Right now, surprisingly robust economic growth of 4.9% is currently expected for Q3.
And inflation remains contained below 4%, less than half where it was a year ago.
This is great news, right? The economy has rebounded, the Fed is taming inflation, and we’ve dodged the risk of a recession.
Not really, warns Matthew Piepenburg of Matterhorn Asset Management, AG (proprietor of Goldswitzerland.com). In fact, this is a dangerously WRONG narrative that too many are swallowing right now.
To find out why, we’ll hear it straight from the man himself.
Matthew Piepenburg 0:00
inflation and deflation are not zero sum they, they’re cyclical, but the end result to bail out the system which is more important than the currency will be more mouseclick money and I and I can we can walk through the calendar and a compass and a map in every scenario in history going from ancient Rome to China to 1990s Yugoslavia why Mar Germany to Franco Spain to 1920s. America today whenever a system is at risk, and things start to fail, it is always the currency that is sacrificed to keep the powers that be in play, always without exception.
Adam Taggart 0:38
Welcome to Wealthion and Wealthion founder Adam Taggart right now surprisingly robust economic growth of 4.9% is currently expected for q3 and inflation remains contained below 4%. That’s less than half of where it was a year ago. Well, this is great news, right? The economy has rebounded, the Fed is taming inflation, and we’ve dodged the risk of a recession. Not really warrants, Matthew Piepenburg of Matterhorn asset management, the proprietor of gold switzerland.com. In fact, this is a dangerously wrong narrative that too many are swallowing right now to find out why. We’ll hear it straight from the man himself. Matt, thanks so much for joining us today.
Matthew Piepenburg 1:22
It’s good to be back at him. Right? It’s
Adam Taggart 1:25
always great to have you on the channel, Matt, you know, this is your second appearance, the first time you’re on the channel a couple of months ago. So nice to have met you very smart man. Turns out you and I have a lot in common we’ve similar alma mater, we were actually there overlapped while we were there, even though we didn’t know each other while we’re there on campus, my loss, obviously. But the response Matt was great, folks just really love that discussion. And they loved your articulate notice how you were able to sort of distill complex thoughts down into very understandable digestible terms for folks, your obvious intelligence, your experience. So I’m building you up a little bit here. But it really was genuine gratitude, and, and just, you know, a huge appreciation from the Wealthion. Audience. So I know those folks are going to be very excited to have you back here. For round two, I got a lot of questions for you based upon a recent piece you posted. But before I get to them, can we just start with the general question I’d like to kick these discussions off with? What’s your current assessment of the global economy and financial markets?
Matthew Piepenburg 2:26
It’s a great question. I should have been more prepared because you’re right, it’s the leadoff question. It’s important. I think, like last time, I remained amused and jaded, hopefully clear eyed, I think, to your earlier point, too, it’s, I think, for those of us who spend our time in the markets professionally, there’s a need really, frankly, an obligation to derive the simple from the complex. And now more than ever, I’m reminded of Patrick Moynihan, who had that famous quote that, you know, We’re all entitled to our own opinions, but not our own facts. And there was a great social critic kind of political critic, duchaine Stokes years ago who said, you know, when you’re when you’re questioning a system, or an oligarchy, or a financial structure, or political structure, and you’re looking for fraud, or Frank fragrant lies, you have to look at what’s not being discussed the sins of omission or, you know, the denial of certain facts. What I see right now at the global macro level, is really almost a, an orchestrated, choreographed Truman Show where it really obvious facts with mathematical implications that are really beyond debate, whether that’s about debt levels, or inflation, or recession or currency direction, longer term. And perhaps worst of all this prop delight debate about a harder a soft landing when I look at it, and we can get into this in more detail. The hard landings already there, the you know, the plane has crashed onto the runway, the front tires rolling down, the passengers are screaming from the fuselage, there’s nothing soft about the facts that I’m looking at right now, empirically. And in those facts are being omitted, they’re being in placed. Instead, I see from our policymakers left or right, because they’re really two stirrups to the same saddle. Instead, what we’re seeing are debates of matters of degree, like matters of degree of inflation or matters of degree about the next rate hike or cut, or matters of degree about D dollarization. But I think we need to keep it simple, stupid, because the stupid is very simple. And in that regard, it goes back to the theme we talked about that hasn’t changed, it’s only gotten worse, is debt. You know, when you have a debt to GDP that’s crossed the Rubicon of 100%. We’re now you know, dialing in at 120 Plus and when deficits are 9% of GDP, you know, you get to the point that Mohamed El Erian talked about when there are no good scenarios left. That’s that’s just a fact and that you have to then your system or your policymakers are forced to make a choice between saving the currency or saving the system is saving the bond market and particularly because the bond market impacts the equity market it impacts pensions it impacts financial markets and banks. And I think that is not precious metal gold, Switzerland, you know, executive out of Zurich who sells precious metals trying to sell fear. There’s a lot of that in the retail space and precious metals. It’s a lot of criticism that gold bugs are gold bulls are always gloom and doom. I think it’s not fair to be that way. There are exaggerations in our space. But the math in history is pretty basic, you know, from David Hume and 750 to the von Mises, at the turn of the century to Thomas Jefferson, in the 1830s. Ernest Hemingway, as we talked about debt does destroy nations, you can’t get around the fact that liquidity is what drives a nation and drives a market. When you hit debt levels that are unsustainable when you cross 120% debt to GDP growth becomes mathematically impossible. This is not discussed enough. So liquidity has to come from somewhere. And unfortunately, in our situation now, because of our debt levels, that liquidity in my opinion, hasn’t changed at all, will eventually come from a mouse clicker at the Eccles building the home of the world reserve currency where it’s created, mass produced and ultimately debased. And I think this is something I’ll close this point with monetary policy can be used to support bonds, you know, that can be through QE dovish, you know, the dovish QE policy and lower rates, or monetary policy can be used to support currencies that’s hawkish with higher rates and QT. But monetary policy can support both the bond market and the dollar at the same time or the currency the same time. And ultimately, my theme, which hasn’t changed and will not change, is it because of our debt situation, now there will have to be a choice made, we either saved the bond market, which means saved the system, because that’s tied to the equity markets to the financial markets and everything else. Or we let the currency you know, fall on its sword, and we sacrifice the currency to save the system. And that, as Luke Roman said, is inevitable. I don’t know what it means in the next 12 minutes or 12 months, I see that as inevitable. I see that as an inflationary end game, which is highly destructive to all of your viewers, whatever their economic class, whatever, there’s sophistication level, it’s an invisible tax on all of us, it will affect the middle class the hardest, but I don’t see any way around the monetization of our otherwise unsustainable debt. And I think that is incredibly mathematical and historical. And it’s not debatable or doom and gloom, precious metal gold executive from Switzerland. I think that is the hard end game that we’re looking at. And until either point, I think the soft landing hard landing debate is distorted, because we’re very, very much in a hard landing already. I’d love to talk about more of that.
Adam Taggart 7:53
All right, so many great points you brought up there. Like I said, I got a lot of points here from your your recent piece, which actually touches on a lot of these things. I maybe want to fast forward to the punch line to the discussion really quickly. Two things. One is what you just described there, more or less a prediction of a destruction of the currency through hyperinflation. That what we’ll talk about the potential inevitability of that I’m going to put those words in your mouth, but I believe that you do think it’s probably likely inevitable. Just want to make it super clear. That’s your long term view. That’s not necessarily what you expect, say in the next six months or so you’re not you’re not predicting, like a hyperinflation of the currency immediately. No,
Matthew Piepenburg 8:37
I don’t know. I don’t think anyone can say that. I think Luke Grohmann put it best. I can’t say 12 months out, but I can, you can see, you can see the clouds on the rise, and you can see the rain. I just don’t know if it’s at noon, 330 or 4pm. I just don’t know, no one really does.
Adam Taggart 8:52
And it just asked us to make sure that people don’t say, oh, my gosh, you know, I totally agree with what Matt saying. And so I’m gonna prepare for hyperinflation tomorrow. Right. Right. Now, there could be deflationary, you know, absolutely. Or it’s along the way. Absolutely. Okay. And then you said you have to make a choice, protect the system, or protect the currency? This is a leading question, but like, is there really a choice? In other words, given how much debt is in the system right now? What would it take to quote unquote, you know, if we were going to protect the currency, right, if we if we were really going to protect the currency, we would have to keep rates high, right, where they’re like, Can this system sustain even under even in the current rates that we have right now like, or have we already crossed the Rubicon? I think even use that term earlier on, like, do we have so much debt in the system, that if we truly decided to protect the currency instead, the entire economy might break
Matthew Piepenburg 9:59
up? Think about it. Yeah, I mean, it’s a very important question. If we remained higher for longer, some would say dumber for longer. Again, by the way, a five and a half percent Fed funds rate, which everyone thinks is so painful and so interesting that Powell is REITs is really in the grand scheme of things a normal Fed funds rate, it seems higher, because we’ve gotten used to zero bound for so many years that was highly distorted. But to your question, if we keep rates at five and a half, or six, or six and a half percent, if we continue to push rates up, of course, we’ll keep the dollar stronger notches relatively, but inherently, it will be stronger, rising rates will keep the dollar stronger. But rising rates also increases the cost of our debt, we’ve just crossed 33 trillion in public debt, we’ve added another 1.9 trillion to the back end of this year.
Adam Taggart 10:45
So sorry to interrupt, but we have doubled, I believe, the annual debt service cost on the national debt within just the last two years alone.
Matthew Piepenburg 10:53
It’s extraordinary. We’re averaging about 500 billion a month. And so we’re not going to get that from GDP. And we’ll talk about you know, GDP growing, but that is growing faster, and at a higher pace. But you know, you’re not mathematically going to get growth naturally, you’re not going to get it from revenues, or tax receipts. So it’s got to come from somewhere. So you’re gonna have to monetize that debt. And then I think that’s why inevitably, this concept of fiscal dominance is inevitable, as you as you raise the cost of debt. And as you raise debt, and you don’t have the funds to pay for it, you’re going to have to manufacture synthetic liquidity through a central bank policy to cover the debt interest expense. The interest expense on Uncle Sam’s bar tab is now over a trillion a year that is not payable. Unless we monetize it, at some point. Now, people could say, Well, we haven’t had to pivot yet. But frankly, last September, a year ago, at this time, the Department of Treasury pivoted for us, we emptied the TGA, the Treasury general account to create backdoor liquidity. So that was a one trick pony in a sense, Janet Yellen kind of trumped. Jerome Powell by creating liquidity indirectly, then we had the BTF P program that created another backdoor QE and other backdoor dose of liquidity, people don’t realize the dkfp program costs more than tarp ultimately. So we had to spend more money than we did in 2008, to bail out the too big to fail banks. So we have created some pivots off the balance sheet, so to speak, outside of Paul’s purview, do indirectly through the TGA account, and in these in this bank funding program, so we bought some time. But as we keep extending our debt levels and increasing our fiscal policy, like drunken sailors, we have to monetize that we have to pay for that somewhere. Again, my argument is, empirically, that’s not coming from tax receipts and GDP, that’s going to have to be paid at some point. Oregon going to we’re not going to, we’re never going to default on our treasury on our sovereign bonds. And if we, if we don’t support them, then bonds get weaker and weaker, and yields get higher and higher, as yields get higher and higher interest rate gets higher and higher. So we’re in this vicious circle, where we’re, we’re damned if we do damned if we don’t, we have to do something to keep those yields controlled, we have to do something to keep those bonds from falling too far in price. Right now, Paul’s policies are putting tremendous downward pressure on bond prices, which puts upward pressure on yields because they’re inversely related. Right. And when we’re adding another 1.9 trillion to the back end of this year, we’re issuing bonds at a rate we haven’t seen in 55 years. But we’re also seeing foreigners less interested in those bonds, who wants an IOU from a government that’s giving you a declining asset. It’s 120% over its skis and debt, it’s bad credit. And we can get into the debate about Brent Johnson and how it’s still the best horse in the glue factory. And no matter what, and there’s a lot of strength to that argument. I think what Brent Johnson is missing, and what I think Luke Grohmann and others are catching on is a the flow to the US Treasury has already happened. And be this notion that we can keep interest rates. Higher generationally, like Jim, Grant argues, is ignoring the fact that we’re hitting a wall, that we’re not going to be able to avoid a pivot at some point sooner than the next 10 years. At some point, sooner than that. We just won’t have the money to pay for our own IOUs. It’s not going to come naturally the only solution. I guess the only solution is we we cut our spending by 40%. But I don’t see a politician left or right who can get elected on that on that platform. But we could do nothing and just let rates stay high and let more banks fail more businesses go bankrupt, more small businesses disappear more Spotify is more Amazon’s more Google’s layoff more jobs. But we can’t cut our spending. It’s political suicide. We can’t increase we can’t increase our GDP at a rate high enough at these debt levels to grow our way out of this. So we’re going to fall back to a mean reversion of relying on that mouse clicker at the Eccles building. Again, that may seem sensational, I haven’t had anyone show me an argument that gets us out of that scenario. And when that happens, and again, no one knows when or what the real trigger will be. And we can talk about all the things that already are breaking. But when that happens that will be inherently inflationary policy reaction. And in the interim to your earlier point, we could have a market crash a bond, further bond crash and s&p crash, which will be a disinflationary interim scenario. Because inflation and deflation are not zero sum, they, they’re cyclical. But the end result to bail out the system, which is more important than the currency will be more mouseclick money and I and I can we can walk through the calendar, and a compass and a map, in every scenario in history going from ancient Rome to China to 1990s. Yugoslavia, the Y Mar Germany, to Franco Spain to 1920s. America today, whenever a system is at risk, and things start to fail, it is always the currency that is sacrificed to keep the powers that be in play, always, without exception,
Adam Taggart 15:46
without exception. And part of that is it’s I mean, it’s a mathematical dilemma, right? Because you have to basically say, we’re going to destroy the currency, right over time forgive doing this, or you know, and that’s a tomorrow problem, right? Or we’re going to start defaulting today, right, and any politician is going to vote for kicking the candidate tomorrow, if they can, right in any powerbroker. Anybody that is benefiting from the system is not going to want to accept default today to and they’re going to put the pressure on the political class, to to kick the can, which is already what the political class wants to do. Right. As you said, it’s very predictable human decision, we just make it every single time every basically every society that has faced this problem has always eventually picked the currency destruction route.
Matthew Piepenburg 16:38
Yeah, I think history is still a guide, no matter how much we try to cancel it, the bad, the good and the ugly of it, we have to learn from it. And, again, we have to this is something I talked about with Grant Williams last year, you know, wisdom is not just IQ or LSAT scores, it’s accountability. It’s recognizing it’s it’s recognizing failures, it’s being accountable for them and being blunt about solving them. I think it’s very hard for a politician to be blunt about the austerity needed, the spending cuts needed, the entitlements that need to be cut, and in say that in a candid way to the American people, and get reelected. We can always blame politicians for being dishonest. But us as voters also have to recognize that we don’t like to hear what we don’t like to hear either. And there’s a sin on our own part for wanting to vote for the platitudes and promises because it makes us feel better at election time. But I think, I think the American people, you know, can follow the Kennedy mantra of Ask not what your country can do for you, but what you can do for your country, but they have to trust that government, they have to trust that country, they have to trust that leadership. I think if we had an honest politician, and an honest policymaker and a population that was treated fairly, they would be willing to try to tighten their belt and get through what needs to be done to cut our spending. Because we don’t have a life raft that fits everything and solves everything, we’re gonna have to make compromises. It’s you can blame the politicians. But you have to blame the voters too. We have to all be realistic. And I don’t know, which comes first, the chicken or the egg of the car to the horse. I haven’t seen too many honest politicians, and I haven’t, I still have seen a lot of brave Americans who are willing to be told the truth, I just not sure if those ever Venn diagrams overlap,
Adam Taggart 18:23
or to hear the truth and to sign up for sacrifice. We’re not We’re not the greatest generation, that is the society today. And our politicians are not no, they’re not trusted that way. What’s interesting is going back to the Gentleman’s Greatest Generation knew that part of the reason why there was so much social cohesion back then was because the nation was it passed through the crucible of World War Two, right, where, you know, we united around a general threat, we fought the great evil, we made a lot of sacrifices, you know, there was a lot of desire and demand for centralized control that we could believe in, right. Neil Howe, the demographer who has written the book, or has the the framework of the fourth turning, I just recently talked to Neil a couple of weeks ago, a lot about this. And he, you know, reemphasize that, you know, fourth turnings is where the status quo falls apart. And as it does, that’s where you get more demand from the populace, for more centralized control for government that can come and really take care of the problem, right? And the people line up behind that. So in many ways, it’s sort of human nature, right? Where you can you can change behavior by insight or through pain, right inside is doing the math in your head and saying, Boy, if I if I keep behaving like this, something bad’s gonna happen in the future. I should I should clean up my act today, right? Most cases, we don’t do that. Right. You don’t really change your, your eating habits until you have that first heart attack. Right. And I think to a certain extent, societally I remain maybe I’m still a little off to hold out some optimism that when the pain gets bad enough, we will rally in a demand more of our elected officials demand more than people who are telling us the truth, maybe get back to that sort of Kennedy era ask. Okay, you know, we’re willing to do the right thing for the future. But I think right now, we’re certainly not there. From there, thank you share that same sentiment. And, and as people get more desperate, right, you go through this process where they, you know, they want succor they want, they want the freebie they want, okay, or, you know, just like we have an inflationary problem I’m having trouble, cost of living is going up and having trouble paying my bills. So please give me more stimulus. So I can pay my bills, where they’re basically asking just for more of the same problem that’s causing the issue, right. So we got to get through that part of the cycle first.
Matthew Piepenburg 20:49
Yeah, and it’s very pollyannish thing for me to say, but trust, this is this thing I’ve written about many times, it’s very hard to quantify, it’s very hard to empirically nail down. We all feel it. It’s like that famous Supreme Court Justice, I don’t know how to define pornography, I just know it when I see it. I don’t know how to define trust in the system. I just know when it’s vibrating. And, you know, I was watching an interview the other day with Eric Weinstein, it was quite brilliant. I mean, you and I, for example, can talk about the Bureau of Labor Statistics, or the NBR and how they manipulate employment that or I could talk about how they manipulate inflation data. And you know, that’s certainly worthy of discussion beyond just those kind of distrusted data dependent things where the data isn’t even accurate. So we’re dependent on data manipulation, that data dependence, but you get beyond the BLS to the NBR. You look at institutions. And this was something Eric Weinstein was talking about, whether it’s the NIH, the World Health Organization, or the CDC, or the Washington Post, which is really the Bezos post. There’s so many things that we just come through as a country and as a world in the last few years. You know, and again, this is an easy one, but it’s one we all can, regardless of our views, whether it was on, you know, safe and effective vaccines, this was promised by folks like Fauci and again, I’m not here to take a pro or con side, I’m just saying it’s pretty much empirically true, proven now post facto. And it was kind of argued, during the height of the crisis, the Great Barrington again, Stanford at Oxford, and Harvard, other universities, these things were not true. These were not necessarily perfectly safe or perfectly effective. The fact that there was no debate about that created a distrust problem. And I think you know, what Eric Weinstein said is after that after something like Fauci, and again, I’m not trying to diss people. But what Eric said is, you’re dead to me now. In other words, or when universities like Harvard or brown, where you and I were taught critical thinking, and we were taught to have two sides to every argument, and we were trained to be critical of anything that you served our personal rights or civil liberties with the first 10 amendments, the Constitution where those schools taught us that but those same schools then won’t let you go unless you have a certain policy, that you follow my daughter summa cum laude at Cornell, Phi Beta Kappa works at Goldman Sachs could not go to Harvard business school because she refused to take a vaccine that she didn’t feel was safe. To me. Those types of distress are just one example. But we see them in other areas. That that you’re dead to me. Now. There’s a turning point politically, again, without trying to be partisan when you wheel and Dianne Feinstein or just to vote or when you have someone like Fetterman, who’s not all together, they’re just really meant to make a vote, or when the faith in the White House is disappearing, because you know, Biden has been there since 1972. As a senator, he’s clearly not all there. But we’re not really able to talk about that without being seen as too partisan. There’s distrust you had George Santos coming for Congress. It wasn’t one thing about his resume. That was true, not a single thing where he went to school with sports, either whether his mother was at 911. You know, if he had been an employee at our company, he’d been fired immediately. And yet he was in Congress. So there’s a slow distrust permeating. There’s a book that I think everyone should read. It was written in 2014. It’s not tinfoil hat. It’s by a guy named Mike Lofgren. It’s called the deep state. He’s not a tinfoil quack. He was a budget committee member for Congress. He was interviewed by Bill Moyers, a very legitimate, credible guy. And he was warning already in 2014, about this really dangerous marriage between DC and Wall Street and the fact that post 911 We have now three Pentagon’s outside of DC really in Tyson’s Corner and and in other parts where you have over 400? Well, you have basically 400,000 private contractors who have high security clearance who are a revolving door between the intelligence agencies in Washington and Wall Street you have guys like David Petraeus, who were once military guys who now work for Wall Street buyout firms and KKR and any major executive at Goldman Sachs or JP Morgan or Citigroup, which he writes about if you’re leaving a high paying job at a Wall Street bank to come in I work at an agency and in DC whether it’s the SEC or the tax, the IRS or whether it’s a regulatory commission, you get multimillion dollar bonuses at B of a city Goldman Sachs before you leave to go into DC it’s it’s classic case of the foxes guarding their own henhouse and getting paid. But you know, the days were of you know, Cincinnatus in the Roman Empire were a great general goes back to the farm. Now. Now they just go into Wall Street, and they and they serve and control each other. So there’s a great, great deal of distrust in our system. We all need these important institutions, we absolutely need three branches of government, I wouldn’t argue we need a Federal Reserve. That’s a fourth branch of government that I don’t think we need. But we need the inhabitants of those institutions to be credible and honest in not working from the same system they’re supposed to be regulating. There’s a real corruption there that’s palpable. I’ll just end with a quick anecdote and I was I was last week I was up in Paris talking to an American, he’s 81 years old. He is from a farm in you know, he’s from a farm in New Jersey. He was a great athlete, he went to the Naval Academy for four years was a starting football player and baseball player. This was the era of Roger Starbuck at the Naval Academy after the Naval Academy he went to Vietnam became one of the first members of Seal Team for was a Vietnam that was wounded in action. It was Admiral Halsey who got him into the Naval Academy. After Vietnam, he spent his career commanding ships Lane wires all throughout the Bering Sea. In other words, this couldn’t be more of a patriotic American, you couldn’t script a more true blue American story. And when I talked to this man who’s now 81 years old, he has lost complete faith in the system in the military in the ideals because when 51 members of your national security service sign a letter saying that x the laptop was a Russian collusion, or a Russian lie or Russian hoax, he says when that happens, you can’t trust anymore. And again, these are extreme examples. Again, you will and Dianne Feinstein you bring in Fetterman or you talk about these 51 intelligence members who sign an affidavit attesting to a lie. You lose faith in that system. You lose faith in the people in that system left or right and I’m saying that lack of distrust from Wall Street to DC the disparity in the revolving kind of CO option of power that might left run again. I recommend the book The deep state it isn’t it isn’t tinfoil quackery, and we’re all feeling that now. We’re not trusting what we’re being told. And as I opened with a lot of things that I’m not trusting is what we’re not discussing at all, we’re not allowed to discuss, we should be able to discuss what happens when your debt to GDP gets over 120%, we should be able to discuss what happens when your bond yields get too high that you can’t afford them without having to print more money, we should be able to discuss why that when the s&p went up 600%. Since the great financial crisis that 90% of that went to 10% of the American population, we should be able to discuss how monetary policy affects social policy and affects wealth inequality, we should be able to discuss why Wall Street has manipulated and migrated to DC to get better pay or better control to regulate themselves. These are not tinfoil hat thoughts. These are realities. And guys like Mike Lofgren, who have no axe to grind, or no horse in this race who just want to tell the truth. This is what Eric Weinstein warned that’s mal information that scares people because mal information isn’t disinformation. It’s information that is contrary to the official narrative. And there is an official narrative out of DC. And there’s an official narrative out of Wall Street, the official narrative out of Wall Street is we’re going to be fine, we’re going to have a soft landing, and the Fed has your back. What I’m here to talk about today is how many objective reasons why that’s simply empirically, quantifiably not true. It’s just not true. And we can go into that. But we are not being told the transparent truth, again, left or right. I clearly had my biases politically, but I think an equally opportunistic agnostic and cynic about both sides of the house right now. But our official story, in the censorship that I’m seeing, and the centralization that I’m seeing in the omission of facts, and the omission of debates is very troublesome to me. So that goes back to your larger question. If we don’t trust the inhabitants of our institutions, we’re not going to be able to cooperate to get ourselves out of this. And the one thing I’ll say right now is there is no good scenario left, we are going to have to debase our currency if we’re not going to cut our spending to monetize our debts, and that will ultimately have massive implications on all the markets.
Adam Taggart 29:33
Yeah, so you know, our debt is growing exponentially in an exponential system, because of how it’s a multiplicative process where you know, each each time increment has grows much more than than the sum of the ones previous right. So, the issue with an exponential system, if you’re heading towards a problematic era is once you and actually see the problem. It’s way too late to fix it, which is sort of what you’re saying here where it’s like, there’s no good options where we get out of this pain free, right? All you can really do once you see the problem is determined how you’re going to manage it. And for all the reasons you just mentioned about the distrust, and the poor information, we’re not going to have that, that collaboration when you’re we’re close to having the collaboration needed to come up with a unified plan for managing this thing. So we’re highly likely going to slam into the consequences kind of blindly and at full speed. Right.
Matthew Piepenburg 30:34
Well, yeah, I mean, sadly, we were, instead of kind of coalescing, we’re, it’s we’re, we’re splintering, you know this is the identity politics fears is what Tony unit NYU warned about before his untimely death was quite sad, when you have self censorship when you’re afraid to talk about these things, because you’re being labeled with X or Y, or left or right or up or down. But we have instead of kind of agreeing, we’re debating now about Bud Light cans, and about, you know, transgender bathrooms, and all these other things we talked about last time, I think, you know, a lot of these wounds of the past are still important, but we’re bringing them back up to divide us more, I don’t think that’s helping. But there’s also this is another classic symptom of a failed regime or a failed system, that you look for ways to distract the people from what’s really at fault. And what’s really at fault ultimately, is fiscal and monetary, because of our debt policies and because of our politics, but will we are being told to blame that well, first, we can blame it on COVID. Or we can blame it on Putin, we can blame it on climate change, we can even possibly blame it on Little Green Men from Mars, anything we can do to distract people right now from the Simple, Simple, Stupid reality that we are like a family, as we talked about that is living way beyond our means. And no one wants to take accountability for that no one wants to take their husband or wife’s credit card and cut it or tell their son or daughter, you’re spending too much money and you’re not going to get the fancy car, or the fancy vacation. No one wants to, you know, accept that the part of that blame lies within our own government to stay reelected, we have been living beyond our means borrowing beyond our means and putting that bill on the next generation to be paid for with mouse click money that’s going to be inherently inflationary. That’s going to mean that explains why my children’s generation your children’s generation, are the first generation in years in many generations to have lower education, diminished prospects, that is palpable. It’s not just financial, it’s psychological. There’s a lack. There’s a lack of that papers and like that Naval Academy grad, I talk to you that 81 year old, he’s lost his faith, it took him a long time, our children are already not even with that faith. But the common denominator is there’s less belief, less trust, again, that pollyannish amorphous term, which we can support with evidence in numbers in ratios and spreads in Treasury outputs. And that’s the boring math of the bond market. And the yields and the spreads that we can get into are all the things that are breaking. But the simple fact is it is a social and financial issue. And it’s very, very tied together. And we’re we are at that point right now, more so than ever. And it is interesting. Again, I have partners and colleagues who are Vietnam vets, I’ve friends that are vets of the Afghan or the Iraq War, the Afghanistan war. Again, I’ll say they’re lions being led by donkeys. But this kind of cynicism is kind of distrust I see all the time. And I see it among those of us who trade equities in credits, too. And we look at macros, where we can ignore these elephants that are all over the room and knocking over China one by one, and no one wants to talk about it publicly. And and if you do, you’re being labeled a doom and gloom, er, or a gold bug, or someone you know, these gold bug guys are always saying, you know, things are going to implode, it’s the end of the world. I’m not saying that I’m saying it’s the it’s not going to be the same as it was for the last 10 years, we have to face the consequences of too much debt. It’s really that simple.
Adam Taggart 33:53
Right. And I don’t want to get into that with you. We haven’t really even started on the list of questions about exactly kind of what you’re talking about there. And let’s get there now. But real quick. To this point about not not having this discussion, these they’re almost there. They’re not even allowed topics right now. Right. I mean, I think back to the last politician that I can recall, who really tried to put these on the table these issues, and it was Ron Paul. And, you know, he was he was vilified and derided you know, for these things. Right. So, you know, when he was in the Republican primary, you know, it was it was good that he was in there because he was sort of building awareness of some of these issues. But if you look at how this fellow candidates and how the media covered it, it was like, Oh, my gosh, look at this old crack pipe over here. He’s like, criticizing the Fed and thinking we should like Audit the Fed, and he’s just jabbering on about debt. And, I mean, he was he really was sort of, you know, derived and made fun of, and so you know, obviously, other politicians See that and say, Well, look, I don’t I don’t want to run into that buzzsaw right? Ultimately we’re going to need to have somebody like him with both the the bravery to do that but also to just like that the understanding right i mean the the level of of economic education amongst the average politician in America I believe is pretty frightening only low right? And we’ve talked about this before Matt, but like the, just the magnitude of what a trillion is like just trying to wrap your brain around a trillion. Honestly, you got guys like you and I, we talk about and think about this stuff all the time. But we really can’t understand how massive a trillion is right? And then yet for a politician, it’s like, Whoa, there’s a problem. Alright, how many trillions should we throw in that hole? Right? They just don’t understand the knock on effects of something that massive right? So we you said sort of lions led by donkeys or whatever, right. But we have these people that are making this the decisions, the decisions that really matter, who have a fraction of an inkling of what they’re doing around this type of stuff. So anyways, we can talk about this forever. And you talked about Cincinnatus. It is very sad and shameful. Maybe that we’re we’ve gone from the era of Cincinnatus, to the era of Citadel, right where it’s just the revolving door between DC and Wall Street. But that being said, let’s get back to the core of your article here, which I think is the meat of what you want to talk about today. Anyways, related to all this, which is the narrative that we are being told today, what is acceptable right now, what isn’t the Overton window of discussion, if you will, is GDP looks strong? Inflation is coming down. Soft Landing ahead, no recession to worry about. And you are saying? Absolutely not. I think you even said the heartland has already happened. Like the casualties are already out there on the runway. The engines are or you know, half a mile away burning wreckage. So So what why why should we not be cheering this most recent number, these most recent numbers?
Matthew Piepenburg 37:01
Well, first of all, the simple fact and this Atlanta Fed now, you know, nominal GDP forecasts at 5.9%. And or excuse me, yeah, in real terms,
Adam Taggart 37:11
it’s now 4.9% Just because it’s coming down a bit since you wrote your article, but it was 5.9 on your started just a couple of weeks ago. Yeah.
Matthew Piepenburg 37:18
And I’m saying okay, but that’s also on the back of unprecedented fiscal, you know, borrowing in the US Treasury issuance and more and more debt. You know, that nine point in nearly 2 trillion by the back end of this year. So it’s my my joke in the article was, it’s like if my son was at a frat in college, and I gave him my Amex card. And he created growth for the frat based on my credit card and had all kinds of fun with that. He is getting growth, more beer, more kegs, more invitees, kids coming from other campuses he’s getting, you know, he’s the Greek god of the frat system, but it’s really still just debt as growth when that Amex Bill has to be paid, we still have a problem. So you have GDP growth on the back of rising yields because of falling bond prices. Because of more issuance and more supply of US Treasuries. That’s not growth, that’s just more debt. It’s really a misnomer, I think to call. I mean, I think it’s an oxymoron to have debt driven growth. They’re mutually exclusive. They, you can’t have one, it’s not real growth, debt base growth is not growth, it’s just more debt. And the idea that we’re in some soft landing that we have a resilient economy or a strong labor force again, to me that is this proverb the like, that’s just probably like untrue. And, and again, look at the math. So I don’t just sound like I’m again, a tinfoil hat a gold bug gloom and doom or because that’s, I understand a little but I think it’s a little unfair. Again, we talked about some of this last time, but so much has happened since then, again, almost a year ago, to this day, we had the guilt implosion on the pension project in the UK, which was a direct result of Fed policy here in the US. Then in 2023. Early this year, we’ve almost forgotten we had a major bank failure. In the regional banks. Predictions are three
Adam Taggart 38:58
of the four, four, sorry, three of the four largest banks to ever fail have failed this year.
Matthew Piepenburg 39:04
And yet, we’re kind of out of sight out of mind that because just push that away the sin of omission gets that off the headlines. We’re all good, be calm carry on. And then in the meantime, we have a 25% year to date increase in bankruptcies we have corporate debt expenses are up 22%. That would explain why we have 400 bankruptcies year to date. And these foreign corporations have filed bankruptcy. It’s rising at the fastest rate since 2010. It’s doubled the levels of last year, and the top 10 bankruptcies account for 200,000 jobs. And then you look at the layoffs to places like Spotify or Microsoft or Google or Amazon or even Goldman Sachs. I mean, Google has 10,000 amazon 18,000. You’ve got, I think, at least 18 of these companies with a billion dollars in liabilities that’s like, you know, Silicon Valley Bank or Bed Bath and Beyond. But when you’re having these type of layoffs, and by the way, when Google and Amazon or Goldman are doing layoffs, that means they’re not making earnings. So there is a correlation between the markets and the economy. But the bigger point is, when you’re having bankruptcies and layoffs, how can you say you have a strong labor market. And if you’re waiting for the NBA er to tell you’re in a recession, they’re always going to be a year late. You’re gonna be deep into your knees and recession when it becomes official. The strong labor market again, Nick Eberstadt sent a finer job than me, I wrote an article this in 2019. The what is the term of art the civilian labor force that they use at the Bureau of Labor Statistics to measure U three, and U six unemployment, they’re talking about civilian labor force to measure employment as a percentage, but that civilian labor force omits millions who don’t even look for jobs anymore. So it’s like,
Adam Taggart 40:42
it actually omits over 100 million working age adults.
Matthew Piepenburg 40:46
So are strong employment, which means we’re in a soft landing, despite all the evidence of bankruptcies and layoffs now and to come because of rising rates and rising debt costs. That’s simply not a true statement. We don’t have a resilient economy, we don’t have a strong labor force. And even many of those who are employed. That’s not multiple job growth, it’s individuals with multiple jobs. Again, when you get into the weeds of this, it’s like saying, we’re gonna measure the number of tall people in America. But we’re only going to use the NBA is our labor pool. In other words, we’re skewing the data. This is not Matt pipe Nunberg, gold bug, doom and gloom are trying to make the world bad and good for gold. I’m saying separated from precious metals and inflation and debasement of currencies. And look at that. But look at misinformation. By the way, John Williams, who does shadow stats was just done with David Lin talking about real true inflation, we have 3.7%, but it relates to six, he says closer to 11 and a half percent based on the same metrics that we used in the Volcker era. So again, data dependence on data that is not accurate to to masquerade, a story of a soft landing, or to masquerade a story of a one inflation that’s victorious, when we’re not beating inflation, and we’re not having a strong labor force. And more importantly, labor is a lagging indicator, we will not see the true pain of our quote unquote, strong employment force until we’re knee deep excuse my other assistant here, I gotta get it off. It tell her knee deep in a recession. It isn’t me trying to be doom and gloom. It’s just trying to separate the fog from the lighthouse. So we can see that no, the labor data isn’t correct. The recession data isn’t correct. By the way recession data. The as you know, the Conference Board leading economic indicators is probably one of the most accurate recession data’s that we’ve ever had. It’s important. And when they have a, when they go into a recession threshold where it’s down by negative 4%, we are in a recession, we reach that last December. In my opinion, it wasn’t just back to back quarters of negative GDP, which we ignored last year, it was that LMI indicator, we’re in a recession and ask anyone who just got laid off at Google or Spotify or Amazon or Goldman Sachs, if they feel a recession, or those who got laid off for those regional banks. In other words, I just think, you know, putting lipstick on a pig to buy time with platitudes to hide math is disingenuous at the at the top down, and it’s it’s important for people not to be labeled just bearish for bearish sake to look at the empirical facts. Look at the layoffs. Look at the bankruptcies. Look at the number of empty homes. I think you had a woman on recently he was just talking about these empty homes that aren’t even being listed. Right? Yeah, it was fascinating. This is a small example. I’ve talked to loan officers at major big banks and commercial real estate, just doing my own analysis. And these guys, these are guys who work on commission, and two or three years ago, they’d be doing loans at the 20 15 million level take out construction loans, they’d be doing 30 To 40 to 50 of those a year. Now they’re doing two or three a year. Again, whether it’s Melanie, right and real estate, or whether it’s commercial loan officers talking off the record, or whether it’s looking empirically at the Labor data and the recession data in the LMI indicators, and the number of bankruptcies and the number of layoffs. There is nothing soft about our higher for longer policy, it is already breaking things objectively, again, this is not a gold argument. This is a macro reality. I don’t know how to be more blunt, and it’s not to spread fear. There’s a lot of opportunities in this too. There’s and beyond just gold. There’s a lot of opportunities and how to prepare for this. But I think it’s insulting to us to continually omit the real data and continually omit the real themes and the real topics of discussion when we argue about soft versus hard when it’s not even worth arguing about or we argue about what the next rate hikes will be whether it’ll be at the end of the year or next year what Powell is going to say at the FOMC or the Brookings Institute, it’s sad that we become less dependent on sources of information that are no longer trustworthy, and no longer transparent. That to me, doesn’t make me or Rand Paul do now it’s unAmerican. It’s the quite opposite. I think it makes you more American to challenge what I think are fictional data points. And it’s not to sell a book and it’s not to create gold clients. For me. It’s because the majority of your listeners or my listeners are the people I write to can’t afford the minimums at Matterhorn, this isn’t for my business. This is honestly what I really believe. I think Brent Johnson believes what he believes. I think Luke Grohmann believes what he believes you and I believe what we believe. But it’s important to be as transparent as possible. I can’t believe we’re not seeing that from our financial press or our political leadership. But yeah, things are breaking. And the list is long and distinguished. And it’s objective. It’s not subjective, talking to the book anymore. I don’t know how to be more blunt about this. It’s frustrating. And I think one of the best leading indicators, not just to mention the Fitch downgrade, and you can throw that into, you can talk about the issuance of more treasuries. But this Anthony Oliver from Farmville, Virginia, one of my favorite little towns in Virginia, I know, well, there’s the best barbecue, I think it’s called the efficient pig and Farmville. He has what 70 million hits in one month, that song is an anthem for the middle class, the ignored middle class, that is an indicator itself. I mean, that’s almost twice the population of the entire country of Canada. And if you look at the number of how many Americans 20 25 million, he’s got 70 million hits. In other words, he’s striking a nerve that people can feel they don’t know about leading index of indicators, economic indicators, they don’t know about federal policy. Qt versus QE dove versus Hawk Powell soft versus hard. They just feel it. They don’t know if inflation is 3.7, officially, or 11 and a half real, they feel it. Ask anyone who’s listening to that song who’s getting torn up by it. That’s like that’s like an animal trapped in a cage. It’s resonating. Because many, many, I’d say the majority of Americans feel exactly the way he does. Again, that’s just another indicator. This is not a soft landing, not even close. And we haven’t even seen the worst of it yet.
Adam Taggart 47:01
So if there’s time at the end of this discussion, Matt, I do want to get into, you know, is the bigger crisis that we should perhaps worry about not even necessarily a financial, or an economic one, but but a social one. And I think Oliver Anthony’s. From out of nowhere success with that song, I think, is a good example of some of these social fault lines that are beginning to break open here. But we still have to churn through some more key points that you mentioned here. I just want to summarize. In your article, you call this the open secret hiding in plain sight. But But basically, it’s what you said earlier, which is one of the reasons why you just went through this long litany, right, have data that you’re looking at that saying, Guys, what’s the debate going on here? Like it’s already over, we can see all this distraction on the ground. Right. But I have a lot of the classic indicators that people watch are being propped up right now by all this deficit spending that’s going on. Right. So you know, we’ve got this high expected q3 GDP number, the stock market has performed really well this year. Right. So there’s, there’s indicators that carry weight, rightly or wrongly, that the establishment can say, Look, we’re doing a great job. Pat, us on the back. We got a great report card. Right? I’m very deceptive from your point of view. Right. It’s, it’s, you know, showing people the great meal that the Titanic is serving, as opposed to saying, hey, there’s an iceberg, you know, right, right out there. So we’ve got that going on. You mentioned this early on, and I just want to clarify it here for folks. So your big concern, is that okay, things aren’t great. Right. We’re propping things up right now, with the success of deficit spending that can’t last forever. There are implications for that. And we get into this trap, which is called fiscal dominance. Right? And as I understand it, but I’ll let you clarify for folks, this is when you’re trying to fight inflation, right. So you raise rates as we’ve been doing right now. That causes yields on debt to rise, it causes debt to be a lot more expensive, and that eventually creates breakages if you will in the system. That to address the only way the central planners really know how to address it is to go back to your what do you call it magic money printer money Yeah, exactly. And create you know, new money to plug the holes right which which basically, is a trap because obviously if you’re trying to inflation, fight inflation, mouse click my mouse click money is the opposite of fight. Exactly.
Matthew Piepenburg 49:39
It’s a tragic irony of ironies. Yeah. That you’ve described quite well. I mean, this was this was this isn’t just us from a bear doom and gloom. hard asset guys in Switzerland or elsewhere in the world. This is from the St. Louis. The St. Louis Fed did a white paper on this in June, Luke Roman picked it up and wrote brilliantly about it brought it to the attention again, it’s a small circle people that read that level of detail, but it’s important to know the basic irony is that Paul’s war against inflation is inherently inflationary. That’s the great irony. But I’ll take it a step further. And this is the matt Payton brick thesis that I’ve said for years, which is a minority thesis, but I’ll say it again, I do not believe that Paul’s war on inflation is sincere. I think it’s optics, I don’t think Powell is really fighting a war on inflation. That sounds incredibly tinfoil headed. I think Powell seeks inflation. What he has is the benefit of being able to miss report or under report inflation through the Bureau of Labor Statistics fiction. When when you get, again, this is math in history, there is no way to solve our debt crisis, when debt is this high through growth, we’re not going to get it through tax receipts. So the the oldest trick in the book is negative real rates where inflation is higher than the yields on your bonds. You have negative real rates. But negative real rates is politically dangerous, it looks bad. But if you can manipulate the inflation data, then you can, quote unquote, have a victory. I think Powell is trying to inflate away debt. So if you take John Williams shadow stats, and let’s say he says it’s 11% inflation, let’s give him the benefit out and say it’s really nine or 8%. It’s still a huge gap from the official number. But if the unofficial number, the real inflation number is say 9%. And yields on the 10 year are 4.4%, then you’re running negative real rates that helps you inflate your way out of debt secretly. That’s a hidden secret knife wound to the middle class into the real economy into the real citizens of the country. But you are secretly inflating away debt. So I think and again, I think we could spend more time on this. I think Powell knows that we need inflation to inflate away debt, but I can have my cake and eat it too by misreporting inflation. Optically, of course, he has to say I want to fight inflation, because inflation is bad. It is bad, you know, to have negative real rates officially, too, because it makes it harder to sell treasuries abroad when you’re getting a negative return. So he doesn’t want inflation to get too high. But boy, if he could have the best of both worlds, it’s to report a victory on inflation. But then actually let inflation rip. And I think that’s the collusion between the Bureau of Labor Statistics, which I think is wins a Nobel Prize for Fiction and how they report inflation. I think John Williams is a patriot the way he accurately reports the CPI scale the way it was used in the Volcker era. So if Powell wants to be Volcker, let’s it use let’s let’s measure him by the same inflation scales use the same benchmark. Yeah, you’ll get in these are tricks. And this is something that John Klobuchar said he was a former president of European Commission, look, when the day
Adam Taggart 52:38
we just lie, you know, and when things get bad, you have to lie that was gonna have to
Matthew Piepenburg 52:43
lie. And again, that may sound like Peyton Briggs just got off the rocker, I’ve looked at this upside down and backwards, I’ve delved into it. And I really do believe that the inflation narrative, like so many narratives, is convenient. But it’s not accurate. And, and I think we deserve better than that. But I at the same time, if I were a central banker, groomed to be a Fed chair, which is really what they are, they’re groomed into consensus think, and to sacrifice their I think intellectual integrity for the vanity of their job position. If I were in his shoes, I’d probably play the same tricks to stay in power and to control my legacy. But I don’t think it’s a profile and courage. I don’t think it’s a profile in integrity, and transparency, the kind of wisdom that we want in our Plato like leaders, when you’re manipulating data, this goes back to my original point, the sins of omission, the quote by the Shane Stokes, the best way you can see fraud is by what they’re not telling you on. And so. But again, I think inflation is really something that Powell secretly needs to get himself out of debt. But even if you take the official narrative that we’re doing this just to fight inflation, that we’re rising rates, justified inflation, the fiscal dominance argument means what actually creates more inflation. I think the reason Powell is raising rates, and Q teen reducing the balance sheet is very simple, because he sees a recession already here and getting deeper. The only two weapons the Fed has is the price of money and the supply the amount of money and you can they can manipulate interest rates, and they can expand or contract the balance sheet of the Fed. That’s it. And so, up until a few years ago, we had a two fat a Fed balance sheet, and we had zero bound interest rates that meant Powell was impotent in the face of the next recession. He had nothing to cut because rates were already at zero. And his balance sheet was so fat, he had nothing he could you know, he could expand. But now he’s raising rates and reducing the balance sheet. So when it really does become obvious, despite all the things we’ve talked about the litany of evidence that we’re deep into recession, when we really see a market sell off the real crisis that triggers the Fed. When we see a market sell off now with a five and a half Fed funds rate. He can actually reduce rates again, he’ll have some ammunition in there. At revolver to actually fight that real problem in the markets and he’ll be able to expand the Fed balance sheet because he’s que tiene at the same time and he’s raising rates. So again, all I think he’s doing is he’s, he had two empty revolvers two years ago. Now because of Qt and because of rate hikes. Both of those revolvers have a little bit more bullets in them. That, to me is the real motive. And that’s a minority opinion. I’m a little bit of a contrarian, maybe a kook. But I’m cynical realist. That’s what I would do.
Adam Taggart 55:29
I don’t think too many of the folks I interview on this channel would disagree with you, just so you know, you may not be as alone as you think. Well,
Matthew Piepenburg 55:35
again, it’s a jaded real politic version of the way history and math works. So a combination of dishonesty optics, politics, in fed Mo, modus operandi, I don’t think since Greenspan and I include Greenspan, we haven’t had that many moral fed leaders, I think the only ones who were pretty decent was Martin and Volker. But I’m saying Powell is par for the course. And he’s, he’s doing exactly what he needs to do. He’s, he’s building his ammunition, by raising rates and in reducing the balance sheet. So they’ll have something, anything that he can use when when the situation gets far more dire than it is right now.
Adam Taggart 56:12
Okay, let me let me just ask you to guess if you don’t mind, just putting stretching your neck out there. So if Powell is reloading right now, that’s what this era is all about. When the next crisis hits, what kind of magnitude Do you think the rescue effort is going to be? In other words, is it going to be as as crazy as we saw during the pandemic, even more crazy, or more kind of a garden variety, recession intervention, you know, maybe maybe trillion or less, which is crazy that that’s alone now.
Matthew Piepenburg 56:48
But you think about the COVID crisis in March of 2020, we printed more money in the subsequent months than we did in the previous, you know, we went, we went four to 5 trillion in the Fed’s balance sheet that was massive experience unimaginable before unimaginable, unimaginable. And that was based on, you know, the COVID crisis of March 2020. And in the precipitous fall in the s&p, it was 36%, I think would have gone to a mean reversion of 70 or 80%. Had we not printed trillions. So to your question, what would it take? What would be the magnitude of the next time Powell has to pull out the heavy armor so to speak? Well, again, people say we have a resilient s&p Well remember last year in 2023, the s&p and the combined damage in the bond and stock market was the worst since 1871. The NASDAQ was down 30% s&p 15, where we’re at this year is barely getting back to where we were. In other words, there hasn’t been this incredible market behavior. We’re really kind of rolling up and running up hill and roller skates. The the litany of examples that I just listed the layoffs, the bankruptcies. The the distortion in the credit markets, to me means that as rates either stay the same or get a little bit higher, it’s going to put continued pressure on the majority of zombie companies in the equity markets, to not be able to re you know, refund or refinance and revalue their books. So despite the five or six companies that had only thing holding up the rest of the market, and even those companies are laying off. At some point, the cost of credit in the cost of credit is the key cost of growth in the s&p. When that becomes unpayable, you’re going to start seeing earnings fall, you’re going to start seeing more layoffs, you’re gonna start seeing more faltering stock performance, if we see and we will at some point and don’t ask me when because I don’t know. When you start to see the inevitable, again, mean reversion in the s&p, I think it’s a joke to call these markets resilient. They haven’t priced in the new price, because they can’t roll over their debt or buy back their own shares like they could three or four years ago, there will be an O moment in the s&p, the Dow and the Nasdaq. It’ll start at the NASDAQ. It’ll creep up to the s&p and finish with the Dow. I don’t know when I don’t know what the trigger will be the headline, I do know that it will always be blamed on something else. It will be blamed on COVID Putin, global warming Martians, whatever, or some other geopolitical event, when that happens, there won’t be natural growth to sustain there is no narrative percolating from the US that’s going to save this. I mean, Luke Roman said if we find a miracle battery that replaces our need for oil, or if every baby boomer
Adam Taggart 59:20
is immediately deployable, right?
Matthew Piepenburg 59:24
And if every baby boomer dies and leaves 65 trillion and new money to the next generation, and we re liquefy ourselves through Trust and Estates, well, okay, but you’re failing those miracle events. It’s math, we are going to mean revert again. And so that again, it comes to the point that the Fed will act when the markets because the Fed and the markets are chained at the hip. That’s what they were. That’s what the Fed was spawned for, to support the markets and the banks. So you know, this immaculately conceived beast from Jekyll Island, they will support markets when they take whatever triggers that to happen. There’s no natural growth in my opinion coming from that. I don’t know When that’ll be, it won’t be 20 years from now, it’ll be sooner, it won’t even be five years now, it’d be sooner in my opinion. We’ll think about it. If you if you look at mean reversion on the s&p, what it’s going to take to save those markets will require at least a couple trillion and more stimulus, which is too as to your earlier point a trillion to the Fed, or to the pot to the Congress, is a banal isation of debt, it doesn’t mean anything. It’s a number like the Holocaust, it has no value anymore, because it’s, it’s so inconceivable, I think it will take trillions again and again, they will be able to quote unquote, save the markets at the expense of the currency. Because you can, you’re right, under modern monetary theory, a market could never die if you want to keep pumping liquidity into it. But you will always do that at the expense of the currency. So to your point, last time we spoke, it’s either death by fire death by ICE, you can save the markets, but you’re gonna kill the currency. And again, historically, that is always what happens until we have to, you know, do another Plaza Accord another, you know, Bretton Woods 2.0 and reset the whole system and do some kind of debt jubilee, I guess there’ll be something but again, it won’t be blamed on the, the the bad actors that put us here, the the monetary policymakers and the politicians that live beyond their means for a generation, it will be blamed on a bad guy, or a geopolitical event, or another illness or the last illness. They’ll never take accountability. They’ll never be an honest Adam Smith accounting with the forensic look at our debt policies, our fiscal policies and our monetary policies. And they’ll never be a hard look, as Rand Paul asked to audit the Fed and say, just what the heck is it even doing there? It is a fourth branch of government. It was never intended by our constitution that the kind of power it does. And to many people’s point, well, it’s moot point that it’s here it is. It’s too late. The Fed is here. It is too big to fail in so many ways. But it has failed us. It is as I said many times, like the portfolio manager over our economy, but it is a very poor portfolio.
Adam Taggart 1:02:00
Yeah. And it’s still it’s still in the role of hero right now. Right? You know, it is in of course, at some point, you know, hopefully enough people wake up to realize it’s actually the arsonist that’s creating the fires and that the firefighter that’s saving us, but we’re not quite there yet. Yeah,
Matthew Piepenburg 1:02:17
not quite there yet. Again, Kooks like me think it is. But again, I think that’s another kind of reason why when things are failing the system, and there is a system that is very coordinated. That’s why you have to give Ben Bernanke the Nobel Prize, you have to you have to prop up these paper tigers and give them this kind of this kind of imprimatur of value. Because I think printing trillions to save an otherwise failed banking system and the bailout Wall Street, there’s not hardly the brilliance of a Nobel Prize. But it’s it’s just solving a debt problem, the more debt, but we create these heroes, we create these needs for platitudes and iconic notions of what American markets are, versus the more debt soap reality of the Douglas the darker underside of what the Fed has done to our economy and to our markets, to free price discovery to capitalism, to wealth inequality, because I am a capitalist, and I do believe in constructive destruction and letting bad companies rot and good companies profit, I don’t believe that should be controlled by a central bank, I don’t believe someone should get a Nobel Prize for solving a debt crisis with more debt that just makes it harder for the next generation. And that destroys our currency. It always ends in a currency destruction. And again, that’s that’s just why gold is becoming more popular not only among high net worth or retail investors, but central banks outside of the US.
Adam Taggart 1:03:36
So let’s let’s let’s shift now to the Okay, what should people do part of it? I do want underscored just to your point there. I just saw a chart that said that sovereign holdings of gold have just hit the highest point in history, basically. And part of that sort of intuiting with giants current holdings are likely to be because China doesn’t fully report. Yeah. But but it’s an important marker, right, which is, hey, no matter how much the central bankers of the world like call gold, a barbarous relic, pulling more of it than they ever have. Right. Matt, there’s, there’s no time to go into this. But hearing your response there, I’d love to have you back on the program at some point in time to talk about a better system, like in other words, if we were given a chance to do a do over what would you recommend? So I know, there are two big things that happened in the past century that are have a lot of you know, they’re very consequential for where we find ourselves right now. When was the formation of the sentence, the Federal Reserve and the rise of the sovereign central bank model that we have? And then secondly, was removing the world’s major fiat currencies from any sort of physical backup, right, notably the US in 1971. Right where fiat currency really could be printed at will, right. Yeah. So I don’t want to don’t put a ton of public pressure on you But is that a topic you’d be curious to
Matthew Piepenburg 1:05:01
know, it’d be fascinating. It’d be fascinating. I think to your other point, though, just about sovereign gold purchases. I mean, again, it’s like, again, keep it simple, stupid if, if you’re studying history, or if you’re looking at military history in the past, if you see a country where all of a sudden some king or emperor is bringing all his troops, horses and cannons to the border, that usually means something’s coming. You know, you don’t have to be a military genius or von Clausewitz to say, all these troops are showing up all these horses, all these soldiers, all these logistical train wagons. Well, when you see Central Bank, stacking physical gold, that’s troop movement towards something coming, you don’t have to be a genius to see what they’re saying the implications are not the end of the US dollar, not the end of America, not the end of the world reserve currency. But what it really means is the faith and the inherent purchasing power of the world reserve currency is dwindling, because every nation knows that the American dollar, though relatively stronger than any other currency to Brent Johnson’s point, and very important, I totally agree, doesn’t change the fact that it’s getting diluted, like a glass of wine with water poured into it every day, the faith in that greenback is getting weaker and weaker, and they’re slowly transitioning not to replace the dollar overnight. It’ll take decades to do that. What I’m seeing is the strength of that dollar, the inherent strength, not its relative strength is dissipating before eyes, its death by 1000 cuts. It is no coincidence those troops are lining up along the border of central banks are stacking gold, and they’re dumping treasuries. And you know, would be really great, because I would love to get on with Brent Johnson, because I agree with 90% of what he says, I disagree with about 5%. And he could be right. But I think what he’s not seen, despite how true it is that what are you gonna replace the dollar with the rupee, the rial? The the euro, the yen, the one? No, you’re not, but it doesn’t change the fact that the dollar, not just d dollars, eight cents $1 is getting diluted and debased. And it may be relatively strong, but that doesn’t change the fact that it’s inherently weak. And that’s why gold and again, I’m a gold guy. I’m an executive in Zurich, talking my book. But I’d be saying this, if I were a private wealth manager at Goldman Sachs, although I’d get fired for saying it to Goldman Sachs. You know, that’s, that’s irony. But I’m just saying, because I actually believe this. And I think the evidence is overwhelming. And I doesn’t mean that gold can solve every problem or that all you should do is buy gold and silver are, you know, short, the s&p is not insane. But the evidence, the troop movements are so obvious, if you just keep it simple, stupid, separate all the fog in all the noise, focus on the lighthouse, it’s not just gold, by the way, it just focus on the lighthouse focus on the simple metrics. I think it’s a fairly clear case. And
Adam Taggart 1:07:48
that’s a great analogy of the troops amassing at the border. It’s just a clear sign that something’s going to happen. And that certainly seems to be happening monetarily, with all these record high gold holdings. Okay, a couple of things. So first, folks, if you’d like Matt, to come on and have that discussion that we talked about, please let me know in the comment section, if there’s enough interest, I’ll try and twist his arm on it. Matt, if you want to have that discussion with Brent Johnson, and Brent is up for it, I am totally happy to offer Wealthion is the platform to have that discussion. And I will say having talked to Brent, I don’t think you guys are that far away, like Brent will say I’m not a fan of the dollar. I don’t like the dollar, but I am doing the math on how the system is constructed. And I think those that are expecting it to just roll over and die are highly likely going to be disappointed for all the reasons that that he puts out could be he could be right blini I think but I think continue together would be a fascinating discussion, no matter how much daylight there is between your positions. Alright, so real quick, if we could just have a quick discussion on the Okay, so got it on that like so what do we do about it right now? If you can kind of break your answer into two timelines, right one is the longer timeline right where answers like gold become pretty obvious, right? Okay, purchasing power of currency gonna go down? What asset should I put myself in that aren’t going to lose purchasing power as much? Right? But probably the more practical for folks is just sort of in the near term with assets are you looking at right now given what you see coming and correct me if I’m wrong, but having read your article, it does seem like you think that there are short term disinflationary and deflationary risks heading probably as we get to, you know, the lag effect causing some things to crack and a market correction as a result of that and whatnot. So there may very well be you know, a lot of, you know, downward price destruction before we get this big rescue that then shoots things to the moon.
Matthew Piepenburg 1:09:42
Oh, yeah. No, it’s, you know, it’s um, it’s an important question.
Adam Taggart 1:09:46
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