2261: Financing the Future: The Case for a U.S. Sovereign Wealth Fund- Economic Growth, National Security, and Innovation with Richard Duncan Part 1

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I just wanted to say, you know, Jason, I've been following you for a long time. Ten years ago is when I first saw your course. And I'm telling you, the way that things have played out are way better than you projected. For me personally, obviously it's been, you know, a good six years, but now I'm ready to kick it into high gear. As you know, I want to really build a portfolio that's, you know, five or four or five times what I have already. Obviously your advice has been fantastic. It's been life changing for me.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors. Welcome to episode 2261 and greetings from a very chilly Dallas. It is 34 degrees out here. Well, it might be 36 degrees now.

I don't know.

It's cold. Anyway, we have a fantastic episode for you today. This is a big one. This is Richard Duncan, who's been on the show many times over the years. And when I was in Thailand, I looked him up and connected with him because I wanted to do a live interview. So this is kind of a special episode today. It's actually a two camera shoot which is kind of new for us. We'll see how that goes. And Richard is just so, so knowledgeable. He knows so much about the economy and he has this awesome service that you really should subscribe to. He's not a sponsor. I'm not getting paid for saying this. I get no affiliate fee or anything, but it's called Macro Watch and it's great. He's going to make an offer later in the show. I've been following his Macro Watch for many years. He just does such a nice job organizing about the global economy and it's just a really good thing. But you're going to learn a lot from this interview. It's very, very insightful, and I think you'll really, really enjoy it. So here we go. Greetings from Bangkok, Thailand. It is unusual that we do in person interviews, but today we have one because none other than the famous Richard Duncan happens to live here in Bangkok. And I reached out to him. He's got a great new book out the money. How to Finance the Next American Century. I listened to this on audio right when it came out. Has that been a year now, Richard?

A couple of years.

Oh, my God. Okay. Time flies. But anyway, it's a pleasure to have you, Richard. Thank you for joining me. It was quite an experience to get here and to meet in person, but.

I really appreciate it.

It's great to see you.

You know, Jason, it's so, so nice to meet you and such a surprise to meet you for the first time in person in, in Bangkok, of all places.

I know, I know, I know. You were originally on my show, I want to say, 2009, 2010, I think we did a second show around 2011, and we talked a lot about coming out of the Great Recession and so forth. You know, macro Watch, your educational membership program is fantastic. I learn a lot from it. And we've had you on the show several times. And now there is so much to talk about. The Trump administration, 2.0, the new iteration of Trump, which I think he is a bit of a different person this time around. I'll venture to say that. What can we expect?

What can we expect? Okay.

It's a big loaded question.

Well, of course, we have to begin by recognizing that we don't know for sure that he's going to do what he said he would do. Right. And even if he does, we don't know which order he will do those things in. And the order would make a big impact on the financial markets. But one thing that I'm most excited about that he has said that he would do is back in September at a speech at the Economic Club of New York, he came out in favor of establishing a US Sovereign wealth fund, which I view as just extremely great news for the United States and hope that he carries through with that very rapidly. Because this is something I've been really calling for, going back for 15 years, and in my most recent book, you just mentioned, it's called the Money how to Finance the Next American Century. Well, how to finance it is to have the US Government set up a US Sovereign wealth fund and invest very aggressively in the industries and Technologies of the future, and consequently to turbocharge U.S. economic growth so that the economy grows more like 5 to 7% a year instead of 1 to 2%. And to shore up U.S. national security, which is really now in grave danger as a result of the very rapid rise of China. China is overtaking us technologically and it won't be long before they overtook us militarily. And if we do, you know, in the not too distant future, although this sounds extreme, the United States could be conquered by China. Wow. And this is something that Americans need to begin thinking about and worrying about and taking steps to make sure that that doesn't happen. And the best step we can do would be to have the US Government finance on a multi trillion dollar scale over the next decade, investments in new industries and new technologies. Things like artificial intelligence, quantum computing, biotechnology, biotech, nanotech, robotics, neurosciences, and things like developing fusion. Yeah, cheap fusion. We could accomplish all of those things if the US Government financed this on a large enough scale. And it would bring about such extraordinary benefits for the American public. And what people need to understand about a sovereign wealth fund, you know, what is a sovereign wealth fund? Well, of course, the government already makes investments in.

Right.

Developing research and technology and so forth, grants and that sort of thing. But the difference with the sovereign wealth fund is the government would actually take stakes in companies, listed companies and startup companies, and they would provide the financing. And these companies would be managed by the private sector. But as these companies, since they're so well funded with government financing, they would produce technological miracles and medical breakthroughs and create companies that would literally be worth trillions of dollars and could be listed on NASDAQ at trillion dollar valuations. And given that the government would have a big equity stake in these companies, this means that the American public would have a big equity stake in these companies and would benefit directly financially.

First off, other countries have sovereign wealth funds. This is a common thing. They do investments, they act like businesses. Right. Like a real fund, like any fund you'd see on Wall Street. Right. Why doesn't the US have a sovereign wealth fund? Is it because, and maybe I'll just debate with a little bit here because I can hear the clamoring now. Well, especially from the right side of the aisle, which I tend to agree with more than the left. Okay, but the government is just going to pick the winners and losers. Remember Solyndra, Remember many things like that. Wouldn't it be the government getting into business rather than the government having its theoretical limited role of governing versus picking businesses I mean, you know, who gets to decide what companies it invests in? Wouldn't this just lead to a lot more crony capitalism?

So I think we should all look at this as the government acting as more or less a giant venture capital firm. Venture capital firms in Silicon Valley, they make investments and some of them fail like Solyndra did. But some of them become so enormously profitable, like Google, that they pay for themselves and all the equity investors become billionaires.

Any venture capitalist knows that, you know, you lose on 20 and you have one mega home run that's got a moat around it and you know, it knocks it out of the park.

So that's offsetting the losses from Solyndra. We have the gains from, for instance, the Manhattan Project and the Internet, which may not even exist today had the government not developed it. So we're talking about major breakthrough industries that could emerge as a result of this large scale government investment. I know that in the United States there's a fear of too much government involvement, but in the past, so going back to the 1960s after the Soviet Union sit on a Sputnik, fear spread through the American public. And the American government very quickly reacted and started investing in new industries, a.

Lot of aerospace investment, the space program.

Itself, many other things. And so. So we won the space race. Yep. And out of the space race came spin off technologies like calculators and computers. Right. And that was enormously beneficial.

When I was a kid, I was a space cadet, I loved the space program. I watched everything. You know, the Apollo program, the Viking program, all of that stuff really fascinated me as a kid. You know, they say that for every dollar, every taxpayer dollar spent on the Apollo program, $24 were put into the economy. So it was a 24 to 1 win. But I want to get, maybe go back to this, keep your train of thought, but you know, when you look at Sears and the way they use the US Mail and you look at Google, which you mentioned, and the way they're using the Internet, I don't think those companies have paid their fair share for the benefit they've gotten out of these government projects that enabled their business models. Whether it be Google, Facebook, Uber, Amazon, et cetera, they're all using what we as the public paid for with our tax money. But maybe that's a tangent.

No, let's take it for you one, that's an important point. That is true. I mean, they say that Google's algorithm makes it the best came through government grants to the founders.

Oh, I wasn't even Talking about that. I was just talking about the mere existence of the distribution system, the Internet itself.

Right. So in so many ways, one of the problems is the government has funded investment at the basic research and development level that has allowed the private sector to create companies on top of that and become enormously profitable. And then the companies of course, hire lobbyists to ensure they don't have to pay any taxes. And so the government is not reaping the rewards that it should reap for making the basic investments.

They are reaping it into the growth of the economy in general. But specifically, I think these companies that have benefited from these taxpayer funded projects should pay extra. You know, this is just not fair that Netflix and Google get this free ride and then, you know, I can hear people saying, well, anybody could do that. Right. The next Google's in somebody's garage today. Right. But the problem is it's so unevenly distributed. It's just.

I agree with you. But even if we could get them to pay their basic minimum packs of say 20% of their profits, that would be such a huge step in the right direction and bring in enormous revenues.

Well, we've got to stop the offshore planning, you know, the, the double Irish.

Twist, as they call it. Right. But it's another. I try not to, I try to avoid suggesting that we should increase taxes because I don't want to make enemies in the billionaire class. But one of the main problems is the government is now, as a percentage of gdp, it's only investing about half as much as it did in the 1960s in research and development at the basic level. So if it were investing as much as it did then, then I think this reduction in government investment in developing basic research and development. Now corporations tend not to develop, invest in basic research and development because it takes a long time for that actually to pay off. They wait for the government to develop a basic research and then they jump on top of that and invest and create products, which is quite sensible from their point of view, but it's not great for the economy overall.

I agree.

So the government just needs to invest much more in basic research and development to begin with. And this decline in government investment, I think is one of the reasons that we've experienced a slowdown in productivity growth over the last three decades, for instance. Yeah. And another thing to think about is, you know, in terms of Americans not liking the idea of government being involved in business. Well, okay, that would be fine if the United States were the only country in the world we could just, you know, do it the old way and go back to the 19th century and have no government investment perhaps. But we're not living in an isolated world, right? We're living in a world where China's government is investing so aggressively in new industries and technologies that now they have overtaken us in many ways. In terms of technology, they had 5G years before we did. They have such great electric vehicles and batteries and solar panels that we have to put up 100% tariffs to keep the electric vehicles out of the United States because they're so much better than the ones that are companies can produce and so much cheaper. And much worse still, they have hypersonic missiles and we don't. And so America has great private sector companies, fantastic private sector companies, but none of them can invest on the scale that the Chinese government can invest on. And the Chinese government is laser focused on dominating the future. And so it would be fine to dream about going back to some sort of laissez faire Garden of Eden with no government involvement. But it would be suicidal. If you don't like government involvement in American way of life at the moment, I can assure you you're going to really hate Chinese government involvement when they take over the country.

Yeah, that's a very good point. And you know what? The US is very good at sort of taking the easy way to riches. These US companies, our big famous companies, right, they don't build hardware, we don't build infrastructure anymore. We don't build Hoover dams, Golden Gate bridges or anything. We build platforms and softw. And this is really pretty easy stuff. You know, when you go to China, for example, I mean you're just struck and amazed by the, the level of infrastructure, the high speed trains, the, the buildings, the skyscrapers. It's truly incredible. It's even incredible here in Bangkok. And Bangkok doesn't hold a candle to, you know, Shanghai, right. It's just a whole nother level. But you go to Singapore, you go anywhere and you see this kind of. I mean I was just in the Middle East, I was in the U and in Qatar and I was amazed at the level of luxury, the buildings that, you know, the US just isn't doing that anymore. And you know, you could say it's because of the environmentalists won't let us build anything. And that's partially true for sure, but I just don't know that these companies don't have the interest in funding these projects, you know, so the government I think has to step in and do some of this.

I've lived almost all of my Adult life in Asia. I moved to Hong Kong and started my career when I was 25 in 1986.

And what was the start of your.

Career, by the way?

Toss.

So well, I should jump back a little bit. I went to Vanderbilt, and when I graduated from Vanderbilt, I backpacked around the world for a year.

You came here first as a backpacker at age 24.

I know that. That's right. I was really, really lucky. I didn't have much money and I found a job in Paris as a chauffeur driving around rich American tourists. And I made enough money to travel around the world for a year. And so when it got cold in Europe, I went to Egypt and Israel for a couple of months and then to Thailand and Malaysia and Singapore for a couple of months in early 1984. And I could see it was already booming economically and that there was very little competition. You know, I would meet people on the streets, we couldn't read maps of their own city. So I realized, go east, young man. It's booming and there's not much competition.

So I went back to describe booming in the 80s. I mean, you know, I know that China sort of started liberalizing from a business perspective in, I think about 1970, if I'm not mistaken. But you know, we still had a cold war raging. The Soviet Union didn't fall until, you know, five, ten years later. I mean, I don't know if we're talking about 85 here, but how are they booming?

So. So I spent two months in Thailand, Malaysia and Singapore. Starting off in Thailand and going south.

Well, Singapore was booming by then.

That's what he was going to say. Singapore was the main eye opener right there they were building, it was incredible, 100 story skyscraper.

And by the way, for those of you who don't like public private partnerships, Singapore is the ultimate example of housing, public private partnerships. Because the government got very involved to solve the housing problem in Singapore.

Right. The Singapore economy has been completely government directed, as was South Korea's and Japan's and Taiwan's and China's. So.

So Japan had the demographic problem. China's coming into a demographic problem that may halt its progress to some extent. We could talk about that. But yeah, the government did take a very large role in these economies. You're absolutely right.

And in Singapore, they have two of the most successful sovereign wealth funds, GIC and Tomasic, which had invested in these public companies and made the Singapore people much richer as a result and developed these industries, turning Singapore into an extremely wealthy city state. Yeah, but Anyway, so I saw that right when I was 23 or 24 and realized that Asia was the place to be as a young man. So I went back and went to business school at Babson College outside Boston for a couple of years. And as soon as I finished there, by that time I'd figured out that Hong Kong was the place to go. I hadn't been there yet. Yeah. So I flew to Hong Kong and I. Within a couple of weeks I found a job as a securities analyst in Boston. I'd worked for some fund management companies on a part time basis and they invested in Asian stocks. They were nice enough to write some letters of introduction to the English stockbroking companies in Hong Kong. Right. Like Jardine Matheson or Gavet and WI Carr. At that time, there were no American stockbroking companies working in Hong Kong. Right. So I went to Hong Kong, went to these British brokers. They were very polite, but they wouldn't hire me because I had no education, no experience. They said, go work for a local Hong Kong Chinese company for a couple of years and then come back and see us. And so that's what I did. I went to work for a company called Chintung Securities.

Okay, and were you an analyst there as well?

I started off as an analyst there, doing research on the listed companies. Right. And it was great. First year I was there, Hong Kong's economy grew by. The GDP grew by 13%. Wow.

13% in a year is incredible. It's nothing short of incredible.

And the first 12 months, the stock market went up 100%.

Wow.

It was glamorous beyond imagination. It was wealth unlike anything I'd ever even imagined. Wow. They said even then in the mid-80s that high society started at 100 million US.

Wow. In the mid-80s, after inflation, every other.

Car was at least a Mercedes or a BMW or something.

Yeah. No, you really don't realize it like this sort of America centric idea that, you know, Americans tend to have. I'm guilty of it too, of course. You know, you just really don't realize how much wealth there is around the world. It is utterly amazing.

And in places like Hong Kong and Thailand, and in fact most countries, it's very concentrated in a very few hands. Right. So in places like Thailand, you have very, very wealthy families. And then the majority of the people, well, in Thailand, they're by no means impoverished. In fact, people here have quite a good standard of living, even in the countryside, but the wages are so much lower. So the wealth you see is held by the top 1 or 2%. But it's very noticeable and very influential and powerful in terms of not only politics, but I was thinking more in terms of its power to invest and develop the economy. Yeah, right.

So how does this inform your view of macroeconomics? I mean, you're clearly in favor of more government involvement in the economy. Sovereign wealth fund they just worry about the government picking the winners and the losers. Right. Because there's obviously all this cronyism problem. Or maybe these other countries that do it successfully, maybe they don't avoid that, they just have cronyism and they are picking winners and losers. Is there less corruption? The US Never gets on a scale. When you look at those surveys, the most corrupt countries in the world, you never see the US as considered very corrupt. But what I like to say is our corruption in the US is legalized corruption. It's legalized through lobbyists, through winner take all system, largely. Now granted, it's not as concentrated as you mentioned as it is in some of these other countries, but it's, there's a definitely a wealth concentration problem in the US I would say. Well, it's getting worse.

I mean, you're not wrong when you say that. I'd like to see more government involvement in investing, and that's certainly true. But I'd like to see the government provide the financing and then provide that financing by investing in listed companies and startup companies like a venture capital company does.

Right.

So that the private sector actually manages these investments. You know, the best American entrepreneurs and the best scientists would be managing these companies and the government would just be funding them on a very large scale so that they could create rapid breakthroughs.

Would the government basically give money to VCs who would pick the companies or to investment bankers? How would that work? Or would it be literally a politician picking that they're going to put the money in this company? I mean, it's just, it's like Pelosi.

Is on all the other sovereign wealth funds in the world. They are managed by investment professionals that are chosen ultimately by the government, of course. But you would have set out to try to get the best investors from the private sector to do their, you know, patriotic duty and join the board of the management of the sovereign wealth fund. Like there's a board of Temasek in Singapore, like there's a board that manages Norway's sovereign wealth fund. They have the largest sovereign wealth brand and they have, of course, oversight committees. But you have these people allocating money on a very large scale into the private sector. Now where does the money come from?

Yeah, The US has the easiest task in that department of any country of all because we have the reserve currency. So we have the reserve currency.

We're very lucky. Yeah. And also we have the recent experience of very large scale quantitative easing. Right. Where the Fed just creates the money and buys government bonds. So not only three or four, five years ago, the Fed was creating $120 billion every month through quantitative easing. Wow. And during the pandemic, during four or five years, they created $5 trillion from thin air. Now since then, they destroyed 2 trillion of that 5 trillion. This is an enormous amount of money. And this is where we could obtain the funding to seed our sovereign wealth fund. Just as an example, the US Cancer Institute, which is charged with curing cancer. Right. Its annual budget is $6 billion a year. $6 billion a year is not curing cancer. $120 billion a month was how much the Fed was creating. 6 billion is 5% or 120 billion.

Yeah.

So.

And that's a year versus a month, by the way.

Yeah, precisely. Right. So that's how we could fund this. Now people are worried about inflation, but after 2008, when we had the financial crisis, you'll remember that the private sector collapsed. All the banks started to fail, all the car companies started to fail, and they had to be saved by the government to prevent a new Great Depression. Well, at that time, the government intervened with trillion dollar budget deficits, failing out the private sector, let me emphasize, the private sector failed absolutely. And had to be saved.

A lot of people objected to that corporate socialism. They said, you know, you're socializing your losses and capitalizing your gains. Right. You know, and part of it is the problem is the executives and the boards of directors work. And I remember during tarp, you know, there was a lot of talk about capping salaries and stuff like that. And you know, I think if you're taking government money, that's a different deal. Right. I'm all for free market capitalism. If your shareholders in your company want to let you earn a zillion dollars, more power to you. If your board approves it and your shareholders keep investing.

Okay.

Right. You must be creating value. But if the government is giving you money, if it's our tax dollars, you should not see this kind of corporate read. It's just inappropriate.

Well, I think the big critics who criticize this crony capitalism or whatever you refer to it as, they need to understand what would have happened if we government had not bailed out all the banks.

The whole Moral hazard.

Or it would have been a great depression.

I agree with you. I know. Kind of like you had to do it.

25% unemployment.

Listen, you probably agree that they shouldn't have let Lehman fail, right?

Probably shouldn't have.

Yeah, yeah. No, I mean, look, if they're doing this, they might as well. Well, I've done it across the board. I agree. I know what would have happened would have been devastating. But I'm saying you get there because in the back of their minds, these companies know that they can take insane risk and then they're just going to be bailed out. Right. That's the moral hazard problem.

Well, let me put this into a bigger, broader perspective on how I, how I reached this conclusion.

And then we got to get on to what to expect with Trump. So we'll get there.

So I very strongly believe that we have a enormous credit bubble. Yeah. Not only in the United States, but effectively globally. So big, in fact, that if it pops, then it's probably going to be such a severe blow that our civilization would collapse.

And this is why you coined the term creditism, which say is different than capitalism. We used to have capitalism, now we have creditism. And you talk about Creditism 101, you teach this. So I definitely want you to tell us what creditism is and how it varies.

So when I say that I think we must have government investment to make the economy grow faster. The reason I believe that is because the alternative in my mind is that this bubble is going to pop. If the bubble pops, effectively, we die. So that's, you know, we do have a big bubble. The Austrians, economists, are right in that respect. Now, a lot of credit creates economic booms. The booms turn into bubbles. The bubbles ultimately pop. They popped in 1930. We had a 10 year depression, 25% in unemployment. The Nazis took over Europe, the fascists took over Japan and took over Asia. We had World War II and 60 million people died. That's what happens when a big bubble pops. And the government doesn't Prevent that. In 2008, the same thing almost happened again. But this time, instead of letting the bubble pop into a Great Depression in World War three, they did the opposite. They reflated the bubble. And that worked very well. Earned trillion dollar budget deficits, three and a half trillion dollars of paper money creation, reflated the economy, recapitalized all the banks. And here we are 16 years later, richer than ever before, with much larger economy. And at that time there was no inflation. We only had at the peak inflation hit 3.8% in 2011. By 2015, it was back down to deflation again for a couple of months in the first couple of months of 2015. So that was round one. Then we had Covid. Once everyone was locked at home, if the government had not intervened, then they would have defaulted on all their mortgages, credit cards, car loans, all the banks would have failed again, and we would have been in another Great Depression. But instead, the government followed the playbook of 2008 instead of the playbook of 1930, and they kept the bubble inflated. And so here we are now, five years down the road, and we didn't collapse. We've got 4.2% unemployment. We've got the greatest expansion of wealth. That makes the mind boggle how much wealth has increased since 2008. The net household sector net worth, the wealth of the Americans, has increased by more than $100 trillion. Wealth in the country now is $167 trillion, up $100 trillion since 2008. Amazing. And in fact, just over the last 12 months, wealth has increased by $17 trillion.

Okay.

Since COVID Since the end of 2019, wealth has increased by $52 trillion in less than five years. $52 trillion of wealth creation. That's enough to pay off the entire US government debt. 36 trillion, some leftover with 16 trillion left over. Right, Right. So we've got a wealth explosion that is more or less the direct result of this extraordinary fiscal stimulus that hit the economy in 2008 and especially in 2020 and all of the money creation.

So if someone called you a Keynesian, you would not be insulted that.

Right.

You're okay. You like the Keynesian idea, right?

So Keynes, you know, was in a different age.

Yeah, sure.

It was a gold standard.

Yeah.

And budgets were more or less balanced. Keynesians Keynes advocated when the economy got weak, the government should spend more and so that it didn't collapse. And when the economy got strong, the government should tax more so that over the cycle, it evens out, went back into balance. What we've experienced in the post gold standard age, after we stopped back in money with gold, is something all together different on a much greater scale. And that's beyond anything Keynes had even dared. Fantasize that.

But you're okay with reinflating the bubble for sure. You're in favor of that, right?

If we don't keep the bubble inflated, then it's going to.

Is it a matter if it. Consequently, is it a matter of degree or is it just an ongoing principle? Because, you know, people Will say, these are like memes, okay? So forgive their ridiculousness, but raise minimum wage, you know, and then people will argue that'll just cause more inflation and more unemployment, which. There's a valid argument. You know, you can't hear the dogs that don't bark right away. Right. But, you know, instead of paying people $20 an hour, why don't we pay them a million dollars an hour? Right. Instead of bailing out during COVID If it's, I don't know, the number $16 trillion or something. Right. Why not make it $100 trillion? I mean, is it a matter of degree, Richard, or who decides how much is enough?

So I'm not in favor of, you know, raising the minimum wage to a very high level. What I'm in favor of is more investment in new industries and technologies to create a technological revolution that will power the economy and create medical breakthroughs and technological miracles, cure all the diseases, expand life expectancy, and shore up US national security so that the first American century is not the last, but that only the first of many.

Yeah. So you would not be in favor of, you know, ridiculous welfare programs and wasteful spending, meaning you're an investor with government money. Right. That's would be your clarity.

This brings us back to creditism.

Yeah.

What is creditism? The economy we have today is a very different thing than the economy we had before 1968. Up until 1968, dollars had to be backed by gold. The Fed had to actually hold gold to back every new dollar that it created. But in 1968, the Fed didn't have enough gold to continue doing this. So Congress changed the law and they removed the requirement that the Fed hold gold back dollars. Right. And after that, this fundamentally changed the nature of our economic system in numerous ways. First, and most obviously, the Fed was no longer constrained in how much money it could create, making things like quantitative easing and trillion dollars of money creation possible. But more difficult to grasp at first is after that trade, the twin nations no longer had to balance.

Right.

Up until then, the US trade was more or less in balance because when dollars were backed by gold, if the US had a trade deficit, it would have to send its gold overseas to pay for the deficit. Gold was money, so the money supply would have contracted it, and that would have thrown the economy into severe recession. So they would have had to buy far less from other countries, and trade would have come back in the balance.

No current account deficits allowed back then.

That's right.

Yeah.

But once this ended, it didn't take the US long to realize that it could buy a lot of things from other countries and it didn't have to pay with gold anymore. It could just pay with paper dollars or more.

Real estate now is a great deal for the United Treasury Bond.

It's denominated in paper dollars. So by the mid-1980s, the current account deficit had grown to 3.5% of GDP. And by 2006, it had grown to 6% of GDP. That was $800 billion in just one year. And this year is going to be $1.1 trillion. So since Bretton woods broke down in 1971, the cumulative U.S. current account deficit has been $16 trillion. That means the trade surplus countries like asia have received $16 trillion that they wouldn't have. And that's why you see skyscrapers all over the place. Right. That fueled the Asian miracle.

Right.

That transformed Asia. That's why China has fantastic infrastructure everywhere. This money created a global economic boom.

Oh, it lifted 300 million people out of poverty as of like 15 years ago. I mean, it's more now.

And it was extremely disinflationary because suddenly we were buying things from very low cost workers, countries with very low cost workers. So when I saw Hong Kong in 1986, I would go across the border and Even then in 86 factories as far as the eye could see, full of young women working in Shenzhen for $3 a day. And so it was very clear this is going to drive down inflation and drive down therefore interest rates in the US and that's what happened as interest rates moved lower, made asset prices go higher.

Why did the rates go lower?

Well, inflate as the inflation rate moved.

Okay. Just in general, inflation was lower.

Right. So in the early 80s, inflation was level high. Yeah. Great. And so they had to keep interest rates at double digits.

Yeah.

But as the inflation came down, then the Fed cut interest rates and very often during this century, interest rates. The Fed has been more worried about deflation than inflation. Yeah. And so this really changed the whole paradigm. We no longer had a closed domestic economy to operate within a closed domestic US economy. Then it's say in the 60s, if the government had spent too much money or the Fed had printed too much money, this would have led to full employment and full capacity utilization at the car companies, the steel companies and all the other companies. And it would have led to a way to push inflation if it was always domestic. If it was domestic. Right.

But we were able to import deflationary pressure in terms of products from especially China, but other overseas countries we keep importing cheap labor from largely Mexico. Right. And that's a deflation import to offset inflationary pressures that would be there if you weren't doing that. But China's now equalizing wages have come up a lot in China.

So how long does this last? Well, there, I would say that in India, I don't know how many manufacturing jobs there are in the world.

Right.

200 million, 300 million? Yep. There are more than 300 million Indians who would work for less than $15 a day. Yeah. So this lasts for generations and generations. There is no end in sight to ultra low cost labor. Okay.

And then the question is, how much do we need labor with automation? And our AI is now automating all kinds of softer things.

So this completely changed the whole paradigm. We no longer had a closed domestic US economy. We had a global economy that was struggling, had a workforce that was 25 times larger. Right. But earned 90% less. And so there was no word anymore about the government overstimulating the economy either through massive budget deficits or through paper money creation.

And you're saying that can go on.

For a very long time as long as globalization persists.

And what part of globalization? Cheap labor.

Yes. Okay.

And you know, looking at Africa now, I think because Chinese wages have gone up, but Africa is a mess. You know, it's a bunch of different languages. It's just too difficult. India is not as difficult. I mean, you got the elephant and the dragon, right. I remember the first time I went to India. I read that book on that trip, actually. It's interesting. But India is nothing like China in terms of, I mean, India's democracy.

Right.

It's much less efficient. It doesn't have the manufacturing base.

It's not the same. But in the meantime, we have Vietnam and Indonesia and Bangladesh which are all becoming quite big powers as a result of this, this shift from manufacturing out of China where wages have gone up to a shocking $25 a day. Right. Which is still much. But yeah. To places where they're still less than $5 a day. And probably in places like Bangladesh.

Yeah. Right. Okay, so we've got creditism. That's the economy under which the whole world operates or just the US the whole world. Right.

Creditism fuels the global economy. So what creditism is actually is before dollar cease to be backed by gold. We had capitalism for the most part.

Yeah. I want you to contrast creditism with capitalism. I was just going to ask you to do that.

All right, so under capitalism, the government had very little involvement, theoretically. At least. And gold was money. And businessmen would invest and some of them would make a profit and they would accumulate capital as a result and reinvest that capital. And that's how the economy grew, through capital accumulation. That's why they called it capitalism. Right. But that's not the way our economy works. Those are not the forces that drive our economic growth anymore. What drives our economy now is credit creation. Right. And the consumption that makes possible. So credit also started to explode after dollars ceased to be backed by gold. Total credit, which is the same thing as total debt. In other words, the debt of all the sectors of the economy in the United States. Public and private, public and private, the government, households, corporations, Fannie Mae and Freddie Mac corporations, non corporate businesses, state and local government, saying you're really only about a dozen or ten that matter sectors. Add them all together, that's total debt is equal to total credit.

Okay.

Total credit first went through $1 trillion in 1964 when I was 4 years old.

Right. And I'm thinking back to like, that was when the Diners Club card was the thing. Right. You know, credit cards, I mean, just those cards that we all take for granted. That used to not be a thing.

Right.

I mean, it wasn't that long ago that the first credit card was the Diner's Club.

It was a very early credit card.

And, you know, the idea that you could go to a restaurant and pay with a credit card was just weird.

So we've gone from $1 trillion of credit in 1964 to $101 trillion now. Yeah. So in 60 years, which is about.

The size of the global economy, their gdp, their whole planet is just over a hundred trillion.

So we've had this explosion of credit and credit. Rather than capital accumulation and investment, credit creation has become the thing that drives the economy forward. Yeah. In fact, between 1950 and 19 and 2009, anytime total credit adjusted for inflation grew by less than 2%. The US went into recession, so we needed at least 2% credit growth adjusted for inflation to keep the economy out of recession. Every time it fell below 2%, we had a recession that happened nine times. Right. So as credit grew much more rapidly than the economy, we went from something like 150% total credit to GDP up to 360%, but it to GDP and as the credit expanded, that's the thing that drove the economy.

Yeah. I got to tell you, Richard, you know, my thinking is very much in alignment with yours because I remember during the Great Recession, I'd be watching C. NBC in 2008, for example, 2009. And I wanted to throw a brick at the television set because every talking head was on there talking about money supply, money supply, money supply. And I said, why aren't you talking about the credit supply? That's what dried up. I mean, in my real estate company when the mortgage meltdown started, which by the way was the first phase of the Great Recession. That was not the same as the Great Recession. It was just the entree to it. And I knew that was going to happen. I predicted that in 2003, 2004, and everybody was arguing with me. You just knew these liars loans were going to default. I mean, that was obvious.

It is obvious.

But I didn't know what the big short was about. I didn't know what was going on behind the scenes on Wall street with, you know, CDOs and selling the same loan off in different tranches multiple times in different pools. And that I was unaware of. I had no way of knowing that stuff was going on. But it was the credit that dried up. And then everybody talk about how well they stopped publishing M3. Right. Which was one of the money supply indicators and they thought that was a big conspiracy because, oh, they just don't want to tell us, you know, what's going on with the money supply. And that's why they stopped talking about M3.

Right.

Speak to that for a minute.

So you're exactly right. I mean, no one should focus on the money supply anymore because the credit supply that matters in the past, money.

I mean, the money supply matters, but the credit supply is more elastic than the money supply.

Well, there's really no difference between money and credit anymore. Money used to be backed by gold. It used to be gold. Now it's just another type of credit instrument that typically pays no interest. So Money is just a 1, M1, or let's say the base money is just a fraction of the total credit supply. It's the total credit supply, not this minute bit of the base money that really drives the economy now. And if you look at the chart of total credit, as I mentioned, from $1 trillion to $101 trillion now, it never contracts, except in early 2009 it dipped just a little bit. And that's when we had the crisis. That's when the bottom almost dropped out as it did in 1930. But this time the government jumped in with trillion dollar budget deficits. And since that time of the total increase in credit, roughly $52 trillion of credit since then, I think the government has been responsible for half of the credit. The growth in government debt has provided half of the growth in total debt since 2008. In other words, without this increase in government debt, credit would not have continued to grow, so the economy would not have continued, would not have grown. In fact, without the increase in the government deficits in 2009, 10, 11, 12, and the QE that financed that credit would have contracted, creditism then would have imploded and we would have expired down into a new Great Depression. Yeah, it's like inflationary depression, deflation.

So deflation, the way, in my opinion, is the worst of all economic. Nowadays. Nothing is worse than deflation because it's hard to stop. And it gets into this really scary cycle where nobody wants to spend because everything they have will be worth more later and so they don't want to spend it. And then you have like this double double hit and it's treacherous, you can't handle it. Inflation is much more tolerable. But deflation?

So creditism, our new economic system must have credit growth to survive.

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