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

00:00:00.000 Hello and welcome to Trigonometry. I'm Francis Foster.

00:00:08.320 I'm Constantine Kissin.

00:00:09.640 And this is a show for you if you want honest conversations with fascinating people.

00:00:15.520 And fascinating people, we have for you today two brilliant returning guests to Trigonometry.

00:00:21.300 Here they are, Jim Rickards and Pippa Malgram, two expert economists,

00:00:24.940 people who understand finance, people who understand what is going to happen,

00:00:28.620 tech as well, all of those things that we're going to get into. Jim, people, welcome back.

00:00:33.120 Thank you. Great to be back.

00:00:35.660 It is great to have you back. So much to talk about. We're sounding very chipper. I don't

00:00:40.600 know why. We're in the middle of a global pandemic. Jim, no doubt, is about to tell

00:00:44.700 us we're about to be in the global depression. So, Jim, is that right? Are we about to descend

00:00:51.340 into the biggest financial collapse in the history of living memory, let's say?

00:00:57.060 Well, maybe since the 14th century, but I wouldn't say we're about to be. I would say we're in it. The data has not rolled in yet. As you know, data comes with a lag. We don't even have first quarter GDP. We'll have that in about three more weeks. That will not reflect the full impact of that.

00:01:14.820 say we really it won't be till the end of july for example that we get um uh second quarter gdp

00:01:22.000 so the data lags but there's enough anecdotal data and i would say real pain i mean we know

00:01:28.200 10 million people have lost their jobs in about two weeks we know that so you a lot of the rest

00:01:33.100 you can do from inference so we're in uh i think it's um i don't pay homage enough to economists

00:01:38.820 to call it a recession they'll call it a recession i call it a depression oh really and

00:01:42.780 why do you think we're now in a depression is it because of the lack of jobs that have been

00:01:48.060 the amount of jobs have been lost is it a lack of economic activity or is it a combination of the

00:01:53.020 two well you know I've said we've been in a depression since 2007 uh at least as John

00:01:59.820 Mayer Keynes defined it um and a lot of people don't understand that they uh the the conventional

00:02:05.300 definition of a recession is two consecutive quarters of declining growth with a few other

00:02:10.120 bells and whistles, you know, rising unemployment, the National Bureau of Economic Research makes that

00:02:14.160 call. And they say, well, gee, if recession is two quarters, then the depression must be

00:02:19.260 10 quarters or something really horrible. And of course, that hasn't happened and probably won't

00:02:23.940 happen this time. But that's not the right definition of a depression. Keynes said that

00:02:29.180 a depression was a sustained period of below trend growth with no tendency either to complete

00:02:36.660 collapse or a return to normal. In other words, it was depressed growth. From 2009 to 2020,

00:02:44.800 we had, at least in the US, 2.2% annual growth. And there wasn't a lot of variation around that.

00:02:51.700 We had no 3% years. We had no negative years. The degree distribution clustered around 2.2%.

00:02:59.420 And there wasn't much difference between Trump and Obama as far as that's concerned. But the

00:03:03.720 Longer-term trend, going back to 1980, was 3.2%.

00:03:07.420 If you go back to the end of World War II, it was even higher.

00:03:10.100 In those, we had growth, but it was a significantly lower than trend, a full percentage point.

00:03:15.700 People say, oh, gee, 1%, what's the big deal?

00:03:17.700 Sorry.

00:03:18.480 You take 1% times a $20 trillion economy and compound it over 11 years, you get $4 trillion

00:03:26.440 of lost wealth.

00:03:27.560 Now, that's where we were going into the epidemic, going into the pandemic.

00:03:31.780 Now, you're looking at declines of the second quarter, no one knows, but 20% to 30%, not

00:03:39.340 2% or 3%, 20% to 30%.

00:03:41.180 Unprecedented.

00:03:44.680 First thing I tell people is throw away 2008, throw away 1998, 1994 tequila crisis, dot 0.95

00:03:51.520 com crash.

00:03:52.100 Throw them all away.

00:03:53.280 None of them are proper baselines for understanding what we're seeing.

00:03:56.820 You have to go back to 1929.

00:03:58.660 but even then that played out over four years between 1929 and 1933 this played out over about

00:04:05.020 four weeks so fair to say we've we've never seen anything like it uh it's outside the living

00:04:10.880 experience of everyone on the planet you'd have to be 100 years old to have a living memory of

00:04:15.240 the depression um we'll deal with it but to call this anything other than a depression i think is

00:04:21.360 misleading all right well so essentially what you're saying just to summarize for people who

00:04:27.360 maybe struggle to follow the technical jargon. Essentially, what you're saying is we never really

00:04:31.920 recovered from the crash in 2008. And we've been growing. People talk about the squeeze on living

00:04:38.820 standards, earnings not rising as fast as inflation and the cost of whatever. And we never fully

00:04:45.560 recovered. And now we've come into a huge crisis, massively underprepared. Is that a fair assessment?

00:04:52.020 That's exactly right. And you look at the Fed balance sheet from 2008 to 2014. It went from

00:04:59.580 $800 billion to $4.5 trillion. And of course, rates were zero through most of that period.

00:05:06.860 What the Fed tried to do beginning in 2014, they tried to get interest rates back to 3% or 4%.

00:05:14.860 They tried to get the balance sheet down to about $2.5 trillion or so. And in their view,

00:05:19.420 that would prepare them for the next recession because it usually takes about four full percentage

00:05:26.140 points of rate cuts to get the U.S. economy out of a recession. I said at the time that they would

00:05:31.040 fail. And just to be specific, I said the act of preparing for the next recession would cause the

00:05:37.460 recession they were trying to prepare. They would not be able to do it without causing a recession.

00:05:41.440 They came really close at the end of 2018. Between October 1st and December 24, 2018,

00:05:46.960 and the stock market fell almost 20%.

00:05:49.140 So we almost had our bear market then, not quite.

00:05:53.620 Jay Powell threw in the towel.

00:05:55.480 He said, we're not going to raise rates anymore,

00:05:57.980 which they had been doing.

00:05:59.600 Furthermore, we'll pause.

00:06:01.000 Then he said in May, we're going to cut rates, and he did.

00:06:04.100 Then he said, we're going to end quantitative tightening.

00:06:06.640 That was the reduction of the balance sheet,

00:06:08.220 normalization of the balance sheet, and he did.

00:06:10.560 And then finally, rates are back to zero.

00:06:12.180 So the Fed failed in their primary mission

00:06:15.200 to normalize the balance sheet and interest rates.

00:06:17.380 They have now gone all the way back to zero rates.

00:06:19.960 The Fed balance sheet today is $5 trillion.

00:06:22.940 It's higher than it was at the peak of QE3.

00:06:26.420 And so there you are.

00:06:28.120 And the depression has just begun.

00:06:30.180 So they're out of bullets.

00:06:31.740 They failed to normalize.

00:06:33.660 We're far less prepared than we were.

00:06:37.380 And now we're in the recession that everyone feared,

00:06:40.200 except it's much worse than that.

00:06:41.680 So here we are, economically unprepared.

00:06:45.200 out of bullets, no stimulus from fiscal or monetary policy, and we'll see how things work out.

00:06:52.020 I'm really glad I live on a ground floor flat, Jim, because I'd be tempted to leave by the

00:06:57.080 window otherwise. Pippa, would you put a little bit of a sunnier spin on it?

00:07:03.960 Well, let me put it a different way, just a different way of understanding the problem.

00:07:09.200 Weirdly, what's happening in the economy is a little bit like what happens to the humans who

00:07:14.720 getting COVID-19 and of course that's the the the trigger that has knocked the economy for six

00:07:21.660 so with with the disease one of the things that kills you is not the disease itself but the fact

00:07:27.720 that your body's immune system starts attacking the disease and it ends up attacking itself

00:07:32.520 that's such a good analogy people that is brilliant you see and now in capitalism what's

00:07:38.420 happening is businesses are going, wow, I don't have enough cash flow to last through the, say,

00:07:44.900 whatever this lockdown is going to be, three weeks, three months. So I'll kill my business

00:07:50.260 before it kills me. And they shut down. And this is why you get the numbers Jim was quite rightly 1.00

00:07:56.640 talking about, a sudden spurt in unemployment that's on such a scale that it literally almost

00:08:02.800 can't be comprehended. And Jim is right. We don't have any data and we're not going to have any

00:08:09.220 data. In the same way we don't have any data about COVID-19 yet, we also don't have any data about

00:08:16.040 the economy. So I would put it in this way. There is not going to be an average for anyone about

00:08:23.440 this economy. So we can talk about recession, depression, but everyone will be touched by it

00:08:30.900 very differently and very personally so those who happen to be in a part of the economy that's now

00:08:38.840 going to become massively more efficient may end up in a better situation than they were before and

00:08:44.560 I can give you some examples of that those who are no longer needed because for example big

00:08:51.680 companies are going as an example I talked to the CEO of a major company the other day he says to

00:08:56.600 me, and I quote him. He says, Pippa, I just realized that I, the middle-aged white guy,

00:09:02.620 was the biggest obstacle to going digital in my company. I didn't believe you could work from

00:09:07.420 home. I didn't believe you could be productive working outside the office. But now that I'm

00:09:11.560 forced to do it, I'm unbelievably productive and I can see my whole team is. And then why do we

00:09:16.380 have all these overheads? Why do we have property? Why do we own physical spaces anymore? And so

00:09:22.580 that company, I guarantee you, is going to emerge much leaner and meaner, but probably with less

00:09:30.200 staff. So the people that they are firing now who are showing up in those unemployment numbers,

00:09:35.700 they're going to have to face the world that Jim is talking about, which is a very difficult

00:09:41.840 situation because it's not enough to have a skill set. You have to now shift into this new environment

00:09:47.100 where the skill sets are very different than what was required before. I go further and say that

00:09:53.140 I think policymakers were on the back foot and slow to respond to COVID-19. And now they're

00:10:02.260 doing the same thing with the economy because of their belief system. And their belief system is

00:10:07.320 number one, that you can put the economy in snooze mode. It's just like an alarm. You just

00:10:11.880 hit that little snooze mode button and everything stops for whatever length of time. And then you

00:10:17.320 can turn it back on again. But this is not how the economy works because of cashflow and people

00:10:23.140 who don't have enough cash to make it. This is where the societal problem is. And I'm not just

00:10:28.740 talking about businesses that don't have enough cashflow. I'm talking about a world in which

00:10:32.700 something like as much as 60% of people in industrialized countries like the United States

00:10:40.040 in Britain depends on next month's paycheck. And maybe 30% of them depend on next week's paycheck.

00:10:48.240 And I think the stats in the US were something like, actually, I won't quote the exact number

00:10:53.640 because I don't remember, but it's a huge number of people who only have about $400 in savings.

00:10:58.740 It's about 50% paper, about half the country.

00:11:01.380 Yeah, it's a big number. So now we have to think about the human consequences

00:11:06.920 of this very sudden, this very abrupt halt in economic activity. Now, the second mistake

00:11:14.960 policymakers are making is the assumption that if you just chuck a ton of money at this thing,

00:11:19.580 that'll do it. And that is why they announced this unlimited quantitative easing. And the

00:11:26.120 problem there is that, well, you can announce it, but the mechanism for getting the money

00:11:31.220 into people's bank accounts, whether it's a corporate or a personal, was essentially through

00:11:36.600 the tax office, like Britain, the HMRC, or it was through bank loans. Well, the banks are saying,

00:11:45.300 I'm not lending to anybody in the current situation because everybody's credit quality

00:11:49.660 has collapsed. And so the bank mechanism doesn't work and the government mechanism just takes too

00:11:55.600 long. So time is the one factor that in markets we tend to take for granted. And this is the one

00:12:03.320 thing that we now have no control over and can't quantify into any of our models. Because the

00:12:10.860 answer to the question, how bad is the economy going to be, is very different for two days from

00:12:16.860 now, two weeks from now, and two months from now. And I think that's what policymakers haven't

00:12:22.000 clocked. And throwing money at it and putting it on snooze mode doesn't fix any of these things.

00:12:26.760 so in conclusion what i'd say is that one can fall into a sense of um being so awestruck by

00:12:37.240 the severity of what's happened that they can't think straight you're just in a place of total

00:12:42.820 fear uh how are you going to survive uh and we can call that lots of different names depression

00:12:50.000 recession, et cetera. Or we can say, okay, what government has done, at least in the UK,

00:12:56.440 they've said no mortgage payments, no rent payments, no tax payments for three months.

00:13:02.800 So at least in the UK, everybody's got a little time. In the US, the government has not chosen

00:13:07.960 to buy time in the same way. And I really mean buy time. And this is maybe the thing to think

00:13:13.220 about. So for those who now have a bit of time to think about this, this is a little bit of a gift

00:13:20.600 as well, because we don't often get time to think about how we're going to manage our future.

00:13:25.240 And I see ways in which we can begin to identify where the new opportunity is going to be. So

00:13:32.360 just like in the 1920s and 30s, what you did in the 20s is not what you did in the 30s.

00:13:39.140 And just like after the Spanish flu, I'll point out, you know, what's the big question to my mind is not just the economic question, it's the human psychology question. And I'll finish with this, you know, in the year after the Spanish flu, but also surviving World War One, what did people do with all that damage to the world economy?

00:14:04.520 I mean, worse than arguably what we're facing now because many, many more people died.

00:14:10.720 Many more businesses were shut down.

00:14:12.860 They basically said, you know what?

00:14:15.040 I want to live.

00:14:16.580 And those who could afford it became the great Gatsbys and spent it on champagne.

00:14:21.360 And the 20s are famous for being an era of excess.

00:14:25.380 And I could see that the era that follows this moment in time could be like that.

00:14:29.600 But at the same time, 60% of Americans were on or below the poverty line in the 1920s. And I could also see that too. In other words, a bifurcation of the society. And then my thing I would put in front of people, it's a bigger question is, okay, how do you make sure that that doesn't last too long?

00:14:51.000 and the big view in the policy world is that ben bernanke is right he studied the great depression

00:14:56.900 and the answer is the central bank just keeps expanding their balance sheet and you just

00:15:00.620 nationalize everything and basically you end up in socialism and i think amity slays is right and

00:15:07.220 she wrote a book saying no actually the the politicians prolonged the slowdown by becoming

00:15:13.560 so interventionist and it would have passed more quickly if they'd let the market sort itself out

00:15:19.260 and clear all these broken assets?

00:15:21.100 And that's the question today is,

00:15:23.040 yes, the assets are broken.

00:15:24.420 They're going to be broken.

00:15:25.440 It's going to get messy.

00:15:26.340 But how quickly can we clear it

00:15:28.580 is the answer to the question,

00:15:30.260 how bad is it going to be?

00:15:32.020 Well, this is really the question

00:15:33.120 that I wanted to ask.

00:15:34.020 And it's a very simple question

00:15:35.320 for you guys who are experts in this.

00:15:37.140 But a lot of ordinary people

00:15:38.340 will be saying,

00:15:39.340 well, you know,

00:15:40.860 when we had our election

00:15:42.080 in this country in the UK

00:15:43.280 at the end of 2019,

00:15:44.960 the big argument was,

00:15:46.900 is there a magic money tree

00:15:48.220 or is it not a magic money tree?

00:15:50.040 Can you give people free stuff or not?

00:15:52.720 And it seems like the people who said that you can't

00:15:55.280 are now giving people free stuff.

00:15:56.820 And the real question is,

00:15:58.740 the people I don't think know the answer to,

00:16:00.980 and this is for both of you,

00:16:01.980 is where is that money coming from

00:16:04.200 and what is going to be the cost of that money down the line?

00:16:09.600 So I think this is the key question

00:16:12.740 because you know,

00:16:14.660 and I've been on your show before talking about my concern

00:16:17.540 that inflation was already higher than our policymakers were willing to say. And they were

00:16:23.700 like, inflation is not a problem. It's gone away. You know, we don't even have to read about that in

00:16:28.020 a textbook anymore. It's such an old issue. And anybody who raised it like me is like, you've

00:16:33.680 completely lost your marbles. And I'm like, wait a minute, but you know, you buy a box of cereal in

00:16:38.480 the market and it's cost the same, but the amount of cereal inside keeps being less. And you know,

00:16:43.700 your rent is going up and the cost of a whiskey and a bar is going up. And so the data may not

00:16:50.240 say that there's been such a big jump. So the data has said there has been a jump,

00:16:54.500 but not a huge one. So therefore it's a non-issue. Well, and then they blasted free money through

00:16:59.860 the market with the financial crisis and quote, nothing bad happened. And I'm like, okay, but

00:17:05.240 that doesn't mean that all the rules have gone away. And if you flood the market now with free

00:17:10.840 money. The risk is you no longer have the downward pressure on prices that was being caused by

00:17:16.760 the Chinese providing ever cheaper products at ever better quality. That is no longer happening

00:17:24.580 because the supply chain, they call it the supply chain is broken at both ends. What that means is

00:17:29.220 the willingness from China to sell abroad is diminished and the demand for their goods is

00:17:36.020 diminished, both. So we no longer have that. In fact, we're seeing the reshoring, onshoring of

00:17:41.080 production, which as an aside, I think might be a good thing for the world economy. But it means

00:17:46.160 higher prices for a period of time. And second, tech. And I'm in the tech world. I'm manufacturing

00:17:52.680 drones and autonomous vehicles and data systems for digitizing. And the reality is that the tech

00:18:00.640 world is being hit by this quite hard. So you're not going to have endless innovation, always

00:18:06.100 pushing prices down. So before we had free money pushing prices up, but China and tech holding it

00:18:12.620 down. Now we don't have that and we have more free money. Against the backdrop, and I come back to

00:18:17.980 human psychology, against the backdrop of this lockdown where people are willing to pay a dollar

00:18:25.340 or a pound for a single egg, right?

00:18:28.200 Like you've experienced now a run on the grocery store.

00:18:31.380 So you're like, you know what?

00:18:32.200 Actually, five pounds or $5 for a loaf of bread,

00:18:35.420 maybe that's okay.

00:18:36.800 And this is the genie that's out of the bottle.

00:18:38.980 It's not inflation.

00:18:40.400 It's inflation expectations.

00:18:42.860 And where we should look for that is in humans

00:18:45.020 and in their belief system,

00:18:47.120 rather than in the bond market.

00:18:48.820 Usually that's the thing you look at

00:18:50.520 to tell you what the expectations are.

00:18:52.640 The bond market is no longer signaling clearly because everybody has to buy bonds because the stock market falls.

00:18:59.980 So it doesn't give you a clear understanding.

00:19:02.500 But if people start to say, well, you know, I'm going to save a little bit more because I need more security in the future.

00:19:09.340 And I want to be sure I can afford those eggs if we get a second lockdown.

00:19:13.080 This is how inflation expectations begin. 0.52

00:19:15.220 So I am concerned that one issue is that inflation is going to be unleashed a little bit by these policy actions at a time when policymakers are like, don't be ridiculous.

00:19:26.760 That's such a complete non-issue. 0.51

00:19:28.320 You've lost your marbles.

00:19:30.080 Jim, so the same question for you.

00:19:31.380 Sorry, just I want to get Jim to answer the same point.

00:19:34.480 Is there going to be hell to pay for the money that we are now using to save people's jobs and protect businesses?

00:19:41.420 no there's there's no chance of inflation um in fact the the real policy concern is and will be

00:19:50.920 deflation now down the road uh when i say down the road i mean a year two years from now there

00:19:57.020 is a risk of um very serious inflation bordering on hyperinflation but not now and not for at least

00:20:05.080 a year and here's why inflation has nothing to do with money supply this is sort of a

00:20:09.700 I've called a myth or a misunderstanding that's been propagated by everyone from the New York

00:20:15.540 Keynesians to the monetarists to the Austrians, you know, increase the money supply, too much

00:20:20.920 money chasing too few goods. Inflation is right around the corner. It's not true. Money supply

00:20:26.380 has nothing to do with inflation. What does drive inflation is psychology, which shows up in the

00:20:34.140 form of velocity. So let's say I have a, let's say I'm feeling good. I go out to dinner, you know,

00:20:39.700 I tip the waiter. He takes a taxi home and tips the taxi driver and the taxi driver takes the tip

00:20:47.580 and puts guests in her taxi. Well, that, that example, my dollar has velocity of three. There 0.98

00:20:53.540 was a tip, a taxi tip and gasoline. So velocity of three. Instead, imagine I stay home and watch

00:21:00.000 television uh my money has velocity of zero right and i remind people that five trillion dollars

00:21:05.680 times zero is zero if you don't have velocity you don't have an economy period so the task is and

00:21:13.140 a pivot touched on this she's exactly right the task is to change the psychology change

00:21:18.620 expectations uh you print all the money you want the fake can stick the landing on base money m0

00:21:24.280 M1, M2 is a different matter, but M0, they can print that to two decimal places.

00:21:31.480 Not a problem.

00:21:32.640 But they can't get people to lend it.

00:21:34.040 They can't get people to spend it.

00:21:35.720 They can't get people to just save.

00:21:38.440 In other words, what are people doing with the money?

00:21:40.780 They are either going to, well, if you have a high marginal propensity to consume, meaning

00:21:45.360 you're living paycheck to paycheck and you need to pay the rent, yes, you'll pay the

00:21:49.700 rent.

00:21:49.980 Fair enough.

00:21:50.940 But for many people, they will save it.

00:21:54.280 for the reason Pippa mentioned,

00:21:55.860 which is they're worried about

00:21:56.840 how long is this going to last?

00:21:58.540 You know, even if you're not laid off,

00:22:00.380 if your neighbor was laid off,

00:22:01.560 you're probably worried about your own job.

00:22:03.200 So you'll save it on a precautionary basis

00:22:05.620 or you'll pay off, you know,

00:22:07.640 a credit card paid down an auto loan,

00:22:08.960 which is economically the same thing.

00:22:10.640 It's just another form of saving.

00:22:12.380 So that's what people are going to do with the money.

00:22:13.960 You won't see the velocity from it.

00:22:16.660 Monetary policy is completely impotent.

00:22:18.880 It doesn't mean that there can't be bad consequences

00:22:21.020 from what's happening.

00:22:22.300 And I'll touch on that.

00:22:23.020 But, you know, I say, well, you know, the Fed's printing, you know, $5 trillion.

00:22:28.960 By the way, the Fed's taking its balance sheet to $10 trillion.

00:22:31.860 Let's be clear about that.

00:22:33.080 It's $5 trillion today.

00:22:35.320 Now, about a week ago, a little more, our Congress passed this $2.2 trillion economic

00:22:42.660 rescue bill, whatever you want to call it.

00:22:44.320 The CARES Act was the technical name.

00:22:47.100 They're probably going to throw another trillion on top of that in a couple of weeks. 0.99

00:22:51.320 Buried inside the $2.2 trillion was $450 billion, approximately, to recapitalize the Fed.

00:22:59.580 And I've said for a long time, because look at what the Fed did in the last couple of weeks.

00:23:02.760 And actually, you can go back to 2008 and say the same thing.

00:23:05.420 They guaranteed every money market fund.

00:23:07.280 They guaranteed every piece of commercial paper.

00:23:10.140 They guaranteed the primary dealers.

00:23:11.840 They're buying corporate bonds.

00:23:13.280 They're buying municipal bonds.

00:23:14.860 They've guaranteed everything.

00:23:16.660 And then I would ask the question, who guarantees the Fed?

00:23:20.200 Well, we now have an answer, which is the Treasury.

00:23:23.560 So the Treasury took this $450 billion, and they're investing it in the Fed, recapitalizing the Fed.

00:23:31.180 I had dinner with one of the Fed governors.

00:23:33.940 It was a small group, and I looked at her and said, at the time, interest rates were higher than they are now,

00:23:39.620 and the Fed was technically insolvent on a mark-to-market basis.

00:23:42.680 Now, they don't mark-to-market.

00:23:43.860 I understand that.

00:23:44.520 But if you were a hedge fund, which they kind of look like, you would mark-to-market,

00:23:48.920 and they were insolvent.

00:23:49.740 So I said, you know, your bank's insolvent.

00:23:51.360 And she said, no, we're not.

00:23:52.580 And I said, I think you are.

00:23:54.440 And she said, no one's done that work.

00:23:55.560 I said, I've done it.

00:23:56.240 And I think others have done it.

00:23:57.780 And then she looked at me and harumped a little bit

00:23:59.980 and said, central banks don't need capital. 0.77

00:24:03.680 That's an exact quote.

00:24:05.180 And I said, well, you might,

00:24:06.760 the American people might disagree.

00:24:08.060 Well, it turns out the Americans do disagree.

00:24:10.280 And they did put $450 billion of capital

00:24:13.500 from the treasury into the Fed.

00:24:15.500 But here's the point.

00:24:16.500 The Fed is some kind of bank

00:24:18.220 and they're going to leverage it 10 to 1.

00:24:20.300 They're going to take that $450 billion

00:24:22.060 and turn it into $4.5 trillion of balance sheet

00:24:26.080 on top of the $5 trillion they have as we speak.

00:24:29.460 So that's $9.5 trillion, make it $10 for a round number.

00:24:31.940 They're taking their balance sheet to $10 trillion.

00:24:34.800 Now, that's not stimulus.

00:24:37.400 It's money printing.

00:24:38.620 It's balance sheet expansion.

00:24:41.380 The Fed is keeping the lights on.

00:24:43.560 They've provided liquidity where it's needed.

00:24:45.640 They've made sure the plumbing of the financial system did not get clogged.

00:24:50.100 So I'll give them credit for throwing liquidity where you need liquidity.

00:24:53.960 And I guess, as I say, keeping the lights on.

00:24:55.860 But that's all it is.

00:24:57.080 That's all it is.

00:24:57.760 This is not stimulus.

00:24:59.480 And the same thing is true with fiscal policy.

00:25:03.600 So the U.S. had approximately $1 trillion deficit for fiscal 2020 going into this.

00:25:11.000 So $1 trillion deficit was your baseline.

00:25:14.060 They threw $2.2 trillion on top of that.

00:25:16.920 They are certain to throw another trillion or more.

00:25:19.280 So we're looking at a $5 trillion deficit, perhaps more for fiscal 2020, which is 25% of GDP.

00:25:26.960 So we've got a 25% of GDP deficit.

00:25:30.480 We've got a Fed balance sheet that will be 50% of GDP.

00:25:34.940 But I just tell people over and over, I said, don't call it stimulus.

00:25:37.920 You can call it spending.

00:25:38.820 It's spending for sure.

00:25:40.500 But don't call it stimulus.

00:25:41.760 Why is that?

00:25:42.920 Well, here you have to look to the research of Carmen Reinhardt and Ken Rogoff.

00:25:47.980 Carmen was at University of Maryland for a long time.

00:25:51.920 They're both, she's at the Kennedy School.

00:25:53.520 Rogoff is at Harvard Economics Department.

00:25:56.700 They've done books, studies by themselves with each other, with other collaborators,

00:26:02.140 a whole series of papers, and they're all available.

00:26:04.900 They're all publicly available.

00:26:06.580 And they've looked at, they've looked over centuries.

00:26:08.500 They've looked at just the 20th century, developing economies only, developed economies only, various subsets.

00:26:14.180 They got the same result every single time.

00:26:16.600 That when your debt to equity, sorry, your debt to GDP ratio goes over 90%, you've crossed what physicists call a critical threshold.

00:26:24.480 You're in, you're through the looking glass.

00:26:26.660 And whatever Keynesian multiplier might have existed, you know, Keynes called this theory, the general theory of employment interest and money.

00:26:35.240 there's a little bit of Einstein envy going on there with the general theory. It's actually

00:26:39.380 what they call special theory. Special theory means it applies in limited circumstances.

00:26:45.040 And Keynes was right. If you're coming out of a recession, if you have spare capacity,

00:26:49.220 if your debt is not too high, and if you're in a liquidity trap, then yes, government spending

00:26:54.160 in lieu of private spending can have a multiplier, kind of going back to my taxi cab example with

00:27:00.240 high velocity if you get it. And so you borrow a dollar, spend a dollar, and you get a dollar

00:27:05.920 20 of GDP. That works, maybe temporary, but it works. But now once you go past 90%, you borrow

00:27:12.940 a dollar, spend a dollar, and you get 90 cents of GDP. In other words, you don't even get a dollar.

00:27:18.740 So what does that do to the ratio? Well, you're increasing the debt, you're increasing the

00:27:22.940 numerator faster than you're increasing the denominator. The denominator is going up very

00:27:27.600 slow the numerator is uh skyrocketing and your debt to gdp ratio is getting worse so the u.s is

00:27:34.760 going to catch up to to italy before long we because here's what we were 106 going into this

00:27:40.200 and if 90 is the critical threshold the data says it is we were 106 going in we're going to take it

00:27:47.080 to 116 um you know it leads about 122 lebanon i think leads the pack but they're they're shutting

00:27:53.360 down. So you're not going to get the stimulus from this. You will get spending, you will get

00:27:58.160 higher deficits. So if monetary policy can't stimulate because of low velocity, which is a

00:28:04.500 psychological phenomena, and a fiscal policy can't stimulate because we're past the critical

00:28:09.360 threshold and the expectation is that, hey, you can borrow all you want, but I'm going to have

00:28:12.560 to pay it back in taxes, so I better save more. You get zero stimulus. That's what you've got.

00:28:16.480 One more point, and I'll finish quickly.

00:28:19.400 Pippa talked about the 50-year-old white guy, whatever,

00:28:24.920 who was maybe behind the curve a little bit in tech

00:28:26.900 and has had a wake-up call about that, and it does.

00:28:33.580 And I think she's exactly right about that.

00:28:35.680 Think of the consequences of that.

00:28:37.040 So let's say I'm a restaurant owner in a medium-sized city,

00:28:40.760 and I've got 50 employees, and I've closed my doors,

00:28:43.540 and all my employees are laid off.

00:28:46.360 They've all applied for unemployment

00:28:47.860 and I've applied for one of these small business loans

00:28:51.740 which you would qualify for.

00:28:54.140 Okay, now let's just say, flash forward to July.

00:28:56.780 Hopefully, you know, the disease is contained.

00:28:58.660 I don't know, that's not a forecast, by the way.

00:29:00.380 I don't know if that'll be true or not,

00:29:01.520 but it could be true.

00:29:02.720 So let's say by July, August,

00:29:04.340 things are getting back to normal.

00:29:05.540 The restaurant's open, the customers are returning.

00:29:07.700 Am I going to hire back all of my employees

00:29:11.000 and whether it's 20 or 50, however many,

00:29:13.540 Am I going to hire them all back? No. Odds are I had a couple of underperformers. Odds are some

00:29:18.520 clients have returned, but not all of them. I've got to reduce my tables because I've got to socially

00:29:23.560 distance my tables. Maybe I'll hire back half. Maybe I'll hire back two-thirds, but what about

00:29:27.580 the rest? They're not getting hired back. So this is why I made the point earlier about a depression.

00:29:32.440 Of course, unemployment is going to spike. We know that. The question is, how quickly will

00:29:37.520 return to normal. I go back to, and the answer is it won't. I go back to 2009. We all remember it

00:29:45.620 very well. And what were the talking heads on CNBC talking about? Green shoots. Remember green

00:29:50.260 shoots? You know, Tim Geithner and Joe Kiernan and Larry Kudlow were all talking about green

00:29:54.980 shoots. There were no green shoots. We got brown weeds. We did not get a V-shaped recovery. We got

00:29:59.800 kind of an L-shaped recovery with a slightly upward sloping recovery curve that was sloping

00:30:06.360 at a narrower range than the pre-global financial crisis curve.

00:30:11.180 In other words, that's the 2.2% I talked about.

00:30:13.860 What if it comes back now and it's 1.7%?

00:30:16.620 You see the point.

00:30:17.460 It's not that we're not going to grow.

00:30:18.920 Yeah, we'll grow off a demolished base at a lower rate,

00:30:23.840 and we will not solve the problem of persistent unemployment.

00:30:27.380 And just one more thing quickly.

00:30:30.320 I'm a sole proprietor.

00:30:32.060 I'm a writer, analyst, public speaker, et cetera.

00:30:36.360 So I qualify for these small business loans.

00:30:38.920 So I put in for one, you know, I'm not, you know, you don't need to shed any tears, but

00:30:43.840 I want to see how it would go.

00:30:46.320 And it was interesting.

00:30:48.040 The banks for days did not post the form.

00:30:50.680 Citibank, this is a disgrace, still has not posted their form.

00:30:54.720 They recommend you apply to the bank where you do your banking because they know you.

00:30:58.600 So I applied to my bank.

00:31:00.140 They were a little bit late and I got the form.

00:31:02.560 It's kind of a check the box type of thing.

00:31:03.900 But my business does not conform to their form.

00:31:08.760 They wanted W-2s.

00:31:10.400 They wanted, there's something we call a form 941.

00:31:12.920 That's a quarterly or monthly statement to the IRS.

00:31:14.940 Here are my employees, you know.

00:31:16.240 They wanted my payroll.

00:31:17.220 I don't have a payroll.

00:31:18.000 I hire editors.

00:31:19.180 I hire research assistants.

00:31:20.800 I pay them.

00:31:21.600 I send them 1099s.

00:31:23.220 So all of a sudden I'm trying to like, you know,

00:31:25.580 upload a 1099 into a form that wants a 941.

00:31:28.740 You know, my point is, and I'm not, you know, faulting the banks.

00:31:34.460 This all happened.

00:31:35.460 How do you get $385 billion out the door in five days?

00:31:40.580 That was sort of the question.

00:31:42.060 You know, the Small Business Administration computers have crashed.

00:31:45.260 The forms that the banks put online don't conform to the reality of what an LLC,

00:31:50.040 imagine you're an LLC or a sole proprietor, which I am or whatever.

00:31:54.240 I just wanted to see if this worked.

00:31:55.680 And the answer is it didn't work very well.

00:31:57.340 So, again, I don't care what Larry Kudlow says on TV.

00:32:00.380 Nice guy, by the way, but worst forecasting record, except for the Fed.

00:32:05.080 They cannot get the money out the door.

00:32:08.000 So the rescue package is not getting out the door.

00:32:10.300 When it does, you know, when I was nine years old as a Boy Scout, I learned how to apply a tourniquet.

00:32:14.980 Well, a tourniquet stops the bleeding, perhaps at the cost of a limb.

00:32:19.820 You might save a life, but don't think you put the tourniquet on and the patient's up and doing a triathlon anytime soon.

00:32:25.700 that's a life-saving exercise and all of these programs we've heard about

00:32:29.260 are first of all their horizon is about two and a half months

00:32:32.680 they have no stimulative effect whatsoever i'm not saying they're not

00:32:36.160 needed i'm not saying they're not needed they

00:32:38.360 are needed but the idea that this is going to save the day is nonsense

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00:33:12.540 And Jim, you know when you said about $385 billion,

00:33:15.600 how do you get it out of the door?

00:33:17.060 I think that's the moment you need a Venezuelan politician.

00:33:19.980 They'd make it disappear instantly.

00:33:21.880 just like that. I'm sure they would volunteer to run the program for us.

00:33:26.380 Yeah, absolutely. And Jim, do you see it as, and this question to Pippa as well,

00:33:31.880 we had a guest last week who said that in times of crisis, usually war, that is the moment that

00:33:38.240 the government introduced new taxes or in particular higher taxes. Do you think when

00:33:42.960 we come out of this, we're going to get taxed up to the eyeballs or are the government going to

00:33:47.320 hold back because they're going to realize we've been through major financial trauma and we just

00:33:52.640 need to invigorate the economy and we need to grow um confidence well there's i don't think

00:34:00.200 they'll raise taxes in the in the second trump administration they're really not inclined to do

00:34:04.700 that um although uh you know just jump your head a little bit i know you like to look down the road

00:34:10.800 a little bit the market is struggling to i mean what markets do they price news right and the

00:34:16.520 bigger the news, the bigger the repricing. We've seen that. So the stock market that is trying to

00:34:20.920 price in the pandemic. And they're struggling because no one really knows. But okay, they're

00:34:26.240 doing a pretty good job of that. Then they're trying to price in, call it a recession, depression,

00:34:32.380 B-shaped, L-shaped. There's a lot of debate about that. But they're trying to price that in.

00:34:35.740 And that's more difficult because the economy is bigger and it's more complex. And I have my

00:34:41.420 forecast, but others have theirs. The one thing they have not priced in is President Biden.

00:34:48.740 I do political forecasts, predictive analytics in addition to economics. And I was on TV around

00:34:57.060 the world in late October 2016 promoting my book, and all the anchors from Australia to London and

00:35:03.240 New York said, hey, Jim, you're the American who's going to win the election. I said, Trump's going

00:35:07.480 to win uh so we'll be up late it'll be close but he's going to win after they recovered their breath

00:35:12.680 and you know sort of you know got their demeanor back together they asked why and i explained why

00:35:17.280 um this is when hillary had a 92 probability of winning according to odds and pundits i have the 0.97

00:35:23.400 same model i've updated it of course um i had trump about 75 probability of winning and increasing

00:35:30.020 monthly because there was theta in terms of uh likelihood of a recession well jim if you remember

00:35:34.460 But sorry to interrupt. Last time you were on the show, what you said specifically was that if the economy continues to do well, he's going to get reelected.

00:35:43.380 And at the time, the three of us went, well, of course, he's going to continue to do well.

00:35:47.520 I mean, but here we are.

00:35:49.980 Yeah, it was easier the second time.

00:35:51.640 But but the point is the fact that we're in, you know, I'll call it a depression.

00:35:57.560 It doesn't mean that Trump's going to lose.

00:36:00.660 If we were not, he would almost certainly win.

00:36:02.900 But just because we are, it doesn't mean he's going to lose.

00:36:05.320 And the reason is that no one blames him for the virus.

00:36:07.960 He will be judged on his handling of this.

00:36:10.580 And that's a separate issue.

00:36:12.100 He won't be judged for causing it.

00:36:13.520 The Chinese will. 1.00

00:36:14.240 But he'll be judged for handling it.

00:36:16.960 So right now, I've got it at 50-50.

00:36:19.140 And I use Bayesian Bayes' theorem as part of the applied mathematics we use.

00:36:25.040 So 50-50, people say, let's wishy-washy.

00:36:27.340 No, that's where you start in a Bayesian equation.

00:36:30.380 If you don't have better information, you start at 50-50, but then you update on posterior information.

00:36:36.440 So we'll see how it plays out.

00:36:37.940 But that means you've got to give Joe Biden a 50% chance also, so it's a coin toss.

00:36:42.680 But the market hasn't priced that in.

00:36:44.260 I mean, what does the Biden presidency mean?

00:36:46.320 Higher taxes, more regulation, kissing up to China, and the Green New Deal. 0.88

00:36:53.380 How do you think the stock market's going to like that?

00:36:55.400 So this has a long way to go.

00:36:57.260 what about you what are your thoughts about you know france's point about uh and actually it feeds

00:37:04.080 very much into your point which is if you see taxes coming down the line you're gonna your

00:37:09.700 psychology is well safe safe safe because i'm not going to have enough money in the future i need to

00:37:15.060 be careful and then that creates a vicious cycle what do you see i mean i personally haven't seen

00:37:21.080 some of joe you know i mean we had the scott adams on the show a couple of weeks ago talking about

00:37:25.860 among other things, Joe Biden. I mean, he, I don't mean to be unkind, but he's clearly in a

00:37:31.660 cognitive decline. So I, I don't, I don't see him being the next president. I mean, Jim will have

00:37:38.300 his mathematical models, which are much more accurate than my instinct to feeling, but I just

00:37:42.160 don't see that. But take that out of it. What do you see coming down the line in terms of people's

00:37:47.620 psychology, as you say, and also the government's response? You know, are we going to see more taxes

00:37:52.260 and how is everything going to look two or three years from now?

00:37:56.380 I take your point about, you know, winners and losers,

00:37:58.560 but there will be a bigger picture to it than that as well.

00:38:02.380 Yeah, well, you know, my last book was about leadership

00:38:04.980 and I sort of argued between the lines,

00:38:07.620 we have a lot of leaders who are in cognitive time.

00:38:12.960 You know, nobody's got a monopoly on that right now.

00:38:18.080 Let me come, on this question of taxes,

00:38:20.300 All the conversation we're having is very much within the framework we're used to conversing in.

00:38:25.600 And what I see is this is such a structural change.

00:38:28.740 We're going to have a very different conversation because it's not going to be about tax.

00:38:33.520 It's going to be about nationalization and reprivatization.

00:38:38.980 For example, as you opened, you said, you know, the Labour Party in Britain was saying,

00:38:46.040 we'll give away free stuff.

00:38:47.140 Then the Conservatives came in and that's exactly what they did.

00:38:49.980 And so labor is like, wait a minute, that was our program.

00:38:53.300 Well, then what do the conservatives say?

00:38:55.820 They're like, well, okay, we have to keep the trains running.

00:38:59.180 And if network rail can't afford to do this, well, we can nationalize network rail.

00:39:03.760 Well, good luck with running network rail because it's a complex, difficult beast to run.

00:39:09.420 And I'm betting they won't take them very long to figure out.

00:39:12.220 They have to privatize it.

00:39:13.420 So what you're talking about is not taxes, but a world where expropriation of assets, where government just takes stuff and tries to manage it, can't, then tries to sell it to someone for cash.

00:39:26.960 This happens much more frequently and with less of a kind of overall plan than we're used to.

00:39:35.940 So it's very bumpy.

00:39:37.640 And also things like property.

00:39:40.040 You know, there's reasons the Italians always call it immobilia. 1.00

00:39:44.020 It's because it's immobile.

00:39:45.680 It can't be moved.

00:39:47.220 And this makes it easier for government to seize or tax or already look at we're seeing because of the crisis, the health care crisis, you know, physical establishments get repurposed.

00:40:00.860 whether that's the excel stadium becomes a hospital a church in new york a cathedral in

00:40:08.220 new york becomes a hospital and and rightly so i'm just saying this is how it begins the

00:40:14.740 governments say forget about tax i'm just taking the thing we need it right now and this mentality

00:40:19.780 is exactly what happened and again in the 1930s so i don't think it's so much the the traditional

00:40:27.180 sense of tax, it's the real question is, what do I actually own? And what private protections of

00:40:33.860 private property really exist? And this is going to test the Constitution of the United States,

00:40:39.180 it's going to test the unwritten Constitution of the United Kingdom. And so I think that's one

00:40:45.140 big issue. The second thing that's relevant here is also, it's the relative story. And so what I

00:40:52.960 see is, if I'm going to go back to the COVID-19 medical analogy, again, what kills the patients

00:40:58.640 is pre-existing conditions. I mean, some of them are dying just straight out from the disease,

00:41:04.200 but a lot of people, what gets them is they already were in bad shape. And that's exactly

00:41:10.980 what happened with the economy. The economy was way overburdened with leverage and debt.

00:41:16.920 The economy had valuations that just were off the chart and didn't make any sense in terms of real

00:41:22.800 cash flow in reality. So now the patient comes in and technically what's making them ill is the

00:41:29.340 COVID-19, but the doctor takes one look and says, this is a heart attack waiting to happen. This is

00:41:34.500 a cancer patient in stage four that's been revealed by the crisis. So in the world of

00:41:41.860 economics, what is causing that cancer? And the answer is the debt. So what I expect is a lot of

00:41:49.680 debt is going to get defaulted on. Now, this is a very scary thing to talk about. Everybody goes,

00:41:55.580 oh, no, this is the end of the world economy. But maybe we can turn this around and we can look at

00:42:01.900 this as a very positive thing. You guys know from in the past, I've talked about the different ways

00:42:07.640 that governments can default on their debt, right? Option one is you say, I am never paying you guys

00:42:12.240 back and it's just tough. That's called the Argentine style default. And then the markets

00:42:17.600 hate you, the credit markets put you in the junk bin, and you stay there for a decade or more.

00:42:24.140 But a second way is you say, oh, listen, I am absolutely definitely going to pay you back. And

00:42:29.040 I'm so sorry that this act of God got in the way. And it's just, I'm going to pay you a little bit

00:42:34.020 less and a little bit later. And everyone goes, well, that doesn't sound so bad. And that's how

00:42:38.640 Greece defaulted on a huge proportion of their debt. Now, mathematically, it's a default. But

00:42:44.620 because you don't call it a default, you say it's just a delay. We're just buying time. We have

00:42:49.940 every intention of paying you back. Suddenly, actually, the media, the FT, will write about

00:42:55.100 that. They'll never describe that as a default. Now, the countries that have defaulted, Iceland,

00:43:01.020 Greece, Portugal, their economies are actually going vastly, vastly better than they were before.

00:43:07.480 And now countries like Italy, confronted by this terrible weight, this cancer of overwhelming debt, now they have a crisis that reveals just how bad it is.

00:43:19.140 What are the chances that they say, we can bear a lot of pain for decades to come, paying this back.

00:43:26.320 Or we can say, there's been an act of God, it was completely out of control, and we're really sorry, but we're definitely going to pay you back just a little bit later.

00:43:33.920 well then you relieve them from some of that debt burden now in a world where that's happening and

00:43:39.620 let's add emerging markets because all the emerging markets borrowed in dollars and now

00:43:45.120 their currencies are weakening and the dollar strengthening so the level of debt is going

00:43:50.120 through the roof and already the imf is saying we may have to create some kind of a bailout program

00:43:55.760 using um you know mechanisms we've had in the past that call sdrs but basically it means we're

00:44:01.340 have to throw money at them because they're not going to be able to make their loan payments.

00:44:05.360 What are the chances that one of them says, well, let's just not pay it back. Let's do it nicely

00:44:10.380 and say, well, we intend to pay back more later. We'll do, but you know, it's health crisis. Now

00:44:16.720 in that world, you go to the country who you think isn't going to do this. And so even if

00:44:23.920 the United States has this terrible balance sheet, so it's a patient, the blood pressure

00:44:29.380 is off the chart. They're overweight. They've also got cancer. But you go, relatively, you know,

00:44:37.160 I trust the U.S. when the chips are down, when everything is hitting the wall globally. What do

00:44:43.580 you define as safe? And the answer is usually the U.S. Now, we can argue about whether that happens

00:44:50.080 this time or not. I think Britain can also emerge as that safe landing place. But a whole lot of

00:44:56.700 other places, I think are going to start defaulting. Now, the initial reaction is everybody's

00:45:01.400 scared, a lot of losses. Secondary reaction is, hey, we excise the cancer. The debt is gone.

00:45:10.940 That means actually we can grow again. And so I just wonder whether what's going to happen is we

00:45:16.140 end up getting rid of a lot of the debt burden on the world economy. And instead of having to blame

00:45:22.920 the bankers or blame the policymakers or we usually have to blame somebody this time we're

00:45:27.600 going to blame a bug and so that can be yeah the perfect scapegoat and let's take let's look at

00:45:35.100 things globally a lot more and this is a question to to both of you you know there's been this trend

00:45:40.760 that we've seen globalization as a universal positive you know it's it's a great thing we're

00:45:45.240 more interconnected than ever with this virus this pandemic that has swept the globe aided and

00:45:51.420 abetted by you know the fact that we travel everywhere are we now going to look at globalization

00:45:56.600 as being something that we embrace without considering many of the disadvantages and

00:46:02.960 flaws behind it globalization is dead i mean it should have died a long time ago but uh it you

00:46:10.240 know it's kind of struggled on but uh we will uh you know this period of globalization we lived

00:46:15.900 through between 19, I would make it 1989 to 2010 or thereabouts. It was the second age of

00:46:24.840 globalization. The first age of globalization was 1870 to 1914. And there was free trade and

00:46:31.840 bankers in London were selling bonds to investors in New York on Argentine credit. And letters of

00:46:39.380 credit were moving, there was trade moving all over the world. And it kind of resembled the

00:46:44.320 late 20th century. Then it hit a brick wall at 70 miles an hour called World War I. The New York

00:46:51.500 Stock Exchange was closed for five months between August and December 1914, as were most major

00:46:59.400 stock exchanges around the world. The gold standard ended immediately. People went through

00:47:05.000 the pretense of having gold. What they did is they hoarded the physical gold and just printed money.

00:47:09.140 So that ended, and then, you know, the rest, hyperinflation in the early 20s, depression in the 1930s, World War II, Cold War, you know, and it wasn't until the fall of communism in stages between 1989 and 1991 that we got back to globalization.

00:47:24.160 But the first time was real. The second time was a fraud. You had people like Jeffrey Sachs at Columbia and Richard Haas at the Council on Foreign Relations and a lot of others promoting this.

00:47:37.840 But what it really was was an enormous theft from the United States of financial capital, intellectual capital, intellectual property, et cetera, for the benefit of China. 0.85

00:47:49.640 And I'd like to say that the only thing worse than a poor communist is a rich communist.

00:47:55.000 So what we did is we created a lot of rich communists, and here we are.

00:47:58.760 But no, the globalization is dead.

00:48:00.300 It's been completely discredited.

00:48:02.320 Tom Friedman and Richard Haas and Sachs and the rest can go off and write their papers.

00:48:06.760 But the real world has has moved on. I want to just come back for one second on Pippa's description of how you default.

00:48:14.200 And she was exactly right. I actually wrote, negotiated and wrote along with a few others, the first sovereign credit default swap.

00:48:25.200 We did this in the early 90s when I was at Long Term Capital Management.

00:48:29.120 we bought a $1 billion insurance policy on Italian default from Sumitomo Bank Milan

00:48:36.140 because they had the assets, they didn't mind the liabilities.

00:48:38.320 But this was long before ISDA and automation.

00:48:41.380 I mean, ISDA was around, but they didn't have standard credit default forms.

00:48:45.420 So I had to do it on a blank sheet of paper.

00:48:47.920 And my colleague did the math, but my job was to figure out

00:48:51.520 how many ways can a government screw you over?

00:48:53.760 Like, how many ways can you default?

00:48:56.020 And Pip is right.

00:48:56.640 The first one is just, I don't pay you.

00:48:58.220 That's easy.

00:48:59.120 Um, but we had, uh, we had, I had like 20 different ways cause I knew if I left one

00:49:03.940 out and it never happened, I'd be in trouble.

00:49:05.920 So, uh, but you know, they can say, well, I'll pay you, but I've grossly devalued my

00:49:10.100 currency.

00:49:10.420 So good luck buying a loaf of bread.

00:49:12.140 Another one is, uh, I'll pay you, but I've put on a hundred percent capital control.

00:49:16.060 So, uh, as they said, a Gilead coming, come and take it, uh, you know, et cetera, there,

00:49:20.920 but there are many, many ways to do it, but, uh, and Pippa's right.

00:49:23.740 but and by the way what she was describing goes back to antiquity uh and there was explicit

00:49:32.380 biblical references but even earlier in in babylonian kingdoms it's called a jubilee

00:49:37.560 and the idea in uh at least in the bible in the book of leviticus uh every uh 50 years all the

00:49:46.600 deaths would be forgiven because they knew the people overborrowed they knew the people lended

00:49:50.500 recklessly. They knew that the system was overburdened by debt. This is all very clear.

00:49:54.540 And they said, well, every 50 years are wiping out the debt. And so you say, well, wait a second.

00:49:59.500 Isn't that a little unfair to the creditors, the lenders? But the point is the lenders weren't

00:50:05.340 dopes. So after the jubilee, in the first year of a new expansion, I would be very comfortable

00:50:11.800 making a five-year loan secured by land. But when you get to year 40 in a 50-year cycle,

00:50:18.340 knowing what's coming you're not going to make a 10-year loan and you're 40 you'll probably make

00:50:22.280 a one-year loan and by your you're 45 you know you're not making any loans and but here's the

00:50:27.080 point and it's and this really gets into the physics of it the system with foresight knowing

00:50:33.360 the rules voluntarily deleveraged itself in stages so that the jubilee was not a train wreck it was

00:50:40.080 like there wasn't that much data because people saw it coming and so what what you were really

00:50:44.060 doing was was setting the thermostat in such a way that it would be self-regulating right i'm sure

00:50:49.860 sometimes what we've done is the opposite we've taken the brakes off the train that's because we

00:50:54.840 got rid of that's because we got rid of the jubilee concept now we have something better

00:50:59.380 than a jubilee that that pippa did not mention and it is look everyone else can default on their debt

00:51:05.660 including their dollar dominated debt through an emerging market etc you have argentinian train

00:51:09.940 rex all over the place, and she's right about that. But it all comes back to the United States. 0.97

00:51:13.740 How does the United States default? There is no reason for us to default because we can

00:51:17.040 print the money. The way the US defaults is inflation. And in other words, even modest

00:51:23.940 inflation, 3% inflation for 18 years cuts the value of the dollar in half, which means the real

00:51:31.440 value of the debt goes down by half. And by the way, we did this. In 1945, the US debt to GDP

00:51:36.920 ratio was 120%, the highest in history. And I like to say, yeah, but at least we won the war, 0.95

00:51:41.760 you know, along with our allies. So we got something for it. We had 50% of the world

00:51:46.580 economy. But between 1945 and 1980, the debt to GDP ratio declined from 120% to 30%. When Ronald

00:51:59.420 Reagan was sworn in, the debt to GDP ratio was 30%. And he was the first of the big spenders,

00:52:05.260 and it's been going up ever since.

00:52:06.900 Today, we're back to the World War II levels. 0.80

00:52:09.020 But how did we do that?

00:52:10.340 We did it with a couple of things,

00:52:11.600 what's called financial dominance,

00:52:18.240 which has been explained by Rick Michigan,

00:52:21.000 where basically the Fed is the handmaiden of the treasury 0.93

00:52:24.100 and they keep rates low.

00:52:26.400 And all you need is negative real rates.

00:52:28.800 Basically, if inflation is just slightly higher

00:52:31.240 than the nominal rate.

00:52:33.180 So we had nominal rates of 2%, 3%

00:52:34.860 through most of the 50s and early 60s,

00:52:36.860 but inflation was just a little higher than that,

00:52:38.920 which meant that it was like an ice cube

00:52:40.300 melting in your hand.

00:52:41.420 It wasn't abrupt.

00:52:42.880 It wasn't like blatant theft like FDR did

00:52:44.880 when he confiscated the gold in 1933,

00:52:47.240 although he gave you $20 in paper monies

00:52:49.180 to not violate the Fifth Amendment.

00:52:51.280 But the point is, that's how you do it.

00:52:52.760 Now, here's the dilemma.

00:52:54.780 The Fed has been trying to engineer this for 12 years,

00:52:57.620 and they've failed.

00:52:58.900 I like to say it's a sad day

00:53:00.160 when a central bank wants inflation and can't get it.

00:53:02.800 Everything we've talked about,

00:53:03.880 including all the employees at my hypothetical restaurant does not hire back

00:53:07.600 and all the, I forget which presidential candidate said,

00:53:10.520 well, who cares if manufacturers get laid off? 0.71

00:53:13.020 We can teach them to code.

00:53:14.980 Good luck.

00:53:15.720 There's no evidence that people in mid-life, mid-career with one skill set,

00:53:19.980 which could be valuable, can somehow retool themselves and become coders.

00:53:23.940 And that's probably a good thing, but they can't do it.

00:53:25.940 There's no evidence for that.

00:53:27.420 So how do you get out of this embedded high unemployment,

00:53:31.820 meant embedded deflationary psychology, classic liquidity trap, name your, put out your descriptor.

00:53:40.300 They all apply. How do you get out of that? The answer is inflation. But how do you get inflation

00:53:46.140 when the inflationary psychology is so bad? It has been done twice. And I could do it in 15 minutes.

00:53:50.900 And I explain this in a couple of my books. You call an emergency meeting at the Federal Reserve

00:53:56.480 Board. You go in the room, you close the door, you take a vote, you come out, you walk up to

00:53:59.880 the microphone and you say, ladies and gentlemen, as of today, the price of gold is $5,000 per

00:54:05.720 ounce. If you think that's cheap, come and get it. We got a lot in Fort Knox. If you think that's

00:54:10.540 expensive, serve it up. We'll pay you for it. And we got the printing press. And it was, if you use

00:54:15.100 the gold in Fort Knox in West Point, that's where most of the gold is. If you use the gold, the

00:54:20.260 physical gold in storage and the printing press to conduct basically an open market operation in

00:54:24.760 gold, this is exactly, this is how we pay interest rates. We buy securities with printed money and

00:54:29.360 We sell them back and make the money disappear.

00:54:32.080 But if you use the printing press and the physical gold to maintain, say, a $5,000 per ounce price of gold, it's not to enrich gold investors.

00:54:40.820 It's to get the price of everything else up.

00:54:43.380 FDR did this.

00:54:44.340 In the greatest period of sustained inflation in U.S. history from 1927 to 1933, the price of gold went up 75% from roughly $20 an ounce to $35 an ounce.

00:54:57.000 Why was that?

00:54:58.280 Well, FDR did it.

00:54:59.360 The government made it happen on a kind of gold standard at the time.

00:55:02.480 But what he was really doing, this is what people don't understand.

00:55:05.200 When the price of gold goes up 75%, nothing really happened to gold.

00:55:09.760 It's atomic number 79.

00:55:11.620 It's a metal.

00:55:12.880 What happened was the dollar was devalued by 80%.

00:55:15.500 And the price of everything else went up.

00:55:18.240 FDR wanted the price of oil, corn, wheat, copper, everything to go up.

00:55:22.280 And it did.

00:55:22.760 1933 was one of the greatest years in the history of the stock market because he bent 0.82

00:55:27.380 the curve on deflation.

00:55:29.360 Richard Nixon did the same thing by accident.

00:55:31.380 Richard Nixon wasn't trying to do it the way FDR did,

00:55:33.740 but he did it anyway by suspending the redemption of dollars into gold in

00:55:37.660 1971.

00:55:38.900 But what happened by 1980?

00:55:40.340 I mean,

00:55:40.480 I took out my first mortgage loan in 1980.

00:55:43.200 It was 13%.

00:55:44.340 My poor mother cried,

00:55:45.480 you know,

00:55:45.660 her first mortgage was like 2%.

00:55:47.640 But I said,

00:55:49.200 mom,

00:55:49.460 inflation is 15%.

00:55:50.780 So my pre-tax rate is negative two.

00:55:53.560 That's,

00:55:53.920 that's cheap money.

00:55:54.960 That's,

00:55:55.180 that's,

00:55:55.440 that's better than free money.

00:55:56.440 And we had 50% taxes in New York at the time.

00:55:58.520 So my after-tax real rate was negative seven.

00:56:02.100 So they were paying me a lot to be a borrower.

00:56:05.680 So I see what you're saying, Jim.

00:56:06.660 So basically, the government is going to, the only option in terms of what you're saying

00:56:10.920 is the government is going to have to somehow induce inflation.

00:56:13.740 And you would not be Jim Rickards if the answer didn't have something to do with gold.

00:56:18.280 It's not me.

00:56:19.020 It's his work.

00:56:21.140 But here's the problem. 0.67

00:56:22.720 We have two generations of monetary scholars who are completely ignorant of gold.

00:56:28.300 I like to say, if you're younger than I am and you know anything about gold, you either went to mining college or you're self-taught because the university stopped teaching it.

00:56:36.400 It's a disreputable subject.

00:56:38.120 We have all these.

00:56:38.660 That's why I wrote my book, The New Case for Gold, to explode all these myths.

00:56:42.200 But they persist because, you know, the PhDs don't read my books, but everyday Americans do.

00:56:47.060 So it will come to that.

00:56:49.500 The reason I'm saying that is because it's the only thing that works.

00:56:53.680 FDR and Richard Nixon both proved it.

00:56:56.400 I see.

00:56:57.140 i see jim let me stop you there because i do want to move on to globalization and pippa and i just

00:57:03.900 need to stop you there as well uh so i quibble there jim uh you'll find that we won the war

00:57:08.380 you assisted it but apart from that i did mention our allies

00:57:12.180 actually can i just say at this point that we won the war and you guys tried to take the credit

00:57:20.740 all three of you you know guys nice nice job nice job at two brook you did

00:57:25.060 we were fighting on the eastern front but anyway uh pippa talk to us about globalization because

00:57:32.080 i mean i think one of the absolutely i i couldn't agree more with jim i think

00:57:36.580 you know globalization as constructed up to this point is dead um but as you said in terms of

00:57:43.760 individuals there'll be winners and losers i think also in terms of nations and in terms of

00:57:47.800 kind of how we relate to each other, there will be that as well. So what do you see on that front

00:57:53.080 going forward? So the definition of words is very malleable over time. I think what we're going to

00:58:00.840 find is the old definition of globalization was all the stuff gets made in China and all the jobs

00:58:08.580 get moved to China. The new definition of globalization is that stuff will be made

00:58:14.040 everywhere in the world um and that people will relocalize their supply chains they'll want to buy

00:58:23.780 from more physically local suppliers and that means we're going to end up with a lot more

00:58:30.360 competition globally so actually this isn't a lot it isn't at the end of globalization it's a

00:58:38.640 transformation into an entirely new definition of what constitutes globalization. It's a world

00:58:46.680 where I think people like me, I don't know if you guys know Etsy, which is an online craft shop in

00:58:56.320 the United States. It's been huge. And I think there's going to be a need now for a global Etsy

00:59:01.940 because you want to buy some beautiful necklace made by a Maasai warrior in Kenya and you don't

00:59:10.460 want to have to fly all the way there to get it and you want to support those local communities

00:59:15.260 by buying the products that they make and actually now the new internet world will facilitate this.

00:59:21.400 So weirdly we may become more global in our spending patterns on an optional basis but in

00:59:31.360 terms of, you know, grocery stores, you're going to say, you know what, I'd rather rely on local

00:59:37.480 British food. For example, there's a fishmonger in Notting Hill and their sales have gone up like

00:59:43.940 2,000% since this crisis began because everybody wants to work with the local fish shop that gets

00:59:50.780 their fishermen locally. And so that's a localization that supports the local economy,

00:59:56.680 But that doesn't mean that there won't be a market for some of their fish products ending up in France or North America.

01:00:05.900 You know, we live in a world where it's highly, highly adaptive.

01:00:10.640 So what I do see is that globalization by the old definition was ending for a lot of different reasons.

01:00:17.020 And one of them was that China wasn't supplying cheap stuff anymore.

01:00:20.800 the quality was falling, and their wages were going up so dramatically that the cost base was

01:00:27.540 too high. So it became more efficient. I mean, I make physical things. I make autonomous vehicles

01:00:33.880 and drones, and I can do that less expensively with higher quality in London than I can in China.

01:00:40.140 That has been true for more than six or seven years now. So there's been a radical shift in

01:00:46.660 where is the cheap place to make things. Second, the labor content of most things is very, very

01:00:51.900 tiny and getting smaller all the time. It has more to do with your design, has to do with coding,

01:00:58.480 has to do with a lot of things that aren't the person that you're employing. And also you can

01:01:03.720 have people working remotely on a lot of things, especially if they're working on the coding side.

01:01:08.480 The other thing is that people were becoming much more cognizant of green issues and the planet,

01:01:13.820 and they didn't want to travel so much.

01:01:16.340 And I don't think they're going to want to travel in this new environment

01:01:20.140 because of the carbon footprint, because of the cost.

01:01:23.200 I mean, I am one of the road warriors, right?

01:01:25.460 I am one of the people who literally was doing five countries a week

01:01:29.140 when that was still possible.

01:01:31.660 I mean, and frankly, when you talk about how bad can this virus be,

01:01:35.680 you know, I am like the model for what could be the typhoid Mary of this situation

01:01:39.960 because I'm capable of being in five countries in a week.

01:01:43.240 And I don't know whether I've had it. I think that I may have had it. But until we're all tested, nobody knows. And so this is why this can travel much faster in a modern world economy than it did in 1918, when it was only soldiers that were on the move.

01:02:00.580 now it's the whole cadre of globalistas like myself so what sort of risk do we present for

01:02:08.220 the world and then there's the personal health risk because everybody who's over 30 who tries

01:02:12.840 to travel like that finds that they end up having health issues from doing it so in that sense i

01:02:18.220 think globalization is not dead but it is radically transformed into an entirely new definition and a

01:02:25.420 more positive, productive definition. But the other thing, if I can take a second to talk about

01:02:30.820 that debt jubilee idea, because I think this is what everybody is going to be talking about.

01:02:35.980 And the people are going to start to say, yeah, I would like to be the beneficiary of that.

01:02:41.140 And I put up on Twitter the other day that when the Sumerians first did this, it was literally,

01:02:45.600 I'm looking at the number now, is the year 4272 BC. I mean, this is an ancient way of handling

01:02:52.180 things and the point is if it reaches the point that the person you've lent the money to is dead

01:02:57.000 you're not getting the money back if they have no money in their bank account and they're nearly

01:03:02.280 dead you're not getting your money back so what's your priority is it to get paid back or is it to

01:03:07.140 save the society and what will happen is we're going to shift our orientation from the i got to

01:03:12.960 get paid back to i need humanity to live and not to fall into conflict hey i've got 20 years left

01:03:20.440 on my mortgage i i'm i'm sold i'm sold i've got 20 years left on my mortgage pippa before francis

01:03:26.500 jumps in let me ask you this because you're a former advisor to two u.s presidents if you're

01:03:30.880 sitting in the oval office right now and you're looking at the fact and this i come back to the

01:03:35.300 issue of globalization here you're looking at the fact that 97 of your antibiotics are made in china

01:03:41.180 you know a huge quantity and percentage of your essential supplies are made in china a lot of

01:03:46.980 particularly right-leaning commentators, have been banging away at this point.

01:03:51.440 You know, we've become reliant on China for essential supplies in a world where, you know,

01:03:56.720 I mean, we don't know exactly what's happened with this virus, but there's some evidence to

01:04:00.740 suggest that, you know, it's not without China's, at best, incompetence that this has spread the 0.93

01:04:08.120 way that it has, right? So if you can't trust them, and, you know, when the proverbial hits

01:04:14.120 Stefan, countries tend to lock down and go, I need this, and you're not having that.

01:04:19.740 Are we, as a president of the United States or the prime minister of Britain, are you

01:04:24.160 going to go, we need to onshore, not just manufacturing of widgets and iPhones, we

01:04:29.180 need to onshore manufacturing of medical supplies, syringes, vent, everything?

01:04:35.640 Yes.

01:04:36.920 And it's not only because China didn't handle it well.

01:04:40.440 I think probably most countries wouldn't have handled it well.

01:04:44.120 I'm not sure that the British did so much better 0.97

01:04:47.240 and they were loaded with a lot more information

01:04:49.260 and they were still slow.

01:04:50.900 But the point is...

01:04:52.480 Sorry, the British didn't lie to the rest of the world

01:04:55.420 about the extent of the deaths, the infections, etc.

01:04:59.780 I hear you, I hear you.

01:05:00.900 And we can talk about that.

01:05:01.920 The first point is that China doesn't even know 0.89

01:05:05.560 how to produce accurate data

01:05:07.120 because they basically...

01:05:08.920 I remember a policymaker in China said to me,

01:05:11.960 would you like to know next year's GDP?

01:05:13.560 because I have it here in the drawer. They don't even know how to gather data. It's like a

01:05:19.540 Western magic art that they don't really get. They just, you know, it's a political process.

01:05:25.240 So the fact that we even trusted their numbers is kind of our problem. But we're leaving that

01:05:29.360 aside. The main thing is what you're talking about is a trade-off between efficiency and

01:05:35.760 resilience. And for many years, we have gone after efficiency and cheaper prices, ever cheaper

01:05:42.920 prices that that was our driver now we're faced with this reality that resilience is is interfered

01:05:50.080 with by that and i'll come i'd like to use the example in formula one racing it's a constant

01:05:56.600 race between resilience and efficiency and what you're doing is you rip that car apart every

01:06:01.600 single day and you try to shave one gram of weight off of the thing so that you improve its chances

01:06:09.020 of winning. But that one gram may be the thing that breaks the piece you're working on. So it's

01:06:15.100 either correct or catastrophe, right? You're on the borderline all the time. Well, this is where

01:06:20.880 we are with the economy. We chose efficiency, efficiency, efficiency, and we shaved off that

01:06:26.080 extra gram of cost by outsourcing it to China. And now we see a break. And therefore, now we're

01:06:32.300 going to have an emphasis on resilience. Now, what does that mean? That means inflation. That means

01:06:36.620 higher prices. It means you say I'm willing to pay more for a British sourced product or an

01:06:43.140 American sourced product so that I'm sure to get it than I care about its reduced cost. And that's

01:06:49.960 another channel through which higher prices begin to worm their way forward. Now this in the light

01:06:55.960 of the current president, let's just keep in mind who the current president is. The current president

01:07:00.520 United States is a property guy. Property guys make all their money on inflation. They love

01:07:07.740 inflation. And so what is his inclination going to be? He's always going to be, we should just

01:07:16.140 have more debt. And the way you deal with the debt is you basically inflate and that's okay.

01:07:23.260 And by the way, inflations, they do tend to make asset markets go up, which means stock markets.

01:07:28.920 And I would argue we've had that inflation has shown up in recent years as higher asset prices, and everybody loved that part about it.

01:07:37.480 And they ignored the fact that a consumer had to go from 1% inflation at the time of the financial crisis to, say, 2.5% at the time of the COVID crisis.

01:07:46.800 And that just sounds like nothing.

01:07:48.080 But to Jim's point, that's a ton of inflation that lets you completely erode the debt you owe the world.

01:07:55.480 and the U.S. is particularly privileged in that

01:07:58.100 because everybody's still willing to buy dollars

01:08:00.160 from the states, even though we behave this way.

01:08:02.540 And by the way, we have behaved this way

01:08:04.140 throughout history because how do we pay

01:08:05.900 for the American Revolution?

01:08:07.720 On inflation.

01:08:08.960 How do we pay for the Civil War?

01:08:10.880 A much bigger inflation.

01:08:12.420 How do we pay for Vietnam? 0.94

01:08:13.820 Another inflation.

01:08:15.140 And how are we gonna pay for this mess?

01:08:17.260 On inflation.

01:08:18.400 And so that's why I said at the opening,

01:08:20.540 I think that we're heading into inflation.

01:08:22.740 So then the question becomes,

01:08:23.980 what's the speed and magnitude of that thing and and i agree with jim usually great inflations are

01:08:30.320 preceded by a puff of deflation and whether that lasts a year 18 months two years i don't know

01:08:37.800 but we have seemingly set the stage for prices to begin creeping up and for people to say again

01:08:45.260 it's a psychological phenomenon to say you know like in my world i have people companies are

01:08:50.280 saying, you know, the Chinese drones may be cheaper, but I'd rather buy British. Or the 0.94

01:08:55.920 Chinese drones, you know, maybe I can buy them, the supply chain's there, but I'd rather work 1.00

01:09:01.320 with someone who's closer and speaks English and can work with me to produce what I really require

01:09:06.780 for my business. That means they're telling me they're willing to pay more for this. And I think

01:09:12.460 they'll pay more for these things now that they go, I need to be digital and I need to not travel.

01:09:17.480 I need to be more localized, not globalized.

01:09:20.360 So in this sense, it all comes together to form a full circle that what Jim and I have

01:09:27.800 written about inflation, which everybody says is a dead duck and never coming back to life

01:09:35.180 is distinctly quacking in the background.

01:09:39.000 Fantastic.

01:09:39.800 And I think we've come to the end of the interview.

01:09:42.660 Well, before we do, if you guys have another five minutes, Jim, I want to, I know you're,

01:09:47.040 I think it's fair to describe you as a China hawk, if that's a reasonable description.

01:09:53.960 What do you think will be the implication on the U.S.-China relationship and actually

01:09:59.840 the kind of the way that the rest of the world or perhaps the Western world relates to China

01:10:04.900 going forward?

01:10:06.100 Yeah, I don't think on a hawk-dove spectrum.

01:10:08.880 I think on a realist idealist or ideologue spectrum with the ideologues and the idealists

01:10:14.840 getting it wrong.

01:10:15.560 um so uh so china uh there's very good there's visual uh video uh anecdotal evidence that while

01:10:25.740 the virus was raging in wuhan they put live people in body bags and cremated them in other

01:10:31.000 words the the bags were still wiggling and screams emerged when they went into the crematorium

01:10:35.040 because they expected the people to die and they said why waste beds and resources they're going

01:10:39.840 to die so just throw them in the furnace which they did and they didn't care uh they also have

01:10:44.120 large concentration camps in Western China where they round up people on a religious basis or based 0.85

01:10:50.640 on their dissidents. They try to brainwash them, but in cases of failure, they strap them to a table

01:10:56.240 and do organ removal without anesthetic to supply an organ transplant industry. And then, of course,

01:11:03.760 those people die and they're sent to the crematorium. Also, something about concentration

01:11:07.280 camps in crematoria that should give people pause in terms of doing business with China.

01:11:11.660 And when Pippa said that Chinese quality is falling, I disagree because it was already rock bottom.

01:11:16.280 You can't fall from a zero base. 1.00

01:11:17.840 Chinese make garbage and they lie about it. 1.00

01:11:21.260 And why are globalists ever believe them other than the fact that they don't like America is very hard for me to describe. 0.99

01:11:28.020 So the point is, if you go back to October, I want to say 2019, Mike Pence's speech to the Hudson Institute.

01:11:39.760 and basically we declared a new cold war on china called cold war ii that's where we are um uh pippa

01:11:47.340 is certainly right about kenyan bracelets and fishmongers but let's talk about the pharmaceutical

01:11:51.180 industry turkey is not going to have a thriving pharmaceutical industry kenya is not going to

01:11:55.520 have a thriving pharmaceutical industry pharmaceuticals be in the u.s switzerland

01:11:59.160 and canada china can just china will hit a dead end because their inability to steal more

01:12:04.400 intellectual property. We'll grind this to a halt. And no one's going to want their stuff anyway. I

01:12:10.040 mean, the UK just took a huge delivery of testing kits from China and the National Health Service

01:12:15.760 and the laboratories rejected them within days because they said they don't work. Welcome to

01:12:20.320 the world of Chinese imports. So a ruthless, atheistic, murderous, lying society has lost 1.00

01:12:29.460 its place in whatever's left of globalization, you can have trade. It doesn't mean that there 0.80

01:12:35.600 won't be any trade. Of course, there will. Or the people won't go back and forth. Of course,

01:12:39.260 they will. But globalization is a byword for extended supply chains that basically rob

01:12:47.040 the United States and other wealthy countries of their wealth for the benefit of China. That's over. 0.77

01:12:51.940 um and uh just to kind of anticipate one question uh constantine you said um what what's coming or

01:13:00.720 what's next that no one's thinking about we well that's always our last question so let's sorry

01:13:05.280 i'll leave it to you not not my show you already started so you might as well finish jim what is

01:13:10.840 the one thing that we're not talking about and we'll get to pippa after your answer as well

01:13:14.880 and pippa should have the last word um so we've talked about the pandemic we've talked about the

01:13:21.640 economic impact we've talked about an economic way out which is inflation uh jubilee works but

01:13:28.500 i don't expect it to happen inflation works but it's not happening except as i described they'll

01:13:32.820 have to devalue the dollar and since you can't devalue it against other currencies because they

01:13:36.540 want to devalue also gold is your only numeraire gold is your only form of money that's not a

01:13:42.440 national currency and therefore it kind of stands there and takes it um so you know look for gold

01:13:47.700 at $10,000 an ounce sooner than later,

01:13:51.380 which has nothing to do with gold,

01:13:53.680 has to do with 90% evaluation of the dollar.

01:13:56.780 But what people are not talking about that is coming,

01:14:01.620 just to lean forward a little bit,

01:14:02.980 is social disruption, the breakdown of society.

01:14:08.100 People forget that the veneer of civilization

01:14:10.240 is paper thin and it's torn very easily.

01:14:14.300 And we're starting to see it fray

01:14:15.560 because of, and Pippa at the very beginnings

01:14:19.640 made a very profound point.

01:14:21.140 She said, averages don't mean anything

01:14:23.140 because they disguise the degree distribution.

01:14:25.300 She's absolutely right.

01:14:26.280 The averages will be horrendous,

01:14:27.860 but the reality for many people will be even worse.

01:14:30.720 So I would look for, you know,

01:14:33.780 we already saw it with the riots in France

01:14:36.780 and Champs-Élysées and Hong Kong

01:14:38.560 and Santiago de Chile and Beirut.

01:14:42.000 These were breaking out anyway,

01:14:44.140 and that's going to get worse.

01:14:46.560 And over to you, Pippa, what is the one thing that we're not talking about that we really should be?

01:14:52.880 We'd be very happy if it's on a lighter note, but you do whatever you want.

01:14:57.680 I know. And the thing is, I actually do see the economy that we're going to have. I do see,

01:15:06.020 I mean, as I'm talking to tech firms, I'm talking to investors, the world's biggest investors,

01:15:10.140 everybody is still having meetings they're making investments they're picking things that they think

01:15:16.300 will work well in the new world that we've described they're anticipating debt defaults

01:15:22.900 and figuring out how do i make money out of that so i am fundamentally optimistic we are going to

01:15:28.260 have an economy tomorrow it is being defined today and people will be able to participate in it but

01:15:34.980 they're going to have to change and people don't like change but this is going to force a lot of

01:15:39.660 people to change what they do and how they do it. And there's a lag. So I agree, we're going to have

01:15:45.160 a very tough period, especially for people who kind of fall through and don't have support and

01:15:52.220 don't have the backing of a good network and education and all sorts of things. So I think

01:15:58.260 we have a big social issue ahead of us. But the thing that worries me that we're not talking about

01:16:04.300 is something that happened in the run-up to World War II,

01:16:10.200 which is if you create enough dislocation,

01:16:13.620 and I'm not just talking economic dislocation,

01:16:15.940 I'm talking about the fact that, you know,

01:16:18.020 the United Nations considers it torture

01:16:20.540 when you're put into solitary confinement for 72 hours.

01:16:25.020 And now we have a whole society of people,

01:16:27.800 many who are alone, single, elderly,

01:16:31.800 even the young who are suddenly forced to spend a lot of time alone. And they're afraid and they're

01:16:39.440 worried. And so one of the things that happened in the pre-World War II period was people just

01:16:46.060 said, you know what? I just want somebody who will establish order. I just want somebody who's

01:16:52.560 in charge. I can't solve these huge problems. And there's a great book by Eric Fromm about this

01:16:59.400 called Escape from Freedom. And he basically describes the circumstances under which a very

01:17:04.540 authoritarian leadership was able to sow its seeds and you ended up with Hitler. Now, in the current 0.89

01:17:12.020 environment, Yuval Hariri, who wrote Sapiens and Homo Deus, he just wrote a really brilliant

01:17:18.680 editorial in the Financial Times about this, where he talked about the use of digital methods to

01:17:24.960 track citizens, like, you know, Google gives the information to governments, you can see where

01:17:29.800 everybody's been, and then you can track the virus. Great, but what kind of door does that open to a

01:17:37.120 more state-driven authoritarian society? And I think that this question about surveillance

01:17:43.440 capitalism, that's the word that we use to describe that, should be thought about now, because we

01:17:49.540 could very easily slip into a more authoritarian digital command economy that would diminish the

01:17:59.840 kinds of personal freedoms that we've fought for many generations to have and which we don't need

01:18:06.480 to lose just because we're having a moment of economic crisis. And you say no one is talking

01:18:13.620 about it. Actually, the last time you were on the show, you spent an hour talking to us about it. So

01:18:18.600 someone is talking about it thankfully and will continue to do that but thank you both so much

01:18:23.560 for your time it's been an absolute pleasure i just want to finish by saying that it's an

01:18:27.220 interesting time when you talk about winners and losers because i think most people particularly

01:18:31.360 in the west have never really lived through this particular people of my age but for me

01:18:36.020 growing up in early 1990s russia the concept that the world was one way and then overnight it was

01:18:44.200 another way actually is quite familiar uh you're both nodding people won't be able to see that but

01:18:48.800 you're both nodding and so there will be winners and losers and the people who who did well in that

01:18:53.520 time were people who adapted the people who were willing to to learn and to change their behavior

01:18:59.000 in the new environment so it's uh well it's been a depressing conversation but i think it's

01:19:05.460 there's also interesting times ahead uh but thank you very much both of you for coming back on the

01:19:11.760 show it's been an absolute pleasure if you enjoyed this conversation make sure you go and follow both

01:19:16.460 paper and jim uh on twitter we'll put all the links in they both have brilliant books out which

01:19:21.200 they've talked about a whole number of books and go back and watch the previous interviews that we

01:19:24.980 did with both of them absolutely and so thank you very much for coming on and we will see you

01:19:31.080 in a few days guys with another fantastic episode see you then

01:19:41.760 We'll be right back.

TRIGGERnometry - April 15, 2020

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

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