Welcome back to another episode of the Meet Kevin show today. We have the honor of coming to you from inside Peter Schiff's Home in Dorado Puerto Rico Peter Thank you so much for inviting me into your home. Oh Kevin It's great to finally meet you in person. yes, away from the zoom screen.

So Peter everybody wants to know your take. You've regularly said and you've warned about this that once the inflation Genie is out of the bottle, it's not going back in. Where are we? Now that it seems like inflation has somewhat peaked and at least we're trending down. even though it may take longer, it seems like we're not going to the 70s again.

What say you? no? I Think we're just starting a decade that is actually going to be worse than the 70s from the standpoint of how bad inflation is. And in fact, last year, if you measured prices the way they measured them in the 1970s, the inflation that we experienced in prices in 2022 was actually worse than any year of the 1970s. In fact, it was worse than 1980 or 81.. So we're already off to a really bad start.

But you have to understand that the inflation of the 1970s? those seeds were planted mainly in the 1960s with the price caps, not the price caps. That was kind of the first attempt to kind of attack the symptoms of inflation because remember, inflation is a very misunderstood work and people think it means rise in prices. It doesn't. right? The if you get an old dictionary, an old web search dictionary, it doesn't even have to be that old in the 1970s, even 1980s.

And you look up the word inflation and it says to expand the you know expansion of the money supply. Expansion is five money in credit. A result of inflation is that prices go up. But the government and certain maybe Keynesian politicians that support government.

They wanted to fool the public so that they really wouldn't understand where inflation came from. So they kind of redefined it as rising prices because the government doesn't raise prices right? Private businesses raise prices like you look at Elizabeth Warren Today when she was tested, you know, a questioning uh, palp, she was, you know, trying to imply that prices were Rising because businesses were gouging their customers right? Inflation is not caused by businesses. This is caused by government. government expands the money supply.

The Federal Reserve does that in response to deficit spending from Congress And so it's government that is the source of all inflation. But by mislabeling it as rising prices, they can deflect the blame. But getting back to why, we had the big increase in prices in the 1970s in the 1960s, That's when we had the Lyndon Johnson. Uh, real big increase in government spending both on welfare and warfare.

We had the actual war in Vietnam right? We also had, you know, the Space Race. So we're spending a lot of money on NASA Spending a lot more money on Vietnam Then we get these Great Society programs and the beginning of Medicare Medicaid and all this and they call the guns and butter at the time right? we're spending. And then we. they started running big deficits.

And where'd the money come from? The finances deficits Fetters are printed it. Now because they printed so much money. Back in the 60s, we were on a gold standard and because they printed so much money, our creditors realized that we couldn't make good on our obligations to play Gold pay gold because all dollars were ious for gold. So in 1971, because there was a gold drain because our creditors were taking their Federal Reserve notes and asking for their gold, the official rate was, you know, 35 dollars got you an ounce of gold.

but after a couple of devaluations, Nixon went off the gold standard and then prices really just spiraled out of control because there was no restraint at all on the printing press through the 70s. So the money they printed in the 60s. they kept printing more in the 70s and we didn't really step on the brakes until Volcker came around in the early 80s. But it started in the 60s.

It showed up in the 70s. Now the inflation that we experienced in 2021 and then worse in 2022, it really had its roots in the prior decade. Wow, it really started in Earnest in 2009 following the 2008 financial crisis. That's when the FED lowered rates to zero and launched quantitative easing for the first time.

Yeah, February of 09? Yeah, right. And and so basically from February of 09 until like March of last year, right? Yeah, interest rates were basically at zero. Maybe it spent a year or two where we got up to half a percent. One percent, Two percent, you know.

But it quickly came back down. And you know, the balance sheet went from under a trillion to what? Nine trillion wherever it went to. yeah, after coveted? Yeah, Exactly right. And we just flooded the economy with inflation, right? And in fact, the FED wasn't Uh, you know.

they said it was honest about what it was doing in a way because all the FED chairman said that we didn't have enough inflation, that we were below Target right? That they the target was two percent and we were one and a half. Oh my. God This is terrible. We don't have enough inflation.

So it was a specific policy goal of the FED to create inflation because they said we didn't have enough of it. Now, part of the reason was because they lied about it because the CPI isn't honest. You generally have to double prices. So if the CPI says one and a half, it's three.

But that means one. And also, if it says eight, it's sixteen, right? So, we've got massive inflation. If you honestly make it, measure, the effect is that because of the weightings that you were, it's well. I don't even know how they calculated anymore, but there's all kinds of substitution.

The basket doesn't remain the same. Of course there is hedonics where they you know they claim that quality is going up right like the iPhone now might be a thousand dollars price went up, but the utility might. Yeah. but I mean you know, but it's not any real better for the consumer.

But there's so many other products where quality just goes down. I Think about, you know, Air Air Transportation. You don't have to worry about that anymore. Now you're flying around your private jet.

But those of us who are still flying commercial you know little people. Um, you know you. You know you have to pay extra. You want a blanket, You want a pillow, You want to check your baggage right? But they don't put this into the CPI You're looking at a ticket fare.

but now they're charging you for everything they didn't bring right? And of course you don't have. You know? now you have two connections instead of non-stop You know you know there's all kinds of delays. I mean so the quality has gone down as somebody who's flown I Can you know test the fact that the the quality is much lower than it was, but you know they don't. They don't adjust for that.

Now Do you think that is because of Covid and the pilot and plane shortage? No. just an example of CPA. This is an example of the CPI not capturing the degradation and quality. Yeah, you know I mean and a lot of companies cut back on.

you know, food companies. They'll give you lower quality ingredients in the food. you know, less fresh stuff, more processed. You know? And it goes.

Not pet food too. You know you. They put you know crappier ingredients there. so there's all kinds of ways that they reduce the quality instead of increasing the price.

Or maybe they do a combination of both. but the CPI doesn't get that. I mean I know I did a a an exercise back in 2013. just I mean you could see the YouTube video up there and this was in 2013.

And I Looked at the prices of newspapers and magazines because there's a part of the CPI that says newspapers and magazines subscriptions. Yeah, right. And according to the CPI newspaper magazine prices over the prior 10-year period were up by 30 percent. So I just said, well let me check.

Not that hard to do. Let me go on the internet, go back to 2003 and look at the New York Times The Wall Street Journal time. Newsweek You know, Uh, I took like maybe 10 to 20 of the major uncirculated yeah and I just looked at the prices that were written on the covers in 2003 and I looked at the prices on the exact same magazines on the covers in 2013 and I compare and the actual increase was 130, not 30. So the question is, where did that other increase go marketing? but I mean it went into the CPI but it didn't come out right? So I don't know the methodology, but I do know that the Boston commission back in the I think late 80s they convinced everybody or the government convinced everybody that the CPI was overstating inflation.

So we needed to fix it. So they got it right. Well, they actually did fix it. You know the fix is now in and now it's understating inflation.

I See yeah, But the problem is now. Inflation is is is so high that they can't pretend it's under two percent. But the point I was making is the Fed had a policy goal. We want more inflation.

Well, they deliver. We got more inflation. A lot more inflation. So they were right.

Well, but we didn't is saying the Fed was right. We didn't need more inflation. We needed it like a hole in the head. I Mean we needed less inflation, but they were hiding behind a rigged CPI to claim that we needed two percent.

And you know where is this two percent? Powell says that. You know, Uh, we need price stability, right? And that's defined as prices going up every year by two percent right now. How is that stable? This is how like that sounds like escalating prices It's supposed to. Rate of change is stable.

but yeah. but. but but prices themselves aren't stable. Stable prices would be.

they're the same. That's stability. Yeah, right. But they just concocted the idea that it was two percent, but the whole super thin uh number came out of New Zealand That's where it started.

But it started as a ceiling. It was not a Target Like we need two percent inflation. Like if you don't if you only have one, that's a problem you need to. It was as long as you were below two, you didn't have to worry.

the minute it got to two, you had to do something about it. So it's almost like your cholesterol should be under this level. But if you're below it, you shouldn't be trying it exactly exactly. But they said we needed to Target two percent, which I always thought was such a ridiculous um, or the amount of hubris that you would have to have as a central Banker to think that if inflation is 1.8 you could just dial it up a little bit and hit two percent.

like right on the money. or if it was 2.1 you just dial it right back down. I Mean if if your inflation is one and a half, that's close enough to two, why would you even like? It was even worse with the ECB Because the ECB remember these Mario draghi comments. They said that their goal wasn't two, percent.

their goal was to be close to, but below two percent. So they were targeted like 1.99 right? And they were saying, oh, one year I was talking about my podcast I think it was 2018 or 19. inflation in the Eurozone was like 1.74 Yet they still had interest rates at negative 40 basis points. they were doing QE because they weren't close enough to being just under two percent, right? And they were 25 basis points away.

Now they're at nine percent. Yeah, now they're so far above right. But what Are they panicking? No. I mean they still got interest rates of Two and a Half.

They're not even shrinking their balance sheet and you know they're There's 700 basis points above their target. Yet they were freaking out when they were 25 basis points below. But the whole idea that you need inflation is absurd. What if we're deflation great? I Mean no, it.

You know you're looking at falling prices, but if you go and look at the CPI in 1900. Yeah, and look at the CPI in 1800. prices were cut in half over 100 years. so we had falling prices for 100 years through.

Innovation Yes, that's what's good, you know and everything. I mean look, you got a cell phone here. You remember how much the first cell phone cost. The first phone I am was like a T-Mobile razor or something like like I Remember you remember I Don't know if you ever saw Wall Street No yeah yeah yeah, he's got this golden Deco right? Yeah and that and that thing back then in the in the mid 80s that was like a two or three thousand dollar phone.

Oh my gosh, you could have bought I Bought my first car in 19. Uh, 80. it was an MGB I paid 3 700. So a cell phone was about a car right? How many people had them right? Why do ever? Why does everybody have cell phones now and prices come down? Yes, that's a good thing because they they try to tell us that well if prices come down, no one's going to buy anything.

No, that's how you get more people to buy it. Sure more people have TVs more people have cars. Like comparing today to the 50s, the standard of living would you argue has gone up. No.

I don't know it's gone down. but the price of TVs have gone down. So it's true. Okay, people have a lot more TVs today, right? So if you grow up in a house, you got a TV in every room.

but your mom's not there because she's working two jobs and you never. You know because back in the 1950s if you had a guy went to high school, yeah, he could support his wife, four kids buy a car save for retirement, no credit cards I mean you know you people had I think a higher quality of life before government got so big. but the free market. The whole time the government has been undermining our standard of living.

The free market has been doing what it can to improve it and so the technology has gotten better and so yeah, we have. We have, uh, more computers. We have more cameras. Of course they're all made in Japan or China Now we used to make all the cameras ourselves.

You know we still have an industry before the government destroyed that. Um, but the idea that we need prices to go up is just completely absurd. You know that we when prices go down, people's standard of living goes up. Everybody wants to buy more stuff and the way you buy more stuff is the price of the stuff goes down to anybody.

Like if you said to somebody, what do you want do you want, uh, um, food prices to go up or down right? Do you want your rent to go up or down? Sure right? Do you want, uh, you know, Health Care to be more expensive or less expensive, right? Everybody wants price to go down and then they might. Then they'll try to say well. But if you're uh, a businessman, you want higher prices? Sure, no, you don't. You want higher margins, right? You want lower prices and lower costs because every businessman knows I can sell more if I can lower my price.

Every businessman is trying to lower their price so they can have greater volume. So the key for a business is the difference between what it costs me to produce something and what I can sell it for. So businesses weren't hurt by Falling prices. Think about all the money that these cell phone companies are making selling false cell phones now at lower price points than when they were so expensive.

you know you had to be. You know Gordon gecko to afford to buy one right? right? What would you say to uh, the economic theory that if prices don't go up then individuals might not be incentivized to ever buy. They would just wait to buy. and that potentially then lowering GDP and therefore maybe the two percent Target Encouraging.

No. Well, I mean if that were true, nobody would own a phone, they'd be waiting for the price to fall indefinitely. But we have always been above. uh, a zero in terms of inflating prices? No, but no.

but I'm talking about prices for phones themselves. Sure, Computers right? they go down I see over the time. Okay that your question? Yeah, so there's something called the time value of money. Sure.

So let's say there's a phone and it costs a thousand dollars. And I know that if I just wait a year, I could buy that same phone used for like eight hundred dollars. Sure, why wait a year? Full health? maybe not. You might want the utility now.

Yes, exactly. Now if I can't afford the thousand dollars, I will wait. but if I have the money I'm not gonna wait a whole year to, you know, and obviously that doesn't That's not the case with food. I mean if you think the price of food is going to go down, you're not going to starve yourself waiting for a cheaper Burger Sure, you're just you're hungry.

you're gonna buy the food and what it costs you is what it costs you. But people don't do that. The only people who wait for prices to fall are people who can't afford like I remember when I saw in a store and I remember which was you know one of the stores like maybe circus City or something I don't know if they're in business anymore. Nope.

but I I went to the store and I was probably in my 20s and I saw my first high-def television set and I remember it was like amazing I was like this is incredible. It's like looking out the window compared to the stuff I was used to. Sure now I really wanted to buy one but I couldn't afford it. It was like ten thousand dollars right? And that was like back then when ten thousand dollars was a lot of money.

Now of course I have high def televisions in pretty much every room I got one in the bathroom right? So does everybody else and then your pressure chamber? Yes, I do right? I've got one in my hyperbaric chamber. But why why do I have them now? Well, they're cheap. Yes, no. actually I have more money.

So I actually could afford to buy one if it was ten thousand dollars, right? But a lot of people who are in their 20s who are at the same point in life that I was are buying these televisions that I didn't buy. I I it wasn't that I didn't want it I just couldn't afford it. And if I couldn't afford it at ten thousand dollars, if it went up to eleven thousand or twelve thousand, it would have been even less affordable, right? So the fact that prices came down. that's what helped me.

From 10 to say nine eight, it wouldn't have made a difference. As prices come down, more and more people enter the market. Yeah, yeah, of course. until you reach a point where they're low enough you know, for Mass distribution.

So you would definitely argue the theory that, uh, some inflation is good to be stimulative and help reward people who take on debt for their businesses. and and try to advance the businesses sooner. You're super anti. That's all.

Bs And of course, you know inflation does reward debtors. Oh yeah, but only if the inflation is higher than what was assumed when the loan was originated. Phenomenal. Because there's going to be hey, you're going to pay a higher rate of interest to borrow money again.

When the the law? The lender knows there's inflation because it's going to be built into the yield, right? What benefits the debtor is. Let's say you and I enter into a loan. Let's say I I loan you ten thousand dollars. Sure, and we expect two percent inflation, right? And so I charge you four percent.

so I can make two percent after inflation. Let's say inflation ends up being 10. I was wrong. We were both wrong.

Yeah, well, you know I'm screwed and you've got a windfall. I Win because you're uh, you're not paying me enough interest to offset my loss of purchasing power, right? So inflation can reward the debtor. but it also punishes the lender. And you know the the real key to economic growth.

And Rising living standards is productivity. You have to have more productivity. Well, where does that come from? It comes from capital investment. Well, where do companies get the money to invest? It comes from savings.

It comes from under consumption. So to have a really strong economy where you have Rising living standards, you need to have a lot of savings. Well, you're not going to have a lot of savings if you're punishing the Savers with inflation you know, or artificially low interest rates like we have I Mean we don't have real economic growth in this country because we we punish Savers and so we're dependent on the rest of the world where they do save, right? That's why all this we have these huge trade deficits because we don't have the industrial capacity because we didn't have the savings to do the capital Investments uh to build the stuff ourselves. Now we we happen to issue the world's Reserve currency for now.

and so the rest of the world is dumb enough to exchange all the stuff they make for the paper we print. is your thesis then that at some point in the future the dollar will no longer be the reserve currency. or I mean historically every currency to have ever existed has has gone to zero, has gone bankrupt and can put do you expect that to happen for the dollar as well? Yeah, well. there hasn't been a fiat currency in the history of the world that hasn't gone to Zero.

now. The Fiat currencies that exist today haven't got the Zero yet, right? But they're also newer, right? Yeah, But the ones that are around 200 years ago, 300 years ago, they're they're pretty much all gone. But real money is, you know. Eternal I mean gold.

I Mean if you find a gold coin that was you know, lost by some Roman Centurion who dropped it somewhere and you find that you know gold coin you could buy pretty much what what you know you could buy back then right? I think Roman Toga was about an ounce of gold. A really nice one. Wow. And now you can get a pretty nice suit for an ounce of gold.

But if you find some paper money I Don't think they had any back then. But if you find some paper money from some bankrupt Nation from a few hundred years ago, it's worth nothing. I mean maybe if it's in pristine condition, maybe it's like a collectible or something, but it doesn't have any real well. your expectation is we might go into that sort of.

Direction Well, I Am sure that far enough into the future. what we currently use as a substitute for money Federal Reserve Those will have zero value to anybody. The question is, how long is that process going to take right? Two years, Ten years, 100 years? Well, I'm sure they'll have value in two years, Ten years, 100 years. Tough to say.

Okay, but how much value I Mean if you look at what value the paper currency has today versus 100 years ago. Sure, it's lost 99 of its value. So something that costs you a penny 100 years ago, you need a dollar to buy it. You know something that costs you a dollar.

You need a hundred dollars. That's basically. But in terms of gold or silver, the prices are relatively constant. But what's more I Think important is not whether the dollar is going to have any value, but how much of its value will it lose and how quickly and a lot of that is a function of how much longer the dollar will stay as the primary Reserve currency.

That's a 64 trillion dollar question. I Mean do you think that aligns with how long the United States might be the largest economy in the world? Well, I I think China is probably I'm not sure what to I mean maybe by GDP we're still bigger, right? right? Um, than China But you know, on a purchasing power parity basis, probably not. I Mean, you know. But yeah, I I Do think by the end of this decade, yeah, China will be a larger economy.

The United States in total. Um, and that aligns with your 10 years. Yeah, I mean and it may well be that before the end of this decade, the dollar is no long. Reserve Currency I mean you can see a lot of Nations including China, you know.

Russia India Uh, even cut even in the Middle East Now, uh, moving away from the dollar trying to reorient their their trade in other currencies. Um, and I think what we've done recently with the sanctions on Russia Only highlights to the world: how important it is to de-dollarize I Mean they should have done it anyway because they mean it's distorting the whole global economy where everybody is warehousing dollars. And the longer the dollar Remains The Reserve currency the bigger our imbalance has become. We have record trade deficits we have.

You know, we're the world's biggest detonation. a huge card account deficits. All this is being fueled by the dollars Reserve currency status. And so the longer it Remains The Reserve currency the bigger our external liabilities become and the more money the rest of the world is going to lose when we default.

Sure, right? Because right now we're all talking about, oh, we can't default on the debt, right? Well, we can't pay the debt either. That's one thing, right? So we will eventually default. The question is how we're more likely to default through inflation than legitimately. You know, not paying because that is what's going to happen.

What would that look like? Because we expect obviously the debt ceiling to be raised? We can't say it with certainty, but we expect that of course it will be raised. So what, You know, what do you mean Then yeah, how do we default? But the the problem is the debt. The ceiling in theory would be part of the solution. The problem is they raised the ceiling whenever we get there, so there really isn't a ceiling.

But when they say we have to raise the debt ceiling because we have to pay our bills, right? That's not why we want to raise the debt ceiling. If we paid our bills, we wouldn't have any debt. The reason they want to raise the debt ceiling is so we can continue not paying our bills right? We go into debt instead of paying our bills, right? So if we didn't raise the debt ceiling, we'd be forced to pay our bills. The problem is, we can't right? So that's why we have to go deeper into debt.

But just raising the debt ceiling doesn't mean that we're not going to have to deal with these consequences. It just means we can kick the can down the road right while the problem gets worse, Because eventually we're going to hit a lending ceiling and that we can't raise. That's like the lenders are like no, Moss We're not lending you any more money because we're not throwing any more good money after bad because you know you can't even pass back. But what you're saying is people would then stop buying treasury bonds.

Yeah, and in fact, we've admitted it. I Mean you know you listen to the the Senators and the Congressmen today talking to Powell If we don't raise the debt ceiling, we're going to default right now. What if? What is? What Are we telling our creditors? We're telling our creditors will only repay or only pay you back if we can find some other sucker that'll lend us the money. Sure, but the minute we can't borrow money from somebody else, we're not going to pay you.

So that's an admission that it's a giant Ponzi scheme, right? There is. the US has no ability to pay its debts. All it can do is find new lenders to lend it the money to pay off the old lenders. But now, who's gonna, How are they gonna repay the new lenders? Well, they got to find another group of suckers who will lend the money knowing that the only way they're going to get it back is if there's an even another grade of Greater Fools well willing to lend.

So this is, you know it can't go on. Ponzi Schemes are illegal because they don't work. Is it just because the government runs it doesn't mean it's going to work. Is it possible our economy grows such that the debt that we have outstanding today is nominal relative to economic product? No, that's not possible because the debt is growing much faster than GDP.

Um, the only way they're going to reduce the debt is through massive inflation. So we owe 30 trillion Or 30. What? Almost 32 trillion, let's say. And by the end of the decade, we'll own more than oh, more than 50 trillion.

Okay, well. I mean if we had hyperinflation? Yeah, and a cup of coffee was a trillion dollars? Well, that's no big deal. It's like 50 cups of coffee and we're good. Yeah, you know.

So obviously you know if we don't have hyperplates. But even if let's say prices go up 10 times, let's say the government creates enough inflation that the dollar loses 90 of its value between now and the end of the decade. And so everything costs 10 times. You think inflation is bad? Now everything is 10 times as expensive.

Well, now that 50 trillion dollar debt is like five trillion in real in real terms. So that's how they get out of debt. You know? If you look at you know what we mentioned earlier. Inflation benefits debtors and punishes creditors who is the biggest debtor in the world.

One thing that States Government? Yes. and the United. That's why the United States government is creating all this inflation. But it doesn't want to accept responsibility for the inflation because obviously the voters don't like it.

so they try to point fingers at Putin or somebody else. But the government benefits from inflation by wiping out its debt. But also the government benefits from inflation In that politicians get to, um, bribe the voters with government programs like stimulus yes, without asking the same voters to pick up the tab, right? See, when they raise taxes, people don't like that. I Mean they like it if you raise taxes on the rich.

The rich is defined as anybody who has more money than you. So as long as they raise money on people that are are richer than you, you're fine. But nobody wants their own taxes raised. but everybody wants to check from the government some form.

right? Well, how does the government pull off that sleight of hand? How do they give the public something without taking something away Because The government doesn't have any money. It only has what it takes in in taxes and then redistribute. So what they do is they run deficits. They just hand out a bunch of money and they don't ask anybody to pay taxes.

Where do they get the money? The FED creates it. So it's inflation. Inflation is a tax. So instead of sending your money to the government, you send your purchasing power.

The government takes your purchase power because they don't need to take your money. They have a pretty press. So they just print money and they give it to somebody. And now that person goes and buys some stuff.

But he didn't earn the money so he didn't produce anything, he just has money. and now he spends it. and now prices go up. and now you pay higher prices instead of higher taxes.

I Mean that's why during covet it was so bad that think about the how stupid this was and I and I I pointed it out on my podcast in real time in early 2000s. The US government said nobody. go to work. Everybody stay home right? Don't go to work, stay at home.

But we don't want you to stop spending. Keep on spending money. Oh, you don't have a paycheck anymore. We'll send you some unemployment benefits, right? It's 600 bucks a week.

We're going to give you double or triple what you used to earn. Yeah, so we told people not to produce but to buy more buy what. they weren't making anything. So that was an inflationary.

Time Bomb Because we were expanding the money supply to buy prices. but we were Contracting the supply of goods to buy so we had more money and fewer goods and prices go through. What should have happened if the government really wanted us to stay home. they should have said nobody buy anything, just stay home and stop spending because they're not working but that would have made it meant to deeper recession so they wanted everybody to keep on spending.

You know I mean it shows you how little understanding they have and even the Federal Reserve uh Powell Went to Congress and said you guys need to spend more money, don't worry I'll print it. we need more stimulus. Yeah and I got you covered. Yeah, I mean so he was encouraging the government to create more inflation and to be the worst possible combination of monetary, fiscal policy and we're We've barely begun to suffer the consequences of that I Want to hear about this? But why I Mean do you are you suggesting the reason potentially we don't use the expansion of the money supply in the definition of inflation today or in the measures of inflation today is because that would be too obvious then that You know of course, well, who expands the money supply? Yeah, it's only the government, right? Greedy businesses can't expand the money supply? Putin can't expand our money supply? Yeah, right.

So they want to Define it as prices. But of course, when you attack prices, you're never going to get rid of inflation. That's why price controls wage and price controls that we had in the studies. They didn't work.

Wow. You know, because it's like you know if you have a fever, if you break the thermometer, that's not gonna bring it down right? You got to get to the cause, not, you know how you measure the symptoms. So the way we have to fight inflation is by shrinking the money supply. But we really have to cut spending.

Yeah, I mean with austerity? like EU Yeah, when when Powell is Raising interest rates I Think that's going to fight inflation. See, it's not because first of all, interest rates are a cost and just like labor or raw material. So everybody is dealing with higher interest rates and that's all passed into prices, consumer prices. What higher interest rates have to do in order to bring down inflation is to discourage spending and encourage savings.

So if consumers spend less, then there's less demand. And if they save more, there's more Supply Because now there's more money to to loan out for. you know, capital investment. But that's not what's happening.

Interest rates have increased, but they're still below the rate of inflation. We still have negative real interest rates, so we're still incentivizing Consumer Debt And in fact, if you look at the consumer credit card, debt is at a record high. Savings rates at a record low. Has anybody altered their consumption and savings? Behavior Based on the increase in interest rates? No No In fact, to the extent that people can't afford to buy something because the price went up, they don't cut back so much.

they just borrow the money and buy it anyway. They keep on paying the higher prices and government is continuing to run these deficits. We're not going to bring down inflation until we bring down the deficits. We have to reduce government spending.

Consumption has to go down. All government spending is consumption. So we're running what the Cajuns would call an expansionary fiscal policy. Right now, we're running huge deficits That is inflationary, even by the Keynesian you know definition.

So even if you're saying we have the FED that is trying to fight inflation, you have the government that is lighting more fires. So you know the FED is not making any progress. So would you say you're going to make progress just by raising rates at the rate? They're doing it. So at the same time as the FED is raising rates, the Federal government is also handing out essentially stimulus checks to chip companies and manufacturers to produce the factories out here.

Battery manufacturers. I mean we're almost in a stimulus war between Europe China and the United States for batteries. And EV would you say then that's stimulative while the FED is decided Well It's not stimulative in the sense that it helps. You know it.

but it stimulates inflation if you want. Sure, looking at what it stimulates, yeah, But also, you know a lot of these politicians claim that. Well, you know the inflation isn't Biden's fault or the government's fault because they have inflation in Europe. It's also, you're going to blame the inflation in the Eurozone on Biden No.

I Blame it on the European politicians who made the same mistakes right. And more so, the European Central Bank I mean we have inflation all over the world. Because all these central banks made the same mistake. They all created a bunch of inflation.

They all had zero percent interest rates or negative interest rates. They were all doing quantitative easing. It's not an accident that now they're experiencing. uh, the consequences.

That the only thing that kind of makes it difficult is that there was a big lag. Was that lag so large it took until Covet for us to see that until after covet, right? Yeah, well, but we're I I Don't even think we're seeing all the inflation that we created in Covet. I Think we're finally catching up to the stuff from 2009 2010. I think I Think there's a lot of inflation in the pipeline.

Wow. and we're just at the cusp of it. That's why you think it's actually going to be worse today than this 70s. Because what you're saying is the inflation we're seeing today is from 09.

Yeah, inflation hasn't even hit yet. And and um, we can't do anything about it because if you look at what it took. So inflation was when Volcker came in 1980 81 as she came in, Inflation was 11, 12, 10, 11 up there, right? And so interest rates went up. short-term rates went up above 20 percent.

Yeah, and inflation didn't even get back down to two percent for the first time until 1986.. that was six years later, and the Fed's funds rate in 1986 hit a high of 16 percent. Six years later, you're still at 16 just to get inflation to two percent. And you know how many years it took to get another year where inflation was two percent or lower.

Well, 20 total, 12 and 12.. right? So Powell thinks he's going to get inflation back to two percent and keep it there. He doesn't have a prayer of doing it. If it took 20 interest rates to do it back then.

we have worse inflation now. But we have so much more debt. What would what would the interest rate be on the national debt? Even at 10, we have a 35 or 32 trillion dollar national debt. If we had to pay 10 on that, that's three trillion dollars a year.

That's more than National Defense Uh, Social Security and Medicare probably combined I Don't know. I mean you're close I Mean it would be. It would be like two-thirds of the government's tax revenue. Yeah, even even when they refinance the whole thing at five percent, you know you're you're We're going to be spending in a couple years.

it's going to be two trillion a year in interest, maybe half the tax revenue, and we're already at a one trillion. We're not quite a trillion years by the end of this year. Early next year, it'll be a trillion dollars a year just in interest on the national debt. That means over 10 years, that's 10 trillion in interest payments.

But of course it will be more than that because rates are going to keep going up and the debt keeps going up. So it's it compounds. So what do you say to people who say that, uh, one of the reasons you had more inflation in the 70s and you ended up getting a Paul Volcker was because of unanchored inflation expectations, whereas today they're relatively anchored. Yeah, well.

I mean I think that's a bunch of BS when you know and pal said that again today that he thinks that inflation is a function of expectations. Like you know, people expect inflation and that's why there is inflation. But that's part of the government's efforts to blame other people for inflation. We don't have inflation because people expect it.

People expect inflation because we have it right? So they got The cart before the horse. Interesting. and it's not that my beliefs about inflation is what creates it is. Well, if you think there's going to be rising prices, you're going to demand higher wages.

And you know. But this is all a bunch of BS you know? But yes, of course, if you have inflation long enough, people will anticipate that it will continue and they will try to deal with it as best they can. But that is not what's creating it. And it's possible that if people anticipate inflation, but you pursue the correct policies, they'll end up being wrong.

There won't be the inflation that they anticipate. and in fact, I think Americans By and large are wrong. today. there's going to be far more inflation than just about anybody anticipates.

Wow. I Mean think about the huge inflation that we had I mean it measured by CPI last year Eight nine percent. How many people anticipated that? Yeah, no, it wasn't. You know people thought, oh, everybody thought that inflation would be low.

Uh, and people still expect it to be low I mean if you look at what they expect, not two percent, but maybe three percent. Sure, But they're they're completely wrong. So five years out, the University of Michigan say says 4.2 percent for inflation. Uh, sorry, that might be one year out, one year out, four point, two percent.

Let's say, and five years out 2.4 What say you do that Completely off? Well I don't even know. like how they ask the question I mean I've never been questioned but I mean a lot of Americans can't even do basic math I mean you ever see some of these videos? I mean I mean the Americans have been so dumbed down on just about any subject. How are you going to ask like oh, what's the inflation rate going to be in four years? like how the hell does anybody know so I mean do they give them like a multiple choice I mean I don't even know Like how they they they conduct the polls Yeah, you know I've never received a phone call from somebody from the government asking me what I thought the inflation rate was going to be. you know, three or four years from now I mean so the whole thing is ridiculous to even put any stock into what a bunch of idiots think inflation is going to be right.

I mean you know they don't know I mean they actually they may be. They may be closer than a central Banker Yeah, you know they actually may be more accurate than the people on the Fomc, but they don't know. they're just guessing. How the hell? How does anybody know what it's going to be Now what's uh, what would you say though to this great moderation that we've had over the last 40? Years of yes, expanding the debt.

Uh, so expanding the money supply, but uh, also inflation falling from the Paul Volcker era down to really 20 right before? Well again, part of that is due to the changes we made to the CPI so that we're not being honest. So inflation has been so we've been misled. We've misled. Okay, but I think you have other factors that have come like one of them in the U.S was women entering the labor force? I Think that was a big thing because prior to the 1970s, married women by and large did not work.

Sure I mean maybe if their husband got laid off, they might get a job just to pick up the slack till he got another job. but I mean women didn't work. But as a result of the inflation of the 70s and the reduction in the real income of the men, the women came to the rescue. The women went to work and so we got the benefit of all that extra labor.

We didn't have it before, right? instead of productivity. So yes, now we have more people working uh, and producing. And so instead of the husband having to support the wife he didn't have, they supported each other and so you had. you had another worker.

So that was part of it. Now of course we can't do that anymore because they're both working. and now that some of them are, they're working two or three jobs a piece. they're kind of maxed out.

I mean I Suppose the kids can start dropping out of school and they could pitch in. Oh okay, but you know, yes, they got those child labor laws. Yeah, yeah, it's hard. but um, so the other thing I think was the growth of China I think China really saved us because you had all these people that could do all the work for us at a lower cost deflationary And and so we were able to uh, Outsource a lot of our production and that kept the lid on prices because all this stuff was coming in from China uh at prices that we could never produce it ourselves.

I Mean obviously if all the money we printed had to stay in America and we can only buy what we made I Mean prices would have just gone through the roof, but we were able to send the money to China And and they sent us their stuff. Now, what did China do with the money? They bought treasuries, they bought stocks, They bought real estate. So what happens during the 90s and the 2000s 2010s is a lot of that. Inflation ended up in financial assets.

That's why stock prices went up so much. That's why real estate prices. That's why bond prices, right? So inflation was showing up in those financial assets, because that's how the money was making its way through the economy. But where we are now.

we're at the early stages of the money flowing out of financial assets into consumer goods. And because that's ultimately where it all goes because nobody buys stocks because they want stocks. I Mean there's probably some Geeks out there that just love stocks. They're just trading for the thrill of it.

You know? But most people want to buy stocks because they want to sell the stock and buy something with the money that they earn and appreciation. Guys like me I buy stocks for the dividends, right? right? I Expect I want to earn dividends and I want to spend the dividends on on things. whatever you want, right? But no one just wants the stock just to brag about owning it or admire the certificate assuming they actually know what really has a certificate. So ultimately, everybody's goal is to move the money out of the stock market into the real economy and buy cars, take vacations, buy a house, travel, go out to dinner, buy clothes.

That's what everybody wants, right? So as all the people start to turn their financial assets into consumption, prices for financial assets are going down because people have to sell and now the price of everything else is going up because people are starting to spend. so we're just early in that cycle. Yikes. Now, what's your take on potentially deglobalization also then increasing those prices? Or do you think the world will more re-globalize No, you're right.

I mean I Think we've reached the end of that trade with China Where China's like screw this. Yeah, you know we want our stuff. We're going to keep the stuff that we make, you keep the money you print. We'll keep all this stuff.

and and so we're not going to be able to import deflation from China We're going to be importing our inflation back, right? Because all that money comes back because you know what the Chinese are going to do. They're going to take their money and buy our used stuff, right? Not you buy our used cars or you know, whatever. So a lot of prices are going to be bid up. When they don't want our stocks anymore, they don't want our bonds anymore.

They want actual stuff. Uh, so you know we have this big Day of Reckoning coming with inflation and a dollar devaluation. I Mean there's just no way around it. What's that going to look like? Going to look pretty bad, right? Because you know it's prices are just going to go way up and prices of goods and then assets down.

Yeah, no asset prices might actually go up in nominal terms, but don't go down in real terms, right? compared to so you expect hyperinflation, Well that be the worst case scenario. I Hope we avoid that, but even if it's not hyperinflation, you know why my Republic style or Zimbabwe style something like that we can still have. You know an Argentina type situation. you know Turkey Yeah, we could have something.

Now it doesn't mean that we're that. Weimar Republic is impossible. Of course because you know Germany was very wealthy I Mean you know, uh and look, what happened right? I mean so it's possible that we could. We could end up in a worst case scenario, but to avoid the worst case scenario, it's You know we're gonna have to bite the bullet at some point.

Otherwise, that's what's going to happen. And what time frame do you see that in? I Think once once the inflation really kicks in, it'll be quick. You know the dollar will start spiraling down and prices will go up. and the real you know problem is going to be.

You know the the politics of it all, the civil unrest that may, uh, ensue, and other really misguided policies. We may go back to wage of price controls again, import restrictions, exchange rate restrictions, so that just makes it worse. Yeah, of course because it will create shortages, right? and then black markets, underground economy. um, a lot of crime violence.

I Mean it's yeah. I Mean it, it. It's not going to be pretty. That's that's and you think that could be with as soon as potentially the next few years when the real inflation comes through.

Yeah, I mean it can happen anytime. I mean again, we can kick the can down the road for another five years. I Don't know, so you know we can still go to the moon for another five years. Oh you know, prices? Yeah I doubt if you look at the charts I doubt that we're gonna, you know, see another huge run You know in a lot of these Tech names and things like that I mean I Wouldn't be surprised if the Dow made a new high man.

That could happen because you have some legitimate companies that are in those 30 thousand stocks. Yeah, like AMC Yeah, well, they would have been too bad they kicked out Exxon Mobil You know they replaced it with Salesforce Yeah, but um, but yeah. I don't think you're gonna see. You know you know the fangs or the low, even lower quality names I Don't think they're made I think the highs are in for those stocks.

Wow. Even nominally, you know I wouldn't be surprised if they they made new Highs but if they do, it's only with massive inflation and in which case they made a new high. But you're better off with owning almost almost anything else. Oh my gosh, anything other than stocks those stocks? Well, you can own the right stocks.

Um, but just you know, you know, the the stuff in your kitchen can outperform those stocks, right? What's prevented you from launching your own ETF like a Kathy would uh, but maybe more dividend focused? Well I have my own mutual funds I've already done that I Have a whole family of funds. and finally, after several years of lagging the competition, I'm now at the top of the Heap Um, it's dividend payer fund. Yeah, uh, was number one last year according to Uh Lipber uh Morningstar uh, U.S news and World we've got a couple of awards for the fund. In fact, congrats in international value.

There's like 350 funds in a category I only have two funds in the category and my funds are ranked one in three. Wow! over the last one year, three years, and five years. Okay, so uh, and that's a value strategy. Uh, you know, good stock picking, good sector collection.

Now the absolute returns are not great in dollars because we've had a very strong dollar. so the returns are only good relative to my peers. and that's of course, the Benchmark right how I've done. But I think the returns over the next five years are going to be much better not only in relative terms, but in absolute terms because I expect the dollar would be very weak over the next five years now.

I Expected it to be weak over the past five years. So I got that wrong, right? I Expected my funds to deliver better returns for my American Uh, investors. Sure, Um, but I think we're going to make up for that because I think the next five years will give us enough extra return to make up for the first five because I think now the dollars demise is going to be bigger. It's a bigger bubble.

more air is going to come out. So I think we're going to get paid. the Payday for being patient is going to be bigger because we had to wait longer to to receive it. Now, if we have more inflation, wouldn't that lead treasury yields then to increase and potentially demand for those treasuries to increase, leading the dollar to rise at least in the short terms? Well, that's already happened, right? Yields have picked up and the Dollar's gone up right? But that's only because the markets still believe the FED is going to succeed in reducing inflation over the long run, right? It'll take a failure.

In other words: I See, the markets have to lose confidence in the FED for some reason. They still do. If you look at a 30-year treasury, right, The yield is less than four percent. In fact, the yield on the 10-year treasure is higher than the yield on the 30-year treasury.

They yield out. A five-year treasury is higher than on a 10 year. The yield about a two years higher than five years. Everybody expects the FED to succeed.

Yeah, they're not going to succeed. They're going to fail. So you think the Bond Market is wrong? Completely wrong, right? And and part of the reason they're wrong is it's so distorted by the central banks. But at some point the Bond vigilantes are going to wake up and realize that the central banks have put themselves in a box and there's no escape.

and that inflation is not going away. It's here to stay. And even though they're raising interest rates, the rate that you're getting is still going to be negative in terms of inflation. I Don't believe the central banks are able to offer an interest rate that is above the inflation rate.

Wow. And so as long as bonds are yielding negative, why would anybody want one? You can't win in a bond? You You know you could make money in stocks when interest rates are negative. I Mean you know you could have a lot of growth, the stock price go up. But if inflation is eight percent and you've got a bond with a five percent coupon, you can't make money.

You're guaranteed to lose unless the inflation rate comes way down, right? But it's not going to happen. you know? So now do you think it's possible if they've rigged the inflation data for let's say, the past decade that they could adjust the inflation data down going forward? They probably will. But you know I mean you know you can't fool everybody. You know.

it's like you know some of the ways that companies avoid raising prices as they just you know. Translation: Not yeah. So I mean eventually you buy a box of cereal and there's just like one flake in there. I Mean you can't you know.

I remember when I used to buy cereal when I was a kid right into box. it was filled up to the top right. and I know that because when I used to go to the supermarket with my my mom we would pick the cereal based on the toy inside and so as soon as I got home I would have my mother open up the box and pour out the cereal so I could get the toy and that cereal was all the way to the top of the box. Now you buy a box of cereal and it doesn't even start until two thirds down.

Like two-thirds of the box is actually empty. Sure by the time you get to the little bit of cereal, it's in that box. so I mean just. But there's only so much they could do.

and they you know and then they're reluctant to shrink the size of it because you know then you'll see. So they just they just give you lessons the same box but at some point you reach you know you can't shrink it anymore. I mean they keep taking sheets out of a roll of toilet paper. Yeah, you know at some point they you know they can't make them that small and they have to just you know start raising prices.

But it's still the same to the consumer because I just have to go and buy more rolls. Doesn't matter if they Just you know, make the rolls smaller and I pay less per roll I have to go every time I go to the supermarket. you know you got to buy. you know, a 12 pack.

Yeah, you know to get enough toilet paper last of the week. especially. you know if you you know if you've got women in the house, you know they they run through that toilet paper. What about uh Kathy Wood Uh and her idea that inflation today is actually lower than what's being reported? Yeah, the opposite of what's actually true.

That's how the lyric delusional Kathy Wood is. yeah I mean look, she's just saying that because she's trying to talk her own book and you know you can make the same accusation. you know of me, right? Peter's just bearish because he's you know, long gold stocks or he's short to Dollar You know? So yes, I recognize that you. You could say that, but in this, you know I I think I'm right.

Of course. obviously maybe she thinks she's right too. but uh, why do you think she's wrong? Well, she's pretty much been wrong about everything but what she's talking about, right? Higher productivity. And I don't dispute the facts that in certain areas, productivity is going on.

AI Yeah, and and now it remains to be seen right what that AI is going to ultimately do for productivity. It has the potential to make people a lot more productive because I can start a business and instead of hiring a bunch of people, I can just have a computer program do it for me. and I don't have to use those labor resources, they're freed up to do something else. And you know, to the extent that I can run a business on a lower budget.

Well then I can charge lower prices for whatever my goods or services are because I don't have to pay all these workers. Um, and so it's very possible that productivity goes up, which is good. We want productivity to go up and under the normal course. That would mean lower prices, but if we print enough money that we will lose that benefit.

Prices May remain the same or they may go up a little bit so we still have inflation, even if the free market is increasing productivity. The Government Can Be undermining the benefits of that by creating inflation. So thanks to running a deficit because by default, you're suggesting we're running a deficit which is inflationary. and so even if we get uh, Innovation, we're we're still fighting the situation.

What's probably going to happen in the world that we live in today versus the free market world that we should be living in is a lot of the workers that end up losing their jobs to AI. We'll just go on some government welfare program so it's not like they're going to go do something else. Ubi Yeah, they're just going to get money from the government, so it's like that's going to offset. That's interesting.

So that's potentially arguing that even if if we get more productivity, we might just take one person completely out of the workforce and then reset that productivity back to right where it was. Well, if if if the government simply pays the person. So let's say let's say somebody was employed right, making you know fifty thousand dollars a year? Yeah, and then I lay that guy off I don't need them anymore I Can I A computer can do his job for me. So I I don't have to expense that 50 000.

And now I fire that guy. If that guy goes and gets another job, it's a win. Yeah, right? Because now he's doing something else. So now we have the benefit of whatever else he's doing.

Sure, plus what I'm doing with the computer, but if instead he goes to the government, the government just gives them fifty thousand dollars a year and some kind of welfare and he doesn't work. then Society hasn't benefited at all from. There's no extra product too. The guys just get money from the government and so you know, whatever, whatever, uh, benefits are being stolen by the government.

so we'll see how this is going to happen. I Mean obviously some of the first people to lose their jobs from a lot of this are going to be the unskilled like the minimum wage type workers who are being, you know, automated out of existence by the minimum wage and other payroll taxes. And a lot of these guys obviously are just showing up. Um, on the welfare rules.

I Mean look at the the labor force participation rate. I Mean why is it so low? Where are all those people? How these people surviving? Could it have been retirements because of covid? Well, some people, but um, you know a lot of it are just young people that never even enter the workforce. But I think a lot of people are actually coming out of retirement somehow because they can't even afford to stay retired because they're the inflation. They're taking these odd jobs and things like that.

But I think a lot more people over the course of this decade who are now retired are going to go back to work. What's your take on housing? Then housing is obviously a real asset. Uh, potentially an inflationary hedge. Uh, However, with rates going from 2.7 to now 6.7 maybe in some cases seven percent.

it seems like there could be an impetus of a housing crash. Uh, much like you potentially I Believe you predicted in 2005, uh, or 2006. you mentioned you saw the top of the housing market at the end of O5 and that there would be some form of housing crash. How does that relate to what you're seeing today? Well, I started a warning about the housing bubble when the FED began inflating it in 2002.

Oh wow, I just didn't know when it would reach its peak. But by 2005-2006 it was pretty clear that we had peaked and I was you know warning about it. And that's when we I helped get the hedge fund, the Shorts subprime and do all that stuff. Uh, and that was in 06 and that was, you know, pretty much just before it all imploded in 07, right? But I I had been warning about it, you know, and writing about it extensively online in 2003, 2000, 2004, 2005.

So this thing didn't come out of left field and I explained exactly why we had a bubble. I talked about how the Federal Reserve how Fannie Mae and Freddie Mac and the banks, the appraisal industry and I explained how all that was happening and and how was the story in the economy and the financial crisis that was going to result when the whole thing burst. So I mean people have said if they, you know, listen to some of my talks, you would think that I was I came back from the future and well you know in the time these talks. but it's basic economics.

it's just that so many people don't understand it. Sure, you know they think that I'm some kind of prophet because I can see what should have been obvious to everyone else when the schools aren't teaching that it wasn't that I was so smart is that everybody else was so dumb and so you know I was the the tallest. Uh well. short short person little person in the room I Don't want to don't want to be politically incorrect, but um, so how does that compare to today? Well it look it is a different situation today.

we don't have time is different we. Well, I mean we don't have the same type of subprime uh Market that we had back then right? We don't have as many teaser rates and adjustable rate mortgages now as we have back then, but it's still a big bubble, right? Uh, real estate is still priced really for three percent mortgages, Three three percent mortgages and we're at seven and going higher, going higher. Where's the terminal they're both fed and what would you guess? Two years from now I don't know it's gonna go higher I Don't know I can't I don't know I just think it's you know in the 1980s, mortgage rates were 14. 15? you know I mean they can't get up there again.

You could force you could reasonably foresee 14 mortgages. Sure it could happen. now. the FED might cry Uncle before then, but we'll see.

But um, mor