The Coming Economic Collapse & Crash | George Gammon.

it doesn't come with more government it

comes with less government denied denied

denied this is at 0% interest rates it's

distorting the ability to create more

goods and services is instead of going

long the 10-year he actually went long

with leverage on the 2-year I never

tried to figure out price Direction

never ever ever the information that

he's getting that he is not sharing with

the general public is not good he risks

re acceleration inflation he also risks

being Arthur Burns he h the nail on the

head it's it's all about Insider

information

welcome back to another episode of the

meet Kevin show today we have the honor

of interviewing and confronting George

thank you so much for being here you

know George was there for me when I was

in Cordon California trying to fight

Governor Gavin and you were behind the

scenes in The Green Room ready to

testify for me that's right thank you

for that no problem but now you have a

big warning and thank you something

weird is happening right now in the

economy and you just went live on it

catch us up what's what's going on well

it's all about something called the

yield curve so uh for your viewers I'm

sure they're probably somewhat familiar

with this but we look at the the

treasuries and you've got the one Monon

Treasury and you that goes all the way

out to a 30-year treasury so this is

what we would call the treasury curve

and what we have seen historically is

when it when it inverts what that means

is the long-term interest rates are

actually lower than short-term interest

rates which is the opposite of what they

should be right because if I'm going to

lend you $1,000 for two weeks sure I'm

going to charge you a much lower

interest rate I might even do it for

free right and unless compare that to if

I'm lending you that ,000 for 30 years

well now of a sudden I got a ton of risk

I've got inflation risk I've got uh

counterparty risk and therefore I'm

going to charge you a much higher

interest rate so that's why you almost

always see longer term interest rates

much higher right it's just like if you

go to the bank and you have an

adjustable rate mortgage okay that's

going to be a lower interest rate than

if you have a fixed rate mortgage over

30 years it's the exact same concept

okay so what happens is when the 10-year

treasury yield goes lower than the

2-year treasury yield let's say this has

always been a red flag and what we've

seen going back to 1950 is almost every

single time that you get an inversion it

precedes a recession or in today's terms

a hard Landing how did they pull that

off in 19 we had the inversion in 19 but

the bond market couldn't have predicted

covid so would there just have been

another recession I think it did wow

yeah so there there's two there's two

ways of looking at that but but this is

a great point because the question

becomes okay if the inversion of the

curve has been so accurate how yeah H H

how has it been this accurate right

right and so I think you hit the nail on

the head it's it's all about Insider

information oh my gosh and so I just

talked to uh Jeff Snyder about this and

it makes a lot of sense and I think that

we can use Kenny maoy who is just here

as a perfect example so let's walk

through this thought experiment right in

2019 the curve inverted in August yeah

yeah it was like the sumary yeah right

so if you look at now all the reports of

when we likely got that leak out of

Wuhan the lab if that's what happened

I'm trying to keep it trying to keep it

YouTube friendly here come on man it it

was the B

bro right but assuming that that

happened reports now and even reports

that have come out by the the

politicians in the government Peg that

to August of 2019 so let's just think

this through okay and this is way I

thought like December and and no no

people were getting sick then already in

China you're right right because they

had those game the military games

remember the military games was

supposedly the first you know super

spreader event if you want to call it

that so would have had to come out prior

to that which you Peg it right around

August or so so and you know this well

from you know your attempt in in

politics there is that it's it's all

about insiders and they have access

Gavin Nome you we talked about this

earlier today he has access to all the

bankers in uh in California is that F

bailed out Silicon Valley Bank well I

think that but we're but we're getting

to a very crucial Point here so let's

think about this one of an example of a

financial Insider would be a Stan dren

Miller a Warren Buffett Paul tutor Jones

something like that right so George

Soros another great example yeah right

so these guys have tons of connections

obviously all over the world and

specifically in China so let's think

about this if it is true that this

leaked from a lab that

scientist that knows what happened and

know how bad that could be he's going to

get on the phone immediately with a

local politician wow right that

politician is going to call the next guy

up the next guy up is most likely going

to know a lot of Bankers those Bankers

are most likely going to know George

Soros or they're going to know Paul

tutor Jones so what that what they're

going to do is call Paul tutor Jones say

dude you need to really pay attention to

this so what's he going to do he's going

to hire or pay for one of his research

analysts to go out there to Wuhan

specifically and talk to that scientist

right so his research analy or whoever

works for him is going to go out there

talk to the scientist then when he talks

to the scientist he's going to get on

the phone with Paul and say dude th this

is real like like this could end the

world oh my God okay so then if you're

Paul tutor Jones what do you do you buy

treasuries you buy treasuries wow

because you're going to buy the most

safe and liquid asset available which

whether we like it or not is the the the

United States Treasury more specifically

the long end of the curve so why would

they buy the long end of the curve well

you know this your viewers might not but

if interest rates go down by

1% prices are going to go up by much

more if you own a 30-year Bond compared

to a one-month Bond right so if you're

out there looking for capital

appreciation or if you're just hedging

your portfolio yeah you're going to get

far more juice the further you go out

the yield curve so all the Paul tutor

Jones types start buying the long end

which makes interest rates come down

lower than the FED funds rate because

expecting

lower lower growth and inflation

expectations it go back to Irving fiser

right in the 1920s

1930s and so that's what this is all

about and in my

opinion that's why the curve has such

great predictive Powers it's because

these these they're just trading on

Insider

information right and that's why it's

always correct so another example I use

is just our good buddy Ken marroy or

even you you know how many doors do you

have right now oh we just started a real

estate fund I think we're now uh in

we're probably in total will'll be like

4550 doors or something like that okay

fantastic so let's just fast forward

here 10 years and I'm sure you're going

to be just as successful as Kenny marroy

so right now Kenny has 1.5 billion with

a B under management so let's just

assume for a moment that he has 100,000

apartment units okay well if there's a

guy that's going to have Insider

information as far as what rents are

doing yeah it's going to be Kenny maroy

of course all right so let's just assume

for a moment that there's an

ETF where you can

short rent rates at a national level

okay you can go short rent rates right

so if Kenny with all of his 100,000

apartment units sees uh rents going down

can't get the unit rented anymore has to

lower rents occupancy going down he sees

all this in real time he has this

Insider information that is legal but

it's still information that Wall Street

doesn't have yet and definitely the re

they're just listening to these CNBC

headlines where they're saying oh the

economy is booming and rents are going

up that's not what I'm seeing so I'm

going to go out there and hedge the

portfolio of multif Family Properties

that I have and I'm going to do so by

buying that ETF that goes up in value

when rents go down that's effectively

the 10-year treasury yield that's right

that's the 10-year treasury that's that

that the equivalent of the ETF that you

would buy to go long rents going down so

and what have you today so what we've

seen today is the 2-year treasury yield

plummet and why I mean plummet it's gone

it's down maybe 10 15 basis points and I

think it at the lowest point today it

got down to about

4.1 which is massive because just two

days ago is about

4.35 25 points so it's a 25 basis points

drop in two days now most people would

see that say oh I that's percentagewise

it's not that big of a deal but they

have to realize in the treasury market

that is huge and what's what ALS uh so

this is abnormal in other words that

movement absolutely abnormal and what

makes it even more bizarre is that

there's no news you know you had PPI

come out today that I think was a little

bit lower but that would not and CPI

yesterday a little hotter so it's kind

of like you it's like a wash yeah

exactly wash on so it it really wouldn't

explain the 25 basis point drop now

what's happened because of that 25 basis

point drop is it's gotten much closer

to the 10-year treasury yield because

all of us know that the curve has been

inverted for the last you know whatever

let's say 18 months or so right so now

what's happening is we're seeing that

uninversity has preceded every single

recession that we've had but we don't

usually have the recession when the

curve is still inverted we have the

recession after the curve uninverted

and we're about to so well we got a lot

closer over the last two days and it's

looking like it's going to uninverted

why that's important to retail investors

is you realize that once that curve

inverts now what we also need to talk

about is the bull steepener versus the

bare steepener which we were discussing

earlier because that would be a big

signal that you this we're either

confirming the action or it's disproving

so I and I want to go into that if I can

I want to pick up on this too is it

possible uh that the ten is falling

because people are convinced our rates

are going to come down so they want to

lock in those rates longer so they're

buying the 10 year more than they're

buying the two or could there be a

logical EXP explanation outside of

recession um well let's think that

through because uh long-term interest

rates are future

growth and inflation expectations which

seem to be low now right so let's just

assume for a moment that the 10-year

treasury yield was coming down just

simply because people thought that the

FED did a great job and rates come right

exactly and that rates are coming back

down or excuse me the CPI is coming back

down to 2% the fed's Target Mission

Accomplished mission accomplished that's

right and therefore the FED is going to

drop rates down to let's say 3.5% and we

got unemployment at 3.5 and that's going

to allow the economy to go ahead and

boom further we got stock market at

alltime highs this is pretty much the

narrative that you see okay well in that

scenario it is true that inflation would

come down but what would happen to

growth expectations well I guess longer

term would probably stabilize lower uh

well future growth expectations would

increase uh because because you're

dodging a recession you mean sorry I was

thinking the dropping of the 10-year uh

yield that maybe we're not looking at

the 5% GDP growth for example we had

estimated in last quarter but so there's

two components there there's two

components so what we've got to

compartmentalize is the uh the the

growth expectations and inflation

expectations so what you're talking

about is inflation expectations going

back down right to uh 2% and this is

what is allowing the FED to drop rates

from

5.25% let's say down to 4 or 3.5

something that would be far more

accommodative though the real tightness

stays the same so to speak as those

inflation but those interest rates would

be more accommodative let's just say for

the real economy now of a sudden people

can get mortgages at a cheaper rate

people can borrow money for cars at a

cheaper R pay later yeah they can do all

these things and it it really uh uh

releases a lot of the pressure and some

of the commercial real estate and maybe

some of the banking issues that we saw

in 2023 and March and whatnot so in that

scenario it is true that the FED could

drop rates if inflation is coming back

down closer to their target but what's

also going to happen in that environment

theoretically is growth expectations

would also go up right right okay I see

what you're saying now yes yes

absolutely so it's it's it's not just

one or the other it's the combination of

both okay you see so so if yields are

going down which is what we're seeing on

the 10year treasury and mind you we

talked about the 2-year tanking well

yields on the 10year treasury have gone

down as well just at a slower rate I see

okay okay so your argument to to

streamline it for the viewers would be

uh hey what we're seeing right now is

that the 10 years dropping while the

two's dropping but wait a minute if we

thought the economy was about to Boom

then we would think the 10 years should

be going up boom Now counter question

would be what if uh people think the

economy is going to Boom with next to

zero inflation just to go extreme for a

moment on on the argument if people

thought well we'll have you know strong

economy at maybe 2 and a half% growth or

whatever with inflation at zero or half

a percent below the fed's target could

you see both yields drop in that case

yeah what you'd see there is you'd see

that you'd see a nice upward sloping

yield curve you'd see a normalization

yeah which we're kind of trending back

towards now no the 10 years's going down

remember the 10e uh this both going down

still yeah I mean just a few couple

months ago the 10e treasury was over 5%

yes and now it's at 3.9 B did you see

that play you know Bill Amman he he he

did the what was it he's been he's been

complaining that the uh tenure was going

to go above 5% so what he did is he

shorted treasuries uh heavily and we

talked about it nonstop on social and so

he's like it's going to go well past 5%

is what he said as soon as it got to 4.9

wow these are a deal covers goes long

the treasuries oh smart well he I think

he played it yeah yeah yeah I think

you're better off kind of listen to dren

Miller than Atman but if you look at

what dren Miller did that was I think

that was really genius as far as that

trade and what he did is instead of

going long the tenear he actually went

long with leverage on the two-year ah

because he expected the two would fall

so much faster the yield therefore the

bond price up not only that but he also

saw a little bit more risk at the long

end because of the deficits and because

of the supply side of the treasuries

yeah that's a good point so that that

was really a kind of a genius as you

would expect from from Dr and yeah of

course yeah but it it goes back to if if

the market the the bond market was

expecting a no Landing type scenario

with what you're saying the 10year

treasury yield would be going up as the

as the FED funds rate comes down so

therefore You' get to that uninversity

front end maybe coming down slightly but

the long end going up more so than the

front end which which so then what you'd

have is let's just say the FED funds

right around

4.5% right and then which would be 75

basis point cut and that's what they're

saying three uh three Cuts right now

sure but then the 10e treasury would not

be going sorry five or whatever yeah the

10year treasury would not be going down

to 3.9% it would be going from 5% you

know higher it would be going higher you

know it would be going up six maybe

6.5% if if if it was projecting even

lower inflation but yet much more growth

that is interesting so so maybe a more

normal curve might look like that okay

fed funds the two-year aligns with that

you go four and a half you go say six

and a half on the 10 so we've got a two

spread here and 30 would be higher yeah

exact even higher exactly so you've got

your normal yield curve now and if it

was infl and now let's talk about if it

was predicting a no Landing okay with a

reacceleration in inflation okay then

you would see it even steeper even

steeper of that curve that's right then

the 10 year it would be screaming higher

sure because it's now uh you've got

you've got the growth expectations

higher and then you've got the inflation

expectations higher is there a chance

that so we have this like you mentioned

would be normal let's say 4 and a half

to 6 and a half let's say yeah is there

a chance we just to go extreme pull both

sides down 4% and so you're half% on the

two and 2 and a half on the 10e and

that's what we're marching towards right

so it's always possible you know I like

to remind people that there are no

certainties that's in this world

there're only probabilities what would

that

mean deflation uh no now what I mean

what you're talking about there is first

of all the FED funds rate is at what

5.25% it have to go to zero yeah well it

would have to go down to uh let's just

say the 10e goes from 3.9 because when

the FED is decreasing rates it I I don't

know that there has been a time in

history where the 10 years's actually

gone up you know straight up as the

fed's dropping rates because usually

when the fed's not usually when the FED

is dropping rates it's doing so to

prevent a recession a recession or

crisis right they're always behind the

curve oh for sure I think if they miss

here on jobs and we start having a

self-fulfilling layoff cycle we're deep

in a recession yeah and remember that

that jobs is always a lagging indicator

super laggy that's the problem once you

have that it's too late yeah if you

actually look at the

Lei uh which is the leading economic

index and that was the the conference

board or some I forgot the entity that

puts that out but you see that when it

gets past ne4 we've always been in a

recession not just predicting one and

now we're at Nega 8 and then if you look

at GDI compared to GDP we see that g in

fact E I did a video on this the other

day that the FED I went to their website

and saw a report that they gave in 2016

where they themselves argued that the

GDI was a far better predictor of

economic growth or economic recession

than the GDP itself and right now you

have GDI negative and you have GDP going

up there's a there's a there's um uh

there's a Delta there sure right and the

only time that we've seen that

Divergence with GDP and GDI was just

prior to uh the GFC wow that's that's a

a pretty big crash that's not even a as

they say the shallow recession yeah but

another thing I think your viewers might

want to contemplate is you know this

whole Drome pal pivot thing yeah okay I

I think we need to and a lot of people

assume that hey well if interest rates

are coming back down well that's going

to be fantastic that's going to be great

for the economy that's going to be great

for the stock market but what they're

forgetting to ask themselves is wire

rates coming down well Jerome pow's

argument would be that inflation is

falling right EX exactly but let's think

that one through okay okay okay so if

you're Jerome pal you're 65 you're 70

years old you're worth $100 million the

only thing that you're really cared

about you really care about right now or

your number one priority would be your

legacy yeah reputation absolutely right

so you know that history is going to

remember you one of two ways Aaron Burr

or Paul

vulker yeah no well you're either going

to be um uh a hero or a loser that's

right yeah that's right simple so you

want to be

uh Paul vulker yeah exactly you do not

want to be Arthur Burns Arthur Burns I

said Aon my bad no problem you don't

want to be Arthur Burns right so let's

think about the scenarios here you've

got no Landing you've got soft landing

and you've got hard Landing well what's

interesting is if you look at the

incentives involved here Drome pal has

every incentive for a hard Landing what

because well if if we have a hard

Landing then history remembers him as

Paul vulker who solved inflation and

comes and bails it out well that solved

inflation by creating a recession right

yeah ex terrible that's how history

remembers Paul vulker he had the balls

to do what no one else was willing to do

and make the tough decisions to take

rates high enough to break the back of

inflation even though it created an

economic recession that's now right or

wrong that's how history remembers yeah

that's true Paul vulker but it's also

scary because it creates that hardship

of joblessness

and it does but let's just look at it

through the lens of Legacy and the

incentive just for one man that at the

end of the day is a human being and is

flawed just like any of us so you think

he's incentivized to cause a recession

when but then we had such high inflation

expectations which we don't today but

but let okay now you're getting on

you're getting to the next Point here

okay so that's the the the the hard

Landing okay Paul

vulker if we just look at it through

that lens is remembered as a hero yes

okay we can age yes so soft Landing he's

most likely also remembered as a hero

but where he's got risk is the no

Landing because the no Landing what he

risks is a reacceleration in inflation

and if he risks re acceleration

inflation he also risks being Arthur

Burns yes yes yes so let's just assume

for a moment that that's his main driver

that's his don't be Arthur don't be

Arthur Burns so then you got to ask

yourself what would it take to Pivot

when inflation is still above your 2%

Target right right on the on the annual

basis yeah what that in my view that

means that the information that he's

getting that he is not sharing with the

general public is is not good I agree

because you're you're essentially

arguing he's seeing that softness at

small business contacts that Insider

information he calling up the Warren

buffets the business owners the owners

of whatever all The Insider info he's on

the phone

going oh we may have gone too far yeah

and they've got the beige book I don't

know if you've done a video on that but

the the most recent uh beige book and if

that's their surveys and talking to

people with the regional yeah with the

regional Banks right uh that's their

surveys so it's all anecdotal but that's

The Insider information that you're

talking about and if you that too if you

look at the well but did you look at the

summ

area New York Philadelphia you look at

the most recent summaries they're all

it's getting bad it's getting bad it's

that's pretty much the summary from

every single one of these Regional Banks

is that unemployment it it's getting or

the employment picture it's all these

things are turning so when you combine

that with the Lei and I also think that

drone pal is looking at their markets

because we have to understand that this

is a globally connected economy and the

probability that we have a recession in

Europe a recession in Japan a recession

in China and we somehow avoid a

recession that the probability is

incredibly incredibly low because of how

Global the economy is right now and I

would argue how Global the monetary

system is yes right because we have to

understand coordinated yeah the banks

create liquidity right so if you have a

problem in the the the global banking

Network that we call the euro dollar

system and if that problem is created by

China well that's still going to spill

over into the United States economy you

say well George why should we care about

liquidity well ask Silicon Valley Bank

if they care about liquidity you see

yeah well and and drum power turned on

the money printer for that pretty fast

huh well they look at the btfp that's

another great point right 13 40 m

billion now and it's going straight up

and they're they're saying that it's

because of an Arbitrage but always half

the explanation they're giving yeah so

what they're saying because the interest

rate on

btfp is is some esoteric spread I think

it's the one year forward swap spread

something like that the cost on that

yeah yeah okay and it so it's that

interest rate plus 10 basis points

that's what the FED is charging for btfp

but on I which is what they pay on Bank

Reserves it's still 5.25% so what's

happen is inflation or excuse me when

interest rates the expectation for fed

funds goes down now of a sudden in

November there was this Arbitrage

opportunity because the the btfp rate

went down to let's say 4.9% but they

could still get 5.25 at I so why not

just borrow from the fed and just park

the funds there and pocket the spread

it's a one-year loan and so uh and and

the program expires soon too so you may

as well use it now the question is and

it's a question for you are they just

going to extend it because they're

certainly not going to call it all due

at that moment and just have a banking

crisis again drone doesn't want that I

absolutely agree okay well that if he

was worried about inflation that would

be one way to tackle it yeah just

collaps the banks kind of crazy to think

they have the power to do that but uh

yeah but but let's focus because I want

to focus on that just for a moment

because if you listen to the mainstream

media you'll hear that it's all about

this Arbitrage which could be true but

the reason I'm skeptical there is

because when Silicon Valley Bank and

First Republic and signature uh and

let's not forget about credit s when

they when they went busted back in March

of 2023 they set up this btfp and the

utilization went straight to about 60

billion about two weeks yeah and so then

what you would expect if you listen to

the mainstream media is that it went

straight back down to zero because

obviously the problem was solved right

the the clever fed came in and with

their all their tools and whatnot and

magically just kind of papered over the

problem yeah so then what happened is

November the Arbitrage opportunity so

the big question in my mind is okay what

what happened between April and November

M uh did the btfp go down no to your

point it went straight up still so you

cannot explain the parabolic move in the

btfp lately just through the Arbitrage

when it was going up between April to

November when there was no Arbitrage

opportunity in other words probably some

additional residual stress is occurring

or starting to occur where banks that

weren't part of the program which

honestly probably looks like a little

bit like a black mark like if you're a

bank and you're showing up at the btfp

window or whatever it's like the

discount window yeah it's like that's

embarrassing yeah that's right there's a

stigma to it yeah and and that stigma is

not good moving forward when you need to

do business with all these other Banks

and your liquidity needs will be

provided by these Banks obviously when

you look at the risk reward it's not

just about the Arbitrage of course yeah

no kidding so that's really interesting

so um okay well in that case uh there

are now estimates that forget uh you

know waiting on rate Cuts you know we're

going to start getting them in March uh

and who says they have to be 25 bips we

could be three rate Cuts but they could

be 50 each what's your take of of that

point of view that we're actually going

to get larger more rapid Cuts quickly

and then that would obviously suggest

more problems

yeah yeah because what people don't

understand is that most often lower

interest rates means tighter money yeah

not looser money well sure because Banks

stop Lending that's right well everybody

thinks oh I'm going to get rich again

when when there's a recession in fact

like you have this like Tik Tock

mentality where everybody is like

begging for a depression which I I I

don't know I want your opinion on but I

think it's crazy because you know we

look at like the last depressions were

you know the early 1920s and the end of

the 1920s horrible Economic Times sure

we had the social Awakening of the

Roaring 20s in the middle but

depressions are horrible for people but

prices come down and I think that's what

people are focusing on now it's like oh

we want prices to come down again yeah

you got to be careful what you wish for

yeah right because we had interest rates

come down during the GFC and that didn't

exactly stimulate Demand right because

you had a job and and by the way it's

not like uh you know credit was free

flowing I'll give you an example I I got

into real estate investing in

2012 and uh I retired and I just wanted

to manage my own money so I thought okay

well what's cheap right now you know my

favorite investor is Jim Rogers still is

so one of Jim Rogers rules is just buy

low sell High

which sounds easy but it's actually kind

of hard to it's extrem

hard so I looked around I thought that

real estate was cheap so what I did is I

basically took my my life savings and I

started buying all these rental

properties in the midwest wow and I was

buying these literally for about 50

Grand and then my models i' and this is

in good neighborhoods which Kansas City

okay yeah on the Missouri side of Kansas

City and Le Summit and uh and Blue

Springs and whatnot would you still buy

there today um no because I've been

selling since

2018 because that that goes to my rule

that you I never try to figure out price

Direction okay okay never ever ever okay

I just start by asking myself is it

cheap or is it expensive if it's cheap I

buy it if it's expensive I sell it even

if I think prices are going to continue

to go up it doesn't matter CU I'm not

trying to time the bottom I'm not trying

to time the top and we can get into what

I bought in March of 2020 the exact same

concept I bought oil but I thought in

this was maybe was at 20 I thought it

was going a lot lower I thought it was

going down to 10 maybe even five but I

started buying around 20 because the

rule is you buy when it's cheap negative

for a period of time that's Nega 38

that's right and so but then I started

selling around 80 85 even though I

thought the prices were going to

continue to go up sure could go 12 at

that point you know ad justed for

inflation historically speaking it got

to the point where it was expensive but

my point there is I bought all these

properties Kevin cash yeah cash cash

cash so I had this portfolio of let's

say 15 rental properties that I put

renters in you know I'm in it for maybe

75,000 a pop I'm collecting

$1,100 a month in rent I have no debt

none it's all well with the exception of

the EXP property taxes and yeah that's

30% whatever all positive cash flow

exactly right so now let's it's maybe

mid 2013 or something like that I I am

the perfect borrower the perfect

borrower oh of course credit score you

know whatever it is and so I go to the

banks I'm like look I've got all this

Equity can I at least get just maybe

like a line of credit I don't even know

if I'll use it no no just denied denied

denied denied denied I'm like how about

just like a 40% LTV yeah yeah no denied

denied denied this is at 0% interest

rates so this is an example of how

interest rates can be very very money

can be cheap but it can also be

extremely tight of course

money is tight it's very difficult to

have an an expansion or a substantial

significant suspension in uh expansion

in the overall economy and so that's

what people you got to be careful what

you wish for uh if interest rates go

back to zero people think that it's

going to be boom time but they forget to

ask the question well why are rates at

zero interesting well because

inflation's going to go away and we're

going to fight deflation right but so

then my argument believe well so here's

my argument there if okay so people

assume that 0% interest rates are normal

well and they also assume that that

let's say fed funds right now at 5.25%

they also assume that that's high

interest rates right right just based on

recent memory sure no what are you no

this is normal this is normal so if

inflation comes back down to 2% right

and the economy is doing well why would

the FED drop rates has to be a problem

that why would they they wouldn't drop

rates they'd keep rates right about

where they are because historically this

is about average so if you've got a nice

a good structurally sound economy that

was growing at a nice clip if you got

unemployment at let's say 3.5% if you've

got all these things that are acting as

Tailwinds for the economy and the

economy is very very healthy you know

running on all eight cylinders cut

exactly you would expect you would

expect fed funds to be right around 5 or

5.25%

so what if they see 2% deflation and

that's why they're cunning okay so then

you have to ask yourself if we have 2%

def not disinflation right correct

deflation what does that mean for asset

prices and what does that mean for the

economy keep in mind we have not seen 2%

deflation since the Great Depression

right this is true right actually I I

take that back we I we saw it

1949 because in the 1940s going into the

War um it was just prior to that so what

happened is we got out of the war we had

price controls and then when they lifted

the price controls uh in 47 the CPI went

to

19% and then it went just just parabolic

straight up to 19% and then two years

later was actually negative yeah but

like you go up 20% and down 2% like who

cares yeah so prices are still a lot

higher Agate total but we did have a

period of not just disinflation and that

would imply that you have lower and

lower rates of inflation but we actually

saw prices go down and it was right

right around 3% but if you go to 2009

right people forget that we did have a

quarter of actual deflation in 2009 but

it is very very quick so I do not expect

uh 2024 overall even if we do have a

hard Landing to result in in massive

deflation because I think the central

planners will come in and do more of

what they did in uh yeah in 2020 or

something like that which takes us to

the next wave of consumer price

inflation and that's why my good friend

and business partner Lynn Alden uh she's

been talking about this for a couple

years that her base case is that the

2020s isn't necessarily the 1970s but it

looks a lot more like the 1940s oh

interesting where inflation is just this

big roller coaster ride depending on

what fiscal policy looks like oh well

they're so good at balancing the budget

right now we should be wait yeah no I

mean it's I think we went from stimulus

checks in the 20 1920 or sorry uh in the

2020 year in 2021 to basically corporate

stimulus checks now it's all the you

know the inflation reduction act the

chips act here we'll subsidize the

factories I mean what do you think about

that yeah I mean the

btfp is is basically a stimy check for

for banks yeah gav's Bank yeah but I I

think that people will probably see

stimy checks again oh really you think

they they'll go back to that y uh like

Ubi or just straight I think where this

leads now whether it's 2024 in the next

5 years I have no clue but my base case

again just probabilities here is that we

land with in Ubi territory uh we land in

price controls oh wow and we land in in

cbdc because I think that's how they

they issue the uh the Ubi because the

fed's balance sheet is is infinite and I

think that they're going to try to

control inflation through the extension

of credit uh because if you have if

you're doing uh PPP and stimy checks

let's say right you know that that's

going to create inflation if you don't

offset it with a decline in Bank lending

okay another way to look at it yes sure

that's interest because we're just

looking at through the lens of M2 so if

M2 is going up as a result of the FED

we'll just call it you know I don't like

the term but printing money you know

because they're giving stimy checks and

it's it's basically on the fed's balance

sheet the liability of the FED uh then

you see M2 more currency units chasing

goods and services this is inflationary

the way that you combat that say Okay

Banks you are going to start lending

less sure right so you tighten the

velocity basically yeah so veloc well

velocity would probably uh increase but

you'd have M2 money supply go up because

what you're doing in the stemy checks is

is you're increasing velocity because

you're putting a lot more of the M2

money supply into checking accounts

which are a lot like a lot more likely

for people to go out there and spend

than Investments Investments have a

velocity of like two whereas money in

your savings is like four or five yeah

the way and I know that gets a little

complex for for the viewer but the

easiest way to look at this is let's

just say that uh the treasury deficit

spends by uh not doing um you know the

fed's balance sheet or something like

but printing money but let's just say

they do that by borrowing money sure

okay so you're an investor you want to

buy a 10-year treasury something like

that so so you've got an excess of of

your your your productivity you've got

savings right well that savings you're

not using that to buy Big Macs or buy

your kids diapers or anything like that

right you're that's your savings so by

definition it's very low velocity y so

you say look I'm getting 2% on my

savings why would I not want to get 5.5%

in a 3-month treasury and just roll it

over so I'm going to go ahead and take

this money from my savings and I'm going

to lend it to Janet Yellen right I'm

going to lend it that buying a treasury

exactly okay so then Janet Yellen takes

that money and says okay what we're

going to do is we're going to spend this

on stimulus checks so what has happened

is that let's just say ,000 has gone

from your savings account with zero

velocity and it's ended up in someone's

checking account with very high velocity

so that's how you can get an increase of

consumer price inflation even though

you're not doing you know even though

you're not quote unquote money printing

yeah that's fair I I guess if you

tighten lending though there's going to

be a limit to how often probably that

same dollar can roll over because you

can't leverage it supposedly but I see

what you're saying like it should it

should go up so then the question is is

there huh is it so really this all

starts with a two-year the twoyear

plummeting and there are really I see

two choices uh one is something's really

wrong which probably things have started

to turn I agree with that uh the second

is there's It's a combination where

things have started to turn and maybe

through whatever lens the FED is looking

at it they see inflation as solved is is

that a possibility in your opinion it is

definitely a possibility but again we we

look at it through the lens of Arthur

Burns and Paul vulker so even if the FED

thinks that inflation is solved why

would they drop rates interesting if the

economy was healthy and they're and and

in their view they're looking out into

the future and saying well this is

fantastic look at this Trend we've gone

from 9% CPI all the way down to 3% and

you know PPI today comes in a little bit

low so we can assume that it's going to

continue down to 2% but the economy is

running on all eight cylinders in that

environment there is no need to drop

rates interesting why would you drop

rates the the the only reason you drop

rates is because the economy is not

healthy now now now if interest rates

were 15 % then I think you got a great

argument because interest rates are high

but 5.25% that's not high interest rates

that those are normal interest rates so

do you believe that a stronger economy

will definitely induce inflation when

they cut rates

again so let's our hypothetical is that

they cut rates and we have a strong

economy yeah why why would it produce

Consumer Price

inflation

well the main reason that's going to

produce Consumer Price inflation is or

at least inflation would re accelerate

right is because what's happening there

is you've got the banks now saying this

is fantastic okay we were worried about

this whole disinflation we are worried

about recession now we have this bailout

this is great news so we're going to

start lending again and we're going to

start lending into the economy we're

going to start lending into the

financial economy and then what you

would expect is something like the 1970s

where the M2 money supply goes up and up

and up because future growth and

inflation expectations are going up and

up and up now if that was the case again

the 10-year treasury yield would be

getting ahead of that it should be

showing that now it should be showing

that now right by going that's

absolutely right so I I think again that

that's that's a a possibility yeah right

that we somehow have this uh Magic like

Cinderella Story where growth Immaculate

disinflation yes yeah yeah where growth

just starts to to boom and then

inflation at the same time does come

down let's just say that was all supply

side stuff but then again that the FED

would not drop rates in that environment

because he's risking Arthur Burns and a

re acceleration of inflation it's a risk

it doesn't mean that it would happen or

it would pan out but it's you're risking

that so is it is there this weird

possibility that I and I try to look I

always try to think about the business

and like the individual uh individual

participants in the economy there were a

lot of businesses that were really

frustrated during covid that they had

all of this demand that they couldn't

fill yeah because the supply chains are

too tight but they were set for a normal

you know 2018 economy not a 2021 economy

so then over the 22 3 4 period we see

this massive expansion essentially of

manufacturing capabilities with

substantially lower demand doesn't that

mean we have this potential empty

ballast almost to where you could

substantially increase demand for Supply

chains that are now substantially

stronger and more stable hopefully

potentially so that you can actually

have real GDP growth without

inflation well first of all I think if

they solve the supply side issue that uh

CPI wouldn't be at 3% I see I think it'

already be quite uh a bit lower so it'd

be falling a lot faster you think yeah

because we have more goods and services

okay right let's remember that that

deflation can be a bad thing but it can

also be a great thing sure and in a free

market well everything should deflate

that's right that's absolutely right but

I don't think they want that because

that makes their debt more expensive to

pay off yeah it makes their debt more

expensive I I don't

know that's a whole separate topic I I

don't know if we're at a point right now

even though the debts at 34 trillion I I

don't believe it or not I I I don't know

that uh the debt in and of itself is a

problem for the government right now why

because there's plenty of demand for

treasuries if there wasn't a lot of

demand for the treasuries the 10e

wouldn't be at 3.9 twoyear wouldn't be

collapsing in yield in other words

skyrocketing in price yes good point so

there's obviously a ton of demand and

it's not like the bond market doesn't

know that we're running these wartime

deficits it's not like the bond market

doesn't know about all the off-balance

sheet liabilities it's not a meme stock

you're saying no no PA Jones George

Soros they get it yeah yeah exactly they

the financial insiders they get it and

they're still uh buying the long and

you're saying they're not worried about

the debt so we don't need to worry about

this like imminent debt collapse it's

bad but we don't have to worry about

today yeah so what people need to

realize is what's bad about the debt

isn't necessarily the debt it's the

government

spending see the the the way the example

I always use is it's like a heroin

addict okay okay so a heroin addict can

have a credit card

and run up the balance on the credit

card to 100,000 buying heroin which

destroys their body destroys their mind

and destroys their soul right so we

could come in to that heroin addict and

say guess what we're going to take your

balance all the way down to zero so you

no longer have any debt I just spend it

again so is that a a problem solved or

is that an even bigger problem because

now he's going to go and do more of the

same what ruined him to begin with you

see that's exactly like government

spending it's not necessarily the debt

that's bad it's the government spending

which distorts the overall economy let

me give you another statistic here that

I think you'll find

interesting in the late 1880s we were on

a gold standard okay so let's take a

15-year time frame from 1880 to 1895

okay we had about 30 right thought my

head 30 to 40%

deflation deflation think about the

benefit that acrs to the poor and middle

class if we had prices going down by 40%

over a 10 or 15E period even if their

incomes aren't going up their purchasing

power is increasing massively and by the

way during that time nominal wages went

up sure not down well at the low end

yeah so if nominal wages are going up

and prices are going down best their

purchasing power for the poor middle

class is just going absolutely through

the roof right so this is 1880 to 1895

now let's fast forward gold standard

let's fast forward to when the Fiat

standard went bananas right Peak Fiat

Insanity from 2008 Q 2020 QE Infinity QT

QE the fed's balance sheet to 89

trillion you know M2 money supply went

up by 25% in 2020 yada you know s y y

together well no we did have inflation

expansion of the money supply inflation

but not no Consumer Price inflation if

you look compound nomal though if you

look at compounded inflation the CPI

from uh 2008 to 2023 it went up by right

around let's say 30 or 40% so about in

total in total sure sure so on an annual

basis what it was like 1.8% what so

let's say 2 3% compounded you're going

to get 30 or 40% after 15 years right or

whatever the math is but in and let's

rewind

to the late 1800s where you saw a about

the same amount of deflation let's just

say 30% 30% now what's fascinating about

that is that the M2 money supply the

amount of currency units chasing goods

and services went up in the 1800s that

15year time frame by 150% wow okay but

what will blow people's mind is that

from 2008 to 2023 on this Fiat standard

runam Muk it went up up by

150% the exact same that's very

interesting the exact same so then what

you have to do is you have to ask

yourself okay what was the Catalyst why

did one 15-year time frame have

deflation versus have deflation versus

inflation or said another way why did

one period benefit the poor in middle

class and the other period hurt the poor

in middle class yes I agree I've done a

lot of research on this and the one main

variable that I can find fat is no is

government spending as a percentage of

GDP oh interesting so if we look at the

1800s federal government spending was

about 5% of GDP said another way the

overall output of the entire Society

came from the private 95% of it came

from the private sector right where now

it's

50/50 so who spends money more

efficiently oh is it the government or

is it going to be the private sector

always the private sector always the

private sector so is it any surprise

that if the private sector represents

95% of the economy we have more goods

and services being created to the extent

where prices are going down even though

the money supply is going up at the

exact same rate see that's very

interesting you see so the main takeaway

here is what you have to do if we want

to create this Society that's going to

be more uh let's say friendly to the

poor and middle class it doesn't come

with more government it comes with less

government

because that 50% of government spending

to GDP all that's doing for the most

part is is distorting the economy it's

distorting the ability to create more

goods and services which will drop

prices and that's that benefit that acrs

uh disproportionately to the poor and

middle class right so so that's why the

debt in and of itself isn't really the

big problem it's the government spending

okay so is this a a a maybe depressing

but potentially real scenario to think

of the government won't fix its spending

problem the debt won't lead our economy

to collaps anytime in the near future so

instead the money printer continues to

circulate yeah we see the wealth Gap

substantially widen and if you don't

have assets you're getting left behind

yeah yeah yeah that's depressing and I

think you look at Japan Japan is kind of

a Playbook you know so what's really

interesting here

is you say okay well I I I get the

reference to Japan Japan's at what uh

230% debt to GDP right now the United

States is about 110 or 120 and I

understand that 34 trillion in debt is

is huge but could we be the next Japan

or what a lot of people would argue is

is the dollar going to turn into toilet

paper and we're going to go the way of

Argentina yeah so I think it's a very

fascinating juxtoposition because if you

look at the two central banks and the

two policies you know not now but back

uh when the hyperinflation in Argentina

was just getting started they had very

similar policies oh so how is it that

one economy produces deflation and the

other produces hyperinflation sure is it

a loss how do you know if the US is

headed towards Argentina or Japan I know

it's weird to think of like trust in in

Fiat but is it Rel it's Al relative is

it because uh of a loss of trust in the

institutions in Argent versus maybe

those of the bank of Japan I think that

has a lot to do with it okay and then

you have to ask yourself why does that

happen well corruption or spending yeah

and I think another thing

that's I've been wrestling with quite a

bit and I I haven't come to a definitive

conclusion on this but I think a large

part of it could be the way the currency

was created to begin with so hear me out

on this one your your viewers may find

this uh an interesting thought

experiment let's let's say that I lend

you a dollar and I do so by just taking

a a dollar bill out of my pocket and

giving it to you and then the next day

you're like you know what George I don't

need this dollar I'm going to go ahead

and pay you back so you give me that

dollar and we still have a

dollar that that we still have $1 so

when I gave you that money or lent it to

you M2 money supply did not change and

when you paid it back it didn't change

it still won now let's think about this

a different way let's Sam I'm your bank

no no okay fractional Reserve Bank and

you say Okay George I I want to borrow a

dollar yeah and I say Okay Kevin I lent

you that dollar how did I do that I

didn't give you a green piece of paper I

simply added a digit to your checking

account right zero so so now instead of

having zero in your checking account you

have $1 right right what did we just do

to M2 money supply well I mean you just

doubled it it increased yeah it

increased by $1 and it's like 10x

probably so then so then what happens is

the next day going through the exact

same example you say you know what I

don't want the dollar anymore I'm going

to pay you back so then when you pay me

back you don't give me a green piece of

paper I just simply change the balance

on your bank account from $1 back down

to zero where it started so you see

what's happened is those two scenarios I

lent you a dollar one scenario didn't do

anything to M2 money supply the other

scenario increased M2 and then it

decreased M2 so money was created and

money was destroyed yes just by the

process of lending and paying it back so

now let's think about it in terms of a

pie chart let's say this pie chart

represents 100% of the currency so 100%

of the yen in existence or 100% of the

Argentinian Pesos in existence and let's

just take into extreme for the thought

experiment and assume that 100% of the

Yen that exist were lent into existence

now let's assume that 100% of the argen

pesos that exist were printed literally

printed into existence so if demand goes

down for those Argentinian

Pesos there's still the same amount of

pesos yeah it's just you have the same

amount of Supply demand goes down so the

value theoretically most likely goes

down as well but with the Japanese

Yen if demand goes down for the Yen what

happens the debt is paid off therefore

the supply goes down

with the amount of demand interesting so

as demand goes down Supply goes down as

well because you're assuming that if

there was less demand for the Yen the

people still have the Yen debt they're

going to go ahead and pay off that debt

which decreases the amount of currency

units so you see how it's a complete

night and day difference based on the

pie chart and how much of the overall

currency has been lent into existence

compared to how much of the overall

currency was printed into existence if

you look at Argentina the majority of it

especially lately was them literally

just printing like like P pieces of

paper to send out where with Japan the

majority of it I would argue was was

lent into existence by the banking

system itself so I haven't that that's

not yet conclusive it's just something

I've been thinking about I've started to

research it and it seems that I could be

on to something there but that may

explain the difference between Japan and

arent and if it does then you have to

look at the pie chart for the United

States and the US dollar which would be

even more extreme sure sure than Japan

but it's an argument against stimulus

checks and for Bank lending

theoretically uh well stimulus checks

you know so how where are they coming

from right they could be coming from

just uh issuing debt that's taking

savings and turning into checking right

if we were giving stimi checks by by

what we did in

1862 and so I go back to that cuz that

the of the Civil War we had the legal

tender act and that was the last time as

far as I can tell that the United States

government actually printed green pieces

of paper to pay for bombs or bullets or

whatever they were they were paying for

right now the process is the government

would just go ahead and uh

and they would issue the debt and if

they if there was no one there to buy

the debt then the Federal Reserve would

come in like they did during World War

II and then they would go ahead and and

buy that so then the base money would go

up but then you're assuming broad money

goes up as well which may or may not be

true depending on who uh the the FED is

buying those treasuries from that gets a

little bit complex but the bottom line

is is they in World War II they weren't

literally printing green piece of paper

to buy bombs like they were in 1862 It's

All Digital now on a spreadsheet and the

FED just absorbs it all basically and

and that that that can make all the

difference in the world that can make

all the difference in the world that

little thing you think could be the

difference between Japan and argentin

yeah Ah that's very interesting wow uh

that's so okay then um brief uh

outlooks just what do you do what does

somebody do listen listen who's

listening right now you buy real estate

you wait uh for the real estate crash do

you you know buy stocks at alltime highs

or do you wait what do you do yeah so my

favorite investor of all time is Jim

Rogers and one of the reasons he's my

favorite is because he has a knack for

just putting things in the most simple

terms possible which at the beginning

when you first hear it it sounds

oversimplified but when you think about

it it's actually very profound okay the

very first interview that I heard with

Jim Rogers it was in the I believe the

original Market Wizards books with Jack

schwager which I'm sure you've read many

many times and he was talking to Jim

about his investment philosophy and how

he's made he's been so successful he

says all I do is just sit in my chair

and do

nothing and the guy says okay well well

how does that work he goes I he says

what the retail investor does is they're

always trying to do stuff yeah they

don't have enough patience so what I do

is I just sit my chair I do nothing and

I wait for a big pile of money sitting

in the corner and when I see it I go

pick it up and then I go back to my

chair and I just wait for the next pile

of money to appear in the corner and

I'll go pick that up as well and the

interim I don't do anything okay and I

think that's a great Philosophy for

people right now and the good news Kevin

is that we're we're in this time when

the curve is inverted so to time this

and to know what to do it's actually

pretty easy okay if if you believe if

your base case after listening to me and

looking at the yield curve is that this

time is not different yep and it'll

likely play out like it has pretty much

every single time since the 1950s all

you have to do as a retail investor is

sit back wait do nothing personally uh

I'm just in gold and t- bills okay just

the t- bill and chill type that's a

little different from the 801010 though

you've yeah so I I'm waiting to increase

and add to that 801010 by buying you're

waiting to strike you're 100%

essentially liquid because both gold and

T bills are essentially liquid to make

your Investments to go pick up the pile

yeah with my cash position you've got

the the main positions that you built

but with that cash position you're just

you're you're building up a lot of dry

powder you're getting paid 5.5% on that

and then what happens is I I'm looking

at the yield curve and it's not complex

all your viewers need to do is watch two

numbers the yield on the 2-year Treasury

and the yield on the 10e treasury and

subtract that's it that's it and all you

have to do is is just wait for that

2-year treasury yield to go down lower

than the 10-year treasury Now is it

going to immediately hit the fan no of

course not there's some timing there but

once you see that kind of it might just

dip and then go back down but once it

stays there for let's say a month or two

you know that that's the trend at that

point in time you have to realize that

that's usually when you have the hard

Landing that's usually month no not

within a month it could be 3 months 6

months something like that but we're

getting real close time to when the FED

will have to start and I said have to

start dropping rates I didn't say choose

to start dropping that's a big

difference I think the FED is going to

have to drop rates they not going to

choose to drop them and then what you do

is you sit back you you ask yourself

okay why is the Fed dropping rates is it

or why are we having this hard Landing

is it because of a war is it because

unemployment's going up is it because of

the Middle East is it you know why is it

here why is this happening and then you

make a decision you analyze and you make

a decision on what is cheap yep and what

is expensive and that's the pile of

money that's just sitting in the corner

so right now it it seems like all this

stuff is happening and it's so complex

but in my view this is the easy easiest

time uh to be an investor because all

you have to do is look is just sit back

you know build your cash position have

the dry powder be liquid be patient

watch the yield curve and then assess

once it's no longer inverted and then

take action wow that's really

interesting yeah I I agree with you that

that's very interesting but you know

what's interesting Kevin is is I spend

um I'm very fortunate that I've got a

lot of good friends of mine uh that are

in a place called St Barts okay and a

lot most of these guys were very very

successful hedge fund managers and

they've quite literally made billions of

dollars for themselves and their clients

and uh in in going there I I've just

gained a wealth of knowledge and the

last time that I was

there I had a conversation with with one

of my good good buddies that uh was just

crushed it in Japan and the com bus and

the GFC I mean he is one of the most

famous hedge fund manag I'm not going to

say his name but he's one of the most

famous hedge fund managers that we've

had in the last 40 years right and so

when he speaks you know obviously I'm

listening and uh we went through all of

these trades he's made where he's made

all this money and he said you know

what every 10 years or so you get a

generational

opportunity and then every two or maybe

three years you get a good opportunity

and then in between those you're kind of

doing nothing

he says but what I found is that with

those generational opportunities that I

have had whether it's Japan whether it's

doc whether it's GFC whether it's 2020

those have always been the best

investments of my life as far as return

but those have always been the hardest

to buy those have always been the

hardest to pull the trigger and so I'll

I'll give you and you can relate to this

cuz we were both doing YouTube during

the the pandemic and you know prior to

that I'm this is my Mantra buy things

when they're cheap sell them when

they're expensive buy them when they're

cheap sell them when they're expensive

buy them when they're cheap sell them

they expensive and I'm sitting there

doing YouTube channel or YouTube videos

on this daily right but then when oil

actually gets cheap was it easy to pull

the trigger absolutely not because

everyone thought the world was coming to

an end everybody thought the world was

coming to an end so you can sit there

now you know hindsight being 2020 and

say yeah look at me I was a genius

because I actually bought but I can tell

you being just as honest as I possibly

can be I did buy but it was one of the

toughest things that I have ever done in

my life Kevin we can sit here and say

how easy it is to buy low sell High the

problem is that when things get cheap

there's usually Panic yep panic and to

have the mental discipline to pull the

trigger is what's most difficult wow

that's really interesting wow yeah I I

mean I think the the the only way uh

because I agree with what you're saying

I think the only way the FED can weasle

their ways out of this is if Immaculate

disinflation and it doesn't come back up

I think that's the only thing that could

explain this other than

that and and just let me remind you if

that happens this time it's

different as we all know those are

dangerous words in inv yeah yeah wow wow

okay well very well so um how can people

find you oh they can just look at George

gamon I've got the Whiteboard videos on

the George gamon Channel So Good by the

way people love your thank you or they

can go check out the rebel capitalist

Channel Sally on there which is Moody

the millennial oh Moody the millennial

now Moody the millennial your friend and

family member Fred I I try to make all

this boring esoteric stuff fun but uh

yeah you could just Google my name and

you're going to find the Twitter you're

going to find everything George G thank

you so much hey thanks for having me

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