The Economy is About to Collapse | Luke Gromen

Is there any scenario where the debt will be paid off? >> Not in real terms. No. They'll pay every penny. Uh, it will just be uh currency less and less uh valuable currency in real terms.

I keep reading these things like, you know, AI is going to be productivity and it's not going to take all the jobs and it's just going to drive deflation way down. And I say, "Exactly." And in a debt-based system, that was, that is a mathematical bookkeeping guarantee to blow up the entire freaking system.

I think we're going to look back in 6 months, 12 months, 18, 24 months' time, and we're going to say February 2026 was the equivalent of July 2007. AI is not going to take all the white-collar jobs. AI is going to take some jobs, and systemic leverage will do the rest. We know exactly how this goes. This is inbound, in which case it's probably going to be a brief moment of a of a sort of big whoosh down. They ain't ever going back to work on a lot of these things, you know, somewhat. You know, people say, "Well, don't worry. They'll figure out some." What else did Blockbuster Video do after Netflix? It is problematic. And I think things, you know, this volatility we've seen in the first half of this year is something we've been looking for. I think it's going to get a lot worse, unfortunately.

Luke, hi. How are you? >> I'm doing well, Peter. How are you today? >> I'm good. Uh, Luke, we we're in unique times. Um, there is a lot of debt being carried by the state and individuals. We're facing what seems like a massive uh disruption coming with AI. Uh, but I keep thinking about like individuals and how people are meant to navigate this. And so my starting point, I really want to start with the debt and how much debt our governments are holding.

Is there any scenario where the debt will be paid off? >> Not in real terms. No. Uh, they'll they'll pay every penny. Uh, it will just be uh currency less and less uh valuable currency in real terms.

Is that uh because it's mathematically not possible or politically not possible? >> Uh, it's both. It's both. Um, you know, on the on the political side, you could always, you could always theoretically default, right? So, I I'll I'll use the United States as a specific example where we've got, I don't know, 122% debt to GDP. We're running a roughly $2 trillion a year deficit, or call it 6%, 7% of GDP deficit. Uh, when you look at what we're spending on, um, we're spending, um, we spend the federal, US federal government spends about $5.2 trillion a year. In fact, that's almost exactly what they spent last year. Excuse me, let me back up. Federal government is spending $7 trillion a year. The federal government takes in $5.2 trillion in revenues every year. Of that $5.2 trillion dollars in revenues the government takes in, um, and took in last year, roughly 70% of it is going to baby boomers and entitlements, um, social security, Medicare. Roughly uh, another 30% of it, or just short of 30% of it, is going into interest on the debt that we've spent in the past. Uh, another 20% uh, roughly, uh, is going into defense. And right there, the 70 plus 30 plus 20 is 120% of receipts, you know? So, uh, your choice is, you slash defense, you know, you do, you need to come up with some combination of the three of those because everything else we do, roads, education, labor, national parks, blah, blah, blah, hell, you know, it's all a, it it's all a rounding error. Um, and so when you look at 120% of receipts, you've got to find 20. Just just assume you don't want to cut anything else. You know, you've got to cut, um, about a trillion dollars uh, in spending just to get back to flat. Uh, and a trillion dollars in spending is, is uh, I don't know, roughly uh, 3% of GDP. So, you got to cut GDP by 3% right away. There's going to be rep, you know, there, given the leverage in the system, there's going to be multiplicative effects. So, you could go to the boomers, right, the 70% and say, "Sorry, you're not getting your money. We're going to take a trillion dollars out of your guys' pocket." Now, that's a political problem. It's a mathematical problem. Uh, because they will start saving money. They will sell stocks. As they sell stocks, receipts will fall further. You'll actually end up with a higher deficit to GDP as a result of cutting that spending. Paradoxically, uh, you could go to defense and you could say, "Hey, you know, you're spending a trillion now. We're going to cut it to $200 billion." You probably could actually do that. Um, given some of the technological advances, uh, right, it's it's getting much, much cheaper to be a very effective army, as we're seeing in Ukraine, Russia, uh, in in Yemen with the Houthis, uh, who were able to, you know, run a couple of carriers out of there. The United States with which much less expensive weapons. Um, but there too, a, it's political from the standpoint of there's going to be a lot of unhappy Congress people. And then b, it is somewhat mathematical again. Any with debt this high, if you start taking big chunks of revenues out of the system, there is leverage in the system. And so you're going to very possibly end up with a higher uh deficit, essentially as a percent of GDP, because your GDP is going to shrink while your obligations don't. So, uh, it is both political and mathematical. Um, the political is, I would argue, probably the more uh pressing and the one that's talked about more, the more acute, the one you'd see first and and and more more the one that's talked about more. But the one that's not talked about as much, which is the math, it's it's sixth grade math. You just run through, go through the federal spending, take out a trillion dollars, and just run the model. It's like the easiest model in the world. It's literally, it's it's like you maybe it's a little higher in sixth grade math, but it's but it's not much more than a first-year, you know, investment banking guy. It's not more than a first-year research analyst. And, you know, um, it's very clear what happens with that much debt that the system just goes into a debt death spiral.

H >> How long or how far away do you think we are from that debt spiral being something that is really noticeable to the point of uh normal people really feeling financial repression? Well, I I think it depends how you want to qualify that. Um, I think a lot of people want to qualify it as, you know, the great financial crisis and and that panic or COVID and that panic, but I'm not sure that's how it is going to go. And and I would say that we're already in it. Uh, I think we're going to get to a panic phase of that, but I think we're already well into it, right? So, when I mean, how you can't you can't go anywhere without hearing somebody talking about how the the affordability crisis across the West, can't afford housing, quality food is expensive here in America, healthcare is is uh, college. You, when you get into uh, furthermore, things like political instability, uh, when you've got, you know, people like Charlie Kirk who's just trying to have a conversation get shot, when you see the CEO of of United Healthcare assassinated in the streets of Manhattan, you see the political reactions to these things, you see the elections of of populists. These are all symptoms of that financial repression running out of room um, and having been run for a long time. So, I I think we're in it. I think it's continuing. I think when does, you know, the the question is is is when is the acute stage? And some of that is a function of uh, how much longer you can continue to kick this can. You accelerate a little further with more financial repression, um, and then what does it look like? Right? Look, if we've reached the acute stage, really useful, put useful here because I think it's intellectually offensive as as and morally offensive to be honest. Uh, listen, a nice war with Iran would certainly, you know, sort of uh, be one way that governments have historically gotten out of this problem. Or again, gotten out of this problem. Uh, when I look over and see what's happening in Japan, you know, to me, if I keep stick to the financial macro side of it, uh, beginning in the second half of last year, um, Japan's bond market began issuing a very noticeable warning that things are getting much more um, acute on this front, which is uh, something I've shown to clients. A chart I've shown to clients, if you look at the 10-year year Treasury bond yield, US Treasury bond yield, and you subtract the 10-year Japanese government bond or JGB yield from that, you get a what we'll call the the Treasury spread, right? The spread of Treasuries over 10-year JGB yields at that 10-year uh at that 10-year tenor. And then you compare that to the price of the yen against the dollar. And the point here is historically in a developed market and historically between the US and Japan, certainly, uh, when the spread between the when the when the spread between the 10-year Treasury and the 10-year JGB shrinks, in other words, the yield from a 10-year JGB is much more competitive, the yen strengthens. This makes perfect sense. is a if you're, you know, the Japanese have been one of the world's biggest creditor nations for going on 60, 70, 80 years. Um, they have a ton of money overseas, trillions, four, five, six trillion overseas depending how you measure it. Um, for a long time, they couldn't earn any return on their money. And so there was this essential giant yen carry trade. The money would get, hey, I'm going to go buy American bonds. I'm going to pay a the the cost to hedge the dollar risk out and I'm still going to make a positive spread. Right? As that spread shrinks between the the Treasury bond and the JGB, all else equal, Japanese investors who have trillions overseas go, you know what? I don't I don't need to have my money in Treasury bonds. I don't need my money in dollars. I'm going to bring it back home because all my liabilities are here, right? I don't pay for my groceries or my mortgage or any stuff in Japan in dollars. I pay it all in yen. Okay. So we've seen a massive compression of that spread and beginning and and for a while, it strengthened the yen against the dollar. And then in the last fall, something really weird and something very troubling happened, which is that spread kept collapsing and the yen started weakening against the dollar. And everyone across developed markets, Americans, Japanese, I think are a little bit having had a close uh front row seat to the Asian crisis in the late '90s. Uh, but but every everybody I talk to in America, in particular, because we're sort of, you know, we're not just uh, we're not just cushioned by by two oceans from wars. We're also cushioned by two oceans from like reality. Um, and and any of these types of financial crisis and have been for years and it's been wonderful. Uh, when I talk to Americans, they're like, "Wow, that's never happened before." When I talk to people in Brazil, when I talk to people in Argentina, when I talk to people in Turkey, when I talk to these emerging markets, they go, "Oh, that's the easiest chart pattern in the world to recognize." That's literally what happened to us before we went into a debt death spiral. Except this is Japan. And the message of the yen falling against the dollar despite the the the JGB getting more and more competitive rate versus the Treasuries is that the market has begun saying the rate that blows up the Japanese debt isn't that much higher than here. And so I'm not going to take my money and put it in yen. I'm going to sell yen because the higher JGB yields go, I am going to run into before too long a decision. The Japanese are going to have to either go back to yield curve control, which is in plain speak, print a bunch of money, buy all the bonds so that yields never go over a certain level. Or they're going to say, you know what, we're going to let the bond market crash. Yields are going to go up and up and up and up. And that is also a problem for the yen at some point because that is a not the technical definition of hyperinflation, but a technical definition of hyperinflation is once the interest on your debt is so high that you can't cover it with your receipts, you're hyperinflating. You're basically able to print just to pay the interest. And so that is the message of this divergence between 10-year Treasury spreads versus JGB yields, 10-year JGB yields rel with with a weakening yen instead of a strengthening yen. And that just started in the last, like I said, September, October, November. Like this is the this would be when you look at, hey Luke, if you if if you gave me a list of, you know, if you wanted to follow some some some uh metrics where you would be watching that would begin to tick you, you know, trip off your concern about when the acute stage of this whole debt spiral starts. What would you look for? And I would say two in particular would be right at the top of that. This chart, you know, this this relationship would be one and the other one would be uh US real rates, 10-year inverted real rates against gold. And that one, you know, tripped off late in 2023, which is that's real rates are just uh inflation adjusted uh uh interest rates. Um, and historically there has been the higher real rates go in the US, the lower gold goes and vice versa. And that relationship broke in 2023. And that was, I think, in part also a sign something very big is changing. So, uh, when will we see it? I think we're in it. I think we're seeing the social uh aspects to it. I think they're going to get worse. Um, I think they need to do more financial repression because of everything we're discussing. Um, and from a from the actual debt mechanics side, um, I I think they've started and I think it is problematic and I think things, you know, this volatility we've seen in the first half of this year is something we've been looking for. I think it's going to get a lot worse, unfortunately.

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What does this mean for a like I don't know, Steve, who's just uh a normal guy, two kids and a wife, and doesn't he's not a trader like you. He's not a a money man like you or your friends, and he's just somebody who's trying to think, how do I get through the next decade? What what what can he even do about this? >> It's a great question. Um, I think he can not take on any debt that is not productive. I think he can get out of debt as much as he can. Uh, and when I say not not productive, um, any kind of debt that's consumptive should be avoided, right? Don't if if you can make a if you can make borrow money and make a positive spread return, whether that's, you know, a rental house or a piece of farmland or something, great. Do it. But if you're if you're borrowing money to consume, that's a really bad idea. Really bad idea. That should be avoided. Um, that's kind of step one, right? Is to make yourself quote unquote harder to kill, as a as a friend of mine phrases it. Um, I think one has to take an honest look at, you know, one's own um, yeah, I guess, you know, I'm always very big about control what you can control, right? So, okay, you can control not going into debt for stuff you don't need for consumer spending. Uh, you can control your own physical health. Um, are you in the best possible shape you can? Uh, do you need the state and, you know, a thousand bucks a month in drugs to stay alive or whatever? Uh, figure out how to get off of that. There are ways to do that. Uh, in a lot of cases, it's just harder work. Uh, that's something people can control. Um, I think when beyond that from a financial standpoint, uh, I think it's understanding two things. Number one, that this is inbound, in which case it's probably going to be a brief moment of a of a sort of big whoosh down. Uh, probably not too dissimilar from CO or not too dissimilar from from the great financial crisis. But I think in terms of its duration, understanding the context that because we have now had a series of escalating crises whereby, you know, we had a stock market bubble, it burst, boom, they kicked it upstairs to the banking system, housing bubble, it burst, boom, we kick it upstairs to the government, they backstopped much of everything. This is now bursting. There's nowhere else to kick this upstairs to, you know, unless, you know, unless these aliens, you know, that we're all hearing about now, they're going to bring these aliens in and, you know, we're going to basically they're they're going to bail us out with Mars Mars bucks or whatever the hell it is. Um, that's important context for just an average Joe or Steve in our case here, right? Which is yes, there could be a whoosh down. It is going to be whooshed down. But in any whoosh down, this sovereign debt very quickly becomes unrepayable for the reasons we let off with. For example, in the United States, we we can't cover interest and entitlements if receipts fall at all without printing money. And so then it becomes a very simple a very simple uh uh set of analyses for the average Steve, which is okay, this thing's inbound. I've made my balance sheet as good as I can. My health is as good as I can. You know, I think financially it makes sense to be overweight cash and gold right now. I I want to be I want to get to Bitcoin, but I think Bitcoin goes down in this initially first. So, again, I'm on record for being probably too cute on that front. Let's set that aside for the moment. I want to keep my balance sheet really good, conservative and liquid because this debt here, you know, the fact that we have kicked it up to the sovereign and that governments do not go broke nominally, they print the money means any this this as this debt problem gets acute and we get some sort of whoosh, it's going to last for maybe months, probably more like weeks, and there's going to be great opportunities for Steve if he is in a good balance sheet position, not overlevered, in good health, and has some capital to go up and buy up some assets on the cheap during that months or weeks that there's a whoosh down because there is, in my opinion, zero chance governments are going to stand aside for very long at all and go, "Oh, we have this whoosh down. Oops. Now we don't even have enough receipts to pay our interest expense and our entitlements and defense. So, you know what? We're just going to bring all the defense home and fire them all. And we're going to lay off all the baby boomers. We're just not going to pay their health." There is zero chance that's going to happen. Here's how it's really going to go. Oh god. Whoosh. Crisis. We need to do something. Control P, right? Print. And that's kind of how it's going to go. And then they deal with the fallout on the back end, of course, which is, you know, wash, rinse, repeat. Back to some of the social issues we're discussing more, which again, that's why it's important to be in as great a shape as you can. Have as much sovereignty over your health as you can, cuz guess what's going to go up? The price of necessities. How whatever you're paying for healthcare now, it's going to go up and it's going to go up and it's going to go up. Like that is that's that's just how this goes. And, you know, if if uh, you know, having access gaining an increase in those assets because you were able to see this. It's it is offensive to have a money system that someone has to think this way. Um, but this is the reality in which we're living in. Um, so that that's if I'm the sort of an average Steve, that's that's what I would do is just, you know, understand that we're in one of these types of setups and be conservative with your balance sheet, control what you can, and um, you know, be be nimble if you can.

>> Yeah. So, so it's interesting that you talk about being in cash because uh sometimes before a whoosh down, there's a whoosh up. And so certain people sat there maybe with certain assets, equities of kind of sat there waiting for that run up. But you actually think now's the time to be moving into cash. Oh, I've got. Yeah. I I think look, I think for the average guy, you know, if you don't want to try to be a trader, and and I get why you don't, I think it's really important to understand the context that we're in, right? So, we're at the end of a 100-year debt cycle. We're at the end of a 50, 60-year monetary system. We're at the beginning of a great power competition, some new Thucydidean competition between the US and and China perhaps. Um, we are in a technological acceleration unlike we've seen in 10,000 years in humanity with AI, and we can touch on that and that has >> If anybody tells you that they, you know, when you overlay these factors and oh, by the way, we've got the most upside down demographics in forever, um, really in history. Um, we've got a situation where the richest generation in history, the boomers, are the um, are receiving all the government, they, you know, basically 80% of government money. Um, and we've got a situation where, certainly in the US, I suspect in in the US and UK as well, these entitlement obligations look like Weimar German gold reparations, war reparations, right? Is they're off balance sheet and they're we don't owe boomers dollars. We owe them hips and knees and doctor's time and uh, social security is inflation adjusting. This is this is very similar to what Weimar Germany was in when when the allies said, "Hey, you owe us money, but you owe it in gold. You owe it in gold Reichsmarks." And so the Germans would print money and gold would go up and and it was, you know, that's what we're doing and that's the So when you lay these things out, if anybody tells you they know exactly how this is going to go, run in the other direction, including me. Like I have no freaking idea the path. I am very, very high conviction at at the end destination. And that then gets to this view of high level of cash, like I don't want to be fully invested in this world because I just have no idea how this can go. In fact, for for for the average Steve, if you don't want to pay any attention to this, what I've been telling people is I think you want to set up a portfolio from a financial standpoint, right? Set up a portfolio. What I call Jacob Fugger portfolio, F-U-G-E-R. He was a, I'm going to get this wrong again because I was it's a Dutch or uh Belgian uh merchant from early Renaissance. At any rate, he said you put 25% of your money in gold, 25% of your money in cash, 25% of your money in what would essentially today be um blue chip equities with a good dividend, and 25% of your money in real estate, productive real estate. And then you just rebalance as events happen. And what you're doing with that portfolio for the average Steve is you are making yourself from a financial standpoint impossible to kill. Two things are going to kill you in financial, right? You're going to get overlevered and you have deflation, or you're going to be uh, you know, underlevered and hyperinflation. Those your two tails, right? Let's take the one the the the left tail over here, hyperinflation. Yeah, hyperinflate. Currency dies, gold goes to the moon, your stocks go to the moon, your cash becomes worthless, and your real estate actually starts good and then doesn't do well at all. Because in hyperinflation, real estate falls to cash transactions because nobody issues mortgages in hyperinflation. You live, right? Your gold does well. You rebalance at that point. You live. You live. You end up with more on the other side of the valley than you started with. Let's take the other extreme. Great Depression. Your cash does great. Your gold does great. Your real estate gets crushed. Your stocks get crushed. Here, too. You're going to end up with more than you started with. You survive the worst that could possibly happen. Everything else in the middle, you're fine. So when I look at for the average person the set of macro circumstances and forces and overlay them over each other, uh, that to me look, if I was if I didn't do what I do with 30 years experience doing what I'm doing, um, that's exactly how I I mean, it's what I tell my my non-financial friends, you know, my my Steves, my everybody that is not in my business with long experience, hey, what should I do with my money? Do Yes. And just then go do what you do for your day job and do it really well and take care of your health and take care of your and spend your time on stuff that actually freaking matters rather than your money.

>> So hedge every scenario and go and enjoy life. >> Just take the tails off, right? Just take the two tails out. Like only two things kill you, right? Hyperinflation, Great Depression, those kill you. Other than that, it's all noise for the average Steve. And this scenario is one that I've seen it repeated many times now, Luke, even in my lifetime. You mentioned the global financial crisis in '08 and COVID. I Yeah, it feels like this just cycle that gets a little bit more extreme every time. Is there any way out of this? It's like if I know you talked about earlier some of the things they could do, but like if a politician really wanted to get out of these horrific cycles that really uh benefit the few and not really the many. Is there any way of getting out of it? >> Sure. Yeah. The Austrians are very clear about that. The Austrian Austrian economists I've tend to find are, you know, they are they are very, very right in the ultimate long run. They're almost always right in the long run. Uh, the challenge is is this that it's, you know, economics is not a science, no matter what the economists want to tell you. It's a branch of moral philosophy, right? You are not, you know, it's not like, hey, I'm going to take this napkin. I'm going to drop it. Okay? Every time I drop it, gravity reacts the same way. That's science. Economics is like, well, if I tear this in half and give some to them and some to them, what's that person going to do with it? And it's a moral philosophy. It's an incentive structure. It's a it's a different decisions. And that's why they, you know, that's where the in the short run, the Austrian economists have a hard time because they are very, they're harsh. And so, yeah, there's ways out of it. The Austrians, what's uh, what is it? Is it Von Mises who said the only way to stop a a credit bubble once it has started is either voluntary uh withdrawal from the credit bubble or the complete destruction of the currency involved. Yeah, that's it. In other words, in in in plain English, either you stop the credit growth, you stop the credit bubble for unproductive things, and you deal with the economic and political consequences of something that makes the Great Depression look like a tea party, or you hyperinflate the currency. That's it. That's those are your choices in the long run. The only question is how fast it takes to get there. Yeah, they're not great choices. And it's it's funny because even I mean, I look here in the UK and I feel like we're starting to resemble more like um, a third world country in certain ways. We're trending towards being looking like an emerging market rather than a prosperous western liberal democracy. And it feels like to me that people don't really want to accept or uh take the pain of what is required. So they'd rather just kick the can down the road. >> Yeah. And that's that's the human nature of it, right? Of and and you know, when you have when you have liberal democracies, even if they're maybe becoming a little bit more illiberal than they used to be. >> Fair. Um, that's the challenge. Uh, the people get a vote. And, you know, you know, turkeys don't vote for Thanksgiving, as we say here in America.

>> But thinking back to our friend Joe and Steve, um, you talked about the size, you talked about the carry trade, the uh Japanese yen carry trade, but Steve and Joe aren't market people. How will they know what what are going to be the signals for them that things are potentially getting serious or is that not even important? Is it so serious now that like everyone should be preparing right now? I think everyone should be preparing right now for them because again, I think Liberation Day last year is a perfect example, right? We had Liberation Day on April 2nd. Now, March started to have some bumps, right? of last year. And, you know, stocks were down a bit initially. Bond yields went down in the United States, 10-year bond yields went down. Then they stopped going down, which is exactly what we thought was going to happen. And then Trump does Liberation Day, right? That was April 2nd. And for like five straight trading days, stocks down, dollar down, bonds down, right? So that that is emerging market, third world capital flight behavior. Currency's down, stocks are down, and bond yields are going up. That's a disaster that, you know, and and that lasted all of seven trading days. And then Trump tacoed, right? Trump always chickens out. Why? Because the United States Treasury market, the deepest, most liquid market in the world, dysfunctioned so severely. It was literally, um, um, Harley Bassman created the MOVE Treasury Volatility Index. And he's still on Twitter, uh, Convexity Maven. U, and on April 9th, literally seven trading days later, maybe not even six trading days, he publishes the MOVE volatility intraday index and it's like like 187 or one 178 or something. He goes, literally humans cannot deal with that kind of volatility in a leveraged system. And so what will now happen is everybody will simply degross. And the only other times it was like that was like the 1987 crash, 9/11, um, and like the first weeks of CO, right? So literally six trading days after Liberation Day, which the average Joe and Steve would have been like, it's just Trump being Trump. And okay, so the market's down, whatever. What? Who cares? You know, whatever. Down 5% down 7%. It was S&P maybe it was 10 or 15. Who cares? You know, in the grand scheme of things, a nothing burger, right? Nothing. You'd be like, oh my god, it's it's happening. And the Treasury market dysfunction within six days. And by by the time Joe and Steve even noticed anything, it's like, oh, well, Trump tacoed and now stocks go up every day and the dollar goes down. And and and I think it's going to be very similar where something will happen and they, the the the Treasury market will dysfunction. Whatever it will be so quick, the whoosh down back up that I don't think the average Joe and Steve probably, I just think they need to sit tight. I don't even think they'll notice.

>> And how much do you think about AI with this? Because I feel like Luke, right now we're in this, certainly the last two weeks have felt like almost like an AI acceleration phase. The the number of new innovations and technologies and changes that are coming are quite insane. But also commentators coming out. There was the uh AI CEO of Microsoft saying, yeah, in 12 to 18 months, the majority of white-collar jobs are just not going to exist. We're seeing it here and I I know people are losing their jobs to AI and those jobs aren't coming back. But there's also talk of the masses of productivity gains that are going to be seen. So, like how do you balance the potential of AI to be able to plug some of this with massive productivity gains and massive GDP growth versus the uh massive job displacement that might come with it? How do you how do you even consider that? >> You know, for me, I I a degree, right? So, I look at everything in debit, credit, two sides. Everything everything in in finance, everything in life is a debit and a credit, right? You've got a balance sheet in life. If you're an A-hole for a long time, sooner or later the other side of that balance sheet, right? Karma is real. It catches up to you. Um, I also love Charlie Munger of Berkshire fame's admonition to invert. Always invert, right? Take the other side of it. And I think it's what a lot of people let me get and one last thing that informs my views of AI, which is uh the physicist Albert Bartlett once said, the greatest shortcoming of the human race is the inability to comprehend the exponential function. You know, we as a species are uniquely tuned after 10,000 years to freaking nothing ever happening. Right? There were like, you know, 800 million people alive at the time of Christ. Like 800 years later, there were like 820 million people. And another 100 years, you know, another 500 years after that, there were 800 million people, right? So things moved very slowly for most of the time in which our sort of wiring was programmed. And so when I apply all of those things to AI, I am struck by the level of complacency around what it's going to do in a two, you know, in a debit credit balance sheet of the world, the financial system of the world, the economy of the world. Um, is it going to drive productivity? No question. Massive productivity. The problem is on the other side of that balance sheet. And that is, okay, I Luke in theory can create some agents and they can do all of my tax prep and they can do all of my, you know, all these services. That's I keep hearing all these services, white-collar going to go away. And it's going to accrue to me. Great. Except the accountant I just laid is now going to go into foreclosure on his house because we are in a, you go back to the beginning, we're in a levered system. White-collar work around the West, I would bet, what percentage of white-collar workers own their home free and clear? Do you think in the UK, in the US, and in Europe? >> Basically. >> Tiny. >> Tiny, tiny, tiny. And those that, yeah, certainly among active workers, right? I would suspect the boomers, a lot of the boomers, former white-collar workers, uh, probably a lot of them own their houses free and clear. But of sort of the the ones that are about to be disrupted, they almost none of them do. Almost none of them own their cars, right? Car payments are off the charts. Credit cards, you know, student loans are non-dischargeable in bankruptcy in America, by the way. So, uh, you can't default out of those. And so as I've laid off my accountant next door, and everyone else does because everyone else got the well, now his house goes into foreclosure. And the lawyer who lives down the street, so does his house. And there's no buyers because there's no nobody needs like the white collar. Again, it's not that everybody has to get fired. In fact, the title of my report for clients last week was, "No, AI is not going to take all the white-collar jobs. AI is going to take some jobs, and systemic leverage will do the rest." We know exactly how this goes. What percentage of subprime mortgage holders defaulted on their loans? In the grand scheme of things, it wasn't that much. >> Was it like, bring them? >> Yeah, it wasn't that much. Maybe. So the that's the point that and that goes back to you know Munger's point of invert and Albert Bartlett's point of humans' inability to comprehend the exponential function. You take, you send us unemployment from wherever it is today, four, 4.1, 4.2, to I don't know, to 6%? Maybe maybe five and a half. That, you know, in my opinion, that'll be more than enough given the leverage in the system. Mortgage delinquencies up, car delinquencies up. Okay, well, the banks are levered too. There's points of leverage at every system. The homeowner's levered, the bank on the mortgage is levered all the way down, the government is levered, right? And that's another thing people say, will it be just like the '90s? In the 1990s, America was running a surplus at the fiscal level. We had nothing but fiscal space. And so for me, AI is, I I think people are right to be scared of AI, but I think they're scared of AI for the wrong reason. I keep reading these things like, you know, AI is going to be productivity and it's not going to take all the jobs and it's just going to drive deflation way down. And I say, exactly. And in a debt-based system, that was, that is a mathematical bookkeeping guarantee to blow up the entire freaking system. And that's so >> Yeah, so there's there's a there's a conflict between 25, 30-year mortgages in a world where there's huge, huge rapid job displacement. And it doesn't need to be, you know, I don't know, 50% of white-collar jobs gone over the next 18 months. It could be 5%. It could be 10%. And that kind of thing can do what happened in 2008. And could that essentially itself then be the trigger for what goes into the whoosh kind of acute phase? Yeah, I think it is going to be. I I I really think and I I totally agree with you that >> I think we're going to look back in 6 months, 12 months, 18, 24 months time and we're going to say >> February 2026 was the equivalent of July 2007, which if if you if you're not intimately familiar with it, you know, Greenspan started raising rates in June of '04. Meh, into a housing bubble. June of '05, home prices peak and start rolling over. Nobody even knows that till the second half of '05. To look back at your beer, oh, home prices are starting to go down. Even then, me late '06, subprime, the subprime uh um delinquencies and defaults are starting to tick up, but oh, $60 billion for the system at most. No problem. May of '07, Bernanke gets in front of Congress says, you know, it's subprimes are are hurt, but everything is contained. Everything is it's not going to create a broader problem for the entire system. July of '07, two Bear Stearns mortgage funds that had invested heavily in subprime mortgages go from three billion in assets to zero basically overnight. And I can tell you, I was on a sales trading desk at the time. Everybody on Wall Street was like, "Wait, what?" It was like that moment where um uh the sheriff sees the shark in Jaws. All everybody on Wall Street goes, "Holy cow." Like, how is that even possible? This is a way bigger disruption than any of us thought. And I think that's what February 2026 will come to be seen. And I think we're in the very early days of that. And I think that's what we're this volatility we're seeing is exactly what that is. When you get volatility like this in stocks and in crypto and in gold, these are very major tectonic plates pushing on each other trying to figure out what does this mean? Something very big just happened. We don't know how to position for it. But I I I I think it is a I don't think people comprehend how disruptive it's going to be because they're not looking at they're they're still the debate is still, oh, it's going to take all the jobs or it's a bubble, nothing's going to happen. No, no, no, no. You need to understand your context in a highly leveraged system. It'll take some jobs and that that will be more than enough. And critically to your point around the whoosh down, the thing that is really troubling, this isn't like, hey, we just need to get a shot and everyone can go back to work. They ain't ever going back to work on a lot of these things. No. Somewhat, you know, people say, well, don't worry, they'll figure out something. What else did Blockbuster Video do after Netflix? What did the strip malls do after the internet? Like, are we all going to become tanning salons? Because like everywhere I go, like there's tanning salons everywhere, right? Tanning. What? What's the white-collar equivalent of everybody becoming tanning salons? We are going to become painters. Come on. Like I think you understand. I certainly understand. I live in a part of the country, the rust belt. We've lived through this once, and it might be a huge advantage to me for this cycle, which is to me this is so reminiscent in almost every layer to when the United States let China WTO or China entered the WTO and we offshored blue-collar jobs to China. That was just an AI productivity boom. That's all it was. You know, there's very little functional difference between an AI agent doing something in hours for no cost versus, you know, a Chinese factory worker doing something in a day instead of a couple of weeks for for, you know, uh, for basically no cost and no environmental and no regulatory. It's just a matter of degree. And I can tell you how that went. 35% of manufacturing jobs went in seven years. They never came back. They still have never come back. Uh, this is 25 years later now. Um, you know, white middle-aged Americans uh killed themselves at unprecedented rates, much more akin to uh those in 1990s Russia when they lost their meaning. Um, suicide, alcoholism, overdoses, um, more than a million Americans dead in 12 years, '08 to 2020. Um, and so I I'm very concerned about this not just from an economic standpoint because again, once these jobs go away, the Fed's response is, well, let's just print money. Print money for what? What's going to like all you're going to do is bid up assets. Okay, well, are you going to do UBI? That might be where this goes. That then has huge political implications, has huge inflationary implications. Um, there is a period of time between where we are now and sort of this utopia that technologists point to. They just kind of pretend like it's not going to happen. >> I think they're freaking high. >> Because the the job numbers that came out last month were yeah, slightly concerning because it was on both ends, right? The rise in unemployment and uh uh and there was a and the lack of new job creation. And even if we, I mean, you're talking about this, it feels like an imminent problem, but it's actually going to be a scaling out of many jobs over the next 18 months, so it's like a whole period to rise, ride, ride through. And I don't really know what options the state has beyond UBI. >> Yeah, I don't know. Um, I don't know because yeah, that, you know, there was a there was an article, I don't know which magazine it was, it was a senior uh British barrister talking off the record. >> Guys, I mean. >> What's that? >> He was in the Spectator. He was a KC. He said, "I'm very good at what I do. And this thing is way better than me. We're screwed." >> And it's fascinating all of the cope, etc., that I hear from a lot of white-collar people, because it sounds exactly like what the blue-collar guys were saying here in Cleveland, uh, in the rust belt in 2001. Yeah. Yeah, the Chinese are cheaper, but their quality sucks, right? Yeah, the AI is cheaper, but, you know, it's still it still imagines things. Well, show me a piece of technology that isn't getting 10 times better a year, every year, right? Certainly on the AI front, right? But Moore's Law, right? Moore's Law doubles. So this is Moore's Law has been inflated for what, 50 years? You know, compute power doubles every 18 months. Great. If it's not perfect today, right? It will be.

Know the blue-collar guys. Oh, you know, yeah, the Chinese. Okay, you know, they, they'll make cheap stuff really well, but they're never going to move up scale. Well, guess what they did? And that's just like, well, AI, you know, it can do some of these easy tasks, but it's not going to do any more complex tasks. And you know, in the last four weeks, we've had these, you know, guys in that world go, "Oh my god, it's doing these complex tasks like really fast. I'm not even needed for my job anymore."

And in the meantime, while you and I go to bed and get a night's sleep, the machines are just getting better and better and better and better. And so there's this level of denial there. There's this level of, uh, you know, inability to comprehend the exponential function because it's moving so fast. And I don't, like you said, I don't know what options they have. This is so fundamentally altering because again, we are in a debt-based system. Everybody took out a mortgage on whatever under the assumption of a world that is about six months, 12 months, 18, 24 months, pick your time, from no longer existing. And you're still going to owe that debt, but you may not have that job. And so it is a, it's a huge political issue, huge political issue, huge monetary, economic issue. You know, there's been research on UBI. It's extremely discouraging. You know, yes, actually people end up worse off. Uh, yes, they, they get to live, but the quality of life decreases, the, the, the meaning decreases, the rates of suicide go up, mental, all these problems.

So, and oh, by the way, the very bedrock of our entire financial system are Western government bonds that under aren't going to be able to be repaid without printing massive money because of AI within, I don't know, you know, I just pointed out to start that the true interest expense, right? Just our interest and our entitlements are right around 100% of receipts. AI is going to crush receipts because there's half of receipts, over 50% of receipts in America are employment-related, and that's all white collar because we all went to service because, you know, we had to get out of these dirty blue-collar jobs, give all those to China. So I am very concerned about how this goes for the next six months, 12 months, 18 months, 24, both from an economic standpoint. And I agree with, ultimately, there's probably some version of, you know, printed UBI, but then, you know, where things get darker is, do you really think they're just going to hand people money without a quid pro quo? And what's that quid pro quo? And who's making the decision of that quid pro quo? And what does that drive? And how are we going to keep voting rights when everybody's just getting straight freaking, you know, money from the government? How, how can you have a, how can you have a democracy when a quorum of the voters are just getting like literally money straight from under no pretense? I don't know. But I, but I'm, I've seen enough of human nature at my age and certainly in the last 20 years to know that like, you know, we're not all going to hold hands and become painters and artists and sell this stuff to each other online. Like that's, that's Pollyannaish.

>> Yeah. I, I don't want to press you too hard on this, but it, my sense is that you feel the cracks from this is imminent in that you said we may look at Feb 26 like Jun 08. Do you feel like it's that imminent? We, or, or is the signs already there in what you're looking at that the AI is going to be creating this pressure on the housing market and and such?

>> I, July. So July of '07. Yeah, I think, yeah, I do think it's that imminent. I know I do think it's that imminent.

>> Are we talking weeks or months? You've got to get your together.

>> I think it's probably, I think it's probably more months. I think it's probably more months. And the reason I think that is, is, you know, again, to quote Charlie Munger, show me an incentive, I'll show you the outcome. People say, well, they're not going to move it that fast. Corporate America is paid stock options, quarterly earnings, tremendous pressure. And if one company sector does something and gets rewarded for it, management better figure out how to do it, or they're going to get fired. They're going to roll this thing out so fast, and it's just going to keep getting better and better. I mean, last, forget last earlier this week, I heard a major American bank had a training program for a white-collar field in, um, I won't elaborate. Been there a bunch. They work, they, they, they bring in college kids. They work for two years, and then they either, you know, move on or they go to a different part of the bank. They're getting rid of the program. Literally three months ago, they thought they were going to be bringing in multiple tens of more kids for this year. Not only are they not doing that as they planned for this year, but the ones who started last year that were supposed to have another year, they're getting let go, too.

>> Now, it's like a ladder. It's, it's like they've taken the first rung off the ladder.

>> They take the first rung off the ladder, and, and they didn't, they, they did not, according to my friend, they didn't say we're doing this because of AI. What my friend said is they were really squirrely about not explaining why what changed. And so, you know, I've been doing this a long time, so this is speculative and intuitive, but it's probably right. I've learned to trust my intuition, which is, if they go into that, if the bank management went into that meeting and said, "We're doing this because of AI." Do you know what happens to morale? Do you know what happens to confidence? It, it, it implodes. But that's what's coming. And it's not going to take two years. It's going to take six months, maybe, until something like that happens. And, you know, everyone's going to go to the bar on Friday and go, "Yeah, hey, did you hear about Joe? He, you know, he was supposed to be good for two years, and, you know what? They just got rid of his program, and now he's got his student loan debt. He's got his mortgage or his apartment. He's got his car loan, and he doesn't know what the heck he's going to do. What did it?" Well, probably AI. And eventually, they're going to say it's going to be AI. Some of the companies are already saying it. I mean, it's so, it's so explosive. Last year, I think it was in the New York, the New York Times or the Journal, Amazon is literally telling its people not to refer to robotics or AI taking jobs. They know what a political disaster this is going to be. And more importantly, they know that there's great organizational risk. If you let too many of your people know that they're disposable before you're ready to dispose of them, the organization collapses. So, it's this really tricky management problem. And it's a, you know, my guess, it leads to a conclusion that one of the things we should look for is consumer confidence, which is sort of already pretty low here in the US, which is very, again, it's another divergence. Historically, US consumer confidence is just like the S&P with a slight lag. S&P is basically still at all-time highs, and consumer confidence is at like, you know, GFC levels or, you know, really low levels. I don't know if it's quite that low. But I think, I think sometime in the next six to 12 months, we're going to see a consumer confidence level that is like literally like they're going to have to create like a negative line on the chart. It's going to plummet from low levels, and people are going to go, "That's weird." And I think that'll be the first warning of like the hundredth monkey, so to speak, has just been told or has just realized that, oh, like, look to your left, look to your right, like at least one of you and maybe two of you aren't going to be here in six months, 12 months, 18 months. And that's about enough time ahead where people will start, right? If you know, you go to the average Joe or average Steve and say, "Look, your job is safe." Great. I feel good. Your job might not be safe in six months or 12 months. What does Joe or Steve go home? "Honey, stop spending. We need to save our money." That's, these are the kind of things that you want to look for. I think we're probably going to see them pretty soon, unfortunately. It feels like there's this horrible conflict between the deflationary benefits of AI and the need for the government to have inflation to wipe out the debt. These are two kind of like opposing forces that are coming to a head, really.

>> Oh, yeah. And it's not just, right? If this was, this was 1995 and the US government's running a surplus and, right? Like you're going to have a bunch of mortgage defaults. A bunch. Like, not to say who cares, but from a systemic standpoint, who cares? It doesn't matter, right? There's going to be winners, going to be losers. They'll find a clearing price. We know this, right? This was late '80s, early '90s. You had the, uh, um, S&L crisis here, right? Like you had real estate blow up here, but our fiscal books were in a great position. Debt to GDP was low. Um, they worked it out. Now, a deflationary whoosh calls into question the solvency of the United States government, the UK government, the entirety of Europe, uh, Japan. These powerful, massive sovereign entities are all, you know, China's in no great shape either. It's just that they have a closed capital account and they got, you know, way more gold with their people. So, like they, they're actually probably in somewhat of a better aggregate balance sheet, but they're going to have a huge demand and political problem, too. So that's the thing that people just aren't thinking about. Western sovereign debt, it's not even a question. It is unrepayable in a deflationary whoosh. You know, in that period of time between today and sort of nirvana where everything is plenty and free that, you know, Elon and others have talked about, in this intervening period of time, and I don't know if that's six, it's not six months, but it's probably 12, 18, 24. I don't think it's 36 months, it might be, but in that intervening period in time, the very bedrock of the sovereign debt that underpins the entire banking system of the entire Western world, they're unrepayable in anything resembling real terms. So either print the money or default. That's it. Like, AI brings that decision forward because you look, we ran up, the United States ran up 30, what are we at $38 trillion in debt, and we got a giant pile of nothing to show for it, right? I mean, couple of bailouts, couple of stupid wars. We didn't get anything. Like, yeah, it is AI's deflation is problematic enough, but the pace of AI deflation, I, it is simply incompatible, incompatible with sort of everything we know in the financial system as it sits today.

>> And if you want to be in cash for when that whoosh comes, you still don't want to be in cash too, because if they print their way out of it, that's going to inflate away that cash itself. So, you're going to need some hard assets.

>> Yeah. I'm probably sitting personally, uh, I've probably got, uh, between cash, gold, I still have a little Bitcoin, right? So, um, cash and gold, uh, alone, I'm probably over 50% of my liquid net worth now. Um, Bitcoin would probably, you know, it's, you know, a few percentage points. Um, my view is I'm going to be able to buy Bitcoin back a lot cheaper in that whoosh. Something I'll, uh, um, you know, uh, all, uh, co, um, and yeah, it's not going to last long though. I fully concede. I'm being too cute. You know, the challenge is, is right now, it's very hard for the policymakers, even if they were good second derivative thinkers and could see this, and there's a couple, there's one or two here and there that I think can see this, but most of them can't. Most of them are just, they're not very good thinkers. Um, even if they could see it, they've got the same sort of problem politically. How do you get up at a podium and preempt this? What do you do? "Hey, everything's fine right now, but in 12 months, half of your jobs are going to be gone, and so we're just going to preempt this with UBI."

>> Yeah, we're fine.

>> Right. Like you're, they're screwed, right? Literally markets. So the ones that do know this, they can't say anything. This is like, know, like this is like knowing an asteroid is going to, this like the movie Armageddon, right? With Bruce Willis and and Billy Bob Thornton and Ben Affleck, right? You know, there's this scene where like, okay, they realize the Earth killer's coming, the Earth killer, and like, okay, does anybody else know? And and one guy in an off-hand comment in the meeting, he's like, "Yeah, there's, you know, there's eight telescopes in the world that can see it right now. We control seven of them." He, and they're like, "Great. This gets classified. Boom. Done. We can't say anything because the second we say something, everything breaks." It's kind of the similar where, I mean, can you imagine that press conference? "Hey, AI is coming. 12 day, you know, in 12, 18 months, half of your jobs are going to be gone. But don't worry, you can be a painter. Don't worry, you can be an artist. You can find meaning finally." And here too, it's, it's, it's amazing the hubris of sort of a lot of the policymakers and and the financial types, etc., who say this blue-collar workers lost their meaning in the rust belt. Guess what they did? They drank and drugged themselves to death and shot themselves. In the Soviet Union in the 1990s, Soviet apparatchiks in that gigantic system lost their meaning. What did they do? Drank themselves to death, drugged themselves to death, shot themselves to death. Let's go back a hundred years. Let's go to the Plains Native Americans. I have a friend who is a, uh, um, member, elder of, uh, Plains Native American tribe. Spent a number of years, about 10 years ago, doing some really cool sort of, uh, uh, survival stuff amongst other things. And like, he tells the story, they were these were the free nomadic people out on the plains. In theory, they have a better way of life. Hey, you're going to have running water. You're going to have supermarkets. You're going to have all of these things. You have a better way of life. What did they do when their way of life changed? Drank themselves to death, shot themselves to death. There is something fundamentally about humans, and especially men and middle-aged people, needing meaning, needing a reason to get up and provide for their loved ones, their partners, their children, their parents. And when you take that away, you take something fundamentally deep inside away, no matter what sort of the tech autists and and, you know, optimists want to tell you. I'm not trying to be a doomer, I'm just being a realist. And you've got across spans of time, Native Americans, across spans of political systems, the Soviets, across, you know, America, the blue collar. And consensus is like, "Oh, it's going to be different this time. Don't worry. We're just going to take everybody's job in 18 months." And everyone's going to be fine. Like, what? What? What are you talking about? You have no idea of history. Sorry, I'm getting a little worked up now because.

>> No, I'm I'm with you, man. Cuz like I worry I'm already seeing it.

>> I mean, I'm already seeing it.

>> And they're growing the state at a time where they need to be shrinking the state. They're raising tax at a time where people can't afford it. I've seen it here in London. I got friends. It's, it's not that they're not getting good offers on their houses. They're not getting viewings, Luke. People are losing their jobs and unable to find jobs to because their jobs not coming back. It's not like, oh, I can go and work for the other company because they're getting rid of them as well. And it's like, I talked to you, you know what's going on. Ray Dalio has been warning us. The AI companies are telling us what is coming. And and nobody in a position of political power is coming out and saying, "This is real. This is a situation. We need to hunker down and be prepared for it." No, they're just doing the opposite. I'm, I'm with you. I'm, and I'm concerned for myself and my family. I'm concerned for my friends and my loved ones. I'm concerned for everybody.

>> It's, it's hard. It, and, and there was, when I was, I don't know, this is a long time ago now. Um, I had a friend who was in a horrific car crash, um, with his wife, and she was killed instantly. And he survived, had horrific injuries. And after, you know, sometime down the road, we were having a frank conversation, and that sub, that that horrific incident came up, and he made this comment in passing where he said, you know, "I knew she was dead. I knew, you know, I was semi-conscious, but I knew she was dead." You know, because he, he lost consciousness, wakes up, he's in a hospital getting wheeled somewhere, but still like he's like, the only thing I knew was she was dead. And I said, "How did you know that?" And he goes, "Luke, cuz when you're in that setting, when there's nothing to say, you, you say nothing because all they want to do is focus you on you surviving." Because if they tell you she's gone, maybe they lose you. And I, it's a, I can't help but think if it's like a metaphor for why the politicians, they don't know what to say. It goes back to like the, do you go up on the podium and tell people like, that's not going to make things, it's like they ask, "Hey, an asteroid is coming in, and if we don't blast it or handle it right, it's going to kill us all. Have a good day." Right? How do you, and people say, well, it's, you know, it's not going to happen that fast. Okay, great. Maybe it doesn't happen that fast. But again, h, how many Blockbuster video stores are there left in America? It used to be seven or eight thousand. I think there's none. So, we can debate, in my opinion, we can debate, you know, how fast are 7,000 Blockbuster stores going to zero because of Netflix, but that right now, so much of the debate is still like, "Well, Netflix is never going to compete with Blockbuster because they still, they're just sending DVDs in the mail." Well, who cares? And that's the exponential function people are missing. Oh, you know, Blockbuster has all the stores, they've got the distribution, they have the relationships, and Netflix is has no presence, and they're sending DVDs in the mail. And then just like that, bandwidth speeds got fast enough, and it was over. That, that's what people, and I think that is what these tech, one, the guy who was running, you know, Guardian or Guard at at Anthropic, like quit his job two weeks ago to go write poetry in the UK and disappear off the map, right? I think that's what just happened.

>> He left us with a poem.

>> Right. There's this debate around, well, it's never going to happen, it's never going to happen, really. Yeah. And these are the same people who will tell you, never bet against technology, never bet against America, never bet against ingenuity, never bet against engineering. And like, "Oh, don't worry, this won't." Like these things are engineered to do it. We can have the debate. Okay, Luke, you're wrong. It's not three months or six months. It's 12 months, it's 18 months. Totally possible. Maybe it's 24, 36 months. Totally possible. Totally possible.

>> It's still coming.

>> It's coming. It's coming. And tell me the right moment in time to start preparing for that asteroid. If it is 24 months or 36 months instead of six months or 18, it's still, what's the right time to prepare is today. It's still like, you can argue people won't see it for another six to 12 months. And so they maybe they won't do anything, but it's still coming. And me as a practitioner in markets, I'm like, I don't have to worry about quarterly or monthly numbers. Like I know what I'm doing. Like I don't need to be right on the timing. I can look at central banks. I see what they're doing. They don't need to be right on the timing. What are they doing? Buying gold like they're like their lives depend on it. Um, you know, it is, I don't know. It is a very, I mean, you have, you have, you have a child, children, right? I, I have got three kids. They're all young adult men.

>> What, like the only thing I keep telling them is like, you're going to get knocked down. Things are going to get weird in the next three years, five years, 10 years. All I ever ask you is your father, when you get knocked down, get up. Get up because if, like, and lean on us when you need it, whatever, but just, I am, I get worked up because I see the level of complacency. Uh, I see the level of hubris. I see the le, and I, and I'm just astonished by it. And, and I think it's a disservice to the average Joes and Steves. I tell, I tell you what I've done over the last three months, weirdly, in that, in the, not knowing what's coming and not knowing how to actually 100% prepare for it outside of hedging some positions, is that, um, with my kids, I've tried to get across to them, uh, the best thing you can be doing is kind of reading books and reading history and enjoying your time. And like my daughter, I'm like, I don't worry too much about your exam results anymore. I worry about, uh, how you, how you speak to other people, like how you, in, you interact with other people. I think that's your most important skill right now. And then personally, I've just started cooking dinner every evening and having a family dinner every evening, and I play tennis three times a week. I'm like, I can't prepare for this. But what I don't want to do is think, well, at least I could have spent some more time with the family and play some tennis because if it's going to suck, I want to at least know I used this period of time well because the time is scarce itself, Luke. So that's, that's where my head is at. But I do think this is the biggest risk that people are underestimating despite all the interviews that people are giving and the public commentary. I think it's a huge risk. One thing I did want to ask you actually, cuz you mentioned Elon Musk. He was saying don't even bother saving for your pension for 10 years out. We're not even going to need money where we're going. And I can't even comprehend what he's trying to say with that. One, is it because everything's so or because we enter an age of abundance, we have to have a new measuring stick? I cannot get my head around it at all.

>> I think it's the latter. I think it's the latter that, that ultimately there's this age of abundance. But when you think through what that really means, right? Like, let's take it to the extreme. Let's pretend every product that you access is free. Everything. How does, how do all of the corporations who borrowed hundreds of billions of dollars, mostly to buy back stock in America over the last 20 years, how do they repay their debt?

>> Or do they even exist after that?

>> If their products are all free? Like, and again, let's just, this is like,

>> Extremes inform the means, right? So I think, and I think a lot of times Elon talks in eventualities of extremes, and I think that's what he's saying. Well, if everything is free, then literally every American corporation has nothing to sell. They have no revenues, but they still have their debt. Well, guess what that means? The value of the equity is because capital structure 101 says the bondholders get exactly zero. In an age of an abundance, it's almost like a Schrodinger. It's like Schrodinger's finance. Schrodinger's right. The stock market goes to zero and goes to infinity at the same time, right? Like,

>> Um, because if everything's free, the discount rate goes to zero and assets are worth infinity. But at the same time, capital structure 101, the balance sheet, equity is zero because the bondholders are going to say, "Hey, oh, you have no product anymore." Uh, but maybe they create new products on their side. So like, as people try to figure that out, you're going to see volatility. I think that's like, we're in the very early days of that stock market. Up 800, down 600, up 800, down. Uh, what do I do? You know, Schrodinger's market. Um, if everything's free, if nobody has jobs, let's, let's even take it back. Let's take away from the corporations because I think that's very hard.

>> Yeah.

>> Hard to visualize. Let's take.

>> How do you coordinate? How do you? But I even think like, how do we coordinate? How do you decide who has what land? What, what property do you live in?

>> Well, I, you know, take, take a step back to like, I think a much harder example, which is 52% of receipts in America are from employment. Employment's, let's just say, great gone. Okay, some big part, again, let's take that number. Let's cut that number in half. So now the federal government is running at, you know, their short receipts 25%. So now just the interest plus the entitlements on the receipts, on the, on the debt are what I say 25%. So half, two and a half, we're going to take that down by half. So tr and half, three and a half, four. So we're going to have about five and a half trillion dollars in entitlements and interest over four, 3.8 trillion in receipts. And that's just, you know, do they print the money? Do they not print the money? Um, and there too, if they print the money, the bonds are worthless, are going to be worth a lot less on a real basis. And if they don't print the money, the bonds are literally going to default then. But this is the sort of the stuff that, you know, sort of Elon and I've seen, you know, as brilliant as he is, he sort of goes from here to here. He did it with Doge, right? "I'm just going to cut two trillion." I remember going, "Are you high? You can't cut two trillion." Like, and like he was like, "No, no, no, no." And and I, if I had a nickel for every person who told me, "Elon, Elon would figure it out. He's the smartest man." And he, he is one of the smartest men in history, and he's a brilliant businessman, and and all these things, a brilliant technologist. And I had sixth grade math going, "Elon is never going to get anywhere near cutting a trillion dollars." And I had so many people tell me, "Oh, he's going to, because he's Elon." Well, math is math. Same thing here. Math is math. Okay, great. Elon, we're going to get to City of London when his cop, when, when a City of London cop's pension fund full of government bonds either goes away in real terms or, you know, is marked down on real terms or or is defaulted on. How many cops show up for work? And when they show up for work, when that store gets robbed, what do they do? They gonna risk, you know, they gonna risk getting stabbed, not go home to their kids for a pension that no longer exists? In America, you get shot. There's no, and these are the, like, unless you've talked to people in other parts of the world where this kind of thing happened, you have no idea. Like, we have friends who grew up in the former Soviet Union. They said, "My family was the richest family in the village, and one night they closed the banks. Two weeks later, they reopened them. We had enough in the money, you know, when they closed the banks, we had enough money to buy five cars. When they reopened them, we had the same amount of money, and it bought one month of groceries." And like, you know, the cops lose their pensions, you know, in real terms. What do the cops do? Simple. You got a badge. That car over there, hey, you got a broken tail light? No, I don't. Well, you better pay me 100 bucks, or you're going to have a broken tail light. What are you going to do? Attack a cop? You get killed? No. They just start shaking down people. Things get, you know, things get a lot less sort of safe, a lot less civilized. These are the sort of inter-area, like in the land of plenty, how do we go from here to there? What does that mean for the sovereign bond market? What does the sovereign bond market mean for all of these, the real value of all these pensions? What does the real value of all these pensions falling mean for all of the services, the safety, the, all of, there is no thought going into these second and third derivative implications. There should be, but there's not. But it's a little, one of these things like AI is a virus. It's out there. Like there's no stopping this thing now. So, I don't know. I'm, I'm talking a little bit stream of consciousness now. I think what Elon is ultimately saying is in the long run, all that paper is going to go away. You're either going to have energy or metal, right? You're going to have gold or Bitcoin. Um, and that makes perfect sense to me.

>> Compute energy, compute gold.

>> Right.

>> Compute Bitcoin.

>> It's, yeah. Paradoxical. The most hyperdeflationary. I mean, look, the, we have a fiat debt-based system that requires inflation, and this is the most deflationary thing maybe in 10,000 years, and the system won't survive it. And on the other side of it,

>> Collapse.

>> It'll collapse. And,

>> You're going to, you, gold, Bitcoin, you know, energy, you know, real assets. And, and we're starting to see a separation in that. But I, yeah, I saw that comment from Elon. It's a fascinating comment.

>> Is how do we get there? Yeah. Oh, man.

>> Yeah. The path from here to there is is not, it's not as, you know, you and me and, you know, the lion and the tin man and the straw man and Dorothy, you know, skipping our heels down the yellow brick road. That's not, you know, if you think that's how it's going to go, like I'd encourage you to read a history book. As, as per, like I think what you're doing, I think it's be brilliant. Have them read real books. Have them build real relationships. Have them, you know, probably take a Dale Carnegie sales class, right? Like online, right? There is, there is no limit to because if they're anything of my kids' generation, my boys are pretty good about it. They could always get a lot better. But their face-to-face interpersonal skills because, you know, they got, you know, this bad boy, they're, they're, they're atrocious. They can't talk to people. So, if you can talk to people, it's like a superpower if you're, you know, uh, sort of a young, young adult. So, anyway, I don't know. It, it is.

>> Yeah.

>> It is. It's, it's fascinating and horrifying all at the same time.

>> Yeah. Well, we live, we live it in the most interesting time. We get to live through it and see it. Uh, I think it's probably a good time to finish. Look, unless there's anything else you wanted to add, anything you want people.

>> Are going to need like a, a warning to remove sharp objects and, you know.

>> Yeah.

>> James Belushi or, uh, John Belushi, right? Yes. I, my recommendation is you start drinking heavily, you know. I guess that wasn't for Belushi, was it? That was Otter.

>> Probably, probably, uh, get a few more subscriptions to your newsletter. It's probably a healthy time. Luke, listen. Look, it's great to talk to you. I appreciate you giving me some time like this. Um, you're one of the people I look to most in these challenging times for a little bit of a signal about what to do. And, uh, I think I'm going to be doing some rebalancing myself after this over the next few months. But thank you so much. Uh, hopefully I'll see you in person at some point soon as well.

>> I appreciate you having me on, Peter. It's always great catching up. Really enjoyed it. And yeah, hopefully we'll, we'll get to catch up in person. It would be wonderful.

>> Thank you. Take care. See you later, everybody.