Latest / Words & Numbers / Episode 473: Blowing Bubbles

Transcript

Episode 473: Blowing Bubbles · Words & Numbers

0:00
Today on words and numbers pennies.
0:02
Meta entertainment, newspapers and blowing bubbles.
0:06
All this and more coming up next on Words and Numbers brought to
0:09
you by civil.com. That's C ivl.com.
0:13
Hi, I'm James. And I'm Anthony.
0:15
And this is words and numbers, Ant what's new and exciting in
0:23
your world this week? Well, years ago.
0:26
Let me let me rephrase because I'm going to get hate mail.
0:29
What's new and exciting in your world today?
0:32
It's not this week. We we do 2 episodes a week now.
0:35
Right, Yeah, Yeah. I was always a avid gamer and
0:40
about, I'd say 20 years ago, I had a, a game that I absolutely
0:47
loved. I'd say game.
0:48
It's, you know, PC games. It was Hot Wheels.
0:53
It's a Hot Wheels car, you know, like Hot Wheels cars.
0:55
You drive it around the screen. It's got track.
0:57
Had a collection of Hot Wheels cars when I was a boy.
1:00
And on the computer you could do things with it that you can't do
1:02
in real life, right? And so I'm messing with this
1:05
game for a while and my wife says, you know, points out the
1:10
fact that I'm, I'm playing a simulation of Hot Wheels cars,
1:15
which are themselves simulations of real cars.
1:18
So it's a 2 two step removed simulation, which which leads me
1:24
to this thing I discovered. We talked last time about my
1:29
love of reels on Facebook. And usually most of the time I'm
1:35
watching them as I fall asleep, you know, and this was the
1:39
problem with no glasses. I can't read the thing.
1:41
So I have to, you know, kind of confine myself to the ones with
1:43
the with the big text. But there's there's one on there
1:47
that that kept showing up in my feed, but I didn't understand
1:51
it. There's nothing, I don't know
1:52
what's going on here. And so I would just skip the
1:55
thing. And one time recently I happened
1:59
to have the volume up on my phone and I realized, oh,
2:02
there's like dialogue here. And it's actually quite funny.
2:05
Hot. Wheels Content.
2:08
No, no. But I'll get back to Hot Wheels
2:10
in a second. This is Clara.
2:13
I wrote her name down and I lost it.
2:16
Clara Batten. Clara Batten, like my heist, my
2:20
Hot Wheels game, is a meta, meta, meta entertainer.
2:24
So what goes on here is somebody posts something on Facebook or
2:29
Instagram or what have you that's amusing.
2:33
And then people come along and comment as they do.
2:36
And a lot of the comments are amusing.
2:39
So you've got amusing comments on an amusing post.
2:43
And then enter Clara Batten who produces A reel with the post
2:50
and the comments and she's now commenting on the comments.
2:55
So you've got amusing commentary on amusing comments on amusing
2:59
post. She's hysterical.
3:02
There was some picture somebody posted that probably was not
3:06
meant as to be humorous. It's a, you know, young woman, a
3:09
mother with her kid and her kid is looks to be perhaps a
3:14
three-year old, but a particularly large 3 year old.
3:19
And she's there holding him. And then the, the Clara, Clara
3:23
Batten is pointing out the comments.
3:25
One guy says, Oh yeah, I know the bloke.
3:28
I used to work with them. It's just things like this on
3:31
and on and on. And she is hysterical.
3:35
And so the, the interesting thing for me is I, I encountered
3:39
her many times, I never realized it until I had the sound up.
3:42
And then as I'm looking this and being highly entertained, I'm
3:45
realizing this is really weird. It's like my Hot Wheels thing
3:49
that it's entertainment based on entertainment based on
3:52
entertainment, you know? All all I know have a.
3:55
Chance. Check her out.
3:56
Clara Batten. All I know about Facebook Reels
4:00
is they, they get me in a little bit of trouble around here.
4:03
And, you know, as the algorithm, I, I don't know how it works,
4:07
but I get lots of pictures of women wearing tight leather
4:12
outfits and, and the wife points at this and I, you know.
4:15
All I say is you click on one picture.
4:18
One, and then there's all that of a lady cracking a whip and
4:23
before you know it, that's what you get anyway.
4:29
That's right. And you know now.
4:33
Here's the interesting study. Like, like how many, how many
4:36
pictures of you know Jesus do you have to click on to
4:40
counteract that so that Facebook stops giving you this?
4:44
Well, I can tell you we're never going to find out, but but let's
4:47
move on today, aunt. Today, as we speak, it's
4:51
November 12th. Today is the day that the very
4:55
last penny was minted. About time.
5:01
We will not have, we will not have pennies moving for the the
5:04
last penny in circulation I believe was minted in July, but
5:08
they had a ceremonial minting of a bunch of pennies that they're
5:11
now going to auction off for millions of dollars for reasons.
5:17
But the the pennies is gone. Yeah.
5:21
And let me let me put some perspective here because I ran
5:24
the math on this probably 20 years ago when long and 20 years
5:30
ago the penny should have been gone 50 years before that, but.
5:34
Another thing, and last time it makes it, it's probably worth
5:37
noting that we had half cents in this country for a very long
5:41
time. That's where it's going.
5:42
The last time we got rid of a coin was when we got rid of the
5:45
half cent, and I forget when that happened.
5:48
It would have been late 80s, early 19th century, Yeah, But
5:54
when we got rid of the half cent, of course we got rid of it
5:57
because it was this value was so low, it didn't buy much of
6:00
anything. Adjusted for inflation, it was
6:04
equivalent of about $0.15 today, which means we should be getting
6:08
rid of the penny, the nickel and the dime.
6:11
Yeah, that that's not going to happen.
6:12
Although the nickel, we're, we're getting rid of the penny
6:15
because at present, as of right now, according to CNN, it costs
6:21
$0.04 to make a penny, right? Yes.
6:24
And anybody could kind of see the problem there, that it's
6:28
literally not worth it and, and it and it can't be made to be
6:32
worth it. Nickels are going to be next
6:37
there. There's already a problem.
6:39
It it costs a lot to make a nickel too.
6:41
Come to find out, Dimes are are relatively safe at this moment.
6:45
But there's going to be a a real problem here.
6:50
Now the Canadians have already done this and other countries
6:52
have too. And you just don't have pennies.
6:56
And people in shops round up, round down, whatever to the
7:01
nearest nickel one way or the other.
7:04
Right. We can't do that here.
7:07
Or maybe it's better to say we can't do that here everywhere.
7:13
We have 4 States and they are Delaware, Connecticut, Michigan
7:17
and Oregon and numerous cities including but not limited to New
7:22
York, Philly, Miami, Washington DC.
7:25
These places require, by law, merchants to provide exact
7:31
change. Well, what are they going to do?
7:34
Well, they're going to have to round their prices.
7:36
They can't. That's illegal.
7:38
Why? I don't understand well.
7:39
I mean, you could, you could be functional.
7:41
You can't round prices to get to a nickel in every instance you
7:45
got to run into this problem. Well, it's illegal not to give
7:49
exact. There's then a sales.
7:50
Tax tacked onto it, so you got to do a bunch of math to figure
7:54
out where you end up. Yeah.
7:56
And that's that's just not going to happen.
7:59
You can see. So these stores, that would be
8:00
for a grocery store. Right.
8:02
So these stores are going to have to end up giving.
8:05
More change probably. And there's there are, there are
8:09
further laws. Let me just let me read you this
8:12
one out loud because I want to make sure I get it exactly
8:15
right. The law covering the federal
8:17
food Assistance program, known as SNAP, requires that
8:20
recipients not be charged more than other customers, since SNAP
8:25
recipients use a debit card that's charged the precise
8:28
amount. If merchants round down prices
8:31
for cash purchases, they could be opening themselves to legal
8:35
problems and fines. So, OK, you got to round up, but
8:40
you can't round up because then you're charging for something
8:43
you didn't deliver. And look, these are all
8:45
technical problems, but they should have been laid out before
8:49
the penny was discontinued, right?
8:52
Somebody should have said, OK, this is the list of problems
8:55
you're going to have when you phase out the penny.
8:58
Deal with it. And then some smart person could
9:00
have said, all right, we could do this, this, this, this, and
9:03
this, and it takes care of everything.
9:05
But Trump, as is his custom, gave us a tweet, and then the
9:09
Treasury did this, and here we are.
9:11
Oh, and. This is by Fiat, he just said.
9:14
Let there be no pennies. Make it.
9:16
Make it so. Man, he should have done the
9:19
same thing with the nickel at the same time.
9:21
Yeah, You know, let's not get the people all worked up and,
9:25
you know, rounding, rounding up or down is really a problem.
9:29
And there there's one company, QuikTrip, you might have come
9:32
across them in your in your travels.
9:35
It's a family owned convenience store, mostly in the Midwest.
9:39
They decided to round down cash purchases in the stores when
9:44
they don't have pennies and the company is so big 20 million
9:48
customers a year pay. 17% of them pay with cash.
9:54
It ends up costing QuikTrip a couple of $1,000,000 to round
10:00
down. Yeah, yeah, I believe that.
10:03
So asking companies to round down is probably unreasonable.
10:11
When they round up, they're going to what?
10:12
They're going to piss off their customers.
10:14
Yeah, what they're going to do is raise their prices to
10:17
compensate and round, round down.
10:20
That. That's right, that.
10:21
Ultimately, that is what's going to.
10:23
Happen we're happy to announce this civil members can join me
10:26
and James for a new lecture series, words of Numbers Live
10:29
words of numbers Live is a members only series in which
10:33
James and I talk about issues in politics, philosophy and
10:36
economics. We take a deeper dive and that
10:39
invite listeners for a live Q&A session.
10:41
You can also submit your questions to us at Words of to
10:44
numberspodcast@gmail.com. In this week's session, which
10:48
starts Thursday, November 20th at 5:30 PM Eastern, we examine
10:52
public choice economics. To participate in this exclusive
10:55
series, subscribe to civil@civil.com.
10:58
That's civl.com. When you log into civil.com,
11:03
you'll find an archive of our past lecture series, as well as
11:06
the collection of all of our episodes of Words and Numbers
11:09
and announcements about upcoming lectures in our new Words and
11:13
Numbers Live series. Subscribe to Civil for $5 a
11:16
month or $50.00 for an annual subscription.
11:19
All right, I, I have a constitutional question now.
11:22
Oh. Boy.
11:22
Did does the Constitution allocate to Congress the
11:26
authority to mint coin or to the federal government as a whole?
11:31
Here's the complicated answer. Congress has the ultimate
11:35
authority to authorize the minting of coins.
11:40
The Secretary of Treasury has the responsibility to mint them
11:43
and meet the nation's needs. You could tell I'm reading here.
11:47
The US Mint is the body that carries out these duties, but
11:49
its operations are overseen by the Treasury Department and
11:53
legislative directives from Congress.
11:55
And is Treasury I guess considered part of the executive
11:59
branch? Yeah, that's part of.
12:00
That's part of the executive branch.
12:02
OK, so we've got a situation where Congress has the has the
12:05
power to authorize the coins as needed, I think you said and
12:12
the. President could turn.
12:13
Around and say well, but they're not needed so we're not going
12:16
to, yeah. And look, he if this were a big
12:19
thing, if he said we're going to get rid of the quarter because I
12:23
hate all of you, there'd be immediate push back.
12:26
How will we buy our sodas from the machines?
12:30
How will we buy gumballs from the machines?
12:32
We we need these quarters, but I don't know anybody who will
12:37
rally around the penny. No, as a as a fight.
12:41
It's a non starter. There's no point.
12:44
The smart move is to discontinue the penny.
12:47
It's just going to raise up a bunch of problems that you know
12:49
there are unintended consequences to everything.
12:52
And interestingly, you don't lose because of course, it's
12:55
Lincoln's image on the coin, but he's on the $5.00 bill.
12:59
So it's not like we're losing Lincoln, but you kind of lose
13:03
Jefferson if you get rid of the the nickel.
13:06
I Jefferson appears on the $2.00 bill, but that's used so
13:10
infrequently that there are tons of stories of people thinking
13:13
it's counterfeit. That yeah, no, but for my money
13:16
it's the most beautiful bill that the the United States
13:19
produces the two. It's stunning.
13:22
It's it's absolutely gorgeous unbelievable.
13:27
Monticello on the back. I I believe it is is that.
13:31
Right. I I don't know, Monticello's on
13:33
the back of nickel. Jefferson's on the, the front
13:37
it, it's gorgeous. And it's, it's a shame, too,
13:41
that the $2.00 bill never caught on, right?
13:44
I right. I don't know why it never caught
13:46
on, frankly. Well, I could I can I have a
13:49
hypothesis? I was into coin collecting about
13:53
the same time that the $2.00 bill came out, and coin
13:57
collecting seemed to be a thing back then.
14:00
Lots of people were doing it and so the $2.00 bill comes out.
14:03
This is new, so people just start collecting them.
14:05
Nobody would spend them. Same thing with the dollar coin.
14:09
Yeah, and there were lots of different dollar coins, right?
14:12
None of which ever really caught on.
14:16
Nobody, nobody walks around with with silver dollars in their
14:18
pockets or Sacagawea dollars or Susan, whatever.
14:23
It was dollars. I never remember who it was.
14:27
And my memory sales. Susan B Anthony.
14:28
Yeah, yes, Susan B Anthony. That's right.
14:31
My memory fails me. The $2.00 bill.
14:33
The the reverse is the signing of the Declaration of
14:36
Independence. It's a it's a gorgeous bill.
14:40
I I I wish we used it more. I wish people had them in their
14:43
pockets, but never going to happen.
14:46
And now they're not going to have pennies either.
14:48
Right. And the question for me is how
14:51
long until pennies just simply disappear?
14:55
It's not like it's going to happen overnight, right?
14:57
It's going to take a while. How long will it take?
15:01
Yeah, we all find out. Together quickly, I was going
15:04
to, yeah, I will say, I imagine pretty quickly because very few
15:08
people actually use the pennies. In fact, we're getting to the
15:12
point that few people are using currency at all.
15:15
Yeah, I don't. I have.
15:17
I have not. Carried cash.
15:19
I have not carried cash in 20 years.
15:22
I keep some cash on my person as a a hedge against disaster.
15:30
Right. It is my firm belief that
15:32
anywhere in the world I believe this to be literally true.
15:36
That you could be anywhere in the world and if you get into
15:39
any kind of actual trouble, $300 is usually enough to get you out
15:43
of it. So I always have $300.00 on my
15:47
person. Notice I'm not saying in my
15:49
wallet. I never have any money in my
15:51
wallet, but I always got 300 on me somewhere just in case I had
15:57
you against disaster. But this brings us in because
15:59
that might be foolish. This brings us to the actual
16:02
foolishness of the week and it it it rests on a previous
16:06
foolishness of the week. And I can't remember for the
16:10
life of me when we covered this, but I'm sure you will remember
16:13
there was a newspaper, a weekly newspaper called the Marion
16:18
County Record that you probably not ringing a bell yet.
16:22
But. They did something that the
16:25
local police didn't really appreciate and the local police
16:29
got in league with the local sheriffs and the local judge and
16:34
they came up with a search warrant and they raided the
16:36
place. Do you remember when that small
16:38
town newspaper got raided by all of the all of the the bigwigs in
16:43
town? No, I don't.
16:45
I don't know and. Then the very next day, the 90
16:49
something year old owner of it died of a heart attack, which
16:56
his widow said clearly the result of this ridiculous raid.
17:02
Who raids a weekly newspaper? A weekly local newspaper
17:07
circulation? Not a damn thing, right?
17:10
We used to have one in in the town I grew up in called the
17:13
Town Times and you know. 14 people and sell them.
17:17
You, you give them away. Yeah.
17:19
They couldn't sell them, and actually, they couldn't give
17:21
them away either. What might?
17:22
The town Times went out of business.
17:25
Anyway, this all originated. It was a dispute between a local
17:29
restaurant owner and the newspaper.
17:31
Well, OK. And then the newspaper got a
17:35
copy of her driving record. Something something to do with a
17:39
city liquor license and before you know it they were digging
17:44
into the background of the police chief and then the raid
17:48
happened. Funny.
17:51
Now, after all is said and done, the county has to pay $3,000,000
17:58
and apologize for a thorough going violation of the 1st
18:04
Amendment. Yeah.
18:06
You can't just go mess around with a newspaper because you
18:10
don't like what they print. Shame on you.
18:14
If you're a law enforcement officer and you don't know that,
18:17
If that's not coded into your DNA, you should be.
18:21
You should be fired immediately. Police officers should know the
18:27
constitutional rights of the people they're sworn to protect.
18:31
And the judge who signed the search warrant?
18:35
He should go to jail. But. 3 million and her
18:39
apologies. A really nice start.
18:41
Yeah. The downside being that it's the
18:44
taxpayers of the town that have to pay that well.
18:48
Only in part, because turns out it's mostly the insurance
18:51
company that has to pay that. Ah, right.
18:54
Right. So the taxpayers get to pay for
18:56
higher insurance premiums? Yes.
18:58
On things that the town owns, Yeah.
19:01
And I believe the taxpayers are on the hook directly for $50,000
19:04
of it, which, you know, in a, in a tiny little place, going to
19:09
add up pretty quick. Everybody meets a logical end
19:13
sooner or later. Take heart.
19:16
These people got exactly what they had coming.
19:19
And they might have, they might have had worse coming than this,
19:23
but I'll take this one as a win. Hooray for the 1st Amendment.
19:28
Well, that's going to be the first foolishness that we've had
19:31
chance to follow up on. Yeah.
19:33
I mean, how much time, how much time had to have elapsed between
19:38
the occurrence of the of the raid and now the, well, the
19:43
court case going all the way through and now judgment.
19:47
It was August of 2023 when the the raid helped.
19:51
All right. Year and a half.
19:52
A little less than a year and a half. 2023, No two years.
19:57
Two years? Well, no.
19:59
Year and a half. August 2023.
20:01
It's now November 2025. Oh.
20:02
That's right, we are past. That's right, we are past dogs,
20:05
aren't we? It is more than two years.
20:07
My math. The funny thing is yearly base
20:09
12 math confuses me. James, The funny thing is I had
20:12
to do that today. I'm thinking 2020.
20:14
Which one is it, 4? No 5-6.
20:19
No, yeah, no, that Happy 5. Happens.
20:22
That happens to me for at least six months after the year
20:25
changes. Because every so many of these
20:29
once, once in a blue moon, I have to write a check.
20:33
Yes. And I, I wrote a check once a
20:35
couple of years ago that was wrong by 6 years And and
20:41
somebody handed it back to me and said you might want to, you
20:45
might want to look at this. I'm like, Oh yeah, right.
20:48
It's not 2012 at all, is it? Anyway, you you had something
20:54
you wanted to talk about today, if memory serves.
20:56
I want to talk about, yeah, what we want to talk about broadly
21:01
are bubbles, financial bubbles. And there's a back story to this
21:06
that not too many people are talking about.
21:10
And I think it'll become a thing in the next few years or so.
21:14
We've been tracking this for about a year now.
21:17
Yeah, yeah. This is, we've got this
21:20
weirdness going on that we saw once before in back in 2020.
21:27
And the weirdness is you've got an economy that's kind of, you
21:30
know, well, today it's a tepid economy.
21:34
In 2020, it was a hellaciously bad economy.
21:38
But in both cases, the stock market's going gangbusters,
21:41
going great in 2020, the height of COVID.
21:45
So here we are, in this situation where unemployment was
21:49
at a level we hadn't seen since the Great Depression.
21:53
We've shut down by edict at least 1/4 of the economy.
21:58
Nobody knows when it's going to end, if at all.
22:02
The government's writing checks to whoever wants them.
22:05
Just put your hand out. And in the midst of all of this
22:11
upheaval, and I can't underline this enough, that was that
22:15
period of COVID economically was more upheaval than we have seen
22:19
since the Great Depression, that in the midst of that upheaval,
22:23
the stock market was making returns that were more akin to
22:26
the.com era. That's right.
22:29
Why? Why amidst all that stock market
22:32
be booming and so do today? There was no real good reason
22:37
for it. If you're looking at the market
22:40
as a rational thing, right, that you've got these EE clear easy
22:45
inputs and clear easy outputs. Well, if you shut down 1/4 of
22:49
the economy, most of the businesses that are traded
22:52
publicly are going to lose 1020% off their bottom line, right?
23:00
Because and then once you realize that the shutdowns are
23:03
international, right, all of their markets are being shut
23:06
down, that should have been reflected in the stock price in
23:09
a very negative way. And yet the exact the exact
23:13
opposite thing happened. Yeah.
23:15
The stock, the stock market was up 25% over that same period
23:19
that we'd locked down the economy.
23:21
Yeah, And, and that was, and let's be real clear, you're
23:26
talking about a period during which Joe Biden was president,
23:30
right? Trump doesn't become president
23:33
until Trump is president until 2020.
23:39
So this. 10 I guess it is. Trump so it's the last year.
23:43
This is the, this is the last Trump year.
23:46
And then he's the, he's the one thing, he's the constant because
23:52
he's in office now and we see the same sort of thing
23:54
happening. He he is.
23:56
But I, I'm very confident in saying that's purely
23:59
coincidence. I, I am too.
24:02
Nothing to do with the president.
24:03
Well, I don't know that has nothing to do with it, but.
24:07
Oh, I'm about to lay blame and it's not at the feet of the.
24:10
President it well look, I I've said often and you have too,
24:15
that presidents get way too much credit when economies are good
24:20
and way too much blame when economies are bad.
24:23
Yeah yeah, right. And and I I'll stand by that for
24:26
the rest of all time, but go ahead Liv.
24:29
They some blame, too. Let me talk about what's going
24:32
on now. The economy is the best.
24:35
The the phrase I've been using for the past 18 plus months is
24:38
tepid. It's a tepid economy.
24:40
It's the Yes, the economy is growing, but it's growing at a
24:45
significantly slower pace than it did prior to COVID on
24:48
average, unemployment is low, but it's been rising
24:52
consistently since 2022. Inflation is back under control
24:57
if you put it in air quotes, but it's still at a level that's
25:02
about a percentage point higher than the average prior to COVID.
25:05
The economy is not in recession, but it's no great shakes either,
25:11
right? It's a tepid economy.
25:13
But what's been happening I've got here since past from last
25:18
year, this time to to now. S&P 500 is up 15%, the NASDAQ is
25:27
up 21%, Gold is up 61%, Silver's up 73%, Bitcoin's up 15%.
25:39
The financial market is going great, but the way out of line
25:44
of what you would expect given the economy.
25:47
Right. It doesn't mirror the reality of
25:49
the economy, right? But markets are expectations
25:53
too, and they're actually mostly expectations.
25:58
But so we can conclude that people are relatively confident
26:02
that things are going to remain OK and that businesses are going
26:05
to make a lot of money. But there seems to be something
26:09
else going on here because it's every investment vehicle you can
26:14
point to. Yeah, just threw.
26:16
If you just threw darts at them, you would end up winning.
26:20
Well, and it's not just, yeah, it's not just the the financial
26:23
stuff. Houses, you know, people
26:25
complain about the rising cost of housing.
26:27
Well, houses fall into this category as well.
26:29
Yeah, you know who doesn't complain about that?
26:31
People who own houses. Right.
26:34
Yeah, right. Yeah.
26:35
People, and especially people like me who have mortgages on
26:38
houses. Yeah, yeah.
26:41
If you got a mortgage at one 2% or whatever it is you managed to
26:44
get before the COVID years, you're so I love.
26:48
I love that I own a a house right now, you know 'cause the
26:52
the value is going up and the payment is staying the same.
26:55
Yeah, you can. You can actually be in a in a
26:57
situation right now where your mortgage, your mortgage interest
27:01
rate is less than inflation. The oh it is I'm paying two
27:06
point. Eight, Yeah, yeah.
27:08
So I'm like what? 3.33 point 2 something?
27:11
.2 or so ahead of the game. But you know, look, the obvious
27:17
question is how can every investment vehicle be going up
27:21
to this degree, right? There's something going on
27:25
that's pushing everything forward that is not on the usual
27:30
list of suspects. Yeah.
27:32
And this is where I'm going to. I'm going to put the blame.
27:36
I'm going to put the blame at the Fed, and here's what I think
27:41
is happening, and I'm going to tread lightly here because we're
27:46
dealing. We're dealing in new territory.
27:49
From 2008 to 2020, the Fed altered it, altered our banking
27:56
regime. I'll use that term.
27:58
And roughly speaking, what happened is prior to 2008, the
28:03
Fed kept a tight leash on liquidity.
28:07
How much money was floating around in the system?
28:11
After 2020, the Fed lets loose as much liquidity as markets
28:16
want they can have. And this coincide would stop
28:20
there, stop there for a second. There was a perfectly good.
28:23
Well, there was a reason for that.
28:25
Oh, A. Really good one.
28:27
Yeah. And that was the financial
28:29
crisis in 2008. Our financial crisis came within
28:33
moments of basically locking up right there, wasn't I?
28:39
I owe you money. You owe that guy money.
28:41
They're the guy owes that guy. And there is no money.
28:43
And so there's no run. In fact, anything and everything
28:46
stops. Yeah.
28:47
And then in 2020 with the lockdowns, there's all kinds of
28:51
cash infusions there. Yeah.
28:53
So what happened was in in 2008, the Fed realized it didn't, it
28:58
did not have the ability to inject liquidity into Marcus
29:02
fast enough. And if another 2008 came along,
29:05
it could end up in, you know, in vapor lock.
29:09
And so it changed how it goes about doing things.
29:13
And there's all kinds of footnotes there I'm not going to
29:15
talk about. But the net result is the Fed
29:18
now has it. The system it uses for handling
29:22
interest rates, slash money supply, is a system that enables
29:26
it to inject liquidity into markets very quickly.
29:30
But it comes at a cost and the cost is prior to 2008.
29:36
In the old system, the Fed could directly influence interest
29:41
rates across the board from short term rates to long term
29:43
rates. Under this new system where it
29:46
can inject very quickly, it come, the cost it comes at is
29:50
that the Fed can only directly influence the short term rates.
29:53
And so when you see, and that's why, for example, we saw the Fed
29:59
injecting liquidity into markets and, and short term interest
30:05
rates are moving, but long term interest rates are the same.
30:07
And people would say to me, look, the Fed cut interest
30:10
rates. How come my mortgage rate hasn't
30:11
gone down? It's not going down because
30:13
there's no connection anymore between the short and the long
30:17
term. The Fed's only impacting the
30:18
short term rates. And that's hard for people to
30:21
get a handle on that. That is confusing, right?
30:25
You would think that one would logically influence the other,
30:28
right? Yeah.
30:29
Yeah, it doesn't and it doesn't. James and I are delighted to be
30:32
working with Civil. For years we have been pushing
30:35
people to think about how we can make the world a better place.
30:39
Civil's mission of upgrading society fits exactly with what
30:43
James and I have been talking about for years.
30:45
Civil helps us by allowing us to do what we do best, which is
30:49
researching topics that are important in communicating these
30:52
to our listeners in ways that we hope they find interesting.
30:56
To see. Civil's extensive list of
30:57
content, including our podcast, Words and Numbers and our new
31:01
lecture series, Words and Numbers Live.
31:03
Visit civil.com. That's civl.com.
31:07
The smoking gun here, in my mind, is how banks react to
31:12
these new this new system the Fed has imposed.
31:16
Under the old system, when the Fed wanted to inject liquidity,
31:21
it put more liquidity in the markets.
31:23
And what did banks do? They turned around and loaned it
31:25
out. And so now it's easier for you
31:28
to get a loan. It's easier for you get a loan,
31:30
it's easier for you to go and buy stuff.
31:31
And so the economy starts to pick up that way.
31:34
So injecting liquidity meant increasing the banks would start
31:38
lending more and more and more. Today, banks can already lend as
31:43
much as they want. So when the Fed increases
31:45
liquidity, cuts interest rates, you don't get more lending.
31:52
Instead you get the banks shifting their portfolios
31:55
around, and I claim it's the shifting portfolios around
31:58
pursuing higher rates of return. What's happening in effect is
32:02
the the Fed is injecting liquidity into markets.
32:06
And whereas before it would go into goods markets giving us
32:09
inflation, now it goes into financial markets giving us what
32:13
we don't call inflation, but basically is that it's a rising
32:17
stock price. You see rising financial asset
32:19
prices. We call them Returns.
32:23
Yeah. And I claimed, look what what
32:25
you're really seeing is inflation by another name.
32:29
Sure. And, and let's be brutally
32:32
honest, there were always ways for well heeled and well
32:38
informed people to take advantage of inflation.
32:42
Sure. Yeah, yeah.
32:44
Right. And if, for example, if things
32:47
were going into commodities, well the commodities market, if
32:51
dollars were going into commodities, then the the
32:53
commodities markets were where you wanted to be.
32:56
You'd want to buy commodities, futures and things look of this
32:59
nature. You could only do that if you
33:01
got a bunch of money sitting on the side that you can mess with.
33:04
If you're living paycheck to paycheck, you can't do.
33:08
You're out of luck. And, and lo and behold, if you
33:10
live in paycheck to paycheck now you are also out of luck because
33:15
now it's, instead of commodities, it's stocks.
33:20
Yeah, it's precious metals, it's real estate, it's every
33:25
investment vehicle. And, and the reason for this,
33:29
put most simply, is there are a lot of dollars floating around
33:34
that the Fed printed and they have to go somewhere.
33:39
Yeah, and and before people with a bit of knowledge of of this,
33:44
the system come back and start nitpicking about the Fed
33:47
printing money, James is using that as shorthand.
33:50
It is a Fed is doing is expanding liquidity.
33:54
That's right. The money supply is increasing.
33:56
Yeah, now. Back in, I first started playing
34:01
with this. I, I, I ran the ideas past you
34:03
back in 2020 when we saw that weirdness of the economy is, is,
34:08
is in horrible condition and yet stock prices are going up.
34:12
And we talked about, I can remember sitting talking with
34:14
you about this back and forth and coming to the realization
34:18
that I think what's happening is the Fed is expanding liquidity,
34:23
money supply is increasing. Rather than seeing that as
34:27
inflation, it's going into financial markets.
34:29
And that's what's driving the stock prices up.
34:32
And I said to you at the time, if I'm right, when the economy
34:38
turns around, people are going to withdraw that money from
34:40
financial markets, start spending it in goods markets.
34:44
And then you're going to see two things happen almost
34:47
simultaneously. Stock prices will drop and goods
34:50
prices will rise and lo and behold, come to 22.
34:54
That's exactly what happened and we got the whatever we got 9.
34:58
Percent inflation, but we're right back to where we started.
35:02
I claim we're back to we're back at that.
35:05
So the Fed cut rates for the first time back in, was it
35:09
September of 2024, after we went through that long period of high
35:14
of the Fed holding interest rates high, it cut interest
35:17
rates. And I was saying at the time,
35:18
the Fed's not going to cut interest rates.
35:20
I gave all kinds of reasons. I'll show the money supply.
35:23
I showed what was happening. I said, look, the economy is on
35:26
track for the money supply to be back to where it was prior to
35:32
all the COVID nonsense. If the Fed just toes the line
35:36
for another 9 to 12 months. I said the Fed, the Fed's going
35:41
to toe the line. It's not going to cut.
35:42
And it didn't. It cut interest rates by like 50
35:44
basis points, huge cut in interest rates.
35:47
And sure enough, what happened is inflation that was coming
35:50
down and coming down starts to slow.
35:52
It's still coming down, but not as fast.
35:54
And then the Fed cuts interest rates again just a couple of
35:57
times, most recently last week, week before.
36:00
And what do you see? Inflation settling, settling at
36:04
about one percentage point higher than what it was prior to
36:07
COVID? Yeah.
36:09
We've all decided that that's the new normal and that's OK.
36:12
Yeah, yeah, it's a new normal now.
36:14
I'll give the Fed a break here because the Fed, while I'm, I'm
36:18
saying, look, this is what's going on.
36:20
The Feds injecting liquidity. We're getting high stock prices
36:23
that are going to come back eventually dressed up as
36:25
inflation. The Feds doing this in large
36:28
part because the government because of its budget deficits
36:31
is crowding out. It's borrowing so much money
36:35
that if the Fed doesn't step in and provide more liquidity,
36:39
before you know it, the government's.
36:41
I mean, the size of financial markets are gargantuan, even
36:46
relative to the government, if you can imagine that.
36:50
But nonetheless, the government is the biggest dog on the block.
36:54
And when he starts eating more, he drives up interest rates.
36:58
That slows the economy. And the interesting thing of all
37:03
the stuff you just said, the interesting and distressing
37:07
thing is that we're there's no such thing as a free lunch.
37:10
We're going to pay for this, but we're going to pay for it in the
37:13
form of inflation. Yeah, ultimately, that's how
37:16
we're going to pay for it. And inflation is insidious
37:20
because it's a tax that no one has to implement.
37:25
And nobody votes. For you're never accountable for
37:29
it. There's no congressional guard.
37:31
Against this thing. No.
37:33
And it's going to happen and it's going to cost everybody
37:37
because that's what inflation does.
37:39
So when you see the the wild ride that assets of various
37:44
classes have taken over the past year or two and you know if
37:48
you've held on to these things, you've done well.
37:51
Nothing lasts forever. Yeah, as you know, and now
37:54
having said all of that, I'm I, I'm still bullish on stocks.
37:59
I think they're overpriced right now generally speaking.
38:03
But you know all I'll, I'll tell you right out.
38:06
All of my retirement is in stock markets and I fully expect a
38:10
correction. But long term, I think that's
38:14
that's the place to be. It's the smart.
38:16
Money you expect a correction. They actually if if there's
38:20
going to be a correction, shouldn't you move to cash until
38:22
there is? Well, see, that's an interesting
38:24
thing. I have not.
38:26
I have not run the calculations, but I've read people who have
38:30
run the calculations and they say that you lose more money not
38:37
being in the market when you should be, then you do being out
38:40
of it when you shouldn't be in it.
38:42
So I, I kind of take that to heart and say, look, you know, I
38:45
live with the good and the bad, but on average the stock market
38:48
goes up. So, so the first thing I'll say
38:50
is look, fundamentally the economy is solid, right?
38:55
The federal government is got all kinds of financial problems,
38:58
but the federal government is not the economy.
39:00
We're the economy we're doing, generally speaking, all right.
39:04
And so long as we're doing all right, the stock market will
39:06
tend to grow over time at a reasonable pace.
39:09
But I think there's another, there's another factor at play
39:12
now that's never been at play before, and that's the demise of
39:16
Social Security, or at least Social Security as we know it.
39:20
When, when it becomes apparent and as the government starts to
39:26
actually say to people, we're going to cut your Social
39:29
Security or we're going to, you know, raise your taxes or
39:31
whatever it is, younger people are going to realize they can't
39:36
rely on Social Security. And they're going to start
39:39
asking serious questions about how they can prepare for their
39:42
retirement. And the answer is going to be
39:45
invest in stocks. And that's going to put upward
39:47
pressure on stock prices. Yeah, that's right.
39:50
All of a sudden you're going to have a whole new generation of,
39:53
of of. Investors 3.
39:55
New generations, probably. Yeah, yeah.
39:59
And that's a good thing, right? But one of the side effects is
40:02
it means if you're in the market now, you get to ride that wave.
40:06
Yeah. And if you're not and you miss
40:08
it, you missed it. Yeah, I don't know.
40:11
We, we don't give stock advice. We're not.
40:13
We're not that kind of. No, no, no, no, no.
40:16
And don't take, don't take a stock advice.
40:18
When I talk about a stock market being a good place to be, I'm
40:21
talking about the long run. Yeah, 20 years. 30 years.
40:26
Take it all with a grain of salt because that's exactly what you
40:29
should do. But you know, as we look around
40:34
everywhere we look right now, there are there are bubbles
40:38
everywhere. Every asset class is in a bubble
40:42
right now. And you start to think, well, it
40:46
is in the nature of bubbles to pop.
40:48
That's why we refer to this as bubbles, because sooner or later
40:51
they pop. And I have no earthly idea which
40:56
one goes first or what time it starts happening.
41:00
But when it happens, it probably is going to happen all at once.
41:04
And that's going to be, that's going to be a miserable time for
41:09
a lot of people. Wait, yes and no.
41:12
I think I would imagine it's going to look like the the pop
41:18
back at the end of the.com era and I was actually in the
41:21
market. Exactly.
41:22
Right, that's exactly. Right.
41:23
And it was, you know, if you were in an aggressive stock
41:27
portfolio, you would have lost as I did at the time, about 50%.
41:32
And then when I say lost 50%, what I mean is, you know, it
41:36
went, it went down. I wasn't out the cash, the value
41:39
went down by 50%. But over the course of the next
41:42
10 years, it came back. So again, long run, you're,
41:46
you're doing well. If you're looking to make a buck
41:48
in 24 hours, don't talk to us. Or if you were looking to retire
41:52
that year. Yeah.
41:54
Or if you're looking to retire in the next one or two years,
41:57
that's a different. Story if you were, if you were
41:59
retiring that year and you lost 50% of your your portfolio, you
42:04
might not be retiring that year. Right, right, right.
42:08
Which happened backin.com. Yeah, a lot of people, older
42:11
people, went back to work. There are very stiff realities
42:15
underlying these things and I try, I try never to make light
42:19
of it because every time the market goes down significantly,
42:22
human lives are ruined. They are, but I think Americans
42:26
have learned something and I think they learned it.
42:30
I was there. It was back in 1987, the stock
42:34
market crash of 87, which was, which was around in magnitude.
42:39
It was around the same size as the stock market crash of 1929.
42:44
And whereas in 1929, Americans were new to to investing and
42:50
there weren't that many people invested in the stock market to
42:52
begin with. People panicked and they all
42:56
they want to do is get away from from markets, get away from
42:59
banks. But in 1987 they did the
43:02
reverse. They saw a buying opportunity.
43:04
They said, absolutely, I want in These are rock bottom prices.
43:09
And that current whole thing with six months later you never
43:11
would have known there had. Been a stock That's right, I I
43:14
got a better one for you. I was sitting on cash for my
43:18
children in their accounts and on September 11th, 2001, the
43:24
markets had a significant downturn.
43:28
Significant. And I hemmed it hard and waited
43:32
a couple of days and just plowed every dime I could find in Yep,
43:36
Yep. And and then walked away from it
43:38
and stopped thinking about it. Yep, that's that's the key.
43:42
Stop thinking about it. There was the buying
43:44
opportunity. Now I'm done.
43:48
It happens every now and again. It typically happens because
43:51
something horrible has happened typically.
43:56
And you know, I, I never want to make light of that.
43:59
You don't, you don't want to feel good about yourself getting
44:02
rich because people died, but that you know that that happens.
44:07
And in 87, generally people didn't panic, but there were a
44:11
few suicides. Yeah.
44:14
Right, people, people literally died because of it.
44:17
You know, I don't, I don't want to dishonor their memories in in
44:21
any way, because that is just a horrible thing, a horrible way
44:24
to go. But in in the long term, you're
44:27
absolutely right. And I think almost everybody I
44:29
knew at the time was fully aware that this was going to pass.
44:32
It's not a long term problem. Right.
44:35
Right. People didn't even know what the
44:37
technical issue even was. Right.
44:40
And it didn't seem to to break anybody's heart.
44:45
Six months later, it was like it never happened.
44:47
Yeah, it's really interesting. If you go to the data, look at
44:51
the economic data, you know, unemployment, GDP growth,
44:55
whatever it is you want to look at.
44:56
Of course, the stock market, if you look on a monthly or
45:00
quarterly basis, you'll see the crash of 87.
45:05
But if you're looking annual data, you won't see it because
45:09
it crashed and corrected within a period less than 12 months.
45:13
Yeah. I'm just wondering where we're
45:16
going to see the the fissures first.
45:20
That's a good question. I, I don't think my gut, my gut
45:24
tells me it's going to be real estate.
45:28
I was going to say real estate. Yeah, Yeah.
45:31
I think, I think that's where people get the most nervous and
45:35
make mistakes, both buying and selling.
45:38
And I I think in the aggregate we see it there first.
45:43
I yeah, I agree with you for that.
45:45
And I'll throw in one other that real estate is subject to two
45:50
prices, not just one. One is the price of the house,
45:53
of course. The other is the mortgage rate
45:55
and if interest, if mortgage rates start, start to climb,
45:59
that's going to make people skittish, just like house
46:02
housing prices climbing. There's an inverse relationship,
46:05
but the higher the mortgage rate goes, the lower the price has to
46:08
get. Yeah, one would hope.
46:10
Yeah. Yeah.
46:11
That's just how it is. People have X dollars a month
46:14
that they can afford to spend on housing.
46:16
Can't get around that. So I, I think housing, I, I, I
46:20
also think probably Bitcoin is due for some kind of
46:26
catastrophe. You know, maybe, maybe it's just
46:30
wishful thinking on my part. Bitcoin has consistently
46:34
surprised me over many, many years.
46:37
Me too, I wish to God I had heard of it when it first came
46:40
out. I.
46:42
Yeah. I didn't, and by the time I
46:44
heard of it I thought, well, way too expensive for me now.
46:48
I, I heard about that and I, I have to thank our, our dear
46:53
friend Steve Horwitz. I was visiting him.
46:57
He had invited me to give a talk.
47:00
He was somewhere in upstate New York.
47:03
Nonetheless, I yeah, yeah, I was at his university giving a talk
47:07
and I'm sitting in his office and we start talking about
47:10
Bitcoin because Bitcoin had been a there were rumblings of it.
47:13
And I said, have you messed with it?
47:14
No, I haven't messed with it, but I really should, blah, blah,
47:16
blah. And anyway, as a result of that
47:18
conversation, I said heck with it, I'm going to put $100 in.
47:23
And so I bought $100 worth of Bitcoin.
47:26
Bitcoin was at $200 at the time. All I know, and I, I got half a
47:33
Bitcoin. I, I, I, I don't feel right even
47:38
sharing this with our listeners. But had I been on the right side
47:43
of Bitcoin enough to buy three of them at any point, my entire
47:48
life would be different right now.
47:50
Yeah, yeah, my, my entire life would be different right now if
47:54
I bought three of these damn things that used to cost
47:57
pennies. Well, I try not to.
48:00
I try not to get lost in that thought.
48:02
Once Upon a time, I owned 11 Bitcoin, yes.
48:07
And, and what did I do? I got scared.
48:10
I thought, Oh no, it's going to crash.
48:14
And it did crash, but then it came back.
48:17
But of course, you know it came back after I had sold my 11
48:20
bitcoins. For for me, I'm afraid that ship
48:23
has sailed. I hope that whatever the next
48:26
goddamn thing is, I could figure it out before it's too late.
48:30
But given the nature of things, it's probably not going to go
48:33
that way. But you know, if if you're out
48:36
there and you have 3 bitcoins and you want to change your life
48:38
completely, you look me up until then, which is probably, I'm
48:43
just guessing, never. We'll try to keep.
48:47
You a happy thought. We're trying not to get too
48:50
despondent over what has occurred.
48:53
And you know, I think ultimately ain't you're right about all,
48:56
most or all of of this. And you know, as is your custom,
49:01
you, you usually write about most things.
49:03
We don't run our mouths too much about things we're wrong about.
49:08
It happens, but doesn't happen often.
49:11
I am. Both.
49:13
Uplifted and deflated at the same moment by everything you've
49:17
just said today. So I I guess you've done your
49:19
job relatively well. And now, as usual, we wait until
49:24
then, be nice to each other and and I'll.
49:26
Catch you next time. See you next time, James, by
49:29
words and numbers. We spend a lot of time talking
49:31
about what's going on in the economy and the government, but
49:34
fundamentally, all of this boils down to one thing.
49:37
The greatest threat facing modern society is a lack of
49:41
respect, that people who disagree somehow find it
49:44
difficult, if not impossible, to discuss their differences in a
49:48
civil manner. We at Civil are interested in
49:51
upgrading civilization by encouraging people to engage
49:54
with new ideas and ultimately engage civilly with each other.
49:58
If you share the this idea, please join us by subscribing at
50:01
civil.com.civl.com.