We Study Billionaires - The Investor’s Podcast Network - TIP424: How to Finance The Next American Century w/ Richard Duncan

Starting point is 00:00:00 You're listening to TIP. On today's show, we have one of our favorite macroeconomists back on the show, Mr. Richard Duncan. Richard has just released his fourth book titled The Money Revolution, How to Finance the Next American Century. In this episode, we discuss how the economy has progressed since we last spoke, the impacts of globalization, and how it goes hand in hand with the U.S. reserve currency, wage inflation, and supply chain disruption, how the Fed makes a profit, how the Treasury should be the focus. Richard's proposal to go big and go fast with a huge investment proposal that could catapult the U.S. into a new era of dominance and how it wouldn't cost a thing for U.S. taxpayers. That and so much more. This one is a doozy.

Starting point is 00:00:44 So without further ado, please enjoy this incredibly enlightening discussion 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. Welcome to The Investors Podcast. I'm your host, Trey Lockerbie, and today, I'm so excited to have my friend Richard Duncan back on the show. Richard, welcome back. Thanks, Trey.

Starting point is 00:01:22 This is great to be back. I've been dying to catch up with you because the last time you're on our show is episode 401. It was back in July of 2021. And things have really gotten interesting since then. At the time, we were kind of. positing that inflation had peaked. Now, inflation, we've actually seen higher prints since then. So I wanted to get your take on maybe why that is. I know you had a long time horizon for that comment, so don't get me wrong, but are we peaking now? Has it peaked? What does the economy

Starting point is 00:01:52 look like since July? Okay, so you're right. The inflation rate has moved up, certainly much more than the Fed or I had expected. The reason inflation has been dropping since the early 1980s is because of globalization. Up until 1980, the U.S. didn't run a trade deficit, but starting in the mid-1980s, the U.S. started running an extraordinarily large U.S. trade deficit for the first time in history, because when money had to be backed by gold, as was the case up until 1971, trade between countries had to balance because if a country had a big trade deficit, before then, it would have to pay with its gold. And it only had a limited amount of of gold. So it would have run out of gold. In other words, it would have run out of money and its

Starting point is 00:02:37 economy would have collapsed. So trade had to balance. Starting after Bretton Woods broke down in 71, it didn't take the U.S. long to realize that it could run very big trade deficits and it didn't have to pay with gold anymore. It could just pay with paper dollars or treasury bonds denominated in paper dollars. So by the middle of the 80s, the U.S. trade deficit was three and a half percent of GDP. And by 2006, it was six percent of GDP. GDP. And so despite the extraordinarily large budget deficits that President Reagan ran in the 1980s and later on, even larger budget deficits, and despite all the money that the Fed was creating right through the crisis of 2008 up until 2014, we didn't have any inflation. The money supply

Starting point is 00:03:23 growth, which reflects the amount of money that the Fed creates, it peaked at something like 150% year-on-year growth in 2011. So you would have thought that would have caused hyperinflation if money supply growth causes inflation, then that kind of surge in the money supply growth, which resulted from the Fed's three rounds of quantitative easing. Well, that should have done it. But the inflation rate peaked at 3.9% in 2011. And then by 2015, we had deflection again. Prices were falling in early 2015. So what's going on now? The increase in the money supply is less than half of what it was in 2009. But now the most recent number for the inflation rate is 7.1% year on year.

Starting point is 00:04:13 So what has changed? Well, what has changed is because of COVID, what we're seeing is a partial breakdown of globalization. Globalization is the reason we didn't, meaning these big trade deficits. Once the U.S. started running large trade deficits, especially with low-wage countries, That put extreme downward pressure on prices in the U.S. So we had deflation and we even flirted with inflation since we were buying so many goods from countries whose workers made less than $10 a day. So it was globalization that explains why we've had very low rates of inflation in recent

Starting point is 00:04:47 decades despite the massive budget deficits and the massive money creation by the Fed. But what we're seeing now because of COVID is a partial breakdown of globalization. We have extreme global supply chain bottlenecks causing inflationary pressures on things like semiconductors especially. But we're also seeing domestic disruptions in the U.S. as millions of people have left the workforce because they're afraid of catching COVID. So what we're seeing is higher rates of inflation now because globalization has partially broken down.

Starting point is 00:05:19 Now, presumably, this isn't going to last forever. It may. COVID may go on year after year. it could become much worse. There could be a massive wave of COVID infections across China. China has a zero COVID tolerance. So that could force China to shut down all its major industrial centers. In that case, we would see much higher rates of inflation.

Starting point is 00:05:42 But if we go back to a period where similar to what we were experiencing for decades before COVID started, then we'll once again see the globalization puts extreme downward pressure on prices. and we'll probably soon be flirting with deflation again the way we were up until the time COVID started. Now, on the, it is true that the inflation rate is higher than certainly higher than the Fed is expected, but let's take a look at that. The CPI, the Consumer Price Index, it is an index.

Starting point is 00:06:12 It's a series of numbers. And the December number was 7.1% higher than it was in December 2020. But it was only 8.5% higher than it was. in December 2019. So the two-year average for inflation is just 4.3%. That should be taken into consideration because in 2020, there was actually deflation in the United States during the second quarter. Prices were falling. So 7.1 sounds like a very high rate of inflation, as people like to point out, it's the highest in 40 years. But if you take the two-year average, which incorporates the deflation the year before. We're looking at 4.3%, which is similar to what we had as recently in 2008,

Starting point is 00:06:59 before the crisis of 2008 started. So the hype about inflation, okay, there is, there is, prices are going up, but this is far, far cry from hyperinflation. And chances are, before long, they will start going back down again. For instance, in the second quarter of last year, used car prices went up 40% year on year, and that accounted for one-third of all of the inflation during that quarter. Pretty soon, we're going to have plenty of semiconductors again. New car prices are going to be down, used car prices are going to fall by 40%, and that will take a whole lot off the inflation number when that occurs. So before long, we'll be experiencing disinflationary pressures, and perhaps even deflationary pressures, as we were before,

Starting point is 00:07:46 because we have a global economy now with probably, let's just say, hundreds of millions of people willing to work for less than $5 a day. And that's extremely inflationary. And assuming that globalization doesn't break down permanently, then those forces that prevented inflation before COVID will exert themselves again and will be back in a very low inflationary environment before long. As you were saying that, something occurred to me for the first time, which is this idea that globalization and the U.S. reserve currency kind of go hand in hand. So when you're saying globalization, how much of that is also the fact that the U.S.

Starting point is 00:08:31 dollar just needs to get out there into the world because we're running these huge deficits, which in itself can be somewhat deflationary? Those things are all tied together. Because China wants to sell things to the United States, they ship their goods to the United States and they sell them in dollars. And so they take their dollars back to China. And that's why China has so many dollars. The U.S. trade deficit, which is going to hit a record high this year of close to the trade deficit in goods. Last year, we don't have the December number yet for 2021. But the trade deficit in the and goods will be an all-time record high, more than a trillion dollars in 2021.

Starting point is 00:09:15 So what that means that foreign companies will sell their goods in the U.S. and their surplus will be a trillion U.S. dollars that they will take back to their countries. And that throws off an extra $1 trillion into the global economy. The trade deficit is the reason why there are so many dollars in the world. And this is not going to end anytime soon because the U.S. is going to continue to have a very large trade deficit far into the future, as it has now since the early 1980s. And the U.S. trade deficit, which has probably been off the top of my head in the range of $10 to $12 trillion since it started in 1980, that's made the rest of the world grow by not just $10 to $12 trillion

Starting point is 00:09:59 more than it would have, but there's been a big multiplier effect as those dollars have gone into the banking systems of other countries. That's allowed credit creation through the system of fractional reserve banking that's transformed the world. These dollars that have gone into China's banking system. That's the reason China's been transformed from a very poor third world country when I first saw it in 1986 to the point where Shanghai now looks like the Emerald City and the Wizard of Oz with infrastructure across China that's far better than the United States and why China is now threatening. It's one of the reasons China's used this money wisely, invested it. And that's one of the reasons that China is about to overtake the United States and become the dominant global

Starting point is 00:10:44 superpower unless the United States takes radical action immediately to ensure that doesn't happen. So I don't put a whole lot of weight into the CPI numbers personally, but there are things I'm seeing that are taking off, not only asset appreciation, but wage inflation is something that is, I think, much more prominent in the U.S., at least, since we last spoke. How much do you follow things like wage inflation, you know, this thing with the great resignation and labor shortages and employment being low? I mean, what is this all telling us about where we are in the economy today? I think what is telling us is that the number of people in the workforce, even though

Starting point is 00:11:24 the unemployment rate has come down very quickly, very sharply, it peaked at 14.8% in April 2020. Now it's down to 4%. So a lot of jobs have been millions and millions of new jobs have been created or recreated. But still, there are four or five million people, fewer people in the workforce now than there were two years ago. Some of them have retired, but some of them have just decided that they're not risking it. They're not going to go into the workforce because they don't want to catch COVID and die. And so the workforce is lacking four or five million people. And so So that's shifted the balance between capital and labor for the first time since globalization started. Labor, the share of the profits going to the labor force has been shrinking for decades

Starting point is 00:12:14 because corporations have shifted their manufacturing to low-wage countries. So the profit margins or the share of profits that go to capital or to corporations has been very high. Profit margins have been extremely high because the share of the profits going to labor, have shrunk and shrunk and shrunk. But now, because of globalization, which has the downward pressure on wage prices, has been one of the main reasons that we've seen such low levels of inflation before COVID. But now suddenly, COVID has changed the balance. The power temporarily, at least, has shifted to labor. There's a shortage of people willing to work and risk getting sick,

Starting point is 00:12:52 and the shortage is four or five million people. And so suddenly, these people can demand higher wages. And so suddenly, for the first time in decades, they're getting a fair share of the deal. They're getting some upward, I think, 4%. This is probably just going to be temporary because once, you know, a lot of people have been receiving subsidies from the government in terms of stimulus checks that went straight into their bank account. Others have received extended unemployment benefits. There's been a moratorium on student loan payments that has been very helpful.

Starting point is 00:13:26 and child support payments on a much higher level than ever before. But all of those things have either stop or about to stop. And that's going to push people back into the workforce. And as it does, as those four or five people, at least three or four of those five million people reenter the workforce, the advantage they had from the labor shortage is going to evaporate. And once again, as globalization resumes, then this is very likely that their wages will stop going up.

Starting point is 00:13:53 You know, the median income for the American household was roughly flat since the early 1970s. And that's why we had such discontent among so much of the American public and this sense of pessimism that we've changed from an era of high rates of growth and growing prosperity, every generation being richer than the previous one. This has not been true for the last 30 years. And that's really taken a toll on the American psyche. And that's, I think, led to this very bitter partisan divide that we're seeing in politics today. Speaking on politics, just for a second, one other thing that's been plaguing our economy as of late is the supply chain disruption that we've been seeing.

Starting point is 00:14:35 And anecdotally, living here in California, I've heard something that basically that I just found really interesting, which was essentially that we have a mandate here in California, let's say, where you can only stack a container too high, meaning two X, in a store. But if the law allowed for us to stack it three or four X high, we would no longer have truck bed to have abandoned containers sitting on them, which means it would free up drivers to go pick up more containers and thus move more containers through the system. I'm just curious, that's just a California thing, perhaps, but how much are you seeing on the supply chain side that is either political or actual disruption in other ways? Are you seeing something similar? Have you come across something similar?

Starting point is 00:15:18 If Richard Duncan was president, what would you do to eliminate the supply chain headaches we're having? In terms of regulation, we have to learn as we go. Every society does. If what you are saying is correct, and I'm sure it is, then adjustments need to be made. That doesn't mean that no regulation of any kind is required. For instance, it was under regulation of the banking system in the lead up to the crisis of 2008 that caused that disaster, which costs the government and therefore American taxpayers trillions of dollars. So we have to find the right balance. Sometimes there's too much regulation in certain

Starting point is 00:15:54 industries and sometimes there's too little. I don't know about you, but I'd like for the pharmaceutical and medical industry to be very highly regulated because, you know, people looking for profits can be bad. They will sell you bad drugs if they can. So we need to strike the right balance. But in terms of what needs to be done to overcome the supply chain bottlenecks here to the extent that we can, but one thing that we can do, and thank goodness we are starting to do this, is we can invest more in American semiconductor industry. In fact, Congress has recently passed a law, like to elaborate on a bit further later in the conversation. But that law includes $50 billion dollars of investment in new American semiconductor manufacturing facilities. And of course,

Starting point is 00:16:41 you expand the amount of semiconductors that are manufactured, then prices will come down. So that government-funded investment is a very big step forward that will ensure security for the U.S. not only lower prices, but the ability for the U.S. to create its own semiconductor chips when it can't access them from other sources, as we've been experiencing to some extent over the last two years. Let's take a quick break and hear from today's sponsors. 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

Starting point is 00:17:25 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. 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

Starting point is 00:18:11 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 Freedom Forum.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. How do we make AI useful

Starting point is 00:18:53 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

Starting point is 00:19:32 real business data. 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 study. The guide is free to you at Nessuite.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

Starting point is 00:20:04 overnight wearing many different hats. 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, Getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics.

Starting point is 00:20:33 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 product descriptions, and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. 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.

Starting point is 00:21:09 That's Shopify. com slash WSB. All right. Back to the show. All right. So in our last conversation back in July, you explained how our government needs to continuously grow credit in order to grow the economy. What GDP increased 10% in 2021 to nearly $23 trillion, how much credit was needed for that increase? Okay, so let me elaborate

Starting point is 00:21:38 on that. What we have seen since money ceased to be backed by gold, up until 1968, there was a law that the Fed had owned gold to back every dollar that it created. But at that point, it didn't have enough gold to create any more money. So Congress changed the law and eliminated that requirement. And afterwards, a lot of things changed in the world. But one of the most important things that's changed is that credit exploded. And credit has grown by total credit, what I mean is all the credit of the country. And since total credit is equal to total debt, this means the debt of the government debt, the household sector debt, the corporate debt, the financial sector debt, all the debt. It first went through $1 trillion in 1964. By 2007, it had expanded to

Starting point is 00:22:24 $53 trillion, so a 53-fold increase in just 43 years. And now it's about $85, $87 trillion. So it's gone up 45% since 2007. So our economy, because of this credit, proliferated to such an extent that it became the main driver of economic growth in the United stays and therefore the world. In fact, any time going back to 1952, anytime that credit has grown by less than 2%, and this is adjusted for inflation, the U.S. has gone into a recession. That happened nine times between 1952 and 2009. And every time total credit grew by less than 2% adjusted for inflation, the U.S. went into recession. And the recession didn't end until there was another a very big surge of credit creation. So when I say that we need for our government to grow its

Starting point is 00:23:18 credit to keep the economy growing, that is a true statement because the private sector is already so heavily indebted that it really can't take on enough debt to keep the economy growing. So you ask how the economy grow by 10% last year, and this is in nominal terms. Over the last two years, there's been a big surge in total credit. Total credit increased by $8 trillion in 2020, which was by far more than ever before. And that was driven by a four point, let's say a $5 trillion increase in government debt. Last year, the credit didn't grow as much. It was something closer to pre-crisis levels at $5 trillion. So we've seen $13 trillion of credit growth over the last two years that explains why nominal GDP grew by 10% last year. So in percent terms, I keep talking about

Starting point is 00:24:14 we need 2% adjusted for inflation to stay out of recession. I call it the 2% recession threshold. So in 2020, total credit grew by $8 trillion before adjusting for inflation, that was 10.5%. But if you adjust for inflation, then in 2020, total credit grew by a whopping 9.3%. That was very much more than it had grown for a very, very long time. So that enormous surge in credit expansion in 2020 helped carried over into 2021 and is probably still supporting the economy into 2022. But things slowed down in terms of credit growth last year. We don't have the fourth quarter number yet, but it looks like it will be about $5 trillion of credit growth for the full year, down from $8 trillion the year before. So that's 6% credit growth adjusted before.

Starting point is 00:25:06 adjusting for inflation. And but because inflation was high last year, that's only 1.3% after adjusting for inflation. So that's well below the recession threshold. And this year, based on my estimates looking ahead for how much credit's going to grow, it's not that hard to estimate how much credit will grow by. If you just forecast how much it's going to grow for the government and for the households and the corporate sector, that's most of it. There are only a few big sectors. You can make educated guesses. It looks like it's going to grow by something like maybe $5.5 trillion this year. But since the inflation rate, the average inflation rate for the year, if we assume that inflation is 4% on average for this year, then that's going to give us only 1.8% credit

Starting point is 00:25:56 growth after adjusted for inflation. So we're looking at two years of credit growth below the 2% recession threshold. So we're on a credit high from 2020 when there was a very big surge of credit expansion, driving everything. But now that credit surge is evaporating. And that's one reason the outlook for the economy is somewhat concerning, one of a number of reasons. Concerning that credit is tapering off a little bit, but we're still not hitting your 2% threshold, correct? So what would it take to start going over that threshold? It's going to happen this year that's going to take us above that threshold. It doesn't look like. It's too late. We had three big rounds of government stimulus that supported the economy and that had to be funded by government borrowing by increasing government debt. Those occurred in March 2020 and December 2020 and in March 2021, nearly a year ago. We're not going to get any more big surges in government stimulus. Fiscal stimulus, the last big dose of fiscal stimulus, the last big dose of fiscal stimulus was in March 2021, there aren't going to be any more big doses of fiscal stimulus.

Starting point is 00:27:06 So the fiscal stimulus is over, and there's nothing that's suddenly going to ramp up household sector borrowing in and of itself or corporate borrowing. In fact, now that the Fed's set to start hiking interest rates, as interest rates move higher, it's going to make it more expensive for people to borrow. So that's going to make it less likely that credit will expand. We're not only seeing that fiscal stimulus is over, we're also seeing that monetary stimulus is over. The Fed is suddenly and very abruptly switched from a very loose monetary policy, what's shaping up to be quite a tight monetary policy.

Starting point is 00:27:45 It was only in November that the Fed said that it was going to begin slowing down the pace of quantitative easing. Up until then, it was creating $120 billion a month. is then announced that it was to slow that down by $15 billion a month. And only one month later, they doubled that tapering to $30 billion a month. That means that the QE is going to end altogether by early March. So no more monetary stimulus from quantitative easing. And at the same time, the Fed has made it very clear that they expect to start hiking interest rates in March

Starting point is 00:28:21 and that they are going to hike interest rates a lot this year. and perhaps more than just 25 basis points each time, perhaps by 50 basis points. And then the final blow that really floored the stock market last month was on January 3rd, the Wall Street Journal reported that Fed officials had started talking about launching quantitative tightening. Quantitative tightening is the opposite from quantitative easing. Quantitative easing, the Fed creates money and injects it into the financial system by buying bonds. And the more money that gets injected into the financial system, the more liquidity there is, and the higher stock prices and other asset prices tend to go. The quantitative tightening

Starting point is 00:29:02 is the opposite. With quantitative tightening, the Fed destroys dollars, and that removes liquidity from the financial markets. And that tends to drive the asset prices down again. It's like the liquidity is like the tide. When it goes up, all the asset prices float higher. When it goes down, they all tend to sink. So this came as a real shock to the stock market. market because the Fed hasn't even stopped quantitative easing yet. And now they're telling us that they're about to launch quantitative tightening sometime before the middle of this year, if things go as they look like they're going to go. So that's why the stock market between January 4th and January 27th, the S&P fell nearly 10 percent and NASDAQ fell nearly 15 percent, with most of the

Starting point is 00:29:47 high-flying risky asset assets getting slammed much harder than that. We're looking at now the beginning of what could be quite a severe tightening cycle that occurs faster and more aggressive than the last tightening cycle. So that is likely to result in asset prices falling further before this tightening cycle eventually comes to an end. And so if asset prices fall, then that will destroy wealth and that will be a negative of wealth effect, it also acts as a drag on the economy. So no more fiscal stimulus, a reversal of monetary stimulus.

Starting point is 00:30:25 These are adding up to be really bad news for not only the economy, but for investors, especially those people investing in the most speculative asset classes. Yeah, I'm curious if you believe if they're going to do that or not, mainly because, to your point, they've only continued to purchase assets since coming out with those statements. If you look at the balance sheet, it's only going up. There hasn't been any tapering and we're getting closer and closer to March. So when you see that, it can lead you to a watch what they do, not what they say kind of

Starting point is 00:30:54 narrative. Is the Fed at risk of losing credibility or even trustworthiness if they continue to say things and not follow through with them? I think in our last conversation you even mentioned that it took them something like a year, year and a half before they actually started tapering when they first started the QE efforts back in 2008. You're right. So they are still creating more money every month, but they are going to be.

Starting point is 00:31:16 creating less money every month. They are tapering. They are no longer creating $120 billion a month. It has ratcheted down very sharply, and it will end in early March, as they've said. The monetary policy is like a super tanker. You can't turn it on a dime. The Fed had led people to believe that quantitative tightening was only going to be reduced slowly, starting in early 2020 and that quantitative easing would continue on all through 2022. But then suddenly in November, they started changing their messaging pretty abruptly. And what has in fact occurred is they started tapering several months earlier at a much faster pace than expected. And rather than QE going on through the end of the year, this year, it now is going to end in early March.

Starting point is 00:32:07 People had expected this to go on until the end of the year. They had expected more and more money creation until the end of this year. And investors had placed their bets accordingly. They had bet because the Fed had told them that there was going to be more and more money creation this year until the end of the year. But suddenly the Fed is sending out a different message now. They're saying the money creation is going to stop in March. They tried to spend the supertanker around too quickly. And that's why we got the stock market sell off in January. Now, it's interesting that in the past, for really going back to 2008, every time the stock market started to have a significant correction, the Fed would do something to try to support the stock market again.

Starting point is 00:32:50 They call this the Fed put. In other words, in the fourth quarter of 2018, there was a pretty big stock market sell-off in the fourth quarter. And at that point, that's when the Fed put monetary policy tightening on hold. They stopped hiking interest rates. they said they were going to stop quantitative tightening, and they did. So every time the stock market wobbled between 2008 and really essentially up until the end of last year, the Fed would do something to push it back up again. This was called the Fed put. So it made sense to buy all the dips

Starting point is 00:33:25 because you knew the Fed had your back. The Fed put may not exist any longer. The Fed needed asset prices to go up after 2008, because credit growth was extremely weak. It wasn't strong enough to drive the economy. It was just barely above the 2% recession threshold. So the Fed orchestrated higher asset prices to create a wealth effect. And that wealth effect allowed more consumption and more consumption drove the economy. So between 2007 and the end of last year, the wealth of the household sector doubled to $145 trillion as a result of this Fed policy. The Fed needed stock prices to go higher to create this wealth and drive the economy because credit growth was too weak to drive the economy.

Starting point is 00:34:13 But that's not the situation we're in now. Last year, the U.S. economy, real GDP growth after adjusting for inflation was 5.7%. That was the highest economic growth in 37 years. And so from the Fed's point of view, the economy is growing very rapidly now, plus inflation is too high, so they don't need more asset price inflation. And so they may tolerate a significant correction in asset prices this time, particularly in the things they disapprove of most, meme stocks, for instance, or the other high-flying NASDAQ stocks.

Starting point is 00:34:50 They don't have to have the asset price inflation now, they think, to support the economic growth. And in fact, if people lose some wealth, that may put downward pressure on inflation, which would be a good thing from their point of view. So it a costly error this time to buy the tips. The Fed may not have your back. We'll have to see you. Very interesting. One of the reasons you're on the show today is because you've just written this incredible new book that I want to talk a lot about. And one of the coolest things I found about the book is that it walks you through the history of the Fed by essentially walking through the changes of the Fed's balance sheet. I imagine you did this somewhat out of curiosity, your own curiosity to some degree. While you were

Starting point is 00:35:35 going about this, were there any major revelations that you didn't know previously or that you kind of uncovered as you were going throughout the writing of the book? This is my fourth book. It's called The Money Revolution, How to Finance the Next American Century. I worked on this book for four years. But of course, four years ago, I wasn't starting from zero. I had written three other books. I've been in the financial industries since 1986. So all of this is cumulative. But I think one of the important contributions in this book, and there are three parts. The first part is a history of the Fed. But it's a history of the Fed told in a unique way. What it does is it traces. It traces, changes in the Fed's balance sheet to tell the history of the Fed. Changes on the liabilities

Starting point is 00:36:27 side of the Fed's balance sheet, that shows you where the Fed gets the money that it gets, essentially how it creates money. And changes on the asset side shows you how the Fed uses the money that it creates. So by tracing changes in the liabilities and the assets of the Fed over essentially 10 different time periods, consecutive time periods, from the time that the Fed was started in 1913 up until last year. This is a very clear history of the Fed. There's no, this Fed chairman said this or this Fed chairman said that. You see exactly what the Fed did and you can therefore understand exactly what I did it. So for instance, you can see the fantastic contribution the Fed made to the United States.

Starting point is 00:37:16 by helping to finance World War I and World War II. You can see where the Fed failed, when it failed, to take the right steps to prevent the Great Depression. You can see that over time, that gold played a less and less role and eventually no role whatsoever in Fed policy or monetary policy. And you can see how that liberated the Fed afterwards to create limitless amounts of money, as it has done over the last five decades, and particularly during crises like the crisis of 2008, another national emergency, like World War II, where the Fed jumped in and financed government borrowing on a multi-trillion dollar scale to prevent a new Great Depression from occurring, or during the pandemic, where again, the Fed created trillions of dollars to help finance

Starting point is 00:38:06 the government borrowing on a multi-trillion dollar scale to prevent the pandemic from causing the economy to collapse into a new depression. So over the last two years, the government in 2020 and 2021 borrowed $6.3 trillion. The Fed created $4.6 trillion, effectively financing 73% of all of that government borrowing. That government borrowing was necessary once the pandemic started. That's government borrowing and spending is the reason that our economy looks today, much like it did at the end of 2019 rather than the way it did in 1933. We came out this crisis because of massive fiscal stimulus financed by massive money creation. So by tracing the changes in the Fed's assets and liabilities, this is a very clear history

Starting point is 00:38:59 of the most powerful economic institution in the world. And if you understand how the Fed works, then you have a much clearer idea of how our economy is going to evolve, how the Fed is going to respond to future crises, and how that's likely to affect asset prices, as well as the opportunities that creates for the government to borrow. I love that term, the most powerful economic institution, because in the book, you say that if the Fed were a corporation, it would be the most profitable corporation in the world, leading Apple by nearly $30 billion. I'd love it if you could just walk us through how the Fed actually makes a profit, certainly of that magnitude.

Starting point is 00:39:43 When the Fed creates money, it doesn't cost the Fed anything to create money. After it's created the money, it then buys government bonds or mortgage-backed securities and add those bonds together, and that is the Fed's total assets. The Fed now has total assets of $8.9 trillion, earning interest. All they have to do is pay for their staff, which is, you know, I'm sure they make reasonably good salaries, not Wall Street salaries, but not bad salaries. After you take out a few expenses, you pay the electricity, you know, you do the repairs on the Fed buildings around the country, you end up with a massive profit because all the money that you created cost you nothing,

Starting point is 00:40:23 essentially, and you're earning interest on $8.9 trillion of bonds that you bought with the money that you created at no cost. So the Fed would be, last year it would have been the most profitable corporation in the world making, what did I say, 30 billion more, Apple did. There's so many numbers, I can't keep track of them, but I think the Fed's profits, since its creation, have been $1.2 trillion. And almost all of that has been since 2008, when it launched the first round of quantitative easing. In 2007, the Fed's total assets amounted to $700 billion. Now, they're 12, 13 times larger, almost $9 trillion. So, All of the money the Fed has created has allowed them to buy bonds, and they earn interest

Starting point is 00:41:13 on those bonds, and that's extraordinarily profitable. And so they have given this money to the government. The Fed must hand over all of its profits to the U.S. government every year. So last year, their profits were more than $100 billion, and that reduced the budget deficit by more than $100 billion last year, reducing the burden on American taxpayers by more than $100 billion. And altogether, the U.S. government debt is more than a trillion dollars less now than it would have otherwise been because of all the profits the Fed has made and handed over the U.S.

Starting point is 00:41:45 government. It kind of makes my head hurt to think about cyclical this is. Well, it's important to understand that none of this was possible before U.S. stopped backing dollars with gold. That's why it's so important to understand the significance of that change. That change fundamentally changed the nature of our economic system. It would not have been possible for the Fed to create $4.6 trillion during the last two years to fight COVID if it had to back those dollars with gold. The Fed doesn't have $4.6 trillion

Starting point is 00:42:17 of gold. On the Fed's books, its gold is valued at $11 billion. So by going off the gold standard, that allowed the Fed and other central banks around the world to create limitless amounts of money, which they have done, which has allowed the governments to borrow on the extraordinary scale that they have done, since the Fed is buying their bonds with newly created money, this has enabled the government to borrow, well, $6.3 trillion over the last two years without pushing up interest rates. Just imagine the government debt went up 27 percent in the last two years. They sold $6.3 trillion of new bonds. How high would interest rates have gone if they had sold that to the public, if the Fed hadn't stepped in and bought 73 percent of it? Interest rates would have skyrocketed

Starting point is 00:43:03 rocketed. And the higher interest rates, the very much higher interest rates, would have offset much and perhaps all of the benefits that were derived from the increased government stimulus, that the government injected into the economy by sending out checks to households and making loans to businesses and preventing the banking sector from collapsing. So this has allowed the governments to borrow much more at very low interest rates and to stimulate the economy through fiscal stimulus. And the final piece of the puzzle is that, as I was mentioning earlier, once we no longer backed dollars with gold, this meant we didn't have to pay with our trade deficits with gold. We could just pay with paper dollars or treasury bonds denominated in paper dollars.

Starting point is 00:43:45 So we started buying the size of the U.S. labor force expanded 23 times. We went from a closed domestic U.S. economy to a global economy where we could buy things from people in Vietnam making $5 a day. And this put such downward pressure on inflation. It was so disinflationary that it allowed the U.S. government to borrow and have trillion dollars stimulus packages and the Fed to create trillions of dollars, all without creating high rates of inflation. So all these things together that resulted from the breakdown of the Bretton Wood system or the end of the gold backing for dollars in 1968 and 1971, central banks were free to create as much money as they wanted, governments could borrow much more at low interest rates, and they could all get away with all that because

Starting point is 00:44:31 globalization prevented inflation. The final step is that all of these things combined allowed credit growth to explode. As I mentioned, going from $1 trillion total credit in 1964 to $88 trillion now. And this credit creation has transformed the world. It has pulled hundreds of millions of people around the world out of poverty. For instance, changing China from a very poor country into a that's about to overtake the United States. And none of this would have been possible. So I like to simplify it perhaps by saying that our economic system evolved at that point. Dollars no longer were backed by gold. When the nature of our money has changed, the nature of our economic system changed. Capitalism evolved into creditism. Creditism has transformed the

Starting point is 00:45:19 world. But creditism requires credit growth to survive. If we get less than 2% credit growth, we go under recession. If credit contracts, as it nearly did in 2008, and as it would have in 2020, without the government intervention, the economic creditism collapses into a depression like the 1930s. So that's why I have said we need government credit growth, government borrowing, because the households and the corporations are already too heavily indebted to borrow enough. For instance, let's just round up and say total credit is now $90 trillion. That's probably about where it will be at the end of this year. And remember, we need 2% credit growth after inflation to stay out of recession.

Starting point is 00:46:06 If we assume that the average rate of inflation for this year will be 4%, and you may be thinking 4% is low, but that's 7% at the beginning of the year, it's probably going to be much lower at the end of the year. Let's just assume it's 4% for the year. We need 6% credit growth before inflation to get 2% after inflation if the inflation rate is 4% right. So we need 6% credit growth before inflation. 6% of $90 trillion is $5.4 trillion. That's how much we need the credit of the country to grow by.

Starting point is 00:46:38 Of all the sectors of the economy combined, we need them to grow by $4.5 trillion this year just to get to the 2% recession threshold. Otherwise, we will have a recession. Now, the government's probably going to borrow less than $1.5 trillion this year. Let's say $1.5 trillion. That means the private sector is going to have to borrow almost $4 trillion, $3.9 trillion, just to hit 2 percent credit growth after inflation. It's not easy for the private sector to borrow $3.9 trillion.

Starting point is 00:47:09 So that's why we're probably going to see the U.S. moving back toward recession far sooner than most economists expect because credit growth is weak. All the fiscal stimulus is over now. On top of that, we've got monetary tightening instead of monetary easing. And then there could be a bigger stock market correction because of the monetary policy tightening. As interest rates rise, mortgage rates rates will go up. Property prices are likely to fall as well. So we're looking at a challenging outlook. The Fed is loaning the government money by buying its bonds. Government is saying, hey, we're going to pay you an interest on this bonds, and they do, they pay it to the Fed, but then the Fed gives all that money right back to the government and profit.

Starting point is 00:47:52 Those bonds are interest-free debt, and interest-free debt is not debt. The Fed is essentially canceling the bonds that it buys. So fascinating. So speaking on that, it seems like the Fed kind of gets this bad rap because it's, quote-unquote, printing money seemingly into oblivion. But really, they're simply monetizing the debt already created by the government, by the fiscal side. So it's really the Treasury that's driving the money creation. Do you think this is an important distinction to make for us as citizens to change the narrative

Starting point is 00:48:24 a little bit, to kind of point our focus away from the Fed and more on maybe something that's more of a key driver, whether that, you know, for any benefit, for political reasons or any other reasons? Well, I think we as citizens need to carefully consider the narrative. Americans are so critical, so many Americans. I mean, the overall narrative is government is evil. The Fed is evil. Our country is on an evil path.

Starting point is 00:48:49 So many people are evil. We're all freaking doomed, right? And of course, our enemies spread that through social media and try to infect everyone with that idea as much as possible. Well, okay, it's certainly true. The United States is not perfect. But what we have seen since the United States has been the leading power in the world since 1945 is sometimes called as Pax Americana.

Starting point is 00:49:19 It's been 70 years of the greatest improvement in human prosperity in history by far. And so while there have been many flaws, they're not a bunch of evil people sitting in the Federal Reserve Building plotting up how to screw the average American. That's not at all the case. These people are trying to do the best they can, given the situation they've inherited, so that the economy doesn't collapse. And it's the same with true with the government as well. These people who are making decisions to send out stimulus checks to the Americans are not somehow plotting to undermine American

Starting point is 00:49:52 freedom. They are propping up American freedom. Because if the economy were to collapse into a depression like it did in the 1930s, just imagine how extreme U.S. politics would become. Like during the 1930s, we were lucky we didn't swing into either fascism or communism because there were strong pressures exerting in both directions. Franklin Roosevelt seemed to strike the middle of court and carried us on into the time when World War II started. And only when World War II started, then the government started really doing something to support the economy.

Starting point is 00:50:27 Then the government had massive increase in government spending. And then the Fed created massive amounts of money to help finance that government spending. And all of that stimulus from the government, the fiscal budget deficits, the money, any creation by the Fed. That's the thing that ended the Great Depression. These people are just normal people. And I've never had a very high position in Washington by any means. But I have had a consulting job for just three weeks with the IMF. And I work for two years in Washington with the World Bank between 1998 and 2000. I saw some of these people. You know, I got to know some of these people. These are just normal people trying to do their jobs as best they possibly can. There is no big

Starting point is 00:51:06 conspiracy. The conspiracy is to make America as prosperous as possible for as long as possible. And Americans need to really reconsider the narrative because we've got a really negative mindset that's uncalled for and debilitating and it needs to be turned around. It is, this country will be, you know, the first American century doesn't have to be the only one. 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.

Starting point is 00:51:43 VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. 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 Ryder spend 82% less time on audits with Vanta. 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

Starting point is 00:52:21 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 have haven't dared try. The futures market is more active now than ever before, and Plus 500 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.

Starting point is 00:52:55 With a simple and intuitive platform, you can trade from anywhere, right from your phone. with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. 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 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. Plus 500. It's trading with a plus. Billion dollar investors don't typically

Starting point is 00:53:43 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 investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested and 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,

Starting point is 00:54:34 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. 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. You know, and that narrative has driven people to this idea that we will resort to a hard money. And when you read this book, you kind of start to believe, hey, that's really not possible, right? Or just incredibly hard to imagine. Walk us through your views on hard money and why you think it might be a thing of the past. Well, hard money is a thing of the past. Hard money was gold. When countries backed their money with gold as the U.S. Fed was required to do until Congress changed the law in 1968, then

Starting point is 00:55:24 gold was money. After 1968, gold was no longer money. So we went from hard money to what is known as Fiat money, where the government can create as much of it as it wants. I guess you would call that soft money. And there is no going back to gold. If we went back to gold, that would mean, once again, that international trade had the balance because the U.S. would have to pay for its trade deficits with gold. And the U.S. has maybe at today's exchange rates being generous. It might have $500 billion worth of gold in the United States at the government's disposal. That would cover about six months of the United States trade deficit this year. Afterwards, there wouldn't be a single penny left in the United States. And we wouldn't be able to buy anything,

Starting point is 00:56:11 not one more pair of tennis shoes from any other country. So the U.S. economy would collapse, just as it did in the 1930s, if not far worse. The global economy would collapse, just as it did in the 1930s. And we all know what happened in the 1930s. Nazis took over Europe. The Japanese took over Japan. World War II started and 60 million people died. So we're not going back to that. That's never going to happen again unless there's some sort of calamity, a mad max-hyped scenario, where everything breaks down and we revert to barter. And even people who have gold then wouldn't be able to keep it

Starting point is 00:56:45 because there would be warlords taking it away from them. So we're not going there. And if we do, you'll probably be dead. All right. Well, I want to get to part three of the book, which is talking a lot about the future because you paint the opposite of a Mad Max scenario, which I just love so much.

Starting point is 00:57:01 And I want to talk a lot about it. You're suggesting this book that we should double down on this new economy that we have, or like even 10x down, I guess. Because you're talking about a $10 trillion investment over 10 years. We're talking going really big, really soon. What are three reasons as to why the U.S. should invest in this way? Okay, so the book is called The Money Revolution.

Starting point is 00:57:27 And the first two parts, the history of the Fed and the history of credit, explain how this money revolution occurred. Part three is called the future. And it draws on the lessons from the history explained in the first two parts to explain why we have really what is in a sense a once-in-history opportunity. What we've seen since 2008 is that the government has the ability to borrow trillions of dollars and that the Fed can finance this at low interest rates by creating trillions of dollars, all at low rates of interest without causing higher rates of inflation.

Starting point is 00:58:02 Now, the last part is a little bit hard to justify at the moment. Most of this book was written before COVID started and before globalization started breaking down partially leading to the higher rates of inflation we have now. The message was very clear before COVID started, the highest rate of inflation during the three rounds of quantitative easing from 2008 to 2014, Fed created $3.6 trillion, expanding its total assets, or in other words, expanding the amount of money it had created by 400%. And the highest rate of inflation that caused was 3.9%. And then that didn't even last.

Starting point is 00:58:40 So this new environment that I have described where it's possible for central banks to create limitless amounts of money where globalization means that can occur without causing higher rates of inflation, what this means is that this gives the U.S. the possibility for our government to fund a multi-trillion dollar investment program over the next 10 years, targeting industries and technologies of the future, things like artificial intelligence, genetic engineering, biotech, neural sciences, green energy, nanotech, quantum computing, and the other usual suspects. We can do this on a multi-trillion dollar scale. And if we do, this would induce such an extraordinary technological revolution. It would create vast amounts

Starting point is 00:59:26 of wealth. And that's just the beginning. Not even the most important part. It would create such technological breakthroughs that we have a very real chance of curing all the diseases, radically expanding life expectancy, stopping environmental degradation and actually restoring the environment. And certainly, in addition to that, this sort of investment would shore up U.S. national security, which is now under threat from China. So there are three reasons I see that the U.S. must invest on this kind of scale over the next 10 years. First, our economic system, creditism, requires credit growth to survive. If credit contracts, we're going to have a depression with potentially catastrophic consequences. So this sort of investment on the scale I'm talking about would ensure that credit keeps growing. The second reason is because we're about to be overtaken by China.

Starting point is 01:00:18 I don't know how you feel about that, but I think that's a very frightening idea. In the year 2000, the United States invested eight times more than China did in investment. You know, wealth comes from investing. In 2000, the U.S. invested eight times more. By 2017, only 10% more. In 2019, China invested more than the United States did. And if the current growth rates continue, by the end of this decade, China will invest 40% more than the U.S. does.

Starting point is 01:00:50 That's why China's winning. That's why China has 5G and hypersonic missiles, and the United States does not. This is the United States' new Sputnik moment. If we don't act very quickly and very aggressively, China is going to obtain such a lead over us technologically, economically, and militarily that long before the middle of this century, the United States is going to be a vulnerable, has been second-rate power, no longer in charge of its own destiny.

Starting point is 01:01:19 So that's the second reason we must invest, because if we don't, we are facing an extreme national security threat now that's getting worse hour by hour. And the third reason, though, and this is the most important one, is that I call this a moral imperative. We must invest because it would be so easy for us to finance this kind of investment. In the book, I don't put a specific price tag on how much we should invest. But in fact, I say we should invest as much as possible as fast as possible, judging by trial and error. If the investment overheats the economy and causes too much inflation, then we can slow it down until the bottlenecks that caused the inflation are overcome, and then reaccelerate the investment again after that. But just to illustrate

Starting point is 01:02:03 how a number of things, including how it would impact the government's finances and the Fed's balance sheet, I use the example that the government could fund a $10 trillion investment using public-private joint venture partnerships to actually carry out the investments over the next 10 years. Now, $10 trillion, that sounds like a lot of money. But in the second quarter of 2020, a lot of loan, the U.S. government in three months borrowed $2.6 trillion. And the Fed created a similar amount of money to help finance that government investment. So I'm telling you, and in the book, I will demonstrate to you that America can afford to invest. Not only can we, we must, we would be stupid not to. And if we do, it's going to cause such a radical acceleration in innovations,

Starting point is 01:02:53 medical breakthrough, technological marvels, shore up national security, and create vast amounts of wealth, that all of the tensions that have arisen over the last few decades, because the middle class is no longer becoming more prosperous but less, those tensions will evaporate. If we don't act quickly, these political divide that's tearing the country apart, and China's growing a power, which is going to allow it to establish Chinese hegemony over the greater part of the world before long. Those things are going to overtake us and tear us apart. We have the opportunity to prevent that from happening. It would be very easy for the U.S. to fund this sort of investment. And that's what the book is all about, how to finance the next American century. Now,

Starting point is 01:03:37 there are a couple of points. A lot of many people say, you must be out of your mind. The government couldn't possibly do anything right. Well, of course, that's not true. The government investment won World War II, for one thing. Government investment created the Internet. for instance. And everything in a smartphone that makes it smart essentially came out of U.S. government-funded investment, GPS, touchscreen technology, semiconductors, and the internet itself. But perhaps a more acceptable way to structure this sort of investment program would be for the government to set up joint venture companies with the, let's say, 10,000 most promising American entrepreneurs and scientists in the United States, joint venture companies. The government would

Starting point is 01:04:21 fund these companies with vast amounts of money in exchange for a 60% equity stake. And for instance, the entrepreneurs and scientists could keep a 40% equity stake and they would manage the companies. And when one of these companies invents a cure for cancer, it could be listed on NASDAQ for how many trillion dollars, of which the American public would receive 60%. So this kind of investment would be on a scale that would be too large to fail. And as it became immensely profitable, it would pay for itself many times over. In fact, it could even before long pay off the entire national debt. So this is the opportunity that we have before us. Now, luckily, people say, well, that's not going to happen. The government's just not going to do that. Congress can't

Starting point is 01:05:04 achieve anything. Well, in fact, the investment program that I'm recommending is already now being implemented. Just on Friday, last week, a few days ago, the U.S. House of Representatives passed the America Competes Act, allocating $350 billion for investment in new industries and new technologies. And this follows up a bill passed by the Senate in the middle of the last year, which was called the U.S. Innovation and Competition Act, which allocates $250 billion. Now, these two bills will now be reconciled and they'll probably meet somewhere in the middle.

Starting point is 01:05:42 But these two bills, let's say the lower number, $250 billion. Okay? I'm calling for multi-trillion as much as possible as fast as possible. Well, 250 billion is a good first step. It's a bit small, but it's starting to happen. What we need to see now is for this to happen on a much larger scale, because 250 billion spread out over a few years is not going to do it. China's investing much more aggressively than that.

Starting point is 01:06:08 And if China develops artificial intelligence before the United States does, then after that its powers will grow exponentially, thanks to machine learning and artificial intelligence. It will be game over. So whoever wins the AI race will control the future. And I don't want that to be China. There's no reason that it should be. But if we don't invest rapidly and aggressively with the mindset that says, yes, this is a great thing and that America can do it, we're going to fail. But if we adapt the right mindset and believe in ourselves and believe in the country and the opportunities before us, we can make this happen. We can turn the first American century into the first of many. This kind of investment would ensure U.S. national security for generations to come and make everyone

Starting point is 01:06:54 just wildly wealthy compared to what they are now. And more importantly, wildly healthy. So that is what the book is about. The book just demonstrates how a money revolution has occurred and the opportunities that now exist as a result of this revolution. It's how to finance the next American century. This is something we can do and we'd better do it. Or our civilization is going to decline and fall. You know, someone hearing that for the first time, let's say a skeptic, right? They're going to say, well, that just sounds way too good to be true. You know, even now with the money manipulation we've seen, it's led to price distortions,

Starting point is 01:07:31 zombie companies. It's a lot of malinvestment, right? I think the skeptic would be like, well, how on earth are we going to solve for that? How are we going to solve for people who aren't taking advantage of that, who are stuffing their own pockets? What is the risk that is not being considered here as far as the program and what risks are you factoring into this? I would say to people who put forth the argument that we can't do that because some people

Starting point is 01:07:55 are going to steal the money and there's going to be some misallocation of the money. That argument is akin to cutting off your nose to spite your face. Okay, so some money will be misallocated. Some people will steal some money and some people will benefit more than others. well, I'm willing to live with that if we can cure all the diseases and expand life expectancy much beyond where it is at the moment. That's a very small price to pay. And of course, when people are caught stealing the money, they should be put in jail for a very long time. That's why we have laws. That's what the laws are for. That's not a good reason not to take

Starting point is 01:08:30 advantage of this once in history opportunity where we can so easily invest trillions of dollars in new industries and technologies that will transform the world and make our dreams for a much better future, a reality in our own lifetime. Yeah, I think the idea about finding, you know, 10,000 worthy entrepreneurs is very interesting because the way our system currently works, you could see how a lot of folks with influence would be vying for that opportunity to put the money to work. And maybe it's not the worst thing to have Black Rock or, you know, even like Andresen or somebody like that running this money. But you could see how it could potentially consolidate into a few hands. So it's a really

Starting point is 01:09:09 interesting point, the idea of disseminating it across a larger volume of maybe smaller entities. I find that really interesting. Yeah. And so if your concern is increasing income inequality, like your wealth just doubles as a result of that, whereas somebody else's wealth goes up by 1.5 times. If that's the issue, then the solution is through higher taxes on capital gains or higher taxes on people who earn more than $50 million a year. Those sorts of increasing income inequality issues could be resolved through changes in the tax laws if that's what society wants.

Starting point is 01:09:46 It is a democracy. If people are unhappy that some people are becoming, you know, have $200 billion, they can vote to change that. You know, in the book, you state that the program would also be at no cost to U.S. citizens, which might also sound confounding to begin with. So walk us through exactly how that works. Okay, so I use the example in the book of a $10 trillion investment over 10 years. Again, $10 trillion being just four times more than what the government borrowed in the second quarter of last year. So it sounds like a big number that is not as overwhelming as it sounds.

Starting point is 01:10:25 Now, how would this money, where would the money come from? The government would sell $10 trillion worth of government bonds and the Fed would create $10 trillion of new money and buy those bonds. So the Fed would finance the entire investment program. And since the Treasury would be required to pay interest on those bonds to the Fed, and at the end of every year, the Fed would be required to give all that interest back to the government because it has to hand over all its profits to the government every year. And that's how it's tax. That's why it would come at no cost to the American public. Of course, it's a 500-page book. There are a lot of details. It's hard to convey in a few minutes here the idea. But in the book, I do show how a $10

Starting point is 01:11:11 trillion increase in government debt over the next 10 years on top of what is already expected. Of course, the government debt is expected to grow for the next 10 years. The Congressional Budget Office projects out how much the debt's likely to grow by. I take that number and add $10 trillion to it. And I make this assumption. The absolute worst case possible assumption you can imagine. If every last cent of this $10 trillion is wasted or stolen, whatever you want, and has absolutely no positive impact at all on the U.S. economy, the U.S. economy doesn't grow by one extra dollar as a result of this $10 trillion investment, which of course is absurd. And this investment contributes nothing whatsoever to any benefit at all. In other words,

Starting point is 01:11:56 it is a total waste. If we add $10 trillion on top of what the government debt will be 10 years from now, Then the ratio of U.S. government debt, 10 years from now, will be 150% of GDP, instead of roughly 120% of GDP, which is what is expected currently by the Congressional Budget Office. If all the money is wasted, government debt will be 150% of GDP, 150%. Japanese government debt is currently 250% of Japan's GDP. So 10 years from now, if all the money is wasted, U.S. government debt to GDP will be where Japanese government debt to GDP was 20 years ago in 2002. 10 years from now will be where Japan was 20 years ago. And if the Fed finances all of this, its total assets, instead of being $9 trillion as they are now, there'll be $19 trillion. $19 trillion will be about 55% of, let's call it, 60% of U.S. GDP, 10 years from now.

Starting point is 01:13:03 Bank of Japan's total assets relative to Japan's GDP is currently four times larger than that. And the European Central Bank's assets to GDP is also slightly higher than that now. So 10 years from now, the Fed's assets to GDP would be slightly less than where the Europe is now, and one-fourth the size, Japan is four times larger than the U.S. is at the moment. It would be twice as large 10 years from now after this investment. What I'm saying is that the United States can afford to invest. It would be so easy for the United States to finance this kind of investment. And the payoff would be so extraordinary that we would have to be insane not to do this. And the purpose of this book is to persuade the American public and U.S. policymakers of exactly that.

Starting point is 01:13:55 The U.S. can invest. We must invest. Less invest. We can make the world a whole lot better place in the United States much safer in terms of national security and live much longer, much healthier lives with much capitalized. I really enjoyed this discussion, Richard. I love having you on the show. I feel like you and I could just continue to talk for hours and hours. And I also enjoy the birds chirping in the background. You're in Thailand for those who don't know. And it's given me this great audible experience while talking to you as well. So anyways, Richard, always a pleasure. Before I let you go, tell people where they can find the book, your other books, and the video content you put out there,

Starting point is 01:14:36 any other resources you want to share. It's called The Money Revolution, how to finance the next American century, hopefully and find bookstores everywhere, any of that still exist, but widely available on the internet. internet through Amazon and borders, et cetera. And this book, I'd like to thank everyone who subscribed to my video newsletter over the last eight years because their financial support has

Starting point is 01:15:00 made this book possible. And much of the material that is in this book was previously published in my video newsletters, a macro watch. So I hope your listeners will also check out my video newsletter, MacroWatch. They can find it at my website, Richard Duncan Economics.com. And if If they'd like to subscribe at a 50% discount, they can use the discount coupon code TIP for 50% discount. So I hope to check out MacroWatch, and I hope they will buy lots of books and send it to their congressmen and senators. Fantastic.

Starting point is 01:15:30 Well, Richard, can't wait to do this again. Thanks again for coming on the show. Thanks, Trey. I've really enjoyed it, and I appreciate you giving me the opportunity to talk about this book because it's so important for the future, not only of the United States, but of everyone, because of the benefits that would be derived. would go, would be worldwide. Everyone would be better off with this technological breakthroughs. All right, everybody, that's our show. If you learned something, go ahead and follow us on your

Starting point is 01:15:56 favorite podcast app. If you have ideas about the show, definitely hit me up on Twitter at Trey Lockerbie. And if you haven't already done so, check out the world of resources we've built for you at the investors podcast.com. Simply Google TIP finance and it should pop right up. And with that, we will 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. 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.

Starting point is 01:16:39 Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP424: How to Finance The Next American Century w/ Richard Duncan

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