"The Fed Is An Illegal Counterfeiting Cartel" Economist Exposes How They're Robbing You

Dear audience, imagine this. Today's guest had made enough off of investing to retire to a tropical island at the age of 25. One day though, he returns to the mainland to get some cigarettes only to discover he's now dead broke, lost everything in the 2000.com crash. He becomes a bartender in Japan to make ends meet and decides to get his PhD in economics so presumably he never gets wiped out again. And he is here today to help us avoid catastrophe. Peter, what I want to know is what have you learned that people today would benefit from but might be missing? What I try to do in investing is think as little as possible. Like the more steps you have in your thesis, the more things are going to go wrong. Uh, you know, it's like when you're betting um, what are they? Parlays where you do, you know, you have the this and then the other thing comes in and it doesn't work. The odds are very low. Uh, and so and then, you know, when it comes to investing like, you know, I want to ask the simplest question. So like right now I think that AI is the dot-com. Uh, I think if you look across the various, you know, metrics, media coverage, public opinion, uh, Fed rates, um, if you look across them, I think that we are closer to '97, '98 than we are to 2000. Uh, '97, '98 meaning there's still a lot more to grow. 2000 meaning the bubble's about to pop. So that's where I think we are. Uh, but if for example capital expenditure were to suddenly collapse, uh, if, you know, OpenAI were to cancel uh, a bunch of investment, if data centers are being pinched because of energy problems, okay, so if those things happen then, you know, I think you'd have to pull in the horns a little bit and at least prepare for the possibility um, that AI could have a winter just like dot-com had a winter. Right? So if you look at dot-com usage, right, usage of the internet and you trace that from 1995 all the way to today, you can't see the dot com crash in usage. Right? You know, it's not like everybody Yeah, so like everybody in 2001 didn't stop using the internet, right? In fact, it actually escalated because you had social media coming in, the you know, so-called web 2.0. So, usage didn't collapse, values collapsed. And so, that's what I think you want to keep an eye on. I think we are guaranteed that AI is going to be widely used, it's going to have a huge impact on society, probably bigger than the internet. I think it will be bigger than the internet in terms of the economy and profits. However, it is entirely possible that it will be punctuated. Now, generally when you look back through history, um a specific bubble popping itself is not going to cause a recession that will take everything down. Right? Like you constantly, even during the best boom, you you constantly have little boom-bust cycles where investors got excited about something and it didn't turn out the way that they wanted. I could take uranium, for example, or what's happening to gold and silver right now. Right? So, you know, you've always got these little markets that jump up and then go back down. That doesn't cause a recession. Historically, what causes a wide economy-wide recession, that is Sometimes it can be wars, has to be pretty catastrophic war, we haven't had one of those in 80 years, but most of the time it's it's it's the Fed. So, the Fed jacks down interest rates to get a tissue fire going, to get the economy burning bright, so that politicians can win the next election. That creates inflation, they strangle the inflation by jacking up rates. So, that is the standard story, it's the 500-year-old story of the boom-bust, it is entirely created by governments. And so, you know, So, in other words, there's one possibility that like CapEx crumbles in AI because nobody can turn a profit or whatever. Okay, so there, you know, you would want to trim, but you wouldn't necessarily go over into gold or something defensive. You would maybe move into the broader market. You know, instead of being 40% AI picks and shovels, you reduce that to 20% or whatever the number is. Um, but then at the same time, you want to keep an eye on the possibility that there's a uh a sort of national recession that hits everything. And there, you know, you flip into really defensive things like like canned soup, Campbell's canned soup, not canned soup in the basement, which you would save that if things got a lot worse. Um, so right. So, you know, you kind of want to keep an eye on the various failure possibilities. And that that's where I went wrong in the dot-com, right? Is that I was buying it because I thought that um you know, people who who were skeptical uh were going to turn over, but I hadn't thought through, you know, number one, what's the end game on it? Uh and number two, I didn't understand how recessions worked back then. So, I'd never heard of Austrian economics. I had an economics degree, but it was a you know, mainstream Keynesian degree from McGill. Uh so, they didn't teach uh economic history. They didn't teach Austrian Austrian economics is really just classical economics. It's just rebranded. It is the exact same. Uh you can go back to the Spanish scholastics in the 1500s and it is Austrian economics. So, they didn't teach any of that. So, I didn't I didn't know what signs to look for. >> a crash course really fast in that. What what is exactly classical economics or Austrian economics? Economics as a field is the study of choice. People think of it as a study of money. It's actually study of choice. Why do people do things? And a lot of things that people choose to do involve money and there's a lot of profit in analyzing those choices. So, you know, most of what economists do tends to deal with money. Uh but it's not really about money. Uh it's about choice. And classical economics, really going back to Aristotle, they tried to model like why do people do things? Uh and the sort of pinnacle [snorts] uh of that, you know, two millennia long uh inquiry is a model that we use today that, you know, anybody who's gone to college would have been exposed to it whether they liked it or not. You have the supply curve and the demand curve. And these basically trace out the fact that, you know, people want things, how much they want it depends on what the price is, but then if the price is high, you don't want it as much, but if the price is high, people want to offer it to you, and then there's some intersection of that. You know, so for example, people want to get married in order to increase, so they are a supply of husband, and in order to increase their attractiveness to wives, they go to the gym or they get a job. And then, you know, women on the other hand, you know, they now regard them as an attractive product, but the question is what's the price? In other words, will will he love only me or will I have to share him with other women? All right, so you can take this supply and demand, you can apply it to lots of different things that involve choice. And you know, if you sort of go through that all the way from Aristotle through Turgot and Bastiat and all the way through, you know, Rothbard and today, you've got a really, really beautiful way to understand not just how the world works, but then these sort of emergent features that come out of it like like inflation and and jobs and and productivity growth, GDP growth, and things like that. All right, so that is the sort of classical Austrian economics. Keynesian economics is this freak that [snorts] was bolted on top. So this guy named John Maynard Keynes, he was not an economist, he wasn't trained as an economist. His dad literally bought him a professorship at Oxford or Cambridge. I think it was Cambridge, which is what one did back then. He it like he was a layabout, the family was rich, the father was like, "Yeah, you know, you're not going to amount to anything." But Keynes was willing to be a for the point of view that government can make it better. Right, so classical economics generally felt that people are the best judges of what's best for themselves. So, you know, you should let people marry who they want. You should let them choose what job they want. You should let them start a business. And the general job of the government was to stay out of the way cuz anytime the government got involved it was going to screw it up. So, there had to be a darn good reason for the government to get involved. Like if a crime is being committed or if it's a war or something like that. Keynes on the other hand, he was the standard bearer for an idea that's lasted almost as long, which is that government can do it better. And of course, you know, there's always a constituency for this because government is corrupt and so certain people are going to think that they can bribe government and then they can get special privileges. So, they can get, you know, trade protection or they can get money handed out to their industry and so on. So, Keynes was willing to be that guy. Predictably, of course, governments wanted to fund departments and professors who were pushing this pro-government narrative. And so today when you go to a university, Keynesianism is dominant. Basically, it says that no matter what the question is, government has a role to play. And of course, the problem is government is made of men. It's made of people. And so, you know, we all understand that like companies can't be trusted. They're going to try to rip you off. They're going to try to charge you more money. They're going to try to stiff you. But of course, why would governments be any different, right? Like, you know, people who go work for the government do not get purified in some ritual where like they're, you know, Jedi Jedi Council now. They are just as, you know, greedy, just as deceptive. In fact, they're probably more so because nobody's watching them. Right? Government you have what's called a principal agent problem. So, nobody's really keeping track of government, which is why you have so many Somali leering centers. But anyway, so, you know, the the the argument of Keynes is to sort of pretend that government is this angel. And so, you know, because some market is not perfect, you know, like healthcare for example, you know, there are some people who can't who who can't afford coverage. And so, we're going to give that to the government and the government's going to use its angelic omniscience to fix it and of course they always make it worse. So, within economics, generally speaking, if you get a degree in economics, almost everything you will have been taught is Keynesianism. So, it's pro-government, it's government can fix everything. Oddly enough, economics today, not to get too far into inside baseball, but economics today is broken into two classes typically. You'll get micro, which is little stuff, and macro, which is big stuff. Micro is like how to run a business, they do this supply and demand up because it's classical economics. Macro is like inflation and unemployment rates and stuff. Micro is actually true. Like, it's almost entirely because it's based on classical economics and micro is good to go. Macro is >> [laughter] >> essentially pure propaganda that's going on how um the government can can fix anything. But so, broadly speaking, I had gone so, I went to McGill uh in Canada. It's a completely mainstream program. I did my graduate degree at George Mason, which is an Austrian program. Uh but my undergrad was was mainstream and so, I had not learned about, you know, any of these things. Like, I didn't know how business cycles worked. And under Keynesian business cycles are almost like the weather. Like, you get an earthquake or the weather's bad when you like, there's no cause to it. Um literally under Keynesianism, it's called animal spirits. Like, what is an animal spirit? [laughter] Like, how do you predict animal spirits? It it it just kind of pops up like, you know, everybody's feeling really good and then all of a sudden everybody's feeling really bad. There's no explanation for it. Now, if you go back to Austrian or classical economics, it's what I said earlier, right? You you screw around with the money with the interest rates. We'll get back to the show in a second, but first, let's talk about how you're using AI. You open chat GPT, you ask it to do something, it does it, then you close the tab and forget about it until next time. But that is a missed opportunity and that's where today's sponsor, Syntra.ai, comes in [music] because it works differently. Syntra's AI helpers are designed to be proactive. They surface daily suggestions based on your business goals, your content ideas, task recommendations, optimization opportunities. You approve or reject what makes sense. >> [music] >> It's not sitting around waiting for you to remember what needs doing. Get help running your business free for 7 days. Go to syntra.ai/trial. They offer a full refund within 14 days if you're not satisfied. Stop waiting for AI to help. >> [music] >> Let it work proactively. All right, now let's get back to the show. Well, so finish that statement. So, I assume Austrian is going to be a screw around. You have a Fed, a federal central bank. You screw around with the interest rates. That's going to have a knowable set of effects. And so, somebody in the Austrian school is going to look at this whole animal spirits idea as patently ridiculous. They're going to say there are forces at work. These forces are complicated, so it's not perfectly predictable, but it's a pretty knowable reaction. Yeah, it's it's um pretty simple in terms of um the cause and effect, which is that uh when it's really cheap to borrow and then you make it really expensive to borrow, um you're going to end up wiping out a bunch of businesses that could only survive on the cheap capital. Okay, so those are called malinvestments. Uh if you look at a chart of recessions and a chart of uh Federal Reserve interest rates, they're almost one to one. I mean, it's perfect. COVID was an outlier because we can speculate where COVID come from. Um but you know, generally recessions are like one for one. Uh they jack the rates low, inflation takes off because money's cheap. When interest rates are low, like borrowing is really cheap and effectively most borrowing is is is is printed by banks. Uh like when you go to the bank to borrow money for a mortgage, they don't go back in the vault and get it. They they they literally create it. Uh they're given a license, they're given permission um to do this by the government. So, the rates are low, money takes off, money is printed, that makes inflation go up. At that point, the Fed wants to get out of the headlines, people are getting upset, they don't want the pitchforks to come out over the inflation. So, they jack up rates, that ends up strangling the economy, that that is is is a recession. Whereas in the Keynesian model, the idea is that everybody's kind of chugging along doing great, they're really happy, they're really optimistic, and all of a sudden they're really pessimistic, and it turns out that a lot of them made a mistake. So, the idea would be that like everybody had a really good IQ in like 2005, but everybody got suddenly stupid in 2008, and all the businesses went under. It's comical. The only reason I mean it's it's stupid theory, and it has existed for centuries in in inflationism. But, it survives because it's extremely useful to governments. Right? It says that the market is the problem. The stupid investors are the problem. The stupid businessmen are the problem. And so, the government, the our wise overlords, have to come in, pure of intent, and fix it all. So, once I understood Austrian or classical economics, it's very easy. You look for the interest rate, you look for liquidity. Like since 2008 crisis, the Fed pivoted now to where it dumps money in the markets, does it using something called quantitative easing, where it basically prints the money in the basement. Literally, it types it on a spreadsheet. It says 1000000, and it says this is money, and then it goes out and buys stuff. All right. So, you look for liquidity coming in through that. If you look at the US economy right now, you would look at liquidity coming in from other countries building factories here. That's going to be a big boost. It's just starting now. So, anyway, you look at money flows, and sort of the granddaddy of those money flows is is the Federal Reserve. To the point, you know, a lot of people have commented on the fact that when you get bad economic news the market does well and then when you get good economic news uh the market tends to go down. Um you saw this during the government shutdown. Right, so government shutdowns historically uh they're very destructive for GDP. Uh I love them because I keep hoping that they go all the way and just get rid of the government for good, but they are bad for GDP and what's interesting is that in this most recent government shutdown we had stocks loved it. Stocks were off the charts. Right, they were swimming in and it's kind of weird if you think about it, but the reason is because the Fed is so dominant in markets now that stock markets in general markets across the board understand that if anything bad happens if you lose a hundred the Fed will give you a two hundred. Like the Fed will dump so much money into the market that it'll feel good. You saw that during COVID. Right, so for a moment there we had literally locked down 40% of GDP, right? We had just about canceled the entire economy and then look AT STOCKS. >> [laughter] >> WHY? BECAUSE THE FED DUMPED I THINK at the time it was nine trillion that they ultimately dumped in. Which is like 40% of all the money in the world. All of the dollars in the world. And then the rest of the world did as well. So, you know the investors absolutely made out. Uh before we were talking about, you know, sort of the K-shaped economy. You got the people on the top part of the K. The people on the top part of the K love the Federal Reserve. Whenever anything bad happens all that money gets dumped out and it doesn't get dumped out on the mainstream because of QE, because of how they inject it. They inject it in the financial markets. Injecting it there means that the rich people get it first. They get to spend it before the inflation took off. Something called Cantillon effects. Um but the end result of it is that if you understand that the Fed is causing the business cycle. The business cycle does not exist on its own. Business people do not suddenly get really stupid all at once and then get really smart again two years later. It's not how it works. Right, once you understand that the Fed is uh creating these things and then you understand exactly the mechanisms, interest rates, and liquidity, in other words, dumping money in, then it becomes a lot easier to spot the recession coming. All right. So, that's been my journey as well, not as a an economist at all, but somebody who was trying to help other people by making content about how to save their money to survive COVID, only to learn about money printing and Keynesian economics and Austrian economics and and being just completely bewildered that this thing was hiding in plain sight, that it's obviously going to result in a K-shaped economy, that you're going to make the rich richer mechanistically. And so, trying to get people to understand, okay, this is how the mechanism works. I've given up thinking that I can save everybody. So, now I just try to figure out how do I get people to understand how you move if you're on the bottom, how do you get to the top by understanding things like money printing, it has a mechanistic effect. When you pour money into the system, you do it in a specific way because it's done in a specific way, you can trace the outcome of those mechanisms. Now, I have used that to influence my investing strategy. It's made me a ton of money. And at the same time though, I remain hyper aware that the system is complicated enough that I can't predict exact outcomes. So, I look at sort of big moves in terms of like you were talking about liquidity, you mentioned it very briefly, but like how much money is coming into the system? If I see a lot of liquidity coming into the system, then I have a good feeling that the stock market's going to go up, even if it's a bubble. To me, looking at the vast majority of the stock market, uh especially AI, it's just completely unhinged. But the money has to go somewhere to hide from inflation. And so, it's flooding into the market. But I look at the current state of the market right now, and I don't have great words to put to this, so I'll fumble a bit, maybe you can say it better, but I look at it and it it feels skittish. So, it feels skittish up and down. Like they'll see gold, oh, like I've got a narrative, China's buying all the gold. Yeah, word, like AI bubble, let me get safe, rushing to gold. But then gold will plummet and it's uh that narrative starts falling apart or AI, like, uh they're putting too much money into infrastructure. I am we're not at 98, we're at 2000. I got to get out right now and they pull out. And then there's so much money on margin that when people pull out cuz they just have that momentary panic, you drop down below a level that liquidates everybody and so you get these huge explosions. So, we're recording this at a time where like in the last couple weeks we've lost trillions of dollars in value in the stock market, just super rapidly. Now, I look at that and I go, nah, let's see where we are in a few weeks, a few months like because the fundamental system of the Fed fixing everything with one mechanism of pumping dollars into the system remains true. As long as that remains true, I know the money has to hide somewhere. Yeah, you're absolutely right. And so, there's a name for that called the Fed put, right? Which is the idea that whenever stuff goes down, the Fed's going to step in and make it all better. And that has really, I think Greenspan is really credited with that. So, that was uh the early '90s. And the Fed, you know, traditionally was supposed to be an umpire, like, a referee. Uh and what Greenspan turned the Fed into was really a bailout machine, like, a permanent bailout machine for everybody. You didn't even have to ask for it. You know, the Fed would see some problem coming down the pike. They would see like short-term rates spike and they would like pre-bail out everybody. Uh in the 2008 crisis, well, that contributed to the 2008 crisis, right? Because if it's it's essentially running a casino where if gamblers win, they can take it home. If they lose, the house is going to cover them. Right? So, the first night you do that is going to be a lot of happy people. If you do that for 5 years, you're going to have a really, really big casino and you're going to have a A of money going out the door. And that's exactly what happened with the Fed. So, we saw that in the 2008 crisis where what really set it off was that I think it was Lehman uh Bear Stearns and then Lehman. Uh and W basically said he was he was not going to bail them out. He was going to let them fail. And by that point we'd had about 15 years of the Fed put of the Greenspan regime where anything bad happened the Fed um cleared it out. So, what had happened is that Wall Street became enormously grotesquely over-leveraged, right? They were the gamblers who knew that everything was going to be covered. And then W uh put that into doubt and they said, "Holy crap, you mean we actually like if we lose money it's actually our money? You got to be kidding." Uh and then for those who don't remember >> [laughter] >> um I teach MBA and it was always shocking teaching 18-year-olds cuz I'd be like uh you know, back in the 2008 crisis as if everybody remembered it. Uh so, for those who who weren't around for the 2008 crisis they ended up reversing course uh because you know, all the Wall Street lobbyists lined in and said it's going to be the next great depression. What they should have done is not bail them out, let all of the banks on Wall Street go bust, and then Warren Buffett would have bought them up for a song at a bankruptcy. The shareholders would have been wiped out. The banks would have still existed, but they would have had new management. I think there was one bank that that was clean which was BB&T Bank. Uh he used to send boxes full of um uh Atlas Shrugged out to schools, okay? So, he was really he was a good guy. Yeah, I know. He was solid. Um unfortunately BB&T got bought up I think uh Bank of America one of those. So, it is no longer Wells Fargo maybe. At any rate, so that's what we should have done is just let them go, let the shareholders get wiped out. Uh Wall Street would have to cut off the mistresses and sell the yachts. Instead of course what we did was I think it was 1.8 trillion which is a lot of money back then. Uh bail them out. Nobody went to jail. Uh you know, all just a misunderstanding, folks. And then what they did after that is that like it was frustrating for Wall Street to have to actually pick up the phone uh and call for their bailout. So, now it's all automatic. So, we saw that in 2023 when Silicon Valley Bank collapsed and we had a about a half dozen banks collapsed. And nobody got bailed out because everybody was pre-bailed out. So, the Fed had it was uh BTFP, I think. Uh they had this program where um the banks could essentially declare how much they thought their assets were worth. So, they got to put a fictitious, [laughter] which is fun. Like imagine if that's your business and you're bankrupt and you know, the bank and you're like, "No, no, listen here. Here, um lend me more money. I'm going to collateralize it with my shoe, which is worth $7 million." Uh so, it's really cute, but you know, now everybody gets bailed out. So, the problem now after, you know, 30 years of this permanent bailout machine is that Wall Street is massively over-leveraged. And so, exactly what you're describing, the zigs and the zags are just all over the place. And the problem [clears throat] is you know, you talk to people and okay, stocks look overvalued historically. Uh AI is, you know, like dot com, some of the valuations are ridiculous. Question is, do they get more ridiculous? But what else do you have, right? Houses have gone up 40%. Gold and silver, that's normally where you go, you know, if you want to like take a break and kind of sit out the market, you go to gold and silver. Well, that's >> [laughter] >> like more volatile than Bitcoin. I'm What else you going to do with the money? Now, you can do stuff. You can build a business. That's kind of the obvious way to do it. Uh which I think a lot of people are turning to that and hopefully some people in your audience are thinking about that. Uh there is a lot more space opening up for that. You know, the the the tariffs trying to reshore production to the US. Uh Trump has been pushing for a lot of uh deregulatory actions that can that can open up different markets. There needs to be a lot more work there, yeah? You know, like when I look at somebody who actually produces, like manufactures things in the US, I'm like, you must be a masochist. Like, how the paperwork, the lawsuits, like, why, you know? Give me those things through the lens of economic force. >> better. So, you've got Trump tariffs as economic force. What are they? How are they playing out? Regulations as economic force. Uh I don't think Americans understand what a burden economically regulations are. So, they've heard, like, oh, deregulate and that helps somehow free up growth, but they don't understand how or why. So, walk us through those two things as forces. All right. So, tariffs, okay, on their own, a tariff is a sales tax. It's a bad thing. If you don't like the government, you shouldn't like tariffs. However, they have two strategic goals, which is what Trump has been pushing. One of them is to get other countries to lower their trade barriers, which are enormous. Like, Canada, for example, they tax milk like at 94%. It's just goofy. Um there's a bunch of Canadian banks in the US. Uh you can't have any American banks in Canada, right? So, other countries have been very naughty. Uh we've let them get away with it. Uh so, that's one goal. The other goal is to reshore production. So, part of the reason why Trump's been yanking tariffs up and down, you know, critics say, "Well, you know, it's got to be predictable or who can make plans?" And I think that's actually intentional. He wants it to be difficult and painful to to like produce cars in Germany uh for export to the US, right? He wants them to just give up and say, "You know what? Screw it. I'm just going to build it in Alabama." Which is happening. So, that's what's interesting. So, there's something like 4 trillion of investment that's incoming. For perspective, in a normal year, the US has 4 trillion in the entire economy. That's rebuilding highways. That's updating factories. It's the whole nine yards. Every trillion dollars statistically is worth about a million jobs. Okay? So, that's that's a big deal. It's actually working. Um the tariff inflation has been almost non-existent. Uh the Fed originally estimated it'd be 0.8% one time, which is not that big to begin with. Uh it turns out that almost all of the tariffs have been eaten by China. Uh the reason being that if China is a really uh low-price producer, even if you jack that up 25%, they're competing with other Chinese. They're not competing with us. So, effectively, they're going to end up eating all the tariffs. Uh so, they've they've probably paid 90 uh 90% or plus. And by the way, that's what happened with Trump's first tariffs. So, I had been saying from the beginning that no, I don't think tariffs going to cause inflation. And they have a good chance of um you know, being useful for reducing uh export barriers and for reshoring production. So, those are a big deal. However, it takes a long time to build a factory. Right. So, Taiwan Semiconductors has huge factory in Arizona, $100 billion, 4 years from planning to actually hiring people. Okay, so in other words, that's not hitting manufacturing yet, and it won't for a long time. Like even like a shoe factory, something simple, is going to take 12-18 months. Uh so, we haven't seen the jobs yet. What we're seeing right now is the factory building uh and the investment coming in. Now, people that are critical of that will say, "Look, people are making promises cuz they're just trying to buy time till Trump either loses the midterms or he gets booted in 3 years. Uh and so, it's not that these things take that long. When there's the will, they'll break ground immediately and get to it. There isn't the will because this is just a political shell game." What would you say to that? Yeah, there's always going to be some of that. Uh China, for example, made big promises in Trump's first term, and they didn't live up to it. Uh you know, he's he's rung like 500 or or a trillion dollars out of uh Korea, Japan. Uh a lot of that is dragging their feet. At the same time, a lot of it is genuinely moving. Uh you've got the Taiwan Semiconductor. Uh I think every single German car company is already building production in the US. And fundamentally, it's about business risk for them. Right? So, yes, they're going to say big numbers in the beginning to try to get Trump off their back or to get their own government off their back cuz their own government is is trying to look for some, you know, bargaining chip to try to get rates down. So, yes, they're going to be doing that early on. But um but the question at that point is is it genuinely more productive to produce in the US? And there you've got two parts of it. One of them is the tax rates, which are lower in the US now than they are most of our trade partners, including China. Uh and then the other one is the regulations. Now, regulations in the US are so much more harmful and expensive than they are in Korea that I think Koreans are absolutely going to try to drag their feet. Um you know, even like semiconductors are coming in, but a lot of that is just to get on Trump's good side. They're doing the absolute minimum. On the other hand, Europe, that's for real. Right? The tax rates in Europe are extortionate. Many countries they're more than 50%. Like I don't know why people even work in Europe. Uh you don't beyond a certain point. Uh and the regulations, there was one estimate that in Germany regulations are two to three times more burdensome than they are in the US to the point that one out of five one out of five employee minutes in Germany is dedicated to regulatory compliance. Which is insane. Those regulations don't create anything. Before the regulations existed, like really, you know, the big era for the takeoff of regulations is really the '60s and '70s. You go back to the 1950s, it's not like the German economy was you know, it wasn't like Mad Max, right? People weren't you know, it wasn't the purge. Um they're they're not productive and they consume a fifth in Germany, probably 7 to 10% in the US. That's of employee minutes, but the rule of thumb in regulation is that whatever it costs you in compliance, filling out forms, it's about seven times more in terms of GDP. So, that's why I think regulations is kind of the big story um for how you cut prices, for how you get the economy to grow. If we held regulations to where they were in the 1950s in this country, uh you know, environmental regulations, labor mandates, the lawsuits, you know, there's there's a whole bunch of sort of regulatory handouts that are that are bribed into existence uh to give trial lawyers uh their own yachts and and mistresses. If you got rid of all of that, back of envelope, you would double the economy, you would cut prices by 20 to 30%. Regulations are absolutely massive. I think if you were to rank like the top interventions, right, the top ways that you could make America the American economy uh prosperous, it's it's neck and neck between getting rid of the entire income tax and rolling back regulations to 1950s levels. Uh and then, you know, you could argue the Fed, uh getting rid of the Fed, which is surprisingly easy. You just pass a law saying the Fed can't buy anything. That That That's it. It's gone. It's irrelevant. But anyway, those three things uh are just massive. And so, that's that's partly when we were having all these debates about about tariffs, even even if nobody moves production here, even if Canada still doesn't allow American milk, you're talking like a couple percent of GDP on tariffs. Uh regulations, you're talking 100%. I mean, it's just astronomical. Uh tax rates uh and the Fed, of course, you're talking much much um bigger amounts. We'll be right back. Today's show is made possible by Plaud. 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Now, another economic force that I look at when I'm trying to assess the economy now and where to have my money for anybody paying attention. So, I because I can't see the future clearly, I diversify across economic forces. But, one of the things that I see happening right now, and please by all means push back if you think I'm crazy, but it really does feel like given the debt that we've racked up, given the fact that we still deficit spend to the tune of $2 trillion a year, that we're at 38.5 trillion just in national debt, that the the dollar as a world's reserve currency is on borrowed time. So, 99, I think we're at like 72% of all global transactions are settled in US dollars. It's now like 58% and declining. China just made a Xi Jinping made an active pitch to make the yuan the global reserve currency. There's massive speculation that he's trying to back it with gold so that people don't have to, you know, quote unquote trust him, that it'll be a pegged currency, pushing into hard money. So, I look at that and I go, "Ooh." Like, the US Treasury is not necessarily a safe haven like it used to be, um and so the decoupling of the US from the world, the sort of aggro that Trump is giving everybody, I'm going to end invade Greenland, no psych, just kidding, not going to do that. Like, tariff hokey pokey up and down. Like, all of that is creating um an acceleration of what was already going to happen. We were going to deglobalize for reasons that are beyond the scope of the time you and I have together, but does feel like Trump's personality and approach is accelerating that. Um China's move to replace the US dollar accelerating that. Some of the economic warfare that we waged against Russia, that we're actively waging against Iran. Just it makes people go, "Huh, like I don't know if I want to be in the dollar." Do you see that as an economic force people should be paying attention to? When it comes to the value of a currency, you have two things you can do with a currency. One of them is you can transact in it. Uh the other is that you can save in it. So, a store of value. Overwhelmingly, the value of a currency is the saving part. That's much, much more important. Uh and the you know, like we see this for example with Dogecoin. Okay, so Doge is primarily used for transactions, it's not very good for savings cuz it doesn't hold its value cuz you can print a lot of it. Doge doesn't do anything. >> [laughter] >> Compare that to Bitcoin, right? Where the main value of Bitcoin is as a store of value, that's been enormously successful. Uh yet a lot of transaction crypto, like Litecoin and whatever, they all fail. And they should because transactions is not really the value uh in a currency, it's savings. And so that means that um you know, Donald Trump's fights, I'm not too worried about that uh because if people are not transacting as much in the dollar, uh you know, yes, it reduces the advantage that the dollar has in um in liquidity. In other words, when you when you exchange it, how much do you pay uh in commissions and such. Yes, it reduces that a little bit. What I'm much more concerned about is the dollar as a store of savings. Right, so there it comes down to the Fed. Like what the Fed just did, you know, with this uh, what was it? 20, 25% plus inflation on official numbers, uh, arguably 40% depending how you're counting. That kind of thing I think is catastrophic for the dollar as a store value. You know, before the 1970s, the dollar was seen as good as gold. It was good as gold. You could literally exchange it for gold. Uh, since then, you know, twice now the Fed has just really dropped the ball in the 1970s and again uh, under Powell. So, those are very dangerous to the dollar. The thing is you can't beat something with nothing. Right, so to a certain degree some of the currency demand is going over into gold. Uh, gold just passed the dollar in central bank's holdings a couple months ago. So, some of it is going over into gold, but gold is very illiquid. Right, so uh, like until a country actually adopts gold, which historically doesn't happen until you have a massive blow up. Uh, until that happens, gold's going to have a ceiling on how much it can adopt. Really what would theoretically destroy the dollar would be another currency. So, you're talking about that with China for example. Now, for a couple years, uh, China and Russia had been floating, uh, backing a BRICS currency with gold. When they were doing that, I took it very seriously. Now, over the past year and a half, they've kind of watered that down to now they want to have like a currency basket where essentially they all throw some currency into this kind of like an IMF SDR. That I think is an absolute garbage idea. Nobody wants it. They'll use it for internal captive trade. Yes, that's the transaction part, but nobody's going to save money in that intentionally. Why? Because most of those countries are basket cases. Right, India had hyperinflation. Russia had hyperinflation. Uh, in fact, recently it had hyperinflation. Uh, China is, you know, not freely traded. The Chinese government can come in and and cancel your yuan whenever it wants. Uh so I think that a currency basket if they keep going down that path, then I don't think BRICS uh is a danger. Uh the question is could some other currency and you know, realistically like what currencies have the scale of the dollar uh could really hold that much as a store of value. You've really only got the euro and possibly the yen. Both of those countries are in many ways more dysfunctional, certainly Japan uh than the US. Uh like the Bank of Japan, their central bank currently owns half of all Japanese government debt, which is something like 235% of GDP. In US terms, it would be 70 trillion, of which 35 trillion would be held by the central bank. Japan is an absolute mess. They're not replacing the dollar for sure. Uh Europe is also a mess. I mean, they're they're losing members, they're in constant uh danger, they're they're you know, having these what would be constitutional battles in our country uh between Hungary and different countries. Uh so, you know, I don't think Europe is going to do it either. Um now we shot ourselves in the foot a couple years ago. Uh the number that you were talking about earlier where our share of uh transactions collapsed in the past couple of years, that came from seizing Joe Biden's handlers uh seized uh Russia's central bank dollars uh because of the Ukraine war. And that's something that we hadn't even done during the Cold War when we were, you know, our our proxies were shooting each other. Uh and that I think was That was a huge deal. I think that's what's driving a lot of the dollar the decline in dollar usage right now because remember, most of the value is coming from its savings. And what they did by seizing the Russian central bank dollars, they sent a message to the entire world that if you're on the wrong side of the US, then even your central bank dollars, which those were always like the holiest off limits, uh even those we can seize. Uh so that I think made a big difference and you know, of course Trump >> [laughter] >> being as aggressive as he is and putting everything on the table, you know, he's not the one who seized the Russian dollars, but if you take the seizure under Biden and you combine that with Trump's reputation, then you know, I think that's that's another factor that's driving countries out of the dollar. So in short, I think that as it's currently running BRICS as a currency basket is not a threat. The euro is not a threat. The yen is not a threat. Gold is, but there's a certain ceiling on gold. So I think the the biggest question there would be if somebody you know, Russia, China, somebody else, if somebody does actually back their currency with gold and they do it with a large country, not Switzerland, that I think could be a serious problem. Now, what if that happens? Well, then foreigners start dumping their dollars, right? So today if you go to a country like Mexico, a rich Mexican, he'll have like a month or two worth of pesos. Okay, to pay his mortgage and whatever. Groceries. But most of his like to the extent that he's holding currencies, those are going to be in dollars. That's true in Egypt, it's true in Indonesia, it's true in China, it's true all over the world because the dollar is seen as a safe haven. Now, if if some other currency starts to steal that demand, then all these foreigners are they're going to need those dollars anymore, right? They're going to prefer to hold whatever the other currency is that's backed with gold cuz it'll be stronger. It won't inflate away. If that happens, then all those dollars are being dumped, right? And there's something like two there's roughly twice as many dollars in the world as there are in the US. They don't exactly know how many dollars. The Fed has tried many times to count it. They have estimates, they have papers on this, but there's something like twice as many dollars as are needed. So roughly what I think it's about 20 trillion extra dollars lying around. So foreigners no longer want to hold those. See, we have to use the dollars because of legal tender laws, which Lincoln passed and which the Supreme Court unwisely judged, incorrectly judged as constitutional. But anyway, we have to use the dollar. We are the only country in the world that has to use the dollars. So, foreigners don't want those dollars, they come dumping back here, we get inflation that ultimately if there's twice as many dollars, then inflation would ultimately be about 100%. So, that would be catastrophic. The main thing to watch there is does BRICS or somebody else get serious about backing with gold? Okay, so now let's make this tangible for people. We just put a lot of the not all of them, but we've put a lot of major forces that are on the table that I think are pretty active right now. Um if we adopt your view that there is as of right now there's no serious contender for the dollar, so you can't just go buy somebody else's debt uh because you're actually better off with US debt, how are you thinking about this moment? We've got AI's in a bubble. We have a Fed whether we want one or not, and so we know that there's going to be um the debt coming due in '26 is going to force their hand to um lower rates. They're going to have to or uh flood the zone with more money to be able to pay for the debt. Like we we don't have a choice there. It's already the number two line item on the budget. So, we're in um an environment where the Fed is going to do Fed things. Uh we're we've got a stock market that's running way too hot, but we don't have anywhere else to go, and we're also de-globalizing, so there's a lot of big question marks there. Um what are you actively doing with your investments in lieu of that? Yeah, I mean, you know, partly you want to decide uh what you think the big trend is in in in the economy. So, you know, what is the economy producing today? What do you think it's going to produce tomorrow? What are the companies that that are going to benefit from that? But if you zoom out, you know, what we were talking about earlier, how there's this K-shaped economy where the rich get richer, that has been bought and paid for, right? They spent very good money lobbying to create that economy, and you're a fool to to bet against it, I think. So, when you're looking in the long run, right, going back to the year 2000, for example, stocks have returned 11% nominal. That's extraordinary. Uh in historical terms, that's extraordinary. And that's a 25-year cycle. We're not talking 3 months here. Uh and the reason, of course, is that we have a system where, you know, the Fed serves the rich, Treasury serves the rich, everything gets bailed out. If that's the reality, you can hate it, but you have a responsibility to your >> [laughter] >> to your investments and to your children to play it. Uh so, you know, assume that um the good things are going to be reinforced. They're going to try to turn uh good economic news into inflation by printing extra money on top of it. Assume that if something bad happens, they're going to try to bail it out as much as they can. Uh and you know, keep an eye on on uh interest rate hikes, keep an eye on liquidity, but I think your overall bias uh has to be optimistic. Not for good reasons. Not optimistic because the world is a wonderful place. Optimistic for asset values because the world is run by thieves, and it will continue to be run by thieves. So, I think that's the sort of the the the meta investment. That's where I'm invested. For example, I buy gold and silver. I don't wear gold and silver. I buy it because I believe that the Fed is irresponsible. Uh I think those kinds of bets, you know, in the near term, yes, you'll have reversals. When silver quadruples, it's going to give some of it back. I mean, this is, you know, this is the way of the world. Uh because people who originally bought it now have too much silver, right? So, you know, this is just how markets work. But when you zoom out and look at the sort of the sort of the big forces, I think you have got a uh sort of structural advantages towards rich people, which means towards people who own assets. Uh you have structural um pushes towards continued inflation. Uh it is inconceivable that that's going to reverse on its own. If you go back through history and look at periods of inflation, they do not end on their own. You do not get Um I think the closest we had to an inflation that fixed itself was Paul Volcker. Uh he was a mistake. Jimmy Carter appointed him as a hard money fair chair Fed chair. Uh I don't think Jimmy Carter knew what he was doing. I think in retrospect he would never have done that. It was a mistake. We got lucky. Uh but historically when you look at inflations, they don't reverse on their own because it's too profitable. Uh it it's it's very profitable to print money. Uh so governments will keep doing it as long as humanly possible uh until something breaks. Until something breaks so bad that the people get upset and then they get out the pitchforks. Uh so, you know, this system at this point when you look at how it's handled past crises, uh it's kind of got a playbook worked out, which is that anything anything bad happens, you dump a trillion on it. If the fire doesn't go out, you dump another trillion. You just keep going, right? COVID it turned out 9 trillion. Just what it took. Yeah, so that's the playbook. If you own assets, right? So, you know, if you sort of zoom in on the period uh you know, through COVID. So, all through, you know, from 1960 on, 2016 on, uh 1916, too, you were making money every year because the economy was doing well. And then when the economy collapsed, what happened? You made even more money. So, >> [laughter] >> you know, so without without ruling out the possibility that we could have you know, it's possible we have a bust that's so big that they can't bail it out, but you know, when you look at a system like that that is I mean, corrupt beyond belief, but it's corrupt in turning you into a millionaire at the expense of people who don't hold assets. But at that point as an individual, you have, you know, two options. You can sit it out and about it how, you know, the rich get rich and here I am, or you play it. Yeah. No, I mean, I think that playing it is the uh the only way to go forward. Getting people to understand what's really going on becomes the thing that I'm trying to scream into the void. Um you've mentioned a couple times something that certainly is a view that I share. Uh you use the word corrupt. I always say that the Fed is immoral. I think that it is immoral for the government to put us in a situation where we have to gamble in the stock market. We can't just save our way to prosperity. Um what When you say it's corrupt, and I've heard you say it is literally corrupt all the way up and down, um in what way? Uh well, the Fed specifically is a banking cartel. Um and you know, the way that it worked in the 1800s is that banks would So, banks on their own cannot counterfeit because uh you'll have a bank run, and then the bank goes under. And in the 1800s, if you went bankrupt, then you had to go to debtor's prison. So, we should bring that back, but um since that's not happening anytime >> Like, for real? That we should bring it back, or that >> Yeah. that debtor's prison. I think it's an interesting concept. Uh you would definitely have less um innovation. Uh you would have fewer startups in Silicon Valley. Uh it's a fascinating question, and you do have tradeoffs. In the debtor prison era, companies were without a doubt um they were more careful. I think you can make a very good case for reintroducing debtor prisons in banks. Uh because banks are supposed to be safe. Right? When Grandma puts her money in the bank, in her mind, she thinks that the money is sitting in a vault somewhere, protected by steel. Actually, the money immediately went out the back door to a hedge fund in Argentina, where it's leveraged 4X, and it's all backed by bailouts. I mean, it is it is vile. So, yes, in the case of banks, I think uh you probably do want um debtor's prisons. But, how how how did we get to debtors prisons? Okay, why it's corrupt, right? So, in our current system, if banks print on their own, they can't in the free market. And so, you know, one of the first things that you do as a banker is you start trying to bribe politicians to do what's called suspension of specie redemption. Okay, meaning that you deposit your money in the bank, but if the bank gets into trouble, it doesn't have to give you your money back, not in gold. It can just give you IOUs. And that's what was pushed in 1800s. That then led to wildcat banking, meaning that banks just printed stuff. They printed as much money as they could possibly pump out the door. And so, the the the solution to that was the Fed, which is a cartel. It's essentially all the banks get together and they say, "Hey, listen. If we all print unlimited using governments to bail it out, then we're going to have these, you know, constant boom bust, and then the people can see it, and then they might pass regulations like Andrew Jackson I'm getting rid of the second bank of the US." So, in order to prevent that from happening, let's create this really formal sounding thing called the Federal Reserve. The the the metaphor they used was a reservoir of water. The idea being that there's all this money in there that if anything goes wrong, you know, and of course, the government doesn't have any money. The Fed doesn't have any money. Where do they get it from? So, it's printed money. But anyways, so the idea was that the Fed was going to replace these sort of ad hoc suspensions. And they were going to do it as a cartel. So, everyone was going to grow at the same rate. And so, you know, we were going to use fractional reserves so that everybody could effectively counterfeit in proportion to how they were to how big they were beforehand. So, it would be like it'd be like if you wanted the government to take over the car industry and you said, "Okay, so >> [laughter] >> it'd be hard to do with cars." But you're giving, you know, a third of the control of the new Department of Cars to Ford. You're giving a third to, you know, and so that's effectively why the Fed used fractional reserve. It basically split up a cartel so that all the major banks got their share. Uh but right, it it's it's a kind of fitting cartel. Uh it's unconstitutional. The the only monetary role in the Constitution is that the government is allowed to mint gold and silver coins very specifically. >> [snorts] >> Uh and they can't be fraudulent. They actually have to contain the gold that it says, which is regulating the money supply means making it regular. In other words, if you say it's an ounce of gold, it has to be an ounce of gold. It's the only the only Actually, it's the only economic function remotely close to finance or monetary uh that the government has. So, it's it's clearly unconstitutional. Uh if this is an illegal organization that's printing money, we have RICO statutes for that. Uh so, you know, maybe we can give them warnings so they can, you know, get out of business before they get arrested. But, um frankly, I think we should be doing that. Uh but in the meantime, you know, the Fed does exactly what it's supposed to do, uh which is that it prints money for Wall Street. Uh it subsidizes capital. Makes it cheap to borrow. The vast majority of money borrowed is not poor people borrowing to make ends meet. It's rich people borrowing, you know, 3 billion at a time for Uber. Uh it So, you know, when you make loans cheap, you are you're giving about 98% of it to rich people to begin with. And then when you add to that the Fed put, you know, the Greenspan in 2008 world where the Fed uh bails out financial markets whenever anything goes wrong. Uh then you add on top of that the fact that whenever there is a crisis, whenever there's a war, whenever there's a government shutdown, whenever there's a COVID, the Fed uses QE to dump money into not helicopters for everybody to enjoy, but into the financial system through quantitative easing. You put all those factors together and it is absolutely a rigged game. I think, you know, once people understand what the Fed is, I think typically they get angry. Um if if you're listening right now and you, you know, are not yet angry at the Fed, uh a great book is uh Murray Rothbard's uh The Case Against the Fed. It's short. Uh Ron Paul effectively rewrote it as End the Fed. Uh they're both great books. Um Paul talks a little bit about the adventures of him trying to restrain uh the Fed and, you know, essentially getting told to take a hike uh because Congress doesn't have any control over the Fed. Uh nor does the president is what the Fed claims, which does beg the question who exactly like like if the Fed's running the economy and the president doesn't control the Fed and the Congress doesn't control the Fed, who >> [laughter] >> who's running us? We are occupied by an army. That that is distressingly accurate. Uh Peter, this has been incredible. Where can people engage with you? I put out uh daily videos. They're about 3 and 1/2 minutes uh on economics and liberty. So, those go out on X, the artist formerly known as Twitter. So, Prof St. Onge, p r o f s t o n g e. I also do a weekly newsletter on Substack, same name, where I go more in-depth on stuff. I love it, man. Thank you again so much for taking time. I appreciate it. And uh to everybody at home, if you have not already, be sure to subscribe. And until next time, my friends, be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. Now, I've heard you talk about that there's almost and if I use language that doesn't sound right, correct me, but that there's almost a coordinated effort to make people afraid of AI. Yes. Um ironically, despite everything I'm saying here, I go the opposite direction. I want people to stare nakedly