Latest / Come Together with Ephraim Herschmann / Economics Series 2: Paul Musson / Inflation / Capital v Money / Real Estate

Transcript

Economics Series 2: Paul Musson / Inflation / Capital v Money / Real Estate · Come Together with Ephraim Herschmann

• 0:01
  Welcome to another episode of Come Together.
• 0:15
  Paul Musson. We are live.
• 0:17
  Did I pronounce your last name right?
• 0:18
  You did it awesome. Well, congratulations on your
• 0:22
  book. Congratulations on on the book
• 0:26
  and congratulations on your semi retirement or retirement, I
• 0:29
  guess. Well, it was sort of supposed to
• 0:31
  be a semi retirement, but I think I'm busy now than I was
• 0:34
  when I was working full time. It's sort of seven, seven days a
• 0:37
  week for sure. Yeah, because I also have a free
• 0:41
  blog that goes out every week. All political economy instead of
• 0:46
  political. Paul, my first.
• 0:49
  Name beautiful, I love it I. Love it, so much fun.
• 0:53
  Yeah, I guess the only difference would be that, you
• 0:55
  know, whether you're doing it for someone or whether you're
• 0:57
  doing it for yourself, you know, because I, I mean, I imagine
• 0:59
  that you don't want to ever stop doing fun things that you enjoy,
• 1:01
  you know, but as opposed to have.
• 1:05
  Yeah, no, that's true. But I was fortunate in that I
• 1:08
  also loved my job. You.
• 1:10
  Know I was a. Professional investor for over
• 1:13
  30 years. I worked for a great company.
• 1:15
  I had a great team who are now continuing on what we all built
• 1:21
  together. They're doing a great job.
• 1:24
  They were all over at my house last Thursday for our annual
• 1:27
  team golf day. So.
• 1:29
  So I'm still involved, but from the from the periphery.
• 1:34
  But it's all fun. Beautiful.
• 1:36
  Yeah, beautiful, beautiful. So tell me a little bit about
• 1:39
  about yourself, if you don't mind.
• 1:41
  Then we'll talk about the book and we'll talk about everything.
• 1:43
  But tell me a little bit about who you are first.
• 1:45
  Yeah, OK. Yeah, sure.
• 1:46
  Yeah. Thank you.
• 1:47
  So yeah, I was born in the UK and don't worry, I'm not going
• 1:52
  to go through my whole life history, but we moved to Canada
• 1:54
  when as a family when I was very young back in 1965, and then
• 2:00
  grew up in Montreal, moved to Toronto in 1990, December 1990,
• 2:05
  just looking for work. And.
• 2:08
  Yeah, I was literally sleeping on the hardwood floor of a
• 2:10
  bachelor apartment, like a one room studio and looking for
• 2:15
  work. Not, not.
• 2:17
  Even a chair. I had no furniture at all and my
• 2:21
  first job was in a video store. Your younger listeners probably
• 2:25
  don't even know what that is. The blockbusters of the world.
• 2:32
  Exactly. Yeah.
• 2:32
  And yeah. Working nights and sleeping on
• 2:36
  the floor. I was 29 years old.
• 2:38
  That's how. Wow.
• 2:39
  Dart in Toronto. Did you ever have a vision of
• 2:42
  what you wanted to do? You weren't sure?
• 2:45
  Just I had a very broad vision. I knew I wanted to do investment
• 2:50
  analysis, but I was very naive about the structure of the
• 2:54
  industry. What you know, what the entry
• 2:57
  even looked like. I just wanted to, I knew I
• 2:59
  wanted to analyze companies, do investment analysis.
• 3:04
  And so, yeah, so I knew that. And and that came to me very
• 3:10
  late in life, like when I was 25 or something.
• 3:13
  I was just going through university, taking all kinds of
• 3:14
  courses, not knowing what the hell I wanted to do.
• 3:17
  My big passion actually back then was reading stuff like
• 3:20
  philosophy and history and, and, you know, I couldn't wait to, to
• 3:24
  finish my, you know, school work so I could get home and read.
• 3:29
  And like, that's where I felt the real learning was.
• 3:32
  It's like Mark Twain said, you know, I never let school
• 3:36
  interfere with my education. That's right.
• 3:39
  That's right. School.
• 3:39
  Is necessary, don't you know? But.
• 3:42
  But yeah. And then and then going from one
• 3:45
  job to another, always trying to.
• 3:48
  My attitude back then when I arrived in Toronto was I didn't
• 3:52
  want to be a burden on anybody, financially, emotionally,
• 3:56
  physically, nothing. That's how I sign off on my
• 4:01
  weekly blog is be free and do no harm, right?
• 4:07
  If you focus on not doing any harm and just doing the things
• 4:12
  that you like to do, I think you're a long way there to
• 4:16
  helping make the world a much better place.
• 4:19
  And there's other things you can do, too.
• 4:20
  But those two things. And yeah, so I did the best I
• 4:24
  could at every job that I took on, no matter what it was.
• 4:27
  And I tried to be pleasant. And you know, people got all
• 4:31
  kinds of shit going on in our lives that you don't know about.
• 4:34
  Things worse. For them, why are you going to
• 4:36
  pile on top of that? You know, try to be a positive
• 4:39
  influence and it's amazing the the effect and the influence
• 4:44
  that you can have. Judge by the way with very with
• 4:48
  very minimal interaction too. Literally just eye contact and a
• 4:51
  smile is all you need it. Goes a long, long way and you
• 4:55
  know, you can bring out the very best in in good people.
• 5:00
  Conversely, if you're a jerk, you're in an environment that
• 5:06
  you know is a very bad corporate culture, bad environment that
• 5:10
  can bring out the very worst and very good people.
• 5:15
  And like, I've been there. Like my God.
• 5:19
  I can't believe I said that or I did that.
• 5:21
  You know, what was I thinking? Well, I, I know what it was.
• 5:23
  It was the environment. It was, it was a conflict.
• 5:26
  Not I'm not a bad person, but boy.
• 5:29
  Yeah. Embarrassing.
• 5:30
  It was very hurtful. I don't want to do that anymore,
• 5:32
  you know, and yeah, so just going from not a lot of jobs,
• 5:37
  but here there do a good job. And, and then, you know, I think
• 5:40
  if you do a good job and your, your boss and your colleagues
• 5:46
  can rely on you, then they will enthusiastically refer you to
• 5:54
  other jobs, you know, as long as you're honest with them from day
• 5:57
  one about what your path is. And, and you know, I told my one
• 6:02
  boss that, look, I'm, I'm only going to be here for two years.
• 6:06
  Because I wanted to I. Was an assistant to a
• 6:08
  stockbroker. It was tough job and after two
• 6:12
  years I said you know, you have to start looking for someone to
• 6:16
  replace me because two years is up.
• 6:17
  I need to, I want to get into research and she said.
• 6:19
  Paul, you've been straight with. Me from day one, I'm going to
• 6:22
  help you find a job and I got a job on the institutional trading
• 6:28
  desk at CIBC World Markets in large part because of her her
• 6:33
  referral. And yeah, she's.
• 6:35
  Still a friend today and she listens and reads my blog and
• 6:38
  she's reading my book and. That was beautiful in. 94 when?
• 6:42
  When? I that was a full year before I
• 6:46
  was born. Yeah.
• 6:46
  Yeah. I'm. 63 now.
• 6:51
  So there you go. Very unconventional.
• 6:53
  Well, maybe it wasn't, I don't know, but it's unconventional
• 6:57
  career path. It's not like the the path that
• 6:59
  they teach you to take in school.
• 7:02
  Right, non non linear. Yeah, no, exactly.
• 7:05
  But it was, it was fun. And I learned so much and I met
• 7:09
  so many amazing people. And, you know, and then you
• 7:12
  learn about careers that you had no idea about.
• 7:16
  You know, like, how can you know what's involved, You know, being
• 7:21
  an assistant to a stockbroker unless you've done it.
• 7:24
  Or being an. Analyst or being an
• 7:26
  institutional sales and you know, settlements and stuff like
• 7:30
  that and yeah, so you learn as you go and you know, it's you
• 7:36
  know, it's not it's not all fun and games.
• 7:39
  There are times that you really have to, you know, bear down and
• 7:44
  and and see through it because, you know, as I said earlier, you
• 7:48
  know, I was trying to do no harm and be a positive influence.
• 7:51
  Well, not everybody else around you is thinking that way, sure,
• 7:56
  but you can't let it get to you. Within reason, of course.
• 8:01
  Sure. And and if you can't fix it,
• 8:03
  then then you have to move on. And I had to do that a couple of
• 8:06
  times. And yeah, you give it the old
• 8:10
  college try. Be honest with people about what
• 8:14
  your concerns or issues are. And if you can't fix it, then
• 8:18
  don't remain angry at those people.
• 8:20
  Just move on. Yeah, yeah, it's.
• 8:23
  Beautiful advice. It's really good advice,
• 8:24
  especially I think that I think what people struggle with and
• 8:28
  I've noticed, I guess anecdotally, but from a lot of
• 8:30
  my friends would be that they prefer the familiar devil and
• 8:35
  the unfamiliar solution. You know, like they prefer
• 8:38
  you're like, well, I know what I'm dealing with over here and
• 8:41
  like, I know what to expect. But like out there, I don't know
• 8:44
  what's going to happen out there.
• 8:45
  And, you know, at least at least I have the consistency or you
• 8:48
  know, I could at least I could, you know, predict within a
• 8:50
  relative, you know, with the relative accuracy, the way that
• 8:53
  my boss is going to treat me today or the way my Co worker is
• 8:55
  going to behave today. And even though it's not great,
• 8:58
  it's better than not knowing what's going on out there.
• 9:00
  You know, I think that's, I think that holds a lot of people
• 9:02
  back. Yeah, and it's, it is scary, you
• 9:05
  know, when you're change, when you're changing and you have a
• 9:08
  an income, especially if you've got bills you got to pay and
• 9:11
  stuff like. That, yeah.
• 9:12
  And you might end up in a worse place, it's true.
• 9:15
  But if you do, then change that one too.
• 9:18
  Right. Just keep going until you find
• 9:20
  something you really love, because being stuck in a in a in
• 9:25
  a stressful environment is very unhealthy.
• 9:28
  Yeah, you know. For your longer term and yeah,
• 9:31
  and you want to be happy. You don't want to be just
• 9:35
  existing. Right.
• 9:37
  You know life. Is happening right now, you
• 9:41
  know? Don't just wait and hope
• 9:43
  something better comes along or that person will change or maybe
• 9:46
  they'll leave or whatever. It's not easy to do, but it
• 9:51
  really is for your own good, you know?
• 9:54
  Yeah, it's beautiful. Do you think that, do you think
• 9:57
  that your interest in philosophy and I guess concepts and ideas,
• 10:04
  I guess and analysing them is concurrent or runs along the
• 10:10
  same theme of your interest in analysing companies and stocks
• 10:14
  and stuff like that? Do you think that it's just the
• 10:16
  way that you think and your train of thought?
• 10:18
  Yeah. I'm not sure.
• 10:19
  Be honest with you. Yeah, I don't know, Like, like.
• 10:24
  I was. But what about what about what
• 10:27
  about stock analyzing, company analyzing?
• 10:30
  Was it was attractive to you? Well, first of all, like, I love
• 10:36
  math. I'm not a math genius by any
• 10:39
  means. Like I, I was above average.
• 10:42
  I always, you know, got good marks in math, but I was
• 10:45
  definitely not a math genius. But I like math.
• 10:48
  Like that, right? And I like accounting.
• 10:52
  And. I like figuring things out and
• 10:55
  you know when you're building your mall, when you're looking
• 10:57
  at a company and you got your income statement, balance sheet,
• 10:59
  cash flow, I would build it all myself, input all the numbers.
• 11:03
  I just love doing it. I loved inputting numbers.
• 11:05
  And then getting. Them all to balance all the
• 11:08
  three statements and then as you're building those statements
• 11:12
  statements yourself, you're going year by year, you're
• 11:16
  discovering things about the personality of the management
• 11:19
  team just through the accounting because there's a lot of
• 11:22
  latitude and accrual accounting like different decisions that
• 11:26
  management can make with respect to how they want to account for
• 11:29
  the business. And so that was so much fun over
• 11:32
  where's that big write off there or how come they change the
• 11:34
  depreciation here? But you know all this kind of
• 11:37
  stuff. So it's like sleuth detective
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  work, problem solving. I was loved at that challenge.
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  I love meeting. I mean, who doesn't like really
• 11:48
  capable people? Like the class.
• 11:50
  CEOCFOS, very impressive people. Now you got to be careful
• 11:56
  because impressive people can you know, you can get your guard
• 12:00
  down. You now just you, you, you want
• 12:04
  to impress them that you know what you're talking about too.
• 12:07
  Well, no, you shouldn't be doing that.
• 12:09
  You should be trying to figure out how they're really thinking
• 12:12
  what the long term plans are. Do they make sense or, you know,
• 12:15
  or a day until lunch? Different businesses look
• 12:20
  researching different business models.
• 12:22
  Oh my God, I never even knew this type of business existed.
• 12:25
  And that's also. That's tons of fun.
• 12:28
  Yeah, it's tons of fun and seeing how they are wowing their
• 12:31
  customers. You know, their customers love
• 12:34
  what they do in these companies, reinvest in their business all
• 12:37
  the time to make the product even better, to stay ahead of
• 12:39
  the competition. When you do that, you improve
• 12:42
  your operating costs if you make more money.
• 12:45
  But what that does is that attracts competition because
• 12:48
  you're making more money and now you have to lower your price.
• 12:51
  So if all this is working correctly without government
• 12:57
  interference, then prices should steadily decrease as companies
• 13:02
  increase their efficiency because the excess profitability
• 13:04
  gets computed. Away.
• 13:06
  And that's right, we. Should have an economy getting
• 13:08
  ahead of myself here. Maybe, but we should.
• 13:10
  That is slowly falling prices. So all that productivity growth,
• 13:16
  the hard work and innovation and research and development, like
• 13:20
  people putting their own skin in the game, the ultimate
• 13:23
  beneficiary should be the consumer.
• 13:26
  And so if you have a flat wage, your income isn't going up every
• 13:31
  year. You would be getting wealthier
• 13:33
  as your flat wage would buy more and more stuff because prices
• 13:37
  are slowly coming down and. Yeah, so right.
• 13:42
  In reality, at least in reality, we know that's.
• 13:44
  Opposite. Yeah, because it's the opposite.
• 13:49
  Because policy makers increase the money supply faster than the
• 13:55
  economy can produce stuff. And so there's more money
• 14:01
  chasing not as much more stuff as.
• 14:04
  So the prices of that stuff goes up.
• 14:06
  Right. They will tell you that
• 14:09
  inflation at around 2%. It's a good thing that you need
• 14:14
  inflation for an economy to grow.
• 14:16
  No you don't. In the last in the last 30 years
• 14:22
  well 1867 to 1897 till that 30 year period in the states money
• 14:29
  supply growth was only about four 4 1/2% per year to
• 14:34
  interrupts average. Yet the the US economy exploded
• 14:42
  in terms of productivity and so you had generally you had
• 14:49
  falling prices over that time. So you had falling prices, you
• 14:54
  had deflation, not. Inflation.
• 14:57
  In an economy that was booming, right?
• 15:00
  Right. So empirically, by experience
• 15:03
  and theoretically, you can demonstrate and prove that deep
• 15:08
  inflation does not require for an economy to grow.
• 15:12
  And if anything, inflation of any sort detracts from the
• 15:16
  productive capacity of the economy, not that the economy
• 15:19
  stops growing, it just grows slower than otherwise would have
• 15:23
  grown. And so it's it's the what French
• 15:28
  economist back in the 1800s, Frederick Bastia, said that
• 15:35
  economist needs to look at what is not seen.
• 15:40
  So if governments inflate and economy is growing, they will
• 15:46
  say, hey, look, well, we have 2% inflation, economy still
• 15:50
  growing. Yeah.
• 15:50
  But what you don't see is if they weren't inflating, the
• 15:53
  economy would have been growing even faster.
• 15:57
  So what? So what would the argument be
• 15:59
  for people to say that inflation, that that inflation
• 16:02
  is necessary? I mean, I understand, I
• 16:03
  understand what you're saying now, but it can't be that I is,
• 16:06
  is there another perspective or another argument that people
• 16:09
  make to to explain that away? Yeah, it's largely, it's sort of
• 16:14
  the Keynesian economic. Which is Keynesian is generally
• 16:18
  that with government spending right or government back
• 16:20
  spending is typically the idea government.
• 16:22
  Well, the So what is called Keynesian economics today, I
• 16:27
  don't think John Maynard Keynes would recognize.
• 16:29
  OK, I. Think it's been bastardized, so
• 16:33
  what's the original idea and what's what's it become?
• 16:36
  Yeah. So I think that, you know,
• 16:38
  Keynes idea that he put forth in his book called The General
• 16:43
  Theory back in 1936, you have to remember the context as well.
• 16:48
  Yeah, the Western world was in the middle of the Great
• 16:52
  Depression. And.
• 16:54
  So he advocated for government spending.
• 16:58
  He he would have said that the Depression was a result of a
• 17:04
  lack of animal spirits and that people all of a sudden wake up
• 17:09
  and they're, you know, they're too afraid to spend their money.
• 17:13
  And if. You don't spend your money,
• 17:15
  you're denying somebody else of an income, right?
• 17:18
  So if you won't spend your money, then the government will
• 17:22
  either tax you or borrow your money or print money which takes
• 17:26
  your capital from you. We can talk about in a second.
• 17:29
  And they will spend your capital for you.
• 17:32
  So they will. So the government can only spend
• 17:36
  capital by taking it from somebody else, the government.
• 17:38
  Doesn't. So it's for spending?
• 17:39
  Yeah. The government has none of its
• 17:40
  own money. Exactly.
• 17:42
  Yeah, or it has money, but it doesn't have capital so the
• 17:45
  government can print money. OK.
• 17:49
  And when it print money, they take your capital so and that
• 17:55
  and that's an important distinction which which we'll
• 17:57
  get to in a second. But I just want.
• 17:59
  To which is capital versus money capital, Yeah, go ahead.
• 18:03
  Sorry, versus. Money, but let me just finish on
• 18:05
  the please. Animal.
• 18:07
  Spirits and why policy makers are convinced that inflation is
• 18:11
  a good thing. OK, decidedly not.
• 18:16
  And so it's not animal spirits that that caused the Great
• 18:21
  Depression. I mean, it's still highly
• 18:23
  debated what caused it. But there were things like Smoot
• 18:29
  Hawley tariffs that were put in place.
• 18:30
  I think it was 1930. So global trade ground to a
• 18:34
  halt. All of a sudden, President
• 18:37
  Hoover, Republican sent tax rates through the roof.
• 18:42
  There were no income taxes. By the way, in. 19. 13 right and
• 18:46
  now. I think he took them up to 63% I
• 18:49
  think in 1932. 63% on income tax.
• 18:54
  Yes. And then Roosevelt in 1935 or
• 18:58
  36, I think he took them to 75% or something like that.
• 19:02
  What? Yeah, the top, the top marginal
• 19:05
  tax rate in the 50s, they were over 90%.
• 19:10
  For who? How come I never heard about
• 19:12
  that The. Top incomer.
• 19:14
  I know a lot of people. I'm actually writing about it in
• 19:17
  my weekly blog section. And so right now the last couple
• 19:26
  of books have been on supply side economics.
• 19:29
  I'm not a supply side economist, but I like learning about
• 19:31
  different economics and they've got lots of great stats in
• 19:34
  there. But anyways, getting off track.
• 19:37
  So, yeah, so the depressions or recessions are for the most part
• 19:46
  the result of bad policy, the bad monetary policy.
• 19:51
  And and this goes way back to the 1800s, even before there was
• 19:55
  a Federal Reserve, monetary policy was dictated primarily by
• 19:59
  the Treasury in the 1800s. So you you had the the Sherman
• 20:03
  Silver Act and Land Allison Silver Act and all this kind of
• 20:07
  stuff. But so so policy makers like the
• 20:12
  idea of inflation. Are people being having
• 20:16
  believing that inflation is good for the economy because it gives
• 20:19
  the central bank the excuse to increase the money supply and
• 20:23
  inflate and, and so then that affords enables the government
• 20:28
  to spend more money than otherwise could and be popular
• 20:32
  with the voters. And then when you're inflating
• 20:36
  the money supply, you're debasing the currency, you're
• 20:38
  making the money worth less. And so all the debt that you
• 20:42
  take on becomes worth less over time the more you inflate.
• 20:47
  It's. Like governments, like
• 20:49
  inflation, and then they'll use excuses like the paradox of
• 20:54
  thrift. This is one of their favourites.
• 20:57
  What's that so? Yeah.
• 20:59
  So they will say that saving an investment is not a good thing
• 21:04
  for the economy as a whole, because, like I said earlier,
• 21:08
  the more you save. They will argue.
• 21:10
  Then you're denying someone else of an income because you're not
• 21:13
  spending your money. But this is really fallacious
• 21:16
  economic doctrine because when you save your money, it's not
• 21:19
  like your money is not spent. It's just spent in a different
• 21:22
  part of the economy. Your money is invested and the
• 21:26
  part of the economy that is producing goods and the
• 21:28
  intermediate goods part of the economy.
• 21:33
  And so they will say that. So let's say the example I use
• 21:39
  in my book is that central bank will tell you that if there is
• 21:45
  0% inflation, that's really bad for the economy because people
• 21:49
  won't be encouraged to spend their money because prices
• 21:53
  aren't rising. They think that you need to see
• 21:55
  rising prices to encourage you to spend your money before
• 21:58
  prices rise. And so I use the example of
• 22:01
  forget 0. I use the example of 2%
• 22:04
  deflation. So assume there's 2% deflation,
• 22:07
  which means that prices are falling 2% every year.
• 22:10
  So this is a central banker's nightmare that they think the
• 22:13
  economy will grind to a halt because everybody will stop
• 22:16
  spending the money because they're going to wait for 2%
• 22:19
  lower prices next year. So assume that you you have ATV
• 22:24
  and you want another TV for your basement for your kids so they
• 22:28
  can watch it down there and not make a noise upstairs in the
• 22:30
  living room. So this is a real.
• 22:32
  Luxury and the TV is 300 bucks and there's 2% inflation.
• 22:39
  So your choice is your choices are you can buy the TV today for
• 22:43
  300 bucks or you could wait a year and save yourself $6 and
• 22:49
  buy it for $294.00. Are you going to wait a year?
• 22:52
  No. No chance you're.
• 22:53
  Going to buy? It today exactly so anyways,
• 22:57
  it's preposterous economic doctrine.
• 23:01
  Well, I would also imagine, I'm sorry, I would also just
• 23:04
  imagine. And I think I think it's a big
• 23:06
  problem that exists in today's market is that people feel like
• 23:10
  no matter how much you save, you can't keep up with the cost of
• 23:14
  like the the amount that you're going to save over the course of
• 23:17
  a year or two or three. Can't possibly keep up with the
• 23:20
  amount of that, of that the prices are going to keep on
• 23:22
  rising over the course of two or three a year.
• 23:24
  So like, why even bother? You know, I mean, I, I can tell
• 23:28
  you even about, you know, I mean, my own experience buying
• 23:30
  homes, you know, like it is crazy, you know, and, and people
• 23:35
  don't. And, and, and it used to be that
• 23:36
  I, I imagine at least, you know, I don't know what, and I'm sure
• 23:39
  there's a lot of more many factors involved in this, but
• 23:42
  you used to be able to save up. My dad told me before I bought
• 23:45
  my house, you know, I was caught asking whether it was a good
• 23:47
  idea. And he said, I don't know.
• 23:49
  I said, what do you mean? He said at the time when I
• 23:51
  bought my house, you know, in, in 1990, 4, he's like, I bought
• 23:56
  a $250,000 house. I was making $85,000 a year.
• 24:00
  And I, I, I, I, I spent approximately 1/3 of my salary
• 24:03
  knowing that I'll be able to cover it.
• 24:04
  He's like, nowadays you, you know, if you, you know, you make
• 24:09
  $100,000 a year and you're buying an $800,000 house or a
• 24:13
  $700,000 house, how you, I, I don't know whether that's
• 24:16
  considered a good deal or not. And whether it's going to be
• 24:18
  worth more in a couple of years or not is almost irrelevant.
• 24:20
  Like how you have to be able to keep up with your bills right
• 24:22
  now, you know, So, you know, I, I feel like it's discouraging
• 24:25
  people from spending even more. No, no.
• 24:27
  Absolutely. And it's again, I have two
• 24:31
  chapters in my book on housing and.
• 24:35
  Explaining. Why house prices going up should
• 24:40
  not be happening. And again, it's it goes back to
• 24:46
  the difference between capital and money and how a free market
• 24:50
  system is supposed to work. So let me backtrack a little
• 24:53
  bit, but then I'll get right into housing.
• 24:56
  Sure. And, and your listeners will
• 24:58
  understand, but your younger listeners in particular, how
• 25:02
  they're getting screwed and how my bet my my generation is
• 25:06
  benefiting at your generation's expense and younger.
• 25:12
  Sure. So in a.
• 25:12
  In a free market system, you should only benefit to the
• 25:17
  extent that somebody else is benefiting from your actions.
• 25:21
  So the example I like to use is let's say you make a bike and I
• 25:26
  make a suit. So we both created capital,
• 25:30
  right? The creation of capital in a
• 25:32
  form of a good or a service. That is what makes the world go
• 25:35
  around, people investing their time and efforts and ingenuity
• 25:41
  to create capital that they think other people would want.
• 25:47
  And then they exchange that capital with each other.
• 25:49
  So then you make your bike, I make a suit, we exchange that
• 25:52
  with each other. No, I've got your bike.
• 25:54
  You got my suit. And importantly, none of this
• 25:57
  came at anybody else's expense, right?
• 26:00
  There was no bike and no suit in the economy.
• 26:02
  Now there's one of each, and we exchanged it and we do it,
• 26:05
  exchange it with each other. It's called direct exchange or
• 26:08
  barter. You can't have an economy with
• 26:11
  direct exchange. Barter, like once you get past,
• 26:14
  you know, 10 goods or something, it it just doesn't work, you
• 26:18
  know? Yeah.
• 26:19
  How many kitchen chairs would it cost to take a flight to
• 26:21
  Florida? You know, that sort of thing.
• 26:24
  So we don't do direct exchange. We do indirect exchange and we
• 26:30
  use money. So money is what's called the
• 26:34
  medium of exchange. We use money to exchange all the
• 26:40
  capital that we are all creating.
• 26:43
  That's all. Money is there for store value,
• 26:47
  unit of account stuff. But that's essentially what it's
• 26:49
  there for, to exchange all the good stuff that we're creating.
• 26:52
  So if you increase the amount of money, you haven't increased the
• 26:57
  amount of stuff, right? All that happens is the prices
• 27:01
  that that that that stuff gets exchanged at goes up because
• 27:04
  there's more money. Right.
• 27:06
  So now let's say you make 10 bikes, 1000 bucks each.
• 27:15
  You sell them for 1000 bucks. So you've got $10,000.
• 27:18
  Now in your bank account, that $10,000, effectively what it's
• 27:24
  doing is temporarily storing those 10 bikes that you made.
• 27:29
  That's where that value for that $10,000, it's the ten bikes that
• 27:33
  you created. When when you go and spend that
• 27:36
  $10,000, what gave you the wherewithal to go buy something
• 27:40
  else is that you made 10 bikes. You created capital.
• 27:44
  And. So when you look at whatever
• 27:47
  your material wealth is, house, car, clothes, whatever, that's
• 27:54
  supposed to be a reflection of material wealth cumulatively
• 27:59
  that's out there that other people have because your
• 28:02
  efforts, it didn't come at anybody else's expense.
• 28:04
  Now we're moving away from that and I'll get into that in a
• 28:07
  second. So let's say you've got your
• 28:11
  $10,000 in your bank account and you don't want to spend it yet.
• 28:15
  You're going to save it at the end of the year going on a nice
• 28:18
  vacation. But before you get to spend your
• 28:21
  $10,000, the central bank double S the money supply.
• 28:25
  Now when they double the money supply, what they do is they
• 28:29
  print the money out of thin air. They don't create any capital to
• 28:33
  obtain that money. But is there a way to?
• 28:38
  Is there a way to a? Way to?
• 28:41
  To create the cap meeting, can they say we're going to, can we,
• 28:44
  we want to do a construction job and so we need people to do the
• 28:49
  work or something like that. Yeah, but to pay the people to
• 28:56
  do the construction work, they have to take capital from the
• 28:59
  private sector. Right.
• 29:01
  OK, fine. Gotcha.
• 29:02
  OK. So good question.
• 29:05
  So, so when they print, the central bank prints money, it
• 29:09
  just prints it out of thin air, press the buttons.
• 29:13
  So that new money has no capital stored up in it, but it obtains
• 29:19
  capital as soon as that money comes into the economy, and it
• 29:23
  obtains capital by taking capital from the rest of the
• 29:27
  money that's already in existence, Correct.
• 29:31
  So as soon as they double the money supply, that new money
• 29:35
  takes 5 bikes from your $10,000 and puts it in new money.
• 29:40
  And so on your bank account, it still says that you have $10,000
• 29:44
  in your in your bank in your bank account, but now it's only
• 29:49
  storing 5 bikes instead of 10, and so your $10,000 will now
• 29:53
  only buy half as much as it would have done.
• 29:56
  Before the central bank. With the money supply, so that's
• 29:58
  how they take your capital from you.
• 30:00
  Government can take your capital from you in three ways,
• 30:04
  taxation, borrowing. You can lend them your capital
• 30:09
  or they print money and take capital from the money that
• 30:13
  you've already have. There's no other way for the
• 30:15
  government to get capital. That's it.
• 30:18
  So, so you, we should not be benefiting at somebody else's
• 30:23
  expense. We should all be creating
• 30:25
  capital and fairly exchanging it.
• 30:28
  But what's happening in this world because of monetary
• 30:31
  policy, which deliberately drives asset prices higher, it
• 30:38
  does so at the expense of the general economy.
• 30:41
  And So what you have is, is, is becoming, there's still a lot of
• 30:46
  great things going on in the economy.
• 30:49
  But again, it's that which isn't seen.
• 30:51
  There's a lot less of it than there should be, which is why
• 30:54
  debts going through the roof, productivity growth has declined
• 30:57
  over the decades. It's moving towards like a game
• 31:02
  of poker now at a game of poker at the table, there's no net
• 31:08
  wealth creation. It's not that everybody walks
• 31:12
  away from the table a winner. It's a redistribution of wealth
• 31:16
  at the poker table, right? So increasingly we are moving to
• 31:21
  a redistribution of wealth in the economy rather than a
• 31:24
  creation of wealth. And so in a poker game, what you
• 31:28
  end up with is 1 winner and a bunch of losers, which is
• 31:32
  increasingly what the real economy now is starting to feel
• 31:35
  like for so many people. They.
• 31:37
  See. The top 10% making out like
• 31:40
  bandits and life is really tough for everybody else, particularly
• 31:43
  for the bottom 50% who are far more hurt by inflation than
• 31:49
  higher income people. Sure.
• 31:52
  So back to housing. Yeah.
• 31:55
  So nobody should be making money on their home.
• 32:00
  A home, If you have a mortgage, it's like a form of forced
• 32:07
  savings. So you have to pay the bank
• 32:10
  back. And every time you do, you pay
• 32:13
  some principal and you pay some interest.
• 32:16
  Every time you pay some of the principal, it's like for saving.
• 32:18
  So you're you're putting money into your home.
• 32:21
  And to clarify, sorry, to clarify people that don't know,
• 32:24
  principal is amount that I borrowed and then the interest
• 32:27
  is the percentage that they're charging me to borrow that
• 32:31
  money. So, so if I, if I take out a
• 32:33
  $300,000 mortgage or $100,000 mortgage, that would be the
• 32:36
  principal. And then if it's a 3% interest,
• 32:38
  then I pay a partial amount that I of the total amount that I
• 32:41
  borrowed from the bank and then X percent of the interest that
• 32:44
  I'm paying on it as well. Right, Exactly.
• 32:47
  OK, Yeah. Thanks for clarifying that.
• 32:50
  Sure. And so then over the life of
• 32:51
  your mortgage, if you have a 30 year mortgage, 30 years later
• 32:56
  you've paid it off and you don't owe the bank any money.
• 33:00
  And so if you bought a home for $300,000, now you have a
• 33:04
  $300,000 home. That's your your home equity and
• 33:09
  you can use that for your retirement.
• 33:12
  But today, central bankers will encourage people to extract the
• 33:17
  equity from their home. So once you've paid part of your
• 33:20
  mortgage down, they want you to borrow on that.
• 33:24
  Excuse me, you go and spend it. So because when you spend
• 33:26
  somebody else's income and and so they never pay their mortgage
• 33:32
  down and you have older people who still got a lot of debt on
• 33:35
  their home, which is crazy. Oh yeah.
• 33:37
  And effectively what people were doing, especially in the boom of
• 33:40
  06/05/06, people were effectively consuming their
• 33:44
  homes by. Extracting.
• 33:46
  Equity from it and buying a big SUV and other big flat screen
• 33:49
  TV, whatever, more expensive trip.
• 33:52
  But back to housing and why nobody should be making money on
• 33:57
  your home. So our home, we live in
• 34:00
  Mississauga, which is a suburb of Toronto, and we bought our
• 34:04
  home in 2001 just when the central bank, the Federal
• 34:08
  Reserve, started what's called their wealth effect monetary
• 34:13
  policy targeting asset prices to drive them higher, to try and
• 34:17
  drag the economy up with it, doesn't work.
• 34:21
  Of course not so. Yeah, so our house for the last
• 34:26
  24 years has gone up in price four times.
• 34:32
  So what was our contribution to society that justifies my wife
• 34:38
  and I making four times on our home?
• 34:41
  Let me help you. It was 0.
• 34:43
  We did nothing. So if we did not do something to
• 34:49
  warrant making four times on our home, then our benefit must come
• 34:55
  at somebody else's expense. There is no apartment.
• 34:58
  Yeah, go ahead. I'm so sorry.
• 35:01
  So, but can you make the argument perhaps that that it's
• 35:09
  based on just the demand for people wanting to live in a
• 35:12
  beautiful suburb near Toronto and there's only limited amount
• 35:15
  of homes? And so the reason why your home
• 35:17
  value went up isn't because you contributed necessarily, but
• 35:20
  because other people want to live where you live and they
• 35:23
  can't. Yeah, so, and yeah, it's a good
• 35:25
  point. And for like big cities like New
• 35:28
  York or London, England or whatever, that's definitely
• 35:31
  true. And that, you know, it's going
• 35:34
  to attract people. There's only so much space.
• 35:36
  Although New York. They start building up, right?
• 35:38
  But it's more expensive. But in suburbs, you know it
• 35:43
  should result in increased supply of homes.
• 35:48
  OK. Now the supply in the housing
• 35:50
  industry, there's a term in economics, it's called
• 35:54
  elasticity and inelasticity. So the supply of homes is less
• 36:00
  elastic. What that means is if demand
• 36:02
  goes up, yes, supply of homes will adjust, but it doesn't
• 36:06
  adjust overnight. You got to get permitting.
• 36:07
  It takes time to, but it does happen and for years, for
• 36:13
  decades, it did happen that house prices, yeah, they grow a
• 36:17
  little bit faster than that inflation, but not much, right?
• 36:22
  In Canada, from 1970, I think it was 75 to 2000 or 2001, the
• 36:33
  average price to after tax income ranged from 6 to 8.
• 36:38
  So it's like 7 times as soon as the Federal Reserve wealth
• 36:43
  effect policy starting in 2001 versus Greenspan and then
• 36:47
  Bernanke, prices just continued to soar.
• 36:53
  And so we went from an average of seven times price to after
• 36:57
  tax income and we're now at 12. And that's why young people in
• 37:02
  Canada can many of them can't even dream of ever owning a home
• 37:07
  and. Raising a family.
• 37:08
  This is a moral crime, I think. So a house is not a productive
• 37:15
  asset. So our house went up four times
• 37:19
  in price, not because all of a sudden it started producing 4
• 37:22
  times as much stuff, not because it grew 4 times in size, not
• 37:28
  because it relocated maybe down to where you are in Florida and
• 37:33
  oceanfront view. No, it's the same economic good
• 37:37
  that a younger couple or a newcomer to our country has to
• 37:42
  pay 4 times for what we paid for it.
• 37:45
  And so it was a redistribution of wealth.
• 37:47
  There was no wealth creation in society, right?
• 37:51
  So you made your suit. I made by bike.
• 37:54
  There was none. And then there's one of each.
• 37:57
  But when I make $0.04 in my home, there's not like four more
• 38:01
  homes were created. There's there's no more capital.
• 38:03
  It's still one home. Yeah.
• 38:05
  Distribution of wealth from the younger couple's bank account
• 38:09
  into our bank account, still the same amount of capital, right?
• 38:14
  And you know, I haven't done anything wrong.
• 38:18
  People, my generation, none of us have done anything wrong.
• 38:21
  We've played by all the rules and housing prices always go up
• 38:25
  and that's what we're told. And so you want to get in on the
• 38:28
  housing ladder. All this ridiculous terminology.
• 38:33
  Well, and I get it, don't. I mean, they're not.
• 38:36
  There's no bad people here. It's just a bad system.
• 38:41
  Central banks see when you have a wealth effect through stock
• 38:46
  markets. So stock markets are rising
• 38:51
  because companies are putting capital to productive use and
• 38:55
  creating more capital, growing their sales, growing their
• 38:59
  profitability, hiring more people, paying them more.
• 39:03
  Everybody's winning. Stock markets go up to reflect
• 39:07
  the fact that more capital is being produced in the economy.
• 39:11
  That's a really good thing. That's a real wealth effect,
• 39:15
  real wealth being created, and the world is better off.
• 39:19
  And the shareholders benefit too.
• 39:21
  Shareholders benefit. Employees benefit.
• 39:24
  Society benefits, suppliers, everybody benefits, right?
• 39:28
  That's the way it's supposed to. There are 6 constituents to a
• 39:31
  business. So shareholders, senior execs,
• 39:34
  employees, suppliers, society at large.
• 39:38
  And then the consumer, consumer or customer.
• 39:42
  Customer is number one, right? Because of all these six, the
• 39:45
  customer's the only one that pays.
• 39:49
  But it's, it's important that all of them are benefiting from
• 39:51
  this business model, right? So, so that's all really good.
• 39:56
  That's a really good true wealth effect.
• 39:59
  And So what you want to do is the central bank, you would want
• 40:01
  to establish the conditions that would allow for the most capital
• 40:05
  to be produced and then fairly exchanged through a medium of
• 40:09
  exchange money that could be trusted.
• 40:13
  But the central banks decided they couldn't wait for all that
• 40:17
  stuff to happen. For all the productivity stuff
• 40:21
  to drive stock prices higher. So instead they decided to drive
• 40:25
  stock prices higher themselves and hope that that would drag
• 40:28
  the economy up with it, drive asset prices higher.
• 40:33
  And yes, the top 1% and top 10% will inordinately benefit from
• 40:37
  this, and they do. But their belief, policy makers
• 40:42
  believe, I think, was that the benefits of all that would
• 40:46
  trickle down to everybody else over time.
• 40:49
  Well, spoiler spoiler alert, they haven't and they won't.
• 40:54
  You know. And theory will tell you that
• 40:57
  and empirically that is also what has happened, right.
• 41:00
  So they drove interest rates first to zero to drive the
• 41:03
  valuations of stocks higher and then they and then they drove at
• 41:07
  the same time making they say, well, we're taking mortgage
• 41:11
  rates. They started buying more
• 41:12
  mortgage-backed security to drive mortgage rates to
• 41:15
  ridiculously low levels. We're.
• 41:17
  Doing this to make housing more affordable?
• 41:18
  No, you're not making housing more affordable.
• 41:20
  You're making mortgage payments more affordable in a short time
• 41:25
  by driving interest rates down. But what what happens is it
• 41:28
  results in an explosion of demand for housing, Right.
• 41:32
  And so housing prices go through the roof.
• 41:35
  And so when people later on are buying a house, their mortgage
• 41:39
  payments are no longer affordable.
• 41:41
  Yeah. And this is where we are today.
• 41:44
  Anecdotally, by the way, anecdotally with my I, I, I
• 41:47
  owned a townhouse before I bought my house now and I bought
• 41:50
  my townhouse in I think 2021 for about $300,000.
• 41:55
  And and then for a while, and this was I think 2021 and
• 42:00
  there's before it was a big bump.
• 42:01
  I think borrowing was still at 2 or 3%.
• 42:03
  And then, and within a year or two, it went up to like the I,
• 42:08
  I, I, an agent knocked my door and said you could sell your
• 42:10
  house for 4/4/15. And I was like, I'll do that.
• 42:14
  And the next day interest rates went up and I could not get a
• 42:17
  single offer. And I ended up, I think
• 42:19
  something for like 375 or something like that.
• 42:22
  But it just shows just to just to, you know, bring your point
• 42:26
  to life Like, you know, just because interest rates are low
• 42:29
  does not necessarily mean that it makes it cheaper in the long
• 42:32
  run by any means. Exactly.
• 42:35
  And you know the trouble with all of this, I mean, not only
• 42:39
  have you priced a whole generation pretty much out of
• 42:45
  the housing market, I mean, I'm sure you've seen the stats of
• 42:47
  the average age of the first time home buyer in the States is
• 42:50
  way older now than it was back in the day.
• 42:53
  And there are certain societal things that have changed over
• 42:56
  time as well that will contribute to that to be.
• 42:58
  Fair expectations for sure. Pardon expectations, I'm sure.
• 43:02
  My grandfather lives in a three bedroom, 1 1/2 bathroom with
• 43:06
  five people in the house, and no one wanted, and I wouldn't buy
• 43:09
  that if I knew that I was going to have three kids.
• 43:11
  I don't want to 1 1/2. I don't want everyone to share
• 43:13
  one shower, you know? So that's strange too, Yeah.
• 43:17
  Of course. Yeah.
• 43:20
  No so, but the the bad news. So there's two things, you know.
• 43:25
  First, a younger generation being priced out of the housing
• 43:27
  market. But to fix it you have to let
• 43:34
  interest rates and mortgage rates be determined naturally by
• 43:37
  market forces rather than dictate.
• 43:41
  How would that work? So just if the central banks
• 43:45
  stopped deciding on interest rates, and they do and may
• 43:50
  affect the short term interest rate, but the short term
• 43:52
  interest rate also has an influence on the longer term
• 43:54
  interest rate. And then when it doesn't, they
• 43:57
  will start what's called quantitative easing.
• 44:00
  They print money to buy longer dated bonds and mortgage-backed
• 44:04
  security to drive those interest rates down, right.
• 44:07
  And so, so there's what's called actually before I get on to
• 44:13
  natural interest rates, I have to determine.
• 44:15
  Just let me finish my thought on the negative impact.
• 44:18
  Of this, yes. So first the younger people not
• 44:21
  price out of the market, and then for people, particularly
• 44:25
  younger people who have bought a house in the last five years or
• 44:28
  so, the only way to fix this is for interest rates to be
• 44:33
  naturally determined and stop driving them to zero.
• 44:37
  And for prices of houses to descend to their long term
• 44:42
  average of price to income, which would be again determined
• 44:48
  by market forces. But the problem for people who
• 44:51
  have bought over the last five years is that they'll end up
• 44:54
  being could be end up being significantly underwater on
• 44:58
  their mortgage. They would have like negative
• 44:59
  equity that the mortgage would be worth more than the house.
• 45:03
  And then people feeling that they can't move because they
• 45:06
  can't take that loss. And this is a terrible thing,
• 45:11
  right? But it should not be prevented
• 45:16
  from happening. And because so these are your
• 45:20
  choices, save the equity in people's homes today or allow
• 45:25
  the next generation to dream about buying a house one day and
• 45:27
  raising a family. And the equity like for me that
• 45:32
  I've made in my home, as I said, I've made it unfairly.
• 45:36
  And so I'd be very happy to see the price of my house go back to
• 45:40
  what it was when we bought it in inflation adjusted terms, of
• 45:43
  course, because then that would mean the housing is becoming
• 45:46
  more affordable for people. And the money I've made, I made
• 45:50
  it somebody else's expense. Now to give that money to our, I
• 45:53
  have three daughters that money to them so they can afford to
• 45:57
  buy an over price, you know, but that's between a rock and a hard
• 46:03
  place. There is no easy way out of this
• 46:04
  quagmire. But this is what happens when
• 46:07
  you interfere with the market. All good intentions.
• 46:10
  I don't think there was a conspiracy here.
• 46:12
  I believe that central banks primarily through arrogance.
• 46:16
  They thought they knew better and they thought they could take
• 46:19
  credit for doing this and, and they love the adoration that
• 46:22
  they get from Wall Street and. Everybody's happy.
• 46:25
  Driving stock markets higher and housing prices higher.
• 46:27
  Everybody loves them. But now we are in this unholy
• 46:31
  mess of which there is no easy way out.
• 46:36
  And So what they will probably do is inflate their way out.
• 46:41
  They'll tell you that inflation is a lot lower than it really
• 46:43
  is. It's called financial repression
• 46:47
  is a term that they use and they financially repress the
• 46:51
  populace. And so your money will be
• 46:56
  debased, the value of your money will erode over time, your
• 46:59
  savings. And to your point, then people
• 47:01
  start to feel, well, what's the point in saving?
• 47:04
  You know, inflation is so high that my money is going to be
• 47:07
  worth less in the future. I'll spend it today.
• 47:10
  Policymakers actually like that because if you spend your money
• 47:14
  today, that makes GDP look stronger because all GDP is a
• 47:17
  measure of final spending. Final spending, 75% of it or 70%
• 47:22
  of it is consumption. But the more you consume, the
• 47:26
  more an economy consumes today instead of investing, the less
• 47:32
  stuff that will be produced in the future.
• 47:35
  And there's no ifs, ands or buts about this this.
• 47:37
  Is the less the less that we consume?
• 47:41
  Say that again. I'm sorry.
• 47:42
  Yeah. So the more that you consume,
• 47:46
  spend. Today.
• 47:48
  Yeah. And the less that you save and
• 47:50
  invest, the less stuff that could be produced in the future
• 47:56
  because it was less investment, right?
• 47:58
  So if society is consuming more rather than saving more than
• 48:04
  that consumption results in a higher GDP number at the expense
• 48:09
  of a lower GDP number in the future.
• 48:12
  Right long term, right because. Because policy makers, they
• 48:15
  focus on GDP, which is a symptom.
• 48:18
  It's not a fundamental GDP is just final spending.
• 48:24
  So if final spending is growing, consumption is growing.
• 48:29
  Let's say your consumption is growing because you got a
• 48:31
  fantastic job and you're creating all this capital and
• 48:34
  fairly exchanging it with others.
• 48:37
  So your GDP, your final consumption is growing because
• 48:41
  you're creating more capital that's allowing you to spend.
• 48:46
  But if you're spending is growing because you're saving
• 48:50
  less and borrowing money to consume.
• 48:53
  So if your GDP as a result of you taking a more and more debt
• 48:57
  then you're spending, your GDP is not going to be sustainable.
• 49:02
  Eventually you're not going to be able to service anymore debt.
• 49:04
  And that's what's happening in the economy. the US debt is
• 49:06
  going through the roof. I think over 120% debt to GDP
• 49:10
  now I think it is. It's, it's, it's so concerning
• 49:15
  and what, what if, what at least to me and perhaps you could, you
• 49:18
  know, I guess confirm or you know, confirm this or not, is
• 49:23
  that it feels like we just keep on building on like finding new
• 49:26
  ways to create more debt to push off the consequences.
• 49:29
  So first, you have, you know, student loan, medical debt,
• 49:32
  credit card debt, buy it, buy now, pay later models that are
• 49:36
  going on right now that have nothing to do with your credit
• 49:38
  score or anything like that, which is crazy.
• 49:40
  You got auto debt. You got your mortgage.
• 49:42
  It feels like the entire American economy is just kicking
• 49:46
  the can down the line until we figure out a way to either start
• 49:50
  paying off the debt or just collapse under it, you know?
• 49:54
  Yeah, well, it'll be the latter. No will it's.
• 49:59
  What do you do? But well, the reason I wrote my
• 50:04
  book, which is called Capital Offense, why some benefit at
• 50:10
  your expense because they take your capital every time they
• 50:13
  print money. Like I explained earlier, the
• 50:16
  reason I wrote the book and I wrote it in very easy to
• 50:20
  understand terms. I wrote it for people who are
• 50:24
  not in the finance industry, who are not investors, who are not
• 50:30
  studied economics. And I use analogies and stories.
• 50:35
  And if you read it, you will understand how an economy works
• 50:38
  and how it doesn't, and the difference between good
• 50:42
  inflation and bad deflation of what really causes inflation,
• 50:46
  all that kind of stuff. And the reason I wrote it in
• 50:50
  this way is because I think that the average person is very, very
• 50:54
  smart, particularly when it comes down to what to do with
• 50:58
  their own hard earned capital. They don't need policy makers or
• 51:00
  central bankers to tell them that this price is fair or you
• 51:03
  shouldn't be buying this or you should.
• 51:05
  You shouldn't be saving as much as you should be.
• 51:07
  No, they don't need anybody telling them they know what to
• 51:09
  do. And so once you have an
• 51:14
  empowered citizenry who really understands what's going on, you
• 51:20
  arm them with the truth. Then they can demand from our
• 51:23
  policymakers better actions, better decision making, and our
• 51:27
  policymakers will make those better decisions, but they'll
• 51:31
  only do it once we demand it from them.
• 51:35
  And for years, decades, we've been demanding something else.
• 51:38
  They have convinced us, and they've been convinced,
• 51:40
  convinced by economists and people in academia with
• 51:45
  fallacious, ideologically driven economic doctrine that you can
• 51:52
  have your cake and eat it too. That you can have get something
• 51:56
  for nothing. You cannot.
• 51:58
  If you get something without contributing, it comes at
• 52:02
  somebody else's expense. So want people.
• 52:05
  The policymakers are good people.
• 52:07
  They just. They they want to believe in the
• 52:11
  easy way out, the popular way out.
• 52:15
  But the popular way out is what leads to terrible consequences
• 52:19
  for the rest of us down the road.
• 52:20
  But it's hard for people to connect the dots between these
• 52:23
  popular, fun, nice decisions. It gave us all kinds of stuff
• 52:27
  years ago to now. We're screwed.
• 52:31
  And. And a like, a perfect example is
• 52:34
  back in 1983 in France, President Francois Mitterrand,
• 52:38
  he lowered the retirement age from 65 to 60.
• 52:42
  And so, oh, he loves us. What a nice guy.
• 52:46
  He wants us all to retire five years earlier.
• 52:49
  Well, I want you to retire at 30.
• 52:52
  That makes me even nicer. Doesn't come to somebody else's
• 52:56
  expense, right? And now?
• 53:00
  There's the pension plan is in huge trouble, and the liability
• 53:05
  is foisted on to the generation that's following them.
• 53:08
  So all these people retiring earlier at the expense of the
• 53:12
  next generation. And so, you know, there's a
• 53:15
  saying that the people always get the government that they
• 53:20
  deserve. Yeah.
• 53:22
  In other words, while you voted them in.
• 53:24
  So stop complaining, you know, but you can only get the
• 53:27
  government you deserve. What's going on?
• 53:31
  Yeah, if you know what's going on, like if you don't know
• 53:34
  what's going on, if if they tell you that, yeah, we we'll just
• 53:38
  take on more debt and we'll drive stock prices higher and
• 53:40
  housing prices higher. And then it benefits will
• 53:42
  trickle down to everybody else. And we're all going to, you
• 53:46
  know, make a fortune. Rainbows and butter cups as far
• 53:48
  as the eye can see. You're going to believe it or
• 53:50
  not, then you're going to vote for that.
• 53:54
  You run into the same problem when it comes to minimum wage.
• 53:58
  If people are judged arbitrarily.
• 53:59
  Choose a minimum wage, $20.00 an hour, $15.00 an hour.
• 54:02
  And you say, you know what? I, you know, I said minimum wage
• 54:05
  was $12.00 an hour. I'm going to decide now that I'm
• 54:07
  minimum wage that America is going to be $25.00 an hour.
• 54:10
  That's essentially the same thing, right?
• 54:13
  I mean, you're, you're, you're, you're forcing people to be,
• 54:16
  you're forcing people to get paid more even though they
• 54:20
  haven't really created more capital or done anything more to
• 54:23
  create more capital, right? Yeah, no, exactly.
• 54:26
  And you know, the and the issue is not, I don't think, minimum
• 54:31
  wage. OK.
• 54:32
  And. I think the issue is the prices
• 54:37
  that people have to pay with their minimum wage, either for
• 54:41
  food, gas or health care insurance or rent.
• 54:47
  Yeah, house prices, you know, I mean, everybody wants people to
• 54:52
  make more money, but it comes at somebody else's expense.
• 54:57
  And, you know, it's, I mean, it's, it's not.
• 55:02
  People don't like the laws of economics sometimes because they
• 55:06
  can be very inconvenient, but they are what they are.
• 55:10
  And so in writing my book, you know, again, I'm not an
• 55:14
  economist. I've studied economics for the
• 55:16
  last, I don't know, 17 years. That's all I read Economic
• 55:21
  philosophy and monetary policy and stuff like that.
• 55:26
  But the laws of economics can be very inconvenient, and so when
• 55:31
  people don't like the laws of economics, they make up their
• 55:34
  own. It's called normative economics
• 55:40
  for. That.
• 55:42
  Is being on ideology in a way they would want things to be
• 55:45
  rather than how they are. And it makes them more popular,
• 55:49
  especially with politicians, right?
• 55:51
  And, you know, some economists have likened it to getting angry
• 55:55
  at the law of gravity and blaming the law of gravity for
• 55:59
  plane crashes. Stupid gravity.
• 56:02
  No, it's just the law of gravity.
• 56:05
  Don't get angry at gravity. Get angry at the pilot or the
• 56:09
  manufacturer or, you know, whatever.
• 56:13
  Sure. And so, yeah.
• 56:15
  So there's no easy way out. But what I believe that again,
• 56:21
  people are very smart and I think most people want to do the
• 56:25
  right thing. Most people like to help people.
• 56:29
  But and so but like we were talking about before we started
• 56:36
  recording, you know, the issues transcend politics.
• 56:43
  So people know that they're getting screwed, but they don't
• 56:47
  know how. And then?
• 56:48
  We always, If we're getting screwed, we want to be able to
• 56:52
  blame somebody because it's not our fault.
• 56:55
  It's not young people's fault. So who's to blame for this?
• 56:59
  And so if you don't understand what's going on, then it's very
• 57:01
  natural for Republicans to then blame Democrats and Democrats to
• 57:06
  blame Republicans. And.
• 57:08
  Even though in terms of it's had the same consequences over the
• 57:11
  last 25 years. Yeah, no, exactly.
• 57:14
  It doesn't matter who's in power.
• 57:15
  Yeah. So I know beautiful people who
• 57:18
  are Republicans and who are Democrats.
• 57:20
  And for the most part, they believe in exactly the same kind
• 57:23
  of stuff, right? You know, But then if once
• 57:27
  there's a Republican and they're a Democrat, all of a sudden they
• 57:29
  hate each other. You know it's.
• 57:31
  Crazy. It's so sad what's going on.
• 57:33
  Yeah. But I, but I think that with a
• 57:36
  better understanding of truth and that it's a lot easier to be
• 57:43
  compassionate and, and, and that for for younger people who've
• 57:50
  recently bought home and if home prices go down and they sell at
• 57:54
  a loss, you know, there could be some sort of taxpayer benefit to
• 57:59
  help them out partially. Sure, at least you know,
• 58:02
  particularly if that benefit is coming from those who made a
• 58:06
  fortune on their homes. Right who?
• 58:09
  I mean, I know and people my age, most people my age, when I
• 58:13
  tell them this thing about housing, you know, first I kind
• 58:17
  of shocked, but then they get it.
• 58:20
  And they said, yeah, you know, honestly, I never even thought
• 58:23
  about it. You're right.
• 58:25
  Every now and then I run across somebody who doesn't like it.
• 58:30
  And they like to think that they made a fortune on our home
• 58:36
  because they timed the purchase just right or somehow they
• 58:40
  deserve it. And they'll throw all kinds of
• 58:42
  stuff at me to try and justify and rationalize why they're
• 58:47
  making money in their home. And it doesn't come at somebody
• 58:51
  else's expense. And I understand.
• 58:54
  I mean, they're few and far between, by the way.
• 58:57
  Most people can. But it's not a pleasant thing to
• 59:00
  hear because, no, for years you've thought, hey, I know what
• 59:05
  I'm doing in housing, you know, good for me, you know?
• 59:09
  And then I come along and say, well, no, not so fast, you know?
• 59:13
  And yeah, just, and, and I think particularly in America, you
• 59:21
  guys have such a can do spirit patriotism.
• 59:26
  When you're all facing something together, you all come together
• 59:30
  and and and we'll want to do the right thing.
• 59:34
  But importantly, people have to believe that we are all in this
• 59:40
  together, that it's not just me that's going to be making the
• 59:43
  sacrifice. It's not just me the one that's
• 59:45
  going to get screwed. Yes, the leaders, my boss,
• 59:49
  everybody. We're all going to, you know,
• 59:52
  we're going to struggle a little bit for a few years, maybe make
• 59:56
  some sacrifices. But coming out the other end,
• 59:59
  things are going to be fantastic.
• 1:00:01
  And it's going to be a much fairer redistribution of the
• 1:00:05
  capital that we're all creating. And if people believe that,
• 1:00:09
  that's the end game. I think people will agree to do
• 1:00:12
  what's necessary and then the leaders will come to the fore to
• 1:00:17
  make those kind of decisions. And well, the alternative is
• 1:00:23
  that we continue on this current unsustainable path.
• 1:00:27
  And rather than a controlled implosion, you know, like when
• 1:00:29
  you you blow up a building and it all comes down, it doesn't is
• 1:00:34
  an out of control explosion significant collateral damage.
• 1:00:40
  Even worse is that we could get a significant change to our
• 1:00:44
  economic and political system, which at first would appear to
• 1:00:49
  be a good thing because there would be a much fairer
• 1:00:53
  redistribution of wealth, like through socialism.
• 1:00:56
  But there would be far lower wealth being created and the
• 1:01:00
  world would be significantly poorer and ultimately anger
• 1:01:06
  angrier at each other because of what's happening.
• 1:01:10
  Right. So I have a couple of follow up
• 1:01:11
  questions. It seems that a lot of the
• 1:01:16
  issues are a consequence of policy in order to make short
• 1:01:24
  term gains and right. And I also noticed that it feels
• 1:01:31
  like, especially with corporate companies, there's enormous
• 1:01:33
  pressure, especially ones that have to answer to stockholders
• 1:01:36
  and, and and have and have stockholders.
• 1:01:39
  The quarterly earnings forces them to try to create the short
• 1:01:44
  term wealth. Well, you know, decision to
• 1:01:45
  create wealth as opposed to long term company success, right?
• 1:01:50
  Because and Amazon was a notorious case of a company that
• 1:01:54
  didn't care about its, you know, it's valuation, I guess, or you
• 1:01:58
  know what, it's short term. They said we have a big picture
• 1:02:01
  in mind. And for a couple of years, you
• 1:02:03
  know, they didn't mind what the stock price was.
• 1:02:05
  I believe I could be wrong. I believe I recall reading that
• 1:02:09
  and and they were able to keep their eye on the, on the long
• 1:02:12
  game and they are what they are now, you know, but so do you
• 1:02:17
  think they would change? Like I, I think I heard Trump
• 1:02:19
  float the idea of changing quarterly earnings to half a
• 1:02:21
  year earnings or something like that.
• 1:02:23
  Do you think that would make an impact?
• 1:02:26
  It would help for sure. And you know, my investment
• 1:02:32
  style and my investment team, we were very long term
• 1:02:36
  shareholders, long term investors.
• 1:02:39
  So when we were meeting with a company, the company would often
• 1:02:42
  start talking about what they were going to do the next
• 1:02:45
  quarter, what sales would be, what the profit margin would be
• 1:02:47
  the next quarter. We said we don't care.
• 1:02:50
  Right. We want to know what your sales
• 1:02:52
  growth and profit growth will be over the next 10 years and how
• 1:02:57
  are you going to do it? How much are you investing in
• 1:03:00
  the business? What are you investing in?
• 1:03:02
  What gives you confidence that you're going to win this game?
• 1:03:05
  What are the biggest threats that you have longer term,
• 1:03:07
  either from competition or regulatory issues and policy
• 1:03:10
  makers and stuff like that? And you know, if the stock
• 1:03:15
  market and analysts and whatnot focus more in the long term,
• 1:03:19
  then company, it would change the behavior of companies and
• 1:03:24
  they would focus on longer term rather than on a short term
• 1:03:28
  share price. So companies, you know, if
• 1:03:30
  they're expected to hit a certain profit margin over the
• 1:03:33
  next three months or six months, they might start under investing
• 1:03:36
  in their business to save money to make their profitability
• 1:03:40
  higher. But they're not coming to the
• 1:03:41
  expense of sales growth in the future, right?
• 1:03:44
  Or, you know, they they want to drive their stock price higher.
• 1:03:47
  So companies will, you know, if you have your own company and
• 1:03:52
  you take on debt to start your company, one of the first things
• 1:03:54
  you want to do is pay down the debt and stop sharing, you know,
• 1:03:59
  the profitability with the banks by paying them interest on your
• 1:04:02
  debt. And plus you want that
• 1:04:04
  confidence that if things change, you're not going to have
• 1:04:07
  too much debt and go broke. But then the in stock markets
• 1:04:13
  companies are rewarded for taking on debt because the
• 1:04:16
  market sees that the company is going to take on debt to buy
• 1:04:18
  back their shares and drive their share price higher than
• 1:04:21
  the executives then cash in on all their options.
• 1:04:24
  And there have been maybe a couple of examples in my book,
• 1:04:27
  or at least one. OK, you want to give a couple of
• 1:04:31
  them one or one or two examples. Yeah.
• 1:04:32
  So General Electric took on billions, 10s of billions of
• 1:04:37
  dollars in the mid 2000s of debt to buy back their shares.
• 1:04:42
  So they're buying back millions of shares every year and this
• 1:04:46
  was driving their share price higher.
• 1:04:49
  And so every year executives were cashing in millions of
• 1:04:53
  dollars worth of options, but they're they were driving the
• 1:04:56
  share price higher not because they were creating more capital
• 1:05:00
  and the capital was growing and driving the share price higher
• 1:05:03
  because they were taking on debt to buy back shares and reducing
• 1:05:07
  the amount of shares in the market and driving the share
• 1:05:10
  price higher. And then they got into trouble
• 1:05:13
  and they because they had so much debt and they were having
• 1:05:15
  to start selling off parts of the business just to survive,
• 1:05:19
  right. You know, this is really bad
• 1:05:21
  corporate culture. And it's similar to what policy
• 1:05:26
  makers do. So when you have company
• 1:05:31
  management who rather than taking on debt to invest in the
• 1:05:34
  business and create more capital, they drive their share
• 1:05:37
  price higher by buying back shares.
• 1:05:40
  Similarly, policy makers will encourage GDP growth through
• 1:05:48
  debt rather than a establishing the conditions for the efficient
• 1:05:55
  allocation of capital in the in the economy to create more
• 1:05:59
  capital to drive GDP higher. And what would be the sensible
• 1:06:04
  ways to do that? What are some tangible ways to
• 1:06:06
  what are some? What would be some tangible or
• 1:06:08
  actionable ways? Like if if that was implanted
• 1:06:11
  tomorrow in the States, what would that look like?
• 1:06:14
  Well, the first thing they'd stop manipulating interest
• 1:06:17
  rates. So the most efficient capital
• 1:06:22
  allocation in an economy is to is driven by what's called the
• 1:06:26
  natural rate of interest, very different from the neutral rate
• 1:06:31
  of interest. And these two often get
• 1:06:32
  conflated, but they're very different things.
• 1:06:35
  So the. Natural rate of interest is
• 1:06:36
  determined by market. Players in the economy will have
• 1:06:41
  their own skin in the game, their own capital.
• 1:06:44
  So individuals, corporations, banks, and we're all making a
• 1:06:50
  risk return assessment about what to do with my capital.
• 1:06:54
  So if I'm going to lend my capital or you're going to lend
• 1:06:56
  capital to me, you're going to have to make an assessment with
• 1:06:59
  respect to what kind of risk I am.
• 1:07:01
  Am I? Am I?
• 1:07:01
  Going to pay you back the money or am I going to be gone?
• 1:07:04
  And so if I'm a higher risk, you want a higher interest rate,
• 1:07:07
  lower risk, lower interest rate. And so.
• 1:07:09
  You get millions of people and corporations, organizations,
• 1:07:13
  banks making all these decisions on a daily basis.
• 1:07:16
  And what results is what's called the natural rate of
• 1:07:18
  interest. And this results in the most
• 1:07:21
  efficient allocation, the most productive economy.
• 1:07:25
  But what's central banks focus on is the neutral rate of
• 1:07:29
  interest, which is the rate of interest that allows for
• 1:07:34
  consumption spending and steady growth in the economy without
• 1:07:39
  resulting in inflation. And so they will they start
• 1:07:44
  taking interest rates down to encourage consumption and get
• 1:07:48
  GDP growing. And when they take interest
• 1:07:51
  rates down, what happens is people take on more debt to
• 1:07:53
  drive the economy. So it's debt fueled consumption,
• 1:07:56
  debt fueled spending. And so it looks like it worked
• 1:07:59
  while we lowered the the rate to get to that neutral rate to get
• 1:08:04
  the economy growing without inflation happening.
• 1:08:06
  But then because people took on debt, they're servicing more
• 1:08:09
  debt. Eventually they have their
• 1:08:11
  spending starts a flat line because they can't take on any
• 1:08:14
  more debt. And so, oh, it seems about, oh,
• 1:08:16
  we have to lower the neutral rate again so people take up
• 1:08:20
  more debt. So the spending picks up and
• 1:08:23
  then it flatlines again. Oh, we have to say.
• 1:08:25
  And they're all mesmerized. They're astonished that the
• 1:08:28
  neutral rate of interest for some reason the last number of
• 1:08:30
  decades has kept grinding lower. And then they blame it on SEC
• 1:08:34
  global secular stagnation or or something like this.
• 1:08:38
  No, it's because you're taking it the neutral rate further and
• 1:08:43
  further below the natural rate the.
• 1:08:45
  Natural rate. That results in the most
• 1:08:47
  productive economy is up here. We've got interest rates down
• 1:08:51
  here, so people could take a more and more debt to drive GDP
• 1:08:55
  higher, right? And so the further you go down
• 1:08:57
  here, the worse things get. And debt.
• 1:09:00
  And debt means long term, lower GDP, less spending long term.
• 1:09:03
  Because people have less money, they're more focused on paying
• 1:09:05
  it back. Wow.
• 1:09:07
  And so. There I have a quote in my book
• 1:09:10
  from Ludwig von Mises. He was, he was considered the
• 1:09:15
  king of the Austrian School of Economics.
• 1:09:18
  Brilliant. And he had a saying where he
• 1:09:22
  said that policy. So here's a natural rate, right?
• 1:09:26
  New choice down here. He said policy makers can deny
• 1:09:29
  you the right to receive the natural rate of interest where
• 1:09:34
  they drive it. Down here, you're getting this
• 1:09:36
  right. They can deny you the right to
• 1:09:38
  receive the natural rate of interest, but they cannot
• 1:09:42
  eliminate its existence. The natural rate, IE the most
• 1:09:47
  productive rate, is still up here, they're just denying you
• 1:09:53
  from getting it. Yeah.
• 1:09:55
  And with the resulting consequences that that has for
• 1:09:59
  the economy at large so. Abolish the Fed.
• 1:10:03
  I'm just kidding. I'm just kidding.
• 1:10:08
  I'm just kidding. You know, the starting point
• 1:10:11
  matters, OK? And I, I don't believe that the
• 1:10:15
  Fed are bad people. They have a mandate, right,
• 1:10:20
  which comes from Congress, and Congress can change this mandate
• 1:10:23
  anytime they want. Presumably.
• 1:10:28
  Independent from the No, they're not.
• 1:10:31
  And I think Mcchesney Martin, he was a famous Fed chairman from
• 1:10:35
  the through the 50s and 60s. He said something like it was on
• 1:10:42
  a, like a free to choose Milton Friedman documentary.
• 1:10:49
  Nikki said that the Federal Reserve is independent.
• 1:10:55
  Not independent from government, but independent within it or
• 1:10:59
  something like that, something cryptic like that.
• 1:11:02
  But the bottom line is they're not independent.
• 1:11:04
  They're definitely not. They're not.
• 1:11:06
  But so I wouldn't abolish the Fed now.
• 1:11:09
  I would have. It would have been better if the
• 1:11:12
  Fed had never been created in the 1st place back in 1913, I
• 1:11:18
  think it was. But it is here.
• 1:11:21
  So I think we if we just had a more responsible Federal
• 1:11:27
  Reserve, you know, who would be able to resist pressure from the
• 1:11:33
  government to increase the money supply.
• 1:11:36
  But the problem is if you did have that sort of Federal
• 1:11:41
  Reserve, then Congress would probably just change it's
• 1:11:44
  mandate and change the people who were in charge.
• 1:11:47
  So, you know, Congress on board as well.
• 1:11:50
  And so again, Congress on board and and then the right people at
• 1:11:53
  the Fed and just have a more responsible approach to monetary
• 1:11:57
  policy and stop driving the money supply so high so quickly.
• 1:12:04
  That will go a long way to to fixing things.
• 1:12:10
  The other another way would be, well, stop bailing out Wall
• 1:12:15
  Street. Yes.
• 1:12:17
  Stop, stop, You know, privatizing the profits and
• 1:12:21
  socializing the losses. That would go a long way if Wall
• 1:12:26
  Street and financial markets knew that the central bank would
• 1:12:31
  not come to their rescue with 0 interest rates and or
• 1:12:35
  quantitative easing. It would significantly.
• 1:12:38
  Change the behavior of market players and but they're doing
• 1:12:43
  the rational thing because they know that the central bank will
• 1:12:47
  come to the rescue, even though it comes at the cost of Main
• 1:12:51
  Street of the general economy, because the Federal Reserve has
• 1:12:57
  sacrificed the Main Street economy on the altar of higher
• 1:13:01
  asset prices. And the market players know
• 1:13:03
  this. So you get that out of the moral
• 1:13:06
  hazard, you get that out of the picture, things would be much
• 1:13:08
  better. And then this belief that I'm
• 1:13:13
  not anti government. You know, government's very
• 1:13:15
  important and a lot of great hard working people in
• 1:13:18
  government, but too much government is a really bad thing
• 1:13:23
  and government keeps growing and because it can only obtain
• 1:13:26
  capital by taking it from the rest of from the private sector.
• 1:13:30
  The. More it takes the more and
• 1:13:32
  government spending is consumption, very small part of
• 1:13:35
  it is investment. So the larger government
• 1:13:37
  becomes, the more consumption that happens rather than
• 1:13:40
  investment and the poorer society becomes, the government
• 1:13:44
  starts becoming this entity of itself and you know, it's got
• 1:13:48
  it's own survival at stake and in mind.
• 1:13:52
  And again, bad systems bringing out the worst and good people.
• 1:13:58
  And so you need smaller government and not anti welfare.
• 1:14:03
  I like the fact that we can help people or employment insurance
• 1:14:07
  or medical insurance or whatever, you know, help people
• 1:14:11
  who can't help themselves. I mean that's really important
• 1:14:13
  and it feels really great to do. Within reason, sure, within
• 1:14:18
  reason because it all comes. There's no such thing as
• 1:14:22
  government benefits. They're all taxpayer benefits.
• 1:14:26
  Taxpayers are the ones who pay for all of those things.
• 1:14:29
  So we should get that terminology out of lexicon or
• 1:14:32
  whatever. You know, it's not government
• 1:14:35
  benefits. It's not government subsidies.
• 1:14:37
  They're just. Channelling money from the
• 1:14:39
  private sector, one part of the private sectors to the other
• 1:14:43
  part of the private sector and reduce red tape, bureaucracy.
• 1:14:50
  You know, it doesn't mean there shouldn't be rules, doesn't mean
• 1:14:53
  there shouldn't be regulations, but within reason.
• 1:14:57
  Regulations should not be there to justify jobs, to justify
• 1:15:01
  careers in government. And yeah, so it's not going to
• 1:15:07
  be easy, right? But it's.
• 1:15:10
  But I think just this understanding and
• 1:15:13
  acknowledgement with respect to how they really work and how
• 1:15:15
  they don't and who's suffering and who's benefiting somebody
• 1:15:18
  else's expense, you know, that's, I think that could be.
• 1:15:23
  A good starting right, right, right.
• 1:15:26
  And you give me a lot to you give me a lot to process over
• 1:15:28
  here you all have to think about and what happens, I guess worst
• 1:15:40
  case scenario. Well.
• 1:15:46
  The worst case scenario is that we just keep on doing exactly
• 1:15:48
  what we're doing and then it just, and then it like collapse.
• 1:15:51
  Like what, what does it, what does it look like when we have
• 1:15:53
  too much debt and we and then we just don't have enough money to
• 1:15:55
  pay it back? What does that look?
• 1:15:56
  What happens then? Yeah.
• 1:15:59
  So what happens is the government, the most likely path
• 1:16:04
  that the government will take is what I mentioned earlier.
• 1:16:06
  It's called financial repression.
• 1:16:09
  And so you will be repressed financially.
• 1:16:16
  So the so they have so much debt outstanding that the only way I
• 1:16:22
  mean, they can't pay it back, raising taxes.
• 1:16:25
  And eventually, and a lot of the debt is held by people outside
• 1:16:30
  of the country. And so people start to get
• 1:16:33
  nervous that the US is not going to be able to pay back the debt.
• 1:16:38
  And it's not just the US, it's all developed.
• 1:16:40
  I think our debt is downgraded, right, Has been downgraded the
• 1:16:44
  last couple of years, yeah. Marginally.
• 1:16:47
  I mean, if it's a corporation, that'd be like a junk credit
• 1:16:50
  rating. You know, right?
• 1:16:52
  Right. But.
• 1:16:54
  You know, but the US people will say that, well, the US can't
• 1:16:57
  ever default on their debt. And technically that's true
• 1:17:01
  because they can just print money.
• 1:17:04
  But it's like. No capital backing it.
• 1:17:07
  No, exactly. So if they just print money to
• 1:17:10
  pay you back the debt that you lent them, then yes, you'll get
• 1:17:16
  100 cents on the dollar. But those hundred cents are only
• 1:17:19
  going to be worth half as much as they were when you lend them
• 1:17:21
  the money. Right, right, right.
• 1:17:23
  Taken your capital from the money before they give it back
• 1:17:27
  to you and you're poorer. And so that's the accepted a lot
• 1:17:32
  of people's drives me nuts. A lot of people out there all
• 1:17:35
  will just revert to financial repression.
• 1:17:36
  Worked after World War 2 and all this kind of stuff, the
• 1:17:40
  government, we cut spending and we got debt to GDP down
• 1:17:44
  significantly after World War Two.
• 1:17:47
  Well, the situation today is completely different from World
• 1:17:50
  War 2. You know, the government
• 1:17:52
  spending during the war obviously went through the roof
• 1:17:55
  because they were building tanks and planes and guns and ships.
• 1:18:01
  And after the war, the government just stopped.
• 1:18:06
  Well, we didn't stop. We just changed where it was
• 1:18:09
  going. It wasn't going to for American
• 1:18:10
  armies, it was going for other armies.
• 1:18:13
  Well, yeah. Well, in late 40s government
• 1:18:16
  spending plummeted because they didn't need to create all this
• 1:18:22
  war material. And so in the late 40's, the
• 1:18:26
  government was running a budget surplus.
• 1:18:30
  Right. And debt to GDP fell
• 1:18:33
  significantly because also at the same time they lowered
• 1:18:38
  interest rates from very high levels and the private sector
• 1:18:42
  productivity exploded. In the late 40s.
• 1:18:46
  And then it sort of flatlined almost in the 50s because tax
• 1:18:50
  rates went back up again, as I mentioned earlier, to over 90.
• 1:18:53
  Percent. Yeah, there.
• 1:18:54
  Were I think there were 4 recessions in the 1950s.
• 1:18:58
  So people look at the 1950s as this glorious heyday of economic
• 1:19:03
  prosperity wasn't really late 40s was, and the 60s were, And
• 1:19:08
  it happened in the 60s because Kennedy was the one who first
• 1:19:13
  started lowering interest rates in the early 60s.
• 1:19:16
  And yeah, got off track. I can't remember how.
• 1:19:20
  We got that's OK. So then so I wanted to ask then
• 1:19:23
  if that's the case, because the World War Two example is a great
• 1:19:26
  example. You know, remember the movie
• 1:19:28
  Charlie Wilson's war with Tom Hanks?
• 1:19:31
  You ever watched that? Yeah, it's about it's about how
• 1:19:36
  Tom Hanks plays the congressman Charlie Wilson that realized
• 1:19:40
  that the United States could fund the Afghans in the war
• 1:19:44
  against, against the USSR. And he basically just ended up,
• 1:19:51
  you know, they had like a $2 million budget and, and he ran
• 1:19:54
  like this Black Ops congressional, you know,
• 1:19:58
  committee and basically just had the reins to the purse.
• 1:20:02
  And they just started spending like crazy right now.
• 1:20:05
  On one hand, the emphasis of the movie was, you know what we did,
• 1:20:08
  you know, that we basically funded a quote UN quote secret
• 1:20:11
  war. But what the movie doesn't talk
• 1:20:13
  about would be the potential economic consequences of taking,
• 1:20:19
  you know, 255 hundred, you know, a billion dollars, whatever it
• 1:20:23
  is and in and, and, and, and giving it to the Afghans or
• 1:20:28
  let's say, even moving it to the private sector to create weapons
• 1:20:31
  to give to the Afghans, right? No one talks about the
• 1:20:34
  consequences of what that what that does to the American
• 1:20:38
  taxpayers. You talk about what it does over
• 1:20:39
  there in the Middle East, but it doesn't, we don't talk about
• 1:20:41
  what it does over here. And that has a pretty
• 1:20:45
  astronomical impact on, on our, on our, on our economy, doesn't
• 1:20:48
  it? Yeah, I'm sure it does.
• 1:20:53
  How much I don't know. And it's and it's, I'm not
• 1:20:56
  belittling it, but it's not sort of my focus in my book.
• 1:21:00
  Okay. There's enough things to be
• 1:21:02
  angry about. Yeah, yeah, I don't want to be
• 1:21:06
  angry is the term. But I think to be frustrated.
• 1:21:11
  Frustrated, right Or conscientious as to I think that
• 1:21:15
  I think that I think the real, I think the problem, like what you
• 1:21:18
  said, is that it's so it's coming from so many different
• 1:21:21
  like places and so many different strands.
• 1:21:23
  It's hard to even like nail down what the, what the problem is.
• 1:21:26
  And I think, like you said, so many young people who are smart
• 1:21:29
  don't even know where to even start looking, you know, and
• 1:21:32
  Start learning about this stuff. Yeah.
• 1:21:36
  And you know, the issue is that people believe that something
• 1:21:43
  can come from nothing. So when government is spending
• 1:21:47
  all this money, you know, they they never have to go and face
• 1:21:53
  directly the people that they're taking the money from.
• 1:21:56
  And so it just feels like there's this endless stream of
• 1:22:00
  money that they obtain or capitally obtain taxation or
• 1:22:03
  borrowing or. And then they hear certain
• 1:22:06
  economists tell them, yeah, don't worry, deficits don't
• 1:22:08
  matter, debt doesn't matter. We could just print the money
• 1:22:11
  and they don't think about the consequences.
• 1:22:14
  This is the problem. And, and, and by the way, I
• 1:22:20
  think before 1942 there's no such thing as withholding tax.
• 1:22:26
  So you would earn your money and at the end of the year the
• 1:22:30
  government will tell you how much you owe them in taxes.
• 1:22:33
  So you would. Get the gross amount of your
• 1:22:36
  productive efforts. You would get fairly compensated
• 1:22:39
  what you produce. So that was a gross amount.
• 1:22:42
  This is how much capital I produce and somebody else out
• 1:22:44
  there has that now. And then the government come,
• 1:22:46
  OK, you owe us this much, but now with withholding taxes, you
• 1:22:50
  just get the net amount. Right.
• 1:22:52
  You you never see the gross amount.
• 1:22:54
  Yeah. And so you start to think, well,
• 1:22:56
  the net amount is what I earned. No, you actually earned way more
• 1:23:00
  than that. But the government took it,
• 1:23:03
  right. So it's out of sight, out of
• 1:23:05
  mind, something you never get your hands on it.
• 1:23:07
  It's less, feels less painful. It was an ingenious thing that
• 1:23:12
  they did. Well, I would also imagine, I
• 1:23:15
  know for myself hypothetically, because it took me, I'm still
• 1:23:18
  working on my financial responsibility, right?
• 1:23:20
  I'm not, I'm not the most responsible individual out there
• 1:23:24
  with my $30 bottles of craft beer or whatever it is, you
• 1:23:26
  know, but I, you know, but I, I could imagine, I actually know
• 1:23:32
  this from, you know, experience. Like if I would got all my money
• 1:23:36
  gross and then at the end of the year, the government said, Hey,
• 1:23:39
  you owe me 20% or 15% of whatever you made, right.
• 1:23:44
  I, I bet a lot of people wouldn't have that.
• 1:23:48
  I wouldn't have that just lying around.
• 1:23:49
  You know, I think that I. Think they would because if you
• 1:23:54
  know what the consequences are of not having it right and the
• 1:23:58
  focus the mind. OK, a lot.
• 1:24:00
  Of people aren't capable of it, they're not incentivized to.
• 1:24:03
  I see, right? I'm not saying we should go back
• 1:24:06
  to that. I'm just.
• 1:24:07
  Yeah, yeah, yeah, yeah, yeah, yeah.
• 1:24:08
  It's. Easier for governments, you
• 1:24:11
  know, to to spend money on whatever their projects are
• 1:24:16
  because they don't actually see the people and don't have to go
• 1:24:21
  and ask them for it. It's just taken automatically.
• 1:24:24
  And yeah, so it's just a mindset issue.
• 1:24:28
  You think is is is the problem. Yeah, and.
• 1:24:32
  It's going to take a lot to change it.
• 1:24:34
  So what? So I guess the, I guess, and
• 1:24:37
  then the other solution would be to start creating more capital
• 1:24:40
  and to be actually, you know, creating more goods and services
• 1:24:46
  rather than just trying to get more money, trying to print more
• 1:24:49
  money and then distribute it, you know, because and.
• 1:24:54
  Printing more money harms the productive capacity of the
• 1:24:57
  economy. Natural rates, no bailouts for
• 1:25:01
  Wall Street and less bureaucracy increases the amount of stuff
• 1:25:06
  that's produced in the economy. But those who are in control
• 1:25:12
  prefer the the the former. Yeah.
• 1:25:14
  Because then they're in power. And this is how you get elected,
• 1:25:19
  by spending more money. And yeah, So that that's the
• 1:25:25
  issue. Right, right.
• 1:25:27
  How long did it take you to write this book?
• 1:25:30
  Six years. Six years 'cause.
• 1:25:32
  I was, well, I was 'cause I was still working full time when I
• 1:25:35
  was writing it. I started in January of 2019
• 1:25:38
  actually down in Florida in a place in South Palm Beach there
• 1:25:42
  and but I could only write on vacations.
• 1:25:45
  Right and. Sometimes I would go 5 months
• 1:25:48
  without even looking at it 'cause it was just too busy.
• 1:25:52
  And then in 2023, I decided to leave my employer.
• 1:25:58
  As I said before, I love my job, my company.
• 1:26:00
  I just got so frustrated I wasn't able to finish the book.
• 1:26:03
  Right and. So and communication and and
• 1:26:06
  whatnot really became my real passion and I'd already started
• 1:26:10
  my my weekly blog, which people can access on my website for.
• 1:26:15
  Free they. Were going to put that notes up
• 1:26:17
  on the in the, in the in the. I'm set up in the notes for
• 1:26:20
  sure, yeah. Thank you.
• 1:26:22
  And yeah. And so that became my great
• 1:26:24
  passion and I just needed more time to finish the book.
• 1:26:27
  So if I wasn't working full time, I would have finished it,
• 1:26:30
  you know, a lot quicker, obviously.
• 1:26:32
  But but it was a journey writing that book for sure as well.
• 1:26:36
  And you learn a lot by writing, you know, by speaking.
• 1:26:40
  By getting the. Thoughts out of your head and
• 1:26:43
  out there, you learn. Because for me personally
• 1:26:48
  anyways, when I'm just thinking about things in my head, I don't
• 1:26:52
  really challenge myself enough on my thoughts.
• 1:26:55
  Right. And I don't need to because
• 1:26:57
  nobody else knows what I'm thinking.
• 1:26:59
  Right. But if I'm going to put it on
• 1:27:01
  paper or send it out in my blog or put it in a book, all of a
• 1:27:04
  sudden we justify the world to see said boy.
• 1:27:06
  I better make sure this is right you.
• 1:27:08
  Know so you. Know a bit more thinking about
• 1:27:11
  it, You challenge it, you stress test it, you do a bit more
• 1:27:13
  digging. Oh, actually, I was wrong.
• 1:27:16
  You know, I never thought of that.
• 1:27:18
  But you don't, for I don't force myself to think of things
• 1:27:22
  through as much as I should unless I get them out of my head
• 1:27:25
  and on paper or verbally. And the way that you would
• 1:27:28
  structure, the way that you'd go about writing the book, was that
• 1:27:31
  you had a list of topics that you thought were significant for
• 1:27:35
  everyday people to understand, and then each chapter would be
• 1:27:37
  an elaboration on that. Yeah.
• 1:27:40
  So not really. Like I knew what theme I wanted
• 1:27:48
  to discuss and help people to understand in terms of the
• 1:27:53
  difference between capital and money.
• 1:27:55
  That's a big one. Yeah.
• 1:27:57
  And how an economy really works and how it doesn't.
• 1:28:01
  And then I just started. Oh, yeah.
• 1:28:02
  Oh, yeah, I better talk about governments.
• 1:28:05
  There's 20. I better talk about housing.
• 1:28:06
  Oh, I better talk about inflation.
• 1:28:08
  I've got two capital inflation. Oh, I better talk about
• 1:28:10
  corporate culture. And bad corporate.
• 1:28:12
  Culture good. Corporate.
• 1:28:14
  Oh, I better talk about capital and Oh yeah, now we have to talk
• 1:28:20
  about stock markets. What are they?
• 1:28:22
  Yeah, like why are they important?
• 1:28:24
  What's the good role the stock markets play?
• 1:28:27
  So again, easy to understand terms and yeah, so here there's
• 1:28:32
  nothing wrong with stock markets, right?
• 1:28:34
  There's just a lot wrong with what they have become.
• 1:28:38
  Right. Because of central bank
• 1:28:39
  interference and moral hazard and stuff like that.
• 1:28:43
  And yeah, so we're just started to build.
• 1:28:45
  Oh God, you know if. Because I really want the reader
• 1:28:50
  to understand and if the reader reads the book, they will
• 1:28:55
  understand what's going on and trying not to take anything for
• 1:28:59
  granted. Right.
• 1:29:02
  You know, so you know, when I was first making presentations
• 1:29:07
  when I was a professional investor like 25 years ago, my
• 1:29:11
  main goal was to impress people with how smart I was.
• 1:29:14
  And if I. Impressed them and they thought
• 1:29:17
  I was smart. Then maybe they gave me their
• 1:29:19
  money so I could manage the money.
• 1:29:20
  I could make money. That way.
• 1:29:22
  And then, you know, I wasn't being entirely honest or
• 1:29:25
  intellectually honest with people.
• 1:29:27
  I was trying to impress them. And then I got get caught up in
• 1:29:32
  like little white lies and stuff like that where I'd leave out
• 1:29:35
  certain things that I knew that they would be interested in, but
• 1:29:38
  that might mean they wouldn't give me the money to manage.
• 1:29:41
  And so I just don't know about doing it anymore.
• 1:29:43
  I am just going to tell the truth.
• 1:29:45
  There's a great saying. I have my book.
• 1:29:47
  I forget who said it, but you know, if you tell the truth, you
• 1:29:49
  never have to worry about what you said.
• 1:29:52
  Yeah, you have to remember what you said.
• 1:29:55
  Right. It's a beautiful line and.
• 1:29:58
  It's so, oh, it's so liberating. It just, it just feels so good
• 1:30:03
  and it's amazing the impact it has on people around you.
• 1:30:07
  Sure, you know. And so I want to empower my
• 1:30:10
  clients who are financial advisors, like financial
• 1:30:13
  planners and stockbrokers. I want to empower you with the
• 1:30:17
  most information and knowledge that I can so you can make the
• 1:30:22
  the most informed decision about what's right to do with your
• 1:30:26
  clients capital. And.
• 1:30:28
  It might mean that you don't invest in our funds, but then
• 1:30:32
  that's a good outcome because it means that we're not appropriate
• 1:30:35
  for you and your clients. Long term thinking.
• 1:30:39
  Exactly. And yeah, and it and it works,
• 1:30:43
  but yeah. Anyways, so before we before we
• 1:30:47
  call it, I want to end on a more positive note.
• 1:30:49
  Can you give me some example of responsible corporate culture or
• 1:30:52
  corporate behaviour? Because I don't know of any
• 1:30:56
  positive. I can't, I don't, I don't.
• 1:30:58
  You don't hear people going on the news and talking about how
• 1:31:00
  great this corporation is or what they did that was so
• 1:31:02
  productive, you know. So you want to give me, you want
• 1:31:04
  to see if you can give me some positive news to end this?
• 1:31:06
  Yeah. Yeah, for sure.
• 1:31:08
  Yeah. The reason you don't hear the
• 1:31:10
  positive stuff, it's kind of, it's kind of boring and people
• 1:31:14
  like hearing like the scandals. And.
• 1:31:18
  Well, I know from my, my own experience as a, as a small
• 1:31:21
  business, you know, work in a small business that people only
• 1:31:25
  write reviews and respond to you when they're unhappy and when
• 1:31:28
  they're happy, you'll never hear from them ever again, you know,
• 1:31:30
  So I believe it exactly. Well, so first, I would say that
• 1:31:35
  there are a lot more great corporate culture businesses out
• 1:31:41
  there than you think there are. And I believe that for a
• 1:31:46
  business to model a great business model to persist for a
• 1:31:51
  long period of time, you need a great corporate culture where
• 1:31:55
  all the constituents are benefiting.
• 1:31:57
  So like I was saying earlier, supplier shareholders, a senior
• 1:32:01
  exact employees, community at large and the consumer or
• 1:32:06
  customer, they all need to be benefiting from it.
• 1:32:11
  And you know, in the short term the company can screw some of
• 1:32:14
  those constituents and make more money for themselves, but it
• 1:32:18
  comes at the expense of the business model in the future.
• 1:32:21
  So I would, I would guess that most companies understand this.
• 1:32:26
  A lot of private companies get it and they share in the success
• 1:32:31
  of the business, particularly with their employees and don't
• 1:32:34
  keep it all for themselves. And I use an example of my book
• 1:32:38
  of a company called Fastenal based in Minnesota.
• 1:32:42
  It's a pretty basic business. They distribute the fasteners,
• 1:32:46
  you know, screws and stuff like that.
• 1:32:48
  And we had a tour of their plant years ago.
• 1:32:53
  And the plant manager, he's taking us around and he
• 1:32:56
  absolutely loves the business and he's so excited.
• 1:32:59
  So check out these screws are customers love us?
• 1:33:01
  No, nobody here goofs off 'cause if they do, we give them shit
• 1:33:05
  because it's our company. We're all in this together.
• 1:33:07
  It's holy smokes, what the Hell's going on here, you know?
• 1:33:12
  And so I asked the guy, I said, well, why do you love the
• 1:33:15
  business so much? They said, oh, it's management,
• 1:33:18
  ownership, you know, they treat us so fairly.
• 1:33:20
  They treat us like partners. They always listen to what we
• 1:33:23
  have to say. And we all share the success of
• 1:33:26
  the business. The more money the business
• 1:33:28
  makes, the more everybody makes, not just the owners and the
• 1:33:31
  senior execs. Then he said, oh, here's a great
• 1:33:35
  example. So the, the CEO was the founder
• 1:33:38
  of the business, right? So first of all, if you're the
• 1:33:42
  founder of a business, you started off on your own, you're
• 1:33:46
  probably doing every job. It's your baby, right?
• 1:33:49
  And, and as the, as the business grows, you start hiring more
• 1:33:52
  people to do the stuff that you were doing so you could do other
• 1:33:55
  stuff. So if you're the founder and you
• 1:33:59
  know things aren't going right, you have more empathy for what
• 1:34:02
  your employees are going through because you've been there,
• 1:34:04
  you've done it. You're like a career executive,
• 1:34:07
  just come from MBA school and never started a business.
• 1:34:10
  You don't have that same sort of empathy.
• 1:34:14
  You can't because you haven't done it.
• 1:34:16
  So that's the first thing. So he said, Oh yeah, great
• 1:34:21
  example for you. So the, the CEO was the founder.
• 1:34:23
  We owned about 1/3 of the business.
• 1:34:25
  His wife also owned a good stake in the business, but a few years
• 1:34:28
  prior she had passed away. So the CEO took all of her
• 1:34:32
  shares and he distributed them to all the employees in the.
• 1:34:36
  Company that's that's that's shocking, That's crazy.
• 1:34:40
  Yeah, you know, it's a great story.
• 1:34:41
  It's beautiful and I. Got permission from the company
• 1:34:43
  by the way, e-mail. Can I use the story in my book?
• 1:34:45
  And I said, yeah, go. Ahead, yeah.
• 1:34:47
  And but a lot more companies do that than you think.
• 1:34:51
  And just one other anecdotal example, I guess the IT was on a
• 1:34:56
  cruise and I was talking with the guy from England and he was
• 1:35:01
  talking about his business and they made furniture or something
• 1:35:05
  like that or appliances. And during the great financial
• 1:35:09
  crisis in 08/09, when everything turned down, you know, sales
• 1:35:14
  went through the floor. And so they went to the
• 1:35:17
  employees and said, look, we don't want to lay anybody off.
• 1:35:20
  We're asking everybody to take a 10% pay cut.
• 1:35:25
  We, the senior management, we're going to take a 20% pay cut.
• 1:35:28
  Well, yeah, senior. Management can unfortunately
• 1:35:30
  take a bigger cut, but still. But we're all in this together.
• 1:35:34
  And then once business turns around, we'll make up that 10%
• 1:35:40
  and more, right? Like I said earlier, people need
• 1:35:44
  to know that we're all in this together.
• 1:35:46
  And he said over 90% of the employees agreed to take the 10%
• 1:35:49
  pay cut. Within.
• 1:35:51
  A few years, they're all, they've made all that up and
• 1:35:55
  paid them more. And there are a lot of companies
• 1:35:58
  out there that are like that. But we need more and we need
• 1:36:04
  more high profile companies to behave in that matter and but
• 1:36:09
  they're not rewarded by Wall Street for doing that kind of.
• 1:36:12
  Thing that's the problem. Right.
• 1:36:13
  They're they're not incentivized.
• 1:36:15
  And I think it was Charlie Munger.
• 1:36:17
  He was passed away earlier this year.
• 1:36:20
  He was the sidekick of Warren Buffett, right?
• 1:36:24
  And he had a, he had a saying. It was something like, show me
• 1:36:28
  the incentive and I'll tell you the behaviour.
• 1:36:32
  Incentives matter, yes. And you need well structured
• 1:36:36
  incentives to bring out the best and the right behaviour in
• 1:36:40
  people that will lead to longer term success.
• 1:36:43
  But it might mean that in the short term that the share price
• 1:36:47
  doesn't grow as quickly as you would like, or GDP doesn't grow
• 1:36:51
  as quickly as you would like. Yeah.
• 1:36:54
  And unfortunately we're not. We're our, our, our patience is
• 1:36:57
  getting shorter, not longer these days, you know, and.
• 1:37:01
  And it might not coincide with an election cycle or something.
• 1:37:05
  Right, right. Something.
• 1:37:07
  I understand, you know, it's, it's not rocket science, but we
• 1:37:14
  do need to change it, yes. Paul, I really appreciate your
• 1:37:18
  time. This is so much fun.
• 1:37:20
  I actually it's so funny because halfway through there's another
• 1:37:22
  topic I wanted to talk to you about, but I guess what, but I
• 1:37:26
  want to bring it up. Maybe we'll do it all fair.
• 1:37:28
  And I see if you could do another recording another time
• 1:37:30
  about it. But this is this is so much fun.
• 1:37:33
  I really appreciate your time. And I'm going to post the link
• 1:37:36
  to your book into your website. And I really appreciate this is
• 1:37:41
  this is this is great. This is really, really useful
• 1:37:43
  and what you're doing is really, really, really wonderful.
• 1:37:46
  So on behalf of myself and everyone else that's going to
• 1:37:48
  learn a lot from this, I really appreciate your time.
• 1:37:51
  Thank you. Well.
• 1:37:52
  Thank you. It's been great effort.
• 1:37:53
  Midnight. Yeah, we'll do it again.
• 1:37:55
  Just let me. Know and when I'm down to
• 1:37:56
  Florida, I'll give you a call. Go for a beer.
• 1:37:59
  I'm a I'm a beer drinker too. So beautiful.
• 1:38:02
  Beautiful. All right, let me know when
• 1:38:04
  you're in town, OK? I'm looking forward to it.
• 1:38:06
  All the best, Paul. We'll talk soon.
• 1:38:07
  Take care. Have a good day.
• 1:38:09
  Bye.