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Is The Fed Lying About Inflation? | James Lavish · What Bitcoin Did

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  I wouldn't want to be in Besant's seat trying to manage all these deficits and just watch Congress continue to pile on more and more spending,
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  have absolutely no solution for Social Security, which I've paid into all my life.
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  And suddenly they're talking about, oh, we're just going to start cutting it.
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  What do you mean cutting it? It's not even keeping up with inflation. Are you kidding me?
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  They have a pretty big problem in front of them here, and it's obvious what the solution is.
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  It's just how are they going to do it?
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  What acronym are they going to put on it?
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  And can they get away with it in a way that doesn't cause a massive spike in the separation
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  of wealth in the short term?
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  Another thing that's happening, Danny, is people are, they have fully 100% embraced
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  the debt-based economy and they live on debt.
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  The first quarter Fed, New York Fed numbers came out and credit card delinquencies, 90
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  day delinquencies are, they're matching the 2008 levels now.
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  let's talk about the fed james i i have this it's been super interesting to see what's happened
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  since water's come in because it's not been what i expected i don't think it's what been what most
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  people expected but one of the most interesting parts of it i've been watching and i i have an
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  inkling as to what's going to happen next is are they going to start lying to us about inflation
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  and when i say lying to us like we already know that cpi is like a bit of a cook number
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  but they've got this inflation task force now.
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  And are they about to start sort of overtly lying
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  about what's happening?
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  I mean, I talked about this a long time ago
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  where I think we're so used to the 2% inflation number.
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  We've just become conditioned to it.
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  It's a frog boiling, you know,
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  kind of just turn up the heat a little bit.
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  Yeah, inflation is kind of normal.
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  You need inflation because you will need people
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  to spend money for goods
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  in order to keep the economy going, all that.
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  people to buy into it. I had an argument with somebody about this, you know, years ago about
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  how inflation is just, it's insidious. You don't, you don't need it. It's just part of a debt-based
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  system. It's what, it's a reality. And, you know, people become conditioned to it. So once you get
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  them to that level, and we've talked about this before, how the Fed was asked, Powell was in a
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  congressional hearing, and I can't remember who asked him, but they were like, you know, why 2%?
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  Like, where does that come from?
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  And he gave this long, drawn out answer that had to do with the neutral rate and everything.
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  It was like, he just completely obfuscated the answer, which was because that's what we can get away with.
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  You know, it's that people don't notice it.
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  Three, four, five, 6%, you start noticing that come out of your paycheck because you go down the street to get groceries.
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  And you're like, oh man, that's a lot more than last month.
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  And my wages haven't gone up yet.
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  and so i'm like i'm now i'm suddenly behind and so um two percent is and there's a there's a saying
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  it came from your end your area of the earth where australia decided in the i believe it was in the
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  early 80s that you know they they kind of they stated that number i think it was new zealand so
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  i'd never heard this before um i saw it that's right alan farrington wrote an article recently
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  and mentioned that's the first time i'd ever seen it but apparently it's like a central banker in
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  new zealand who got asked in an interview on tv and just said two percent and that's where the kind
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  of the whole mythology around two percent started yeah and i don't know if it became it was because
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  that was that was kind of matching the the the expansion of the gold supply um for mining but
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  in any case i i wrote about this a long time ago i said look there people are conditioned two percent
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  They're going to kind of say, yeah, somewhere around two or three percent.
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  And then eventually be somewhere around three, three, four percent.
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  And they'll just kind of let it slide.
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  And people are like, oh, well, inflation is a little bit hotter now, whatever.
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  But then they just get on with their lives.
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  And part of the issue here, Danny, is that when you have an oppressive fiscal system like this, people are struggling just to survive.
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  Like they don't have time to dig into why this stuff is happening.
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  I understand it.
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  They're just trying to be like, what do I need to do to make more money to feed my kids, put clothes on their back, pay for the car, pay for the rent, and just keep going?
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  They're inundated or they're just overwhelmed with that need.
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  And then the two working spouses and double salaries, and now you're paying for childcare.
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  It's just overwhelming.
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  So the answer is, that's a long way of saying, yes, I think they're going to change the definition.
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  Now, I thought that they would kind of gravitate towards a 2% to 4%, 2% to 3% range.
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  We're going to be on there because it's really hard to hit a target and it's subjective.
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  We're going to call it a range from now on.
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  That seemed like the shortest putt to me, but changing which measure you want to use.
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  So Warsh has been quoted as liking the trimmed mean PCE, which is the it's the it's the other type of CPI, the PCE, the pricing index that measures goods and services.
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  and the trimmed mean is you're just throwing out the outliers. So if energy is way up on one month,
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  you throw it out. If rent is way up, you throw it out. And that way you get to a point where like,
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  ah, well, those are kind of outliers. The problem with that though is historically,
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  it's been kind of a canary in the coal mine that, oh, energy's way up. That's going to push
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  everything else up or housing's way up because of something else structurally going on. And that's,
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  everything's kind of moving that direction. And so, um, it ends up being that it's a lagging
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  indicator and then the way down and you throw them out, well, it's a lagging indicator the other way.
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  So over a long period of time sure It smooths it out but it misses um it misses moves And since we already in we we we using data that already lagging So now we lagging the lag And then not only are we lagging the lag but then you got these meetings that are lagging that and their decisions And once you start putting something into place then the effects of that is lagging
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  So it just produces a mess like we saw in 2020 and 2022 when we printed all that money, goods and services started going up in price.
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  They blamed it on transitory inflation from bottlenecks of, you know, manufacturing and supply chains.
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  And they were wrong.
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  I mean, flat wrong and way, like way behind the curve.
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  so that is kind of the concern here and and one of the things that he said he's going to do is
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  like with this way a new way of figuring out inflation is go back to what he says first
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  principles he starts a task force but what do you think the first principles he he's trying to get
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  to are because i don't think i don't believe that he's going to get back to sort of the first
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  principle definition if me and you sort of started talking about inflation well i think he's saying
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  first principles he's talking about okay let's look at the market as a whole and dynamics around
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  it and you cannot deny that AI can be disinflationary or deflationary. Like you just
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  can't deny that. It's, uh, it now, um, whether or not that flows through to pricing remains a
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  pretty big argument because of what Lynn talks about all the time, which is fiscal dominance.
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  And when you have the government paying for goods and services up the wazoo and we have,
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  We're running multi-trillion dollar deficits on the back of 39, almost $40 trillion of debt, servicing that debt, then having to reissue all that debt.
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  That's just borrowing upon borrowing upon borrowing, and it's driving the economy.
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  And so first principles would say, yeah, but this is all going to be disinflationary or it's going to be deflationary at some point because you've got these LLMs that are going to be doing the work of multiple people.
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  And especially when you get into agentics, you know, where you've got agents, everybody's got an agent. And instead of me hiring, you know, an accountant to do my books for my business and an accountant to do my taxes, I can just have somebody come in and check the work of the AI to make sure it's right, check it off and, you know, pay him a smaller sum of money.
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  And so it'll take up whose jobs?
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  It'll take up the jobs of the people who are working for him, compiling all that data and putting into the models, into the programs to kick out the numbers.
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  That's all done automatically now.
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  And so obviously you're seeing layoffs at places like where they have data entering or just simple analysis.
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  You're seeing a slowing hiring there.
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  Does that mean that we're going to lose all the jobs?
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  No, but you could see how that becomes,
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  like you're doing more work for less effort, clearly.
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  However, the money is still,
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  it's going to be spent one way or another.
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  I'm going to spend it on an AI agent
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  or I'm going to spend over here on a person,
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  maybe spend less on the agent, obviously,
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  but this is going to go into Anthropic or OpenAI
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  or, you know, Grok.
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  And then the next thing you know,
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  you've got an increasing separation of wealth. So it's just, I hear him on the first principles.
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  I get it. I agree. We should be looking at first principles, but you can't parse out the principles.
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  bitkey that's bitkey.world and use the code wbd how does he prepare for that future that we are
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  heading into because like clearly ai is going to have a more important role in the jobs market going
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  forward, like undeniably already is like block have already got rid of a load of workers.
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  I saw BitGo have got rid of a load of workers like this is already happening.
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  So is it that he can ignore inflation numbers for now,
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  knowing that disinflation or deflation is coming in the future?
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  I don't think it's ignoring.
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  I think it's just putting everything aside and waiting.
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  You know, like that's why I think one of the one of the big reasons that he doesn't want
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  to give guidance is because he knows that things are changing rapidly here.
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  And it's going to be difficult to anticipate that.
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  I can't anticipate.
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  It's way too complex to figure out.
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  It's just, I mean, when these things came out, Danny, when I, you're too young, but when I had a BlackBerry, which was just, it was basically a messaging tool.
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  They didn't have, they didn't have screens on, they just had a little text screen on it.
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  But when that stuff, when that came out.
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  Well, not that young, James.
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  And this is the, this is the late nineties. So when this came out though, I, I, we all thought,
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  wow, this is going to make us, this is going to make it so much easier to get work done. And
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  you're going to be able to be productive and get stuff done in shorter period of time. And that
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  wasn't really the case. All it meant is that you're going to have more work piled on top of
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  you and you're not going to have any working hours. You're literally going to be on the clock
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  all day, every day. I mean, I was trading in Australia at 10, 11, 12 o'clock at night.
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  I mean, I was at dinner trading Australia in Dallas and I'm sitting there with my kids. I'm
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  on the, I'm on my BlackBerry, you know, trading Australia. I'm like, this is insane because at
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  two o'clock in the morning, I'm getting phone calls on my cell phone now from Europe. And they're
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  like, Hey, it's going to open here. What are you thinking about that? I'm like, I don't, it never
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  turns off now. And that's what this has turned into. Instead of it being, oh, it's going to be
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  a great productivity tool. It's going to make everybody work less. No, it just means everybody's
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  on the clock now. So what does that mean for AI? I don't know. And that's why it's difficult to get
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  a gauge of what's really going to happen. So that is a long way of saying that I think that's what
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  he's trying to do is just give himself time and say, we're going to look at the data. We're going
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  to make decisions that are data dependent, just like the last chairman Powell did. And we're going
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  to not really talk about it. We're going to see what comes in. Now, if he changes the inputs though,
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  and says, well, this data is a little bit different than it was six months ago, because I think it's a
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  little bit better way to look at it. He's the chairman of the Fed. That's his job is to decide
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  what they're doing and what they want to see and how they want to digest what.
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  So, but he's also got a job of getting everybody on that board of governors and the officials,
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  the Fed officials who are voting in each of these meetings to get on board to whatever
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  he's thinking.
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  And they can have a collective vote on it rather than just have a fight and then have
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  a bunch of dissension.
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  And it's just not going to be healthy.
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  So I think his challenge is multifold. And so where he comes out, I believe, is not raising or lowering rates in the next meeting or two. I just don't see it happening. Could he raise rates later in the year? Well, sure, if we see a continued uptick in inflation, but I just don't think that's going to happen.
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  I think with a resolution in the Middle East, oil coming back down in price, producer price index numbers coming down, which means that that's going to feed through to the CPI.
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  Remember, that's what pushes all first because the producers start raising their prices.
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  Then the consumer, you know, then the manufacturers are raising their prices.
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  Then the stores are raising their prices and they're trying to get those margins and keep some sort of margin and it passes on to the consumer.
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  and so it and then it unwinds backwards the other way right so we'll have to we'll have to see what
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  happens but i think that's what he's going to do and i just don't think that there's an impetus for
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  him to act right now i think he's going to be sitting on his hands for a little bit when he
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  came in everyone expected him to be super dovish want to cut rates and he's actually come in very
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  hawkish so far um is this all strategy is he basically trying to be like look i'm not just a
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  Trump puppet, this is still an independent thing, and trying to get the other board members on side?
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  Or is the data telling him that he can't do what he wants to do?
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  No, I think that that is definitely a part of it. I think he wants to be seen as independent,
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  that he's not a sock puppet for Trump, as Elizabeth Warren called him in those hearings,
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  the confirmation hearings. I think he wants to be seen as independent, strong. He came across as
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  kind of hokey, you know, the way his language was just down to earth, just a hokey little,
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  you know, we're going to have a little family fight about this and, you know, and so, um,
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  I think he wants to come across as just an independent, thoughtful guy. Um, but not going,
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  not going to do the bidding for any of anybody. Now that said he has breakfast weekly with the
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  Treasury Secretary. He and Bessette know each other, know each other well. And so, you know,
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  Bessette has his own issue here. He's like, I'm rolling this debt. I'm rolling $12 trillion of
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  debt in the next year. And then I'm going to have to do it again the next year. And next,
• 18:46
  and there be trillion So he understands that every single month that they keep Fed funds high is it just it continues this ongoing deficit and increase in
• 19:04
  deficit because you're rolling these bonds off. You've got longer term bonds that are maturing
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  along with all of these T-bills that they piled up because Yellen was playing chicken with the Fed
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  and she screwed up, not, not, um, she didn't term out the debt. She didn't push out the,
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  to, to longer date and maturities when she had the chance to fair that we're looking back to,
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  you know, hindsight 2020, but she also saw us print $5 trillion and she had been the chairman
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  of the fed. She, she must've known that was inflationary, but she got behind the curve there.
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  She didn't just hurry up and get out on the curve a little bit and on all those months and
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  quarters that she could have issued longer term debt at lower yields, but she didn't do that.
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  And Bassett was highly critical of it during the campaign about that. But now he's in the same spot.
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  So do you think he's going to have a pressure on the Fed and on Warsh to, hey, we got to get these
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  rates down? Well, most people think that that would be the case. However, if you recall, when
• 20:18
  Powell did cut rates by 100 basis points right before the election, what happened to the 10-year
• 20:24
  treasury? The yield went up 100 basis points. Why? Because the bond traders, they didn't swallow it.
• 20:32
  They called the bluff. They're like, no, no, no, no, no, no, no, no. You're going to
• 20:40
  cause inflation here. And that means that I'm going to have to be paid more yield on the longer
• 20:46
  end of the curve to get a real yield on my money. So you can cut rates all you want. And, you know,
• 20:54
  and you could talk about how the treasury, how the mortgage rates are going to come down if you
• 20:59
  cut rates, but it's not the case. And the fact is, if you just look at the 10 year hovering around
• 21:07
  four and a half percent here. It's gotten up to just about five percent and it's backed off. But
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  the reality is the bond traders understand that we are in fiscal dominance and we have an issue
• 21:23
  here of having to issue more and more and more debt to pay for all the deficits that we're
• 21:30
  running. And so they're not buying it. They're just not biting on that hook. And so what happens
• 21:37
  from here? Well, that's why we have to be watching, Danny. I think that this rate, it's almost noise,
• 21:45
  almost. All this rate talk is noise. Because the real issue is, when do they come in and start
• 21:53
  buying bonds again. Now they're buying T-bills to replenish bank reserves and in order to make
• 22:03
  sure that the general account is topped up. But they've backed off that a little bit.
• 22:10
  And the treasury is buying what's called off-the-run paper in a regular treasury buyback,
• 22:17
  which is not, it's not regular in any way, shape or form. Yeah. There's the balance sheet. Exactly.
• 22:23
  So we have to watch that. And you saw it's ticking up here since the end of last year and it's going,
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  it's ticking up slowly, but it's not rolling off. So what are they doing? Well, every single
• 22:36
  mortgage-backed security that matures are taking, instead of taking that money and just taking out
• 22:45
  of the system, they're going back and using that money from that they're getting from,
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  you know, they're basically the Fed is getting money from the treasury for the maturity of these,
• 22:58
  you know, basically they're getting money for the maturity of the bonds, the T-bills,
• 23:02
  and they're getting money for the maturity of these mortgage backs. And they're turning around
• 23:06
  and taking those mortgage back money and plowing it back into bonds and into T-bills. So that's
• 23:14
  why this is still expanding because, you know, at a lower rate, it's not expanding at a higher,
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  but if you split out the treasuries versus mortgage backs, you'll see that the mortgage
• 23:24
  backs are coming off and the, and the treasuries continue to, to rise. So as a, as a, you know,
• 23:31
  as an asset split, but that's, what's going on. So this is what we're watching. We're watching
• 23:36
  that closely to see, okay, when do they really start? When do they really start buying here?
• 23:42
  And are they doing some sort of yield curve control or, you know, operation twist?
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  Because go back, if you leave that right there, Danny, just leave that right there.
• 23:57
  Go right before 2020.
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  You see a little hump there?
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  Yeah, that's where we got into that.
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  That's where we got into the repo crisis.
• 24:06
  The repo crisis, yeah.
• 24:07
  Where there's a shortage of dollars.
• 24:08
  Well, guess what's going on around the world right now?
• 24:10
  Look at the U.S. dollar.
• 24:12
  You know, it's not at all time highs, but it is up over a hundred bucks again. And so, um, you know, that's a, that's a signal that there's a shortage of dollars around the world that other central banks need dollars.
• 24:29
  And so, you know, what is the case now is that you're watching Japan. The whole Japan experiment is, man, that has gotten to a point where this is a real issue.
• 24:45
  you've got rates going up, you've got the, the yen collapsing in the face of it, which is telling
• 24:51
  you that basically it's telling you that investors in Japan, they don't believe that the, that the
• 24:58
  rates are high enough for them to be compensated for the risk of continued expansion of, of spending
• 25:07
  out there. And so, you know, I'm not saying the yen is collapsing,
• 25:15
  but I'm saying the confidence is falling in it and people don't want to
• 25:18
  be holding in. And so that is, that's another issue. So, and you're just seeing all these
• 25:24
  things play out in real time. I would not want to be in either of those seats. Let's put it that way.
• 25:30
  I wouldn't want to be in Besant's seat trying to manage all these deficits and just watch Congress
• 25:35
  continue to pile on more and more spending, have absolutely no solution for social security,
• 25:42
  which I've paid into all my life. And suddenly they're talking about, oh, we're just going to
• 25:46
  start cutting it. What do you mean cutting it? It's not even keeping up with inflation. Are you
• 25:50
  kidding me? You know, like you've got to be joking. So you'll have an uprising here if we do that.
• 25:57
  Especially with people who really, really, really need it. But so these guys have, they have a,
• 26:03
  they have a, they have a pretty big problem in front of them here. And it's obvious what the
• 26:10
  solution is. It's just, how are they going to do it? What acronym are they going to put on it?
• 26:15
  and can they get away with it in a way that doesn't cause a massive spike in the separation
• 26:23
  of wealth in the short term see the thing i don't understand about that like because obviously you're
• 26:28
  saying that they can print money and and that'll get them out of this hole and i can understand
• 26:32
  from say percent's point of view why that would be attractive but if the fed is independent why
• 26:38
  would wash want to do that because his dual mandate is inflation and jobs right so like
• 26:44
  Pricing jobs, yeah, exactly.
• 26:45
  So, and at the moment, like,
• 26:48
  Bersent's in this problem where he's rolling over debt,
• 26:51
  it's costing him an absolute fortune.
• 26:52
  But why does Walsh care about that?
• 26:55
  Or why should the Fed care about that?
• 26:56
  Why do you feel like they have to be
• 26:59
  sort of accommodative there?
• 27:00
  Well, this is a great question.
• 27:01
  This goes back to first principles.
• 27:03
  Why does he care about inflation?
• 27:05
  Why?
• 27:06
  Why does he care about inflation?
• 27:07
  And, you know, so some people have to deal with it
• 27:09
  for a little while.
• 27:10
  Why do they care about it?
• 27:11
  First principles.
• 27:11
  They care about it because his job is to instill confidence in the U.S. dollar, period.
• 27:17
  The job of the Treasury is to do the bidding of Congress, figure out a way to issue debt and borrow enough to cover all that spending or to manage the Treasury in a way that if we were in, somehow we got into, we got away from deficits and we had a surplus to manage that surplus.
• 27:40
  with investments or whatever, but that's not the case. The case is the entire balance sheet of the
• 27:48
  treasury is, you know, the only growth that's happening there right now is on the debt side
• 27:54
  because we're not repricing gold primarily. You know, but so when you look at the, you look at
• 28:01
  the Fed and you look at the treasury, those are the first principles. That's what their jobs are,
• 28:07
  to manage the spending on the treasury side
• 28:10
  and to instill and keep confidence in the dollar
• 28:13
  on the Fed side.
• 28:15
  And so, you know,
• 28:17
  when the Fed has to find a way to do that,
• 28:21
  so they use inflation,
• 28:23
  the inflation he's got,
• 28:25
  they know they must manage,
• 28:27
  they have to manage inflation and have inflation.
• 28:30
  There's just no way around it
• 28:31
  with the debt-laden economy that we have
• 28:34
  or the system we have here.
• 28:35
  I mean, the math is just working heavily against these guys. And I think what they're hoping for, Danny, truly, I think these guys are both hoping that, man, this AI will be so disinflationary that we could just keep printing money and, you know, buying debt.
• 28:56
  and we're kind of backdoor our way out of this
• 28:59
  because what we'll do is we'll have a productivity miracle
• 29:01
  where you have an increase in productivity
• 29:04
  without having to increase all the spending.
• 29:08
  I don't get to that math myself.
• 29:13
  Why not?
• 29:14
  What stops you from getting there?
• 29:17
  Well, I mean, think about it.
• 29:18
  If you have a productivity miracle,
• 29:20
  meaning there's,
• 29:22
  And so what you have robots and AI basically doing all this work for very, very, very little cost. And then prices go down, you know, or like if you had like, if you had a deflationary shock to the system, which again, I think that would take us getting to AGI, you know, or close to it.
• 29:51
  where these computers are just so much smarter than us that, you know, that we're not, um,
• 29:59
  that we, that we can't be employed, but what are you going to have? You're going to have
• 30:03
  universal basic income. I mean, you've got, you've got on one side, you've got, uh,
• 30:11
  Elon Musk saying that people are going to be paid a lot of money. Like everybody's going to
• 30:14
  be wealthy. You're going to have an abundance of high income, universal high income. Right.
• 30:18
  So, but, you know, how do you, so how do you get there without pain in the middle? How do you get there without unemployment, without a spike in unemployment benefits and costs the government there? And then, you know, a massive spike in deficits and spending there.
• 30:39
  I don't know and then what are you gonna have like a handful of companies paying all the taxes that
• 30:45
  that the government needs to take in to to pay down its debt I just I can't get to the math and
• 30:53
  maybe it's because I'm I'm not smart enough um but it just I just don't see how the productivity
• 30:59
  miracle would get us there um it's interesting have you ever seen have you ever seen this chart
• 31:05
  i'm gonna pull up i'm gonna pull up two things actually and see if see if you've seen these
• 31:13
  because this is really interesting um i'm gonna pull them up together and this is kind of what
• 31:19
  i think this is what everybody's afraid of and this is a great article it was years and years
• 31:26
  years ago that I read this I was saying 2010 or 12 or something Um and I was like wow that be really interesting if that was if that I couldn you know I just kind of dismissed it So but you see this So the intelligence staircase
• 31:49
  have you ever seen this? No, I don't think I have. Okay. Well, down here on the second step
• 31:54
  of this huge staircase, you've got an ant, right? Then a few steps up, you've got a chicken. Then a
• 32:01
  couple steps up, you've got a monkey. And then a couple steps up from there, you got us, the human,
• 32:06
  right? And it seems like, I mean, we're, you know, so much smarter than this ant. And we're, you know,
• 32:15
  about eight or 10 steps above it, give or take, right? And then when you, but this is the scary
• 32:22
  part. The scary part is that's artificial general intelligence up there. And we're down here.
• 32:29
  so this is what's scaring people and this is what i think is you know when we get to there i don't
• 32:38
  how are we going to handicap what what happens there i i don't we're not smart enough you know
• 32:44
  we're smart and there's almost no point at that point like we're not we're not at the wheel
• 32:47
  what's that we're not at the wheel at that point it doesn't even matter what we think we're not at
• 32:52
  the wheel so i don't how can you say that we we don't know what's going to happen we're smart
• 32:57
  enough to know that we're nowhere near what artificial general intelligence is going to be.
• 33:02
  But I mean, so anyways, that was a little bit of an aside. But the point is that I think these guys
• 33:10
  have a very difficult path ahead of them. And which means that they're going to move slow.
• 33:17
  That's what I think. I think they're just going to move slow. And that's what I'm expecting. I do
• 33:22
  not expect shocks. I don't expect them to come out and do something without people, you know,
• 33:27
  just as a surprise. I don't expect wars to just come out and, oh, Fed, you know, I'm sorry that
• 33:34
  Trump said to cut rates. I'm going to cut them. Like, I just don't expect that.
• 33:40
  I would expect it to happen on the balance sheet side before it happens on the rate side,
• 33:46
  because the rates are just so front and center. Nobody's like, who's talking? Do you see anybody on
• 33:52
  CNBC or Bloomberg talking about the balance sheet of the Fed, how it's been expanding,
• 33:59
  how they've been buying T-bills, how they've been, they've got that treasury buyback system going,
• 34:05
  that they're buying old paper to get, you know, more money in the system back, you know,
• 34:10
  more velocity in the system by having paper moving. No, they don't talk about that. It's
• 34:15
  too confusing. It's too many acronyms. It's just, you know, so that's, that's where I think it
• 34:21
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• 36:55
  Let's discount the artificial superintelligence for a minute
• 36:58
  and let's just say they did get a productivity boost from AI
• 37:02
  that did kind of give them some breathing room
• 37:05
  and meant that they could kind of tread this path a little bit more carefully
• 37:08
  and get to where they want to be over the next five years.
• 37:10
  What does that mean for the real economy,
• 37:12
  like for real people?
• 37:13
  Is it just more of an exacerbation
• 37:16
  of the K-shaped economy?
• 37:17
  Is it more permanent underclass
• 37:19
  and more people that do well who are the asset holders?
• 37:21
  I think that is.
• 37:22
  I think it is.
• 37:23
  I think it's the people who are in,
• 37:25
  that chart I showed you is what people are scared of, right?
• 37:29
  And they don't want it.
• 37:29
  They don't want it.
• 37:30
  They don't want it.
• 37:30
  Get away from me.
• 37:31
  I don't want it.
• 37:31
  I don't want it.
• 37:32
  I don't want it.
• 37:34
  And you need to embrace it
• 37:38
  For example, my son was working in cybersecurity, got out of college, got hired pretty quickly, and was working in cybersecurity.
• 37:51
  He was on what called the red team where they get paid by companies to find ways to break into the companies and show them where their weak points are their vulnerabilities And his company tragically shut down because of a death of the founder
• 38:06
  But when he went back to go get hired again, I was like,
• 38:11
  so what are you going to do?
• 38:12
  He's like, there are no jobs, none.
• 38:14
  He said Anthropoc came up with something that they don't even need us anymore.
• 38:18
  And he said, so I said, well, what's your plan?
• 38:22
  And he said, I'm going to embrace AI and figure it out.
• 38:26
  And I'm going to be in that world somehow.
• 38:29
  And I'll use my past skills to get there.
• 38:33
  And, you know, went headfirst into it, Danny, like for eight months, been doing nothing
• 38:40
  but learning and studying and learning and studying, you know, living on a ridiculous
• 38:48
  shoestring budget to get there.
• 38:49
  And he got hired to, so what he's doing is he's advising an industrial company in Dallas-Fort Worth on their AI hardware because they need help to understand it.
• 39:09
  So there's a perfect example of he's not coding. He's not a prompt engineer. He's not using AI to come up with marketing tactics. He understands the technology well enough and the hardware around it to help this company get to where it needs to be.
• 39:30
  Well, that job wasn't there two years ago.
• 39:33
  One year ago, there was no job there.
• 39:35
  They literally created that job and hired him.
• 39:38
  And so that's what I mean.
• 39:40
  Like, so the people who embrace it,
• 39:41
  they're gonna stay with the economy.
• 39:42
  They're gonna keep going.
• 39:44
  I mean, the internet changed things.
• 39:46
  Yeah, it meant you didn't need the same kind of transfer.
• 39:49
  It changed the way big box stores operated,
• 39:52
  retail stores operated.
• 39:54
  So it changed it.
• 39:56
  People lost jobs,
• 39:57
  but then they regain them in other areas and other people realize, oh, now, okay, drop shipping and
• 40:04
  Amazon and Walmart, like everything's being sent out because I've got just, okay, I'm going to be
• 40:09
  working in a different area now. And so you just have to adjust. You have to embrace it and adjust.
• 40:15
  And so the people who do that, they're going to continue working. I believe, I think it's going
• 40:19
  to create jobs that we can't even imagine right now. And so, but, but again, I do think you're
• 40:27
  right that these big companies, the people who are involved with them, the people who are doing
• 40:31
  well with AI are doing the jobs of four, five, six, eight people. And so now they're getting paid
• 40:38
  the same as two or three people would get paid. And so they're doing well. And people who have
• 40:45
  assets and all the big companies, the wealthy people, the K-shape, the top leg of the K is
• 40:51
  going to continue to grow. And that's not just productivity. It's also because of just the sheer
• 41:00
  amount of money they're going to have to print. And what does it do? It raises asset prices.
• 41:05
  And then it feeds into the economy and it feeds into consumer goods later.
• 41:10
  But that's kind of what, again, what I expect. And that does concern me for the economy as a whole.
• 41:17
  It's a good time to be a high agency person. That's awesome that your son's done that,
• 41:21
  though. That's cool. If you take AI out of the economy right now, how is the US economy doing?
• 41:29
  Because you hear lots of numbers about how it's performing quite well, but is that all being
• 41:34
  propped up by these AI companies? No, it's being propped up by the asset holders, the boomers,
• 41:40
  the older people, and the people who have assets, Gen X, and some of the millennials who are doing
• 41:48
  well enough that they're, they're, they're driving the economy. Um, the, you know, it,
• 41:53
  I don't know what the exact stat is, but it's, it, the, it's pretty good rule of thumb to say that
• 41:59
  80% of the spending is coming from 20% of the economy, something, you know, along those lines,
• 42:04
  the, um, the 80, 20 rule, but it's, it's, that's what's happening. Um, and you could see it when I,
• 42:13
  when I go out to dinner, I mean, I'm surrounded. It's not a bunch of kids. You know, you used to
• 42:18
  be, I have a pretty good mix of people in a restaurant, young people on dates, maybe in
• 42:23
  their twenties and some thirties and maybe a party of, uh, of 10 people like together that are
• 42:30
  having a girl's night out or a guy's night or just whatever. I, it's just like, I don't know
• 42:36
  what it's like around you, but around here, it's like, it's just a bunch of people my age and older
• 42:41
  and that, you know, you look around, it's like, there's a lot of silver hair in the, in the
• 42:46
  restaurants. Like there's, it's just an older demographic and it's the demographic who has
• 42:51
  assets. And I think that they're driving the economy. It's just, you can see it every day.
• 42:55
  And so, um, you know, I think that, but that's, that's really what's been happening and wages
• 43:02
  have lagged, but another thing that's happening, Danny, is people are, they have fully 100%
• 43:10
  embraced the debt-based economy and they live on debt, you know, and even if they're renting,
• 43:19
  they're using credit cards. And so again, here's another number that's severely lagging. The first
• 43:26
  quarter Fed, New York Fed numbers came out and credit card delinquencies, 90-day delinquencies,
• 43:32
  they're matching the 2008 levels now. And that's with people refusing to pay their student loans.
• 43:40
  So you've got student loans defaults, which is expected.
• 43:45
  People are just like, I'm not paying it.
• 43:47
  I can't get a job.
• 43:48
  I'm not paying it.
• 43:48
  And so, and then the second one is the credit card.
• 43:51
  So what do you do when you start getting into trouble?
• 43:53
  Well, you're not going to stop paying your, you're not going to start paying your car.
• 43:57
  You need to have a car to get your job or groceries or drop your kids off at school or whatever.
• 44:01
  Your first thing you're going to stop paying is credit cards.
• 44:03
  But the interesting thing is the credit card spending is continuing.
• 44:07
  You know, like there's a lot of credit card debt out there.
• 44:10
  And then another thing is margin debt You seeing a ton of margin debt in securities So whether or not people are pulling money out of their accounts and using margin to avoid having to sell the securities
• 44:26
  and just leaning on them.
• 44:30
  But again, so it's either you're using credit,
• 44:33
  you're using debt,
• 44:34
  or you've got assets that you're drawing from
• 44:37
  that you're able to keep spending.
• 44:41
  And that's kind of what the Fed has been seeing.
• 44:44
  And they've pretty much acknowledged that.
• 44:47
  So that's why they're watching unemployment closely.
• 44:50
  Because once unemployment starts ticking up, along with those credit card delinquencies,
• 44:55
  that's a toxic mix.
• 44:57
  And so that's an easy way to slip right into a recession.
• 45:00
  How can that snowball, the credit card delinquencies, student load delinquencies?
• 45:04
  Like what happens?
• 45:05
  What is the sort of next thing to fall after those?
• 45:08
  You have a market crash.
• 45:09
  we have a stock market crash and then spending just seizes up because you know you feel great
• 45:16
  yeah my google stock's all-time high you know i bought the mag 7 and i'm doing okay or man i got
• 45:23
  into this ai trade i'm crushing it you know and then all of a sudden the market crashes and you're
• 45:29
  like oh wait hold on i'm not gonna i'm not gonna buy that car i'm not gonna you know buy that house
• 45:34
  I'm going to pull back my spending.
• 45:37
  I'm going to cancel this offer for this or whatever.
• 45:40
  And then that in and of itself, I mean, we've seen it happen a number of times in our careers.
• 45:48
  And the market crash, just that grinds the economy to a halt, especially in America.
• 45:54
  In the United States, we are so financialized as an economy that we cannot get away from the stock market.
• 46:01
  It's part of it.
• 46:02
  It's a, it's a, it's a central part of, of our, the health of our economy.
• 46:07
  And, and how, what likelihood would you put on that happening? Like what percentage likelihood
• 46:11
  in the next say couple of years?
• 46:14
  Well, I mean, so it's, it's interesting because you saw, um, SpaceX come out and the absurd
• 46:22
  valuation they've got on that thing. Um, a hundred years of revenue, you know, um, crazy,
• 46:31
  Then you've got OpenAI and Anthropic coming.
• 46:34
  It sounds like they've punted to next year.
• 46:38
  So why would they do that?
• 46:40
  Well, you know, remember, once they go public, all their borrowing and their debt and their contracts and the lending and all the offshore, sorry, off balance sheet stuff.
• 46:54
  and they're lending to the chip makers.
• 47:00
  It just becomes this kind of a circle.
• 47:06
  And so I'm not sure they want to show their hands
• 47:09
  on all of that quite yet.
• 47:11
  But the issue here is that, yeah, the chip makers,
• 47:16
  they're crushing it.
• 47:16
  You saw Micron's earnings last week.
• 47:20
  I mean, I don't know how much that spending
• 47:23
  comes from lending from within that same ecosystem.
• 47:26
  Yeah.
• 47:27
  It's hard to tell.
• 47:28
  And that's number one.
• 47:29
  And number two, you know, once they come out
• 47:35
  and they just, they show all their books
• 47:37
  and everybody sees what's going on,
• 47:40
  the issue here is you saw everybody running into SpaceX
• 47:45
  at an insane valuations
• 47:47
  because they just want to get into this trade somehow.
• 47:50
  I mean, I had people calling me, Danny,
• 47:51
  like friends and family calling me like how can i get spacex i need to be in this before the ipo i'm
• 47:56
  like call your broker man it's gonna be it's insane i'm not sure i would buy it on the opening
• 48:01
  if you you know if you get some of the ipo and just want to put it away for 10 years sure but
• 48:07
  i don't understand that like apart from the vibes being really high and elon clearly being
• 48:13
  an insane person of agency who's done really cool things like what is it that people want
• 48:18
  spacex for why do they want it so bad and the space energy you know these gonna have the the
• 48:23
  hyperscalers out in space where they can run more efficiently and they're gonna they're gonna zap
• 48:29
  teleport that energy back to earth you know so come on we don't like do we even know that's gonna
• 48:34
  work like we don't know that's gonna work i i don't i don't know um if it does it it's it's
• 48:42
  world-changing um literally world-changing that's like tesla uh you know the original tesla power
• 48:50
  plants it's like completely world-changing so uh will it work that's what you're betting on
• 48:57
  basically that that and ai is going to be a big driver of their of their earnings but
• 49:03
  they why were people doing that because they can't get into the actual ai they want to be an ai
• 49:10
  Somehow, the first obvious thing to do was, well, AI needs power.
• 49:15
  So go buy all the power companies, you know, the irons and the, you know, the ciphers and whoever's got contracts with AI, Google and whoever can get them energy.
• 49:27
  You know, Google's got contracts.
• 49:29
  Anthropics got contracts.
• 49:31
  You know, we've got Cormant who's got contracts with these guys.
• 49:37
  Yeah, that's real.
• 49:37
  um so that's the first step and then what do you have you have the chips you got the chip makers
• 49:43
  you got so people going after anything ai associated because they can't get the actual
• 49:48
  thing they're buying the picks and shovels and they're like where can i get in where can i get
• 49:52
  in where can i get in so if these things get way out of hand because people just want to be there
• 49:59
  and it becomes bubblish because you start seeing that circular, you know, circular reference within
• 50:08
  that AI economy. Yeah, sure. Then that could, that could pop and you can have valuations come
• 50:14
  back to earth or a different earth than, than they thought. And so that's the one thing that
• 50:21
  worries me about this market, Danny, is it's hard to tell just how much further it can go and, and
• 50:28
  what exactly is going on with their earnings and all this.
• 50:30
  So when we get, I hope that that doesn't happen
• 50:35
  and we can just continue.
• 50:37
  on and things kind of settle to the right spot and you have the AI companies come public and
• 50:43
  it all works properly, that would be ideal. We'll see.
• 50:49
  It's going to be interesting. So Bitcoin's at 64k. There's obviously a lot of uncertainty still out
• 50:55
  there in the market, but Bitcoin over the last week or so seems to have found another bottom.
• 51:00
  Who knows whether it's the bottom or just another bottom for now. What do you think Bitcoin's going
• 51:05
  look like over the next 12 months? Well, I actually am confident that it's going to recover
• 51:11
  the next 12 months. I think we're going to be bumping up against the all-time highs or above
• 51:14
  them again. Look, we didn't have a blow off top like we did in the prior cycles. Part of the
• 51:22
  reason for that is it's kind of a multifold. One reason is I think that $100,000 level was a massive
• 51:28
  mental level for a lot of people. Totally. And not just new people, but OGs who have been sitting
• 51:34
  on this thing from a few dollars. You're like, if it ever gets to a hundred thousand dollars,
• 51:38
  I am selling half my stack or I'm selling three cores of my stack. And you saw millions and
• 51:42
  millions and millions of coins come out over the course of 2025 because of that. They were just
• 51:48
  like, it's over a hundred. I'm done. I'm out. Push it as far as I can. I don't know what that game
• 51:54
  was in the beginning of, of, uh, Bitcoin life, but there was a game that, uh, HODL was telling
• 52:01
  me about where it was like you put in a Bitcoin and then you see it, you see it grow and grow and
• 52:07
  grow and grow and grow and grow and grow. And then you have to say when you want to get out
• 52:11
  and you might get seven Bitcoin out of it and then you get out. But if you don't, it might go
• 52:16
  seven, 7.0. And it's like, you missed it. Darn it. You know? So you had, it's, it was kind of
• 52:22
  like that, the old mentality of it's up at 110, 115, 120, 125, 126, and then it started falling.
• 52:30
  And then they're like, okay, I'm out, I'm out, I'm out, I'm out.
• 52:32
  And so, and you just saw it happen.
• 52:34
  And then you had the deleveraging event in October.
• 52:37
  Who even knows what that was, Jane Street or whatever it was that was involved there.
• 52:41
  But that was one part of it.
• 52:43
  Second part is that hot ball of money was already moving out of Bitcoin.
• 52:48
  And it entered into gold and silver and the metals at the, you know, in the third quarter
• 52:55
  of last year and fourth quarter.
• 52:57
  And then it also was going into AI stuff, anything AI related.
• 53:03
  And then it poured out of everything, out of Bitcoin, out of gold, out of silver, platinum,
• 53:09
  copper, everything.
• 53:10
  Just get out, get out, get into the AI trade.
• 53:14
  And so, and then you had, of course, the energy trade on the backside of the war.
• 53:18
  So the hot ball of money has been moving around and it has, it left Bitcoin.
• 53:23
  the good news is because it didn't have such a blow off top that the downside that that drawdown
• 53:31
  was kind of muted for bitcoin it sounds brutal to people who just got into it and they're down
• 53:36
  over 50 but like this was actually not so bad yeah you know it wasn't it wasn't 85 so you know
• 53:45
  it funny though because like the actual the price hasn been so bad like 50 for a bear market is nothing but the sentiment been terrible It been brutal Like maybe the worst People attacking each other in the Bitcoin community It been brutal Like you know
• 54:01
  and calling each people, like people, you know, calling other people unethical. It's like,
• 54:08
  oh man, like seriously, what are you doing? So, but I do think that, you know, when you look at
• 54:15
  things like the power law, you've got people coming out and say, oh, the power law is broken.
• 54:19
  It's way off.
• 54:20
  It's not on the power law.
• 54:21
  And it's like, it's broken the power law's support.
• 54:24
  And it's like, hold on.
• 54:25
  The power law does not have support.
• 54:27
  It's never been support.
• 54:29
  You know?
• 54:30
  So it's just, it's that regression.
• 54:36
  And it is log, log.
• 54:40
  And it's from past price is determining what it looks like as it grows.
• 54:47
  And will it get back there?
• 54:49
  Yeah, I do think it'll get back to that mean.
• 54:54
  Can it be one or two standard deviations off?
• 54:56
  Well, one and change.
• 55:00
  But it's been nowhere near a collapse of the power law pricing.
• 55:09
  And that's a pretty good North Star at this point to see where you think it should be.
• 55:15
  And so if you look at that, the various models say it should be somewhere around, you know, $180,000, $200,000 next year, right? So at the end of 27, if you look at the mean. And so, yeah, I like Porcopolis. Yeah.
• 55:31
  So, you know, do I think, has it been disconcerting or has it been disappointing?
• 55:44
  Yeah, it has been.
• 55:46
  Disconcerting, no, it's just what it is.
• 55:50
  And so to answer your question fully, I think if we don't have a drawdown in the market,
• 55:57
  If we don't have a correlation to one event, I think we have seen bottom.
• 56:03
  That said, this is Bitcoin.
• 56:06
  And if it drew back to 52,000 or 47,000 without a correlation to one event, it wouldn't shock me.
• 56:14
  But I would say it's a better than 50% chance that it won't at this point.
• 56:19
  But, you know, it's Bitcoin.
• 56:21
  You just got to stomach it.
• 56:24
  You just never know.
• 56:25
  is the interesting thing to me is like i obviously totally agree with you when you say the hot ball
• 56:29
  of money's left bitcoin and i don't i don't think it was really that interesting bitcoin for the
• 56:34
  entire 2025 cycle like it was never it wasn't like previous cycles we've had um the interesting
• 56:40
  thing to me will be if the ai trade does roll over and at some point it's going to who knows
• 56:44
  if that's a decade away or a year away but at some point that trade will roll over like where
• 56:49
  the money goes then because like you look at other equities and i don't i don't really see the
• 56:56
  narrative for them but then if you look outside of that things like gold bitcoin like the sound
• 57:01
  money trade seems like the debasement trade seems like the obvious place for money to start moving
• 57:05
  do you think that that the likely outcome of something like that happening it the obvious place for money to start moving when you see that Fed asset when you see the Fed assets the balance sheet expanding in
• 57:19
  That is the obvious place.
• 57:20
  Or if you see structural problems
• 57:24
  in debt or fixed income,
• 57:29
  I would expect for there to be a reaction
• 57:32
  and it would be a visceral reaction
• 57:35
  from the Treasury and the Fed.
• 57:38
  I think that they will do what they need to do to stabilize those markets.
• 57:44
  And so that's really the thing.
• 57:46
  So if you see the stock market crash, they may let it simmer out a little bit.
• 57:53
  But if you see it take down the bond market with it, no, that's going to be, there's going
• 57:59
  to be printing immediately behind it.
• 58:00
  But you're looking for signals in the background.
• 58:04
  So one thing they could do is the Fed could take out the supplementary leverage ratio rules and remove treasuries from there.
• 58:17
  And then suddenly banks are buying more treasuries and holding more treasuries on their books.
• 58:22
  And what is that?
• 58:23
  That's inflationary.
• 58:24
  You know, you could see some sort of acronym come out on a regular treasury enhancement system, you know.
• 58:33
  And so next thing you know, they're buying treasuries and they say, well, we're going to be buying seven years and, you know, seven to 15 year treasuries.
• 58:43
  You're going to be buying those for a little bit.
• 58:45
  And it's because of this, this and this.
• 58:46
  And it's a regular operation.
• 58:50
  There's nothing to see here.
• 58:52
  If the balance sheet is expanding, it's not regular.
• 58:55
  That's inflationary, meaning it's debasing the currency.
• 59:01
  And so those are obvious.
• 59:03
  kind of flags for you to get back into those trades. Not that I've gotten out of them.
• 59:10
  Yeah, me neither. I'm too bad at trading. I just buy and hold Bitcoin. But when QE comes back in
• 59:16
  whatever form it is, might not be called QE. Do you think we could see yield curve control and go
• 59:21
  the full sort of Japan playbook route? I do, but I don't think it would be,
• 59:28
  I don't I think it would be much less obvious than what Japan has been doing I just think that
• 59:34
  we'll obfuscate it um in some way shape or form with acronyms and programs and I just don't I
• 59:42
  don't think it would be so obvious um but functionally and structurally it'd basically
• 59:48
  be the same thing the question is how much would we be buying how and for how long um and you know
• 59:55
  And whether it's like Larry says, it's whether it's a collapse of the markets or economy or confidence in the treasury.
• 1:00:04
  And next thing you know, you've got the big print.
• 1:00:08
  That would take a black swan event that we can't imagine.
• 1:00:13
  But, you know, I couldn't imagine six years ago that they would insist that we be locked in our own houses for months at a time.
• 1:00:22
  So who knows?
• 1:00:23
  Who knows what they come up with?
• 1:00:24
  But you know I just think it more along the lines of a slow continuous quiet print
• 1:00:37
  And they move these programs around to keep it going.
• 1:00:41
  And they're active.
• 1:00:42
  They dance around it.
• 1:00:44
  I don't think it's going to be in your face, big, obvious debasement.
• 1:00:48
  I think it's going to be a quiet, steady debasement like we're seeing now.
• 1:00:51
  Right now, it's just, we've got QE Lite going on.
• 1:00:56
  And I think it'll be QE light to medium for a long time.
• 1:01:00
  And they will allow the inflation to run hotter
• 1:01:05
  than they'll admit to,
• 1:01:06
  which is the whole point of the conversation
• 1:01:07
  we started with,
• 1:01:08
  which is what really is the inflation rate?
• 1:01:12
  Go look at your own bills.
• 1:01:14
  Go look at what you were paying for last year
• 1:01:16
  and compare it to what you're paying this year.
• 1:01:17
  Look at the same things.
• 1:01:19
  And look at your grocery bill, your gas bills,
• 1:01:21
  your air conditioning, energy,
• 1:01:24
  And don't forget insurance.
• 1:01:27
  That's likely the biggest slug of it.
• 1:01:30
  Health, home, car, like that stuff is just skyrocketed.
• 1:01:36
  Child care.
• 1:01:38
  I mean, you can't tell me it's 3.5%.
• 1:01:42
  Please.
• 1:01:44
  Zero chance.
• 1:01:44
  It's absurd.
• 1:01:45
  Zero chance.
• 1:01:46
  So the best thing they could do for them is quietly allow inflation to run hot.
• 1:01:52
  you know quietly let it run five seven nine percent without people really understanding it
• 1:01:58
  somehow to inflate away that's what happened yeah what's that to inflate away their debt
• 1:02:03
  to inflate away the debt yeah inflate away the obligations
• 1:02:07
  not a nice outcome it's a it's a mess man i can't wait to do a show where we talk about the economy
• 1:02:14
  like damn things are looking pretty good great yeah is that ever going to happen things are
• 1:02:20
  looking like england football i mean i i'm hopeful i get hopeful every world cup but this year i
• 1:02:26
  actually think it's our year i think we got it james it's been awesome man um we'll have to i
• 1:02:32
  wonder why i don't know when i'll next be in vegas but i i've not seen you in a while we'll have to
• 1:02:36
  do one in person at some point soon definitely uh let me know when you're here again please
• 1:02:41
  i'm i'm gonna be here for a long time let's go uh well you've got the usa world cup match to
• 1:02:48
  watch belgium i think you're gonna win it belgium uh not the team they were a few years ago i think
• 1:02:52
  you got this one in the bag yeah they're still tough but uh yeah got family coming over we're
• 1:02:57
  gonna go watch it and uh the pavilion it's gonna be good so awesome and trump's done you a favor
• 1:03:01
  he's got your striker back that's insane
• 1:03:07
  i don't know it's all subjective we'll see we'll see we'll see what kind of red cards come out
• 1:03:15
  tonight yeah as long as as long as he scores the winner then i mean i don't know people in europe
• 1:03:20
  will be having a meltdown it's hilarious um thank you so much man we'll we'll definitely do this
• 1:03:25
  again at some point i appreciate the time yeah thank you danny i appreciate it and look forward
• 1:03:29
  to the next time awesome
• 1:03:45
  Thank you.