to inflationary pressures. Wage prices would begin to rise, steal prices, prices, car prices, and this is what happened in the 1960s and 1970s and that eventually led to the wage push inflation of the 1970s, resulting in double-digit consumer price inflation. But once the U.S. started running these large trade deficits, that effectively meant that the United States could circumvent these domestic bottlenecks. Suddenly, we no longer depended only on the U.S. labor pool or U.S. industrial capacity.

Starting point is 00:22:05 Suddenly, the United States found it could buy things from other countries and increasingly from other countries where the wage rates were up to 90 or 95 percent lower than in the U.S. So suddenly this meant that the U.S. could run very large budget deficits and create much more, the Fed could create much more money than it ever had dared to in the past. And it could do all this and still not encounter any inflation. That's why inflation peaked in 1980 and afterwards as globalization began to kick in, we had disinflationary pressures due to globalization and importing things from ultra-low-wage countries. And so the inflation rate fell and fell and fell, and fell and since recent years, we've flirted with deflation. Deflation has been at least as much

Starting point is 00:22:52 of a risk as inflation in recent years. And that's entirely been due to the fact of globalization. So that wouldn't have been possible for the U.S. to do in 1930 because then trade between countries balanced. But in 2008, it was possible. So because of that, globalization prevented the inflationary pressures. And the government was allowed, was able to get away with running trillion dollar budget deficits for four years in a row. And the Fed was able to monetize a third of that by creating three and a half trillion dollars

Starting point is 00:23:22 between 2008 and 2014 without generating very much inflation at all. I think the inflation rate in 2011 peaked at around 3.5%. And that surprised everyone, including me, because I had expected that, first of all, I'd never imagined that the Fed could do anything like quantitative easing, create $3.5 trillion in such a short period of time. We had all been taught that that would certainly lead to hyperinflation. And at first, it looked like it was going to lead the very high rates of inflation. commodity prices spiked, food prices spiked. They were very high in 2010, 2011. And in fact,

Starting point is 00:24:03 the high food prices led to the Arab Spring in North Africa. Food prices were going up so rapidly there. People just couldn't, the poor, people couldn't afford to pay the prices. And one man set himself on fire in protest. And this sparked off what's known as the Arab Spring that ended toppling a number of the North African leaders, including the president of Egypt. And it looked like this was going to have very destabilizing consequences for the whole world. But pretty soon, within the next year, in fact, after that, the high food prices resulted in the farmers planting more crops. And the next year, there was a surplus of food, and food prices came back down. Food prices always tend to be very volatile. Commodity prices all tend to be very

Starting point is 00:24:48 volatile. They go up very sharply one year, and then they come crashing down very sharply with deep falling prices the next year. And so there was no significant inflation after 2000, after the policy response resulting from the policy response of 2008. And this forced me to completely reevaluate what our options are in terms of government policy. If it appeared that, at least in that case, what we saw, the fact was the government did double its government debt in between 2008 and 2014, $9 trillion of new government debt, financed with $3.5 trillion of paper money in creation with no significant inflation. Let's take a quick break and hear from today's sponsors.

Starting point is 00:25:33 All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history.

Starting point is 00:26:05 This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to, but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening. in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedomform.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately.

Starting point is 00:27:15 How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data.

Starting point is 00:27:57 This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at netsuite.com slash... The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats.

Starting point is 00:28:30 Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses. around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write

Starting point is 00:29:07 product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:29:41 When you're talking about inflation, you're referring to the CPI, as I understand it, but obviously there was asset price inflation, and a lot of that has to do with, I think, the way that that new liquidity is entering the economy or in a way that doesn't trickle down, right? You can tell just by the velocity of money in that way. So taking what you said, it's easy to kind of understand that to get inflation, the demand has to far exceed the supply. And since we have globalization, the supply can come from all over the world and it can kind of keep up with that demand, which makes sense. But are you concerned at all, I guess, with the inflation in other areas, real estate, the stock market, health care, a number of others.

Starting point is 00:30:24 Is that a concern to you? Well, yes and no. I mean, we have to weigh our options. On the one side, the option was collapsing into a new Great Depression, in which case unemployment may have gone up to 25% again, as it did during the 1930s, leading to severe geopolitical strains around the world. We saw what happened in the 1930s. And given just the weak economic growth that the U.S. has experienced since 2008 and the political repercussions of that, just imagine what would have happened if the economy had really collapsed into a depression. So our option was, which is better, having home prices go up a lot, making it difficult for young people to buy homes and increasing income inequality, is that worse than having a complete collapse where the unemployed would be hungry

Starting point is 00:31:18 and government revenues would be so depressed that we may no longer have been able to afford Social Security or Medicare? So you have to take your choice, which would you prefer? a 1930-style Great Depression, potentially followed by a world war or increasing income inequality. In my view, increasing income inequality is a small price to pay, particularly given that if this is a very large concern, and I think it should be, it can be addressed through increasing higher taxes on billionaires and on capital gains taxes for people earning more than, let's say, $20 million a year. So it could be easily addressed through legislative changes, whereas a Great Depression could not be alleviated in any way whatsoever, as we saw in the 30s, barring a new war resulting in massive government spending, which is exactly the thing that so many people were opposed to to start with.

Starting point is 00:32:13 So if we'd had the massive government spending in 1930, instead of 1941, we could have avoided the decade of depression and perhaps war entirely. And that's what we did in 2008. Well, you say it's a small price to pay. I'm not sure I disagree with you there. What I'm kind of curious about, though, is it's becoming clear, I think, that it's set us on this certain trajectory. Austrian economics, as you said, is we should eventually have to pay for our sins, whereas now there's this philosophy about modern monetary theory where the government can

Starting point is 00:32:45 effectively reflate this bubble into oblivion. And at a certain point, that wealth and equality does start to matter, I think, where people get so disenfranchised and left behind that there is risk of revolution. In your opinion, what you just said, I think, is that this can be somewhat reversed just through policy. Is that correct? That's true. But also keep in mind that we have enjoyed 12 years of relative prosperity since 2008 that we would not have had. We would have probably experienced 12 years of depression, potentially by a good time. global war, everything would have collapsed. It would have been horrible, just as the 1930s and

Starting point is 00:33:25 1940s were. So we've avoided that. People say we've just kicked the can down the road. Well, hooray, let's keep kicking, because the alternative is just too horrible to contemplate. And meanwhile, we need to understand our new economic environment and make the most of it. What does it mean that it's possible for the government to create to run trillion dollar budget deficits? So last year, the budget deficit was $3 trillion. And this year, it's expected, 3.1 trillion last year. This year is expected to be another three. So just over the last 16 months during this pandemic, the government has increased his debt by $5.1 trillion.

Starting point is 00:34:09 dollars. In just 16 months since the end of February to the end of June, government debt is increased by $5.1 trillion. And the Fed has created $4 trillion of new money, effectively doubling its total assets. In other words, by creating $4 trillion, the Fed effectively monetized 80% of this increase in government debt. Now, this has been an extraordinary economic experiment. Of course, circumstances are always different from any one period to the other and are not always, they're never directly comparable. But this is the economic environment that we find ourselves in. Has this led to hyperinflation?

Starting point is 00:34:52 No. The most recent CPI number was up 5.4% over one year. That's a pretty high number. But if you look at that index relative to two years ago, it's up only 6%. That means if you average the inflation over the last two years, it's been 3%, which is hardly something that could be categorized as hyperinflation. Furthermore, it now looks like we've hit peak inflation. Inflation is soon going to begin to abate because the massive peak in government spending

Starting point is 00:35:24 has already passed. You're not going to see the big spikes in government spending that occurred after the CARES Act was passed in March last year. then there was a $900 billion stimulus in December, and then the $1.9 trillion stimulus again in March this year. There are no more big, massive spending plans that are going to hit the economy. Peak spending, peak government spending is behind us, and that means peak growth is behind us.

Starting point is 00:35:55 Peak credit growth is behind us. Peak economic growth is behind us. So pretty soon, demand is going to begin to fade. And it's going to begin fading at exactly the same. same time at these supply bottlenecks that we're currently experiencing, they're going to be overcome. And just as we saw the farmers plant more food in response to the high food prices in 2011, they're going to do the same thing this year. And also the problems with the semiconductors are going to be sorted out. So that means there will be plenty of new cars for people to buy

Starting point is 00:36:27 next year. And that means the used car prices are going to plunge. Use car prices are up 40 nearly 50% year on year, and that's resulted in about a third of the inflation that we've seen over the last few months. Well, next year at this time, they're probably going to be down 40%. And that's going to be knocking off a third of the inflation that we would have otherwise been experiencing a year from now. So we are going to move. Of course, unexpected events could happen. If globalization were to break down, then all bets would be off. We would experience very high rates of inflation, or if we have a war, China, for instance, not likely, but is something that has to be considered a possibility at some point in the future, or at least a bad scenario.

Starting point is 00:37:14 If that were to occur, then we would have very high rates of inflation. Assuming that things persist as they probably will, then these deflationary forces that kept the inflation rate at very low levels before last year are likely to reassert themselves. And within a year and a half or two years from now, we're probably going to be flirting with deflation again. And so suddenly the market realizes this, and that's why gold sold off, and that's why the 10-year government bond yield has fallen so much. Bond yield moved up from 93 basis points. The 10-year bond yield moved up from 93 basis points at the end of last year to almost 1.75% in March. But now it's dropped 1.3 this morning.

Starting point is 00:38:01 Even it's been as low as 1.25 earlier this week or last week. So that's one indication that the market is now accepting that we're not going to have massive high rates of inflation. So this is the second, if that proves to be true, and we'll still have to wait and see, but I expect that that's what we'll see. Inflationary pressures will abate and will no longer be talking about inflation a year from now. If that proves to be true, then that will be the second time in a dozen years where we've seen trillion-dollar budget deficits and trillions of dollars of money creation by the government and the central bank, keeping the economy from collapsing and not resulting in any significant rates

Starting point is 00:38:40 of inflation at the CPI level. And that's the new economic environment we have to understand that we're living in today. And if that's the new economic environment we're living in, we have to understand this creates completely different options than the economic environment, Ludwig von Mises, will be able to living in at the beginning of the 20th century, where the gold standard limited how much credit the government could create, that it ensured that trade between nations had to balance. And that imposed a series of restrictions on the economy that were true when Ludwig von Mises was writing Austrian economic theory. There were constraints then that no longer

Starting point is 00:39:18 exist now. And so different economic philosophies are appropriate for different times. The best ones are accurate for the time in which they are developed. But what we have to understand is Ludwig von Mises' philosophy of 1912 or Milton Friedman's philosophy of the 1960s when we were still on effectively a gold standard are not the philosophies that are appropriate for the environment we find ourselves in. The environment we find ourselves in, suddenly we no longer have any domestic bottlenecks causing high rates of inflation. The global population is roughly 23 or 24 times larger than the U.S. population. And many of these people, they say 2 billion people are living on less than $3 a day.

Starting point is 00:40:04 We have a near infinite supply of low-cost labor. And so this is why we haven't seen high rates of inflation this century. And it's likely to continue to be the reason we won't see high rates of inflation anytime decade ahead and barring some very bad stuff. scenarios. So what we need to do, our society, our generation, we need to evaluate the current economic environment we find ourselves in and make the most of it, because of course nothing lasts. Everything always changes. These conditions won't last forever. But while they last, we should make the most of it. And so what I think we should learn from this is that it is, in fact, possible, as we have seen twice now in a dozen years, for the government to run trillion-dollar

Starting point is 00:40:50 budget deficits and for the Fed monetize various significant parts of these budget deficits without resulting in very high rates of inflation at the CPI level. So what I would like to see, what I think makes sense, and this is something I've been talking about for a long time, in fact, long before the pandemic started, what I would like to see is the U.S. government finance a multi-trillion dollar investment program in the industries of the future over the next 10 years, targeting industries like artificial intelligence, quantum computing, genetic engineering, biotech, nanotech, all the usual suspects in the high-tech world. And if they invested on that scale, this would induce a new technological revolution that would turbocharge U.S. economic

Starting point is 00:41:39 growth, benefiting all classes of society. And at the same time, result in such technological breakthroughs and medical miracles, that it would greatly enhance human well-being, not only in the United States, but all around the world. And on top of that, it would shore up U.S. national security and lock in another American century. Because as things are going now, the United States is soon going to be overtaken by China, technologically, economically and militarily, long before the middle of the century. If China develops artificial intelligence before the United States does, then it's game over. It will be the 21st century equivalent of China having a nuclear monopoly.

Starting point is 00:42:21 From the point they reach artificial general intelligence, from there, their intelligence capacity will expand exponentially, leaving all of their rivals in the dirt, including the United States, which will mean that by mid-century, we will be a second-rate vulnerable has-been power. There's no reason for us to accept that. We have the ability to invest on such a large scale that China just can't keep up. Just like President Reagan had the government invest in the U.S. military during the 1980s, that government investment in the military

Starting point is 00:42:56 spurred U.S. economic growth and created very high credit growth during the 1980s. That created very high economic growth. And the Soviet Union couldn't keep up and they collapsed. And that's what we need to do again this time now that China's rise is our new Sputnik moment. When Russia launched Sputnik in the late 50s, the U.S. responded by very large increase in U.S. government investment in new industries and technologies space. By the end of the 60s, we had put a man on the moon. And that very large government investment created all kinds of spin-off technologies.

Starting point is 00:43:34 People say things like the handheld calculator. And of course, later, government investment is responsible for developing the internet. And almost everything in a smartphone that makes it smart was developed as a result of U.S. government investment, GPS, touchscreen technology, the internet itself, semiconductors. But since the 80s, government investment in research and development has plunged. It's collapsed by more than half relative to GDP. and that largely explains why the economy has been so weak in recent decades. And conversely, China has been doing just the opposite.

Starting point is 00:44:11 And that explains, to a large extent, why their economy has grown rapidly and more importantly, why they're about to overtake us in every respect. This is something we desperately need to reverse and we have the means of doing this. So this investment program that I have in mind, first and foremost, I think we need to do this because we can. This is something that is possible for us to do. And if we do it, everyone is going to be greatly better off. We really have the potential of curing all the diseases over the next 20 years

Starting point is 00:44:41 with investment on this scale. So rather than sitting back and waiting for Social Security and Medicare to go bankrupt 30 years from now, how about this? Let's cure all the diseases and expand life expectancy by a decade. And people then could work longer. And that would shore up Social Security and Medicare, and we would never have a crisis on that level. And of course, more important thing is that by curing all the diseases, everyone would be so much better off in every respect. But furthermore, our economic system must have credit growth.

Starting point is 00:45:15 In the private sector, we now, total credit or total debt in the United States at the end of the first quarter was up to $85 trillion. That's how much debt the U.S. has in total, not government debt, but all the debt, $85 trillion. It's hard to make that grow by 2% a year after you adjust for inflation. And the private sector is already quite heavily indebted. We need the government to take on more debt to keep creditism growing, to keep creditism out of crisis. Because if credit contracts, the economy will go into depression. So that's the second reason we need government investment on a very large scale.

Starting point is 00:45:49 It will keep credit growing and keep our economic system healthy. And the third reason then is the threat the China poses to us in the future. You know, history, China may be a very kindly master, but on the other hand, it may not be. History teaches that countries with vastly superior technology rarely treat inferior countries kindly. So we shouldn't forget that lesson. And we're going to very quickly find ourselves in a position where we won't be able to defend ourselves if we don't begin investing on a much more aggressive scale than we're doing at the moment. Right. So when you talk about total credit peaking and therefore inflation peaking, you mentioned that's happening because there's not really anything to go spend on. This is one idea, which I love that you just mentioned, by the way, I like it even more than birth dividend and some other things we've talked about before. But you mentioned a few things that to me seemed like perfect examples of what we should go continue to spend on. One is the military, as you were mentioning. The other is more.

Starting point is 00:46:52 government bonds because if the government allows the bond yields to start creeping back up, then the government's interest payments on an annual basis go up. And at some point, that interest payment is going to become a larger and larger part of our annual budget. And I'm curious, do you see an incentive on the government's side to keep that interest payment low? Do you agree with that narrative? Yes.

Starting point is 00:47:18 I guess, there is an incentive for the government to have the Fed continue monetizing enough of the government debt, creating money, buying government bonds in order to push up their price and drive down or hold down their yields at relatively low levels so that the expense of the government's debt will remain low relative to GDP as it is now. For instance, in Japan, Japan's government debt is roughly 260% of Japan's GDP, and U.S. government debt now is roughly 130% of GDP. If you take the gross debt, this is the broadest estimate of a big debt, it's roughly 130%. So Japan hit 130% government debt to GDP about 20 years ago, maybe 25 years ago. And since that time, the Bank of Japan has been really setting the example of what other

Starting point is 00:48:15 central banks have later done. The Bank of Japan has been creating enormous amounts of yen and using it to buy Japanese government bonds. At first, they were doing, really, they were the first to pioneer quantitative easing. Up until a couple of years ago, their policy was to create, I think, 80, 85 trillion yen a year, and buy that many government bonds. bonds with it. But what they discovered was that they didn't really need to create that much money. So they shifted in order to hold interest rates at very low levels. So they shifted their policy from a fixed amount of quantitative easing every month or every year. And they just adopted what they called yield curve control. They said from now on, we're going to buy as many Japanese

Starting point is 00:49:00 government bonds as necessary to hold the 10-year Japanese government bond yield at 10 basis points. And what they discovered is that the Bank of Japan no longer had to create $85 trillion a year to do that. They were able to do that with much less money creation. But so all of this time, despite these very large Japanese government budget deficits, now Japan, the Bank of Japan's total assets, which represent how much money they've created, that is the equivalent to 130% of Japan's GDP. Whereas the Fed, the Fed's total assets, even after double, over the last 16 months, the Fed's total assets only equal 30% of US GDP.

Starting point is 00:49:43 So Japan is so much further down this road, decades further down this road than the United States is, and they still have a 10-year government bond yield in Japan is very close to 0%. And despite Japan having 260% government debt to GDP, the interest expense that they're paying on that debt, the interest expense that the government is paying on that debt is lower now than it was in the 1980s. Because interest rates are so much lower. And this is probably something the Fed is going to try to copy. But it's necessary for inflation to remain low. If inflation were to spike up, then it would be very hard for the Fed to justify a lot of paper money creation and quantitative easing. They would be under immense pressure to tighten monetary policy by stopping quantitative

Starting point is 00:50:31 of easing altogether and hiking interest rates to cool the economy down and stop inflation. But if inflation clues to be transitory as they expect that it will be, and as I expect that it will be, then they will be able to continue to keep interest rates very depressed and keep the borrowing on the government's debt, the borrowing expense on the government's debt, very low potentially for decades to come. But again, nothing is going to last forever. So we need to take advantage of this window of opportunity, this unique moment in history, where it is possible for our government to create trillions of dollars and for the Fed to monetize that through trillions of dollars of money creation and invest this money wisely in order to

Starting point is 00:51:14 induce a new technological revolution that will supercharge our economy and yield tremendous benefits that will rain down upon us during the decades ahead. We need to do it now because these conditions are not going to last forever. Nothing lasts forever. But we've already been in this world now for a good dozen years since 2008. If we have another dozen, or let's pray two dozen, it would be completely transformative. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform.

Starting point is 00:52:02 So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500

Starting point is 00:52:50 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for

Starting point is 00:53:32 you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. $500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to

Starting point is 00:54:07 investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings, yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise income fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses.

Starting point is 00:54:52 This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So a couple of questions there. One question that comes to mind right now is who is buying these bonds? Now we're seeing the CPI actually starting to increase to five plus percent.

Starting point is 00:55:15 And one joke that I love is, you know, how do you get a good annual growth rate? well, you have a really bad year before. So I understand this base effect of sorts that might be misleading the CPI numbers a little bit. But now investors clearly understand that they're losing money. There's a 5% inflation. So if you're getting a 1.3% yield, I mean, you're getting a guaranteed negative yield. And you mentioned Japan yields even lower. Who is buying these bonds besides the Fed. What incentive do people have at this point to continue to purchase bonds? Well, first of all, the Fed is buying the bonds. They're creating $120 billion a month. So times 12, that's $1.44 trillion. That's roughly half of this year's budget deficit.

Starting point is 00:56:01 And so the Fed, you can say, is buying half of it. That's a lot. Who's buying the other half? Well, foreigners are going to have to buy a lot. Because here's why. The U.S. trade deficit now has blown out again to a very high level. I haven't seen the latest numbers in the last month or so, but it's roughly nearing $800 billion, again, the trade deficit. And so every country's balance of payments has to balance. What that means is when the U.S. has an $800 billion trade deficit, it will also have $800 billion of capital inflow from abroad. Now, why is that? Well, it's like a family. If a family is not always appropriate to use the family analysis, But in this case, it is if a family spends more than it earns, and it either has to borrow

Starting point is 00:56:49 or sell something in order to make accounts balance. And it's the same with the country in this respect. If the country has an $800 billion trade deficit, it has to either borrow from the broad or sell things to other countries. So that is, in fact, the case whenever the capital inflows are an exact match to the trade deficit. And so if we're going to have an $800 billion trade deficit this year, that means we're going to have $800 billion of capital inflow. And a lot of that money is, you know, it doesn't really

Starting point is 00:57:18 matter where in the economy that money goes, because money is fungible. Some of it may go into buying government bonds, a lot of it will. Some of it will be going into buying corporate bonds or even stocks or other things. Some of the foreign money goes into buying corporate bonds, and whoever they buy the corporate bonds from, they'll have cash and they'll have to do something with it. And some of that cash is going to go into treasury bonds. So in other words, the Fed, for instance, is buying $80 billion of government bonds every month and $40 billion of bonds backed by Fannie Mae and Freddie Mac, mortgage-backed securities. But it's correct to count the total $120 billion a month. They're creating and pumping into the economy because that money is going to squash around every

Starting point is 00:58:04 corner of the economy and drive down the level of the overall interest rates. And so this is the same with the foreign capital coming in. So you've got all those people, all that foreign money is coming into the country as well, and another, say, 800 billion. So that's already 2.2, 2.3 trillion of the $3 trillion budget deficit. And I think what we've seen over the last month or so is a lot of people were expecting the 10-year government bond deals to go higher. A lot of people were banking on high rates of inflation lasting for a long time. And when suddenly they realized that wasn't going to happen. When they understood that inflation was indeed transitory, the market turned against them. And they had to very quickly square those positions. And so a lot of people were forced to buy.

Starting point is 00:58:49 People who were short treasury bonds suddenly had to cover their shorts and buy treasury bonds. And that probably explains why the 10-year bond yield fell so rapidly over the last couple of months. There was some degree of force selling. So that's where we've seen a lot of buyers in the last two months from people who were just forced to cover their shorts. Well, let's talk about the Fed's tapering. They're now kind of just barely starting, I think, to introduce some language to set the stage for future tapering. And I think a lot of people are already reacting to that, just the simple change in language, which is very nuanced. Is your expectation that the stock market will ultimately ignore the Fed's tapering of buying bonds and mortgage-backed securities?

Starting point is 00:59:36 I don't think they will ignore it, but we have to keep in mind what happened last time. So when the Fed started tapering last time, which was in 2014, tapering means the third round of quantitative easing went on through 2013 and then at the beginning of 2014, during most of 2013, the Fed was creating $85 billion a month. Now the Fed is creating $120 billion a month. In 2014, at the beginning, they started tapering the amount that they were buying. So in January 2014, they bought $75 billion instead of $85 billion. The next month, they bought $65 billion. And then $55 billion, $45 billion, $35 billion, until near the end of the year,

Starting point is 01:00:22 they were down to zero. In October, they were down to zero, 2014. That was the end of quantitative easing. So that's what we're talking about with the tapering. So now the Fed will begin tapering at some point. The market seems to think it will be early in 2022. It could be a month or two before then. But that means, let's assume that it's in January of 2022.

Starting point is 01:00:46 That means during August, September, October, November, December, the Fed is going to still create $120 billion a month and pump it into the financial markets. And then only gradually next year will they begin reducing this? perhaps by 10 billion a month. So that means that the Fed is still going to create an enormous amount of money between now and the time that quantitative easing actually ends sometime near the end of 2020. The Fed's total assets now are roughly $8 trillion. Last time I looked at these numbers, it seemed that total assets could climb as high as $9.8 trillion by the end of next year, assuming that tapering begins in January and is done by the end of the year.

Starting point is 01:01:30 year. So that's a huge amount of new money creation that's going to continue to go into the financial markets between now and the end of next year, and particularly between now and the end of this year with QE still going on at $120 billion a month. So that's going to be a force likely to continue to put upward pressure on stock prices and asset prices, barring unforeseen developments, which should always unfortunately pop up. But just on that assumption, looking at that, there could still be a great deal of upward pressure on stock prices before this all ends. So what we saw when the Fed started tapering in 2014, the first thing that happened was they started dropping hints. Marcus always moved in advance because when the Fed, I think the first hint

Starting point is 01:02:18 of tapering occurred in May 2013, well before it started. And the tapering didn't end until October of the following year, nearly a year and a half later. So what was the first hint? we saw with stocks is that stock prices just kept moving higher through this whole process. They didn't react very much when the Fed started dropping hints that tapering was coming. They didn't react when the Fed actually started tapering. And they kept going on right up until, in fact, they kept rising even after the Fed started hiking the federal funds rate in December 2015. And they kept rising after the second increase in government in the federal funds rate in

Starting point is 01:02:57 December 2016 as well. So the Fed completely, the stocks completely ignored tapering. It was not the same story with bonds or with gold. Bonds, you'll recall, experienced a taper tantrum. Second that the Fed started hinting that there was going to be tapering in May 2013. Bonds had a big sell-off that became known as the taper tantrum. And bond yields moved up very sharply between the first hint and when tapering came to an end. But interestingly, when the time taper ended in October 2014, after that, the bond yields started falling again. And by December 2015, they had fallen from above 3% back to 1.5%. So bond market reacted very suddenly. Bond yields spiked up, basically

Starting point is 01:03:51 doubling between the time taper was announced and it was finished. But then once it was finished, the bond yields fell again because the global economy was beginning to weaken. And inflation was weakening. By the end of 2015, inflation in the U.S. actually turned negative again. There were a few months of deflation. And so that's the main reason bond yields fell. So this time, it seems like we may have had the taper tantrum in advance of the first tense of tapering because bond yields fell as low last year as below 50 basis points. At the end of the last year, there were 93 basis. basis points. Then suddenly, we sort of had the preemptive tantrum and bond deals moved up very quickly, I think much more than most people anticipated, more than I anticipated, to 1.75% in March.

Starting point is 01:04:40 So it was kind of a preemptive tantrum. People expected higher rates of inflation, strong economic growth, and eventually monetary policy tightening. But now they seem to be looking through all of those things, even though the Fed hasn't even begun tapering yet. As we've discussed, the 10-year bond yields fallen from 1.75% in March to as low as 1.25% last month. So it doesn't look like the bonds are probably going to have a taper tantrum again. Maybe they've already had it. And because the Fed is now hinting, they've dropped the first hints that tapering is coming at some point, but the bond yields have moved down since then.

Starting point is 01:05:20 So it looks like the bond yields have already probably responded to tapering well in advance in hopes of, you know, avoiding the taper tantrum that occurred last time. And then gold, gold is an interesting story because back in the last time before the last tapering, gold was actually falling well before the taper started. Last time gold peaked in August 2011. This is a monthly number at the end of the month, but it was $1,850 an ounce in August 2011. It fell 25 percent. The 20 percent, the between the peak and the time that the Fed even started hinting about tapering in May of 2013. And then by October 2014, it fell another 11%. So between the peak in 2011, August, and October 2014, gold fell more than 40%.

Starting point is 01:06:14 Why did that happen? It happened because inflation peaked and started falling. And that's why I fear that the price of gold is venerable now, because we're we're hitting peak inflation. And if inflation begins to fall now, as seems likely over the next year to 18 months, then I'm afraid there could be a repeat of what we saw last time. August 2011 was the peak. And what's most striking about the last time, that was even before, the peak was before the third round of quantitative easing. The third round of quantitative easing was the largest round, and that was in 2013 and 2014.

Starting point is 01:06:53 The goal was falling even while quantitative easing was going on on a very large level because the inflation rate fell. So I'm curious on that note to hear what you think about the possibility that people might begin to shift how they look at inflation. Just take me, for example, I live in Los Angeles and real estate here is insane. I think there should be a show called Million Dollar Teardown. I mean, that's what I have all over the city. There's these two-bed, one-bathroom homes for a million and a half dollars.

Starting point is 01:07:28 People are getting priced out. You have extrinsic forces like BlackRock entering the real estate market, buying up real estate. And just because they have to park this liquidity somewhere, I'm wondering if you see those forces potentially driving people to reevaluate something like gold or, Bitcoin or any other store of value where they start to say, well, it's not the CPI. It's not that my groceries are going up so much and I can't afford them. It's that my living expenses, everything that I aspire to spend my money on is going up. I suppose that's not impossible, but we haven't seen that in the past.

Starting point is 01:08:09 What we've seen in the past is that the gold price responds to the CPI number. at the peak in September 2011, CPI peaked at 3.8%. And that's roughly where gold peaked. But by July of the next year, the inflation rate had fallen by half to 1.4%. And by January of 2015, inflation rate was negative. And gold had fallen 42%. So, well, I own gold and I never plan to sell it. But I just think people should be aware that there were, There were so many voices up until recently suggesting that gold was going to go to the moon. And I was concerned that people would believe that gold would go to the moon. And I raised the possibility more than a year ago that gold was not a sure bet.

Starting point is 01:09:00 And what we've seen, since gold is effectively not in mood since I published that video more than a year ago, it went up and then it came back down. And now looking ahead, I worry that there could be considerable more downside for gold. And so for people who feel that gold is going to go to the moon, I think that because there's going to be very, very high rates of inflation, I think they need to reexamine all of those assumptions and be more careful because there's a real possibility gold will fall. I mean, it's fallen many times throughout history, recent history, more than 40 percent, and it's not impossible that that could occur again.

Starting point is 01:09:36 So given your macro outlook and the fact that you own gold and will never sell it, it begs the question, what else do you own? You mentioned the opportunity at hand, obviously on the spending side, the government spending side, but how should investors, where can we find opportunities in today's market? What I try to do in my work is to teach people how the economy really works about the forces that are driving the economy and driving asset prices so that they can make better investment decisions for themselves. I'm pretty reluctant about giving specific investment advice because, of course, every individual has different circumstances.

Starting point is 01:10:16 And so individuals, it is true, they do need to consult with a qualified investment advisor about their particular circumstances. But just generalizing, it is true that stocks are expensive. And if the Fed does taper next year and the government budget deficit does drop a lot, as is expected generally, and credit growth slows sharply, we're going to be in a much less favorable environment probably for stocks a year from now than we are at the moment. There is risk, of course, to stocks. There are always risked any kind of investment.

Starting point is 01:10:50 But a broadly diversified investment portfolio does make a lot of sense. But for just the average American, I have always thought that buying a piece of land, not in LA, perhaps, but a piece of land with a house on top of it that they can rent out is a good investment strategy for a the long term because the land is as good as gold. If macroeconomic forces occur that drive up the price of gold, that's going to drive up the price of land as well. And meanwhile, if you have a house, you can rent it out and earn cash flow. Gold doesn't have cash flow. Rental property does. Mortgage rates are very near historic lows. So it's possible to borrow 30 years mortgage at very low interest rates, lock that in, and build up a residential investment portfolio over the next decade or two that will ensure that young people would have a very comfortable retirement 30 years from now, for instance.

Starting point is 01:11:49 So I'm a big believer in owning rental property, but by that I don't mean condos. There is no limit as to how many condos can be built in the air. Insist on land with a house on top because the land is a very important asset in and of itself. Awesome. Well, Richard, this has been incredibly enlightening, and I know that our audience is going to really enjoy your perspective. If they're interested in following along with what you're up to, a little bit more, talk to us about where we can find you and any other resources you'd like to share. Thanks. So my business is called MacroWatch. It is a video newsletter. Every couple of weeks, I upload a new video. It's essentially me making a PowerPoint presentation, discussing something important. important happening in the global economy and how that's likely to impact asset prices

Starting point is 01:12:41 during the quarters ahead. I believe that credit growth drives economic growth. I believe that liquidity drives asset prices and that the government attempts to control both credit growth and liquidity to make sure the economy keeps growing. So those are the big themes that MacroWatch focuses on. Your listeners can find MacroWatch at my website, which is Richard Duncan Economics.com. Well, Richard, always a pleasure. Thank you so much for coming on the show, and I can't wait to do it again soon. It's been my pleasure. It's been terrific meeting you.

Starting point is 01:13:13 Thanks a lot. All right, that's all we had for you this week. I'd like to give a shout out to Roger on Twitter who recommended that we have Richard Duncan back on the show. If you would like to do the same, reach out to me on Twitter at Trey Lockerbie to recommend the guests you want to hear. And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence.

Starting point is 01:13:40 To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting. Thank you.

We Study Billionaires - The Investor’s Podcast Network - TIP365: Has Inflation Peaked? w/ Richard Duncan

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.