it was the government that was the big

buyer then you get everybody leveraging

up then you've got the problem do you

own Bitcoin right yeah I have some not

nearly as much as as gold the AI War

it's a war that no country can lose if

China or the US really lose this war

it's more important than profits we're

at a civil war internally and we're at

an international War simultaneously just

have people behave logically H maybe

that's too much to ask we hope

going all right besties I think that was

another epic discussion people love the

interviews I could hear him talk for

hours absolutely we crush your questions

ad minute we are giving people ground

truth data to underwrite your own

opinion what' you guys think that was

[Music]

fun Ray good morning good morning I'm

going to start off by sharing a couple

Stats today the US has $36.4 trillion of

federal government debt and GDP of 29.1

trillion giving a debt to GDP ratio of

125% and this ratio has climbed steadily

since the pandemic began in 2020 when

the federal government debt was 20

trillion and GDP was just 21 trillion so

since the pandemic federal government

debt has risen by 80% while GDP is

climbed

38% and steady inflation from the large

stimulus of money from both central

banks and the US governments caused the

Federal Reserve which is the US Central

Bank to raise interest rates driving up

the cost of borrowing and despite recent

efforts to cut interest rates again

markets have traded treasuries down

causing the long-term interest rates of

US debt to spike up to levels that we

have not felt since just before the 2008

Global financial crisis to keep the

economy growing the US government's now

running a nearly $2 trillion annual

deficit nearly 7% of GDP while paying

over a trillion dollars per year in

interest alone on just the existing

outstanding debt the Congressional

budget office the CBO projected last

week annual budget deficits are expected

to be equal to 6.1% of GDP through

2035 which the CBO noted is

significantly more than the 3.8% that

deficits have averaged over the past 50

years the national debt slated to rise

by nearly $24 trillion over the next

decade a sum that does not even include

the millions of dollars in additional

tax cuts that the current Administration

may put into place is the US headed for

bankruptcy what are the mechanics of the

looming crisis ahead and can we avoid it

to talk about this what I consider to be

the most important topic in the world at

the moment is Ray Doo who I consider to

be the preeminent thought leader on this

matter in

20121 as everyone knows Ray published

The Changing World Order why Nations

succeed and fail I declared it the book

of the year and I thought it was the

most precient and important thing that

everyone should read and unfortunately I

feel like many in politics many in

government have largely ignored some of

the preent warnings shared in that book

this week Ry is releasing a new book

called how countries go broke in which

he analyzes and shares his studies on

this particular topic and I'm really

excited for Ry to join me here uh today

Ray thanks for being here thanks for

having me here to talk about this

important

issue well so so let me just start by

asking why you wrote the book why you

putting it out now and maybe we can just

talk about the timeliness of all this

from your point of view through my

roughly 50 years of being a global macro

investor I would U keep to myself and

then now I'm 75 and I want to pass along

the things that have helped me and um

the bond markets Global Mar markets I've

been involved with all over the world

for a long time and there's a mechanical

process which is not

understood about the question when is

enough debt when does it matter how does

it work

mechanistically and I feel compelled to

get that understanding out now how do

the mechanics work for countries for the

United States for other reserved

countries I want to make sure that's

understood thanks for doing it and the

basis of the analyses is your work at

Bridgewater and outside of Bridgewater

is that right you you've kind of

gathered quite a bit of material

together for this book and you've shown

a lot of historical context maybe just

share a little bit about where the data

came from and and how you've kind of

conducted these studies over what period

of time you know bridgew and I up until

my passing along

Bridgewater uh maybe a little over a

year ago has been indistinguishable you

know one the same and uh so and over

through that period of time we've been

involved in the markets I've been

involved in the markets and thinking

about such

things so the data is largely public

data that's available for

anybody we just you know collect it from

all different spots and go back through

history like I did in changing world

order we we were in some cases in the

changing World Order because we were

dealing with data that was hundreds of

years ago we would go through archives

pull data out the data is all available

to everyone and so I think that's really

important because this isn't just an

opinion piece you're writing as an

analyst you're sharing quite a lot of

empirical data that's publicly available

that anyone can go access and you're

taking a look at that data and saying

this is the pattern this is the trend

that we've seen historically it has

repeated over and over again I think you

make a really important point at the

front of the book only about 20% of the

750 currency debt markets that have

existed since 1700 still remain and all

of them that still remain have devalued

through the mechanistic process you

describe in the book that's really

important to note you know we all think

that we have this kind of privileged

position in the United States and the US

is different and this time around is

different but you highlight how so often

everyone thinks they're in a good place

and then the cycle repeats you speak

about and and the primary premise of

this is what you call the big debt cycle

and you highlight that the big debt

Cycles typically last about 80 years

they're more easily forgotten than the

short-term debt Cycles which last about

six years on average plus or minus three

years you say and we're now 12 and a

half cycles of the short-term Deb cycle

since 1945 so we've kind of been in this

big debt cycle in the US for about 80

years at this point but maybe we could

start by talking about what the

short-term debt Cycles are that that you

highlight make up the long-term debt

cycle yeah and I I want to emphasize

just based on um what you said that

they're mechanical they can watch you

can watch it you can do the calculations

so if you read the book you can see

these it it'll either make common sense

to you you see the con calculations uh

to me it's it's almost

like the circulatory system you know I

think

that credit is like blood that brings

nutrients to all of the parts of the

body and it passes through a system that

is like

arteries and then credit creates

debt and the key question if it's

healthy is does the debt create an

income that is more than enough to

service the debt and that's like I don't

know eating vegetables or something it's

a health process and if not

credit begins to build up this debt it

begin begins to become like plaque in

the arteries and you can measure it just

just like you could measure it in the

arteries and you can see how it

constricts that circulatory system

because as credit and Debt Service rise

you see that it eats up more and more

consumption because you have to spend

that so you could watch the

government do that you can see that how

interest is eating up and Debt Service

is eating up and that means there's less

money and then you also can see how

heart attacks take place and they're

very you know economic debt heart

attacks and the way they take place is

by looking at the supply and the demand

you if the if you have a lot of debt and

then you have a large supply of debt

that has to be bought somebody's got to

buy it and so that when you get to the

point where there's debt risks there's

not only the new Supply that has to be

offered but there is the possibility of

holders of those debt assets selling

those debt assets and so the supply

becomes

overwhelming relative to the demand and

then what that means is it's it's the

same a dynamic as it for the government

as it is for an individual or a company

except the government can print money so

when that Debt Service burden rise or

there's a big Supply demand

imbalance if the government most

importantly the central bank doesn't

print money buy it then there has to be

a rise in the price of the debt to

constrict borrowing and that borrowing

constricted that credit that is not

going to come will weaken the economy

and and cause bad economic conditions

and so they can let that happen or they

can print money and buy the debt and

monetize it when they do that that's

inflationary and it lowers the value of

the debt in either case you don't want

to hold that debt because either there's

a a Debt Service problem or there's a

depreciation you get paid back with a

greater Supply and

cheaper money and that is the Dynamics

and that's the mech mechanism and

because it can be measured it can be

seen in all countries you can watch it

happen

and so like you're going to your doctor

you can measure these things you can see

them and you can know what needs to be

done so yeah I I want to

just talk about two things real quick

one is just to provide an analogy for

folks watching or listening on what it

means to have interest levels be so high

relative to one's income so if you know

the United States this year is expected

to service debt with over a billion

dollar of interest payments on the

outstanding US Treasury bonds and the

government's only going to bring in just

under 5 trillion of Revenue so nearly a

quarter of every dollar that's being

collected by the federal government is

going out the door just to pay interest

on the existing debt so in order to fund

new programs the government needs to

take on new debt and the folks that are

having to issue that cash to the

government end up saying wait that's

pretty risky now I need a higher

interest rate and over time that

interest rate climbs and then there's

this separate entity called the central

bank that comes in and says well I'll

buy the the debt ultimately to give the

government the ability to continue to

operate or give the economy the ability

to continue to move and the Central Bank

when you say the word monetize you mean

the Central Bank ends up when you say

monetize the debt that means they're

buying the bonds they're buying the debt

that's being issued in the market is is

that the right way to kind that's right

they're they're essentially making the

money up right and buying it so there's

Central in in the US it's our federal

reserve and the US government are the

two players here and the Federal Reserve

ultimately would in this model and

historically obviously during the

pandemic and during 2008 they would go

into the market they would buy bonds by

issuing cash that they're making up

effectively very well described and you

know a good example was in covid money

there were two waves the first wave was

the covid wave in which they put out um

the government wanted to and actually

did deliver a lot more money to people

companies then there was a loss of

income so they first wave a lot of that

money where did they get the money from

they had to borrow

it the central bank then came in and

lent them that was the primary then the

second when when President Biden was

elected there was a second wave of that

after covid it was most mostly like a

universal basic income thing in other

words hand people money and we're going

to be better off and so they handed

people money doing that same exercise

again and so naturally all these people

got a lot of money and so they put them

they deposited them in Banks they went

out and spent and so on and it therefore

shouldn't be surprising that we had a

big wave of

inflation and we also had a lot of banks

buy uh government bonds which they lost

a lot of money on and that was that

crisis so that's how the mechanics work

right and when that money gets printed

it finds its way into the economy and

the money supply goes up and the way I

kind of think about it and you've got a

nice image in your book that I really

appreciate here's a kind of overview of

the big debt cycle that you talk about

which is there's small expansion and

contraction waves as as debt comes into

the market debt should drive

productivity but at some point you

accumulate so much debt that you can't

drive productivity anymore and then you

effectively have to monetize the debt

and everything gets devalued but as I

kind of think about the introduction of

money uh into the economy the increase

in the money supply I always tell people

and everyone screams oh the markets are

going up the markets are going up but I

say the markets are going up in dollar

denominated value and there's more

dollars so you know the nominal meaning

that the actual you know index might go

up the the NASDAQ might go up the the

Dow might go up but if you've got a lot

more dollars a dollar is worth less the

real question is has your purchasing

power gone up have you actually

increased your net worth as the markets

go up and when you do the studies it

turns out that inflation goes up meaning

the cost of everything goes up when you

pump money into the system so of course

it looks like the markets go up of

course it looks like asset values go up

but ultimately if everything's going up

your purchasing power goes down it's

almost like I tell people you have a 100

clams and you use seashells and you're

using seashell to buy stuff and then you

know there's only five things to buy now

if you have 500 seashells to buy stuff

the price of the things you're trying to

buy goes up because everyone's got more

seashells doesn't that ultimately kind

of describe what happens as the money

supply goes up the inflation drives the

the purchasing power down of everything

and everyone kind of gets inflated away

very well said

Dave you can't get richer by making

money you

know and the Val the purpose of money

purchasing power is what matters at the

end of the day what your money's worth

what you can actually buy with it that's

right and there are two purposes of

money which is as a medium of exchange

and a stor hold of

wealth

saving is very important and if you

don't have savers who have it as an

effective storeold of wealth then you

don't have a viable long-term credit

Market yeah people don't understand that

the bonds become a bad deal you need

that like any Market place you need

purchasers and

sellers to be able to have an efficient

NE negotiation to achieve a balance

without the government coming in and

printing a lot of money and messing up

make a me big mess it's like they made

very severe negative real rates right

and we know what happened with the

negative severe negative real rates and

the government while they were making

the significant real rates it was the

government that was the big buyer okay

so the government takes it on and they

make negative rates so what happens is

then you get everybody leveraging up yes

then you've got a problem and so that's

how that's how it works and it's a

global issue it's not just an American

issue well that's what I want to get to

that in a minute because I want to talk

about the relative strength of the

United States and how this plays out

globally firstly in your book you

describe the big debt cycle following

five stages you call it the sound money

stage when net debt levels are low and

money is sound and the country is

competitive and then you talk about the

debt bubble stage where debt and

investment growth are greater than can

be serviced from the incomes being

produced and then you call it the top

stage the bubble pops and the credit and

debt and markets contract and then this

d leveraging stage where the Central

Bank comes in and they start buying all

the debt and issuing more cash and the

inflation goes up and the value goes

down and then finally the de the the big

debt crisis recedes and we start over

again but you speak about in the top

stage a debt crisis can you describe the

debt crisis you know like how do we talk

think about the mechanics of what is a

debt crisis where are we in the United

States today with respect to facing a

debt crisis and what are the the red

flags that you look for first when

there's a lot of borrowing to service

debt there's what's

called you know the um death spiral is

what

we typically refer to that when a

company has it the government can have

it too and that is that Dynamic where

there's uh too much debt and you have to

borrow to service the debt and then

people investors know that that's a

problem to service the debt so the

credit is worse and that means that

interest rates go up which is the worst

thing that can happen to a heavily

indebted entity and then as they rise

you get that spiral you need to borrow

more and so on

so that is also noticed when then there

is uh the the key spot is when The Debt

Service becomes large and then like the

real red flag the biggest red flag is

when there's then the selling of the

debt beyond the new Supply but the

holders of it sell it and then you could

see it in the market action because you

can see that long-term interest rates

rise while short-term interest rates

aren't rising or go down so it's the

free market losing its desire that you

have a balance problem in the free

market out there um and then you start

to see that when the currency then

depreciates particularly

relative to gold or Bitcoin

or um other

assets a and sometimes other currencies

but

typically these things happen broadly

speaking together in which all

currencies go down relative

to other things like gold Bitcoin or or

tangible values and so that's what it

looks like that's that edge then you

start to

see uh you know the dynamic so you

either see the Central Bank comes in

very

quickly and does the buying and um and

when that happens you see then the

currency um to take a uh Japan for

example if you were a holder of Japanese

bonds you lost about 80% of your money

relative to gold and about 60% relative

to us bonds because you received an

interest rate that was 3% less than the

corresponding interest rate in the

United States so you lost the interest

rate and interest rates in the United

States as you know were very low

relative to inflation for most of that

time plus you had a depreciation in the

currency so you lose you know you lost a

ton of money in the debt that way

because the Central Bank came in and

printed the money it's very bad for

holders of the debt and it's a basic

thing you don't have to even get too

technical it's just a supply demand

thing you know well so are we seeing

that in the US today so the Federal

Reserve cut interest rates as of a few

months ago as they've cut interest rates

the market has sold off us bonds rather

than buying them and which is normal

when you know rates go down the price of

bonds is supposed to go up and uh we are

now

seeing r rates actually climb in the

market relative to where they were while

the FED has been cutting rates is is

that a dynamic that's a red flag for you

well gold has gone up and um the Bitcoin

has gone

up and it's so that is that kind of

Market action I'm talking about and

you've seen it in other countries too

you uh the UK very classic the dollar

has been a relatively strong currency

but not measured in gold or Bitcoin

right so all currencies have gone

down and then you've had that Dynamic

you're talking about and you see it also

in like Sterling is a good example

Sterling is gone down while UK Bond

rates have gone up and central banks

have held it steady and so you see it in

the market action you also see it in

terms

of who the buyers are and who you've

seen central banks for example and

Sovereign wealth funds shift to have

lesser amounts of um debt bonds and so

on at the same time as they've

accumulated gold or hard

values now gold is the third largest

reserve currency by the way dollars um

Euros gold and then Yen

so yeah you're seeing that Supply demand

shift and it's it's um partially for all

the reasons we're talking about and also

partially because of issues like

geopolitical issues countries sometimes

worry about

sanctions countries uh China is worried

about holding bonds you would us bonds

um Japanese bought a lot of bonds yeah

even as a percentage of portfolios

the bonds themselves have become such a

large US Treasury bonds and US debt has

become such a large part of the

portfolio that it's even from a

portfolio rebalancing point of view you

don't want so much concentration all of

those factors are in play for the supply

demand and bonds that's why I emphasize

this you have to look at the supply and

demand of bonds you've got a table in

the book where you look at central

government debt level to uh deficit

level across these uh these major

markets so you've got the US Japan China

France Germany and the

UK and the US is running a deficit 7% of

GDP so the federal government is

spending more than it makes at a level

that's about 7% of the total size of the

economy in the United States which is

the highest of all of these these

industrialized markets second is France

at 6% third is the UK at 6% as well and

then China at

5% and then these these these countries

are all

approaching

100% debt to GDP Japan obviously is at

215% so from a from a relative

perspective one of the points that I've

heard a lot of people make is everyone's

got this problem everyone's got rampant

spend

everyone's got Rising debt levels

they're increasing their debt levels to

pay the interest on their existing debt

and to stimulate their economy the US is

the best strongest currency amongst the

group that we just showed why would

anyone trade out of our currency I guess

from a market perspective rate where

else do people go with their worth their

net worth where do they transfer their

value into if it's not

dollars and doesn't it have to be some

denom ated currency and isn't the US

ultimately the best maybe you can talk

about what these alternatives are gold

Bitcoin elsewhere but is that realistic

at scale like is there enough of gold

enough Bitcoin for everyone to transfer

all their net worth into those assets

versus hold some currency denominated

asset maybe we can just talk about that

Dynamic of how do I make the decision

about where to store my value where do I

store my network first of all um the

United

States and countries like China you you

see that U particular Dynamic China um

Japan they're all educational and that

means that the bonds the debt are Bad

Assets so then what where you store it

is in those assets

that benefit rather than suffer from the

reduced value of money and the U the

buying of it

so and obviously

you look at money and what is an

international money that is why gold is

in and then there's a question of you

know Bitcoin or others are a

conversation we can digress into that

but it can be ideally it's International

it's

mobile ideally it's relatively private

so it's relatively secure because in

history there's the value part of it and

then there

the confiscation part of it too in some

fashion or another that

confiscation can easily take the form of

taxing on holding it right for example

one of the problems with real estate B

besides the fact that it doesn't move so

it's not

internationally nego you know you can't

use it uh

internationally is it is a readily

taxable asset it's there it's there and

therefore they're going to get you they

won't take it and you can you can get it

so we have to understand that taxes and

confiscations are one and the same

because during a time of of of a debt

crisis and and I want to get to this in

a minute you talk about the four actions

that can be taken tax or taxation

austerity where governments cut spending

restructuring where the debt gets

restructured and then the Central Bank

buying the debt obviously this notion of

Taxation it's always played a critical

role during these moments and assets are

sees or tax in different ways and

transferred away what about Commodities

and how do commodity markets do non-old

is there a difference in commodity

markets hard soft Etc it's so it's so

interesting I've you know studied

history and I've of course I've been

through a bunch of these like the 70s

Commodities ideally also those that

might do

well if the economy doesn't do well

because you're dealing also with the

inflation environment

uh is um is are always gone to you don't

want economically sensitive Commodities

as much but and if unless the sometimes

maybe the economy will do pretty well

but there's usually that it doesn't but

in like in the Weimar Republic Give an

example rocks were used as store holder

wealth now that sounds really funny but

um they were considered building

ingredient you know in other words the

Rocks were used to build things with and

so they would store the money in rocks

they but they but any asset I should go

store a bunch of GPU chips in my garage

h100s from

Nidia technology devalues them the new

technology devalues them right so that's

the question what is it it is those

things that can't be devalued

Commodities by the way in real terms all

Commodities every single commodity in

real terms over long decline long

periods of time have declined because of

productivity yeah well every

commodity and has declined in real terms

because of productivity so you would

like a productivity producing assets

that cannot be taxed can move around

from place to place so equities of a

certain type tend to do that that's why

currency

depreciations are associ iated with that

combination of things currency

depreciation lowering interest rates and

producing money causes Equity assets to

go up not necessarily in real terms like

in the 70s they didn't go up in real

terms they went down in real terms but

it is those kinds of stor holds of

wealth that can't be taxed as easily

that benefit from inflation rather than

not right okay the purest play is gold

because gold can be transferred between

countries it's used by central banks as

a reserve so central banks will go to it

they are going to it they'll hold it it

can be

private right more so than crypto cryp

is very easily taxed you know in other

words the government knows where it is

and who's doing what and and so on and

it's also an

effective asset to tax but it has you

know benefits too it was very

interesting when we had negative rates I

was with a group of the central Bankers

in a discussion of how Negative they can

have rates and they described that they

can have negative rates only to the

extent that there's not enough capacity

for paper money to be

stored so they estimate it was funny

actually for that they could have over a

short period of time up to 400 basis

points negative rates that's crazy

because there wasn't enough they

calculated how much Vault Storage Bas

there was and then they calculated that

they would produce more Vault Storage

Space because it would be profitable to

do that and then they that and they said

and the good thing is we can tax it okay

yeah because if you have a digital

currency you can tax it yeah do you own

Bitcoin right yeah I have some not not

nearly as much as as gold I'm you know

that's kind of my diversifier I try to

find what are the I have to have some

I'm I'm a but I'm a gold guy much more

than I am a yeah I'm like I'm a

productive asset guy I like owning

businesses that make stuff so in this in

this environment Where do I own that's a

productive asset that's a business that

can still see its revenue and its

incomes grow as this inflationary effect

and this devaluation occurs as we get

through a debt crisis like this what

would be the best kind of productive is

it a mining business is it a commodity

trading business what's the right I'm

with you so you know let that chart that

we showed in the beginning has this line

productivity going up you know and I

think that we're in a um

yeah that's it and it and it and it

tends to Compound on on itself and I

think that that's where Ai and that is

fantastic but it it depends where you're

referring to AI I think the super

scalers in this

world have risk issues be you know you

think

by you know the um the super scales of

or uh Nvidia or or you know those I

think that the tech War certainly

productivity I'm with you man but you

want to invest in productivity but

there's disruption great disruption yeah

that's going to take place and there are

going to be the disruptors and the

disrup and it's not necessarily those

who are producing the vehicles but it's

those who are implementing and changing

as a result of having their big impact I

think that like the the tech

War for the AI War it easily is I think

it is

actually more important it's a war that

no country can

lose okay because it's more important

than

profits if you lose if China or the US

really lose this

war it's more important than profits and

so you have to play that

war that way and it could be like

electric vehicles or or more in terms of

Chinese electric vehicles and the like

you can produce them so I don't think

and I think there's s such expectations

I think we are going to see

applications like I think the

Chinese are a bit behind in the chips

but they're ahead in the applications in

terms yeah did you see the Deep seek

announcement this weekend and

obviously that was known for a little

while now yeah and so I think you're

going to even see well the Chinese play

is going to

be chips very inexpensive chips embedded

into manufactured goods you'll see

robotics so you're you're going to see

Chinese are unbelievably in making

things

inexpensively terrifically they own 33%

of all World manufactured goods which is

more than the combined

us um German and Japanese manufactured

goods Chinese produce more

so you know you're going to see that

type of competition and it may be it's

like solar panels or something you know

right it's profit doesn't matter so you

have to go where there's I I think that

where there's productivity and

Innovation and disruptors to be

essentially long those who are

benefiting themselves through usage or

creating the applications that are

having the big effect is certainly one

thing but you also have to look at

different countries and places and

things um most importantly is price I

think a lot of invest make the mistake

of thinking I want

to buy good things you know that's a

great company but a great

company that gets expensive is much

worse than a bad company that's really

cheap totally so you have to look at

pricing this is all part of the cycle

you know everybody says that's great and

it's going to be great for the future

and and like you know like the internet

and come it was it's great okay but the

price has to be paid attention to and

I'm particularly concerned of those

companies at a time when we are in a

situation with the interest rates

operating as we are in other words this

looks qu a quite a lot alike like 1998

or 99 where the assets of the the you

know the new hot thing the productivity

grow driers yeah yeah so yeah are hot

the prices are high yeah and you have a

rising interest rate environment that is

a classic issue so we have to pay

attention to the interest rates and the

pricing of those assets and you have to

think where is next the other thing is I

think diversification is very very

important because everybody's leverage

long everybody thinks you know

I'm going to buy assets that are going

to go

up and I'm and if they're good I'm going

to do that in a leverage way so the

world is so leverage long you have to

pay at least as much attention to

correlation so that's why when I look at

you know something like gold or these

uncorrelated assets it's interesting as

you add it into the portfolio it reduces

the risk of the portfolio so you have to

pay attention to the

uncorrelated Assets in that kind of an

environment and those could be

geographically looked at or but so

that's part of portfolio

construction well so there's no simple

answer for the audience on what to buy

but I do think this portfolio point of

view in the book you actually talk about

having 10 to 15 uncorrelated bets at any

given time and I I would imagine in your

context truly uncorrelated whereas most

folks buy us equities and think that

they're in different sectors but

obviously there's a great degree of

correlation when you're buying a bunch

of us equities Equity prices just to

keep in in mind there many

times Equity prices in inflation

adjusted B therefore purchasing power

terms have declined 60 or

70% yeah that's incredible that's an

incredible fact for folks to take in so

when you adjust for the the value of

your dollar Equity prices have really

taken a hit um even though the Market's

gone up and I hear

and from from

1966 y until

1984 you had a negative real return I

think this is super important rate I

just want to double click on this and

and then we'll talk about the us but a

lot of folks talk about markets going up

without taking into account what is the

denomination that those markets are

measured in in this case US Dollars and

when you look at the value of your US

dollar and you look at the market going

up even if you bought equities what you

can now turn that dollar into has

actually not gotten much stronger folks

have really taken a hit and I think this

is super important yeah so I just I'm

glad you're uh bringing up I think it's

super important too and I just want to

emphasize you have to look at your

returns in real

dollars what can you buy okay or any and

purch what can you buy yeah it's funny

because I watch the value go up and down

even the currency go up and down and

it's a distorted perspective it's like

being on a boat that's going up and down

and judging the land to be volatile yeah

absolutely okay I want to come back to

the United States and I want to talk

about your point of view on measures

that the United States is going to have

to take or should take going forward in

order to avoid

a more cataclysmic debt crisis in fact

you use this term often the beautiful

deleveraging that's possible when

there's a great deal of debt and a

country faces a debt crisis that there

are several actions that can be taken

together to try and resolve the debt

crisis in a way that is least harmful

but I first want to talk about the

measure that you share of risks so first

is you you show what you call your risk

gauge for us long-term government debt

and so you've got this risk gauge on the

long-term and the risk gauge on the

shortterm for US Government debt on the

short term you say US Government debt is

a 0% risk age there's no risk in the

near term the economy seems fairly

balanced but over the long term your

risk age is 100% And then you follow

that up with an analysis of the Central

Bank and you say the Central Bank

short-term 0% risk age long-term 46%

risk age and nearly the highest you've

seen ever but maybe you can just say

what's the the composition of these risk

ages and what does this tell us and then

we'll come back to the actions just to

be clear

100% does not mean 100% probability of

of it happening it means 100% that's the

highest that it's ever been you know

it's it's at the ma kind of Maximum but

just yeah just to describe it the longer

term risk age is taking existing amounts

projecting those two things that I've

described before the supply demand and

the um uh The Debt Service creating the

squeeze so think of it as going

into you you know your doctor and

having him uh give you your test results

and how much plaque is in there and what

the what it's looking like and how you

did on your stress test and and what

your arteries are looking like and what

your condition is that's what the first

measure is the second is you're in a

seizure in other words now so that

second measure of the Deb is

exhibiting okay it's now happening yeah

and happening means things like you're

seeing the selling you're seeing the um

the the spreads widen in other words the

interest rates Rising on the long end

without the short end you're seeing that

the central bank is put into that

position of being a you know having to

make the difficult choice of coming in

there and monetizing everything very M

and then credit problems and debt

monetization because you're in the

middle of it that's what the that's what

the one on the right means so what we

have is if I'm speaking to you as the

government policy makers your condition

is is very bad right okay you're not in

the middle of it now you in other words

we're not seeing that particular Dynamic

transpire but uh you have to change your

diet you have to change your behavior

you have to maybe have a stent put into

an equivalent so you asked about what

that is

okay okay here's what it is let me let

me pull up this chart for you real quick

Ray so I I just want to highlight the uh

CBO projection right so this is the US

government's debt as a percent of the US

government's Revenue which you you

indicate in your book is more important

than debt to GDP you've got to look at

the actual Revenue being generated by

the government and how much debt they

have and the CBO highlights this

expansion to 00% meaning the government

is going to have a debt level that's

seven times the income it's making every

year over the next uh I believe this is

a 10-year um chart and you propose a

bunch of actions that can keep it flat

over the next 10 years which is the

basis of the book is there's a series of

recommendations in the book I just want

to kind of voice over again you

highlight that there are four actions

one is increased taxes so obviously

citizens are going to lose asset asss

and and lose income uh so there's a loss

to the citizens when when this happens

uh cutting spending or austerity and

there's obviously a loss of services by

the government provided to the citizens

so the citizens are going to lose

Services they're going to lose

benefits a central bank buying the debt

which will typically increase inflation

because more money will come to the

markets and everything costs more so

that's another form of Taxation where

the value of your dollar the value of

your assets goes down and then this kind

of restructuring of the debt where again

the currency gets devalued and everyone

loses things and so I I just wanted to

kind of walk through that maybe you

could frame this up for us a little bit

sure like that chart if you go back to

that

chart think about that chart as being

you know your your

plaque so to speak in in in the arteries

and The Debt Service so you could

calculate all those numbers and you you

know what the picture looks like um and

that is a stability and so number one

is I call it my 3% solution here the

solution is you must cut the deficit

which is the equivalent of bonds selling

down to 3% of

GDP and it's 7 and a half% expected now

different people have different views as

to how to cut it I forget it I don't

really care just you have to have a

unified agreement everybody in Congress

and the president and so on should

pledge to do that and then the question

is how to do it but they shouldn't they

should know that number that's about 900

billion a year yeah roughly and that

means cutting it as you point out by

cutting the deficit by more than half

from where it sits yeah well it's yes

because it with the continuing the uh

the tax guts strum tax guts uh that's

that'll be 7 and a half % and you want

to get it down to

three and and it sounds Draconian but we

did that kind of uh change from

1991 till

1997 and the key there are three keys to

this uh do it soon fast when the time is

good when the economy is good in other

words do it now now okay the temptation

is going to say well we're going to ease

into this and we're going to be there

and we're going to do it in 3 years from

now but if you have a bad economy you

you cannot do it okay and that's the

that's the worst so we have the best

economy and the sooner you do it the

more you're going to do it so 3%

solution do it now and recognize that

you have to De deliver it so if you're

having let's say

Cost Cuts in government you have to own

the number so everybody's got to pledge

3% now the the be arguments as to how to

get there but you have to own the number

um so much so that you'd say if it's not

3% throw me out of office because I've

got to all I've got to deliver that

number so if somebody if um government

cost expense cutting you know and is it

really the two trillion number is it the

one trillion number is it half a

trillion dollar number we all throw

those numbers around you got to own the

number and you got to get to three and

you can't make it any one

thing right but you also have to realize

like if you did it um spread out

nothing's going to be that big so I mean

nothing's going to be

insurmountable that would mean I I go

through the numbers in the book by the

way this book is online free and

everybody everybody can get it I read it

this weekend I have a I and I and I used

a highlighter for the first time in a

long time Ray so there was a lot of

great content to pull out of there I

might uh use AI this being put out not

to sell books anyway it's all free so

everybody can go through the mechanics

but the main thing is you take the

things you can cut from or build from so

what can you cut from and you look look

at government expenditures roughly 70%

of government expenditures are you can't

cut so so it comes down to a small

percentage that you can cut but you you

find out how much can you cut so the

important thing is

3% the other thing about it is to

realize that if you make those

moves the bond market and what it will

benefit you see the and so interest R

interest rates will go down right and

interest rates going down interest rate

expense is most important so when the

president does a interview the other day

and he says we need to get them to cut

interest rates by 1% and he's speaking

about the Central Bank he's effectively

trying to force the central bank or coer

the central bank to take rate action

when if we were to cut spending I think

this is so important if the federal

government were to cut spending

significantly and quickly the market

would naturally react to lower rates

that's right okay I think that is so

important for everyone to hear he's

right if you look at the my calculations

you need 100 basis if if you get a 100

basis points cut in rates that's

equivalent to significant cutting in

spending so he's right but you but if

you do that without

the other parts you're going to take

money away you're going to make it less

desirable to own these things these

bonds and because that's that's going to

be a problem where if you do these

things together they can support each

other so in other words fine cut it from

spending and by the way Ray the longer

we wait the more interest accumulates

because it's at a higher rate the more

the debt accumulates and ultimately this

is the arithmetic death spiral that you

get into the longer we wait the more you

have to cut in the future to get out of

the hole it's not linear it's a

nonlinear cutting that's needed to get

So the faster you do it the less you

have to cut right I think that is so

important let me just say that again the

F for any person in government listening

the faster you cut the less you have to

cut yes and you can do it in a

manageable way you know what a bit here

a bit there these bits add up and if you

don't you're going to have this Arc of

compounding so let's talk let's talk

politics for a second is Doge and the

concept of Doge enough or do we need

legislative action here and then I want

to talk about the politics of the

legislative action needed given like the

election Cycles there's a combination of

a question it's not just Doge it's a

matter

of less

regulation productivity

changes that might come from AI which

then have translate to profits that

might be capital gains profits they

might be

profits and all of that and

so but it really you know when I look at

it it

looks it looks very tough and and but

there's also you know Revenue also

tariffs produce Revenue so but yeah

people think um on the on the tariffs

people don't think of taxes as inflation

but taxes are inflation right because

you it costs you more

so the real question as you play with

the numbers is it's very very difficult

to know and be precise about how much is

going to come from uh productivity and

profit increases from the efficiency is

gained by Ai and new technologies how

much going to come from this and that we

don't honestly know but the important

thing is not to we're at the edge and

not to make it a crapshoot so and and to

get the if the number must be three% and

so you should have handle not hail Mar

passes but uh a clear passage to that 3%

number are we better off with Trump as

president versus if Biden had

won in this context yes I do believe we

are for then the financial context

because in terms of

profitability and the likelihood of

cutting I think the Republicans are

probably more likely to make these moves

than the Democrats but you also have to

take into consideration the impacts the

social impacts and right the other

impact s that are going to come from

this we're at a civil war internally and

we're at an international War

simultaneously so there are second order

effects I think the main thing is uh

take those numbers and make them real at

at 3% not speculating I I worry honestly

about the

Gap like the idea of when profits kick

in from AI

I'm worried that's what I was going to

ask you next so ai ai takes off we lose

a lot of jobs we have a million five 3

million 5 million people that become

unemployed that work in call centers

that work on Automotive lines etc etc

they lose their jobs and while before

the productivity kicks in from AI that

creates new markets and and new parts of

the economy we have a lot of unemployed

people and the government

Representatives the politicians raise

their hands and say we have to support

these people we have to introduce

stimulus we have to introduce new

support programs and is it not likely

the case that with AI coming online we

are going to see a fairly significant

demand for you know public support on

this transition that's coming that's

right but there are two Dimensions the

near term

is what will the pro I don't think the

profit impact and the financial impact

on productivity is going to be nearly

enough near enough to deal with the

supply demand issue that we now have so

let's say we have is it this year is it

next year just imagine you are at risk

of a heart attack you know and then I

say someday we'll have the productivity

conveyed to profits that will cover the

budget deficit okay it may be out there

but it's not um as immediate as it needs

to be and then we have the other aspect

of it which is how is that pi divided

which is going to be very political

because the disruptive effects will be

enormous and we're really all guessing

on how those disruptive effects will

be it's it's too much of a but you're

you're absolutely right lots of jobs are

going to be lost lots of Chang is going

to happen in terms of turbulence and um

how do we have a plan how can we even

agree on a plan of how to deal with that

I don't think we're in a

time maybe in the rest of our lifetimes

that agreement is going to be easy I

think we're going to see fragmentation

of States from from the central

government I think you're going to see

big

fragmentation in the world not just in

the United States on the failure to

agree on most things and so I I'm

worried about uh the timeline think of

the time line is this way this is the

first 100 days we're in a honeymoon

period I've been through I'm old you

know I've been through this a long time

I know what the honeymoon is like right

afterwards there's a 100 days that you

can change legislation you move quickly

and everybody's there then there's the

next important time Horizon is two years

to the midterm elections you get in

about years you know 18 months after the

election and now not everybody goes

everything goes as anyone expects you

could have the supply demand situation

and think of our cycle I mentioned you

know the average cycle is about six

years give or take three years and so

we're going to be later into the cycle

we have this Supply demand situation

right are things going to stay good into

the midterm elections and and and that

mandate I think there there could be a

lot of fighting in the interum elections

let me ask you two questions the first

if we do significant

Cuts there will be a lot of job loss if

AI is successful and moves quickly there

will be significant job loss if there is

significant job loss does that not fuel

the rise of socialism in the United

States I think that we can do it when I

talk about the 3%

solution I think that we can cut and

make the adjustments in a few

percentages to be a able to do this

without great trauma so we can get to

having that limitation done without

great trauma and it will be supported by

interest rate moves so that's first we

can get this thing done we must get that

thing done and if we don't then of

course I think we are in an

era that of course we're going to have

great conflict in the United States

this is not a run to Nirvana this is you

know the the

moment there you're going to have legal

challenges one

state the Democrats you know the blue

States the red States and within the

states you're going to have a lot of

disruption and you're going to have a

lot of

dissatisfaction and it's going to be

about money and power and so that's

ahead

and so like you say there's the

Socialists the left the right and that's

why you're going to

uh this type of civil war or internal

conflict is going to be with us this is

not a straight race to Nirvana and

prosperity and and you have that at the

same time as you have the other elements

you know they're the five big forces so

what I'm calling so you have the debt

money we talked about there's the

internal conflict that is we're going to

test the legal system and you know and

we're in an environment now that might

is Right

internationally you are going to have

the same kind of conflict we touched on

China we're going to have conflict

you're no longer have a a cooperate even

an attempt at a Cooperative world order

things like the World Health

Organization the World Trade

Organization all of those are Obsolete

and so we're going to have again might

is right and so it's going to be a

period of greater conflict you're going

to have a technology War you can have

mil increased military spending in this

kind of environment that's that creates

a budget issue and climate will have uh

it it will be an economic issue as well

as a um environmental issue so these

things these expenses are going to go up

so all of those coming together so

you're yes left right and conflict will

be ahead of us is this a hot Civil War

do people take to the streets I mean how

does this resolve obviously we've got

historical context for social Uprising

but what happens in the United States

over the next 10 years I think two

important aspects of it

is does the legal system work

well so that the Supreme Court

you know you asked me about the

independence of the Central Bank you

know do the does law

work and I think there's going to be a

lot of challenges I'm not saying it

doesn't work I'm saying that's the

question and that'll be very much state

by state you're going to see conflicts

between the states and the central

government so how does that

decisionmaking system system hold up is

it might as is right you know Sanctuary

City issues and such how is or is that

going to all work well I mean that's you

know that's the most important thing and

then we have in a time of great stress

and challenge you know when things get

worse right now things are good this is

pretty

good and but they're going to get worse

and then you have the international

going on at the same time and so

internally within countries we have the

same kind of conflict you're seeing it

happen in Europe you're seeing the same

same Dynamic we talk about the problems

that the United States is having

regarding debt and so on you have then

the expense same problem within the

Europe you're seeing greater polarity

left right you're seeing economic

problems cause more confrontation and so

you're seeing this around the world so

you're coming into an environment that

is likely to have over a period of time

over a period of time not immediately uh

greater conflict when you talk about 10

years there's going to be a period in

that 10-year period where it's going to

it's going to be

hellacious in that 10year period where

you know the coordination of dealing

with our problems our problems will be

greater and the cooperation for dealing

with problems will be less on that point

talk about the role that you have seen

external conflict play in resolving the

fiscal challenges internally so you talk

in your prior Book Changing World Order

about the historical relationship

between external conflict as a cycle

that seems to follow or flow with this

financial cycle maybe you can talk a

little a little bit about what's going

to happen between the United States and

China given the condition in the US

today do we have a higher propensity

when things are difficult at Home Folks

tend to go to war war is

stimulatory is that a driver here and

what's going to happen functionally with

China over the next decade do you think

and the US there's a

cycle that has to do with changes in

money and all of these

things where

you don't have enough

money you need money to

support con International conflict you

need money to make domestic people happy

and then there's no power you know

there's no system for making judgments

internationally the you know the United

Nations doesn't work the World Health

Organization they don't work so there's

no system so you come into this power so

when so when we're talking about the

financial problems that we're talking

about that we covered and recognize that

that's worldwide and then you have the

polarity worldwide that has to do with

wealth different wealth and values and

you have that Pro problem within the

population and then you have no rule

system internationally so it is a might

is Right series you have that Confluence

of things uh particularly

now then you and then there's

disruptions big disruptions technology

we talked about how you can't lose the

technology War because you'll lose the

military war all of that stress and

shortage of what is perceived to be

needed

is incendiary you know it's it's a it's

it's a it's a risky

situation of course productivity helps

but it was like you have to understand

put it in its place the 1920s leading up

to the stock market bubble that that was

the decade that we had the greatest

number of inventions patents Innovation

great productivity increases while we

simultaneously had big debt increases

and we simultaneously had these wealth

Gap and values increases and so you

don't get away from that so this is

going to be a lot of tension in a world

where it's difficult to get all the

parties to

cooperate in Wars if you look at history

when I say Wars there are military Wars

there and then there's less than

military Wars and and I can't tell you

that we're going to go into military

Wars I think like the Soviet Union and

the United States because of the risk of

mass

destruction was able to avoid those but

it it in

history it's going to it's going to be a

very U it's going to be a very difficult

period you describe in your book the

difference between how the United States

goes to war and how China goes to

war correct me if I'm wrong but you

speak to the US goes to war

head-to-head open confrontation whereas

China is much more like a sunu Art of

War style it's a little bit more tricky

a little bit more careful they they

never let you know what they're going to

do is that a fair characterization yeah

the the the um the general belief of um

the Chinese on The Art of War and this

is

existed throughout and it exists today

is that uh if if if you're going into a

fighting War you must not have been

smart enough to win without a fighting

war and you win through deception and

manipulation because fighting Wars are

going to damage you a lot you don't want

to be damaged you you want to get to

your objective so that's how they fight

Wars that's the sounds like a smart way

to fight Wars uh also international

relations there's What's called the

tribute

system and the tribute system was your

power determines where you are in your

hierarchy if you have more power you

have more hierarchy you're higher in the

hierarchy it's like confusion and if you

are and everybody should know what each

other's power is and the Lesser power

should give tribute to the greater power

this is internationally and the greater

power should uh respect that and treat

and they should work and have Harmony

together rather than to have the

conflict because it's all about getting

what you want Harmony and prosperity is

what you want and fighting that destroys

things is not what you want whereas um

yeah the the man who was uh vice

president great uh historian of China A

Man by the name Wan described it to me

that um there's the Mediterranean

approach

right yeah and the Mediterranean

approach which is a very different

approach really began out of that there

were families and there's no borders and

the way it worked is there were no

limitations in fact we didn't have

countries with borders and ideas that

you don't cross

borders

until what's a piece of West failure

after the 30 in the mid 17th century I

think it was like 16 50

something up they had 30 years of war

and everybody would fight so they were

fighting experts and that's what the

norm was and then after 30 years of war

they decided okay let's draw a boundary

around it and try to what goes on in

there is your business and and that's

how it came about so and that's by the

way in history one of the reasons that

the Chinese and Japanese lost they had

what they called their hundred years of

humiliation when the fore Powers came in

in late

1830s um and they had a fight the the

Opium Wars and so on the western Powers

were at strong at fighting because they

were practiced at it and then there was

the Hundred Years of humiliation they

call it in China where they they the

foreign powers came in so anyway I'm

giving you too much history but I'm

saying that

there's a whole different attitude about

how to play that game and so that's what

I think you're going to see you you know

that's when we come back now to the

chips war and you took look at today's

news you know there we are there we are

well look Ray I feel like I always tell

people the the kid that stands

up at the middle school and says I'm

going to make the vending machines free

when the the presidency of the middle

school and unfortunately in a democratic

system the El election process kind of

follows a similar pattern it's very hard

I watched these hearings this week and I

was deeply frustrated when I hear

Senators say I got this money for my

constituents I got this their initiative

their intention is to stand up and say

I'm going to get you this they go into

Congress they get you that money and

over time government spending swells and

there is no incentive to reduce it and

we find ourselves now on the precipice

of a really difficult crisis and I

really do hope that politicians find

within themselves the leadership to

stand up and say we need to do difficult

things because 10 years from now or 20

years from now if we don't things are

going to be very bad for all of us and

convey that to people and I really do

hope that your message gets to them and

that their leadership allows them to

stand up and say we need to make these

really difficult changes deeply and

quickly in order to preserve the union

and that they can make those changes and

we can move forward and continue to

build our lives and so I really

appreciate you taking the time to write

this book share this with us and I

really do hope it's heard I think it's

so important so thank you so much Ray we

can do this and if we don't do this the

power of the United States is going to

be greatly

diminished so it's domestic it's inter

International so I appreciate yeah I'm

appreciate you Dave that we can have

this kind of conversation just have

people behave

logically that's too much to ask yeah

well no look I mean let let's not give

away the vending machines for a couple

years and you know kind of think about

keeping the school open uh for the Next

Generation but that was great thanks Ray

you know your stuff you're great and

this is really invaluable thank you for

doing that for your listeners I think

it's so important too Ray and I spent a

lot of time thinking about it and

worrying about it your message is so

clear and important I think you present

it well and write it well I read your

whole book this weekend I appreciate you

putting it all out there I really do

hope that the folks that listen to our

show in DC listen to this I I I cannot

tell you how disappointed I was after I

spent the weekend at the inauguration I

met a lot of members of Congress I met

most of the members of the new cabinet

and it's just not there I'm just

frustrated and I'm just heartened by it

so anyway I I think I think it's

important to keep harping on it though

we're not going to stop and and I'll

keep talking about it and appreciate

your efforts here too we just have to do

our best that's right really appreciate

it Ray thank you thank you Dave

[Music]

bye I'm going all in