The US is adding $1 trillion dollar to

the national debt every 100 days. And

the interest payments alone now cost

more than our entire military budget.

Our rate of debt accumulation has pushed

us into something called fiscal

dominance. A runaway spiral where

government debt creates so much new

money and thus inflation that the Fed

can no longer control the economy. In

this environment, if you don't own

assets, you are being left behind. and

most people don't own a meaningful

amount of assets. Today, I'm joined by

Lynn Alden, one of the sharpest economic

minds around. In this interview, she

breaks down how fiscal dominance works,

why the middle class is evaporating, and

what you can do to protect yourself from

being steamrolled by a system that is

stealing from you. Without further ado,

I bring you Lynn Alden.

The government spends so recklessly that

the average person is now stuck in a

world ruled by something called fiscal

dominance. It impacts our lives way more

than they realize. Can you explain it

though in a way that makes people sit up

and realize that they need to do

something about it? Uh I think one way

of kind of thinking about it is uh that

if you're in any way involved in a fiat

currency system as we all are uh you're

being diluted uh and uh it's happening

to everyone at different speeds

depending on where they live in the

world. Uh obviously you know this is

going to be mostly I think American

listeners. We're actually saying right

before we started recording uh that uh

it's a very macroheavy decade uh and so

uh people can kind of ignore finance but

finance won't ignore them. to talk about

fiscal dominance. It hopes to kind of

helps to kind of set the stage for like

what is the contrast which is monetary

dominance. So in most financial history

that that people are kind of familiar

with over the past several decades, it's

central bank policy and it's it's their

effects on bank lending that determine a

lot of the aspects of the business

cycle. And what's different about fiscal

dominance is that the fiscal deficits

are so large and there's such a large

existing stock of total debt that the

Fed's policies don't work the same way

anymore in terms of either trying to

accelerate or decelerate inflation. And

we get kind of locked into a more

persistent type of debasement um that

you kind of somewhat see in emerging

markets. Uh and so we get kind of a

version of that like a lighter version

of that in a developed country. Uh and

so the reason people have to care about

it is because when we're running very

large deficits, uh there are those on

the receiving side of them, uh and those

who are not. And if you're not on the

receiving side of them, uh it really

pays to have some sort of protection

against it or to be aware of how the

mechanics of that are working.

>> Okay. So, one thing that I'm always

trying to get my audience to understand

is that the reason that the middle class

has been eviscerated is that inflation

is not a law of nature, which much to my

embarrassment is basically what I

thought. That was just sort of the

algorithm running in the back of my

mind. I didn't realize that we were

creating inflation. Uh it's not a law of

nature. Uh but it does when you called

it debasement, it reduces the amount of

things that you can buy with a dollar is

an a really easy way to think about it.

Um, so the way that that eviscerates the

middle class is that it basically forces

you to own assets to avoid that the

negative effects of that inflation, the

debasement. Um, so when we think about

shifting into fiscal dominance, um, why

is that so much more troubling than

being in monetary dominance where the

Fed can remain in control? Like what you

you've talked about this as the train

has no brakes. So how what are the

breaks historically and then what have

we done that has ripped those brakes

off?

>> Right. So throughout most of uh kind of

the past uh several decades uh when the

central bank uh perceives that that

inflation's higher than they'd like it

to be and and a lot of this is arbitrary

like even their targets of where they

want inflation to be uh are pretty

arbitrary but in the US and globally

they've decided on certain numbers.

Currently 2% is their at least the way

they measure it their target. when it

gets too high, they have a variety of

tools to try to slow down that

inflation. And primarily what they go

after is to try to reduce the amount of

bank lending because in our current

fractional reserve banking system built

on top of central banking uh when a bank

lends money, it actually creates money

uh broad money

>> thin air.

>> Exactly. Yes. Uh and so for example in

the 70s uh which were a well-known

inflationary decade um there were

multiple things that contributed to the

inflation including for example oil

shortages uh but a key background thing

was that there was an above average rate

of bank lending happening and therefore

an above average rate of money supply

growth happening uh and that had a lot

to do with demographics. The baby

boomers who were young at the time were

entering their home buying years uh

which is kind of the peak period of of

credit formation. Um, and so that was a

more inflationary time. And what central

banks typically do uh when they when

they're experiencing this higher level

inflation is to try to slow that down

somewhat. They'd rather have a recession

than let it just get completely

untethered uh from expectations. And so

they raise industries

>> bubbles bubbles like form like what are

they trying to protect against?

>> Uh they're trying to protect against

people totally losing faith uh in the

currency. Um because uh weakness can get

more weakness kind of like how uh in

like in nature if an animal's weak

predators will go after that one. The

same thing happens to currencies uh

especially emerging market currencies

but but it can happen to developed ones

too which is if a currency is weak and

it's devaluing quickly and the and the

money supply is growing quickly and the

interest rates are not sufficiently high

then actually more people will come in

and borrow it uh and buy almost anything

else with it. they'll buy another

currency uh potentially that yields

better or they'll buy gold or real

estate or pretty much anything that they

perceive as being more scarce and likely

to appreciate relative to that currency

and that ironically creates even more of

that currency. So weakness begets more

weakness and they try to short circuit

that by raising interest rates uh to try

to one strengthen that currency relative

to some others and two to make it less

desirable to borrow it uh under more

circumstances. So, so some entities are

borrowing it, but they're basically

increasing the hurdle uh to make it less

desirable to borrow and that that's is

an attempt to slow down uh the money

supply growth. Um what what's troubling

about fiscal dominance uh is that uh so

during the 70s when they raise interest

rates like that, it has kind of two

effects uh but one's bigger than the

other. So the bigger effect is that it

slows down bank lending, which is what

they're trying to do. The negative

effect is it actually increases the

federal deficit because the government's

interest expense is now higher. They're

paying higher uh average interest on

their existing debt and so they're

actually ironically increasing their

deficit which could be inflationary but

but their total bank lending is a much

bigger negative effect than that

deficit. The problem in fiscal dominance

is that's reversed. So in the current

era an the US government's average uh

annual fiscal deficit like how much uh

the difference between our our taxes and

our spending that's a bigger amount than

net new bank loans in a given year and

it's even bigger than the sum of net new

bank loans and net new uh corporate bond

issuance. So basically yeah public

sector uh credit formation is is now

bigger than the private sector uh by by

you know several ways of measuring it.

And the problem is that when you have

over 100% debt to GDP, unlike the 70s

where they had 30 something% debt to

GDP, so now you have over 100%. When the

Fed raises interest rates to try to slow

down bank lending and try to harden the

currency, they actually blow out the the

fiscal deficit by an even bigger number

than they slow down net new bank loans.

>> And just for sorry for people that

aren't super familiar with the word

fiscal, uh fiscal literally means the

government spending. So when we say

fiscal here, we're just talking like

government debts are getting crazy. And

so if you try to rein in the private

debt creation by raising interest rates,

you're actually raising the amount that

the government has to spend to meet the

hurdle of the everinccreasing debt

because they're bringing on more the

interest payments begin to compound. Uh

and so hence the runaway train that's

wild

>> and you get a fiscal spiral. And and

what the what some people like listeners

might be thinking right now is that

people have talked about this for

decades, right? They've talked about uh

that that's going to be a problem one

day. Uh and it's always it never really

seems to materialize. And one thing I've

been kind of emphasizing uh when I point

this out is that some things have

materially changed uh in recent years

compared to when that was being said. So

the the peak zeitgeist for the public

debt being a problem was back in the

late 80s and early 90s. That's when the

famous like national debt clock went up

in New York. Uh that's also when Ross

Pro ran like the most successful

independent presidential campaign uh in

modern history and it was largely on on

the debt and deficit as a big topic. Um

and that was kind of the peak zeitgeist.

And if you look at uh interest expense

as a percentage of GDP like federal

interest expense, it was basically

peaking back then because we had growing

deficits and we also had very high

interest rates. Uh and so it was pretty

um uh fiscally problematic. But over the

next 30 years, uh we had the end of the

cold war. So the the fall of the Soviet

Union, we had the opening of China. Uh

so we had these pretty big

disinflationary forces in the world. We

had all this kind of eastern resources

and labor, western capital, all these

things were able to come together. It

was very disinflationary and productive.

Uh interest rates are able to fall for

the next 30 years. And if you increase

your debt, but you cut your interest

rate in half, uh, your interest expense

remains manageable. And that's basically

what happened over and over and over

again. And what changed more recently is

a couple main things. One is we we kind

of ended a 40-year cycle of ever lower

interest rates. We kind of bounced off

zero. Uh, so even if we just go sideways

now, we don't really have that offset

the way we used to. So we used to have

rising debt, falling interest rates. Now

we have rising debt and interest rates

that are roughly sideways. Um and so we

don't have that offset. And then two,

our demographics changed. Uh so now the

baby boomer generation uh which in the

70s and 80s were in kind of the peak

home buying uh period. Now they're in

draw down of the entitlement systems. So

social security, Medicare uh and so

they're they're they're and that's being

spent largely into the economy. And so

those two really big factors are what

changed over the past 30 years or so

compared to when people were were

warning about this decades ago.

>> Okay. So how from a like raw numbers

perspective, how does it compare back in

the 80s and 90s when Ross Perau is

making a ton of waves by saying this is

a problem and now? So the federal debt

bottomed uh in the in the lower 30%

range uh for debt to GDP uh and then

throughout the 80s that was increasing

uh into the early '90s. uh it was still

fairly low back then. Uh and that's when

interest rates uh were high. But

starting in the late '9s, uh that's when

the combination of of slower interest

rate uh like lower interest rates slow

down that interest expense by the

government. And then also um they did a

variety of kind of smaller things to

actually give us kind of a a period of a

surplus briefly. That was also peak

demographic. So it wasn't just a policy

mix that made that possible. That was

the combination of obviously the tech

boom at the time of you know very high

level of productivity growth and then

also the the baby boo generation was

kind of in like their peak earning

years. So if you look for example at uh

labor participation rate it peaked

around like the late 90s early 2000s in

the country kind of the the multi-deade

peak was right there when we had that

surplus. So it's kind of like everything

going right together. Um, and in terms

of raw numbers, uh, right now basically

we're running this kind of six to 7% of

GDP deficit, uh, which you normally only

see in recessions. Uh, so the the

biggest ever depit we had was during

World War II. Uh, the second biggest was

was around the the COVID era. Uh, and

generally speaking, you only hit these

kind of higher singledigit uh, levels

and and occasionally double digits

during recessions or wars. So the fact

that we just have it as a baseline now

largely because of interest expense uh

kind of normal military spending and

then the entitlement systems uh that's

where we're kind of entering a a

territory that's pretty unusual. And

another quantification point of course

is that our interest expense now exceeds

military spending uh which is generally

not a good look for

the history of empires doesn't doesn't

look great at that point.

>> Yeah. Putting it mildly. So um I don't

know if you know the exact number but um

to orient people we are now at 122% debt

to GDP ratio. There's sort of a red line

uh when you look at historicals of 130.

So when countries hit 130% debt to GDP

ratio they tend to um move pretty

rapidly into internal violence. Uh and

the reason being that you're you're just

getting into that inflationary spiral.

you're doing like what we're doing now

where you're hollowing out the middle

class, you're getting this insane amount

of wealth inequality which just

absolutely drives people nuts um from a

psychological perspective and and they

tend to get revolutionary literally. Um

where were we like when this was peak

zeitgeist and you've got Ross Perau

doing his thing and there's all this

popular support behind him screaming

about debt to GDP. Were we anywhere near

where we're at now? I know that was back

in the 40s 50s 60% range for debt that

GDP.

>> So what what is happening now? Like how

have we been bamboozled because I feel

like I am trying to get people to pay

attention to this and they're not

there's not you're you're now in a

populist moment where you're getting a

Trump a Trumpian figure that rises up.

uh instead of somebody who's saying

we're going to be fiscally responsible

and reduce government deficit, he

literally tweeted out uh hey, I know you

guys want to cut spending and so do I,

but we can't cut too much because we

have to be reelected. I was I was so

traumatized by that tweet. So why back

then were we able to get people to

realize, hey, this is an escalating

problem and now like I feel like I'm

banging the drum as loud as I can.

You're far more eloquent than I. But

we're not able to get like the average

person to be to recognize

I'll say it and you may not even agree

with this but to recognize that the

government is the problem. The policies

that we are voting for are the problem

and if we don't unwind the deficit

spending we will never escape this

problem.

>> So I think I think the reason why it's

harder for people to get it is because

it's gone on longer than a lot of people

expected. Uh, and like I said before, it

kind of becomes if it takes so long to

manifest, people say, "Well, maybe those

people were overblowing the concern."

So, back in the in the late ' 80s, early

90s, I mean, we were hitting like uh a

trillion dollars in debt for the first

time, that was a pretty big

psychological number. And then you

quickly add the second trillion uh

around that time frame uh and and and

just more awareness of it. And what had

what had kind of differed at that point

was you had multiple decades of

declining debt to GDP after World War II

and in that kind of like the the late

'7s early ' 80s period that's when you

started to have that trend reversal. So

that that started to uh concern people.

And then like I mentioned before, the

interest expense as a percentage of GDP

was pretty high. Even though the public

debt was lower as a percent of G of GDP,

just because if you're paying 10%

interest, uh it's it's easier to have a

high interest expense than if you're

paying an average of 2, 3, or 4%

interest. Um and so a lot of people back

then were warning that was going to be a

grave issue. And and you know, to the

the kind of the devil's advocate would

say, well, what happened to those

people? they were saying, you know, it's

it's an imminent problem in, you know, 5

10 years, and here we are 30 30 plus

years later, depending on what starting

point we're we're looking at, and it's

not been a crisis. People also point to

Japan, which has well over 200% uh debt

to GDP, and say, well, if it's if

nothing's catastrophic is happening to

them, why should we worry here? Uh, and

what I kind of say to push back on that

is it's it's less about an event. it's

less about this one big crisis that

happens like the whole world agrees to

sell off US bonds at the same time or

something. Instead, it's more of this

gradual negative impact. Uh and so, for

example, you mentioned the rising

populism. Uh I would generally argue

that's a that's a byproduct of some of

these these trends that have gotten in

place for quite a while. So the fact

that the that the deficits are running 6

to 7% of GDP every single year like

clockwork now that is already having

effects uh particularly for example that

that fuels the basement. Meanwhile the

Federal Reserve is trying to keep

interest rates tight which ironically

locks uh you know younger families out

of the the home buying market uh because

the these actually these consequences do

matter. Uh and so as these kind of big

uh policy gears are switched, there are

winners and losers from them. Uh and you

generally get uh just that more rising

populist aspect and then you get often

less productive at certain things. You

get more violence, you get less um kind

of just unification in the country. Uh

and it's it's you know Japan for

example, I mentioned them that people

point to them and say well they they

managed to not have a crisis uh despite

having higher debt to GDP. And the issue

there is that they have a lot of things

going for them uh that are somewhat

different. So for example, they have a

structural uh trade surplus. They kind

of offsets some of their uh debt issues.

Uh they've also got a very homogeneous

population. Therefore more kind of

culture unified, able to get through

things. And then two, they they have had

basically not a good economic run for

quite a while. So they are suffering ill

effects uh of their policy uh as well.

And so basically I think that as the

whole world kind of enters this more

fiscally dominant environment at least

the whole kind of developed world um the

effects will probably be persistent and

and here and it's different than saying

you know things blow up 5 years from

now. It's saying that the effects are

already here. They're already out there.

They're already affecting grocery

prices. They're already affecting uh you

know how easy it is to move around

society and things like that. And it's

that it's probably going to keep

happening for quite a while.

>> Yeah. Uh that's a really good point.

This is something I don't think people

understand about the Japanese in

particular. So you'll often hear the

stat thrown around that 98% of the

countries that have existed in a

meaningful period over 130% debt to GDP

uh have ended in revolution. The 2% is

Japan. So Japan is like the the one

release valve, but then they also stayed

behind at the World Cup to clean up the

stadium. Uh no other country does that.

So to your point about that unification,

what what ends up happening in in these

countries and the reason that I'm so

eager to get my audience to like really

take this idea seriously that you cannot

evaporate the middle class without

massive consequences is I I always

thought that the end result of bad

fiscal policy was going to be that you

go to war with somebody else. That the

outside world recognizes your weakness

and they attack you. But what actually

ends up happening is you attack

yourself. And so people begin tearing

themselves apart from the inside and

they specifically do that because of

wealth inequality. And when you look at

the mechanism that's happening between

uh why the middle class goes away is it

isn't that they all get made poor. It's

that part of them understand like just

rough math half of them understand oh I

have to own assets like they get what

inflation is. I have to own assets to

escape this because the the dollar is

going down in value. So, I need a thing

that holds that value. It could be a

house, could be Bitcoin, whatever. But,

I need an asset that's going to it it

will optically look like it's going up

in value, but it's really your dollars

going down, but they get that. So,

they're now going they're being pulled

up into the upper class. And then half

of the middle class don't understand

that. And the only thing that they get

intuitively is own a house. I can live

in it. It if you could live inside of

Bitcoin, this would be very different.

uh but you can't and so they get a house

like just intuitively you don't have to

tell them that it's an asset they don't

have to understand inflation they just

know I want to buy a house I want to

live in it and so in doing that when

that works they can stay in the middle

class once you you mentioned this a

minute ago once that house becomes

impossible for them to buy now all of a

sudden they get pulled down into the

lower class because inflation is eating

away their ability to store wealth and

it's like man if we can get people to

understand that okay that creates It's

this wealth inequality. The wealth

inequality makes the have and have nots

hate each other. I mean basically the

have nots hate the the halves and then

they they end up revolting literally it

becomes bloodshed the whole nine. Like

it is absolutely wild. And so heard that

it just happens so slowly. This is how

you boil a frog. And so now everybody is

like ah I've heard people screaming

about this forever. But it's like if

you're mad you're mad because it did

come to fruition. It came to fruition

slowly, but it actually did happen. And

so we're now in this moment and um when

you look at that,

how do you contextualize someone like

Trump? So are Trump's policies going to

help us out? Are they going to hasten

the decline? Like where do you fall on

that? I I tend to be of the observation

that I think he identifies a lot of the

issues correctly in in the sense that uh

you know for decades for example the

trade deficit was ignored by politicians

of both the right and the left. Running

a trade deficit for a period of time is

fine for a country to do. There's all

sorts of reasons it can happen but the

US has kind of a spec a specific uh kind

of built-in mechanism to always run a

trade deficit. is is actually kind of

tied to our reserve currency status is

basically so much external demand for

our currency that the way we ironically

get currency out into the world is by

running this really persistent trade

deficit with the rest of the world. But

when you have that for four decades in a

row, uh you basically hollow out certain

parts of the country and kind of

reinvest it into the the cities

basically. So you kind of hollow out

like you know Michigan and you

reinvested in New York and Silicon

Valley. Uh and that's kind of where all

that wealth winds up. Uh and then the

same thing happens with the with the

fiscal deficit as well. And so I think

he's identifying some of these things

like the trade he kind of elevated the

trade deficit as being something that

hardly anyone talked about to now kind

of um front and center in politics. Uh

but I also tend to view that the that

the things done don't tend to

necessarily address the actual things

he's identifying. So in in in both his

first term and his second term,

generally the fiscal policies would

would even further help the the you know

the top couple percent out. uh more so

than

>> tax breaks, continued spending.

>> Is that the specific part of the fiscal

policy you're talking about?

>> Yeah, that tends to be skewed toward the

the wealthy, either the older or the or

the super high net worths, for example.

Uh and then, you know, that the the

tariff policies are tricky because even

though I think that addressing the trade

deficit, it is a real thing to do that

we've actually not really seen a lot of

politicians interested in, um the

mechanisms to do it don't seem

particularly well thought out. uh and I

think that therefore the that the

probability that they meaningfully kind

of improve things in in that sense over

the next four years uh is pretty low. So

I think that's the challenge and the

problem is that the when you have this

kind of when you when you reach this

part of the economic cycle so when you

have a very topheavy entitlement system,

you have a very topheavy public debt, uh

you have these issues. uh every kind of

year or every kind of um uh

congressional presidential cycle we

spend still not getting it right kind of

digs us further into the into the hole.

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theory. And now, let's get back to the

show. Okay. So, I've heard you talk

about the tariffs as like, okay,

nothing's going to stop this train, but

tariffs at least are effectively attacks

that help slow the train down a little

bit. Um, given that you've said that,

but you also just said that I don't

think this guy is really thinking

through these policies. Well, um, help

us understand your take on tariffs as a

tax and whether that's the right way to

look at it. And then if that's not quite

the right way to do this or or maybe not

the right way at all, what would be the

right way to use policy to slow the

train?

>> A big factor in why the deficits are so

hard to to resolve, not the only factor,

but a big factor is the political

polarization that's embedded in it. So

there are a lot of things that

politicians don't want to cut. And then

there's and then there's a lot of

defenses against raising taxes as well.

Tariffs were kind of interesting because

with emergency powers uh from the

executive branch, they kind of bypassed

that polarization. So instead of

Congress voting on this, uh, the

president was able to do it. Now, you

know, in in weeks or months, I mean,

it's potential that courts could take

that power away. I'm not a legal expert.

It it's it's currently kind of being

looked at, analyzed, working straight

through the court system, but as it

were, as it is right now, that's

basically a pretty unilateral tax

increase. So, it's able to bypass some

of the uh polarization that happens. In

terms of quantifying it, I mean, they're

currently running about 30 billion a

month in tariff revenue, uh, which

analyze gives you 360 billion. Uh, some

of the latest tariffs are not really in

that figure yet. So, we might end up

seeing 400 plus uh, billion in annual

tariff revenue, but that's up against a

$2 trillion annual deficit. So, you're

you're talking something like a 20% dent

into it. Uh, the other factor that's

complicated is that it's being marketed

as a tax on the foreign sector. Uh but

right now the the majority of evidence

shows that it's it's being paid both in

the literal sense but also even

economically paid by Americans in in

multiple ways. It's sometimes in the

form of higher prices, other times in

the form of of businesses taking a

margin hit for example. So far we've not

seen a reduction in import prices um to

offset the the tariffs that are being

paid. So this is primarily a new tax uh

on Americans. uh on average it will tend

to be more felt by those again in the

lower income spectrum. Uh because uh if

you're wealthy generally your

consumption is a smaller share uh

compared to your wealth and income

whereas if you're on the lower end of

the income spectrum most of what you

earn goes toward consumption which is

now potentially at least the import

portion is more tariffed and so th those

potentially minor price increases

actually matter a lot more. how I would

actually go about addressing it. That's

always the hard part because I I for

example, I'm first to say it like that

the central bank gets a lot of criticism

and I'm pretty critical of central

banking in general, but for example, I

wouldn't necessarily know how to handle

it better than the current Fed's doing

because when they're stuck in fiscal

dominance, u a lot of their tools are

taken away. um you cited that statistic

before that once you reach roughly this

high debt to GDP uh 98% of the time uh

it you you you know have an issue and

that specific study what that points out

is that uh 98% of the time over the next

15 years there's some sort of default.

It could be a literal default which

sometimes you'll see among say emerging

markets generally uh entities that

cannot print the units that their debt

is denominated in. Uh but if it's if

it's the country's own currency they're

more likely to default through

debasement. they basically default in

terms of purchasing power. And to some

extent, we've already started that

process. The last 5 years were like the

worst ever period for like bonds uh in

like modern American history. For

example, bonds underperformed

practically every other asset. Um and so

I I think the first step is actually

just being fully aware of what's

happening. Um and I unfortunately don't

have good answers for how to resolve it.

I think the trade deficit is potentially

more resolvable than the fiscal deficit.

Which is to say if they start doing

policies that that discourage the the

global capital kind of stuffing itself

into US capital markets that can

alleviate some of the artificial

strength on the currency that makes it

really hard to to you know manufacture

things here uh profitably. Um and so

that's a that's an angle that could be

tackled. U but so far that's that's not

one of the levers that they're pulling.

And it's interesting because um uh

Trump's uh uh chair of the Council of

Economic Adviserss uh he actually wrote

a paper on how one might go around um uh

reducing the the the trade deficit. Uh

and he published that in November 2024.

So right when when after Trump was

elected and that's kind of like their

steelman approach for how they're going

to do this. That's basically the Harvard

economist view of okay if you want if

you want to try to enact Trump's goals

how do you go about doing that? And that

involves some degree of tariffs, mainly

to bring negotiating up with other

countries and then use a variety of

other things to dissuade all that

capital being stuffed into US capital

markets. Um, but they haven't done that

part yet and I don't I kind of don't

think they will because that's the part

that is also pretty painful. Uh, most

>> Why would that be painful?

>> Because holders of assets generally like

the fact that there's a lot of foreign

capital coming up and bidding up their

assets. Uh, and so it's one of those

things where there'd be some parties

that are benefiting from it, other

parties that are hurt by it, and kind of

like any other polarized topic, there

there there'd be defenses against that

happening. Uh, basically that that they

wouldn't perceive that as something they

want to probably do.

So, I get why as somebody who um has

like gets the asset side of the

equation, you got a ton of money and

assets, but if the case could be

persuasively made that, hey, keep uh

pushing on wealth inequality and the

French have a story to tell you about

the French Revolution where wealthy

people got their heads detached from

their bodies. or hey compelling argument

would be let me show you how stopping

the inflows of capital into the American

financial markets actually help the poor

and working class and that lets you keep

your head which is my message. Uh how

exactly would pumping the brakes on the

amount of money coming into the US

financial market actually be pro- middle

class and working class?

>> Yeah, good question. Basically we can

back up and kind of explain the

mechanism. So right now the dollar is

the global reserve currency which

basically means that the whole world

wants it for a variety of purposes. They

want to hold it. Uh they want to use it

for international contracts. Uh they use

it as a basis for most currency trades.

So most currencies are actually not very

liquid with each other like say Egyptian

currency and Korean currency. Not a very

liquid market but they're all pretty

liquid with dollar. So you can always

trade one for the dollar, dollar for

another one. Um and uh international

financing. So if if a entity in France

lends to an entity in Brazil, it'll

often be for example in in dollars. So

there's this kind of global demand for

dollars and the mechanism of of how they

get that is that basically the US runs

these really big trade deficits with the

rest of the world and that's importantly

something that the US has purposely

facilitated. So it both happens

organically but then also the US kind of

leaned into that historically. Um and

then the way that works is they

basically overvalued the dollar. So most

currencies they will trade on things

like interest rate differentials. Uh

they'll trade on things like the you

know the their current account balance

and all that. The US dollar because it

has this extra demand for it. It tends

to run this more persistent trade

deficit. So we we overvalue our

currency. We give ourselves a lot of

extra import power but we make our

exports less competitive uh than even

our other developed peers generally

speaking. Uh and so we run these

persistent trade deficits with the rest

of the world. we we kind of spew out

dollars into the world and then the rest

of the world takes those dollars uh and

then they buy our financial assets with

them. So they buy our equities, they buy

our real estate, um they they bid up our

asset values. And the problem is that if

you know if you live in New York or or

you know parts of California, you're

probably doing great. It's your assets

that are getting bit up by this this

recycled trade deficits coming back into

our markets. But if you're anywhere in

the rust belt, it it became the rust

belt for this reason. Basically, if

you're anywhere in kind of artland, um

you know, your economic prospects have

been more impaired. Uh and so it it's

kind of siphoning from one place putting

into another. And you know, any sort of

attempt to reduce capital inflows into,

you know, into stocks uh into uh you

know, asset values, that's generally

going to be uh pressured against. Um but

by bidding up home prices at very

expensive levels uh it makes uh you know

it's good for those that have a home and

it's good for those who've been able to

lock in a short uh like a long duration

uh fixed rate mortgage against it. Uh

but it's very bad for those who are

trying to enter the home uh uh buying

market for the first time. This is also

generally something you see in countries

like Australia or Canada uh where they

have a policy of kind of trying to keep

uh prices elevated uh just because so

much of the the the country kind of has

their wealth in real estate but then the

losers of that are those that are trying

to buy a house not for investment

purposes but for the actual utility

purposes of of using it. Uh so generally

speaking, the trade deficit has kind of

been rewarding to those with financial

assets at the cost of those who who you

know want to work in the in the main

street economy in many ways.

>> Okay. So I saw how that would play out

uh in the housing market. That obviously

to me is a thing that screams from the

void to be addressed. Um again going

back to that idea, this is what the

average person understands intuitively.

You don't have to explain to them assets

and all that. Um but if we were stopping

things from coming into the

financialized side of the economy, how

would that um alleviate pressure

directly on housing, could we not

through policy make housing less of a

problem? Like for instance, deregulating

so it's just easier to build more

housing. Um would we have to stop things

coming in, stop uh people from cramming

dollars back into the US financial

system?

Uh so a lot of it is that basically the

dollar is kind of artificially

overvalued uh because of this demand for

it and that's what kind of directly

makes it hard to make things here. So

right now with a lot of our policies

we're addressing the symptoms of this

structure.

>> It's really about driving manufacturing

back to the US giving the average person

a place to work and the like sort of

heartland company that makes this is a

terrible example but steel brake pads

whatever. And now that's going out to

the outside world. So more than it's

necessarily

um influencing just asset prices. It's

just making it possible for somebody in

the middle class to earn a living to

have that small company that exports

that thing. Is that the idea?

>> Yeah, it basically balances the economy

a little bit more. Basically, the US has

a lower share of manufacturing relative

to GDP than many other countries because

that's the part we've kind of exported.

And if you didn't have this capital

recycling structure at the scale that we

currently have it at, some of that would

be able to flow back in. Uh now

realistically, a lot of that would be

automated, but basically you have a more

balanced economy at at that point and

you're kind of less extracting it from

certain states and then kind of

reinvesting it into other states. Um

there's also a really big um uh wealth

effect that happens that basically that

that the higher asset prices go it kind

of fuels consumption uh from those with

assets uh at kind of the cost of of

those who don't. So we have these kind

of really big mechanisms in place and

some of them seem good on the surface uh

but then there are losers from them. I

mean even for example the home buying a

lot of times you'll you'll hear about

Black Rockck buying homes for example

but a lot of the funds that's kind of

the one example but there's a lot of

funds and and pools of capital buying

homes and some of that is actually

foreign capital uh because in addition

to buying our equities and buying our

our private equity they're also in many

cases buying our property. So basically

you inflate the property values at the

cost of of you know people that want to

enter them. So, we had this kind of

unusual current cycle where um home

turnover is very low right now. So,

there's relatively few sellers, uh

relatively few buyers, there's not a lot

of activity happening, and yet prices is

still pretty elevated uh because there's

that kind of persistent bid there. And

that's that's kind of at the it benefits

those who have houses obviously, uh but

it's it's harmful for the those who want

to get them. And so that's why we end up

having one of the highest historical uh

ages for you know first time buying a

home.

>> That's very interesting. That feels a

little counterintuitive. Let me make

sure that I understand this. So if you

had said that the um appetite for

property has remained high even though

interest rates are high and that's sort

of illogical and how could that be?

We're hollowing out the middle class

who's buying these houses. Oh PS this is

foreign investors. I would have said

okay yeah cool that makes sense. But if

you're saying that activity is actually

low, um how is the perpetual bid from

foreign investors meaningful if nobody's

buying and selling?

>> Uh because there is still some buying uh

and a lot of those are able to do cash

buys. So right now the limiter to to um

a lot of uh changing of of home

ownership is the fact that the mortgage

rates uh someone would have to get out

of a low interest rate mortgage. They

would end up in a higher rate mortgage

if they move. Uh, and then the the buyer

has less kind of financial firepower

because their monthly payments are so

high. But it it it doesn't really affect

too much the cash buyers. Those either

because they're wealthy or because

they're investment funds that are able

to come in and just pay the cash value

for the house and therefore uh around

the margin still keep those home values

uh pretty high.

>> Okay. Uh so given that one of the things

that's really impacting both the ability

for somebody to own a home and the

government debt, the fiscal debt, uh is

Trump right to call for the lowering of

interest rates or is Jerome Powell

actually wise to be holding off

>> in fiscal dominance? Almost everything

the central bank does is wrong. That's

the problem is that because if they hold

interest rates high, so we go back to

kind of what we said earlier. The

primary purpose of raising interest

rates is to slow down bank lending. The

problem is that the the whole period of

inflation we've had for the past five

years was not caused by excessive bank

lending. It was caused by those fiscal

deficits. Uh originally it was

intentional stimulus and now it's just

kind of this this background higher

deficit. So the Fed in some ways has

been trying to raise interest rates to

slow down bank lending to offset the

real problem which is the the federal

deficits. Uh but by doing so, because

the debt's over 100% GDP, by keeping

interest rates high, they're also

actually keeping the deficit high

because they're keeping uh federal uh

rates high. Uh and yet if they if they

cut interest rates while you have stocks

at all-time highs, gold at all-time

highs, Bitcoin at all-time highs, uh you

know, property values at all-time highs,

then they're adding fuel to the fire,

too. And that's why you get to that

statistic where 98% of economies when

they reach these debt levels tend to

have some sort of default which which

can be through purchasing power because

their own central bank kind of runs out

of options. Um and so I I think that you

know it's probably due for a mild cut uh

just based on the on deterioration of

economic conditions but I view that as a

much like a smaller lever uh to pull

than the fiscal situation. uh kind of

one way of putting it is that when the

money's weak, people will monetize other

things and then by doing so they make

those things uh less available to those

who just want to hold them for their

actual utility use not their monetary

use. Uh and so by monetizing our equity

market, by monetizing our real estate

market, uh at because our money's weak,

it causes all these more structural

imbalances and therefore they causes

periods of malinvestment and it causes

that kind of along with other policy

decisions is those high uh levels of

wealth concentration.

>> Okay. So, if I'm understanding you

correctly, the way that Jerome Powell is

looking at this, uh, he knows what you

know, which is I don't really have any

great options. But the one thing that if

the real problem is the government is

taking on too much debt that's causing

them to print a bunch of money that's

causing the high inflation, um, then it

seems like I should be trying to pull

down the interest rate. Obviously, I

need to find a sweet spot, but I should

be trying to pull down the interest rate

um knowing that I'm going to have a

bigger impact on the government,

certainly at first, than I would have on

the banks than suddenly going crazy

because I have a bigger problem with the

acrruel of uh compounding interest

because we're adding right now a

trillion dollar every 100 days to the um

government uh deficit, which is just

absolutely insane. So, why wouldn't that

alone be a signal to like, bro, look,

there's obviously a breaking point and

then you're going to trigger the private

market too much, but uh we we've got to

bring this public debt uh interest

payment down. I think because the optics

are so bad, like a key part of central

banking is that they're supposed to have

some degree of kind of optical

independence, which is that they're

they're focusing on their mandates, you

know, employment levels, uh inflation,

things like that. And they're not really

supposed to take in account uh the the

fiscal situation of the country. Uh and

yet in practice, of course, you find

that that they, you know, when the when

the rubber meets the road, they do. So

when there's a war, when there's a

fiscal crisis, the central bank's

options shrink because at the end of the

day, they have to kind of support that

bond market. And so we saw this um you

know in in recent years and basically

from their perspective, they can't say

out loud that because the the debt's a

problem that we have to kind of change

how we would otherwise do things. And I

think actually like that going back to

my prior point where I would say it's

hard to criticize the the head of the

central bank even though I'm kind of

critical of the whole practice of

central banking. The one thing I think

that it's fair to be critical of is the

asymmetric um uh talking point they've

had around the fiscal deficit. So for

example during co during the depths of

it the the federal uh the head of the

Fed called for more fiscal. He basically

said our tools are limited here given

what's happening. We need more fiscal

spending. uh and they got that there was

of course very large uh stimulus efforts

and now on the other side of that they

won't go out and say that the opposite

they won't say that our our ability to

control inflation and kind of tweak all

this is being hampered by the fiscal

side that basically our tools are not

geared to to doing that and if anything

could make it worse uh so they have to

kind of show confidence and say look we

got this our tools can fix this but the

problem is that I I think it it doesn't

uh that basically that their their tools

are largely unrelated to what the core

issue is. Uh and and you know, I think

that the first step is basically to say

that uh and they're not doing that part.

>> That's interesting. So, let me give you

uh my layman's counterpoint to this,

which would be I'm the Fed. I'm Jay

Powell. I look at this and I know one

simple thing. If I jack up interest

rates, you're going to have to spend

less because you're going to hit a point

where it is just absolutely untenable

for you to keep spending what you're

spending. Um, is it that Jerome Pal

knows, oh, we'll hit a political crisis

first, they'll oust me, they'll find

some way, they'll oust me before that

because other than that, like this is

one of those where he once said

something akin to um I want to be in a

position where uh I can raise interest

rates because it's essentially breaking

the leg of the economy and I know how to

heal a broken leg. Uh so he like gets

that that's exactly what would happen.

So why isn't he doing that if if he's

really trying to control inflation? He

has to do that.

>> Yeah. I think I think that's what he has

been trying to do which is by holding

interest rates high. Uh it makes the

dollar fairly strong compared to other

currencies. It kind of puts pressure on

the rest of the world. Uh it does keep

commodity prices in check. For example,

you know, oil generally speaking, it's

hard to have out of control inflation if

oil prices are pretty low, which they

are. Uh so it's having those effects,

but then the problem is it's grinding

out more and more of this public debt uh

which is actually ironically spewing

more dollars into the market. The

problem is that in in kind of no world

if there was like an acute bond crisis

would they kind of blink and just let it

happen because one of their kind of

shadow mandates is financial stability

and that goes at the heart of financial

stability. A really good example is the

Bank of England uh which which was under

similar strain. So back in 2022, uh

inflation there was like 10%. Um the the

Bank of England was going to do a speech

around balance sheet reduction. Uh so

quantitative tightening and then the

guilt crisis happened. So for people

that that aren't familiar, uh the UK

sovereign bond market kind of broke. Uh

it was just kind of this leveraged uh

vicious cycle. So yields were rapidly

rising causing more entities to sell.

And ironically, the the Bank of England

had to cancel their speech on balance

sheet reduction and they had to go and

buy the bonds uh despite the fact that

inflation was 10%. Uh so they they did

something that is normally only done

>> uh in a low inflation environment. Uh

and they basically had to do it out of

an emergency uh to maintain kind of just

functioning like sovereign bond markets

because everything would have kind of

ground to a halt. And you know I think

we would see the similar thing in the US

that basically they can try to pretend

as though uh that by increasing interest

rates that they would maybe change the

the fiscal trajectory of the country but

I think in practice the problem is that

the fiscal side would pretty much just

ignore them uh as they have recently for

example the big beautiful bill doesn't

really have deficit reduction as part of

it. The only thing that that kind of

some ways is is deficit reduction is the

tariffs. Um, but basically there's

there's been kind of no change during

that process. And if they actually were

to get called out on it with some sort

of bond issue, um, I think we'd see the

the Fed pretty much right in there. We

also saw this back during the uh 2023

regional bank crisis. So inflation was

still above target back then, even more

than it is now. Um, and you know, if

they let banks fail, that does destroy

part of the money supply. Uh, but they

were more worried about the cascading

perceptions of bank instability. So they

actually went to a period of temporarily

balance sheet increases and liquidity

provision to put out that fire despite

the fact that inflation was above

target. So generally speaking whenever

they actually run into a true crisis uh

they do generally heir toward allowing

that inflation uh keeping things

nominally together uh and then trying to

slow things down in the future.

>> Okay. So, uh, if I remember correctly,

it was Vulkar that raised rates north of

10%, I want to say north of 15%. Like,

it was wild. Uh, he was what? Able to do

that because government debt was so low.

Like, why couldn't we run that playbook

now?

>> Exactly. He was able to do that because

total total debt levels, both public and

private, were low. And in particular,

the primary cause of inflation, in

addition to the oil shortages, was that

elevated rate of bank lending. So he

went after the actual kind of root cause

uh which was the the accelerated bank

lending and he made bank borrowing bank

lending less attractive by raising

interest rates. So in addition to

solving the oil constraints that was

kind of the one-two punch that helped

get that inflation under control. The

problem in this environment is excessive

bank lending is not the cause of

inflation. And both in the private

market and the public market debt's very

high. So if you jack up rates super

high, you actually blow out the deficit

even more. Um, and that's that's I mean

that's for example why Argentina, I mean

they had very high rates for for quite a

while and it didn't really slow down

their inflation or their deficit because

it's not a bank lending issue primarily.

It's a fiscal issue. So certain tools

work when the problem is coming from

certain things. So in this case, the the

Federal Reserve has tools to deal with

bankdriven inflation, but they just

don't really have the tools to deal with

fiscal uh driven inflation. That's

mostly a president and Congress uh

thing. And that's, you know, that that's

the part that has to be addressed and

it's not.

>> So what I'm hearing uh is that this is

where we realize that the Federal

Reserve, the central bank really isn't

independent. Uh because if the

government wants to spend, they are

going to spend because he has assuming

that there was true independence, the

Fed could just say, uh you guys are two

trillion dollars a year over budget and

we're going to keep cranking up the

interest rate until you balance your

budget and then we will um you know

lower it again. Uh and then the

government would be like, "Oh my god,

like this would be disastrous. So we're

going to have to balance our budget."

That clearly doesn't happen. I mean, I'm

hearing you. You're being very clear.

minus a political problem that seems

like basically set another way, when

it's people, the private sector that's

getting out of hand, too much bank

lending, the Fed just slaps them around,

raises interest rates until they calm

down. But when it's the government doing

the same thing, printing too much money,

they're like, "Oh, gee, well, we don't

have anything that we can do to stop

this." Yes, you do. Raise interest

rates.

>> Yeah, pretty much. if they were willing

to let the sovereign default uh or have

basically illquid action in its bond

market um then that could affect it. Um

but kind of if you just look at

>> so it's purely that it's you're you're

going to end up doing a hard default and

that's why we're going to keep going. Uh

one did I understand that correctly and

two are you like yes dummy that's what

they should do?

um I actually don't because it go it

actually ends up hitting their mandate.

The problem with the default is then it

cascades through the whole system. So

for example, banks uh they hold

treasuries. Uh so if if the US

government defaults uh basically banks

risk becoming insolvent. So then

people's accounts at the banks risk

becoming insolvent. Same for their

insurers. Uh same for retirees, right?

Uh that's generally speaking why they

wouldn't just say, you know what, let

let's let default happen. uh they always

instead say look we can do a gradual

default through debasement and inflation

that's almost how they always do it. Uh

and the problem is that if if the if the

if they start doing that approach which

they almost always do and they currently

are uh but then the actual things remain

unresolved. So we have entitlement form

that doesn't happen or you know a

Pentagon audit and and clear out you

know pork in in defense spending and

make sure that's all right sized. If

none of that happens, then it just kind

of keeps over time accumulating. And so

people going back to my earlier point,

it's not that we have one big debt

crisis, it's that we have a bunch of

little mini ones all in a row. So that

that UK guilt crisis was a debt crisis

even though it wasn't, you know, wasn't

the end of England. It was just a a

crisis that they put the fire out, they

kicked the can down the road, they'll

have another one. And the same thing

happens generally speaking in the US

where it generally comes out in the form

of inflation, comes out in the form of

populism. And then the problem is it

just keeps getting worse until there's

some sort of pretty radical change. And

if you look at public polls, people

don't want to cut Social Security. They

don't want to cut Medicare. They don't

want to cut uh a lot of these key

things. Uh and so I think we have to

probably go through a lot more pain

before we potentially come out on the

other side of this uh stronger. We'll be

back to the show momentarily, but let's

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impact. Now, let's get back to the show.

Please paint that picture for me that we

come out the other side stronger because

I look at this and it really does seem

like it will escalate until there is so

much wealth inequality that that there

is naked violence in the streets. I

don't especially given what you just

walked us through. Um I don't see how

that stops. We're going to soft default.

That will increase wealth inequality and

then people will get to the point where

they're angry enough to fight. How how

do we come out the other side stronger

without real problems in between?

>> Um well, if I could solve that, um you

know, I think I'd probably not be in the

business of of analyzing things. It's

always it's always it's always easier to

describe problems than just fix the

problems. I'm kind of fully aware of

that. Um I I think basically the US can

do approaches that kind of facilitate

uh a changing of the whole reserve

currency structure. So right now they

both want the benefits of being the

reserve currency but they don't want the

the cost of being the reserve currency

which kind of comes with these

structural trade deficits and to some

extent these fiscal deficits. They don't

really want the costs, um, but they want

the benefits. And I think part of it is

kind of backing up skillfully from a

position of strength rather than being

forced to back up later. Uh, and so one

thing I kind of point out in my book is

that most empires when they kind of get

too big and overstretched, they never

think, you know what, maybe we should

pull back uh instead of trying to fight

maintain every single border we already

have. uh and instead they they they pick

the approach say no we have this we're

going to keep it and then they they get

death by a thousand cuts over time and

so I I think basically if I were to to

give advice it it would be to kind of

acknowledge the problem which I think is

still not not being fully you know uh

internalized in in the country and

basically say that this is unsustainable

and that we have to start pulling back

whether it's uh you know kind of global

actions uh whether it's our the

structure of our entitlement systems. Uh

we have the highest per capita

healthcare spending in the world. Uh

which is a problem when you enter that

kind of late stage demographics. Uh so

you know going back to Japan as a

positive example even though their their

population is on average like 10 times

older than us uh they pay far less per

capita on healthare uh than the United

States. Uh and so that's actually one of

the the biggest things to address uh for

multiple factors because high healthcare

one it keeps blowing out the fiscal

deficit and then two if you're talking

about you know why can't you make things

here is partially because every American

you hire to make stuff comes with a

really big health care expense uh burden

attached to them compared to even their

peers in other developed countries. So

not just emerging markets but other

developed countries like Japan uh they

have that cost advantage on labor

because they don't have that really

bloated health care system. Uh and so

kind of starting to address these at

least one at a time if not together. So

basically cleaning up defense spending

making sure that's actually there rather

than kind of you know for a good reason

rather than porkrelated uh as it often

is the case. Um, and then also really

tackling kind of the root aspects of the

health care system as well as kind of

the the imbalanced entitlement system.

So when social security was constructed

and kind of put into place, there were

way more workers per retiree uh than

there are now. And so over time, as le

expect increased more than the

retirement age uh and as our

demographics slow down, there's, you

know, fewer people adding into it uh

than than there used to be relative to

those getting out of it. And so we've

kind of skewed our things toward kind of

directing fiscal deficits, ironically,

toward those that are older and

wealthier and not toward those that are

younger uh and and you know uh middle

class or lower middle class.

>> Okay. So, if I'm um projecting this out,

well, it seems like what's going to

happen is as the baby boomers work their

way through the system, uh that we are

going to have to just keep soft

defaulting in a really aggressive way to

cover all of the expenses that we're

going to have to pay uh for their health

care, for u the fact that they're just

not contributing to the system anymore.

that the final revelation that this is

all a Ponzi scheme makes itself just too

obvious to ignore uh because neither

side has the political desire while baby

boomers are still cognizant enough to

vote uh to reduce the amount that we put

into the entitlement programs. Um any

dissenting uh statements on that?

>> Yeah. No, I think basically we're at the

stage where default happens. uh I I

would say it already partially happened

with the big devaluation of bonds we've

seen over the past five years. Uh one of

and then the question becomes who gets

defaulted on and in what ratios and so

for example means testing social

security is basically a type of default

because people paid into it with a

certain rule set and some of the rules

might have to be changed. Um but if that

saves the system compared to you know

not doing that um that that's one of the

things that has to be considered. So,

defaulting on some aspects of social

security, defaulting on some aspects of

purchasing power or or even um uh actual

default of of sovereign debt. And then I

think that the biggest factors are are

really untangling the the health care

system and the corruption and the the

kind of the the lack of price discovery

that happens in the US health care

system as well as defense spending which

again you know the fact that we have

this you know we're going like um a lot

of for example the the programs in Doge

went after these smaller areas whereas

kind of the elephant in the room is is

the entitlement systems and defense and

those are things that they weren't

really able to go after and I think that

that's that's kind of the the big thing

for to eventually have to go after and

it's going to be painful.

>> Yeah. So watching the Doge thing was for

me very eye opening in terms of the

general public. Uh I mean look I I

suppose it just became political but it

there was so much vitriol at the idea of

going in and cutting. It did not matter

what Doge was trying to cut. it was just

automatic no hard pass like this is

stealing from the American people. Um

what was your read on that? Did you just

see ah it's a populist moment. This is

typical political or um yeah

how did you read that?

>> Uh so on my site we I I I partnered with

Sam Callahan. We published a report uh

kind of ahead of time. He started

working on it in 2024. We had it out I

believe in January 2025. and it was kind

of explaining why the Doge project would

would not be successful in terms of

major cuts. So, we were looking at these

headline numbers that they were saying

that they were going to to try to cut by

uh either either from Musk or or from

others kind of giving these numbers and

we kind of just walk through the math of

why that was very implausible which is

kind of my earlier point that the vast

majority of the deficit spending is in

these kind of uh entitlement structures.

um whereas they want to go after

primarily the other the like the 15% of

the pie chart which again there is waste

there uh but it it's kind of like I

think we were kind of doing an exercise

in as a country telling ourselves that

there's all this waste that if we cut it

won't actually impact the things we we

don't want impacted and that we can fix

the deficit without pain and I think

that was just kind of this exercise to

do that and we kind of had to show

ourselves that that's not really how it

works that actually these core things

that popular are what's at the heart of

the deficit and therefore you know

partially at the heart of inflation. Um

so it kind of showed that easy answers

are not really the the way out here. Um

and yeah those types of things happen

generally speaking when you start to get

these kind of rising populist uh uh

movements where there's populism on the

right, populism on the left. Um we start

to get kind of things like that but a

lot of it is more optics.

>> Okay. Let me paint a picture for you of

what I see is going to happen. um you're

so deep into the analysis here. I'd love

if if you see somewhere that I've gone

wrong, let me know. Um the way that I

think this is going to play out, so

you'll say we need a lot more pain. I

think pain takes on a very specific set

of actions. Um I think the pain looks

like this. Uh you you pull some of the

middle class up into the upper class.

You yank a bunch of the middle class

down into the lower class. the have and

have knots are staring at each other

like uh monkeys where one is getting

cucumbers and the other's getting grapes

for the same task. Uh they start going

absolutely ballistic because it does not

appear to be fair. Um we are having to

soft default to cover the baby boom

generation. Nobody will vote for a

change in the structure of entitlements

which we just absolutely cannot afford.

Just mathematically it is very simple.

Uh given that they will continue to

print more money for reasons that you've

made abundantly clear. fiscal dominance

makes it impossible for the Fed to

correct this problem. So, they're going

to make noise. They're going to hold

meetings. It's just not going to matter

at all. All that will matter is what are

the deficits that the government is

spending year after year. we will get an

unrelenting 6 to 7% uh of GDP debt to

GDP ratio uh growth and we are going to

see wealth inequality hit a point where

um the refusal to make changes to

entitlements will cause America to uh

there'll be political assassinations

which for anybody who thinks that sounds

crazy look at what just happened in

Minnesota like four months ago this is

already happening uh so we're going to

see a rise in political assass

assassinations. We are going to see a

rise in violence between the left and

the right. We're going to continue to

see people migrate either from red

states to blue states, blue states to

red states. We will just continue to see

this like fracturing, this pulling

apart. Um, and ultimately when we say

pain, what we mean is violence. And

there will be enough violence that

finally people will get fatigued and

say, "Okay, something's got to give."

But I don't think that will happen until

a sufficient number of baby boomers have

died and can no longer cast a vote. I

also think just to really add complexity

here that you're going to see the

Democratic party continue to break

socialist. That's going to gain in

popularity which will only exacerbate

the violence for reasons I'm happy to

explain. But uh

violence is the thing that we sort of

gently refer to as pain. Does that sound

crazy to you or

what?

>> No, that's that's it's bleak. I I think

it's realistic. Uh I I have the phrase

nothing stops this train. Uh which I

which I, you know, took from Breaking

Bad, which is basically that this kind

of slower burn default/de situation is

probably going to last longer than

people think. Uh and so it doesn't blow

up right away, but it also is not fixed

anytime soon. I think the the first real

test for that is in the mid30s the

social security trust fund is estimated

to run out. Uh and at that point they

would have to be it's not to say that

like the payments just stop. It's that

basically they get a haircut. They'd

only be able to pay out what they're

currently getting in uh from the tax

base at that point rather than

>> of how different that is like what

what's that delta

>> something like a quarter or or a third.

So, it's like if if every check was

basically cut by 25% or so, uh or if you

means tested it and said, "Look, if

you're, you know, if you're if you make

a million dollars or you're a

multi-millionaire and you're getting

social security, then that could be part

of the the part that's cut." It's hard.

We'll see how they politically navigate

it. Or the other test is they say,

"Well, we're going to print the

difference. We're going to keep sending

the checks out." Um and then the the the

train keeps running even further. Um and

so basically the the pain is a

combination of one yeah basically

various types of of literal violence but

then also uh defaults on things that

people are expecting. Defaults on social

security are a type of pain. Uh defaults

on healthcare promises are a type of

pain. Um the kind of the the trade

situation kind of right sizing itself uh

through currency devaluation and other

things are a type of pain. I think that

I think my the hopeful takeaway that I

kind of try to leave people with is that

the numbers themselves are fixable.

Basically, a combination of right sizing

things, you know, kind of the

combination of defaults on certain

things, um, uh, is able to kind of and

then actually addressing those core

things, the healthcare, the defense, uh,

kind of the topheavy and basically

national insurance that we do. uh those

things are fixable to the tune of

something like 20 30% each. Uh it's not

it's not like this big catastrophic

change per se. Uh it's just very hard to

do. And I think the more dangerous

element is when instead of kind of

tackling those core things, we all end

up hating each other or we pick a

country out there that we hate now uh

and we kind of are focusing on either

the symptoms of what's happening uh

rather than the root cause which is like

at the end of the day it's things like

the the really bloated healthcare

expense, the topheavy entitlement

systems, the kind of the antiquated

defense spending structure and kind of

the the you know the the way that

Congress is kind of incentivized as to

keep that going. Those are the actual

core things and all the we we we tend as

a people to get distracted by the noise

of of everything else that's out there.

I think one of the big problems that

we're up against is something I call

latestage liberalism where you have for

so long things have gone so well and the

country I mean the the west on mass and

certainly the US has done well for so

many generations that not only do we not

remember a time that was hard our

parents don't remember a time that was

hard like you have to get back to my

grandparents to remember the great

depression

And it really does just feel like

money grows on trees. And I was writing

a video essay about this and I was like,

actually, if it had to be grown on

trees, people would have more respect

for it. We literally print it out of

thin air. It's easier than growing it on

trees. And so the very joke we used to

make to try to explain to kids that

money doesn't come easily is like way

harder than what we actually do with

money. And so people literally, this is

why I think socialism is gaining

popularity with young people is it's

like they have no sense of like this is

hard to come by. So they look at the

people that have a lot more of it and

they're really annoyed because they're

like, "Well, this very easy thing is

being given to somebody else. It's not

being given to me. That sucks. Let's do

wealth redistribution. Let's take it

from those guys because it's just, you

know, growing on trees anyway. Give more

to me and take from them if you have to.

Whatever. I don't care. But like let's

just make sure that everybody has

something with like a terrifying

blindness to how difficult

capitalism really is. And the thing that

I am always trying to get people to

understand is even China realize to pull

people out of poverty I have to use what

I call red light green light capitalism.

What they would probably call capitalism

with Chinese uh characteristics. And

it's like that's the only thing. It's

the only thing that over and over and

over all around the world has shown that

works. And we are now we have created a

an economic situation through I mean to

oversimplify but through deficit

spending and money printing we have

created a situation where people think

oh well this is always going to be good

it's always going to be functional give

me the money and that's going to

accelerate the breaking of the economy.

Do you see that same mentality growing

in people? Do you see us like not only

putting our hand on the stove but like

holding it down on the burner with the

reaction being a more socialist bent

rather than austerity. So we're going

socialism instead of austerity.

>> Uh that so far that's the approach and

ironically it's not just on the left

even the the right I mean basically

owning owning pieces of of private

companies. um and kind of this top down

tariff approach are in basic topdown

type of economic management. Uh so you

see kind of elements pop up both in

terms of the you know the literal

socialist left but then also uh more

socialist aspects of the right as well.

Uh so so in in some sense the Republican

party ends up looking in some ways more

like a the European right which is where

it's it's not necessarily fiscally

conservative even though there's aspects

of of social conservatism. Um, and so

the the the parties look a little

different than they did, you know, in

say the Paul Ryan era of the Republican