1934: Status Of Inflation, Central Bank Digital Currency, Joe Brown, Heresy Financial

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Welcome to episode 1934. 1934. And thank you for joining me today. Our guest will be a returning guest, and that is Joe Brown with Heresy Financial. And also we are happy to have him speaking at Empowered Investor Live in Scottsdale, just about 40 days away. So we'll look forward to seeing you there. If you don't have your tickets, go to Jason Hartman.com and get your tickets right away and you can meet Joe Brown and all of our other great speakers at Empowered Investor Live. And I just wanted to say a word about housing inventory. I did not talk to you much about inventory on the last, well, really the last two weeks. Why is that? Well, inventory is down again. It's down about 2 1/2% from last week and we are seeing very significant inventory shortages. Yes, inventory shortages continue. However, it is rather distorted this time of year because this seasonally is a time where a lot of people take their houses off the market. So it is not the time to be looking at inventory heavily. We need to wait until we get into the new year and then the inventory numbers will be much more meaningful. I mean, look, I guess I'd kind of like to be telling you, hey, look, inventory is down. It's down another two and a half percent this week. You know, it's definitely a huge housing shortage, but it's just too skewed by the seasonality right now. So it's not worth deep, deep big conversations on inventory. We need to wait about three to four weeks to start having those again. And even more so by the time we have Empowered Investor Live and we see you there in person, then we will really have a good handle on our forecast for the new year because we will have much better data both empirically and anecdotally as to inventory, as to how the market is acting and be able to just do a much better forecast because we won't have the seasonality issue affecting us so much. So that is one thing. I've got a lot to talk to you about next week on inflation, which we had some good news on inflation. Well, good news if you're like most people and you think you don't like inflation. But if you're using inflation induced debt destruction, the news isn't as good as although the overall trend is still very, very positive because basically our debt is getting paid off by inflation at an official rate of now 7.1% annually. So for every million dollars in mortgage debt we have, we're getting a free $71,000 per year officially and unofficially, we're getting about 150 to $170,000 per year with the unofficial but much more realistic inflation numbers. So that's about the size of that. A lot more to come on inventory in a few weeks. I just don't want to waste a lot of time talking about it right now because again, it's just too distorted at the moment. So we'll get into that later. But let's go to our interview with Joe Brown, who will be speaking at Empowered Investor Live.

It is my pleasure to welcome my friend Joe Brown back to the show. He is with of course, Heresy Financial. You've probably seen him on YouTube and it's great to have him back. And he thinks inflation might be here to stay. Joe, is that what you think or is that just what you're reporting on? I guess that's a good distinction.

Yeah. Well, first of all, thank you for having me back here. We got a lot of exciting stuff talk about here and I think that it's pretty much widespread the opinion right now that inflation is just going to be here to stay. People have gotten used to it. The mainstream has started talking about how bad inflation is, how long it's going to persist regardless of kind of your view on economics. And when you look at what causes inflation, it looks like within just a matter of a few short months, it's very possible we might even tip over into deflation. I think it's very possible. We see inflation hit 2%, 1%, maybe even 0%, which within just the next three months.

Well, those statements sound like they contradict each other. Can you sort that out for us?

Yeah, absolutely. So the contrarian mindset here today is to expect that inflation will go away because for a long time the Fed was printing money, they were lowering interest rates, they were doing all this stuff. Most people, especially the mainstream, did not believe that it would cause any inflation. There are pronouncements made that inflation is dead and the Federal Reserve can do whatever they want. And inflation is a thing of the past. And then suddenly it comes and then they all say it's transitory, it's going to go away quick. And now it's been with us for, you know, over a year now, year and a half now, that everybody's just thinks that it's going to be here to stay. But we can get into the reasons why, the mechanisms behind it. But there is a very good reason to suspect that inflation might come crashing down within the next couple of months, and it'll take everybody by surprise.

Why would that happen, though, Joe? Is it just an adjustment of a, sort of a. Compared to what issue? For example, you know, we've had so much currency creation, and of course, that has worked its way into the system. You know, that's easy. Loose money policies have just caused this massive inflation. The Fed should have tightened sooner. I think they really just screwed the pooch on this whole thing. They've completely messed it up and now it's too sudden and painful, really, just making a soft land landing impossible. But hey, that's just my opinion. And you're not saying disinflation, you're saying actual deflation.

Yeah. So this is, this is why I say this is. This is one of the things that when I talk about it, it makes people a little bit, a little bit upset because people have gotten so used to it and kind of want to see a little bit of, you know, the, the Federal Reserve losing, because right now they're trying to get rid of inflation. And so I want to state that I agree with you. I think they've completely mismanaged this entire thing and everything they do, they're just either making it worse or they're planting the seeds for the next crisis. And so I don't agree with the way that they've handled this at all. I'm just looking at what I think will happen based on what they're currently doing. So when you look at the mechanisms that cause inflation, it's the change in the broad money supply, not the base money supply. So back in 2008 when they did the bailouts, they did TARP, they bailed out the banks. A lot of people, especially like the Austrian economist Typ, thought that that would cause a lot of inflation and it didn't. And they were very surprised by that. But the reason is because it didn't expand the broad money supply at all. All they did was basically recapitalize the banks and so they replaced the base money. And so the base money was supposed to be a lot smaller. All the mortgage backed securities were supposed to collapse, the banks were supposed to have no reserves and the, the, they got bailed out from that. So they recapitalized the banks. So the banks had the same amount of base money as they, as if those assets would have been good. But that didn't do anything to the overall broad money supply, the amount of cash in people's checking accounts. And so there was no mechanism by which prices could have been driven higher. People didn't have additional spending power. That was very different than the way 2020 was handled. 2020 was an everything bailout, right? People got stimulus checks, everybody and their mother refinanced their homes, they did a cash out refinance, got lower payments, so their expenses went down, incomes went up, people started churning through jobs. And so Inc. Going up from pay raises, hopping from one job to the next. Every way that you look at it, there is new money being injected into the economy. And if you look at the broad money supply, which is measured by M2, it skyrocketed. And so then the question is, well, when did inflation hit after the broad money supply changed? And the answer is about one year. So this refers to the Cantillon effect, coined by Richard Cantillon, where basically when new money hits an economy, the first thing it does is it hits asset prices. So assets bottomed in April of 2020 20. Right. When all the money printing started. So the money printing started immediately. Asset prices shot through the roof, they respond immediately. But the inflation of goods and services, the cpi, which is flawed, but it's consistently flawed, it did not reach back.

Well, it's consistently flawed since 1980, but. Okay, exactly.

Yes, yes, yes.

It was consistently different before that, but Right, exactly, yeah.

So if you look at the past five years since like 2017, 18 and 19, average inflation somewhere around 2, 2 and a half percent. It wasn't until March of 2021 that the CPI hit 2 and a half percent again. So it took a year for the CPI to come back up just to the baseline, and then from there it skyrocketed to record highs. So it takes about a year for monetary policy to hit the the real economy. Goods and services. Well, when did the money supply stop expanding? It was December of 2021. When did asset prices top December of 2021? Immediately, once the money printer shut off, asset prices like stocks, started to fall. Well, how long has it been since then? It's been about a year. So it takes about a year for that new money, that monetary policy, to go from asset prices to goods and services. So the money supply has been dwindling slightly, moving sideways mostly since the end of November of 2021. So it's been a little bit.

Of the money supply not moving. So there's no mechanism by which prices can continue to rise because there's not enough money continuing to enter into the system to continue chasing up those prices. And so since there's not more money coming in, continuing to bid prices higher and higher, the prices have to stay the same. And it's been about a year now. So we're about to see year over year inflation come down to zero because prices are not higher than they were a year ago. There's no more money entering in the system.

Right, but you're, of course, and I know you know this, but I just want to point it out for the listeners. You're painting with an extremely broad brush, right? So assets that have shortages could still be pushed up in price quite dramatically. But generally speaking, you know, you're comparing the amount of currency units to the amount of a given asset. So, you know, of course I'm thinking real estate when you say all this stuff. And if you look at entry level starter homes, there's still a massive shortage of this asset class. Right? And so even with overall disinflation or even deflation in an economy, as long as you have more demand for more household formation, which we definitely have, I mean, that's, you know, just look at the demographics for the next 10 years, and they're unbelievable. You could have a tightening of money within, still even an increase or at least a holding steady of the prices in that asset class. But what that means is that because everybody always asks what gives? Something has to give. And usually it's like you say, if there are fewer Currency units, there's tighter money, of course prices are going to level off or even fall. But if the asset is still in extremely short supply and the demand for it's increasing, it doesn't matter about the money. Of course if there's more money in the system, it'll go up more. But just by supply and demand of the needs for housing versus the availability of housing, it's going to go up. But what happens in that equation is the standard of living. So people get less of a house because they got to pay higher interest rates or they've got to just stay in the rental pool because they can't qualify at all because they've just, even in that type of situation, they've been just knocked out of affordability. But you know, it begs the question if inflation is tamed, which I don't know if I agree with that because I'd like to start you with a statement you made off air before we really started that you know, about how a lot of people think inflation is here to stay, but regardless. Well then, doesn't that mean we're going to see interest rates fall quite a bit? Or is the Fed still going to be kind of stingy with the rates even if inflation is under control?

Yeah, absolutely. Okay, so a couple of things. Number one, absolutely I agree with you that you have to distinguish between asset classes and you have to distinguish between assets and goods and services. And so if we were going to see a collapse in real estate prices, especially like entry level homes, it would have already happened by now. It reacts extremely quickly to monetary policy. Like we saw houses skyrocketed as soon as the money printer turned on in 2020, and that's because all the money flooded in. But because of the fundamentals there, the shortage in supply vers versus the demand, what they've done to tighten is not enough to cause any sort of a crash there in especially like entry level housing. And so you do have to look at the supply and demand factors because you're going to, you're going to break things down. So if we look at something like the cpi, there will definitely be things in the basket that continue to increase in price just because people still keep on buying them and they'll stop buying everything else in order to keep on affording the things like, you know, the food and the electricity and things like that. And so on average, I'm saying that the collapse in most assets has already happened. I mean, we've seen crypto go to zero, basically. We've seen a lot of tech stocks drop 80, 90%. The S&P 500 starting December of 2021 has dropped 25% from its high. And now I think we're about to start seeing a flatlining of inflation in the CPI in goods and services because of the money, the broad money supply not increasing. So there's no mechanism by which, on average, it can continue to get pushed up. That won't be true of every individual thing. But you get to a good point that what happens after that, because is the Fed going to run victory laps? And so this kind of gets into the, the reset and the CBDC issue that we were going to talk about as well.

Yeah, that's a good segue. So CBDCs are central bank digital currencies. In other words, digital money, it's a cryptocurrency, but sponsored by a central bank in collusion with the government. Okay, Right. And every country will probably have one in the not too distant future. China has probably been the quickest major economy to adopt this, but the US is, it's coming. And, you know, but we've all been predicting it. It's not going to be any surprise to us, but about 20 years ago, one of our clients and a doctor friend of mine in Newport Beach, California, we used to always talk about how if there was, and this was, of course, way before we ever heard of cryptocurrency, right? Way before Bitcoin, if there ever was a single global currency. Because that was what the talk was before we heard about crypto. You know, there was going to be a North American currency called the Amero. People speculated on that. And there was going to be, you know, of course there's the euro, we already know that. But there were going to be fewer currencies as these governments collude, and largely to, you know, to kind of kill the tax dodgers and the offshore assets protection havens and things like that, you know, in the Cayman Islands and all the, you know, Cook Islands and all the rest around the world, we've all heard about the Panama Papers and so forth. You know, we always said that if that ever happens, if there's a single global currency, even a traditional one, like a world dollar, for example, right. If it's one currency that is checkmate against the human race, if that happened, we would all become puppets on a string of the elites, right? But now with a central bank digital currency, it's much more effective for them and much scarier for us because the type of control they can exert over us is simply staggering. I mean, just Think about your currency only being valid at certain times of day. Just think about your currency being inflated away at a different rate than your neighbors because your social score is lower. Right. You know, what if it's only good within a mile of your house, Right. What if there's a climate lockdown or another, you know, fake pandemic, Right. And they say you got to stay home, you can't spend it outside. Or what if they don't like what you post online and they say it's yours doesn't work for Internet access.

Right.

But everybody else's does. Right. You know, there's just, it's just really, really ominous what could happen with that. I'm sure you have a lot more to add to that. I just wanted to tee it up for you.

Yeah, absolutely. That it is, it is a terrifying prospect. But there's kind of a light at the end of the tunnel there. And so I'll kind of walk through what I think the playbook is here. I think in the next couple of months we see inflation come below 2%. Tom. The Federal Reserve starts to run victory laps because they said we did it, we achieved a soft landing, we brought inflation down and didn't cause a recession because they changed the definition of recession earlier this year. And so at that point then what you have to realize is we still have the most over leveraged economy, global economy in world history and we just spiked interest rates to higher than they've been in a very long time. We are going to cause defaults from that. We are going to see unintended consequences in financial institutions around the world start to fall over. When we start to see this collapse take place as a result of rates skyrocketing here and having all this leverage. What we are going to see is the central planners, central banks and governments pulling back from the rescue as long as they can possibly wait here. They want to induce maximum pain. Similar reasons to why we haven't seen any regulation in the crypto space for a long time. They want to induce maximum pain there so that when they do come in with the regulations and the new idea for plan, people are begging for more government to be rescued because they can't stand the pain at the point of maximum pain here when things are falling to pieces, they're going to say, we can come in, we can save the day. However, we can't do it the same as we did last time. Because last time, if you remember, because of a bunch of different reasons outside of our control, there was inflation that was record high There were bubbles and there was fraud. We can save you, but we want to prevent those three things from happening again. The only way that we can do that is with a central bank digital currency. If we use the IRS to send out stimulus checks, you guys are going to go buy up all the gasoline, buy up all the toilet paper, buy up all the food and cause shortages. If we use a CBDC to do this, we can restrict how much people buy and stop the hoarders from causing shortages. If we send out. It's very scary. If we send out the same way we did before stimulus checks with the irs, everybody can go buy crypto and everybody can go buy stocks and cause all these bubbles that are going to crash and lose you money. We want to protect you from.

Or GameStop. Or GameStop.

Yeah, exactly. We want to protect you from these frauds and these scams. So if we do it with the cbdc, we can restrict how much money can go into brokerage accounts or can be used to purchase various stocks.

But, Joe, Joe, look, look, come on. I mean, look at how well it has worked out before when central planners tried to adjust supply and demand. I mean, the Soviet Union was a great example. You know, you only had to wait in line for 18 hours to get a pair of shoes that you know, would only be doled out once a year whether you needed shoes or not. And when you got your turn to get shoes, your size was gone, so you'd have to trade them with your neighbors. And, you know, people from Eastern Europe have told me these stories, like, firsthand. Yeah, okay, I've heard these stories. It's not. Not from the news or YouTube or any reading in a book. I talk to people about this directly in Russia and Eastern European countries. So, yeah, it's absolutely true and scary to think that they're going to run supply and demand better than a free market. Well, it's completely ridiculous.

This is what I call the regulatory roller coaster to tyranny. And this is what always happens. You have the Federal Reserve or the central entity. If somebody step in with regulation, it causes a crash. Then you step in with subsidies to rescue everything, and then that causes bubbles and fraud. And then in order to stop the bubbles and fraud, more regulation, then more subsidy, bailout, then more regulation, and ultimately you land in tyranny. And this is what they always do, and they will do next time. And people will be more than happy to accept the handcuff because it looks like a handout. And when the central bank, it always does. That's exactly how they're going to frame it. Yeah.

I just want to remind everybody, and I have pointed this out on the show before, when Covid was in full swing or as it was just ramping up, there were many articles I saw about how the money is dirty and the virus is being passed by people handling the money. And then it was like, impossible to get a hold of any coins. And it's still pretty impossible to get a hold of coins. They're just gone from circulation. I mean, try and get some coins. It's, you know, see if you can get some quarters, dimes and nickels, folks. It's unbelievably difficult to get them in any. Any real quantity. And. And then the next thing they did is when that first round of stimmy checks came out, so they said, okay, don't touch the money, you know, because it's contagious. Right. So they got put that planted that fear. And then when the stimmy checks came out, there were all these stories and articles about how they couldn't find people to give them their money. And, you know, like, oh, the IRS doesn't know where, or the treasury doesn't know where to send the money. Like, people can't get help, so, you know, they want it to be digital so they can just send it right to your phone. Right. You know, they're already planting this in our minds, you know, and.

Yeah, and it's. You talk about controlling the economy. That is the end result of this, because you don't have to be like, you know, the Soviet Union, where you have to have all of these planning boards and agencies who have. Have the experts in all these different fields. If you can control the money, then you can control the entire flow of resources in the entire economy because you have every single transaction that you can stop, you can reverse, you can cause, you can censor. You can gather all that data and try to make educated decisions using machine learning and artificial intelligence. But at the end of the day, and this is where the light at the end of the tunnel comes in, it is doomed to fail. Because every person is not even an artificial intelligence. Every person is a real intelligence. And every. Every person makes economic decisions predicting the future based off of all the knowledge they have about their needs and their wants that are subjective in nature. Needs and wants and value are not objective. They are subjective. And so the best artificial intelligence in the world cannot replace the decentralized compounding effects of the decision makers of hundreds of millions of economic decisions based on subjective values and wants. It's not possible. So the only result is complete economic failure. In which case it gets subverted and replaced by a better money. And at the end of the day, money is a winner take all commodity. That's why for thousands of years there was a gold standard somewhere in the world. Straight for thousands of years until 1971. It's because it's a winner take all game and a CBDC will not be the winner that takes all. It will be doomed to fail and a different money will win out in the end.

Oh, so really you don't think they have the power to force that upon us?

They will. But once it epically starts to fail, it's not going to last long is what I'm saying. It will last some amount of time, but it will not last long.

Why do you think that?

Because it can't. When people realize, hey, this is destroying it, everything, this is preventing me from doing what I need to do. At the most, if it's the most tyrannical possible, black market emerge and people start using alternative forms of money, they start selling their services and their goods and their time for Bitcoin or for gold or for another paper currency or whatever it is something that serves their needs better because the CBDC will not be doing that. So ultimately it will be destined to collapse. Just like every fiat currency that is abused throughout history has collapsed. The way it collapses is ultimately the people start using black market or parallel market currencies and it ultimately then gets replaced and then finally the government has to succumb because nobody will take the their money anymore.

Right? But what they always do is they make those currencies illegal, they say, going to jail. And the other thing they do is, you know, I remember one of my former employees lived in Burma, Myanmar. He was there as a child when the communists came in and took over. And he said the first thing they did is they demonetized the higher value bills. So the higher currency units, they demonetize them so that if you stashed a bunch of, you know, hundred dollar bills away in our vernacular, they, they would just be worthless. They'd be totally worthless. They'd be like in the Weimar Republic, they'd be good for, you know, fire kindling, right? And that's like the first thing they did, which was interesting. So they can make it very difficult. And what they always do is they always engineer these things just so people have just enough to where they're comfortable enough and apathetic enough not to rise up. You know, that that's the reality of what usually happens in these cases, Right?

Yeah, it is. The, the, the, the caveat there is that they still have to have some sort of purchasing power and able to do that because at the end of the day, their power comes from paying people to go do their, and enforce their, their wishes. And so if it gets to the point where most people will not accept it anymore because it is, it's not serving their needs well, then they lose that purchasing power. So if you can't pay your military, you can't pay your tax collectors, you can't pay whoever it is you need to pay in order to enforce everything. And everybody starts using things on the black market. Well, there becomes a difference between passing a law and enforcing a law at that point, and ultimately it does collapse. It might take some time, but it never lasts forever.

Yeah, that's true. Well, Joe, what do we do about that? What are some of the action steps based on your worldview on anything and everything? It doesn't have to be just central bank digital currencies. Could be anything. Just what's going on now.

Yeah, absolutely. And I think number one is get purchasing power outside the system. I don't care if you think that Bitcoin is going to zero. If there's any chance that it might not go to zero, that's a payment platform that cannot be, you know, it can be made illegal, but if you have it and you want to use it, you can use it. Even if it is illegal, it can't be stopped, number one. So that's something just an asset just to have in your back pocket. Gold as well. Physical gold, physical silver. You can go to somebody down the street and say, here's a silver coin, give me some beans. Like, unless the government knows about it, they can't, they can't stop it. So having purchasing power outside the system is essential. But also having assets that survive and thrive throughout hard times is essential as well. So that's scarce assets. That's physical assets rather than digital assets. And things that people will continue to need and buy regardless of how hard life gets. One of those things is absolutely real estate. People always need a place to live and always will, always have, always will. And having exposure to things like farmland as well and food production is. Those have, have and energy production absolutely have huge upsides right now.

And I've always liked the idea of farmland. The problem is the yields are so bad. I mean, they're just. The yields are boring.

Beyond comprehension. I can't find farmland that is the least bit exciting in terms of Return on investment. And I've looked, believe me. One of our clients finances farmland. He's probably listing right now. And. And it's just the yields just aren't there. But. Yeah, well, I guess it's good enough for Bill Gates, but.

Exactly. Yeah.

He's got a different agenda.

Yeah. Right. Yeah. And when you look at the Weimar Republic in Germany, the people who got rich were the farmers, because they were the only ones who had the means to continue producing things that people would have to buy no matter what. And they were able to pay off their mortgages and they were able to get rich despite the hyperinflation. And so that's one of those assets that might be boring most of the time. And then when people actually need it, that's where the money flows.

Very interesting. Well, Joe, just wrap it up with anything else and give out your website.

Yeah, absolutely. I talk about this stuff like this every day on YouTube. That's heresy. Financial is the name of my channel. You can also find me on Twitter and Instagram and Tick Tock and everywhere else that content goes up.

Well, this has been a heretical conversation.

And it's always good to talk to you, buddy, and we will look forward to having you back in the future.

Thanks for having me.

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