Are We Headed Into Recession? | Top of Mind Series
In this Invest Like a Billionaire podcast episode, host (Speaker A) and economist Bob Fraser dissect the current U.S. economic environment and the risk of a recession. They trace the roots of recent inflation to unprecedented COVID‑era stimulus—helicopter money and massive fiscal outlays—explaining how the sudden surge of consumer cash ($5 trillion) collided with an economy already near capacity, creating price pressures. Fraser contrasts traditional “hard‑money” views with Modern Monetary Theory, arguing that inflation depends on whether stimulus hits excess capacity or a tight economy. They review key data points: record consumer savings, high retail sales, low debt‑service ratios, strong real wages, robust employment, and a still‑healthy wealth effect, while also noting weakening consumer confidence, tightening credit standards, and global recession risks. The conversation weighs arguments for a recession (inflation squeeze, credit tightening, global slowdown) against arguments for a soft landing (strong consumer balance sheets, low debt, solid labor market). They discuss the Federal Reserve’s leverage—whether it will push rates hard enough to force a recession or accept a higher inflation target. The episode serves as a teaser for an upcoming webinar where Fraser will present detailed charts and data, and it includes a promotion for Aspen Funds’ passive alternative‑investment platform.
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This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. Today we're going to do another top of mind episode. And so in this series, it's generally just Bob and I getting together, sharing some thoughts on the economy, on real estate, on What's the big questions that investors are thinking about right now? And today we wanted to kind of come in and just talk about recession risk, right? This is a big question on a lot of investors' minds. They've been hearing and seeing all the headlines that recession is looming, it's going to be bad, you know, and it's, you know, the Fed is destroying the economy, et cetera, et cetera. So there's all these, you know, big headlines floating out there, but as you have maybe come to know, with, with us, we love to dig into the data. And Bob actually gave a keynote presentation just a few weeks ago at a conference. And it was awesome. It was really diving into the underlying data of what's going on in the economy and really where are we at. And so this is just intended to be a little bit of a teaser because we're actually going to be doing a webinar and he's going to go through those same slides that he gave as a keynote and really break down with great data. So you're going to want to stay tuned and get notified of that. So get on our mailing list if you're not already. But we're going to kind of just give some of the high-level thoughts and some of the things that we're seeing and just hopefully answer some questions and just give you some good thoughts of where we're at. So Bob, everyone's asking, are we in a recession? Right? I think before we even answer that question is, how do we get to where we are?
Right?
We're kind of beginning of 2023. And you know, we've seen the Fed raise interest rates in the fastest and shortest time period in history, right? The fastest increase because of this massive inflationary pressures. And so how do we get here, right? What were some of the causes of this inflation?
And as we dive into all this, I just want to say, you know, at the keynote I did, I mean, Everybody was shocked at the data. I mean, it's, it's, there's so much noise out there.
Yes.
Getting clear. Everyone's just so thankful. Oh my gosh, you broke it down. You gave clear understanding of where our why, and I understand the big picture now and in order to make good decisions and, and it's amazing, you know, and, and some people said, oh my gosh, you're so bullish. And then other people said, oh my gosh, I wet my pants, you know, so, so, and maybe that's, that's the definition of a good, of a good presentation because you know, it's not all, it's not all 100% one way or the other.
Right.
And so, yeah, we want, we want to, we want to really break this down accurately and really help people. And so, so how do we get here? Well, and this is, this is one of the things that I want to point out is that what happened with this stimulus has never happened in history before. Okay. So the kind of stimulus the Fed did during COVID right? During COVID So, so, you know, the Fed's been in existence around 100 years, and typically what they've done when they wanted to boost the economy, uh, you know, get it out of the doldrums, is they basically lowered interest rates. And the Fed only controls short-term interest rates, so long-term interest rates are market-based, based on auction. Well, so that— but that's a very weak kind of mechanism, right? Because, okay, well, so they can make it cheaper for you to borrow, but what if, you know, so you borrow money, you know, cheap money and you go expand your factory and then maybe you hire a person and then maybe you buy a little more stuff. So it's a, it's trickle down. But what if you just laid off half your workers, you lost most of your business, you're not interested in expanding. I give you a credit card with cheap, cheap borrowing. You're like, no thanks, I don't need it. And that's exactly what happens. And so then they basically in 2008, they experimented during the, during the great, the great financial crisis with some new mechanisms and, right. And they did some bailout programs where they literally pushed money into the system, massively funded up private enterprises with the TARP program or the bank bailouts. And they started a Federal Reserve monetization program where they printed money. And bought stuff. And, you know, and all the hard money guys like me at the time was going, okay, this is going to, this means hyperinflation when you start monetizing debt. Well, it didn't happen. In fact, we just had record low deflation. So it forced me to rethink everything. And I spent a lot of time just really looking at data freshly and getting a new set of eyes. And so that was that. But then what happened And of course, whatever people get away with, they'll try 10 times more the next time. Right. So now COVID comes and they tried a brand new mechanism and it was literally a joke. Back in the early 2000s, Ben Bernanke said, hey, everybody's worried about deflation. He said, well, I can solve deflation. I could just helicopter money to people, drop money from helicopters, and we can stop deflation. Well, that's in essence what they did. They helicoptered money and, you know, sent money to individuals and wow, is that different than anything else?
Okay.
And here, here, here, here's the picture. So I give— you're a businessman who owns a factory and I give you a million-dollar credit card at cheap interest. Is that going to boost the economy? Well, maybe, maybe not. Right. But I go and wire every human being in America, $1 million, just wire them the money. Literally, they, they open up their account, $1 million, every man, woman, and child. What would happen? What would happen? Would it, would people quit their jobs? Uh-huh.
Uh-huh.
Would, would people start to spend? Uh-huh. Would they open up Robinhood accounts and start to buy cryptos? Yep, they would. Would they, would they go plan, go to air, you know, plan their Airbnb vacations? They start going out to eat and go out to drink and, Heck yeah. The only problem was there'd be no workers to serve them the drinks because everybody quit. And this is exactly what happened. We saw massive gains in wages. We saw massive exiting of the workforce. We've seen massive savings. And so literally there is the, in US households, there has never been this much cash sitting in the bank. Super flush. So So what happened, this is a, created a massive distortion, massive distortion, and it's still not worked out of the system yet.
Right.
And so that's the background that's created all this inflation. It's created, you know, and there's a few other things, but you know, like energy, but it's created all this inflation and created this incredibly strong consumer. What?
Yes. You made the point too that, you know, the other kind of piece of this, you have now a massive amount of demand that's just ready to spend in the economy, but also the supply side, the capacity, right, is a big factor in this too. And so when there's this much stimulus and we're at capacity economically, that is very inflationary, right?
Right. And this is what, you know, so, you know, I've become more of an MMT guy, Modern Monetary Theory, and this is what the hard money economists miss. All right. The gold bugs, let's, you know, you know, you print money, you, you, you're going to create massive inflation. Well, no, you don't actually. And the key is when you print the money. So if you have a factory, Ben, and you're making, you know, 500 widgets a month and I come and all of a sudden, you know, and you're running at half capacity, you can make 1,000 widgets a month and you're dying because you're barely keeping the doors open, the lights on. And I come and say, Ben, I want to buy another 500. I'm going to print money and buy 500 widgets from you a month, you're going awesome. Are you going to raise your prices? No, you're wiping the sweat off your brow. You're like, I can pay my bills. I'm good. It's not inflationary because you don't have to expand capacity. You don't have to hire anybody, raise new rates. You have to buy new buildings. Now, on the other hand, if you're making 1,000 widgets a month, right? And you're at capacity, you are cranking, you're busting out. You don't have, you know, all your people are working hard. There's no excess room in your building. Everything's maxed, right? And I come and say, I'm going to, I want to buy 500 widgets a month from you. You're going to say, I can't do it, or I'm going to, I'm going to have to expand. I'm going to have to hire more people, give more, give weight, give raises, pay overtime, whatever. You follow me? It's inflationary. And so the key is when you do stimulus spending, when there is no demand or low, super low demand to create demand, it's not inflationary.
Right.
And when you spend into, into a, where, where there is no excess capacity, it is massively inflationary. And what did Biden do? This is the $1.9 trillion stimulus. And I'll point out the Bush and Obama stimulus in the great financial crisis and the Trump stimulus at the beginning of COVID we were in, we did need it. There was a massive deficit in demand. There was a huge, you know, air pocket we hit, right? In demand. But then the, the last one that Biden did, the $1.9 trillion, we were at capacity. There was massive supply chain issues. What do you do when you, you have, you can't ship anything. Everything's, there's no inventory anywhere. And you go, you create $2 trillion in excess demand. Well, duh. You know, so I mean, honestly, this is, this is where our, you know, our politicians, it's, they're so pitiful. They're just so pitiful. They need to learn Economics 101, you know. So it kind of is obvious what happened. And so, you know, talk about the consumer.
So now, I mean, all this cash has been pumped in the market. You know, the thought that I, and then the charts I've been seeing is, this is what's so interesting because it's a little bit misleading because the savings rate has been dropping massively, right? So now everyone's freaking out like, oh my gosh, all that savings that people had is all gone. But the point is that it's, It's a derivative. It's the change in savings, right? Over time. It's not actually gross savings. And so one of the charts you pulled out, and we'll show this in the webinar, was just the cash on the consumer's balance sheets is mind-boggling. Tell us that number. Yeah.
Yeah. So there's $5 trillion in excess cash sitting in banks, in household banks. $5 trillion. We've never seen anything like this. It's never been higher than $1 trillion.
Right.
And all of a sudden it spiked up during COVID It's, you know, so it's literally a hockey stick chart when you show the chart. It's unbelievable chart.
It's crazy.
Just cash. You look at consumers, consumers, retail sales up 30% over trend. I mean, that's an enormous number. You look at, you know, the unemployment, the just numbers that just came out shocked everybody. You know, not me. We're going to continue to see lower unemployment numbers. The consumer is extremely healthy. You look at debt service coverage ratio, the amount of money that's being spent to cover debt service, even with the higher interest rates, it's still low. And yeah, so, so we, we, we saw savings spike up during COVID and now come down to normal. And now because of inflation, it's lower than normal, but still, we still have all that big F excess that of savings. Um, you know, consumer, consumer debt is low. Like I said, real income is strong. So record high real wages, inflation-adjusted wages is taking a tick because down because of inflation, but it's still up massively in the last few years. Um, the wealth effect, right? This is when people feel wealthy because their house went up in value, their stocks went up in value. Wealth effect is still in force. It's, it again, hockey-sticked during the COVID crisis. And yeah, it's had a little bit of retrenchment, but it's not coming down. Americans still feel wealthy and are wealthier than they've ever been. So we've got this, you know, here's the for recession and the against recession. On the for recession, we've got tightening credit, right? Standards, low consumer confidence. It's actually lower than it was in 2008. We've got inflation squeezing consumers and we've got this global recession likely coming out of Europe soon. And because we're tied into the global economy, if another economy has recession, well, that reduces demand for us, for ourselves. So those things are there, but yeah.
And to pause there real quick, because I do think it's important, like you're saying, to look at both sides, right? Because if we had a crystal ball, you know, we'd be trillionaires and any other economist that says they know what's going to happen, right? They're lying because we don't, but it's really what's the abundance of evidence. You got to look at both sides and You know, the consumer confidence is concerning because as we've talked about before, you know, GDP is made up 70% by consumer spending, right? So if the consumer is not confident in the economy, that will drive lower GDP, right? Which is, you know, the technical measure for recession. But you know, that is concerning, but you're about to kind of share some of the, you know, the positives, right? Kind of the silver linings, which I would say is more of a silver lining. It's, The evidence is pretty good.
But so consumer confidence is lower than 2008, which is nutty because 2008, we were really, we're on the brink of a global financial Great Depression. There's the, I mean, in 2009, it was scary what was going on. This is nothing like that. I mean, you know, and so I think the consumer confidence thing really reflects the emotional state of consumers, which of course it does. It's a pull, but it's probably driven a lot by the partisanship, the wars and the, you know, all the COVID aftermath and distrust in government and distrust in everybody, right? So I, you know, that's a, but there is real legitimate concern here for recession and the Fed, the Fed has a very big lever. And if they want to put us in recession, they certainly can. And that's the big question. You know, will they do it? They're going after, their target is 2% inflation, which I think is going to be extremely difficult to get to, which we can, we're going to hit on our webinar why. And so the question is, are they going to keep pushing to try and get to a number that they can't get to? Then they will absolutely push us into recession. Or will they change their number, their target, and say, okay, we're okay with 4% inflation for a while. But then also, so the Fed has got this big hammer and they're banging on our economy, but they're going to have a heck of a time getting us into recession because of massive consumer spending, literally record-breaking consumer spending, high consumer savings, low debt service, strong job market, strong wealth effect, record real income, and record cash. You know, so the consumer is extremely healthy right now. You know, and you know, that may sound different than the headlines, but it's just a fact. The numbers go there and you know, it's the poorest of the poor who are doing the most suffering that are being hurt most by inflation. The average American is doing quite well right now. And so, you know, we've got this dichotomy, you know, and Goldman Sachs, one of the smartest guys in the room, are basically predicting a soft landing. And I'm tentatively going with that right now. You know, I think that's where we're going to be. But you know, but it also is, yeah, tune in and hear the full thing.
Yeah. And to your point, you know, the Fed does have a big lever and so they're, you know, they could mismanage it and it, you know, makes it a lot harder than a harder soft landing. But it is, it's hard to believe even if we go into recession, you know, you know, 2 negative GDP growth quarters consecutively, then with the consumer this strong, it's likely going to be not very deep and probably not very long, right? Compared to other recessions. Yeah.
Well, we had 2 negative GDP growth quarters and they didn't call a recession. So the recession officially is when the government says we are in recession, the agency there. And so we, but we pulled right out of it. I mean, because they, that was COVID anomalies, you know? So yeah, will they, you know, what will they do it or not? I don't know.
Right. Well, awesome stuff. I'm super excited to do this webinar because it's some really great information. So for all those out there that are curious to hear more, want to see the charts, we will have those slides being able to be downloaded. So tune in for the webinar. It'll be early March. We don't have the date locked in yet. Um, but we will lock it in very shortly and get on our mailing list. So either the podcast mailing list, um, at thebillionairepodcast.com, sign up, or you can go to aspenfunds.us and we'll be announcing, uh, that webinar very shortly. Thank you so much for tuning in and I hope you're enjoying this podcast. Thanks so much.
