Jason Hartman welcomes George Gammon back to the show to talk about Japan’s debt to GDP ratio and its comparison to the US. He shares that the US deficit just this year will be the same as the total amount of debt accumulated from 1776 to 2000. George also explores trades surplus, the change in the savings rate due to Coronavirus, and Rebel Capitalist Pro. They also discuss inflation, deflation, and the Fed.
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Jason Hartman 0:29
It’s a great pleasure to have George gammon back on the show. He is a real estate investor, a investor in all kinds of things. And a fantastic macro economics educator. It’s always great to have him on the show, George, welcome back. How are you? Hey, Jason, thanks for having me. It’s good to have you and you are coming to us from billionaires. In St. Barts, right?
George Gammon 0:51
That’s right. That’s right. That’s right. I tell people that I’m the poorest person here by a mile. When I first got to the island, I looked around, I said, my goodness, I need like a St. Barts stimulus check somehow.
Jason Hartman 1:07
I don’t think you’re gonna get one they’re
George Gammon 1:10
gonna get out of here, that’s for sure. But beautiful place and I came here just because I didn’t want to deal with any lockdowns and the restaurants are open, the gyms are open, I’m gonna go to the gym after we talk. And it’s nice to just have some sense of normality right now in a very crazy world.
Jason Hartman 1:29
Are there any cases there? Or is it just totally clear? Like, you know, there’s, there’s no, is there any precaution there at all? Or is it just normal living,
George Gammon 1:38
there are some precautions, when you go to the grocery store, they make you wear a mask. Some restaurants require that you wear a mask when you’re like walking to the bathroom, you know, that crazy stuff? It’s kind of weird, because the French government has a little bit of say, but the people here for the most part really don’t like the French government, and they just try to kind of ignore them. But technically, like they’re supposed to give a restaurant a ticket if the people are wearing a mask to the table, but very few restaurants even acknowledge those rules. So it’s the main thing is you got to wear a mask when you’re going to the grocery store. Other than that, you’re pretty much good to go pretty good.
Jason Hartman 2:21
How didn’t St. Barts and I, you know, I don’t know if you’ve studied it much. I know you’re there. You’ve been there maybe what a month and a half now or something. But how did St. Barts become this sort of, you know, really high end Caribbean destination? I mean, it’s not I never hear about it as a tax haven or an asset protection haven. I hear more about, you know, Cayman or naevus in that regard, and certainly other places around the world to like jersey, etc. But, um, why St. Barts? Well,
George Gammon 2:49
I think for the Europeans and the French it is a tax haven. It’s very similar to Monaco. Okay. This is Monaco in the Caribbean. Okay. I think that’ll This was Rockefeller. Rockefeller built a huge house here that’s over by this beach. Right, I go snorkeling. It’s I think it’s been abandoned for for several decades, but it’s still there. And he was the first person to kind of make it popular, I guess, with kind of that crowd. Since it’s just a very little island. There’s maybe 9000 people here. The people are quite literally the most pleasant group of people I’ve ever met my life. They’re not just nice. They’re very courteous and very welcoming as well. And I think that combined with it’s a it’s it’s very nice. I mean, a lot of the Caribbean islands, you go downtown, and it’s very down and it’s not terrible. Yeah. Yeah. I mean, the beaches are great. The oceans are great. But you go to the in town, you’re like, Man, this is this is not.
Jason Hartman 3:53
It’s a slum and a lot of those answers. I mean, it really is a total slum and a high crime and all kinds of problems. But St.
George Gammon 4:00
St. Barts is the complete opposite not only the downtown area, just gorgeous. There is there’s nothing here that you would consider a slum and the crime is for the most part just non existent to the extent that I mean, nobody here walks their doors, nobody and your car when you go up to a restaurant. Pete most people just leave the keys in the car ignition when I went ocean swimming yesterday out to these cliffs where I go, cliff diving, and I just left on the beach, I just left my briefcase just right on a rock with my laptop, my phone, which has all my credit cards in it with my game. I didn’t even think twice. Twice. Interesting. It doesn’t really exist here. So that combined with everything else, and then you’ve got a lot of celebrities that come here cuz they don’t get hassled. I know a lot of you know singers and artists and whatnot have gotten married here. And I know during the I heard a statistic the other day from a guy at a cocktail party that During a New Year’s like some crazy number, like 90% of the super yachts in the entire world are here in St. Barts. Wow. New Year’s, it’s a very popular place. I won’t name any names, but a mutual friend of ours has a property here that he rents out during the holiday season, which is the high season here. I
Jason Hartman 5:24
know you’re talking about naming names. I don’t you know, I don’t want to throw out his his numbers or anything. But he rents it out for six figures per week. Wow. It’s that type of place. You sent me an image from your phone a screenshot of a map with properties for lease or rent there. And I couldn’t believe the prices. They were super expensive. But I got that. Yeah. Just on Airbnb. I think that was Yeah, prices were astronomical. But I’ll bet you the rent value ratios aren’t very good, because I bet you the value of those properties is just astronomical, even more so than the rents.
George Gammon 6:03
It’s still it. No, it’s still a no the RV ratios. You can get a you can get a good RV ratio here the problem you can
Jason Hartman 6:10
That’s amazing.
George Gammon 6:11
Yeah, yeah. I mean, I mean, who’s got 20 million to drop on a property. Right. But believe it or not, I mean, if
Jason Hartman 6:17
you mean a good RV RV ratio in favor of the tenant, right? Yeah. Right now is the landlord. Oh, is the landlord. Oh, yeah. Oh, that’s amazing on expensive properties. I wouldn’t have thought.
George Gammon 6:29
Yeah. As an example, if you’ve got, I mean, if you know what you’re doing. If you’ve got, let’s say 7 million in a property, you can make 700 grand a year on that.
Jason Hartman 6:38
Yeah. Well, you got to get 70,000 a month for 1% of 7 million. Right. So you’re getting sick. You’re getting six figures a week during the high seas. Yeah, right. Right. Right. Well, that’s vacation rentals, too. So you know, more, more volatility, potentially. But right now, given the fact that you don’t have lockdowns there, it’s an attractive place for wealthy people. So, you know, that skews the thing too, but very interesting. Well, hey, the other very courteous place that I’ve been, and I think you’ve been there too, as Japan. And you know, you did a fantastic YouTube video recently. And another one where you’re talking to Peter Schiff. And and then you were talking about the Federal Reserve and what they don’t want us to know, and so forth. And I thought, I’d like to ask you, because I talked about Japan quite a bit on my show. It’s a really interesting economic story. You know, they’ve been saddled with, you know, what used to be called the last decade, and it became the last two decades, and now it’s into the last three decades. And then they have you know, Ave nomics, which, you know, many people have heard of, and, and they’ve got a real demographic disaster in that they’re just not having kids. And the population is aging, obviously. And in 70 to 100 years, if they don’t have kids, or immigration, Japan literally won’t exist. You can’t have a country if you don’t have people, right. So, but it’s fascinating, because people have really downplayed Japan saying that, look, their debt to GDP ratio is the highest in the in the modern world. It’s 230% debt to GDP. And just to give people a reference point, I haven’t checked it lately, but I think even into all this craziness, now, it’s gotten worse, but the US is round 100% or approaching 100% debt to GDP. Oh, it’s more than that now. Okay.
George Gammon 8:18
Yeah, no, four plus trillion dollar deficits, the US deficit just this year, will be the same as the total amount of debt accumulated from 1776 to 2000.
Jason Hartman 8:33
I have to laugh at that. It’s so absurd. It’s so totally absurd. It’s it’s beyond. I mean, it’s just beyond comprehension, frankly. So we’ll talk about that. But, you know, we were talking OFF AIR about Japan. And I just want you to touch on that for a moment, in that the debt to GDP ratio does not necessarily Bode so badly for Japan is one might think, right? Well, it hasn’t caused hyperinflation. The opposite actually. Right. Yeah.
George Gammon 9:01
Yeah. It’s called it’s caused mild deflation, which I think is when a country gets that over indebted, I think kind of just a very slow grind. deflation, like that is probably a best case scenario. If you look at history, when you get a debt problem, it’s just there’s no easy way out of it. I mean, Dr. Lacey hunt talks about this all the time, you either have to have austerity, you’ve got to have in, you’ve got to inflate away the debt. Or, unfortunately, sometimes the way to get out of it is a war. But there just is no easy way out if you over consume. If you consume more than you produce for a long period of time, at some point, you’ve got to under consume. That’s just the way it works. There’s no financial engineering. get you around just a basic thought experiment. If you were stranded on an island, and you had I always use the thought experiment that if you’re stranded on an island with a suitcase full Have a billion dollars. Are you rich? I don’t think so. Because there’s no goods or services, right? Um, so anyway, going back to Japan, what most people see is they say, Well, you know, how come they haven’t had inflation or hyperinflation? And therefore, if they’ve done quantitative easing, if they’ve done all these things for the past three decades, or plus, you know, why can’t the united states do the same thing, and the United States could do the same thing. But there are no certainties there are always probabilities. So you have to look at the facts and how the economies are set up, and then weigh the probabilities for yourself. So there are dramatic differences. First and foremost, is the savings rate in Japan is staggering. I mean, it’s almost 30%. And so if you have your population saving that much money and not spending it into circulation, and velocity gets so low, that it’s, it’s I’m not gonna say that it’s hard to have inflation, but you’re not going to get it as easily. And in most people would see inflation as the value of the currency going down in relationship to goods and services or to other currencies. And there’s always a bid for the end, because they’re a net exporter. So what happens is, when you got two countries that are trading between one another, the one that is producing more stuff, more goods, and exporting those goods, they’re going to have a trade surplus, and therefore, there’s going to be more demand for those currencies, from the countries who are who are buying their goods, right, where the opposite is true. If you’ve got a trade surplus, then what you’re doing is you’re exporting more of your currency units. And therefore at some time, if all else being equal, the value of those currency units relative to other countries is going to go down. The reason that hasn’t happened with the United States is because obviously, we’re the world reserve currency in the world runs on dollars. And therefore there’s there’s a bid for these dollars to do business outside of the United States, regardless of what’s happening with our domestic economy, or how much goods and services we are how little goods, we’re actually producing an exporting.
Jason Hartman 12:21
Yeah, the US is in a pretty enviable position, at least for the time being. And you can really break a lot of rules. When you’re in the position the US is in you can defy gravity. The only question is for how long? I want to show you a chart real quick, George.
George Gammon 12:37
George, the economy, most people don’t don’t really think that through. So I would argue that massively distorts the economy as well. So going back to an interview with Lacey hunt on, I want to give them props. Grant Williams, who’s just a fantastic guy just interviewed him for my channel and Bill Fleckenstein did an interview called the end game where the podcasts called the endgame. This episode is Dr. Lacey hunt. And he talks about, they talk about a debt Jubilee. And I think as a thought experiment, that that’s a great way for us to get our heads around. What happens to an economy when you over consume. It’s not just the debt, like the Keynes is an mmt. People would say, Well, if the Fed could just buy all of the treasuries as an example, then on the asset side of the Fed’s balance sheet, you’d have, let’s say, whatever 27 trillion in treasuries, and then on the liability side of the government’s balance sheet, you’d have the same 27 trillion in treasuries. Well, okay, just click a button and the racist, right every, like NBA scoreboard, right? Yeah, for from 100, all the way down to zero, and you just start all over again. And the Fed keeps spending money and the economy grows as a result of this government spending. But what’s absent in that line of thinking is what has happened to the economy as a result of the government spending all that money in the first place. So as an example, with the United States, government spending now is over 50% of GDP, or
Jason Hartman 14:14
50 men and salutely insane.
George Gammon 14:18
Economy is government spending. And we know government doesn’t produce anything, right. Yeah, they balance right. Yeah. So they’re not producing anything. So 50% of this. So that doesn’t go away. Right? Even if they’re able to start from zero again, the only thing that happens is that gets worse, it gets good goes from 50% to 60%. So if the quote unquote, how rich an economy is, is based on the amount of goods and services that are actually being produced, right, not currency units that are just being right, at some point that it just it comes home to roost regardless of whether you have a debt Jubilee or not. Another great example would be all the zombie corporations. You Japan, if Japan had a debt Jubilee, those zombie corporations would still be there. Yeah, no, that’s
Jason Hartman 15:05
all fascinating before you go on too much. I just shared my screen a moment ago. And I just want you to see this. Because it’s it’s sort of interesting. And it sort of goes to this blank, the whole dysfunctional system we have. If you look at the personal savings rate in the US, it’s always been, you know, fairly low Americans. Keep in mind,
George Gammon 15:23
this is like the CPI as well. Yeah, I’ve done a video, I’ve done a video on how they, of course, I
Jason Hartman 15:29
don’t deny that it’s bogus. And
George Gammon 15:32
notice that they changed it. I think they changed it back in 2015. right around there, Jason, but prior, it was like for like three 4%. And then it popped right up to seven. That was because of the finagling of the numbers. So
Jason Hartman 15:47
but but but they didn’t change it this year. So the benchmark it relatively speaking, is all we’re looking at. And it’s just interesting to notice how much money people are saving when they’re in lockdown. Because they’re not spending money, right? So you see here, we’re looking at February, March area right here, you know, and it’s, it’s it’s hovering around, you know, 7.78%, something like that. And then the savings rate just skyrockets. Yeah. You know, and, and, and to infinity and beyond. And, you know, they’re getting an extra $600. You know, like paying them not to work, right. And then you see, as the lockdowns are lifted, the savings rate starts to plummet a little bit as people go out, and they buy an RV, they buy a boat, they go out to some restaurants, they’re not going on airplanes, but they’re doing vacationing with RVs, like rv sales are through the roof. You know, those are warriors, because everyone’s buying camping gear. Yeah, right. Right. So people are doing domestic vacations, right. So this is just kind of interesting. I just thought I’d share that. I think
George Gammon 16:54
I think they’re doing domestic vacations. And then they’re also getting out of dodge. I mean, the I don’t know if you saw what happened, like rock random ball last night. And I mean, it’s just bananas in urban areas in the United States right now. Especially. I got a lot of buddies that are even in red states that have bought RB RVs. And they lived in kind of even suburban urban areas. And they’re like, Listen, I’m out, I can work from my computer, I’m gonna go to like, show low Arizona as an example, right? Yeah, I’m just gonna sit here in a campsite with Wi Fi.
Jason Hartman 17:29
When we have 5g, as long as you have a tower close to you, those towers need to be plentiful and close to you. And now there’s a whole bunch of theories about 5g and the health side effects I won’t go into, but that will make your internet just plentiful mobile, you know, super fast. Tell us though, about this savings chart? What was the manipulation? And when was it 2015? Because you know, this, this goes back that far. And by the way, this is from the St. Louis Fed. Tell us about the manipulation. We talked about unemployment number manipulation a lot. You and I both do that. Obviously the CPI, consumer price index inflation metrics, manipulated massively.
George Gammon 18:08
But what about the savings rate? I’d have to go back and look at my notes. I don’t know the year right off the top of my head. I this is a video I probably did four or five months ago. I remember with the the manipulation of the rate, though, it had to do with the fact of how the IRS estimates what you’re not paying them.
Jason Hartman 18:29
Mm hmm. Okay, it’s
George Gammon 18:30
just a completely obscure, like objective or subjective number. And that when I read it, I’m like, I think it was the reason it didn’t make any sense to me whatsoever is because it only calculated what people are not paying them. And it didn’t calculate how much people are overpaying them. Okay. Okay. I would argue people overpay far more than they under pay. You know, the IRS always says, Oh, you know, if Americans paid the tax that they should, or people underpaid by 500 billion a year or something like that, that is that all they’re doing is they’re looking at the people that underpaid, they’re not looking at it on net balance. They don’t look at all the people who overpaid because they don’t want you to know about that. In fact, I talked to Robert Barnes is a good buddy of mine. He was the lawyer for Alex Jones against Twitter. He’s a free speech, you know, constitutional lawyer, representing Wesley Snipes against the IRS and whatnot. So he’s got a lot of knowledge with these IRS cases. And, you know, we talked about how many people actually overpay and he’s saying he went through some of these deductions that I’ve never even heard of, and I’ve been audited five times. I’ve never you know, as a business owner, as an entrepreneur, you know, you have a little bit more a better understanding as to what especially as a real estate guy, as to what’s deductible and not and he was going down this list of things that I have never even heard of. So I can almost promise you that 90% of the people especially they’re just going out there to h&r block. or using some sort of software program that they’re not taking the all the deductions that they qualify for. Not even close
Jason Hartman 20:06
to it. So anyway, yeah, no, it’s, uh, you know, 70 some odd 1000 pages tax code, I guess it last last time I knew. And it’s it’s just super complicated. And you know, there’s so much manipulation I mean, in 2006, I think it was they stopped publishing em three, it’s just a moving target to try and figure out the economy because the powers that be want to just hide everything from the hoi polloi is us little people. But, George, you did a fantastic video recently about the things the Fed, really the powers that be in general don’t want us to know. Do you want to talk about that a little bit?
George Gammon 20:43
Yeah, well, three, three things. First, was that you always hear that deflation is bad, and it’s the boogeyman. And I think I think it’s actually good. If you look at deflation in and of itself, especially if it’s produced by free market forces, which if we had a free market capitalist society, we would see deflation, and it would be very healthy deflation, because entrepreneurs are out there producing goods and services, and they’re trying to compete with one another. And they’re doing it more efficiently in their produce producing things at lower prices. And that’s just that increases demand. That’s really kind of the line in the sand, you got to ask yourself, Is this type of deflation, increasing demand? Or is it decreasing demand? And that’s where you know, the most of the deflation that we have now. It’s kind of a scary thing, because of the amount of debt that we have in the system. But I would argue that that’s like saying that, you know, heroin isn’t the problem. The problem is that XYZ person is addicted to the heroin, right? heroin in and of itself isn’t the issue. The next one was the inflation is good. We always hear that from the government or the Fed, especially, or central banks that do they have these inflation targets?
Jason Hartman 21:52
Right? 2%? Yeah.
George Gammon 21:56
Well, yeah, well, now that’s of course, a moving bogey as well. I don’t know if you heard pals latest speech. Oh, that that is earth shattering.
Jason Hartman 22:03
You know, I made a big deal about that on my podcast, either yesterday or the day before. But this is a sea change, potentially, folks, the Fed has just lifted all the constraints. And they’ve come out and said, we’re not going to forecast and act in a forecasting or react to forecast. We’re going to wait until we see it. And then we’re going to change and you know, that’s like a giant oil tanker. Oh, it takes a long time to turn that big baby around. And if the Fed, if this is their new philosophy, then I mean, that is fairly at
George Gammon 22:38
risk. Right? They’re always moving the target. It’s nonsense. First, it’s like, let’s get up to 2%. Yeah. And once they get up to 2%, they say, well, actually average 2%. And we were under 2%, for 10 years. So now we could run it 10%. And it doesn’t matter if those be an average as though right? That makes sense. I don’t know,
Jason Hartman 22:58
then they’ll change the timeframe. They do the average over? Yeah, they take out a couple of years that are anomalies, and they don’t like and make it weighted weighted average versus an average average. So
George Gammon 23:08
yeah, no, exactly. So this is just the the next step in the long line of just, I don’t want to call them lies, but just kind of the smoke and mirrors game they’re playing when they just wanted nit that day, meaning the government has to have inflation, it’s there. It’s the path of least resistance for a government that’s 27 trillion in debt, and this debt is just going to be ever crushing them, as it increases with these deficits that we’re seeing in COVID. But, you know, so you hear that this inflation, this low type of inflation is actually good. And then the third thing that I went over is who actually owns the Fed, and I focused on the New York Fed, and the usual suspects are there, you know, the top three, I think it was Citi, JP Morgan, Goldman Sachs. But the the next two, I think, would really shock a lot of people in the sense that it was HSBC, and Deutsche Bank. So a lot of people when I bring up, you know, what’s look at the Fed’s p&l, not just their, their balance sheet, they say, Oh, that’s nonsense, because they only get a 6% dividend and everything that they that they make as far as profit from their I don’t want to call them investments, but we’ll see. She goes right to the Treasury. And I’m like, yeah, maybe maybe not. I mean, the Fed has a surplus account that they even admit to that they have money and that’s in excess of what they repatriate to the government. And after the dividend, that’s one. But then what most people aren’t thinking about is listen, just because they might not get billions and billions and billions and billions and distributions, as owners think about all the money that they’re making or the profit they’re making, as a result of maybe being closer having the ear of a Fed governor being you know, I mean, you got you I mean 2008 two Great example. You know, they get the bailouts from the government or the Fed. And now, most more recently, you know, we had the repo spike in September. And this goes up to 10%. I mean, if the Fed wouldn’t have stepped in right there, I don’t think people understand that. I mean, we’re done. The banking system is done, they, there’s no way that you can have the dollar funding market operate with 10% interest rates. And so they come in, they basically bailed out the banks right there, in my opinion, and then you have what we saw in March. And it’s not just now the Fed now, it’s the government coming in with their stimulus and bailouts that that are, like a government put is what I call it now. And that’s bailing out the banks to a certain degree, but then you look at all the investment banks, and they’re they have record profits? And is it any surprise because they think there’s a Fed put? And, you know, they I think you could argue that there could be whether it’s psychological or was director implicit, but so their downside is cap, but their upside is almost limitless. So you look at the risk reward, and that’s all benefiting the bank. So
Jason Hartman 26:11
socialism for the rich and giant corporations, you know, it’s
George Gammon 26:14
especially the big banks. Yeah. So that’s kind of the three things that I outlined. But as far as the deflation example that I gave, it was the late 1800s. And we saw that everything I think went in the right direction as an example that the average hours worked for the few positions that I saw went down pretty much across the United States, the wages went up. In some case, wages went up dramatically, like 50%, just in the span of 10 years from 1890 to 1903. And so then you say, okay, that’s a good thing. But keep in mind that from 1865 to the year 1900, we had almost 50%, deflation. 55 zero post war era? Yeah, yeah. So well, the gold standard, really. So what you have is, you know, 52 cents in 1900, could buy what $1 could buy in 1865. So you have the prices of goods and services going down, down, down, down, down, while people’s wages in nominal terms, not just real terms, but in nominal terms are going up and up. And then you have GDP, increasing dramatically. GDP from ninth or excuse me, from 1865 to 1900, went up by almost 100%. And that’s in nominal terms, and people say yeah, but the population increased, right? Look at the per capita GDP that went up as well, in nominal terms. So I mean, how can you? Well, that’s a rhetorical question, you can’t produce an environment that’s better for the poor and middle class where their lives improve more dramatically than something where their wages are going up. And the cost of what they buy daily is going down consistently at say, a 3% clip per annum. I mean, that that is the press. Go ahead
Jason Hartman 28:04
goes. I was just gonna say can you attribute any of that deflation for that long period to the Industrial Revolution, though? Yeah, you know, that was,
George Gammon 28:15
I think most of it, you attribute to that. So that’s the free market. That’s what I was saying, when you have a normal free or not a normal, but the free market, where it’s very few regulations, where people can actually compete, and you have, you know, Jupiter’s creative destruction that’s actually allowed to take place and you have all these things, you don’t have manipulated interest rates, you have hard money, you have sound money, that is absolutely key, then what happens is guys, and gals like you and I go out there, and we produce whatever we can produce, to pursue our own self interest. And we compete with one another, we’re very competitive, I know you’re competitive, I’m extremely competitive. And we’re always going to try to gain market share, we’re going to try to make more money, the way we do that is by producing a good or service that people value more than the money in their pocket. And so we’re always trying to find better ways to do things. We’re always trying to find ways to create new technologies to deliver our goods and services to the general public at a cheaper cost. And that benefits everybody. And as those prices go down, and their wages stay the same, not go up, that increases demand, that doesn’t decrease. So it’s the fact that we have an economy now that’s based on debt, asset prices and confidence. That’s the reason why we could get a deflationary spiral, that would be a bad thing, because people can’t get they can’t get debt, and they need the debt to further increase their consumption. So that’s an example of demand going down because there’s just no more debt. There’s not an expansion of debt, but that’s not deflations fault. That’s the fault of the underlying economy.
Jason Hartman 29:59
So a lot Does it you know, plays in whether there’s inflation, deflation, whatever. And, and, you know, you can divide it up between consumer prices and asset prices for sure. And, you know, I know you have a lot to say about that, and some great stuff there. These interest rates, George are insane. I mean, they’re, it’s just got to be a completely artificial market, in the interest rates. Where do you think we’re going and interest rates are just notoriously hard to predict? Because, you know, especially when you have policymakers intervening all the time, right, you know, where do you think we’re going with this interest rate stuff, and, and I’m sure you believe it’s dysfunctional, and has causes a lot of malinvestment, and such and, you know, people to do improper things that they wouldn’t normally do, and obviously hurts, savers and usually older people. But you know, what are your thoughts about that? I just thought I’d throw a few things out there give you something to chew on.
George Gammon 30:54
Well, let’s, let’s think through the Fisher equation. And I’m not sure if you’re familiar with the Fisher equation, very, very simple. But but it has a dramatic impact. So
Jason Hartman 31:04
the Fisher equation is just, if my memory serves me right here is the real interest rates, plus the rate of inflation, would give us nominal rates. So you’ve got let me write this down here. So we’ve got the real rates and real interest rates, because it has to be a cost to the use of money. Because when a lender loans the money, they have an opportunity costs because they can’t use the money for something else. That’s the basis of interest rate, time value of money, etc. Right? Yeah, that’s fair. And then you take the real rate of inflation, and you add it to that opportunity cost. And that should be the interest rate in my eyes.
George Gammon 31:50
Yes, that’s correct. That’s basically the Fisher equation. An easier way to look at the equation, I think, is it was the same equation is if you take nominal rates minus inflation, that gives us the real rates. Everyone, everyone, that’s pretty much common sense right there. Right? So if the Fed pegs The rate at zero, so they peg Fed Funds at zero. And let’s say that we actually have deflation, that the economy, we have all this debt, and the economy is trying to get it out. It’s trying to flush it out of the system. So as an economy, we’re having deflation, okay? Well, if they’re pegging it at zero, they won’t let it go negative. If we have a, let’s say, a negative two, rate of deflation, well, what that’s doing to the real rates, is it’s increasing them, right. And if we have increasingly high real interest rates, that makes it harder for people to borrow, that makes the money more expensive. So the only way the only release valve for the government if the Fisher equation is true, which it obviously is, is to allow the rates to go negative. So this allows the Fed funds rate to go negative, and therefore that would allow real rates to go back to zero or to negative where people could actually afford to take on more debt, you say? So my point is, the feds backed up into a corner, where if and I’m just saying if the system stayed the same way as it is today, meaning that they had to abide by the Federal Reserve Act. And so that’s all another type of what I’m talking about is them not being able to take bank reserves and inject it directly into the economy through just let’s say, a Fed coin and bring it to your app. So that’s a whole other topic of conversation. And I think they’ll go around the Federal Reserve Act. But if they abide by the way the system is set up. Now, let’s say the Fed would have no choice at some point then to take rates negative they they have to just because of Fisher equation, because if deflation is going down, because of this over indebtedness, and I’m not just talking about consumer prices, I’m talking about assets as well, then the real rate of interest, like we said goes up and up and up and up. But if you have the real rate of interest going up while you have deflation, that just feeds on itself. And that creates a positive feedback loop that gets really really ugly really fast. So they’d have to take and they’d have to get great, further negative to opening up the affordability to increasing debt with consumers and businesses in the real economy. So and homebuyers, homebuyers, everyone. Yeah, so that’s kind of I’d have people look at the Fisher equation. If they’re trying to figure out what’s going to happen with interest rates moving forward. Now then you’d have to handicap on top of that. What are the chances that the Fed circumnavigates the current system, especially based on what we’ve seen them do since since repo and since March where they pretty much abandoned every single thing that is written in the Federal Reserve Act, they’re buying junk debt. And I’ve read the Federal Reserve Act. And I can promise you nowhere in the Federal Reserve Act, does it say that the Fed can buy a corporate debt or corporate junk debt for that matter. And obviously, they’re doing it. So if they get around that, then they can create inflation without having to rely on the commercial banking system. Because right now, the main way that they can get em to increase meaning more currency units chasing the same amount of goods and services, is by the banks lending new money into existence, right, by creating loans. So the deflation his argument is, well, the banks aren’t lending. And there’s no consumer appetite for debt, because we have these positive interest positive real rates, right, that’s crushing the economy, and therefore, there’s no money that’s being created, money’s being destroyed. And that’s deflationary. That’s basically the crux of their argument, right. But what they’re not considering, they might be considering it, but they’re giving a low probability, or I would give it a high probability is at some point, the Fed will look at Japan, they’ll look at the ECB, the eurozone, they’ll look at these negative rates. And though they’ll say, listen, we cannot take rates negative here in the United States, because we have the reserve currency. And we have this infrastructure, meaning the bond market that is completely reliant on rates being positive, at least yet euro, once it goes negative. It’s not like the German boons going negative, or jG B’s, it’s a whole different, whole different animal. I
Jason Hartman 36:32
agree with you on that. You’re going to try to get around it, you probably have more to that thought. But I just didn’t want to forget to ask you this, because I think my viewers and listeners want to know, George’s opinion on this. We were talking a few minutes ago about the target rate of inflation, you know, 2% that the Fed has publicly stated, you know, that’s that’s their their goal, they you know, that’s relates to the Phillips Curve and the relationship between inflation and unemployment rates. But there does seem like, I have a feeling you’re gonna disagree with this. But there seems like like a valid argument you can make to have some inflation in the system, as long as the highly manipulated GDP is increasing, and the population is increasing. You know, it seems like there’s a there’s a logical argument to have some inflation that’s relative to population and GDP increases. Does George gammon Think so? I have a feeling he’s gonna say no, but what is it? What do you think? No, I don’t I don’t see the upside for that. Okay.
George Gammon 37:33
I guess the argument is, the economy needs more money. If it’s growing.
Jason Hartman 37:37
Yeah. There’s more people. There’s a bigger economy, more people.
George Gammon 37:41
Yeah, but I just say that you just you just divide the currency units you have into a lower amount. But so let’s say we had dollars right now we had, let’s say we had $100 in the entire economy. And we’re like, shoot, this is getting cumbersome. We don’t have enough currency units to transact because I have to wait for that guy to sell his cow in order for me to have currency units to trade to this person being restricted, right. Why to say, Okay, well, let’s not increase the amount of dollars. Let’s just create quarters. Let’s create dimes. Let’s create pennies. And that’s how I get around that.
Jason Hartman 38:12
Yeah, right. Right. Right. All right. And it’s interesting also, that there’s this giant coin shortage going on, which makes me suspicious that there’s, there’s something behind that either a digital currency on the way, which I think that’s going to happen, obviously, at some point, at least, China’s certainly moving in that direction. Smart for them bad for the people, though, or just the fact that it’s just too expensive, or there’s going to be a lot of inflation in the system. And those coins are going to be meaningless. I mean, why, you know, cost, I think it cost 1.16 cents to produce a penny, like, how did we get here? This is just obvious that there’s massive inflation in the system.
George Gammon 38:52
Yeah, and I don’t I think that that’s a great point, I think it goes back to what we were talking about with the Fisher equation, and how the Fed has painted themselves into a corner where they they have to take rates negative, but they can’t take rates negative because it blows up the whole system. So how do you get around that? Will you ban cash? And then what you do is you have let’s call it UBI, or, or whatever that’s funded by universal basic income. Yeah, so it’s, but it’s funded by the Fed’s balance sheet. So that’s a direct way to get around the banks to inject more currency units into the real economy without the banks having to create more loans. And so I think that’s kind of going to be their rationale. Obviously, they’re going to sell it as this is for your security. This is for your safety benefit, to avoid terrorism, drug dealers, trafficking, everything to do with it, right. It’s the freedom dividend that you deserve as an American. So his freedom dividend is $2,000 a month, but in order to get it, you just got to download the freedom dividend app. on your phone, and then you’re gonna have a bank account with the Fed, just like JP Morgan, just like the TGA, the Treasury general account, just like the primary dealer banks, Jason Hartman. Well, you might not because you probably opt out like I live. But yeah, right. On average, Joe, let’s say is going to download the app, and they’re going to have an account with the Fed. And the Fed is going to create new bank reserves, just like they do with JP Morgan, when they do quantitative easing, and they buy treasuries. And instead of the Fed buying assets from you, they’re just going to simply increase the amount that’s in your account by $1,000. With bank reserves, and that’ll be your UBI, your universal basic income right there.
Jason Hartman 40:42
And then you go on the phone, and you got to spend that money on the phone. And guess what, if they don’t like you, or you commit a crime, or they’re, you know, thought to have committed a crime, they’ll just shut you off. And you’ll have you won’t have any spending privacy at all, they’ll know every, you know, unit you spend somewhere
George Gammon 40:59
and where you spend it, how you spend it, how fast you spend it. And then if they don’t see velocity increasing, what they’ll do is they’ll just reduce the amount of time that you have to spend your freedom dollars, are you able to put an expiration date on it to discourage saving? That’s right, unbelievable. Yeah, they can say, okay, Jason, if you don’t spend this $2,000, in 30 days, it expires, but it’s gone. Just Just like
Jason Hartman 41:22
your frequent flyer miles in your airline program, or that gift card that you didn’t use, you know, yeah. Really scary stuff. George, you think we’re going there?
George Gammon 41:32
Yeah. Yeah, I don’t think they’re gonna have a way out. I mean, if you are under the assumption that the Fed has any level of intelligence in the 900 PhDs at the Fed, and that’s debatable, but you can’t, if you and I were the Fed, and they said, Hey, Jason, George, we need to create inflation, because we have to bail out the government. How are we going to do that? Well, what you and I would most likely do is go we’d studied Japan, we’d study the eurozone, we’d figure out okay, why didn’t this work? Why hasn’t Japan been able to get it? And then we’d sit there and we’d go over the obviously have more access to more data than you and I do you and I can figure this out? Right? I mean, they’ve got to be able to figure it out. Oh, sure. Yeah. And then so they’re reporting to the powers that be? And they’re saying, Okay, this is why Japan didn’t create inflation. Okay, how can we get around this? And the only answer is to get around the commercial banking system and get velocity up. Even that might not work. But that’s that’s kind of the Hail Marys. So it the only other option really, is his belt tightening in austerity. So if you think that, you know, with politicians, especially in the United States, they’re always going to take the path of least resistance. And so think about how politically palatable that would be for a politician to go out there to their constituents, or to go on, you know, Fox News, or CNN or whatever, and say, Hey, guys, you know, what we need to do for the next 10 years, is we just need to produce more than we consume, right? And we need to tighten our belts, and we need to go through the 1930s.
Jason Hartman 43:16
Very old fashioned and nobody would do it now raise
George Gammon 43:18
money, and you guys need to live beneath your means. Yeah, you need to your standard of living has
Jason Hartman 43:25
been down, decrease
George Gammon 43:26
dramatically, for the next 10 years. Or what we can do is we can just give you money to spend every month, which do you choose?
Jason Hartman 43:35
Yeah. Obviously, we all know what they’re going to choose. Yeah, it’s, it’s, it’s crazy. It really is. Well, George, you know, just wrap this up for us. You know, are there any? I’m sure there are questions that, you know, I didn’t ask you, of course, that maybe you just want to say anything, wrap it up with some, you know, closing thoughts for our listeners and viewers, if you would?
George Gammon 44:00
Well, I always say that in today’s time, you can be prepared or you’re going to be a victim. And I think what we’re talking about with not just inflation, deflation, everything that’s going on the fed with money printing, quote, unquote, you’ve got to look at hard assets. I mean, you just and I don’t care whether you’re a gold bugs, silver, if you’re a real estate guy or gal, you’ve just you might obviously you want some some dry powder there in case we get, you know, the stock market going down, you can take advantage of that. But you’ve got to have hard assets, because you just don’t know what they’re going to do. And we know that it’s to their benefit. They’re incentivized to create not just inflation, but a lot of inflation, right? And therefore you don’t want to be on the other end of that if they’re able to achieve it. So again, obviously you’re the real estate guy, so I’d refer people to you, and I’d be very careful about the real estate as well. I mean, these urban areas Hi, I’m here to postpone rest. I just I just don’t think you want anything to do with that, especially. And we didn’t talk about the well acts in California and all this nonsense, yeah. So you got to be very, very, very careful. But start considering hard assets. Right now, I also like commodities. And as you point out very well, and you have for over a decade, that all our house is is just packaged commodities. And so I’d encourage people to not only understand this stuff, but to start figuring out how they can apply what we’re talking about to their current portfolio, or maybe their their everyday lives when it comes to, you know, the urban areas and social unrest. That’s pretty much what I end on. Yeah,
Jason Hartman 45:41
I and George, I would agree with you see hard assets, I like real estate the best or the commodities that make up the real estate, the copper wire, the steel, the glass, the lumber, the petroleum products, the concrete, etc, all the ingredients of a house, those have intrinsic value, regardless of what any currency on earth is doing. Everybody just needs those intrinsically, they have their own value, regardless of being indexed to a currency like the dollar, the yen, or the Euro, or whatever. So I agree with you there, definitely. And stay away from the urban areas and stay away from politically left leaning areas, I think we can say with certainty, that the left leaning areas are literally becoming to us the trumpism shitholes. And it’s just my home state, the vast majority of my adult life, the Socialist Republic of California is so sad to see what is happening to that beautiful state. And they’re they’re just ruining it. I mean, the policymakers are just destroying that state, and especially the urban areas within the state. So you know, you look at San Francisco, you look at Los Angeles, where I grew up, especially back there, but just the state in general. And you know, you look at New York, you know, it’s just unbelievable. I mean, I just cannot, there’s just no excuse. And these mayor’s these left leaning mayors of the cities, they should be indicted for not protecting the property and the people that live there. That’s their solemn duty is to do that. And they let this to send them to a state of anarchy. I mean, these businesses are being ruined, lives are being ruined. People are being assaulted, killed, attacked. This is unbelievable that this is happening in the US.
George Gammon 47:33
Yeah, that’s the best way to say it. And, again, you can just ignore this. You can have cognitive dissonance, you can try to rationalize it. But it’s not going away. You’re not going away, and you’re going to be a victim.
Jason Hartman 47:46
Yeah, you really are. George, you have a fantastic group that I’m a member of, and I just love it. That’s kind of the pro version that you offer. Why don’t you tell us about that and give people a link where they can find out more?
George Gammon 48:00
Sure. So that’s a partnership deal I have with Lynn Aldean, and Chris McIntosh, Lynne Alden, is an extraordinary mind. She’s a research analyst, I guess you could say. She’s a huge on fin twit. And then Chris McIntosh has been a fund manager for many, many years. And they see the world in a very similar way to you. And I had to say the least. So we set up this online forum for people. It’s called rebel capitalist Pro. It has research from Lynn and Chris, we do live streams for members where they can ask myself Chris Lynn questions, and then the user generated content is fantastic. And then it’s just a great resource for people. But I, I always call it a sane space, right, because we have all these safe spaces at local university. And I call this a same space because for people like you and I, you know, we go online, or you go to your Facebook feed or something like that, and it’s just filled with just insane. Yeah, whenever you go online, so this is a way for people who kind of see things the way we do, to congregate, to help each other and then to use that research to be prepared and to make more money and to not only survive, but thrive in a world of out of control central banks and big government. So that said, comm forward slash Pro,
Jason Hartman 49:32
I’m chuckling because that’s George’s tagline, how to how to survive and thrive in a world of out of control central bank’s good stuff. So the link again, is George gammon.com. forward slash pro forward slash pro and that’s your rebel capitalists pro group. Yeah, good stuff, George. Hey, thanks so much for joining us. Thanks for having me. Happy investing.
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