Peter Schiff vs Jim Rickards: Monetary Endgame Debate

I've been worried, uh, that the accumulation of all of these debts would ultimately lead to a dollar crisis and an end of this, the dollar's position.

>> Well, I wouldn't say there's no risk to the dollar. I do think the so-called debasement trade that, uh, you know, central banks are dumping US Treasury securities and the days of the, the US dollar as the global reserve currency are numbered. I do think that's largely incorrect. Now, there is no evidence that countries are dumping US Treasury securities. It's just not true.

>> Yeah. No one is, no one is dumping them, but they're not buying the way they were, which means we're dumping them because if we don't have foreigners to buy our treasuries,

>> somebody's got to buy them. At the very time that long-term yields are rising, you're having inflation, which is already well above their so-called 2% target, rising. So, in what world, let's say, do you have even official inflation, let's say it's running at 5 or 6% or 7%? Yet you have long-term debt yielding 3%?

>> Be careful what you wish for. They're going to get lower rates. Rates are going to come down a lot, but that's usually associated with a recession and depression.

>> Well, here we are.

>> We're here,

>> in Amsterdam.

>> Yes.

>> Great to be here. Beautiful city.

>> Yeah. It's, I guess it's a first time for both of you. And I've been here before. Yeah.

>> Not recently, though. So,

>> is this time better than the first time?

>> Well, I had a lot of fun the first time I was here. So,

>> so you're implying that you will not have a lot of fun now.

>> Well, we don't know. I just got here, but I was a lot younger the last time I was, I was here, and so it's my first time in Amsterdam. I've been to the Netherlands a number of times. I, uh, uh, just been to Utrecht for whatever reason. Just the situation took me there. But, uh, uh, it's great to be in Amsterdam. It's a beautiful city. Uh, lots of charm, lots of history, of course. Uh, great people, great food. So, it's, uh, really enjoying my time here.

>> So, you're living, level living up actually from Utrecht to Amsterdam, I would say.

>> The Utrecht citizens might disagree, but yes, you can say that.

>> When did you get here, Jim?

>> Um, Sunday morning. Yeah. So, yesterday, the track, of course, has a flying saucer that crashed into a building, but, uh, you know, Amsterdam has a lot else. Well, we, we actually sitting here in our new office. This is, uh, this used to be, um, well, the streets where, and I told you before, where they were brewing beer,

>> but today we're not going to brew beer. We're going to brew things about macro financial markets.

>> Maybe we'll drink some beer later on, but,

>> definitely, um, and obviously gold, because that's also the, the context of, um, well, it's an absolute honor. I have to say that on my right and left, I have two legends, if I can say, of the gold industry. Uh, everyone knows Peter Schiff, Jim Rickards. I think those are names that are kind of, yeah, like a reference in, in the industry.

>> We've been talking about gold for a while. So,

>> yeah. And also, Jim, you also wrote many books.

>> Um, and we are celebrating 15 years of Gold Republic. And this is also an honor then to be able to celebrate it with among, yeah, the two of you as well. And, uh, the topic of the conference is the future of gold. And before we talk about the future of gold, I thought maybe it's good to talk about the present of gold and what defines what gold is today because we had, well, 5,000 years of history from gold, right?

>> And, uh, this time feels a bit different, but also not.

>> Yeah.

>> So, how would you put that into context? If you look at, at the, at the history of gold and where we are today and what was gold and how it evolved, how would you say that this turning point we are in represents,

>> Yeah.

>> the future of gold?

>> Mhm. Yeah. Well, I think gold has a long future, bright future. Um, and I think that, I think gold is going to kind of resume the monetary role that it played for most of, uh, human history or, you know, civilization. You know, we've kind of moved away from gold as money over the last 50 or some odd years. Um, and we've experimented with fiat currencies as an alternative to real money. And I would say that it's a failed experiment. And I think it's coming to an end. And I think that's the reason that we're seeing the rise that we've seen in the price of gold recently. We gold prices have doubled, more than doubled in the last couple years. Uh, and central banks, uh, foreign central banks have really started to accumulate gold again. Uh, they now have more gold than US Treasuries, and that is going to continue that trend. And I think central banks are doing this for a reason. I think at this point, they know that the dollar's days as, uh, the reserve currency are nearing an end. How many days left is anybody's guess, but I think they are preparing for a world where they need to back their currency with real money, and, and that's gold.

And I think what's interesting about gold's future, and I just came from, you know, this blockchain week in, in Dubai, and you know, the people in the Bitcoin community, uh, just believe that gold doesn't have a future because Bitcoin is the future of gold as digital gold, as something that's better than gold. And I think what that community doesn't really understand, and there's a number of things they don't understand, but I think what blockchain does, it doesn't replace gold. It actually improves gold. It actually makes gold more useful as money than it was in the past, uh, because instead of being limited, you know, to, uh, you know, physical proximity where if I have gold and I want to transact with it, not just use it as a store of value, but if I want to use it as money as a medium of exchange, I, I need to be physically located with the person who I'm paying. Um, you can have gold ownership represented by paper, which is what we did for a long time. You know, under a gold standard, you didn't always bring your gold around. Uh, you had a note, uh, that was effectively an IOU. The gold was in a vault somewhere, either at a blacksmith or at a bank. And rather than paying the gold, you would pay a note that was an obligation for the, you know, the, the issuer to pay gold. Uh, and so that was currency.

But now with blockchain, um, you can take that to a much higher level because I can now tokenize gold. And now instead of writing a piece of paper that represents ownership of gold, you can have a token. And that token is easily transferable and, and divisible, uh, in a way that makes gold even better as a medium of exchange than it's ever been. Right? People, you know, they, the Bitcoin community wants to criticize gold. They say, "Well, you know, you, it's not as divisible as Bitcoin or as portable or as fungible." Yes, in as a physical metal, but once you tokenize it, it does everything that Bitcoin does, except it does it better, faster, and cheaper. And unlike Bitcoin, it actually has value. It actually has, you know, bit, a tokenized gold would actually be, um, digital gold because its value would be derived from the gold that backs up the token. The token would be redeemable in actual gold. So, in that sense, it would be digital gold. Bitcoin is a digital fiction, and it's, it's, it's fool's gold. Uh, so I think that blockchain and what is happening right now with technology, I think is going to help, uh, bring the gold standard into the 21st century, as will the, uh, currency crisis, the dollar crisis that I think we're headed for. And I think the only, uh, way out of that crisis is to return to real money, and, and that's, that's gold.

Hm.

>> I think you have to start the analysis by asking what is money? And one of my thesis is that we've, um, we, meaning civilization or society, have kind of lost the thread as to what money actually is. Um, uh, there's a classic definition: money is a, uh, a unit of account, a store of value, and a medium of exchange. Uh, there are other definitions, but that's kind of a good working definition. And to Peter's point, um, gold is a is definitely unit of account and store value. I don't think there's any question about that. Uh, as a medium of exchange, uh, its role has been diminished, but I think it is coming back.

And I would particularly point to, um, a lot of discussion about, uh, the BRICS, uh, you know, Brazil, Russia, India, China, South Africa. That's, that list is expanded to about 12 countries. I think they have a waiting list of 17 countries. So, the BRICS group is expanding, um, very rapidly. And there was a lot of buzz a couple years ago. You know, the BRICS are going to launch a new BRICS currency, and, uh, it's going to replace the dollar, and, uh, uh, it'll be their medium of exchange, other countries could join in, etc. And then that kind of went away. There was a lot of, uh, there were serious questions about the feasibility of that. I mean, what's actually going on? The BRICS are building new payment channels. Uh, they're putting down, uh, uh, fiber optic cable. They're creating their own clearance systems. They're basically creating a parallel system to Swift and Fed Wire and the traditional dollar payment systems. That's not a new currency. It's a new payment system. So, they really can get out from under sanctions, uh, imposed by the US and other, um, other aspects of national security constraints.

But the point I make is, uh, so let's say you're Russia and China. Russia is buying manufactured goods and, you know, technology from China, and China's buying, uh, natural resources and oil and gas from Russia. There's a lot more to it, and a lot more members, as we describe, Brazil and India and others are important players. But in that simple bilateral sense, well, you know, Russia's sort of piling up, uh, Chinese yuan that they're receiving as payment, and the Chinese are piling up rubles that they're receiving as payment. And that's fine. Again, unit of account, you can keep track of that. But, you know, how much Chinese food do the Russians really need? I mean, there's a limit on how, if you're the central banker, and I, I always make the point that Elvira Nabiullina, who's the head of central bank of Russia, is the only central banker in the world who really understands her job. But, um, there, there's a limit on that. But so, you have to settle up on some basis. And the point is, uh, a couple things. Number one, you don't have to settle on a gross basis. You can settle on a net basis. So, if I owe you yuan, you owe me rubles, we can net them out, probably with a dollar equivalent up to a certain point, and then just settle the net number. Number two, you don't have to settle in real time. You can do it quarterly, once a year, that's fine. The central banks can settle with their individual buyers and sellers and exporters and importers, uh, then keep the ledger and then, as I say, settle up between themselves. And I say four times a year, um, and then, uh, they settle up on that.

But here's, here's the key: what happened to the BRICS currency? And my point is, they already have one. It's gold. In other words, you can settle in gold. That's money good. Both sides accept it. Um, so to Peter's point, are we walking around with gold coins in our pockets? No. I own gold. I'll, I'll take it. Peter does. I, um, I recommend it. But, you know, whereas in, in 1910, you were boarding a vessel in Southampton and you were going to Bombay. Uh, you would take a purse of sovereigns. A sovereign, about an 8-gram coin. It's not an ounce. The ounce is almost too much, but an 8-gram coin, quarter ounce. Uh, but, uh, uh, 22-karat, 92% gold. You'd have it in your purse. Uh, you board the vessel, uh, you put it in the ship's vault, get off, take, take it, go to your hotel, and that was money good there. Gold actually was a medium of exchange in that form. Um, we, um, we, uh, we don't do that today. But, uh, but the fact is, gold among central banks, gold among major trading partners, is regaining its role as a, as a, uh, as a medium of exchange. You know, it's a store of value. Absolutely. Uh, to Peter's point about, uh, for the first time, well, first time in a long time, not ever, but gold has surpassed, um, uh, US government securities, for example, or other kinds of securities, including perhaps German, uh, Japanese or Italian securities in the composition of total reserves. That's true. That's a fact. It's a little bit overblown because it's not as if they're all out, you know, dumping dollars and, or dumping US Treasury securities and buying gold. They're, they're not doing that. But the reason gold has surpassed, um, securities is because the price went up. You know,

>> well, it's a combination of both. But, yeah, a lot of it is,

>> it's a combination of, of both. That's right. But, uh, no, it's a, it's a, it's an important fact. I think it is a, uh, a very significant milestone, but I'm just, you know, trying to put it in context a little bit.

>> But it's also showing you that the dollar is depreciating in purchasing power. And that's part of the reason that central banks need to de-dollarize is because the dollar, uh, is not likely to maintain its value over time, especially given the trajectory of our debt and the amount of money that we're likely to print in order to finance it.

>> Well, the dollar is going down by weight of gold. No, no question about that. So, it takes, you know, it used to take $2,000 to buy an ounce of gold. Now, it takes over 4,000. You used to take, you used to take just 25, 20 for a long time, over 100.

>> You're right about that. Um, so you, the dollar is shrinking rapidly, uh, in terms of its value against gold, but that's not the same as saying that we have inflation, which we, we don't. Not to an extreme. 3% inflation, by the way, cuts the value of the dollar in half in 24 years. Uh, another 24 years or 3%, it would cut it in half again. So, in a 48-year career, from, you know, kind of your early 20s to your mid-60s, uh, the dollar would lose 75% of its purchasing power, um, at 3% inflation. I'm not talking four, five, six, etc.

>> Well, and the problem is too, when the government says it's 3%, it's probably six. So, it's actually losing value a lot faster. And part of the reasons you can't even see how much value the dollar is losing is because as a society, we get more efficient at producing things. And so, if the government didn't create all this inflation, prices would be going down. The cost of living would be falling. But the government robs us of the benefit of lower prices by creating inflation. And one of the reasons it gets away with it is because capitalism is so efficient at lowering prices that they take advantage of that and create inflation so that they can basically steal that purchasing power increase from the public and then spend it.

>> Mhm.

>> Yeah.

>> Well, I think that's a pretty good description of the dynamic. Now, mainstream economists, and there are only a handful that I really pay attention to. I mean, I, I consider a PhD in economics from the top university to be a disability in terms of your intellectual capacity, but there are, there are a few good ones out there, and I, I try to pay attention to that. But what they would say, and I've been following and agree with Peter's argument, but they say, well, you, because people love to say, well, the, since the 1913, the creation of the Federal Reserve, the dollar has lost, I think, 98% of its purchasing power. Used to be able to buy the best cigar available for five cents, and now it's, you go to Davidoff's, it's $25 a cigar or whatever. Uh, that's all true. Those numbers add up. But the economists, uh, reply, well, yes, the dollar has lost its purchasing power, but your wages have gone up. Uh, you, you've made more money than the dollar has lost. So, yeah, the dollar is not worth as much, but you're making a lot more. So, you're actually better off.

>> That's not even true. I think wages are lower now. And especially for the average, average American, for example, the real wages. If you look at what they used to earn, you know, in terms of how many ounces of gold or silver, uh, they earned, you know, in a week or a year, they actually earn quite a bit less now.

>> Yeah. And you can see it from 1971 onwards that this actually has,

>> and, and of course, back then, when, if, if you earned a dollar, you kept a dollar. You didn't pay any. There's no social security taxes. There were no Medicare tax. There were no income taxes. Now, you earn a dollar, you know, maybe you keep 60, 70 cents because the government takes a good chunk of it right out of your pay, and then you pay more taxes when you spend what they don't take. I was going to make a slightly different point, which is that, um, uh, real wages in recent decades have, uh, not kept pace with inflation. That's true. But over a longer period of time, the economist argument that wages have gone up faster than the dollar has gone down is correct. But what they ignore, and I make this point frequently, is averages hide as much as they reveal. So, the average real wage has gone up faster than inflation has devalued the dollar. But what that ignores is the degree distribution, the extent to which, yeah, on average they have. You know, it's like the old joke, you, 50 guys in a bar and Bill Gates walks in, on, on average, everyone's a billionaire. And that is statistically, that is statistically true, but there's still only one, still only one billionaire in the room. Uh, and, and the point is, um, on average, wages have kept up, but the degree distribution is horrible. The income inequality is horrible. I'm not making a neo-Marxist argument. I'm just stating facts. And that is very destabilizing from a social point of view. So, there are social, uh, and even civilizational implications to the impact of inflation. The fact that the average doesn't tell you the whole story. The degree distribution or, um, you know, the extent to which the wealth is heavily concentrated in a very small sliver at the top is socially destabilizing.

>> And then what they also don't, you know, acknowledge is, okay, let's accept the fact that despite the fact we've had this fiat standard and a lot of inflation and a real wages on average have outpaced the cost of living. Well, what if we stayed on the gold standard the entire time? I would argue that real wages would be much higher today than they are now. Uh, so everybody would be better off had the government not been allowed to create all this inflation for the past 100 years and all the damage that that inflation creation did to our economy. I mean, when Donald Trump talks about the fact that, you know, we need to re-industrialize and we need, we need to get our industries back, that's the reason we lost our industries. You know, we printed too much money. We kept interest rates artificially low. We destroyed capital. We destroyed the incentive to save and invest, and we replaced it with this, uh, leveraged speculative consumption-based society. And, you know, we, we really destroyed our, our productive capacity and our collective standard of living. So, we're, we would be a lot better off had we kept the monetary policy of the 19th century in the 20th century and the 21st century. I mean, you know, I think this place, you know, you, we were talking earlier about Back to the Future. I mean, it might literally look like that or even more. Uh, who knows all the advancements that we could have had we, you know, kept free market capitalism, uh, throughout the 20th century.

That's a very good point because if you look at the three industrial revolutions that happened in the past, the third one, which you could argue is the 60s and 70s, was the moment that was marked by the unpegging of gold and the dollar and thereby the, well, unlimited to infinitum, uh, money printing and money supply growth. Would you then say that if we didn't, which is your point, I guess, that we would have not witnessed the growth that we see today if this unpegging would have not occurred?

>> Yeah. I think, look, if, when, when we were at the crossroads in the late 1960s, early 1970s, uh, the government had a choice to make at the time. You know, in order to preserve the gold standard, uh, we would have had to have significant reductions in government spending. They would have had to balance the budget. You know, we just went through the 1960s, uh, where, you know, we had the guns and butter economy. We were, uh, paying for the war in Vietnam. We were paying for the war on poverty. Uh, you know, we were going to the, you know, to the moon. Um, the government was spending a lot of money, and it, and it was running deficits, and that's what started the gold drain because we were, you know, we were printing money and we didn't have the gold to back it up. And so, what Nixon could have done, rather than go off the gold standard, was cut back on government spending, cut money supply, allow prices to fall, and get back in line with $35 gold, right? And just, you know, but he didn't want to do that. Um, and they initially tried a couple of devaluations, but they didn't devalue nearly enough cuz they went from $35 an ounce to 42. Uh, but it, it would have required a much more significant devaluation if we didn't have the deflation that we would have needed to be consistent with, with $35 gold. Um, but instead, you know, basically did the unthinkable and just kind of severed the, uh, the relationship completely and, and told our creditors, "We're not going to give you any gold for your, for your Federal Reserve notes." You know, we, we had promised that we would pay you gold. We're not going to, we're not going to give you anything. And, and that really, you know, once, you know, the dollar really got marked down. I mean, it, the, this, the inflation of the 1970s was severe because of that decision, you know, and the dollar lost 2/3 of its value against other currencies. But if you look at what happened to prices, I mean, oil prices went from $3 a barrel to $45 a barrel. You know, it's not because of the Arabs that did that. We did that. We, we told them, "We're going to, you know, we're not going to give you gold for your oil anymore. We're just going to give you paper." Okay. Well, you're going to have to give us a lot more paper when you're not giving us gold. And gold itself went up to $850 an ounce from $35 an ounce. Um, but, you know, the, the, the world didn't abandon the dollar, and I think once Reagan and Volcker came in and, and reinstilled confidence in, in the dollar, which was, you know, it was the dollar, who knows what might have happened if we didn't have that. But, um, the dollar stabilized, and we got that relationship with, with, with, uh, Saudi Arabia and OPEC where they would price their oil. Uh, so you couldn't get gold for your dollars anymore, but you can buy oil, right? So, there was something there. Um, but we got the world to go on the, the dollar standard.

And, and then we were really able to abuse that privilege and run a deficits that would make, you know, Linda Jobson blush, you know, what we, what we've done since then because now we didn't have to worry about anything. There's, you know, we could just print whatever we wanted and run trillion dollar deficits. But this is what I think is coming to an end. I think that, you know, I think we took the world off the gold standard and put it on the dollar standard. And I think now the world's going to go off the dollar standard and, and, and return to a gold standard, which is going to, you know, end, uh, this exorbitant privilege that we've abused for decades now. And when Donald Trump describes it, he says, you know, "The world's been taking advantage of us." What we're, we're going to find out is that we've been taking advantage of the world, right? We, we've gotten a free ride on their productivity. We get to consume what they produce. We get to borrow what they save. But without that production and those savings, the US economy just does not function, you know, and I think it's going to be a major, uh, economic collapse to enable us to restore a viable economy in the United States again.

>> Well, Peter, Peter's right, big picture, but there's a little more nuance to what Nixon actually did. Um, if you go back to August 15th, 1971, when he gave that speech, he interrupted, uh, Bonanza.

>> Bonanza, that was the most popular show in America to give the speech.

>> It's ironic, isn't it?

>> Yeah, that's right. But he, uh, he said a couple things, and it was a, it was a four-point plan, and gold was at the end. It was sort of almost a footnote because he imposed, w, he imposed wage and price controls, uh, and put 10% tariffs on all imports. Those are the big things he was announcing that day. But he said, "Oh, by the way, um, and, and you can find this on YouTube, the video is available." He said, "We are temporarily,"

>> yeah,

>> suspending the redemption of US Treasury securities for gold." Uh, so he used the word temporary, and they meant, I talked to, uh, two of the people who were with him at Camp David when he gave that. One was Paul Volcker, uh, and the other one was Kenneth Dam. Uh, Kenneth was like a, kind, he later became the dean of the University of Chicago Law School. Uh, I worked with him in the national security context, but he was kind of a junior lawyer at the White House. I think the OMB at the time, and they were getting ready to fly from, uh, Washington up to Camp David, and I think it was, uh, George Shultz said, "Hey, we might need a lawyer. Hey, Ken, come with us." You know, so, but he was there, uh, with, along with Volcker, who was not Fed chairman at the time, was deputy, deputy secretary of the Treasury. I spoke to both of them, and, uh, they said, "Yeah, we thought this was temporary. We thought what we were doing was suspending the redemption. We were going to then have another international monetary conference. We were going to devalue gold, which is, uh, Peter's point, and then go back to the gold standard at the new valuation." And that had happened several times before because when, uh, you know, Peter referenced $35 an ounce for gold, and that's correct, but that itself was a devaluation from the prior standard, which was $20.

>> Well, that happened in 1933 with Roosevelt.

>> That happened in 1933 with Roosevelt. That's right. Prior to that was $20.67, then 35. Uh, Great Britain and France, uh, after, um, in the wake of war, well, France and Italy and Belgium, in the wake of World War I, devalued gold. Uh, Britain held on. Churchill later said that was the greatest blunder of his life, considering he was the guy who planned Gallipoli. That's a major statement. Uh, but they, they did devalue gold in 1931, and then the US finally in 1933, um, ratified in 1934, devalued gold. So, it had happened before. It wasn't a crazy plan, but, uh, and they did have the monetary conference. It was the Smithsonian Accord, December 1971. And, uh, Nixon had, had met, uh, I think it was, uh, uh, George Pompidou, uh, in, in the Azores because it was kind of halfway between Paris and Washington to, uh, to work that out. But, um, but the problem was, in the meantime, there was so much pressure on Germany that they went to floating exchange rates, and then the cat was out of the bag, and everyone went to floating exchange rates, and you had Milton Friedman, uh, you know, I guess he deserves his Nobel prize, but he was wrong about a lot of things, and one of them, in my view, was floating exchange rates. But once, once, uh, Germany and other major countries went to floating exchange rates, then you couldn't get back to, uh, a traditional gold standard. But they did, they were planning to do that, and they did have the conference, and he did devalue to $42 and change per ounce, but, uh, but never returned to anything like the current gold standard, or sorry, the former, uh, former gold standard. I do tell people, uh, you know, particularly the, the Austrian economist types, you know, they're, they're banging the table, "We have to have a gold standard, gold standard, gold standard." I say, "Well, be careful what you wish for because if you have it, you can't make any money in gold." It's precisely the fact that we, we, we don't have it that the price keeps,

>> Well, that would be great. Price keeps going up.

>> I, that would be great if we didn't have to make money in gold.

>> Yeah.

>> Yeah. I, I, I would rather, I would rather the, the, the country return to sound money. I don't, I, I have plenty other things I can do besides sell gold, right?

>> You know, so I mean, I'm selling it because people have to protect themselves. Well, people have to protect themselves from inflation. I would rather people not have to have any inflation to worry about. It's like, yes, if, if, if, if I, my job is I sell security systems for your home. I would rather there be no crime, and then, okay, yes, I'd be out of business, but I'd have to do something else. But I would rather there not be any crime. But to the extent that there is crime, well, people do need to buy protections, so I can sell burglar alarms or I can sell fences or stuff like that. But society would be better off if we didn't have to waste our money, um, on these things, you know? I mean, when people, when I sell people gold or Gold Republic or Schiff Gold, and people buy gold and they just put it in their basement, that's not doing society any good. I mean, we, we want people saving in a way that the savings could be loaned out, not so people could buy a house or take a vacation, but so a businessman could borrow money and, and make a capital investment. That, that's what savings are about. So, you can fund capital investment and, and increase productivity and have higher living standards. I don't, I don't help society by burying my gold in, in my backyard. I mean, I, I protect my own savings, but you want savings to be available to fuel capital investment. And so, government is destroying the incentive to save. And they're forcing people to own gold instead of savings. And, and, you know, and that's been a big problem. You know, when, when we built this country in the 18th century, when we had sound money and we had the industrial revolution, people put their savings in the bank, and the bank funded all this legitimately, not through a central bank that just concocted credit out of thin air, but credit was a function of underconsumption. I earned money and I didn't spend it. And that money is what, uh, funded capital investment, and that's what led to all the, the productivity of, you know, the industrial revolution was because people earned money and they didn't spend it, and they, and they had a vehicle for saving, uh, and they didn't have to worry about inflation. So,

>> so Jim, you actually last time we had our interview a few weeks back, you mentioned that there's actually no real risk to the dollar, but here Peter is saying that, well, kind of the opposite. So, how do you reconcile those two views?

>> Well, I wouldn't say there's no risk to the dollar. I do think the so-called debasement trade that, uh, you know, central banks are dumping US Treasury securities and the days of the, the US dollar as the global reserve currency are numbered, uh, and, uh, there's going to be a rejection of that and a flight to gold, uh, as the, the new money, the new monetary standard. I do think that's largely incorrect. Now, central banks are buying gold. Peter's, that, well, that's just a fact, and Peter mentioned that, and he's right. They're increasing their gold reserves. That's a big deal. Um, that, that inflection point took place in 2010. From 1970, if you want to start there, to 2010, central banks were net sellers the entire time. Beginning 2010, they became net buyers. Uh, and that buying has been going up. Now, that's, um, not the same central banks. You know, in the 70s and 80s, you have the US. Um, the US sold a thousand tons of gold between 1970 and 1980. Even after 2071 is a point of reference. Even after Nixon ended the convertibility of Treasury securities into gold, the US continued selling gold throughout the 1970s, uh, along with the IMF as a kind of price suppression mechanism because they didn't want gold to, to, to go up too much. But then we stopped cold in 1980. US has not sold any gold since, uh, since 1980,

>> that we know of.

>> Uh, well, I,

>> they may have leased it out. Who the hell? Maybe they didn't sell it, but,

>> leasing is a separate issue. We can talk about leasing, but they haven't, they haven't sold it. I think there may be, um, you have to dig pretty deep, but I think there's a reason for that. It's very significant for gold investors. Uh, and leave aside whether we return to a gold standard or not. That's a big deal. Uh, but, um, if you're just an investor in gold and you're concerned about the price, it, it's kind of nice to know that the country that has 8,133 metric tons cannot be a seller.

And this goes all the way back to 1934 when, um, FDR confiscated, not only confiscated gold from individual US citizens, which he did, although there's a little more nuance to that, but basically took over the Federal Reserve gold because gold kind of went from individual hands to banks. Then in World War I, it was all melted down into these 400-ounce bars. Well, you're not going to be walking around with a 400-ounce bar in your pocket. So, the banks kind of became, came in possession of the gold, issued, uh, paper currency, bank notes, etc. Um, for that, but then coming forwards 1934, uh, but, well, then the, the Federal Reserve took it from the banks. They said, "Hey, if you want to be a member bank, give it to the Federal Reserve." And said, "Okay." And then Roosevelt, FDR took it from the Federal Reserve and gave it to the Treasury. However, the Federal Reserve is, as we know, is privately owned, and the Fifth Amendment to the US Constitution says the government cannot take private property for public use without giving fair compensation. That's just, that's the Constitution. So, the question is, what was the compensation that the Treasury gave to the Fed when they took all the Fed's gold? And the answer is, they gave them a piece of paper called the gold certificate. And if you go to the, um, uh, Federal Reserve balance sheet, which is a public document, you got to dig around the website a little bit. But if you look at the Fed's balance sheet, and it's right there, the first item on the asset side is gold certificate, and they got 10, you know, billions or trillions of dollars of Treasury securities and a lot else and all the liabilities or excess reserves, etc. But that gold certificate is still there. But if you, uh, take the value of the gold certificate and the Fed keeps it at historic cost, which for them was, well, they upgraded it once, but it's the $42 price that we talked about that came out of the Smithsonian Accord. If you divide the, the, the value on the balance sheet by $42 and convert that into metric tons, you come out almost exactly to 8,133 tons. It suggests to me, and I, I want to be clear, this is a hypothesis. I can't prove this, but it suggests to me that the Treasury cannot sell any more gold because to do so would violate the covenant of the, of this gold certificate the Fed got under the Fifth Amendment.

>> The significance of that, and it's interesting, you kind of down in the weeds legally. But what's interesting about that is if the biggest holder is not a seller, and all the other central banks combined, including the US, are net buyers, then you've got a really nice floor under gold. It's not a guarantee. It's maybe a bit, little bit of a soft floor, but, um, but now, but, but what the United States did do after that, we got everyone else to do our dirty work. So, in the 1990s, we got the British to sell half their gold.

>> Brown's bottom.

>> Brown's bottom at $250 an ounce. You used to see Gordon Brown around, you know, in Soho at, uh, uh, the Red Fort, which is a very popular Indian restaurant. But, uh, yeah, $250 an ounce. Nice going, Gordon. Um, uh, but then after that, we got the Swiss to sell, and the Swiss sold a thousand tons in the early, uh, 2000s, to the point that the Swiss were up in arms. They had a referendum. The, the referendum failed, but, uh, referendum to stop selling gold. Uh, the referendum failed, but the government got the message.

>> Well, they had a, a re, a more recent referendum to require the government to buy gold,

>> right? And they spent a lot of money, uh, the government did, you know, uh, campaigning against that because otherwise it might have passed because meanwhile, what is the Swiss central bank buying? They're just buying, you know, stock US companies. I mean, and they were saying, "Look, we want the central bank to put some of that money into gold." And in fact, they, you know, they own a lot of US tech stocks. So, I guess they, they've on paper done well. But they would have done a lot better, I think, had they bought some gold because obviously when that referendum was circulated, gold is under $2,000.

>> Yeah. So, there, there's among the Swiss citizens, there was a lot of opposition to selling in more gold, and you're right, I think it would be good. I think it would be a good idea if the US Treasury started buying gold. That's a separate issue. But my point is, the Swiss did sell a thousand tons, and then they stopped. Uh, then the last big sale was the IMF sold 450 tons in 2010.

>> Canada sold, I think, yeah, I think Peter and I, Peter and I have more gold than Canada, and you don't, you don't need a lot to make that statement. Uh, but, um, but,

>> they have it in the ground, though.

>> Yeah. Well, well, you know, you make a point, Peter. They have it in the ground. So does Australia, which also sold most of its gold, but it costs money to dig it up. That's not free gold. Um, uh, so then the, uh, yeah, so the IMF sold about 450 tons. And not clear who bought it. Uh, a little vague. China definitely bought some. India might have been a buyer there, but, but then they stopped cold. The big sales stopped cold right in 2010. Central banks have been net buyers ever since. Very, very few sellers. Um, so take the US out of the market. Central banks are net buyers. That puts a really nice foot.

Now, the central banks are actually very, they're pretty savvy buyers, uh, for a couple reasons. Number one, they don't want to disrupt the market. They want to keep buying gold, and they are. But Russia, for example, which, which is fairly transparent from 2009 to today, they went from 600 metric tons to about 2,400 metric tons. But they, you know, you can't buy a thousand metric tons. I mean, good luck trying. They just had a standing order in London, you know, buy 10 tons a month, 20 tons a month. It varied a little bit. Couple months they were not sellers, but basically they had a standing order, and they said to their bankers in London, "Don't just show up the market, but keep buying." And they did. Now, the Chinese are completely different. Chinese will, will sit there for 5 years, no change. And then one day, "Oh, we got another 600 tons." Well, I, I've met with the, the top Chinese officials on this. You can't buy 600 tons. What it is, they have a, a kind of transparent central bank, People's Bank of China, but they have a totally non-transparent entity called the State Administration of Foreign Exchange. It's not exactly a sovereign wealth fund. It's more of a dealing operation, but SAFE, State Administration of Foreign Exchange. They buy the gold, and they stockpile, and they don't tell anybody. Then every four or five years, they make an accounting entry, and they flip it to the People's Bank of China. It's like, "Oh, China got 600 tons." But that was there all along because they have to do the same thing. But my point is, if you're a buyer and you're not done buying, you don't want the price to go up. You don't want to see $5,000, $10,000 gold because you're not done buying yet. But when the day comes when they feel that they've surpassed the United States and ready to announce that, then, then they won't care. That, that'll be one of a number of catalysts for much higher gold prices.

>> And remember, you actually did like the first ever financial war game with the Pentagon. I think this was one of the scenarios you brought up, and this was more than, I think, 12 years ago,

>> correct? It was 2009. And we did the war game, and I wrote about that in my first book, "Currency Wars," which came out in, uh, in 2011. But, uh, yeah, I was, uh, it was, um, you know, there's a warfare analysis laboratory, the Applied Physics Laboratory, uh, which is like kind of halfway between Washington and Baltimore. It's, you know, top secret facility, mostly space exploration of weapons, but they do, they do have a war game lab, and that's where we did it. It was sponsored by Pacific Command, PACOM. I always say if there's a, um, if World War III starts out, they're going to be on the front lines. They had a PhD economist on staff at PACOM headquarters, and they, so they sponsored this. But, yeah, I was under the, uh, under the Department of Defense. Um, so I was one of the facilitators and planners. They didn't need me to do like missiles and bombs. They had been doing that for a long time, but they did need, they didn't have any financial capital markets expertise. So, I was called in to advise on that. And then we built up a team, and a lot of the, yeah, the Harvard professors, I don't want to mention a whole lot, a whole lot of names, but, uh, what I call the usual suspects. And I said to, uh, said to one of the sponsors, I said, "Look, you want to do a war game. War, you know, involves lying, cheating, and stealing. We ought to get some people from Wall Street who, who understand that." So, uh, I was allowed to recruit a couple people, one, a couple good guys, one guy from, uh, UBS and another guy from the private equity world. Uh, so I was, uh, then when we actually got to the game, I was on the, uh, China team, and I had a friend of mine who was an expert plan on the Russia team. So, we met separately, uh, and cooked up a plan. And the idea was that Russia and China would have a vault in Switzerland because nobody really trusts the Russians and Chinese. They'd have a vault in Switzerland and a bank of issue in London. And this, uh, they would put their gold into this vault, and the bank of issue would issue a new currency backed by gold. Uh, but here was the catch. From then on, if you wanted Russian natural resources or Chinese manufacturing goods, you could only pay for it in this new currency. Now, you could get the currency by trading with them and running a surplus. That was one way. Or you could deposit your own gold in their vault, and the bank would issue this currency. Now, the thing about war games that we, this wasn't a scenario that was

going to play out in five or 10 years. In fact, it's been 15 years. We haven't quite seen it play out. Although the bricks are kind of inching in that direction, the central banks are as well.

Uh, but that's the whole idea of a war game is to look over several ridge lines and kind of predict the future. And Secretary Gates, Robert Gates, who was secretary of defense, he he read the summary of the game. "Nice going, guys. You did a uh he did a a good job here."

But um, but since then, as I mentioned, Russia's reserves have gone from 600 tons to 2400 tons. China's reserves have gone from 600 metric tons to uh slightly about the same, a little bit higher, 2,700, 2,800 metric tons officially. Right? They could have more, probably do, almost certainly do uh in the case of the Chinese. But the point is that this, the world has played out exactly the way we predicted for the Pentagon, and it has exactly the impact.

So, just to kind of wrap this up, at the outbreak of the special military operation in Ukraine in February 2022, Russia had about $600 billion in reserves. Half of that was in US Treasury securities, but a quarter of it, about $150 billion, was in physical gold in custody in Russia, and that had been acquired over the 10 years that I mentioned. That has saved. It's one of the things the sanctions haven't worked. We froze $300 billion of Treasury securities. Russia can't touch them, but we can't freeze the gold. We can't get to the gold. And that has supported their reserve position.

Now, they've earned more dollars since then, and I guarantee they haven't invested in US Treasury securities. They learned not not to trust the United States. Well, plus a lot of other people heard that message as well, right? And it was, you know, kind of like a wakeup call that this is not a system that the world wants to continue because it gives too much power to the United States. Not just the economic power that we abuse by the ability to run these constant trade deficits, but then when you weaponize the dollar politically, when you try to use it against uh countries who do something that you don't agree with, uh, that is a very uh vulnerable position to put yourself in.

I I, you know, it's kind of like taking a noose, throwing it over the the a limb of a tree, putting it around your neck, and giving the other side to the United States and just hoping they don't pull it. And, you know, countries don't want to, you know, be in that position. And and so gold liberates them from that. You know, if they have their reserves in gold, they they they don't give that kind of leverage to the United States.

I helped to uh to Peter's point, helped to weaponize the dollar uh with real weapons in uh 1974. Was my first uh first visit to the White House on official business, and I was working with Helman Sonfeld. Helman was the deputy national security adviser to Henry Kissinger, who was the national security adviser. Uh, he was known, his nickname was Kissinger's Kissinger. He was kind of the, Kissinger was a big brain, but Helman was kind of the the big brain behind Henry Kissinger. And this was at the time when Nixon was working on the petrodollar accord. And you had uh William Simon, who was secretary of the Treasury, and Jerry Parski um meeting with the Saudis, but it was sort of a uh it was a two-pronged approach.

So the so the deal was um, "Okay, you guys price your oil in dollars. We'll pay you in dollars. You take the dollars and then put them back into the US banking system, and then they'll lend the money to South America. They'll buy our exports. We'll get the whole world trade system going again after kind of being on the mat in because 1973-74 was a really, really bad recession." Um, but that was the carrot. The stick was we were going to invade Saudi Arabia, just the eastern province, because the rest of it's a lot of sand. Uh, take over, put a security perimeter around the oil production facilities. Uh, set the price ourselves, set the quantity pumping ourselves, put the money in future trust for the benefit of the Saudi people, whatever that meant. Uh, but basically we were going to take over the oil fields. Um, and that was the team that I was working on with Seinfeld in the uh in the White House. Um, and we leaked it to the Chicago Tribune. It was a front-page headline, you know, with the with the maps and stuff like that. Was all deliberately leaked to let the Saudis know that that was their alternative. They very wisely chose the petrodollar. But my point is, we there was a threat of military force behind it to get them to do that.

>> Could you say that the same plot, kind of in a different way, turned out for Libya with Gaddafi, who will actually allegedly uh, I'm not sure now, I'm just asking, you wanted to put um, well, Africa United currency and back it with gold, or is that just some conspiracy?

>> No. Uh, I mean, well, let's you can speculate, but there are facts we know. I mean, first of all, uh, Gaddafi was killed in a pretty brutal way. I won't go into the specifics, but hard to think of a worse way to go. But Libya had about 100 metric tons of gold, last seen in a couple of tra uh tractor trailers running around the Libyan desert. Uh, where is that gold today? I'm quite sure it's in NATO hands, meaning US hands. Again, in custody somewhere, so it hasn't been added, officially added to US gold reserves, but it's not in Libya, and it's not at the disposal of the Libyan people.

Um, well, the the the far, like the far-reaching question here, and I think that's kind of also where I want to get at, is since because we in our conversation, you were saying that you don't see really like an omnipresent threat that is kind of portrayed in most of the narratives around the de-dollarization, and thereby trying to find out, okay, what are what are the paths, right? If the US government runs again this financial war games, and they look back now about the analysis you make back then, what could have done better? What did they what didn't they do? And what would have been the possible outcomes?

>> Well, what we're saying with the accumulation? Well, first of all, people don't really understand reserve compos uh composition. They say the dollar is the leading global reserve currency. Actually, no. Um, dollar-denominated securities are the leading reserve asset. It's not as if the People's Bank of China has pallets of $100 bills in the basement. They don't. They own US Treasury securities. So, you don't actually own dollars. You own securities that are denominated in dollars.

>> So, they own, they own mortgage-backed securities. They own corporate bonds. It's not all US Treasuries.

>> Correct. They have a lot of other dollar-denominated assets.

>> That's correct. US Treasury securities are are dominant, but you're right. They have a lot of other things. You could have Japanese government bonds, German government bonds, and or stocks. The Japanese bank, the Bank of Japan, owns a lot of, owns the Japanese stock market practically. So that's that's correct. But but US Treasuries are the number one asset. But but but my point is, they're US Treasury securities. They're not like, it's not cash. So if you need cash, you have to sell the Treasuries to get cash. Why would you do that in case of China? To prop up your currency or prop up your banks, which have uh enormous uh dollar-denominated bad debts that are not going to be repaid. So they need cash to stay afloat.

So the the point is um, it's just a fact that the the Treasury issues a monthly report. It's a very simple spreadsheet, lists all the major countries and how much uh how many US Treasuries uh they own by by maturity. So that that's all publicly available data. There is no evidence that countries are dumping US Treasury securities. That's just not true.

>> Yeah. No one is no one is dumping them, but they're not buying the way they were, which means we're dumping them. Because if we don't have foreigners to buy our Treasuries, >> somebody's got to buy them. And in fact, you know, we used to also have the so-called Social Security Trust Fund was a big buyer. Now they're a seller.

>> Correct.

>> Right. So, uh, who's buying these Treasuries now? Um, private investors. I don't see the appetite for long-term 4% yielding Treasuries. I mean, it's pretty obvious that that's not going to beat inflation, especially after taxes. Um, and and so people would rather invest in stocks. I'd rather invest in real estate. They'd rather buy gold. So you don't have the buyers. And you know this de-dollarization. I mean, I've been talking about de-dollarization for 20 years, right? That's you know, been my investment thesis. That's why I've been putting people into gold since it was under $300 an ounce. I've been investing predominantly in foreign stocks because I've been worried uh that the accumulation of all of these debts would ultimately lead to a dollar crisis and an end of this the dollar's position. And until recently, nobody else was even talking about it. So the fact that now all of a sudden people talk about de-dollarization, I think that yes, it's been a risk for a long time that nobody was cognizant of. And the reason they're cognizant of it now is because it's actually a lot closer, and it's a lot closer than people think.

I think now that um central banks uh recognize, okay, you know, this is real. And I think maybe electing Donald Trump may have been another catalyst. Not only did he basically vilify all our friends that are propping us up by running these uh consistent trade surpluses with the United States, which helps us live beyond our means, but imposes a burden on the world to finance it. But not only did we kind of vilify all of our friends, but you know, the deficits really exploded um into a whole new trajectory, you know, with COVID. And that started with Trump. It didn't start with with with with Biden. Trump started the the the the PPP and all the COVID stimulus. Biden just continued what what Trump had already put in place, right? And expanded it. But so when we took our deficits from, you know, whatever they were, $600, $700, $800 billion a year up to $2, $3 trillion a year, right? And then when the Republicans campaigned and said, "Okay, look, this has got to stop. You know, we got to rein in government spending. We have too much inflation. It's because of government spending and all the stimulus, and you know, we need to cut government." And then you have Elon Musk, "Yes, we're going to have the Department of Government Efficiency. We're going to cut trillions out of the budget." So there was all this big talk by the Republicans that we're going to really get our fiscal house in order, right? And then when they get elected, the first thing they do is this big beautiful bill which preserves all of the Biden deficit spending and then adds to it. And they run Elon Musk out of town after parading around for a little bit. You know, none of the cuts actually happen. It's all a bunch of nonsense, right? And now we're running, you know, $3 trillion a year deficits. They they claim it's two, but you know, if you just look at how much the national debt is increasing every year, it's more like three because there's a lot of off-budget stuff that they don't count as part of the official deficit. But we still have to borrow that money because we're still spending it, even if they don't want to account account for it. And this is when the economy is supposedly in expansion, which means that when we have the next recession, which of course is inevitable, what $5 trillion deficits? I mean, where are they going to be?

And so now the world recognizes, look, I mean, if if even the, you know, MAGA Republicans, Trump, if they're not going to do anything, we know, we know the Democrats aren't going to do anything about it. They're going to spend more money. So there's no hope. There's no party left that has any sense of fiscal responsibility. Um, and in fact, what is Trump advocating now? Uh, he wants, he wants interest rates slashed, which reduces the yield on your US dollars. He wants the Fed printing more money. And he's going to stack the Federal Reserve Board with his cronies to make it possible. Just like Roosevelt tried to pack the Supreme Court, he's putting people at the Fed that will basically do what he wants, destroying even the pretense that the Fed is independent.

>> And so that really destroys confidence even further in the long-term value of of US currency. So I think that what I've been worried about for a long time is happening. And the only question is, you know, how long is this process going to take now to complete? You know, there's that old saying, "How did you go broke?" Well, it was gradually and then suddenly. And, you know, we could be very close to the the suddenly part.

>> Um, Peter and I agree completely on gold, so there's no daylight there. We might disagree a little bit about the u about the bond market. I would point out that the yield maturity on the 10-year Treasury note has been in a very narrow range for over a year. It's between four and four and a quarter. It's kind of like 4.1 uh uh today. Um, I expect it'll go a lot lower. In fact, I like that trade. But you buying 10-year Treasury notes is a little bit volatile, but uh you could have huge capital gains if that makes its way down to, you know, 2.9 or whatever. The the DV01, dollar value of one basis point decline, is bigger as you get at lower.

>> What will drive the yields down?

>> Uh, well, kind of what you were referring to, Peter, which is uh, you know, when you mention the Federal Reserve, the it's hard to think of an institution that's less relevant than the Federal Reserve. They're they're impotent and irrelevant. They mean almost nothing. They get all the headlines. I follow them closely because everyone else does. And if you want to, you know, be be informative, you have to know what they're doing. But they're but they're actually irrelevant. I give you a couple uh data points to support that. There are the Fed targets the Fed funds rate. You know what? There hasn't been a Fed funds market since 2008. There there's a little bit of a market, but they're targeting something that almost doesn't exist. There are two substitutes, two uh unsecured, very short-term, very liquid markets that approximate what the Fed funds rate is supposed to do. One of them is the one-month Treasury bill. One month, not one year. It's very liquid, very safe, very low volatility. You buy it, you get your money back in 30 days, 31 days. The other one is called the Secured Overnight Financing Rate. It's basically the repo rate. Uh, Fed kind of came up with their own own measure, but that's again overnight. It is secured, but it's highly liquid. It's how dealers finance themselves and how hedge funds finance their position. So one-month Treasury, one-month Treasury bills and Secured Overnight Financing Rate today are both lower than the Fed funds target rate. So the Fed fund, the Fed Federal Reserve is not leading anything. They're following the market. The market is already lower than the Federal Reserve target rate. Now the Fed's going to cut again, and you know, probably several more times. And Peter's right. Trump's going to stack the board. He's, you know, halfway there. He's got three governors and a couple more on the way, I expect, including a new Fed chair next May. But the point is, uh, you know, my advice to the White House is, be careful what you wish for. They're going to get lower rates. Rates are going to come down a lot, but that's usually associated with a recession and depression. Low rates are not stimulus. The idea that low interest rates stimulate anything. You know what a healthy economy looks like? And Peter referred to this earlier. A healthy economy has like four or 5% interest rates, because that means uh I can borrow at 5%, invest at 10, leverage two to one, make a 20% return on equity, hire people. That's what a healthy economy looks like. A 1% interest rate is something associated with the Great Depression. So, we're going to get there, but we're going to be we're going to be in a severe recession, and people are going to be very miserable. Unemployment is going to be a lot higher, and this would certainly threaten the Republican position, the House, and the midterm elections. So again, my advice to the White House is, you're going to get your lower rates, but you're not going to be happy when I agree with you because it's a sign of recession.

>> We could get lower short rates, but what is the impetus for lower long-term rates? Who is going to buy that paper to drive yields down? And and and where is the money going to come from? Because if I'm buying US Treasuries, I can't buy something else. So where is money going to flow from? And why is it going to buy Treasuries at at less than 4%? If you're talking about a big capital appreciation, you're talking about Treasuries yielding 3%.

>> Correct. Two. Who's going to want to loan money out to the US government for 2, 3% over 10 years?

>> Well, one phone call from the Treasury to Jamie Diamond. We'll fix that in a hurry. Banks used to have uh between 40 and 50% of their assets in US Treasury securities. Today, that amount is under 10%. So, there's a lot of room in bank balance sheets.

>> Now, what are they going to sell though to get that money?

>> They can print it. That's the thing.

>> Oh, the banks.

>> The banks print money. Yeah. The the Federal Reserve printing is irrelevant. People go, I mean, how does the Fed print money? You know this. So the Fed basically calls the open market desk in New York, calls Goldman Sachs and Morgan Stanley, says, "Offer me five-year notes." They offer them. They the banks send the five-year notes in. The Fed pays for it with money that they print. That is true. That is printed money, and it does expand the balance sheet. But what do the banks do with the money? They give it back to the Fed in the form of excess reserves. All you you're inflating both sides of the balance sheet. That money doesn't do anything. It doesn't get lent. It doesn't get spent. It doesn't get invested. There's no velocity, etc. It just sits there, and you have an expanded balance sheet. That's why the Fed's irrelevant.

Now, where does the where does the money come from that is relevant that does support business, create jobs, drive the economy, etc.? It comes from the banks themselves. Commercial banks. This is why they own the Fed. Commercial banks create the money, and they can create money to buy Treasury securities if they're called upon to do so. And they will. I mean, you can't um, you know, every time you every seller has a buyer. I mean, you can say there aren't any buyers. Actually, a lot of buyers. Question is to yield. Uh, I I agree with that. But if they did, but but sorry to interrupt, but the bond vigilantes, I was around when they saddled up the first time. They're they're all retired. They haven't saddled up since the late 1980s. Maybe maybe the early '90s would be the last time we had to worry about bond bond vigilantes.

>> If all this money gets created then to buy Treasuries, the government's going to take that money and spend it right into circulation. And there is inflation. So, at the very moment that long-term yields are rising, right? You're having inflation, which is already well above their so-called 2% target, rising. So, in what world, let's say, do you have even official inflation? Let's say it's running at five or 6% or 7%. Yet, you have long-term debt yielding 3%. I mean, obviously, there can't be a real buyer there. Nobody is going to deliberately throw away their money knowing that inflation is taking 6% away per year, and they're going to accept half of that back in return and just sign up for a decade of losses.

>> Well, if you posit the inflation, you're exactly right. But that may be where you and I disagree. I see a setting for disinflation and perhaps deflation. My point is the 4% yield on a 10-year Treasury note could look pretty sweet in a world of 2% or 1% interest rates. That's going to look bad, >> right? But it's not going to look sweet if inflation is much higher than that.

>> That's that's right. And and and I think you know based on where we are now, I mean, they were able to get away with QE before uh um because inflation was, you know, the way they measure it, below 2%. And the world was buying. You know, when you wrote your book, you know, "Currency Wars," when we did QE1 and two back then, foreign central banks were buying up all our debt. Yeah. And they were basically worried that their currencies were going to be too strong, and they were like basically trying to, you know, debase, you know, that was the war to battle, keep your currency down. They were afraid that the dollar was going to lose, and they didn't want their currency to go up too much. I don't think we're in that world anymore. I think that if we start printing a bunch of money, >> there aren't going to be buyers for our Treasuries and foreign central banks. Uh, and and so I think that the dollar is going to lose a lot of, you know, purchasing power relative to other currencies, and that means our import bill goes through the roof. And we're more dependent on imports now than ever before, despite, you know, these tariffs. We're running record trade deficits in in in manufactured goods. And uh, and so when the Fed tries to do QE again, it's just going to backfire because the dollar is going to go down, prices are going to go up, gold prices are going to go up even faster. And, you know, that's, you know, the dollar competes with gold. And so, you know, why am I going to loan the US government money at 3 or 4% if gold is going up 30, 40% a year? I mean, I'm giving up, I'm going to own gold. I'm not loaning those Treasuries for 3%. You know, when I'm, you know, I'm going to buy, I'm going to buy gold. So I think we're at a point where it won't work if they try. You know, that's why I think, and this is one of the forecasts that I made that that that came came true. But before the Fed embarked on the rate cuts, you know, towards the end of Biden's term, and the Fed cut rates for the first time after, you know, they had, you know, they had been hiking them for a year, year and a half, and they got up around 5%. And when they started cutting rates, and the forecast that I had been making for the whole year leading up to that was that the minute the Fed started cutting short-term rates, that long-term rates would rise. And nobody really had that forecast. I mean, on in the mainstream, everybody expected that long rates would go down with short rates, just like it had in the past. And the Fed went and they did 75 basis points of cuts, and long-term rates went up by that that amount. Not only did they not go down, they went up by as much as the short rates went down. And that, you know, surprised everybody. They didn't really expect that or understand that, but it didn't surprise me because that's what I was expecting. And I think that was an indication that the Fed is now in this predicament where when they lower rates some more, that rates are going to go up. And even if they go back to QE and they print more money to buy bonds, bond prices are still going to fall because they're not going to be able to buy enough because when they start to buy, the rest of the world will start selling because why would you want to hold, you know, if inflation is 5, 6% and the Fed is printing money and throwing gasoline on the fire to buy bonds because the only way they can buy bonds is they have to create the money. And even if you're saying it's it's the banks, they're creating money that's being spent in the circulation that's driving down the value of the dollar. Uh, everyone's going to start selling. And then the other problem that they're going to have is even if the Fed is buying Treasuries, okay, well, that's not the only dollar-denominated debt. You know, what about municipal bonds? What about mortgage-backed bonds? What about um corporate bonds? But what's going to happen to the US economy when all those rates start to skyrocket, right? And now now you have, you know, because now everybody else is on the hook for all this debt. We're so levered up um and and then the rates start going up. So now the Fed is going to be pressured. Well, we can have to start buying everything. We're going to have to buy all the dollar bonds to keep, you know, and then now that there goes the currency.

>> Jeff Kla actually just gave an interview on Bloomberg yesterday. I'm not sure if you watched it, and he said if it reaches 6%, they'll start buying massively. And that's also the moment to also to your point.

>> So if it reaches 6% inflation?

>> Uh, no, bonds, bond prices.

>> Oh, the yield.

>> Yeah, but they won't. So.

>> Well, they will.

>> Yeah. Well, well, if you have a premise, then the conclusion follows, but that uh that won't happen. Uh, where Peter and I may disagree, or let me put it differently, whether the Federal Reserve creates money, which is totally irrelevant, or commercial banks create money, which is more relevant, much more relevant. Uh, whenever I hear anyone, any analyst talk about money printing, money printing, money printing, I say to myself, well, you've got one quarter of the equation of the quantity theory of money, but you got to look at all the rest. And this was Milton Friedman's uh great error, the quantity theory of money, and you really have to go back to Irving Fisher in the 1920s to get this right. He got it right, and it's been messed up ever since. Um, it's basically money supply, and that's where the money printing comes in, times the velocity, which is the turnover of money, equals real GDP times an inflation or deflation factor, which can make nominal GDP higher or lower. And Milton Friedman looked at that and said, "Okay, well, we want uh the inflation factor to be one. One is no inflation, no deflation." So nominal GDP times 1 equals real GDP. Uh, and that's uh that's what you want. You don't want inflation or deflation. Uh, nominal GDP or well, sorry, real GDP. How much can a mature economy like the United States grow in a year? Three and a quarter, three and a half percent. We're growing less than that, by the way, which is a depression. That's a whole other issue. My view is the US has been in a long depression since 2007. We can, we don't have time in this interview to kind of go into that. Well, okay, maybe so, maybe so. Uh, but um, but the point is, um, about three and a half, three and a quarter, three and a half percent, it realistically is the most that a mature economy like the US can grow in real terms. Then you have it can be higher or lower in nominal terms based on inflation or deflation, and money supply is um, whatever you want to make it, depending how much money you want to print. So Milton Friedman looked at that and said, uh, this is easy. If you can only grow at three and a half percent, uh, and you want inflation to be one, not 1% but a factor of one, meaning one times, and velocity is constant, then all you have to do is dial up the money supply, dial it up a little bit, or dial it down a little bit, fine-tune it, in other words, and you'll get nirvana. You'll get maximum growth with no inflation or deflation. Um, and that was where the quantity the, he took the quantity theory of money, and that's where the money printing boogeyman comes in, where Friedman was wrong. And what's being overlooked by the money printing crowd is velocity. Velocity and velocity is behavioral. And I don't care if you increase the money supply by a factor of 10. If velocity goes down 90%, nothing has happened. Your your GDP has not grown at all. And velocity has been dropping like a rock. You and again, this is all publicly available information. We don't have to speculate. Just go to uh FRED, that's the uh Federal Reserve Bank of St. Louis data data center database, and you can find velocity. You know, pick your money supply, M0, M1, I use M1, but you can use M2, whatever you want. Velocity is crashing. And this is where Friedman, now to just to defend Friedman a little bit, throughout the the bulk of his career from the 1950s to the 1980s, velocity did not change very much. That's a fact. But it doesn't mean that it couldn't. And in the last 25 years, it has crashed. So the money printing has been, and QE, which had no positive impact, had no stimulus effect at all. The money printing can be understood as a desperate struggle to offset the fact that you have crashing velocity, just to keep the economy close to potential growth.

>> Yeah. I mean, Friedman, I think about the only thing that I think that Friedman got wrong, because he's a brilliant economist in in every other respect, in understanding government and and and the impact that government policy has on the economy, and how, you know, just about everything government does backfires, and, you know, they always get the opposite of what they're what they're attempting to achieve. But I I I I think the premise that we need, you know, stable prices and that we need, you know, government to try to um, you know, target that, I think is wrong. I I I I think there's no reason that prices can't come down on an annual basis. Um, I think that's actually a good thing. I don't think the government should try to prevent uh things from getting less expensive. I think that's really how um standards of living should rise. Not because my wages go up, but because my wages buy more. Uh, I'd rather have stable wages and falling prices than have both wages and prices >> uh rising and hope that my raise my wages outpace prices. But I think all of it is just an excuse for the government to create inflation so they can spend money that they collected, they didn't collect >> in uh in taxes. And, you know, when you have sound money and you have falling prices, then you naturally have low interest rates because I know that if I loan you money and if you pay me back in the future, it's going to buy me more than it does now because prices are going to be lower. So, you really have an incentive to save when things are going to be cheaper in the future. Um, when you know everything's going to get more expensive, well, you're going to spend the money as soon as you get your hands on it. And, you know, maybe politicians want to encourage everybody to go out and spend money because in the short run, if you're trying to get reelected and you're just measuring GDP and it's full of, you know, consumer spending and all that, you want to get people spending because it makes everything look better now. But to really have economic growth and to see a rise in the overall standard of living long-term is much better if people save, right? And not just, you know, indulge, you know, themselves and just live for the present. >> But underconsume and save uh so that we can build and have more consumption in the future, not, you know, mortgage our future so we can have a party right now. But that's what all this is is about, uh, facilitating. So I I think if we just go to real money and get the government, I don't think the government should even have any role in monetary policy. I mean, the government should collect money in taxes, but it shouldn't create the money. Um, and in fact, the way the the the US Constitution, the way it was set up, the only role the federal government had in money because money was determined to be gold and silver. That was the only thing that could be legal tender, uh, was gold and silver. And the only thing the US government could do was fix the weights and measures, kind of establish. And they did that in the Coinage Act of uh 1792, where they decided how many ounces of gold or silver would be in a dollar. And that was all they could do. And so all the government could do was collect gold and silver in taxes, but they could make coins out of it. They could turn, they couldn't print money. They have no constitutional authority to to print even money backed by gold. They can't do that. But they could take the gold that they collected in taxes and they can make coins out of it so that we could all transact in those coins and and and, you know, have confidence that, you know, they're not counterfeit because the government uh made them in a way that, you know, they're very recognizable. And of course, there was was a death penalty if you counterfeited. Uh, but um, so but the government didn't have any role in the money supply. The money supply was the money supply, right? That government, you know, had. And and we had a much stronger economy uh without government involvement. I mean, there's a lot of things today that government's involved in, education, healthcare, um, housing, that it has absolutely no constitutional authority to be involved in. And of course, everything the government has gotten itself involved in, it has screwed up, >> right? Where where do we have a big crisis, right? What where is everything too expensive? Education, healthcare, and housing, right? Right? The three eras of the economy where the government is most involved are the ones that are the most expensive. That's where we have a crisis, an affordability crisis, because the government screwed it all up, right? We're not we don't have a a clothing crisis. It's not like people can't afford clothes or, you know, consumer electronics. I mean, everything that the government stays out of is cheap and available, right? And, you know, people can buy it, right? But what whenever the government starts subsidizing things and getting involved, it runs up the price. But not only does it run up the price, it drives down the quality, right? The the free market does the opposite. It drives the price down and the quality up. So I think if we if we completely got government out of money, no central bank, no monetary policy, all the government has to do is collect taxes so we can pay for its expenses. And I don't think those expenses should extend to social security or Medicare or any of those things. The government is just supposed to do the few limited things that is authorized to it by the constitution, and it could easily pay for that with with sales taxes, you know, excise taxes. Whether you want to have tariffs or you want to have, you know, tax liquor or tax, you know, whatever. The government collect taxes like that and and could pay its legitimate uh uh expenses, and then we wouldn't, you know, we wouldn't need a monetary policy. We wouldn't have to try to figure out, you know, you know, what should interest rates be, what should the how much money should we have, because that would all be determined in the free market, right? We we don't we don't have a government pilot bureau that gets together and tries to decide, you know, how much how much should a should a cell phone cost, you know, or how much should a loaf of bread cost. We let the market figure all that out. So why do why does the government have to decide what the interest rate should be or what the money supply should be? Let the free market do that.

There was a medieval plant uh king of England. I think it was Henry IVth. I could be wrong about that, but you know, somewhere in that time period. And he summoned all the uh heads of all the mints in England. They had private mints. They would, you know, basically uh would you could bring them gold and they melt down. They produce gold coins and give them to you, etc., for a fee. And he summoned them all and uh got them to London and chopped their hands off. And the reason he did, and the reason he did that was because they were debasing the gold that they were, it wasn't pure gold, or they were using warark copper or other metals. So he thought he would teach them a lesson.

But Peter mentioned low interest rates and deflation almost in the same sentence. I think that's a big deal, and I want to expand on that a little bit. My first mortgage, my wife and I bought a co-op in New York. It was uh 13%. And I called my mother to say, "Hey, we bought this place." And the mortgage was 13%. And she almost cried. Well, she did cry. Her first mortgage was like 2%, you know, in the 1950s. And I said, "Mom, but let me explain. Yeah, I'm paying 13%." But at the time, inflation was 15%. So my real rate was actually negative -2%. And the entire 13% was tax deductible. And in New York at the time, I was in a 50% tax bracket. So I got another 6 and a half points back uh in tax deductions. So I had 8 and a half points. So my real rate.

>> And then you can deduct your property taxes and all other expenses.

>> That's exactly. So my my real rate was about -7, negative negative seven, because of the tax benefits and the inflation. So they were paying me to be a borrower and own the apartment, and the apartment doubled. So that was then. Uh, but the point is, you can't speak really intelligently about interest rates unless you distinguish between nominal and real. And when Peter mentioned low interest rates and deflation, my first thought was because I had been talking about four or five percent as a sign of a healthy economy. But uh, and I think that's right, but I uh consider that a real interest rate. But in a world of deflation, if you have 2% deflation and 2% interest rates, your real rate is 4%.

>> Because you're paying 2% on the loan, but but the value of the dollar is going up. So your real cost is 4%, which is consistent with what I was saying earlier. But uh, very hard for people to grasp this. It's not really intuitive. When you have deflation, you go through, you're through the looking glass.

>> You now have to take the instead of because usually we say, well, 6% interest rates, 4% inflation. So the real rate is 2%. But if you have 2% interest rates, 2% deflation, the real rate is 4%. You have to, you don't subtract inflation, you add the deflation to get to the real rate. Now, in deflation, there is what I would call, and know this is called good deflation and bad deflation. The deflation that we had in the Great Depression was bad deflation, meaning um, you know, unemployment was, they're not sure, but maybe 25%. The stock market fell 83% from uh October 1929 to June 1932. You uh GDP crashed, etc. And for all those reasons, people couldn't afford anything. And the Fed blundered as they always do. And so that deflation was bad deflation. But there's such a thing as good deflation. What's that? Good deflation comes in productivity, creativity, technology, etc. In other words, the prices of things are going down because we're better at them and they're worth more. And I mentioned earlier, I didn't have much respect for most economists, but there's one I like, well, a few I like, but one of them is Robert Gordon, and he wrote a book on economics. And he focused on the period 1870 to 1940. Now, you can kind of narrow that down maybe to even 1914, but 1940, that that's fine. Uh, and he basically looked, and of course through all, well, through half of that, there was no central bank. The Fed didn't come in until 1913. The income tax did not come in until 1913 with the 16th Amendment. So if even if you took 1870 to 1913, no central bank, no income tax. Uh, what did we have? It was one of the greatest periods of productivity increase in the history of the world. The, you know, the photograph, electricity, the airplane, the telephone, electric equipment, uh, you know, the automobile, on and on and on. Uh, and he actually identified the greatest invention in the history of the world, maybe since fire, which was indoor plumbing, because prior to that, for 5,000 years of civilization, half the human race, specifically women, half the human race spent 70% of their time fetching water. That's what they did, you know, for cleaning, cooking, or bathing, or or whatever. But if half the human race is spending 70% of their time fetching water, and you can make that go away with indoor plumbing, that was one of the greatest, all that uh that talent uh and uh and work by women. Uh, that that was that was one of the greatest productivity uh leaps in history. Uh, and then of course, electrification, even as late as the 1930s, rural electrification, that was like today, you know, the places don't have the internet. Well, let's get them the internet. But in the 1930s, Tennessee Valley Authority said,

>> "Yeah, I mean, you know, when you talk about economic growth and in that period of time, I mean, you know, as if if somebody, you know, even traveled in time 50 years from, you know, 1850 to 1900, the world had changed so much more so than than from then to now. I mean, I mean, it's like, yeah, we have cell phones and, you know, uh, but they had phones. I mean, you went from a point where you you know, you you had you had no telephone at all. So a cell phone is is cool, but just the concept of even a telephone or even an automobile. We have better cars now, but in 1850, they had no cars. Right.

>> Right. So just a change in, you know, and you know, we had not electricity and indoor plumbing and air conditioning. I mean, all these things that got invented and all, you know, that that didn't even exist. They because in 1850, it was like 1650, or not that much had changed for a thousand years of civilization. We were riding on horses. We were reading by candles, right? We were sitting in an outhouse, right? I mean, that that was how life was until we had capitalism.

But, um, I disagree with Jim on there being bad deflation and looking at the depression. And I I I I look at that as kind of like, you know, blaming uh wet the the rain on on wet sidewalks. Yes, you know, we had deflation during the 1930s. Yes, there was a depression during the 1930s, but it doesn't mean that the depression was caused uh by by deflation. When you look at the 1930s, you got to look at the 1920s, right? Because the 1920s is really what happened, you know, why we had the 1930s, and of course what what Hoover and then Roosevelt did uh that was different from what we had done like in 1920, right? You know, we could have had a a depression in the '20s had we made the same mistakes, you know, earlier that that that we made in the '30s, but we had a bubble right in in the 1920s, especially in the latter part of the 1920s. And the reason for that was the Fed, because the Fed didn't come around till 1913. And what happened was you had you had um um a lot of money printing. You know, first you had the the the the First World War, and that's actually as soon as, you know, when they initially started the Federal Reserve, it wasn't even allowed, they weren't even allowed to buy US Treasuries. That was in the original chart. They couldn't own them. Now they still can't buy them directly, but they couldn't even own them. It wasn't even an asset that the Fed was allowed to possess, and they changed that during World War I because, you know, the government wanted to sell bonds and they wanted the Fed to buy. And so they they amended the Federal Reserve Act uh pretty quickly. Uh, and so there was a lot of money printing then, and we could have had, you know, a big bust in 1920. Uh, and it started out, you know, because we

printed a lot of money in, you know, in the late teens and we started out with a crash in 1920. The stock market started to tank and, you know, and but, uh, the government did the right thing. Instead of stimulating, they cut government spending. They balanced the budget. We did all the right things and we didn't have a depression. We ended up having a nice economic recovery.

But by the latter 1920s, the Fed, uh, started cutting, you know, being too easy. And the real impetus was the pound and, and in the UK and, and so we were trying to help the pound by weakening the dollar and we weakened the dollar by cutting rates and all that excess liquidity went into the stock market, went into the real estate market, and it inflated that boom and its speculative mania. And I, the mistake that the Fed made was not, you know, taking away the punch bowl or hiking rates. It was spiking it in the first place. It's always, it's the rate hikes are not the problem. They're the consequences, the cuts that never should have been made. So, we had, we had too much, you know, uh, rate cuts.

So, the stock market bubble popped. Um, real estate prices came down, stock prices came down. And of course, consumer prices also came down, but not nearly as much. And, you know, maybe consumer prices over the entire decade maybe went down 30%. Right? Stock prices went down like 90% right from their peak. Um, and, and there was a lot of unemployment, but the depression would have been a lot worse if consumer prices hadn't come down. I mean, what if they, what if they'd have stayed the same or what if they had gone up? That would have made it even worse.

And of course, banks failed during the 1930s. So, some people lost, uh, their deposits. The interesting thing is that not that much was actually lost, 'cause I think maybe something like 70% of the banks didn't even have a problem. And so, I don't know if it was like 30% of the banks failed. There were smaller banks, but even if your bank failed, it's not like you lost everything. You, you got something. I think on total, total maybe about 2% of the deposits were lost, maybe a little bit more during the 1930s. We had no FDIC. There was no, no deposit insurance. We had a sounder, much sounder banking system than we have now. Um, but still, some people lost money, but at least the money they didn't lose, the purchasing power went up. Um, and, and so that's a good thing. The fact that the things I needed to buy were cheaper when I just lost money in the stock market. I lost money in the real estate market. Okay, I don't have as much money, but stuff doesn't cost as much, right? So, it was, it was, it was good that prices adjusted down during, during the depression.

Now, you could look at what was happening during that time period and, and try to blame it on the fact that prices went down, but no, prices went down as a consequence of what was happening, but the fact that they did go down was a good thing because it would have been much worse had they not gone down, right? If food was more expensive during the depression, uh, and, in fact, the policies that they actually pursued were designed to make food more expensive. I mean, what did they start doing? They started destroying crops. They, you know, they, the government wanted to keep food prices. I mean, how bad could things be when they're trying to make food more expensive, right? That was like government policy to destroy crops and pay farmers not to grow food, right? That was, you know, all the nonsense that, that they came up with.

But the reason we had the 1930s was because Hoover, uh, ignored the advice that he got from his secretary of the Treasury, which may be the last time Secretary of the Treasury gave any good advice, but he, you know, and he went for the equivalent of stimulus and he tried to get companies not to cut wages and, you know, and he was trying to, you know, government bailout. And Roosevelt, when he ran for office, actually criticized Hoover's deficit. He promised to balance the budget. He ran, he ran like, you know, this guy's running up all this debt, you know, and of course, you know, the New Deal just took what Hoover was doing and took it to a whole new level. Um, you know, if, if, if they'd have just allowed the recession, the recession to run its course, you know, it would have, we would have been out of the, the, there would never have been a depression. We would have been out of it much sooner. Instead, we didn't get out of the depression until the end of the Second World War. And it's funny 'cause a lot of people think that the, the war got us out of the depression. It was ending the war that got us out of the depression. It actually was worse during the war. I mean, life in America was very austere during the Second World War because you could, there was nothing you, I mean, if, I mean, if you weren't, you know, in Europe or Asia fighting, right? If you were home, you had nothing. I mean, we, we didn't make everything was going to the war effort. Everything was rationed, right? And women, women were working in factories because their husbands were fighting in the war.

So the depression ended in 1945 when we could cut government spending. And people think, oh, it was the increase in government spending that got us out. No, it was slashing government spending after the war ended. It was all these soldiers coming back to work. Instead of fighting, they were able to get their jobs and their wives were able to go back home. But that's when, you know, and then, you know, we were able to start paying off our debts. You know, people talk now that our national debt, uh, is now back to the height as a percentage of GDP that it was in 1945. The difference is we were able to pay it off. We paid it down. You know, that's why debt to GDP was only about 30%, 35% in, in, in 1980. You know, now, you know, it's 125%. But we have no, no ability to pay it down like we did.

>> You know, because the government, you mentioned the government. >> We, the income tax, even though it was on the books in 1913, it didn't really start till 1942 as part of the victory tax. That's when average people started to pay income taxes for the first time. In 1913, it was, you know, Carnegie and Rockefeller and Vanderbilt. They paid the income tax, but the average American, it didn't, didn't even think about. There was, you know, didn't pay the until the withholding tax, but that was part of the victory tax. It was a temporary tax to help us win the war. But when the war was over, the government never repealed the tax. And it had all this money coming in and no war to fight. And that's how we were able to pay down that debt because the government had this new source of tax revenue that never existed. Which is why in a way we lost the Second World War because if it wasn't for the Second World War, we never would have had the, the withholding tax.

>> You just said the record straight. I did not say that deflation caused the Great Depression. Deflation was a consequence of the Great Depression. Uh, but it didn't cause the Great Depression. I think Peter's analysis of the Fed blunder was correct, but that had nothing to do with deflation. Deflation came about because of the Great Depression, but I did not say it caused the Great Depression.

>> Or more, you said that the deflation was bad.

>> Well, okay, that's a different point. I'll get to that.

>> Um, deflation, I'll stick to my thesis that there is a bad form of deflation. Peter's right about lower prices, but lower prices don't matter if you don't have a job. Um, so I'll leave it at that. Uh, as far as the, uh, post-World War II trend in national debt, we didn't pay down a nickel. Here's what actually happened. The US, the, the key metric, the one you have to focus on was the debt to GDP ratio.

>> That's what I meant.

>> Okay. The, the national debt, if you compare 1945 to 1980, Peter's right, it was about the debt to GDP ratio in 1945 was 114%. At the time, the highest in US history. It's higher today. That's a problem. And that's a separate issue. So 1945, the debt to GDP ratio was 114%. In 1980, when Ronald Reagan was sworn in, it was about 31%. That ratio, uh, came down enormously in a very good way. The actual debt was three times higher in 1980. The actual deficit was three times higher in 1980. We didn't pay down a nickel. What we did do is grow.

>> Yeah. That's why we literally paid it down. It went down as a percentage, you know, percentage. That's an important distinction because even today people say we got to get rid of the deficit. We got to pay down the national. Last time we paid off the national debt was 1836. Andrew Jackson left office with no national debt. That was the last time.

>> Um, so we're not going to pay off the, the deficits are here to stay. The national debt's here to stay. 30, uh, I think I'm speaking about this recently. I think that I said 37 trillion national debt. It's actually 38 trillion, on its way to 39.

>> That's right. You can't speak intelligently about that unless you put it in the context of the debt to GDP ratio. And the way I explain this to people, let's say you owe $50,000 on a Mastercard. Is that a lot or not? Well, if you're making $20,000 a year and your interest rate is 30%, you're probably going bankrupt. If you're making $500,000 a year, you just write a check and it's gone. So, in other words, the $50,000 is not high or low as a form of debt unless you put it in the context of the means to pay it off. It's no different with a country. And so the way to deal with, uh, so people like this boogeyman $38 trillion or whatever. Yeah, that's a big number. I get it. But you have to look at the ratio. Now, the right now, the ratio is really high. The consequence of that is not going to be hyperinflation. It's not going to be default. Uh, the consequence is slow growth, which is, which is why I say we're in a long depression. We're in a depression that started in 2007. From 2009, when we came out of that, uh, great financial crisis, recession, uh, to 2019, which was when COVID started, so 2020, we had a, a weird recession, crash, stock market crashed 30% one month and then hit all-time highs 6 months later. So that was just weird because we turned out the lights, we shut down the economy for no good reason. We don't have time to discuss COVID, that that's a separate interview. But, um, but just take the period from 2009 to 2019, 19, the 10-year period, which is pretty good time series, the average annual growth was 2.2%. Now, I said earlier that our potential is 3 and a quarter to 3 and a half%. You go over 2.2% for, uh, 10 years. Uh, is that a technical recession? No. Uh, people say, well, a recession is two consecutive quarters of declining GDP. That's the rule of thumb. Depression sounds worse. So a depression must be 10 consecutive quarters. No, that's not the definition of a depression. You can have growth in a depression, but you have depressed growth relative to potential. That was John Maynard Keynes' definition. I think it's a good one. In other words, Keynes defined a depression as a period of below-trend growth with neither a tendency to collapse nor regain the prior trend. And if trend is three and a quarter, three and a half, and you're doing 2.2%, you're creating a wedge of lost wealth. That well, that wedge is now bigger than ever, in the tens of trillions of dollars of growth left on the table. So, we're still growing, but not anywhere near what we could. That's the consequence of the high debt to GDP ratio.

>> Well, you can argue that that's been a consequence so far, but the inevitable consequence is the hyperinflation. You, this cannot persist indefinitely because the longer we have the slow growth, the higher the debt to GDP becomes because the government is not collecting the taxes and spending. And let's say, let's take 40 trillion, which the national debt will be 40 trillion next year.

>> That's right.

>> Um, and if I, if, if we had to pay, you know, when Volcker was, uh, their short-term rates went, went to 20%. What if they went to half that? What if, what if somehow rates went to 10%? Well, 10% of 40 trillion is $4 trillion a year in interest. Now, right now, the US government only collects $5 trillion a year in taxes, but we're at a point where a 10% interest rate would consume 80% of our tax revenue. I mean, I, I don't even know that a country could get to that point.

>> Well, because that's just interest on the debt, that's not any of our obligations. And even, even if rates go to 5%, which is not that unreasonable, >> because remember, our debt is financed real short-term. It's not like we got this locked up in, it's like a 30-year mortgage. It's an adjustable rate mortgage. So even at 5%, that's 2.5 trillion. That's 50% of tax revenue for interest on debt. Not repaying any of the principal, just to pay the interest on what we've borrowed. So we get to a point where we have a, a crisis of confidence because people look at that like, I am not going to lend the US government any money when they are that broke. And, and everybody wants to talk about, well, we're not going to default. Maybe, maybe not. Because default is actually better than the alternative. The alternative to a legitimate default. And again, we defaulted when we went off the gold standard. Even if it was temporary at first, that amounted to a default. We had a promise to pay and we, we, we broke it. And, and, and it's possible that the US government defaults and it's just, look, we're not going to pay the, we're going to restructure the debt. Maybe we'll give you, you know, 50 cents on a dollar, 25 cents on a dollar. But the alternative to default is massive inflation. And, and, and, and if, you know, that the government has no ability to repay the debt legitimately, politically speaking, it's not going to default. And so the only viable alternative is to inflate. And when the inflation is going to go out of control, nobody is going to buy that paper. And so it goes from just being a slow growth to a runaway inflation, uh, because there, there's a run on the currency, there's a run on the debt. That is inevitable unless we do something dramatic to alter the course that we're on. But there's no indication that that's going to happen. And there's no political motivation for that to happen. Nobody is going to say, you know what, if we don't do the right thing now, we're going to have a crisis in the future. What they say is, who cares about the future? If we do the right thing now, I ain't getting reelected, right? And so I don't care that there's going to be a crisis in the future because that's somebody else's problem. And everybody just assumes that it's in the distant future. Like, oh, it's long-term, right? You know, like you'll hear the Fed talk, we're on an unsustainable path. They never say it's unsustainable, just that we're on an unsustainable path. Okay. Well, how do you know when the unsustainable path brings you to the unsustainable destination? You don't know that, right? You, you don't, you don't know how long this path is. If we've never been down it before. We could be right at the end of it. It could be the next step. Could be the end of this path.

>> Um, and so, you know, it's not just going to be slow growth. And, and, and in fact, I don't even think what we've had for the last decade has been slow growth. I think the economy has been contracting. And that's because the way we measure GDP, we adjust it for a deflator. And so let's say growth is nominal growth is 4% and they tell us inflation is 2%. Oh, we had 2% growth. Well, what if that number is wrong? What if inflation is 5% and they're not measuring it right? Then we have a 1% contraction. We just don't know it. But I think the public feels it. I think that's why every election now we just change parties because the economy is getting weaker. Uh, every four years and the public just blames whoever's in charge and everybody who runs wins by promising change. That's how Trump was able to beat, uh, Hillary Clinton because she was running on the status quo. Let's continue Obama. And Trump said, "No, the economy is lousy. The government's lying to you. I'm going to fix it." And so they took a chance on Trump. And then the economy got worse four years later. Trump didn't keep any of his promises. People were worse off. And so now they went back to, uh, Biden, right? And then four years later, they're still worse off. So they went back to Trump. And for, you know, we're going to elect a, a real liberal Democrat or not like radical left Democrat, uh, in 20, in 2028 because again, Trump is going to fail to deliver on his promise because nobody wants to change.

You know, I, you know, I just got into trouble. You know, I don't know if it's real trouble, but I, I did this Fox and Friends interview from my hotel room the other day early in the morning, right? This is an interview. It's New York time. It was like 5:36 a.m., right? Who the hell's watching it? But Donald Trump obviously is awake watching this. And they asked me, you know, about inflation, cost of living, and, and, and is Trump's policies working? I said, "No." I said, "Of course." I mean, I said, "The problem is Trumpomics has got too much in common with Bidenomics." I said, "We're running reckless government spending. We're printing, we're spending all this money. We're relying on the Fed to cut rates and now print money to monetize the debt." And I said, "So, you know, prices are going up. I mean, we're going to have higher inflation, uh, under Trump." Um, and, and so Trump went ballistic on on social media and, and called me a, a, a jerk and a, and a loser and just a Trump hater because, you know, I'm denying, you know, he's claiming prices are falling, which they're clearly not falling, but, um, um, but, um, now I forgot what I was even saying.

Um, but yeah, so, but I, I, if we've had, if we, we, we keep doing this, right, we keep, we, the economy keeps getting worse as the government uses inflation to claim it's getting better because not only does, does unre under under reported inflation make it look like the economy is growing because they can point to the GDP, but one of the things that inflation, uh, really props up are asset prices. So the presidents like to look at the stock market and say, "Oh, the Dow's almost 50,000, right?" Oh, the see, look at this great economic growth. We got a $50,000 Dow. Yeah, but we got $4,000 gold. That puts it in perspective. The Dow is down. The Dow, the Dow is for the last 25 years, the Dow's lost more than half of its value priced in real money. But because we have all this inflation, the prices go up. But the same thing happens now, real estate. Everybody thinks they're rich because real estate prices have gone up. But in terms of gold, they've gone down. But the problem is most people don't have gold to buy real estate. They just have paper dollars and now they want to talk about the crisis in housing because people can't afford houses. Of course, they can't afford houses because the prices have been inflated.

Um, the solution to the housing affordability problem is lower home prices. But that obvious solution is being resisted by the government. The government is trying to funnel more credit into housing so that they can sustain the bubble because they know that if they actually let the free market solve the housing problem, now they have another financial crisis because now if real estate prices drop by 30%. We already seen this movie. We know how that ends, right? People mail in their keys. They don't make their payments, uh, when they have negative equity. Uh, and, and so what happens to the banks, uh, you know, when people, you know, in mass don't make their mortgage payments and, and, and prices have come down. So the government, the government created a situation where there's no solution because they inflated the housing bubble with 0% interest rates and, you know, now, you know, people were able to borrow money for 3, 4% and bid prices up and now they can borrow money for 3 or 4% but the prices haven't come down. But if they do come down, then, then we get another crisis. But if they don't come down, we have the current crisis. Mhm.

Another question is, I think because you kind of agree that the endgame is nearing, but from what I understood so far is that you, the path to the endgame is different for you, Peter, and it's also different for you.

>> I'm not sure the end game is. Well, something's coming and I, and Peter and I may disagree on this. Uh, Peter's right. If you have 10% interest rates on short-term interest on short-term notes, Treasury notes, there are all kinds of bad consequences from that. So the, the math is absolutely right. I think where we disagree is you're looking at the potential for 10% rates. I'm looking at 1% rates, which is a different problem, a different scenario. That's a, that is a borderline deflationary, recessionary, depressionary scenario. You're looking at a hyperinflation scenario. You, of course, you're right about the math, but I don't think that's likely, at least not, uh, not in the short run. Now, you may.

>> Well, how do we stop it, though? How do we, what if rates? Well, there is. Well, again, if rates go up, you have the exactly the bad consequences you described. And we're both using fifth grade math, which works fine. You don't need a lot of debt, right? If you have a lot of debt, and people are losing confidence in your ability to repay it, >> well, wouldn't your interest rates go up?

>> Uh, no. Uh, well, sorry. Yes, but they're not losing confidence. That's that's my point.

>> Well, that's why they're buying gold. Aren't central banks losing confidence in the dollar? They, they, they're foregoing treasuries where they could earn 4% interest and they're owning gold where they earn no interest. Uh, that shows that they, you know, they are losing confidence. And I think, look at, look at, look at Morgan Stanley just, you know, they made this big announcement, I don't know, you know, but they said that the 60/40 portfolio shouldn't be 60/40, it should be 60/20/20. You should sell half your bonds and buy gold. And that is a loss of confidence at Morgan Stanley in bonds as a long-term store of value, as a safe haven. And if Wall Street are telling their customers, this is not Peter Schiff, Wall Street, but traditional Main Street Wall Street saying sell half your US treasuries and put the money into gold. It's because there's a loss of confidence. They didn't say sell half your stocks and buy gold. It was sell half of your safe asset, the asset that you were buying to, you know, to keep the portfolio, uh, less volatile, right? To take half of your safe assets and put that in gold. Right? Again, that's a recognition that the dollar treasuries are not that safe, that inflation is eroding away their value. And, and as you know, that happens, the only consequence is higher rates. The only way that you can get somebody to loan you money if they don't want to do it because you know is to, is to, is to pay them more. That's what happened in 1980 when rates went to 20%. It wasn't like, you know, we wanted 20%, that was where the market cleared. That's what people were demanding to loan us money. The thing is, in 1980, we could afford to pay it. We, we, we could afford that. We were not a broke nation in 1980. We still had trade surpluses. We were still the world's biggest creditor nation, right? The debt to GDP was 30%. And our national debt was mostly long-term. So even though we had to pay 20%, it was only on the current borrowing. It didn't have any impact on what we borrowed 10 years ago because that didn't mature yet. But the problem is now it's all short-term. And one of the reasons that we've had to borrow so much money short-term is because nobody wants to lend it to us long-term because they're afraid of the risk. They've already, you know, already decided that look, I'm not loaning money to the US government for 30 years. I, I'll do it for 30 days, but I ain't taking, I'm not going 30 years out. So, we've been forced to borrow at the short end. Like a lot of people have said, why didn't we take advantage when interest rates were so low? Why didn't we lock in those low rates for 30 years? And the reason we didn't, it was because we couldn't because if we actually tried, then the rates would have risen. People didn't want to loan us money at that rate for 30 years. They, they would do it for, you know, a year. And so I think we're already at a point, uh, where, you know, we're going to have this, this, this crisis, uh, in, in our debt because otherwise you'd have to think, well, then it can go on indefinitely. I mean, we could run our debt up to 50 trillion, 100 trillion, right? There's no end, right? We can just pile up as much debt as we want and there's never going to be like a, a consequence beyond slow growth, which, you know, it, there, there's no precedent for that. I mean, there's plenty of countries that have had crises that have destroyed their currency and had hyperinflation. You know, we would be the first one to get away with it, but I, I just don't see how, how it could work. I, I, I see how we've been able to delay the consequences, but because we've delayed the consequences, they're so much greater now because the problems are much bigger now because we were able to delay the consequence. Because the consequence is actually when you're finally forced to recognize the problem and deal with it and get your house in order. But because we haven't had to do that yet, right? All the problems have been able to get much, much bigger, uh, as a result of that and now they're even, even worse.

>> Yeah.

>> But I started to answer your question. You interrupted about 10 minutes ago and answer it for me. It makes my life a lot easier.

>> Um, do you think the audience is interested in knowing what's actually going to happen?

>> Of course. Yeah. Thanks for being able.

>> Okay, I'll, I'll tell you what's actually going to happen. Um, the, uh, first of all, the, I'll come back to the debt to GDP ratio. Now, the Trump administration has a plan to address that to do exactly what the country started to do in 1945 and successfully completed in 1980. Whether they can implement the plan is a different issue. I agree there's a lot of politics around this, but basically it's, it's very straightforward. What you need is to keep deficits at 3% of GDP or less. Number one. Number two, you need to grow the economy, uh, at 3% or more real. Uh, 3% or more real. Uh, and then they, Besson wants to drill 3 million barrels of oil a day. In addition, US is already the world's largest oil producer. It's not Russia. It's not Saudi Arabia. It's the United States by a considerable margin. So it's called 3, three and three are the three R's: deficits 3% of GDP or less, real growth 3% of GDP or more, uh, and then 3 million barrels of oil a day. Now, when you say real growth, that's a very important distinction because we still have inflation to Peter's point. So if you have, let's say 2% inflation and that's benign. It's, it's three, maybe it's more like five or six, that's a separate debate, but it's certainly more than two. But if you even have 2% inflation, which is the Fed's target, 3% real growth plus 2% inflation is 5% nominal growth. Now, nominal is the key. When you're talking about debt, nominal is what matters. If I owe you a dollar, I owe you a dollar. Interesting question whether it's worth 95 cents or $15, but I owe you a buck. And it was, I like real data, but when you're in, when you're in debt space and growth space, nominal is how you measure it. So if deficits go 3% a year and the real and the nominal growth is 5%, 3 plus two, then what's happening in the debt to GDP ratio? It's going down. Right now, it's about 124%, the highest ever. Has the slow growth, uh, implication I mentioned? If all it does, you say, well, gee, Jim, okay, it's like two points, so it goes from 124 to 121. That's not a lot, but it's moving in the right direction. That's all you need to do to maintain the confidence of the real money in the world, which are sovereign wealth funds, endowments, pensions, basically large investors. I'm not talking about retail. I'm not talking about CNBC. I'm talking about the real money in the world. If they see it, all they have to do is see it moving in the right direction because the last time we did this, it took 35 years. It wasn't a year or two years. And what was interesting about that to me is that it was totally bipartisan. You had Democrats like Harry Truman, JFK, LBJ, and Jimmy Carter. You had Republicans like Dwight Eisenhower, Richard Nixon, and Gerald Ford. They did it together. They argued about everything else, but they didn't argue about this. Both parties said, "We got to, we got to get that down." And the, as I said, the debt went up and the deficit went up, but we grew three times faster than either one of those things were happening. And that's what took the debt to GDP ratio down. So that's Scott Besson's plan. Um, and it gets into Steve Moran, the Mara Lago, and a lot of else having to do with currencies. We can talk about that separately. So the plan works and the math works. It's a very simple plan. So again, deficits under 3%, growth, nominal growth, that's important, at 5% or more, the ratio goes down. You're repeating what we did beginning in 1945. The world does not lose confidence in the role of the dollar is maintained. Now Peter makes a point which is a good one. It's like, hey Jim, I get it, but what if they don't do that or what if they fail? Yeah, that's a big problem. But my point being they do have a plan. It does work. They are trying to execute on it and they don't have to solve it in in a year or 10 years. So you have to move in the right direction to make confidence. Now, apart from that, uh, are there very bad potential consequences on the horizon? Yes. But they don't stem, at least not in the short run, from what Peter was talking about, which is hyperinflation. I mean, the, the difference between the United States and all the other countries and there are many examples of debt defaults like Argentina. You can set your watch by it, like every 10 years they default. Got it? And we bail them out and they start over again.

>> That's all true. The difference is, do you owe the debt in a currency you print? That makes a difference. Argentina's problem is they borrow dollars and they print pesos and you can't pay back the dollar debt with pesos. But there's, there's no reason for the United States ever to technically default on dollar debt because we can print the money. Now, there are consequences that can come from that. I, uh, with a, uh, very brilliant, uh, quantitative applied mathematician. Um, I was the co-inventor of the sovereign credit default swap market. We did the first one. It was a, it was a billion dollar trade. It was a long-term capital management. We were the largest holder of Italian government debt. And people always talk about Russian debt. That was a, that was an odd lot. We, we were the biggest holder in Italian government debt. So that was our biggest risk. What if the Italian government defaults? Sumitomo Bank Milan branch was in the opposite position. They had all these Italian liabilities. So we did a, um, we did a swap transaction. That market didn't exist at the time. Regular swaps had been around for a long time. Today, you have business and standard reforms and all that stuff, but we had to invent it with a blank sheet of paper, that a sovereign credit default swap, $1 billion. And to Peter's point, my job as a lawyer, I had to think of every single way that the government could screw you because we wanted to get paid for if they did any of them. Yeah. And not paying is the easiest one. I'm just not going to pay you. Okay, got it. Uh, uh, capital controls. Say, I'm going to pay you, but come and get it. You actually can't get it out of the country. Okay. Currency devaluation. Here's your money back, but it's not worth very much. You know, good luck buying a loaf of bread. Um, 98% tax. Here's your money, but sorry, there's a 98% withholding tax. You basically had to rack my brain. I have experience thinking of all the ways the government can screw you. And they're all forms of default.

>> So, will the US like not pay its debt? No, we'll pay the debt in dollars, but will there be inflation? Will there be capital controls? Will there be withholding taxes? Will there be other forms of devaluation, etc., that make that not worth very much? Those are all possibilities. They're all avoided if you move in the direction I describe, which is just lowering the debt to GDP ratio. And we've done it before. We could do it again. Now, will we?

>> Uh, can we? Yes. Will we? Good question. I don't even know. That's a political question.

>> If, in theory, assuming they did all those three things, if it would even work. I don't even know at this point if.

>> If, if it's fixable without a much more austerity than that, I mean, a much bigger short-term sacrifice. But you're right. Yes. As long as the US government borrows in a currency it can print, technically it never has to default, >> right?

>> But that doesn't mean it's going to repay. It's just defaulting through inflation, which, you know, for all practical purposes, is the same thing. Well, I'll give you, I'll give you a concrete example, which is one of the things driving gold higher, which is we have a selective default on US Treasury securities owned by Russia.

>> Yeah.

>> And in fact, $200 billion and we froze, well, we've frozen it. We do that all the time, freezing stuff. But now we're saying, hey, let's take the money and make a loan to Ukraine backed up by Europe, organized by Europe. And when Ukraine wins the war, Russia will have to pay reparations. We'll use the reparations to pay back the loan. But if we can't pay back the loan, the Russian securities are collateral. But everything's wrong with that. Russia's winning the war, Ukraine's not going to win the war, Russia's not going to pay reparations, the loan's going to default, and they're going to steal those securities. And that's why people were buying gold.

>> Yeah. Well, that's, that's that's one of the reasons and they're going to buy more. But we could also selectively default. The US government can say, "Okay, we are going to, if you're not a US citizen and you own US treasuries, we're not paying you." So, all US citizens, you know, you can prove that you're a US citizen and we'll pay you. Because I mean, you get to a point where it's a choice between paying interest to the Chinese or paying social security. Who are they going to choose? Because the Chinese don't vote in our elections, >> right?

>> We get any capital control and, and so we could find a way of screwing our creditors, uh, and, you know, and blaming them for loaning us too much money and saying, you know, we need to, you know, you guys, you know, took advantage of us and you loaned us all this money and so we're not paying you back, right? Predatory lending and stuff like that. But the one thing I know for sure, and more people will realize this, is legitimate repayment is not even a possibility. So the only question is how are we going to get screwed if we own treasuries? Are they going to default? Are they going to inflate? But the problem with inflation, too, is it imposes consequences on people who don't even own treasuries, right? Because if, if I have dollars anywhere, I lose, right? At least if we default on treasuries, it impacts directly the people who own the treasuries. Now they're not going to get back as many dollars as they had. They're going to lose some dollars. But if we never default and we make everybody whole in dollars, then everybody loses. Even somebody who stuffed dollar bills under their mattress because they didn't want to buy treasuries, they lost because the dollars under their mattress. But I want to get back to your point that, you know, we got this three arrows, you know, borrowed from Abenomics, which also didn't work. Uh, but that this plan, first of all, I, I mean, the government has no control over how much oil we produce, and I, I don't, I don't know that we can get to three.

>> That, that's not true. We can open up federal land for leasing, Gulf of America, East Coast, West Coast.

>> We could, but I think I think a lot of the production is going to be a function of the price of oil. I mean, if the price of oil stays around $60 a barrel, I don't think we're going to produce much more because I expect it to come down to 40.

>> Well, then we're going to produce even less. No,

>> I mean, the, the, the wells are not profitable, you know? So, we're, we're, we're, you know, we're a relatively high cost producer. We have a lot of oil, but it's not exactly cheap to get out of the ground, right? Which is not like, you know, Saudi Arabia. Uh, and so, you know, companies are not making money. Yeah, if oil goes back up to $100 a barrel, but then we got a whole new set of problems with $100 oil. Yeah, we'll produce more oil. But the, the bigger issue is the idea that we're going to have debt to the budget deficits 3% of GDP. We're not going to have budget deficits that are 3% of GDP. They're not even what you know what it is now.

>> It's close to 6%.

>> Yeah. So, and they just passed the big beautiful bill. The first chance they had to to reduce government spending because the only way we're going to get the deficits down to 3%, which is still a big number, but the only way to get down there is to cut government spending. But what did Trump, what did they do? They increased.

>> That's wrong, Peter. You're cutting Congress, by the way.

>> Congress, too.

>> We may, we may agree on cutting government spending. That's that's a separate political debate. It's not the only way to get deficits below 3% of GDP. The other way to do it is to grow the GDP.

>> Yeah. But yeah. But they always, they they've been claiming this politicians ever since, you know, that they, I, I can remember from the 80s. We're going to grow our way out of the problem. You know, the deficits today are down payment on surpluses in the future. You know, meanwhile, we have almost a $40 trillion debt. We're not growing our way out of the problem. And the bigger the debt gets, the harder it is to grow our way out of it because the debt itself is growing faster than than the economy. But the point I'm trying to make is when we actually had a chance, forget about their three arrows plan. When they actually had a chance to do something about the budget deficits, they made them bigger. And you know what did Trump actually want? He want, he said, "Let's eliminate the debt ceiling. Let's get rid of it entirely." You know, and like if we ran up 40 trillion in debt with a debt ceiling, imagine how much we'd run up without one.

>> You, you and the Congressional Budget Office, you've been right about a lot of things. The Congressional Budget Office has never been right about anything. They have the worst forecasting record I can think of. But what you're both missing are tariffs. We're looking at a trillion dollars a year of tariffs. When the CBO rolled out those five-year budget deficit projections based on the one big beautiful bill, they counted tariffs as zero. The actual numbers, uh, getting close to a trillion dollars. All right. So throw a trillion dollars into the revenue side. It changes the equation.

>> Yeah. Well, we'll see how much they actually get on the tariffs.

>> They got, they got 600 billion and this fiscal year is still, uh.

>> Right. But remember the tariffs. Yes. The tariffs are being paid by Americans. They're not being paid.

>> They're being paid by producers.

>> No, no. They're being paid by importers and consumers.

>> I wrote a book on the supply chain. There's the producer, the importer, the poor Los Angeles, and the consumer. There could be 20 people on the supply chain, but they're the big three. Okay. Who actually writes the check? The check to the importer. The importer. The guy at the port of Los Angeles writes the check. Who bears the cost? They cannot raise prices. The consumer. Sure they can.

>> They, no, they would. If they could, they would do it anyway. Why do they need tariffs? The consumer's tapped out. They push, they push it back to the producer and they say, "You cut your cost."

>> The produc, the, if the producers cut their costs, it's only in the very short term until they can redirect their supply to other markets. They're not going to sell us products at a loss. They're not going to eat our tariffs.

>> It's not a loss in local currency if you, uh.

>> But their currencies aren't going down.

>> Well, they, well, they pay the, uh, yuan is not, they pay. Yes, it is. They, yes. Oh, yes, it is. The Iran's been pretty stable. In fact, it's gone up a little bit. But, uh, the, the idea that we can push off the cost of our government on the rest of the world who is already supplying us with stuff that we can't pay for and now that somehow they're going to absorb our tariffs is, is, is, is not going to happen. But, but also inflation, the tariffs have been around since February.

>> Well, first of all, again, I don't trust the government's inflation numbers. I don't think you make up your own numbers. No, I'm not making up. I'm just saying that the government's numbers are not accurate. But I do know that when you impose tariffs, right, there is a, a time period for the adjustments to be made. But tariffs are like sales taxes. They are an excise tax that gets passed on to the consumer in the form of higher prices. And in fact, you know, Trump is claiming that tariffs are going to help re-industrialize and bring back manufacturing here. Well, the only reason that works is if tariffs cause prices to go up. If tariffs don't, miss that, if tariffs don't make prices go up, then why would we resource anything? If we just keep buying all the stuff, you know, then we don't have to make it here. The whole, the, the reason that tariffs in theory would cause you to make stuff here is because the tariffs made it more expensive to import stuff because the producers aren't absorbing the tariffs. They are getting passed on and there's a couple points I want to make. Zero evidence, Peter. There's zero evidence for that.

>> What do you mean there's zero? The, the tariffs have started in February. There are some of them huge, 50, 70%. Some of them are more in the 20% range. That has not shown up.

>> Well, I know I know they've shown up. I've seen them myself. I've, I don't know if you buy.

>> Well, I do. Luxury watch. No, not everyday. Not everyday goods.

>> All right. Look, just even recently, my wife bought me a couple of pairs of shorts and I liked them and I said, "Can you get

"me a few more?" And they were from France and online said, "No, they won't sell them anymore because of the tariffs." I just don't even want to sell them. They don't want to deal with it. So, I can't even buy them because they're not even available.

I would put fresh underwear in the luxury good category, but every day these are shorts. They're not, they're they're not like super luxurious. But, but I know a friend of mine had to buy a soccer jersey and he went online to buy a soccer jersey and the prices are like skyrocketed and it's because of the tariffs. Just go online and buy it. And this, they're they didn't say, "Oh, because there's a tariff we're going to lower the price of these soccer jerseys." They just said, "We just have to raise the price. Either you pay the higher price or you don't buy it."

But it's on the French. But what Trump said is you can sell anything you want to Americans with no tariffs. You have to build it here.

Yeah, but they're not going to build it here. They are. No, they're not going to build it here.

Trillions of dollars in new investment. It's not. Maybe it's not from the French, but from the Japanese.

No, they're not. They're not going to build, etc.

Who's going to look? No one is.

Taiwan semiconductor spending 10 billion dollars on a fab plan in Arizona.

We'll see what they actually spend. Like a lot of stuff is hype so Trump could brag about it. But the thing is, who's going to make huge capital? There's a real fab plan built in Arizona. It's not hype.

Who's who's going to really invest all this money to build something in America that's only viable so long as there are tariffs?

Well, the tariffs are going to be around.

You know how Trump's Trump's not going to be around forever. You don't know that the next president's going to keep these tariffs. Plus, the Supreme Court could strike them down any day. They are they are completely unconstitutional.

The only thing it was the only thing they're not unconstitutional. They are unconstitutional because Congress did not impose them. Right? The power of the purse rests in the House of Representatives, not just Congress. So all revenue bills must originate in the House. A tariff is a revenue bill. It is a tax and Congress has to authorize it. We don't have a king in America. We don't have one person who's allowed to tax us.

Where did you go?

Where did you go to law school, Peter?

I don't have to go to law school to understand the Constitution. I understand a tariff does not have to be imposed by the Congress. Well, let me put it differently. The the Congress has enacted numerous tariffs laws which have given the president the power to act unilaterally subject to predicate subject but not the national emergency economic powers act in 1977 which only has two predicates which is does the threat is first of all is there a threat or a danger and emergency and does it arise abroad those are easy predicates to satisfy that is the case pending before the Supreme Court.

No, but it's it's a contrived emergency. This is a general tariff across the board that is designed to raise revenue.

We read article two. The president has enormous power. He gets...

No, he doesn't have enormous power.

Yes, he does. Yes, he does.

No, he does not.

Read Trump. I don't know where I mean, why do you think...

Okay, I'll I'll give you a little legal education. Read Trump versus the United States 2025 Supreme Court, sorry, 2024 Supreme Court decision that says basically the the president is immune from criminal prosecution. Period. All right.

But that's got nothing to do with...

It has. Yes, it does. Has to do with article two, which basically says the entire executive branch of the United States is embodied in one individual, the president of the United States. Everybody else is a lackey. Everybody else is a subordinate. It's the president. He's a one person branch of government, the executive branch. If Congress gives him the authority, then he has it. He can use it. They did not give him a read. They don't have 1977. They they don't there there are emergencies having to do with certain situations that do not exist now. You know the president is manufacturing.

The president said it existed. That was...

No, but that doesn't. Well, it does matter. Supreme Court said the president runs the executive branch.

Well, we we'll see how they rule. But if you want if you but if you want to go back to the the the constitution itself, the reason that the power to tax was vested in the House of Representatives was that was the only body that was elected by the people and that was responsible to the people because the Senate was appointed by the legislature and the president was elected by the electoral college. There was only one body that was elected by vote and that was the House of Representatives and they had to be elected every two years. So they were the most responsive to the people and they would be beholden to the people every two years. And so Congress said, "You know what? If the people are going to be taxed, we want the Congress, the House, which has to stand for reelection every two years, we want them to have to be the one to impose the tax because that way if the people don't like it, they can get rid of them." And they thought that since it's the House of Representatives that has to raise taxes, they would be less likely to raise taxes because they know that they would have to face the...

Read the Trade Enhancement Act of 1962. You're right about the Congress, but they gave the president the power.

No, but they did. It was for emergencies, not for broad-based.

No, we there are there are predicates. There are conditions. I agree with that, including emergencies. But there are other conditions where if if the condition is met, the president can impose the tariff. Period.

But the conditions have not been met. What what he's saying there's an emergency with fentanyl and somehow that's related to these tariffs. And in fact, one of the emergencies he claimed is that we have a trade deficit. And he has defined that as the emergency, which we've had a trade deficit for 50 years.

Well, they're sinking sinking votes boats leaving Venezuela. So that's another emergency. Look, this is what the president the problem is. We've gone through a very long period of time where the president was basically castrated by the Congress. That's all we're going backwards now. Supreme Court is going to overrule uh the Humphre executive and a lot of other cases in the past.

Well, we'll see what happens with with the court, but also Trump is already talking about, you know, tariff dividends and $2,000 a person. So, all so whatever tariff revenue they collect, they want to just distribute it right back. They're not talking about, you know...

But that was my point. The deficit is not as bad as you think because of the trillion dollars of tariffs. Oh, because a we're not going to keep the tariff revenue because either the Supreme Court strikes it down or they're going to dividend it back out and and and they're not going to get to keep it. But meanwhile, the source of the tariff revenue is going to be the US. It's not going to be our foreign producers.

No.

There's no evidence to support that. It's the. It is the producers.

No, it's not. If the producers then if the if the producers will do that, then just jack the tariffs up even higher. Just why why not make them 100 or 200%? Why not really stick it to them, right? Just I mean, make them give us everything for nothing. Why don't we just get rid of all of our taxes and and let the Chinese pay it all. Pay let let the world we don't need any income taxes. We don't need any social security taxes. Let's just make the world pay it in tariffs. It doesn't work to the extent I can. I try to stay in the real world now. I happen to be sitting in Hong Kong airport, you know, some years ago. And on that particular day, I was chatting to the guy next to me, nice guy. And uh on that particular day, this was in 2015, China did a maxi devaluation, like about 3% overnight. And in chatting with the guy, he said, "I'm like the largest white label sneaker manufacturer in China." I said, "Wow, you just got an incredible windfall. They cut, you know, you pay your guys in Yuan. They just devalued 3%. You're selling to Walmart and everyone else white label in dollars. You just made a windfall." He looked at me like I was the new kid on the block, and he was right. He said, "Jim, you don't understand. Walmart called me within 15 minutes and said, 'Lower your prices.'" In other words, that gets pushed back to supply chain, not to the consumer.

Yeah, it's. Well, look, that may happen on some occasions in the short run, but the world is going to quickly wean itself off of the US market, which it needs like a hole in the head. And what what's going to happen is, you know, the world is going to consume its own production or trade it amongst each other. And the tariffs. Not only is this going to backfire in that we're going to have to pay the cost, but it's one less reason for the world to support the dollar system because if Americans can't even afford to pay buy the imports because the tariffs have made them so expensive, um, then they're not going to want to be in that. And these trade deficits because Trump wants, you know, to get rid of the trade deficits, which you know, the trade deficits are bad, but they're a consequence of the problem. They didn't cause the problem. But the way the trade deficits have worked is we import stuff that we didn't produce, which keeps prices down. And then our trading partners take the dollars that they earned and they buy our bonds. They buy mortgage back securities, treasuries, or they buy stocks. And so asset prices are higher and interest rates are lower than they would otherwise be. But if foreigners decide, hey, you know, we're not going to run these big trade deficits with America anymore because they can't afford to buy our products and we're not going to eat their tariffs, right? So now they're not selling us these goods anymore. We can't buy them because the prices are too high. But now they don't have dollars to recirculate and so they stop buying our stocks. They stop buying our bonds. And so the consequence in America is that everything at Walmart gets more more expensive, right? All the goods get a lot more expensive yet all of our assets go down. So now we have but the value of everything we own goes down. But the value goes up. Prices are not going up.

Well...

They are going up.

They're going up three 2 3%. They're not going up because of tariffs.

Well, no. Some prices are already up because of tariffs, right? Are all prices up?

But look, we have just imposed them. But meanwhile, a lot of the tariffs have already been rolled back. I mean, Trump keeps rolling them back. In fact, he just announced they had to roll back all these tariffs on agricultural products uh on uh you know, which was it um coffee on what were the there's a bunch of...

It was coffee, coffee, soybeans being imported. If foreigners were eating our tariffs, why are they rolling them back? Trump is actually saying we're reducing these tariffs to bring prices down, which is an admission that the tariffs have brought prices up because if you lower prices by reducing tariffs, then you obviously increase prices by raising them. So the fact is a lot of the tariffs that were initially proposed have already been rolled back. But a lot of them it's going to take time for the world suppliers to adjust to a new equilibrium. But what they're going to do is pointier.

Yeah. No, they're going to sell us less stuff at higher prices. They're they're not going to sell us nothing. They're going to sell us less but at more prices. And so some Americans are going to drop out of the market because they won't be able to afford the higher prices and other Americans will just pay up. But we are not shifting the burden of American government to foreigners with tariffs. Tariffs? No, we're not. And if that was the case, then the whole world then everybody would just have tariffs and just would tax somebody else, right? Wh Why have any taxes on your own citizens when you can just tax the rest of the world by imposing tariffs? It doesn't work. It's a fiction. It's the way Donald Trump was able to get elected. Remember the external revenue service. We're I'm going to cut your taxes and we're going to get all this money from these foreigners who have been ripping us off. We're going to make them pay for the privilege of letting us consume all the stuff that they produce.

The idea is neither to raise prices nor to cut off the availability of goods. The idea is to move investment to the United States. Sell it without tariffs, but you have to make it here. By the way, this is not a new idea. Peter goes back to Alexander Hamilton, the American plan, Henry Clay, Abraham Lincoln, William McKinley, they all did the same thing. Jim, the reason that the plants are not in America right now, the reason there is because it's much cheaper to make the stuff in other countries. So if they have to bring...

No, but then the if it was cheaper to make stuff here, the government wouldn't have to force you to do it. You would do it voluntarily. If it was such a good deal to build factories and hire Americans to make all this stuff, it would be happening on its own.

No, without tariffs is cheaper abroad. With tariffs, it's cheaper here. That's the whole point. You're missing it.

No, but that's only true if tariffs make the price go up. That's the only way it's true. Tariffs have to increase prices.

Tariffs make the price go up for the foreign producer, not the US consumer. And that forces the foreign producer to invest in the United States high. And that's how you grow to get the debt to GDP ratio. That's the plan.

It forces the foreign producer to abandon the United States. They're not going to. We're not going to put a gun in their hand. Build a plant.

The US consumer the US consumer is the consumer of last resort for the entire world. Because that's strange is that we want some jobs out of it and some...

That's only because we can print the world's reserve currency. But the minute the world doesn't want our currency, our consumers are...

Desperate for the currency. I saw talk about this in order to be a global dollar shortage.

In order to be a consumer, you have to be a producer. We're not. You just can't consume, right? What creates demand is supply. The Chinese don't need us. The rest of the world doesn't need. They have the producers, which means they have the consumers. Well, you can't consume or borrow money, but that's not a good thing. I think we agree on that.

But you can't consume what hasn't been produced. It's the producers that are in the driver's seat.

Somebody has to produce it. But you can do it in Ohio, in Tennessee.

No, you can't. We would already be doing it there.

No, because we were 50 years ago. It's we were uncompetitive.

Yeah, I agree with that. I agree. 50 years ago. This is... That's why...

Yeah, because we're uncompetitive because we have too much taxes, too much regulation, too low interest rates, not enough savings.

I agree with you. The taxes are too high. I agree with that. Yeah, but now we can't lower them because the government spending is too high. We're stuck with Social Security, Medicare, Obamacare, government pensions. We have all this legacy of...

We have to grow and investment in the United States will cause the growth and you're missing.

We're not going to get that investment.

Trillion dollars of tariffs and we're getting in the investment's coming.

No, it's not coming. That's that that's that that's a fantasy. It's not coming.

I see that you're...

The world's going to pull the plug.

Um, we are the world. To to maybe conclude on on like another note is to see other risks. You also have China in the and let's say on the on the target um we've also talked about the reversal of the yen carry trade that also is um maybe a yeah a hillish heel and the monetary plumbing.

Well, we talked about it off off camera. No one heard it. So...

Exactly.

Yeah. I want to maybe repeat like that question that I asked you like earlier off camera is that how much of a risk is this really to spill over into what you think is a US-centric collapse and what Jim thinks might be something originating more...

Well, I mean, look, I I think look, the United States is not the only government that has borrowed too much money and and and and Japan has done that. I mean, Japan has made decades of mistakes uh rather than allowing a free market solution to problems and you know, they've you know, they've constantly tried government stimulus. Uh, and as a result, they have an enormous amount of debt and the market is finally breaking. The the the the appetite for uh Japanese government bonds is is is is diminishing and the yield on the 10-year JGB, which was below 50 basis points uh a year or two ago, is now almost two. It's, you know, 1.93 was the last I looked. This is the highest it's been in like 20 years. And you know, it may not sound like a lot. Oh, 2%. When Well, when you have as much debt as the Japanese government, it's a big number as far as the the the ability to pay, right? The ability to service the debt. But it's not like it's going to stop at 2%. There's it it's just going to I mean, the yields could go to 3%. They can go to 4%. That's still not high. Uh, but what's happened during all the years where money was practically free, I remember in Japan too, they had negative not just negative real rates, like they had negative nominal rates in in Japan. They had in Europe for a while. But so there's been a lot of cheap yen that have been floating around the world that were used to finance the purchase of other assets, whether they're risk assets like stocks or even US treasuries. A lot of the money to fund those purchases came out of Japan and as rates really start to rise and if the yen really starts to turn and move higher, um, you're going to see a lot of yen debt being repaid. And in order to repay that debt, the assets that were purchased with that borrowed yen have to have to be sold. And that obviously has implications for markets way beyond way beyond Japan. And then the question is what is the what is the Japanese government going to do when its interest rate bill soars? I mean, is are they going to cut government spending in Japan? You know, what what are they going to do? Um, you know, for years they were saying, "We need more inflation. We need more inflation," which was all BS. But now inflation is a problem in Japan. You know, people are complaining about rise prices in Japan. And if they try to print more yen to try to, you know, control the yields, they're going to get even higher inflation. They're going to get an even weaker yen. So they're at a point where they have, you know, a real problem on their hands, but it's not going to be isolated to Japan because of, you know, how the whole global economy has, you know, has, you know, been impacted by that cheap money policy. And it's also one of the reasons that our rates could be low because, you know, we all these sovereigns compete with one another. All of a sudden, you know, Japanese bonds, I mean, who owns Japanese bonds? Nobody owns them. I mean, other than outside of Japan, I mean, nobody buys Japanese government bonds. But imagine if Japanese government bonds had yields that people actually wanted to buy instead of treasuries. Hey, look at the look at the yields on in Japan. So, these sovereigns are are competing, especially if the yen is bottoming and is going to have a a rally, you know, back at at the low in in 2008. The yen got down to 80, you know, and now, you know, it's been cut in half uh since then. Um, so I I think it's another significant risk. I think yields could blow up in Europe, too. I mean, they borrowed a lot of money in Europe and they, you know, they kept interest rates too low. That's why you have so much debt in all these European countries. You know, I I in fact, I remember that when they first introduced the euro. Um, and there was a tremendous moral hazard there. But the idea was that, you know, 3% to GDP was the limit. Like if you got to 3%, we were going to kick you out, right? Of course, now everybody's above 3%, no one's getting kicked out. But I said at the time that the fact that they set 3% as a limit meant that everybody was going to hit it because, you know, you had no political incentive to have a low deficit if you got no benefit from it because, you know, you were going to be responsible for all the other countries' debt, right? Uh, and so it was a guarantee that everybody would have at least 3% GDP because you were socializing the consequences of having running deficits. But of course, once countries got to 3% and they didn't get kicked out and once they got above it, then it was like a free-for-all. Like cuz it's like the prisoners dilemma. Nobody wants to act responsibly if you know they're no worse off. And if I'm responsible and all the other countries are are reckless, I mean, I I I I I'm suffering the same way because we all have the same interest rates. We all have the same bond market. Um, so there's a lot of uh uh problems, you know, not just in the US, but but all over. But but I I think that the reason I think the consequences are particularly severe in America is because we're the only one that has the reserve status to lose, you know, and and we've built an entire economy. The Euro zone still runs the trade surplus as as a as a, you know, as a group. Japan, you know, and so we're the country that is completely dependent on the rest of the world for our production and for our our savings, right? So and and and and we've been able to evolve in this way because of the unique role that the dollar had that I think it's it's going to lose and and then I so I think that the consequences for America are going to be particularly severe. Not that the other countries don't have any consequence. I think the biggest winners are the emerging markets, you know, and I you know I think that's that that's that's going to be the future. You the BRICS or other countries uh are going to be the primary beneficiaries of the of what's going to be happening. Mhm.

I was listening to I was listening to Peter's discussion about the yen carry trade. It was it was pretty good. He was oscillating between exchange rates and interest rates are two very different things. Uh if the yen, pardon me, if the yen gets weaker, that actually favors the carry trade. Like what is the carry trade? I borrow yen. I swap them into dollars. I invest in dollars that are higher yield. I make a lot of money. What can go wrong with that? Well, if the w if the yen gets weaker, I win because I'm short yen and I pay back GP. What? What causes me to get out of it? What causes me to lose a lot of money is if Japanese interest rates go higher because now my borrowing cost goes up and my the trade doesn't work anymore. So, uh, a weaker yen when I started in banking, the yen was 350 to the dollar. So, like before we went off the gold standard...

Back in 197...

Well, it was after, but uh it was it was a while ago. Um, but the uh but the point is the yen's getting weaker. That doesn't hurt the carry trade, but higher Japanese interest rates do. Peter's exactly right about that. And the new prime minister of um Japan in Trump's style is basically or maybe what Lyndon Johnson did to the chairman of the Fed. He he actually lifted him in the air and smashed him against a wall and said, "You're going to cut interest rates." This is during the Vietnam War. Um, but the prime minister has already told the head of the central bank that he has to cut interest rates. Now the central bank has been on a a tightening policy. They've been raising interest rates because they're worried about inflation, which is what Peter said. But the prime minister is now told me he has to cut interest rates. So the yen, the carry trade may carry on for those reasons. But there are bigger problems in the world, which is a global dollar shortage. And people cannot comprehend that because they say, "Oh, money printing, money printing, trillions." I was I always explain why the Fed money printing doesn't count. Bank money printing does count, but they're tightening their balance sheets. And then above all, you don't have the velocity, which is a behavioral psychological um uh phenomena. But that said, uh there aren't enough dollars in the world. If if China uh sells the treasury, they haven't been selling a lot, but if they do, it's because they're desperate for dollars. And that's true all over the world. And that it could that could trigger a global monetary crisis. Not a financial crisis, a monetary crisis, which is a different thing.

Well, Japan has a lot of dollars. I mean, they're the largest world's largest holder of treasuries. They could start selling. I think that's I think that's the smart move for Japan if they, you know, want some stimulus rather than...

Um, you know, printing more Japanese yen to buy uh JGBs, just um sell their treasuries. Um, and that would finance this new stimulus uh without causing inflation in Japan. Um, and you know...

That would strengthen the yen. Yeah. But now if you're talking about a rising yen and higher interest rates, that destroys the carry trade twice. That's the worst thing that could happen with the carry.

Absolutely correct.

And and and maybe look, if you look at the Japanese stock market, I I own quite a few Japanese stocks and and they're, you know, other than my gold stocks, like my Japanese stocks are doing the best and a lot of these stocks are making new highs, new all-time highs. Uh so money is moving into the Japanese stock market and that's also a situation where if the Japanese stock market now, which was in a bare market for decades really...

But that's also an unwinding of hey, you know, there's a lot of money in Japan that's invested in the S&P 500 that is now underperforming the Japanese market and there could be a lot of people in Japan that bring their money home to invest in their own stock market again because, you know, their market is doing well. So if you have rising Japanese stocks, maybe not rising bonds, bonds are prices are falling in Japan, but if you get a rising yield, rising Japanese stock market, and then you get a rising yen, of course, a rising yen would really even strengthen the returns for the Japanese stock market and undermine our returns. That's right. Because if you're in Japan and you're investing in the US market, you're also investing in the dollar. So even if our market is going up, if the yen is going up faster, you're losing money. Well, we haven't we haven't talked a lot about the stock market, but I expect US stocks to fall 10% or more in 2026. The tech sector, the AI sector in particular, I expect to fall uh 30%.

Agree.

But I want to want to. Well, let's we agree something. Okay. Wonderful. I want to...

Well, we agree on gold too.

Suspicious.

We also agree on gold going on.

That's right. I I I like actually I like to base like this because I say the audience wins. You know, it's not about you and me. Let the audience win. But I want to uh take issue let's get back to disagreement with your comment about uh a lot of the US uh deficit a lot of the US debt is funded in Treasury bills which you're right treasury bill people go bond market well they're bills notes and bonds there are three different maturities bills are one year or less that's the definition of a bill then you get into notes and over 20 years you're talking about a bond let's talk about treasury bills a lot of the debt isn't treasury bills and Peter's exactly right and you have to continually roll them over but what's uh so so the comment was uh you know why don't we use longer maturity debt why are we getting like an adjustable rate mortgage why don't we issue some 10-year notes and particularly if they're coming interest rates coming down which is which I expect etc here's the answer uh there's what is the biggest market in the world it's not the US treasury securities market it's not the bond market it's not the stock market it's not anything we've been talking about and crypto is not even close market in the world are derivatives that market notional value is one quadrillion dollars. And for people not familiar with the Qword, a quadrillion is a thousand trillion.

But you're talking about derivatives on everything. Not everything. Yeah, that's right. Yeah. Currency swaps and sovereign credit swap all.

And that's the notional value you're talking about.

I'm. Yeah. Not the value they're trading.

Yeah. You have to be Tim Gner to think that notional value doesn't count. Um, so, uh I'm talking about the notional value because that is the market. I uh you know I negotiated the bail out of uh long-term capital management. I know all about notional value versus um...

Market value.

Versus net market value and everything else. And at the end of the day, that's how you think about it. So that's how you assess the risk. So here's my point.

How do you support a one quadrillion dollar market? The answer is collateral, but not very much. There's a skinny little layer of collateral under this whole one one quadrillion dollars I described, and that's collateral. And I got to give you some. And if I lose money, I got to give you some more tomorrow. This initial margin, variation margin comes out of the futures market, but it's the same thing. A derivative is just an off exchange future. There's not much more to it. Um, now what what's good collateral? Well, it all depends on the mood. It depends on what the hedge fund or bank counterpart will accept. At times, it'll take maybe some corporate bonds, maybe some mortgages, etc. Today, that's not true. They want Treasury bills. They don't even want a 5-year note. They don't even want a two-year note, which is a pretty good piece of paper. They want Treasury bills. If you start drying up the Treasury bill market for any reason, one extending the maturity on the US debt and let's get into stable coins while we're on the topic because stable coins are under the Genius Act, but I would say more broadly are required to buy US Treasury bills to collateralize the stable coin. Of course, it's a great business model. You make 3% on the bill, pay your customer nothing, highly scalable, very low overhead. It's like free money. So I understand why people...

Although apparently the exchanges actually now demand a piece of that to even list them. So they're I I first thought I had talked to CZ the guy the Binance guys starting to learn like how much money...

People are actually making out of these state because I I assume the issuers keeping it all but they're not they're having to like kick it up to and and they but they own the exchanges in many sponsors own the exchange. Yeah, there's a whole ecosystem and you're right. But my point is one side of the trade even if they're multiple parties and you're right Peter are making money and the customers making no money. Why are they buying? Well, the answer is most tether that's the biggest stable coin. Most Tether are not used for anything except to buy Bitcoin in other...

Or other crypto. That's. Yeah.

It could be something. Yeah. But but here's here's my point.

They're buying those treasury bills now. They're those treasury bills aren't going anywhere. We could get into a run on the stable coin. That's a whole separate subject that could then through um contagion get into the banking system that could that could cause the uh that could cause the meltdown. But for now they're buying treasury bills and they are kind of a buy and hold investor. Those treasury bills are not available to support the derivatives market as I described. So if we take your suggestion, not putting words in your mouth, but your suggestion of extending the maturity in the US debt and bills are diminished and stable coins are buying up all the bills and that's diminished. we are diminishing the collateral available to support a one quadrillion dollar market and that is a uh is pretty frightening from a risk management perspective.

Yeah, I think that is one of the risks too when people buy treasury bills that the government might one way they can default is say look you know yeah we're going to pay your money back but not in 30 days we're going to extend it to 30 years and the coupon stays the same. So now you basically lost lost a lot of your money. But you know, interesting thing about Tether.

And you can try to figure out why they're doing this. It's not just to support their their their tokenized gold product, but Tether is now the biggest buyer of gold. They're they're out buying a lot of central banks basis on which basis.

Yeah. And it's not just physical physical. Yeah.

They're buying gold mining companies. They bought into a lot of royalty companies, right?

And you know, I'm they called me. They want me to speak at their conference in in El Salvador in January to talk about gold. So they're already like kind of moving to gold.

And if I can just you're right if I can interject and they are also a buy and hold investor because that's the structure of any stable coin or to tokenized gold. You're not trading the gold. You...

Right. But their liabilities aren't in gold. Their liabilities are in dollars yet they're taking the dollars that they're getting. They're using them to buy gold. Right.

So that but my but you're right, Peter. But my point is that's very bullish for gold because they're not sellers.

Well, they're not. But the question is why are they doing it? I mean, in in my mind, to me, it might be that they need to make up the shortfall that they have in dollars by owning gold. Because if gold appreciates more than the dollar, then that's going to bail them out. If they if they don't really have enough dollars to back up their tether, they'll get more dollars by buying gold. But simply their own central bank. But they all also though they are doing a gold stable coin which means there could be more demand for that gold stable coin.

Right. But look at look at the world. So central banks are buyers but they're not sellers. Stable coins tether tether gold are buyers. They're not sellers you know etc. We have we now have a set of people who are just buying the gold sitting on. They're not hedge funds will trade it. They don't care if it's soybeans or gold or whatever. But um we now have a very large set of buyers who are just sitting on the gold. mining output is flat. It's about 4,000 tons a year, 4,000 metric tonses a year. I'm not talking about peak gold or whatever. Uh although I invest in gold mines, it is getting harder to find high-grade deposits. But that aside, it's been flat. So when you have increasing demand and flat supply, at least where I went to school, that means a higher price.

Yeah, we agree on that for sure. How how how would you because you numbered this at $10,000 I think like last time we spoke this was your projection for next year.

At $10,000 an ounce gold is kind of commonplace at this point. I've been saying for a while but now you know you can't uh you know look on YouTube or go on the internet without finding somebody talking about $10,000 gold. But here's here's my point uh and call it value added if you want to forecast it's going to get there much faster than people realize saying $10,000 bill like yeah it'll get there of But how quickly? It'll happen very quickly. Uh very could very well happen in 2026. And again consistent with our uh fifth grade math uh you know approach. Uh the reason for that is partly a simple math and behavioral psychology. In behavioral psychology there's there's a whole set of biases. There's 100 plus biases. But one of them is called anchoring. An anchoring is we get an idea or a number in our heads and we treat it as an anchor and we filter all the incoming data through that anchor. And so for example, let's say you own 50 ounces of gold and gold goes up $1,000 an ounce. You just made $50,000. That's true. Goes up another $1,000 an ounce. Hey, you just made another $50,000. Nice going. But the point is you get anchored on the $1,000 increment. But each increment is easier than the one before because you're working off a larger base. So when you go from $3,000 to $4,000, that's a 33% increase. That's a heavy lift. Four to five, 25%. That's another heavy lift. But 9 to 10 is 11%. That's like a good month. In other words, you're going to like chug your way to $5,000 a little bit higher, but you're going to go 7 8 N really fast.

What's your take on that, Peter? Especially like I want to focus maybe a bit on the on the on the silver market. We've seen also draining inventories, peeking premiums, backwardations and so on. What do you see there?

Yeah, I mean, I guess that's one thing that regardless of, you know, whether you agree with me or Jim on on on some of the other issues, uh, it doesn't matter which one of us you agree with when it comes to gold and silver because we're both saying that well, gold and silver price are going up. So, it doesn't matter which one of us is right or wrong from that perspective. Um, and the fact that you mentioned silver and and to me what's happening with silver is very bullish for gold because you know there were there were really like two knocks against the gold bull market. Uh, one was that silver wasn't participating and the other was that the miners weren't participating and people would look at gold's rally and say look it's not being confirmed by the mining stocks. It's not being confirmed by silver. And so, you know, maybe it's just gold's going to come back down, right? It's not what the markets are telling you, what the gold stock market is telling you is that the s the gold rally isn't real because investors are not willing to pay up for gold stocks because they know that the price won't be this high in the future. It's just high now and it's going to come down. And and silver wasn't confirming gold. Uh, but now this year was a great breakout year for the miners. Mining stocks are outperforming gold. gold's up 60%, mining stocks have more than doubled, some have tripled, some have quadrupled. Uh, they're not they're not expensive because they're, you know, catching up with decades of, you know, not doing anything. But now gold stocks are kind of leading the metal and gold stocks will make a new high probably before gold does. But also silver is now leading gold. Silver is up over 90% this year. and silver broke out finally of its 1980 Hunt brothers high of $50. It got it got back up to it in 2011 when gold got to 1900. But when gold finally got back up to 2000, forget about it briefly got up there during COVID but then sold off. But when it broke through 2000 really for good in early 2024, silver was still below $30. weren't even close and silver finally got up to 50 and now it's gotten as high as 59 and change and it's been trading now around 57 58. Volatility has picked up a bit but all this volatility is taking place above the old double top. So I think silver has now broken out and I think that's very good for the gold bull market. I think if silver continues to outperform gold, gold's going higher. Uh just silver is going to go higher more. And I do think that there are a lot of shorts in the silver market and uh they could be in a lot of trouble uh if this price keeps moving. I mean, I I would not be surprised to see $100 silver next year. And uh, you know, I don't know where the shorts stand right now, you know, where it is. But I would imagine they're trying to keep the price down. But to me, it looks like a lot silver's going up. And I think one of the things that drove gold was the central banks were not buying silver. They were only buying gold. But the fact that you're starting to see silver move, it's not the central banks that are buying in the these are private investors that are that are buying silver. And so they're finally coming into the market. The central banks don't have the precious metals markets to themselves anymore. Uh people are starting to look at gold and silver now as an alternative to treasuries, as an alternative to stocks. I think they're going to start looking at it as an alternative to crypto.

And so that opens up, you know, a lot of upside potential uh for for the metals.

So um I think also Jim, you have some maybe insights inside of the ComX and LBMA. At least that's what I uh well thought to read at least online that some people made remarks about um having like some insights about what is breaking within those markets. Do you have anything to add on what Peter said or like we have to wrap it up in a few minutes but...

Uh only about 10% of what I say is accurately portrayed online. About 90% is other other. No seriously, you you lose control over your own name. It's unfortunate, but the people who do their own YouTubes, they'll rip something I did two years ago and stick it on YouTube with some dynamic headline. Jim Ricker says this, I never said it, you know. So, I I have to uh unless you can give me a specific example, I have to defer on that. Jir actually because uh um I I don't I mean, I know a lot about the LB LBMA. I know a lot about the the ComX. I'm one of the geeks who's actually read the rule books. Uh, one thing I know, every exchange rule book I've read has a rule that says they can change the rules.

It's it's in there. It says in the event of uh uh, you know, disruptive markets, etc., the the futures exchanges over and over again. Again, it's in the rule book, but they say we are not a source of supply. If you're in the futures market and you're long and they only allow a certain amount of physical delivery just to keep everybody honest to kind of keep the the physical and the derivatives market in line, but if people go into the futures market expecting it as a source of supply, they'll say no, they will close the market or more likely they'll give an order what's called trade for liquidation only. Mean if you're long you can short, if you're short, you can go long, you can pair off but you can't get the gold. um Ble Masters who for many years was the head of global commodities trading for JP Morgan. She kind of moved on to crypto. I'm not exactly sure what she's doing these days, but she said something once. It was only three words. Uh and I found it and I verified it, but you can't find it now. Somehow it got erased from the internet.

But I did find it. "Gold never," sorry, she said, "Gold never settles." And what she meant by that, and she's right, what she meant by that is if all the paper gold, the futures, the options, the unallocated forwards, uh, all the derivatives, all the paper gold in the world, if one side, if the long side that ever said, "Please give me the gold." You, it, it's not even close to being able to settle. It's 100 to 1 would be a conservative estimate. 500 to 1 is not out of the realm of possibility. There's there's a tiny bit of gold supporting all that paper gold. Everyone thinks they own gold. They don't. I explain it to them. No one listens or some people do. But basically, and she said gold never settles, but what you and what she meant just to expand on that is gold can never settle because there's not enough gold.

Well, it's also a lot of the people who are trading that gold don't want the gold. They they they have no intention of taking delivery. And in many cases, they don't even have enough money because the margin that they have to put up is a small fraction of the the value of the contract. So, you know, you have legitimate hedgers in there. You got people that need to buy gold and so they hedge, they go, you have producers. So, you have legitimate hedging going on uh in in in those markets. But a lot of people are just placing bets on what they think the price of gold is going to do, right? They don't want to buy the gold. They don't have the gold. They can't they have no ability to deliver the gold but they know that they won't have to because the other side doesn't want it either, right?

So but it the question is what happens if uh some people who need physical gold and the market is tightening up just decide you know what I'll just buy some contracts and then I'll take delivery and that's how I'll solve my problem they'll find out that they're not going to get the delivery correct but I think when that happens if there is a situation where they have to evoke that the the physical market is going to explode. That's absolutely right.

You know, when when that happens and people realize that you know there's you know the because now and even before it gets to that when it gets tight and you know cuz when you own a futures contract you just get if you haven't gotten out of it you're just going to get notified by the exchange oh you got to deliver and it's not like it's just a random I don't know how they decide you know who gets it but there's a you know somebody gets delivered if you haven't closed out your position by you know and you're there here's where you need to mail in your gold and I said, "Well, I don't have any gold." Well, you better go buy some. So, now you got to go into the physical market right now. Be now you get all this extra buying in the physical market from short sellers who now need gold that they didn't expect to have to buy.

And just take what Peter just described, that's absolutely how it works and extrapolate a little bit. So, now they kind of got to run on the futures exchange. Everybody wants a physical go. What they will do, they will, as I say, they will not allow it. They'll terminate the contracts. They won't steal your money. you'll say here's a check for your profit or loss. You know, here's a check for your profit, let's say. You're like, I don't want the check. I want the gold cuz it's going up over there. It's like, yeah, you can't get it. And that's same is true for unallocated forwards sold by JP Morgan, etc. Unallocated being the key word. Um, which uh, you know, in a roundabout way, it gets back to Elon Musk and Donald Trump visiting Fort Knox, which never happened. There are reasons for that, but no one.

Do you know the reason?

Yeah, the the reason uh is um the goal is there. People say it's not there. Well, half the gold is in Fort Knox. The other half is at West Point. Um about 4,000 metric tonses in each place. Uh the West Point vault is classified information, so I can't I can't reveal that. But uh it but it's there. But my my point being um uh okay, the physical goal is there and and Musk and Trump in theory were going to go there. It was going to be a big photo op. The walls are empty. The gold's not there. That's not true. It's there. But what we don't know is is it least, and Peter referred to this, it could be lease. And people don't understand.

Well, if it's leased, it's not there.

No. Wrong. People don't.

Oh, people borrowed it. It's still there.

People don't, right?

But they've sold it.

Well, they've leased it.

Well, the people who sold it.

Didn't they?

Well, let me tell you. Well, I'll tell you how gold leasing works in one. First of all, people say, "Oh, JP Morgan leased the gold. They back up a truck." And that's not how it works. It's a paper transaction. The gold's still in Fort Knox. If the US government leases it, and I expect they do, but they're not transparent about it. The lei the person who gets the gold has a right of rehypothecation. So they can take it and sell the gold to somebody else who rip it. They don't have the gold either. They have to sell it unallocated or conditionally etc. And you can get a whole chain where you've got 10 or 20 people selling the same gold which physically is sitting in Fort Knox. It's leased with a right of hypothecation. It goes back to Blasters comment. You can't settle all those transactions because you'll never get the gold. The exposed party or the shorts. It's not the US. It's not the US Treasury. They got the gold. If you fall on your lease, they're keeping the gold.

But if you're leasing gold and you're paying you're paying to lease it.

Correct?

What are you doing with it? Because you had it you you leased it for a purpose and.

To make a little money to make a little money. Yeah.

But you must be selling that gold.

No.

Well, how how do you making a 2 or 3% return? It's just.

But how am I making a return if I lease the gold? What am I doing with it to generate a return to pay the lease?

Well, the the le is paying you.

But how are where are they getting where are they earning the money?

They're leasing it to somebody else or they're getting price. Somebody must be selling that gold. That's the point.

No, you have You're right. Well, they're selling.

Somebody is selling it and they may not be able to buy it back.

That's the point. That is the point. They're selling it on paper. They have a rehypothecation. So JP Morgan, if you say, "Hey, I want to I want to buy a ton of gold." There's a lot of gold. Okay. Um they'll sell you a gold contract unallocated, meaning there's no gold with your name on it. There's no gold with a serial number. There's no registry. It's just unallocated gold. You want the gold, you got to call them up. Might take a while. Then they kind of like you were describing earlier, Peter, they got to go in the market and find a good luck in a scenario where everyone's trying to do the same thing, but they don't they can't call the gold away from Fortnite. The opposite is true. The Treasury would say, um, you defaulted on your on your lease. So now, uh, we're terminating you and you owe us money. But the point is the shorts are the one who are exposed. Everybody in the chain I just described. What? I don't understand.

Your long your long lease gold and you're short unallocated.

But if but if you're saying that all the lease gold is still there, then why can't they let people see it? I mean, it seems to me that if the gold is there, no one's going to know whether it's least. I talked to Bernaki about this. It's a separate that's a separate issue. They understand the importance of gold. They understand what you and I are saying. They're not dopes. They don't want to pay any attention to it because the minute you do, you start to say, well, why isn't the US Treasury buying more gold or why have you leased it? In other words, you start the minute you change the psychology, you start to monetize gold, and they don't want to do that.

On that note, Peter and Jim, I think it's been three hours, but it's been that long. I didn't see the time pass. I mean, maybe the people watching us did.

But you can make it into two parts then if you want.

Yeah, definitely. But I want to thank you uh very dearly because it's been a great honor and I think there was a lot that we unpacked throughout this conversation and I'm really looking forward to the conversation that you're going to have with Villim Middle Cope Edu and Marlin Avers and obviously the keynotes that uh you'll be presenting during the future of gold. So uh thank you gentlemen.

All right, thank you.