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THE ECONOMIC FRAMING DISCUSSION: TOM BILYEU AND RAOUL PAL Tom Bilyeu: 'Why You Can't Afford Anything!' - How The Economy Became One Big Ponzi Scheme \| Raoul Pal PLAY YOUTUBE VIDEO Original article: https://www.youtube.com/watch?v=qAzzXpb8vrk Peter Burgess COMMENTARY Peter Burgess
'Why You Can't Afford Anything!' - How The Economy Became One Big Ponzi Scheme \| Raoul Pal Tom Bilyeu 4.34M subscribers Sep 5, 2024 Impact Theory Podcast No description has been added to this video. Explore the podcast 74 episodes Impact Theory Podcast Tom Bilyeu Transcript 0:00 we have this constant looping um cycle of debt where we have these boom and bus periods because we are masking that a blowup happened in 2008 which was this devastating moment where we realized okay the whole system is very fragile because people are disguising the fact that real wages are not going up by taking on more and more debt both at the individual level and at the governmental level uh we also weakened because of the demographic boom we have um we go into this globalization moment where we are driving the cost of goods down by doing labor Arbitrage and uh very well predicted that what's going to end up happening is you will begin creating a Schism where the rich are getting richer and the poor getting poorer because the the quote unquote poor or middle what used to be the middle class they are the 1:00 workers they're building your cars your widgets your whatever but if you use the labor Arbitrage and you send that to a foreign country where labor is cheaper yay the people that own assets are very excited because the companies that are overseas that the asset is they own a piece of that company just to be very clear and so the people that own the Assets in these companies that are using labor Arbitrage to drive the cost of their goods down to drive their revenues up they're loving life but all the people that used to go to the factory they're either stagnant down or headed towards you know the deaths of Despair route where people are just doing drugs if anybody wants to understand the opioid epidemic in the US that's going to be a big part of it yep I this is why why this is necessary before we can talk about the everything code so okay so that we're in that world where everybody is disguising the problem through debt but eventually you're going to hit a come to Jesus moment where you just can't keep going up we had a massive bubble in the housing market that pops Bo like a series of things series of dominoes fall now the reason that I say 2:05 this is where you and I begin to diverge in terms of where we're predicting what goes on in the future is a stat that you'll know better than I but the number of banks that it took to um wipe out I forget how many billions of dollars in value was like 500 or something during the 2008 collapse what we've just gone through with the collapse of four Banks we had even more value wiped out so we have this consolidation consolidation consolidation of all these what used to be you know back in the 1920s when 1929 happened it was like 5,000 Banks or more had to collapse before we wiped out as much uh value as we've wiped out recently in the banking crisis with again four Banks wiping out not quite as much value as were wiped out in the Great Depression but it's distressingly close so 5,000 Banks now it it only takes four Banks to Wipe Out the same amount of value and so it's like I just feel as the the system is getting more fragile it's not like we're just going 3:05 horizontal we're getting more Fragile with every passing day every time this boom and bus cycle happens and again we're papering over this simply by making money out of nowhere and I really want people to understand that we are making money out of nowhere so we'll come on to the outcomes in a bit what we are doing since 2008 is mutualize ing the bankruptcy of the system via the debasement of currency which is the when you say neutralizing you make mean making it everybody's problem yes you can either raise taxes which they're trying to do too but they're also printing currency via the mechanism called quantitative easing which is actually debasing the currency which means that every time they do it asset prices optically rise they don't actually rise 4:00 because if you if you look at the central bank balance sheet and divide all assets by it so you're changing the denominator it's normally US dollars but when you use the balance sheet you say okay this is the purchasing PA of dollars now how many dollars are in the economy or excess printed and what you find is something like the S&P 500 has gone nowhere real estate gold gone nowhere and there's only two assets that are actually outperformed which were crypto and Technology okay which is why we all feel like even though stocks are going up and our 401K is going up nobody's getting any richer okay there's a we all know this intuitively that we're not actually getting richer because the stocks I sell doesn't buy me more of a house so what the what was the point of buying the stocks if I the value of my assets aren't going up but that is a mutualization which is bad because it mutualize it amongst people who don't have assets so you'll never be ble to buy an 5:00 asset which is why when you speak to a millennial now they're like we can't afford a house why because they came in to the labor force after the FED started monetizing or or um or lowering the value of the denominator so property's got more and more expensive for them it's impossible for them to buy property really unless they're really lucky in the workforce or in entrepreneurship or whatever it is but generally speaking it's become impossible and everything has got more and more expensive assets have because of this optical illusion but wages haven't gone up remember right that's the key thing assets are going like this we were doing this before because of demographics and it was making people pissed and now we're doing it from debasement and there's there's no way around it so what debasement does on the other hand remember it makes the price of assets look like it's going up this is why you can't have a banking crisis of the order of magnitude that existed before 2008 6:00 the reason being is you just print money the moment you see it and voila everything goes up so the value of your collateral so if you think about a debt it's collateral plus the debt and the collateral is what guarantees the debt if you've got a banking crisis your collateral is often falling so fast that like commercial real estate right we're going to have a problem with that so there's a bunch of debt and the and the and the banks have got this real estate is collateral and it's all bloody empty and everybody's going to try and get out of it so the answer to that is print money and and essentially magic that collateral higher or put it on the central bank balance sheet Europe has already done this so I don't think you can have a systemic collapse because the value of the assets can never go down enough this is what most people can't get their heads around well so I'm gonna get there is we we'll play out the future a bit because there are ways where it could go even more wrong than this ongoing 7:07 mutualization amongst the people of the of the costs it can go even more wrong well this is wrong because it's it's Insidious you don't see it you don't notice it you just sense it right that's what's going on but it could lead to another outcome the other outcome could be a total loss of control of the financial system I don't think that is going to be the case but there's a possibility yes and so this is getting into I have a growing thesis that is it's beginning to touch everything I need to find a word for this but the level of awareness of a problem when it is ubiquitous you would think that's good because it kills the Arbitrage where only the people who are aware of it are able to take advantage of it that sounds bad and it sounds evil but as everyone 8:05 becomes aware of it the only outcome that I see from that is cynicism and I I come at it from an entertainment perspective which may seem very weird for people but I grew up in the 80s which I actually want to talk about the 80s and why the 80s felt so awesome living through it uh because I think it actually planted a seed for something problematic but anyway so the 80s from a film perspective was awesome uh you could have a movie where Arnold Schwarzenegger throws a and it goes through a guy and it pinss him to the the wood beam behind him and he says stick around and it and it isn't uh you're you're actually laughing in the moment you're not laughing at how uh many times you've heard a line said like that or oh my God that's like an AR line it was the first time you'd ever heard or seen anything like that and it was just legitimately funny and over time though we become aware of all these patterns to the point where if you grew up watching movies and you grew up in a world where 80s movies were a thing and they've been mimicked so many times and done to death everything happens with a 9:01 wink and once everything happens with a wink everybody lives in this ironic world where being more cynical than the next person meing something faster than the next person becomes the thing and so one of the things and and I feel a moral obligation to get the information out about what the world of Finance really is as fast as I can and yet I know that as everybody becomes aware of the trick the trick won't work anymore so I'm in this weird spot of like wanting to tell people hey when they print money quantitative easing they are counterfeiting money it is destroying your buying power and but it is the only way that we Glide so it's like no but you're keeping the the monkeys Happy by lowering the cost of TV sets and other stuff right that's the other weird thing consumable goods are cheap now we're really getting in because now we have to talk about metaverse and how if you you want to pacify people that's a totally different thing no but we have pacified them with cheap TVs cheap beer cheap food cheap 10:06 everything but they're still derailing man they are still derailing because we've got because the asset which is your future self it's your future consumption has gone up so much that nobody can afford them so you've kept them happy with dopamine and sugar hits of crap you've kept them numb I won't say you've kept them happy you've kept them numb okay yeah happy is the wrong word but you're right but look this is I went down this journey that you're going down now in 2012 and that Journey led me to crypto I saw it and I knew that this was the answer and that's why I first bought Bitcoin in 2013 was exactly this is once you see what has happened we know the system now regardless of How It Ends whether it ends in slow ongoing death of of economic vibrancy or a spectacular blowup the answer is you need to 11:05 transition to what I call the Bitcoin life raft or the parallel Financial system it's there and you can participate with $1 or a billion dollars it's an we're going get crypto but we have to get to your um everything code uh I think this is this is crazy important so um I went in and listened I I must to listen to it oh God you're going to think I'm kidding 30 times to write it down verbatim you you delivered I had never heard you do it so succinctly um and so I I wrote it down verbatim and what I want to do is I'm going to go through your everything code but we're going to stop in a couple key areas to make sure that people really understand this so I'm going to read a section and then give you a chance to if you think there's something that you can say even more concisely or whatever but I you just delivered this so well so here it goes so Ral has a a a theory that everything is related to one 12:06 phenomena and once you understand it things get a lot easier to predict so here we go this a quote from Ral what I had suddenly stumbled across in the everything code was the fact that the global central banks had probably agreed together sometime around 2012 after Europe blew up that with governments at 100% of GDP in debt they were going to crowd out all of the private sector and we were going to just keep having Financial crises okay so you mentioned earlier this idea of 100% debt uh 100% of GDP in debt so I don't think we have to go over that again but the part in this section that I don't understand is uh this concept of the government competing with private sector so this is the this is the bit we talked about right so the economy grows at 2% the government needs that to pay its interest because it's how does it use 13:00 that to pay its interest well basically it comes because they're just taking more in taxes exactly right there's a a level of economic growth that needs to service the interest payments but if everybody's interest payments are too high the the answer is firstly to have the interest rate as low as possible which is why the um which is why the Japanese have a much lower natural rate of interest than everybody else because they're 260% of GDP in debt but the companies are less in debt so they they've trapped themselves they have so much debt they can't let the interest rate rise nobody can this is why we gonna have a recession and we're going to cut rates back down to zero it doesn't it's impossible to work so this is the thing is once all of these governments hit 100% then they either blow up the private sector the banking sector corporates or the government sect choose because there's not enough income to service that level of debt cu GP growth keeps declining okay so let me see if I 14:02 understand this so when you say private sector you mean private banking no I mean all private sector households so how do you how does the average person service that the interest it's again from economic activity the activity that they have so the same with corporations and the banking system is involved intricately within that whole system so economic activity is pays the interest if you don't have a job you can't service your mortgage or your credit card right fact and if your growth if your debt growth keeps going up you need to keep your wages going up to pay your debts that's that's the GDP side of the equation but what we're finding is that all debt that is in excess of GDP at government level is ending up on the balance sheet three and a half years later okay 15:02 how quantitative easing they and I did the maths on this and I think I was the first person to really fig I don't think anybody's really figured this out yet I went and looked at this and I realized that what they were monetizing was the interest payments on the debt three and a half years later okay why three and a half years in 2008 ALL interest rates went to zero everybody every government refinanced itself at zero and most of the debt for all governments is in the 3 to five year sector so somewhere between 3 to five years three and a half four years and what happens is every time you service the debt you need to get the interest rates back down again you end up having a recession you get this very cyclical phenomena because they they are they deferring the need to pay for 3 to 5 years 16:00 nobody pays back debt no nobody nobody is paying back any debt anywhere so what they're doing is every time it comes to pay to service the next amount of debt it ends up on the fair balance sheet now actually happens because there's an economic slowdown driven by the debt but that's what happens and the there is a marginal difference in the size this is sorry this is true of the US the UK the EU Japan they're all the same and the difference of the balance sheets is slightly bigger and the difference is every time there's a direct financial crisis they have to put direct money in so we you know we're already just seen a little bit of that in the US okay the difference difference would be buying the Federal Bank buying assets versus just stimy checks is that what you mean by direct money so stimy checks is that's coming 17:01 in onto the bank balance sheet because that is government debt that ended up will end up getting monetized three and a half years later which happens to be end of this year into next year which is why I think we've got a lot of quantitative easing coming because we've got to monetize all of the bloody interest payments from the pandemic and when we say monetize we mean print money print money and put it on the FED balance sheet I just print money expand the balance sheet of the Federal Reserve to match what we will create money correct and that that's using a credit card to pay off your other credit card essentially right or printing is that what you mean by nobody is servicing debt is just everybody's printing more money correct because surely nobody's making debt payments no no debt is getting paid off you're just rolling the interest payments so it keeps getting bigger every year hold on if we owe China money there's no way China's just like oh word it's all good push it off so surely we are at a minimum printing 18:02 money in order to pay those government debts right when that comes up for no after four years you just issue new debt but you issue new debt to yourself so that you can then pay off whoever you owe money to surely no because the government is borrowing the money here right so what they they just pay off they don't pay pay off the debt they just do it again so it's like your mortgage comes up at the end and imagine you just had interest payments you just roll it again and say I'm just going to pay interest for another 30 years nobody ever pays off the actual loan and nobody cares as long as you get the interest which is weird now if you pay off the loan you optically do it but you asso a new one again so it's like I'm going to pay off my credit card with my brand new credit card I've got and so One credit card yeah that's what I'm 19:01 saying is when they're printing the money they are paying off the debt they're just creating new debt in the equal amount or more but they are technically paying that debt off otherwise I can't fathom how anybody do it Deb so debt is growing in all of these countries at GDP plus the interest payments and that interest payment component is going on the balance sheet and that's happening everywhere including Japan so they're all doing exactly the same thing which is interesting that doesn't happen by accident there is an understanding that the world is too much in debt and there's no way of dealing this without us all going back into caveman times so this is the answer yeah so I think this is this is where we have to look at Ray Delio's thesis and I think this is what has really painted my thinking so Ray just 20:01 like Look Backwards last 500 years of History every time every time you've gotten to this point where you're gliding uh it it always ends with either economic war or actual hot Weaponry war and you need this level of trauma so that people will finally go fine everything that I owe I'm I'm just going to let go of it whatever it is what it is I just want peace and so you get this complete upending of everything we reset we go back to zero but we do it in the most grueling brutal sacrificial way possible me and and I hear this a lot from people like ah this all rebalanced in 100 years sure but that is cold comfort to Millennials who could never buy a house right like so yes but this is where the fourth turning comes to me right I think we are at economic Warfare everybody needs an enemy so we've decided that China russan whoever we want to be our enemy is our enemy so we are economic Warfare for the share of the pie but the world is not 21:06 it's not actually a fixed pie there's an abundance and that abundance is the other economic Warfare which is technology but that's happening at a massive scale and it's going into space it's going everywhere so we've got physical kind of warfare economic Warfare over technology which is what Taiwan is all about you know they own the secret code which is the ability to produce um computer chips uh in ways that nobody else can replicate so there's that and then we are at war with each other as the population is split and wants to blame each other for what has happened when in fact it was actually the Baby Boomers that actually caused the problem in the first place the people cause the problems of the People In fairness it was the greatest Generation that had all the sex that gave birth to the Baby Boomers that created the problem and this is where it 22:02 gets tricky because God bless the greatest Generation for fighting the wars etc etc okay before we keep going down that road because I I want to keep this all in the construct of your um everything code this was very enlightening okay so you just walked us through uh that first part about why we're going to keep having these Financial crises and the only way out of that uh is to print money basically uh okay next section and the only way way here we go and the only way of solving this uh is putting it on the central bank balance sheet because there's not enough GDP to pay the interest this is what you're just talking about so if you think about GDP growth let's call it 2% and let's assume that interest rates are 2% which is roughly where they've been since 2008 so if the government is 100% GDP in debt and GDP grows at 2% but interest payments are also at 2% that's all of GDP growth just to pay the interest on the US government debt but the private sector excluding the financial sector so households and 23:00 corporations are another 120% of GDP in debt uh well that will give you negative growth every year of 2% and it just com compounds so what happens is those interest payments go to the FED balance sheet and they monetize it again this is what we were just talking about so then the private sector is not competing with the government and that was provable across all major economies it's like they all decided that they're they're too far in debt and the only way to solve this is quantitative easing and then started thinking well if I know this to be true and I know that the central bank balance sheets are 97% correlated with the asset prices well all I need to do is use forward-looking indicators to predict the central bank balance sheets Andor interest payments dude talk to me about this 97% correlated with assets that that seems like having a crystal ball so it doesn't it actually reflects today so you could basically as I explained before the thing that's 24:02 actually driving the S&P 500 is the Fed balance sheet it's not companies getting you say driving you mean driving the price correct so it's a optical illusion it's a money illusion so the price simply Rises to meet the level of inflation caused by printing money correct you're readjusting the price so that is what's going on and so then when you understand that and it's 97% you understand that nothing matters apart from this liquidity which is what I've been trying to tell people is sorry all your economic models are wrong yes you need to forecast the business cycle to know where you are in the probability of printing money cycle but that's all that matters and it drives assets and that's why people right now are getting very angry because the stock market's going up and they're like but don't you know there's a recession yeah I know that the answer to recession is more 25:04 cowbell printing of more money which is what people this this is what I'm talking about with as people become aware of these issues as you zoom out and you see the gigantic crater you begin to realize oh we're in a recession that means they're going to print money so in a recession prices are going up and people are like yeah I know where this goes so that that's crazy and that it it'll be very interesting to see what the KnockOn effects are of the um Everybody becoming aware of these patterns and I've heard you say that uh it's almost always the path of most pain is the the path that ends up actually happening and so as we begin to predict oh this is what's going to happen the fact that we can predict will have some very sort of painful uh consequences the important point being here is I know 26:01 what drives liquidity it's driven by the business cycle and there are certain cycles that are forward-looking the Chinese credit cycle happens to lead by about 18 months or two years people that don't know what the business cycle is can you give a quick primer the business cycle is the EB and flow in economic activity that occurs and that's a boom and bust a recession expansion is it caused by interest rates we don't really know what causes the business cycle it's caused partly by interest rates it's caused by excess production excess inventories too limited inventories too there's many things that can can drive a business cycle but it's observable and has been observable for Millennia and one of the things we do is when the business cycle is too hot and inflation starts Rising central banks tend to rise raise interest rates that 27:00 tends to bring down economic activity I think even without a central bank interest rates would rise naturally um because I think the free market can set interest rates without a central bank and then the economy slows down again and we see this this endless cycle so what I think my hypothesis is is that okay this is very observable I think it's going to last this relationship between assets and the central bank balance sheet because of the mechanism of debasement of currency and I can forecast out what the business cycle looks like and I also know the amount of interest payments that need to be made because they they happened three and a half years ago and I can see how far the balance Sheet's going to expand so the balance sheet right now is what $6 and A5 trillion dollar and it looks like it will get $7 trillion or so and it looks like it will get to 12 to 14 trillion by the end of 2025 so that puts and there's of other ways I've proven this out in this whole thing and I'll send you the whole piece uh myself I've not really gone public 28:04 with all all of the whole thing of how it works but in the end that puts asset prices massively higher than here hugely higher um so we're looking at more than a doubling of the NASDAQ from here we're looking at another gigantic crypto run that's into 2025 so we're seeing huge moves that just come from the debasement and I've gone through in the everything code article that I wrote for Global macro investor which is my kind of Premium research service in that I've gone through various ways of proving this all out um so that's what I think I can do but your observation I think is really important okay when people I mean I've sent this to quite a few people and obviously the subscribers of global macro invester kind of lot the world's most famous hedge fund managers um asset managers and I think it it really shocked people and resonated with people they're like oh my God everything makes 29:02 sense now and so once you see it it all makes sense um now as it becomes more public as a thesis and Mike how at crossb capital's been talking some elements of this liquidity you can see liquidity becoming part of the the conversation on financial Twitter and stuff now what I think we'll probably do is create boom bus Cycles again you can't have the bus cycle going below the level of Central Bank liquidity because optically they make it rise this is what people don't yet understand but of course stock market should go down 90% can't happen literally can't happen because of the debasement it's a money illusion but what I think we'll do is see hey off we go to the races that's what happened in 2018 2018 sorry 19 uh early 20 we actually diverged from the central bank balance sheet uh massively 30:01 because people starting to figure out this game which is the moment the FED stopped tightening cycle markets take off because they know that the probability of more cowbell more more Central Bank printing of money more interest rate Cuts is coming and so therefore we get boom bus Cycles so the boom times are too big and then you get a bust and we people know that from crypto as well the long-term Trend remains intact but we keep getting these huge booms collaps boom collaps but the trend is still up I think that's what we'll see we'll be more like the crypto cycle which is pretty much what we've just seen as well we had a big collapse last year and now we're straight back into the boom as we're starting to forecast this if you like that clip check out the full powerful episode here and I'll see you there

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