Chatting with guest Mike Lorenz about Bitcoin, how CFOs sped up smartphone adoption, the urban doom loop in San Francisco, 'zombie companies', the abuses of private equity investing, and the implications of eradicating morality from social and business relationships.
Chatting with guest Mike Lorenz about Bitcoin, how CFOs sped up smartphone adoption, the urban doom loop in San Francisco, 'zombie companies', the abuses of private equity investing, and the implications of eradicating morality from social and business relationships.
All right, I am here once again with the inimitable Mike Lorenz, friend of the podcast, snappy dresser, and the man who is sort of an oracle in his own special sort of way. Never profit in your own land or household, I suppose in our case, but your profit in my household. There you go. Excellent, how's life treating you, buddy.
Speaker 2:It's good Summer's ending, so all the kids are back in various schools and life is settling down into a routine again, which is kind of nice.
Speaker 1:Yeah, I know what that's all about. I don't think I wrote more than half a book during the summer and I had intended to take only one month off and it was finally like you know what. I've spent a month and more on this and I didn't get my month off. And I'm feeling it because when I came back last August, I went and I plowed through an entire book 100 plus thousand words in four weeks and it was like that Came back this time and I'm at like 54,000 words. I'm like you know what I'm going to take a long weekend. It feels like a good idea right now. Thanks, yeah, we were talking about Bitcoin briefly before I activated the recording device and it's a little bit of a trough right now. I guess it had gone up to 28,000 or so. In the last few days. It went up to 22,000, and I'm like, oh wow.
Speaker 2:Yeah, it's been bouncing around.
Speaker 1:It's volatile still at this stage.
Speaker 2:Yeah, but it was in kind of a very stable quote on quote range for maybe eight, 10 weeks or something. It was just kind of bumping along at exactly the same. Then it got volatile both ways. But it is what it is. Anytime I see assets that aren't volatile when the actual economy is volatile, I get worried about how true the market is.
Speaker 1:Well, since the last time, I think, we spoke on microphone, at least I finished reading the book that you had given me last Christmas the Bitcoin standard and I might have talked about it with Carlos. I feel like I've been talking about it with everyone lately because it really changed the way I have thought about money and markets and everything I feel like for the last 10 years or more, ever since the financial crisis of 08, I have not understood the markets, and it's not just a directional thing. I feel like I have a Charlie Munger type situation where I'm like none of these valuations for any of these stock prices make sense to me and reading that book, it suddenly was like someone held up a flashing neon sign of revelation. This is it when you don't have money that is sound, when it can be manipulated and it forms its own complex system that doesn't use actual pricing and markets as a symbol. It's basically I mean, central banking is kind of a socialist model.
Speaker 1:The government controls money and it controls pricing. If it controls money and it plays around with it in every which way it can and the US specifically is, and there's going to be a lot to unpack here. I know the US government, specifically, has used it to tax the people without their consent by devaluing their currency holdings, and so by that method, anytime they feel like it, they basically pass a tax on us where, all of a sudden, our money's worth 10% less During COVID, our money was suddenly worth 50% less, or something ridiculous like that and we're seeing it and paying for it in inflation.
Speaker 2:For sure, and it's a hidden form of taxation and so it's easier to pull off.
Speaker 1:Yeah, no legislature necessary.
Speaker 2:Yeah, you just think of 2010 through 2020, and I think we've talked about this before very low theoretical inflation. People weren't paying attention to it. Even though there was inflation in assets houses got way more expensive, stocks got way more expensive, et cetera no one was really paying attention to the government just printing boatloads of money in devaluing the currency. So it sneaks up on you. Then it gets out of control and you do notice it. Everyone noticed it in 21 and 22, when all of a sudden the price of eggs went to $45 million or whatever it capped out at.
Speaker 1:Some of that was. I mean there was a chicken issue. Avian flew at the same time, so that one was particularly accentuated, I guess by additional factors. I mean all the other food stuff was inflated as well.
Speaker 2:Yeah, so when it gets bad enough, people notice is the bunch line. I'm surprised, but, like you said, a lot to unpack there. Almost every sentence has a paragraph of response, so go ahead. The Bitcoin Standard book is really interesting because I give it to all of our friends for Christmas last year, a year before or something like that.
Speaker 1:I think it was last year, because the year before was the live not by lies. That quote, the origin of that quote, is big in my next book, live not by lies is almost the theme of it. That's awesome.
Speaker 2:Great book as well. So Bitcoin Standard. There are some folks who just swear by it. You've been effusive in your praise of the book that, hey, it changed the way they think about things, et cetera.
Speaker 2:I like the book, but it really didn't change much of how I thought I was like, oh, yeah, it solidified it, right yeah yeah, it was a lot of a opener to me and just reading that wouldn't have clicked all the buttons for me, but some of the podcasts I listened to people have different ways that they pick up on things like, some of the podcasts I've listened to were more along the philosophical meanings or underpinnings of Bitcoin or what it could mean, et cetera. That really punched my buttons a lot more to get me more interested. Dig deeper. Some folks say economics, some folks it's the technology, whatever it is. But yeah, some folks just rave about that book and for me I like the book but it never hit that level for me.
Speaker 1:For me it was just a Rosetta Stone, where it's like all of a sudden I have a new primer for understanding this previously unfathomable section of the world.
Speaker 1:It just opened up my eyes to just this one area where I was like I don't understand any of why this is happening, and so it provided that explanation of the reason why none of the pricing makes sense is because the government is literally tugging on the pricing anytime they change rates, anytime in fractional reserve banking, some bank issues alone, anytime euro dollars are issued. That's why your pricing doesn't make sense. That's why people are paying this much for a stock that has no valuation, because your money is actually not worth very much at all, less than you realize, and it almost is a gut thing for most people is that? The line that was in there that you and I have talked about before is that money is burning a hole in a lot of people's pockets. The savings rate is incredibly low because it's like people can perceive my money is not actually worth that much and it might be worth less in the near future.
Speaker 2:Yeah, it's an interesting philosophical exercise. You could say, hey, let's play this game. Your money is worth 10% tomorrow of what it is today. What are you going to do? Everyone say I'm going to spend it. Yes, okay, it's going to be worth 50%. What are you going to do? Okay, it's going to be worth 2% less. But you're not going to know it. It's like, okay, well, maybe you're not directly going to think I'm going to go out and spend it, but somewhere on that spectrum you're tweaking to the fact that this money is losing value over time and, whether it's consciously or subconsciously, it's affecting your actions. And so I think we've talked about this before.
Speaker 2:I don't know if it's on one of the podcasts, but I've said it a million times money is in prices or information. Yes, money is information that's flowing around. So if you think about bad money, bad money is disinformation. Yes, it's like, hey, you're getting bad information. Like you see the price of something go up.
Speaker 2:Oh, hey, in a normal market-driven economic system where you've got good money, that would mean, hey, there's higher demand for this. Yes, right, for some reason there's a key supply that's not available. More people want it Furnish, blue, whatever. You can use it for more stuff, yeah, whatever. So that's information hey, this is more valuable. But if the price is going up just because there's more money, this isn't more valuable, and so the signals that go to the market would be telling them hey, go make more of this stuff. It's like no, no, no, there's actually plenty of this stuff. So money becomes disinformation when it's bad money. And it's interesting. I listened to a podcast recently and I went back and listened to an interview with Sam Bakman Fried, who was this 28-year-old or 30-year-old, whatever.
Speaker 1:Never heard of him. I wonder what he did.
Speaker 2:Youngster who founded this crypto exchange that played all kinds of shenanigans ended up being either a Ponzi or a facilitator of Ponzi, or just a total fraud or all of the above, and they lost billions of dollars for customers doing a bunch of shady deals in the Bahamas while pounding his chest about all the good things he was doing to save the world.
Speaker 1:And living in a polycule. Let's not forget that, with some of the most interesting poly roommates. I don't know, man, If you're a billionaire, I just feel like you could. I don't know.
Speaker 2:So his decision-making was bad on so many fronts. So anyway, listening to this podcast, it was recorded six months before the collapse of his empire, so he's still seeing is this wonderkin genius cat? And it was really interesting. Some of the things were like, okay, this guy just is a complete idiot and, frankly, I'd never heard of him until all his stuff blew up, because I was never into crypto.
Speaker 1:Neither at all yeah.
Speaker 2:I kind of believed in Bitcoin and I just bought Bitcoin and stayed in that lane and didn't pay attention to a lot of this other stuff. So if he was a surprise player to me, I went back and I listened to some of his stuff and, holy cow, in retrospect it's easy to say how do you not see that this guy's kind of a loon Like Elizabeth Holmes very much? Yeah, yeah, it's like who is trusting this person. But I went back and I listened to this podcast and he actually made some interesting points that were like okay, I get where you're coming from. One of his points was about pricing of equities, because he's a former trader of securities for some hedge fund or something and he was like, hey, the prices of equities don't make sense. Why do the prices of crypto tokens have to make sense?
Speaker 1:Yes.
Speaker 2:It's like, okay, that's a really good point. Good point Like if, literally, you have to wait around for 400 years for the dividends from Amazon stock to pay for one share of stock, that doesn't make sense as an investment, unless there's something wrong with the money and you just need a place that's less bad than cash.
Speaker 1:And that was the thing that I have twigged to a long time ago. Where it's like Netflix the earnings don't make sense for this and people are projecting some sort of obscene growth and I never understood it. And that's the Charlie Munger thing. Where it's like I don't understand these equity prices, None of the stock prices make sense to me at all.
Speaker 2:So yeah, there's two things there. One is, of course we're talking about all the money being pumped in that just the values of everything is going to go up because there's more money and stuff isn't growing at the same rate as the money, so the price of everything goes up, Super basic. The other thing is, when you're talking about growth, growth rates driving these valuations, you could borrow money for approximately 0%. Let's call it half a percent or 1%. As a corporation, you could borrow money at very low rates. Call it a half a percent. Yeah, blackrock bought a lot of houses that way.
Speaker 2:If you can borrow money at half a percent and you can make 1% on that money, you would do it all day long. So growth rates are really important. So even if you're just a weak company but you can support a 3% growth rate and you can borrow money at 1%, you're going to borrow money at the Wazoo and it makes sense all day long for you to do it. So these incentives are layered in here in such a perverse way. It's fun.
Speaker 1:Well, that was the other part of the loose monetary policy we had. Is that all of a sudden you have these corporations that are run generally badly? If there was an actual free market they would not survive or they would not have survived the last 10, 15 years or whatever. If you can get that much access to capital that easy and that cheap, it's not exactly a survival of the fittest situation. It might be, in fact, in some of the marginal cases where they're kind of on the bubble. Even in this easy environment it might be a wink, wink, nod, nod. My friend at the bank can get me a loan and keep them alive a little longer. And to your other point you made on a podcast before about zombie banks it's like even banks in some cases are surviving in ways that maybe they shouldn't and wouldn't in better times.
Speaker 2:Yeah, I think one of the stats I saw recently in multiple places is that over half of the small banks out there are technically insolvent. Like if you went out there and you said, hey, okay, sell all your assets, which are these loans you've made to companies or these treasuries that you have on the books or whatever, then repay your depositors. Those things don't line up. They'd be able to repay most of their depositors. All their investors would lose all their money and not all their depositors would get all their money back.
Speaker 2:Half of small banks being insolvent is a pretty big deal and it's one of those where it's even. It's probably worse than people think. From a couple different angles that's a rear view mirror kind of looking metric. If you look in the look out the windshield for the next couple quarters, there's huge headwinds coming down the pike. The commercial real estate market is a disaster zone. So it's something like 90% of loans to buy commercial real estate were interest only and interest rates have gone from again half a percent or 1% to 6%, 7%, and so those companies that were borrowing money and only paying back the interest to buy office buildings, yep.
Speaker 1:Inticipating growth in value.
Speaker 2:Growth in rents. Like, hey, we'll just charge more for rents every year unless everyone decides to work from home. Yes, and inner cities turn into hell holes Right At the same time. Yeah, downtowns, yeah. So all of a sudden you're having these massive write offs in commercial real estate.
Speaker 2:So I saw the stat earlier in the week where there's this one I think it's Brookfield which is a REIT, owns a bunch of commercial office space Huge, yeah, huge, player. And they sent this nice little note to the city of San Francisco saying we're not going to pay the taxes. You just assessed us because you're saying these buildings are over 300 million. We're saying they're worth 50 million. Yeah, multiple buildings.
Speaker 2:So it's something like the city of San Francisco, which already has huge problems, all of a sudden saying, hey, your tax base, just for commercial real estate at least, just got cut in half. That's bad for San Francisco, but for the banks that are like, hey, we lent money on these buildings, you can't sell the buildings for what you bought it. You're not going to even be able to rent them out, possibly because no one's coming back to work, and definitely not in hell holes. So these banks have these assets on their books and they haven't been written down yet, and so forward looking. That's a problem. Credit card debt is an all time high 1.5 trillion or something, I think.
Speaker 2:Student loans are coming back online.
Speaker 1:Yes, october 2nd, I think, or 1st.
Speaker 2:Yeah, and in that kind of 30 to 39 age range, student loans are going to be a massive hit to folks.
Speaker 1:Credit card debt. 2, the interest rate on credit cards is higher than it's been in a decade or two, I think. I mean I haven't been in the personal finance game in a while, but I mean I remember credit cards were eating people alive in the mid to late 2000s when I was doing this, and I mean, if it's at an all time high now, I can't even imagine how bad people are getting walloped by these rates. Yeah.
Speaker 2:And theoretically, we're not in a recession yet, Except these are all the metrics I was going to say during a good time.
Speaker 1:Consumer confidence just came back the other day and it's low enough that we. You know it's a normal. It's at a level that would normally be measured during a recession. Furthermore, the June jobs report was revised. I suck at numbers, so at least always is the numbers person, but I remember the words and it's like they came in originally reported at like 205. The next month they revised it down to like 189. And the next month they revised it down now to like 105 for June. It's like in the rearview mirror, hey, that objects keep getting smaller and smaller, and not because we're getting farther away, it's actually just collapsing in on itself. Yeah.
Speaker 2:So a lot of different threads we're pulling here saying the condition of the financial economy looks bad and it's worse than it looks.
Speaker 1:Well, I've been anticipating a commercial real estate collapse since 2020, frankly, I'm surprised it's lasted this long. I was anticipating it earlier. It feels like our economy is like this rickety scaffolding that is just sort of bearing the weight. It's like one of those when you're in school did you ever build one of those like toothpick models where it's like you see how much weight you can put on it until it finally comes crashing down?
Speaker 2:I always wanted to build one of those, but upon further investigation, it was always funner to watch somebody else fall up and to build my own Exactly.
Speaker 2:It's a lot of work, but, yes, the analogy holds and same with you. When 2020 happened, I had a flashback to probably 2009, 2010, somewhere in there where, in 2008, 2009, 2010, whenever this was, I can't remember when, all of a sudden, smartphones just came online like crazy. I was working in a bank and we all had blackberries that would have been purchased for us by the bank, and the bank paid the wireless chargers, whatever. I don't even know how it all worked, but we had all these devices. We were emailing each other. It made the world much faster. The velocity of information, having email in your pocket, was amazing. And then smartphones came along and for like six months or eight months I don't know how long the CTOs and compliance officers of companies would be like hey, don't allow them to have work email on their security, security blah blah, and then the CFOs found out.
Speaker 2:These people are buying their own phones and paying their own wireless bills. Figure out the security. We're going to stop buying the blackberries and paying for the blackberries, because this is actually a material line item, and so, all of a sudden, blackberry died. Everyone was buying their own stuff. The companies weren't buying it for them. They weren't buying blackberries, they're buying iPhones. That's when the iPhone came out, so fast forward to 2020, when I saw everybody go home and work effectively from home.
Speaker 2:I was like oh, I've seen this movie. The CFOs are all going to be looking at the rent and say why the hell are we still paying rent when people come work from home? Pretty effectively, it doesn't work for everybody. If you're a factory, people need to show up and screw stuff together, but if you're doing knowledge work.
Speaker 1:Even a 15% decrease in the number of people showing up at office buildings means a massive shift in commercial real estate the like of which you can't really survive.
Speaker 1:And when you combine that with these downtown doom loops in places like San Francisco that Carlos and I have talked about the urban doom loop before on the podcast and how you know, the decrease in city services Swings down and then less people want to go into the city and the restaurants die and then it's just like a Downward spiral and I mean I don't take any pleasure in the San Francisco.
Speaker 1:I watch movies old movies all the time that are filmed in San Francisco and it looks like it might have been the most beautiful city in the entire US, like it just looks Amazing in the late 90s, early 2000s, like, and I would be scared to go there now, not just because if you park in any parking space your shit's gonna get stolen out of your car, I mean, which has happened to like five different CNN crews now in the last three months Hilariously, I might add mm-hmm. But like you know it, it's just not a particularly safe place in a lot of ways. I mean, if you don't step on needles and feces. You might get yelled at or kicked in the head by a homeless person. I you know that's not not a great situation to be in. Yeah.
Speaker 2:Yeah, there's a. There's a giant missing. Why, yeah, go to San Francisco? Why, yeah, why would I do that?
Speaker 1:So you can get screamed at and possibly bludgeoned by a man at homeless man on Fisherman's Wharf.
Speaker 2:He's an addict of God knows what methan, fentanyl probably yeah, not a romantic spot anymore, no, but yeah, it's the. The amount of warning signs out there is is troubling it for banks, for Businesses, because we talked about zombie banks before. But there's a, there's a large cohort of zombie companies, yeah, and there's kind of a definition of a zombie company, and that is a company whose Earnings doesn't cover Servicing their debt. Mm-hmm, right, yeah. And so if, hey, the amount of money we make doesn't even cover the interest payments on our debt, mm-hmm, we're in trouble. Less of them at 1% interest, more of them at 5%, right, right.
Speaker 2:Winnowing effect yeah so, and there was a lot of companies that were just getting along, yeah, with cheap money and continuing to borrow, and so I don't know if you're familiar with the private equity industry, but I Mean I'm not having personal dealings with it.
Speaker 1:I take an interest in almost every kind of business unless it's really, really boring, and so I'm fascinated by private equity.
Speaker 2:So private equity is very interesting. It's think of it as a microcosm of this bigger Issue of hey, a bunch of zombie companies out there, because they're, it is real, the zombie companies. Just how many there are, who they are is tougher to understand.
Speaker 1:I think it's easy to argue, actually at this point, that Disney might be a zombie company.
Speaker 2:Yeah, yeah, well it's. It's one of those. There's a huge opportunity out there for someone like a Michael Burry From the big short to actually go through everybody's books. That's a publicly traded company.
Speaker 2:Yeah, and just and just figure that. First of all, figure out who's swimming naked before the tide goes out, and then figure out, okay, when do I think the tide is going to go out, yeah, and then what is a way to make a bet on that where there will actually be somebody left to pay me if I win that bet? So it's tricky, right. There's some genius out there is going to figure some of this stuff out well, and to me it looks like Shorting the US dollar might be.
Speaker 1:In fact, if you can find a player who doesn't. We've already talked about yeah, we have, but I mean not probably on here. I'm saying bitcoin. Yeah, the coin is.
Speaker 2:Yeah, because you're selling one asset and buying another right. You're selling us dollars to buy bitcoin, and it's a long short right. You're just saying hey, I'm betting against this, I'm betting for that. You just don't have any counter party risk.
Speaker 1:Yeah, the only, because right now it kind of looks like bitcoin is hooked to a certain extent to the market. Right, the market rises, bitcoin mostly, right, it's sort of a lockstep thing. I think that's going to decouple at a certain point and I'm sort of waiting to see when that happens. Um, but the the biggest thing is like okay, so when does the day happen when it decouples, and, furthermore, and there's enough adoption, enough people fleeing the current monetary system, that it's like, oh yeah, this is definitely the thing everybody's going to run to, because I think they're going to flop around for the things that are closest to what they currently have first, if that makes sense, yeah, and then they might flop to the thing that is easiest, and if bitcoin is easiest, then, like, there you go.
Speaker 2:Yeah, it's. It's interesting, if either one of us had a crystal ball again, we'd be having this conversation on a private jet or a jitter at yacht or something exciting.
Speaker 2:Yeah listen to yacht rock, but the dynamics understanding what some of the dynamics are feels Understandable just how they're all going to play together. The timing is the tricky part, but so does bitcoin go along with the market. Like, I've been watching it for years and, yes, it's kind of treated as a risk on asset of like, hey, when people are taking risk, bitcoin's one of those things that it's going to kind of outperform, and then when people are taking off risk, it's going to outperform to the downside. It goes down faster and it goes up faster. Um, it kind of sniffs those things out ahead of time. Yeah, it's like because that marketing indicator, yeah, and it's a really hard market to manipulate the transparency of the blockchain, like you can't fake that you got. So the, the sales on the upside and the downside are leading indicators of what's happening.
Speaker 2:But but it's interesting in that um over the last year where you would think bitcoin and gold Kind of lumping gold in here is a place that people flee to safety, you'd think bitcoin and gold would have done a little worse Because the Fed taking rates up to 5%, yeah, you think we'd be draining money out of all these places in the economy. Right, I was saying hey, I can get 5% risk-free on a one month. Yes, t-ville, right like there's no duration risk, there's no credit risk. I'm taking it out of my bitcoin and putting it into that 5% but, um, it hasn't gone down as much as I would have thought.
Speaker 2:Right, and I've heard other people say the same thing. But you have bitcoin and gold, that like, why haven't they gone down more, with rates going to 5%? Because I think people are Starting to worry more and more about the the credit worthiness, yeah, of the us Government and wanting to be ahead of when it does kind of go back to the upside Right and at some point you would think it would have to decouple for our hypothesis to be true, yes, about it, but it's still pretty young. Asset class 500 billion in assets versus gold, 10 trillion equities, I think 100 trillion, and that hundreds of trillion.
Speaker 1:That's kind of. The thing is that it's still viewed as an asset class rather than as a currency. When it's viewed as a currency rather than an asset class, that's when you'll see the decoupling, because suddenly it'll make sense. It's like the. I really think the Chinese yuan goes down before the us Dollar does. I mean, it's neck and neck. They're both terribly manipulated currencies. They're both ripe for destruction. Um, you know the, the russian currency. Uh, it's probably a little more stable because they've actually sold a lot of a lot of lpn and or They've got basically a commodity back currency. Yes, they do, and people are buying it, like I think their. Their lpn sales are up 40 percent since the ukraine war started. Yeah, so it's like.
Speaker 2:LPN, lng. What are?
Speaker 1:you Sorry. Yeah, I was thinking of liquid propane or whatever, but I would use yeah, it's LNG liquid natural gas, I believe. Yes, liquid natural gas, yeah, yeah, I don't know why.
Speaker 2:I knew it, but other people are listening. Yes, thank you for informing my audience. At least two listeners my mom, will listen.
Speaker 1:They're not sitting there my mom too but yes, I had heard that their liquid natural gas sales were up 40% since before the Ukraine war, so all of our sanctions did not really hurt them. It basically just hurt us. And whoever in Europe decided to participate, they've got natural gas they've got.
Speaker 2:Oil, they've got minerals, so yeah, their currency like. I wouldn't bet on it in the long term, but it's got some strength. Because of that and I do agree, the US dollars should be the tallest midget right, it should be the last one standing, but there's something like 150 currencies out there, it makes no sense right.
Speaker 1:Well, and none of them are run, as far as I know. I guess I've not done a deep dive into all 150 currencies to see if any of them are solid, linked to a gold standard or something like that, but I don't think. I think Switzerland is kind of mentioned as like the last major one to fall when they went off the gold standard in the late 90s to early 2000s or something like that.
Speaker 2:Yeah, they had some kind of deep pegging event sometime in the last decade. I can't remember the exact. Sorry, you said deep pegging yeah it's a currency term. It might mean something else based on your reaction, but they had some kind of event in the last decade, I want to say, but it didn't pay close attention to it.
Speaker 1:Swiss franc is not widely used. Yeah.
Speaker 2:And so kind of got off track here a little bit. We was going to talk about zombie companies.
Speaker 2:Yeah, sorry, go to zombie companies, please, private equity. So private equity is an example here, but if you kind of walk through this example, you'll see where it is possible in other parts of the economy as a problem. So private equity started out. If you think about this business model, it's hey, we've got a bunch of smart business guys that are going to go out there and find companies that are underperforming and they're going to buy them and they're going to make them perform better and then they're going to sell them for more money than they bought it. So great, okay, that makes sense.
Speaker 2:We've all worked at companies that could perform better. I'm sure if you're over 35 years old maybe if you're over 25 years old you've almost guaranteed to have worked at a company that should do better. So some smart guys go out there. Super, that's private equity and it actually easy. Money starts coming around and there's a new wrinkle to the private equity game and it's like, hey, we're going to go buy a company that maybe run okay or well or poorly yeah, it'd be nice if it ran better, but really we just don't want it to have a ton of debt, because what we're going to do, we're going to load it up with debt, we're immediately going to borrow almost the entire amount that we just used to pay for it and pay ourselves back.
Speaker 2:So we just got a free company. We're going to borrow, we're going to load all this debt onto this company and hopefully it continues to grow, and if it just grows 3% again, I just borrow money at 1%. If it grows at 3%, five years later, I've made back that money. I can sell it for more. I made my money back instantly because I borrowed that money. Now I made another, got another bite at the apple and I'll sell it to another private equity company. It's going to do the same damn thing.
Speaker 2:And so they've been doing this for a decade plus, trading companies back and forth and bringing new companies into this little game. But now it's like hey, you want to borrow money. It's 8%. Yeah, it's 7%, and so you've got to be growing at 10%, 12%, that's a good company. Yeah, you've got to be growing at double digits for this game to make sense. And all the people that used to have the muscle of like hey, we go in and we fix companies and we make them better, that's hard work, hey we go to the bank and sign loan papers.
Speaker 1:That's easy. That's easy work. So that was what happened, as I understand it, and this is like I heard the story. It was very from someone's point of view. I don't know how accurate I'm getting the particulars, but that's what happened to Bass Pro Shops. Slash Cabela's Is a venture capitalist or in this case I think they called them a vulture capitalist came in, bought the one they were both perfectly performing on their own, just fine. They put a company up with that, merged them together, eliminated a ton of jobs, eliminated in order to do the redundancy, but really just so they could load them up with that and make it look more attractive and then sell it off for additional money and after having paid themselves back for buying the company for free. And I look at something like that and I'm like, yeah, this is exactly what you're talking about, where it's like bad pricing information and it allows for this sort of ugly practice. I guess it wouldn't have happened if we didn't have central banking, where they've manipulated the currency and had to drive down the interest rates this far.
Speaker 2:And where this comes in is like how does this silly game even work? Where it comes in is because the price of money is so low. And why is the price of money so low? It's because it's being manipulated by the Fed, the central bank, because there's something immoral in this model. It's like, hey, we're going to borrow money against the assets of this company and put it in our pocket. Yes, that's the wrong part.
Speaker 2:That's the bad part Like hey, we're going to borrow money against the assets of this company to buy more locations, to build more stores, to build manufacture new products all day long.
Speaker 1:That feels good yeah.
Speaker 2:And someone should be looking at that plan that you just present. Hey, we want to borrow money to make this new widget. It's like, oh yeah, it looks like we've done any research and customers will buy it and the price makes sense and the cost of the goods going into it makes sense. But hey, we're going to borrow money and we're just going to pay it to ourselves and this company will pay you back over time. That's so immoral.
Speaker 1:It feels on a visceral level. When I heard about that I was like that's disgusting. That really is vulture capitalism. It's feasting on the entrails of a company that was healthy in order to fatten yourself up.
Speaker 2:And the only reason it works is because the people making those loans are getting free money.
Speaker 2:Yes, because if it was their money, they'd say why do I feel good about you paying me back here at half a percent interest when I'm basically just giving you money to buy your own boat, which is going to depreciate?
Speaker 2:So that's just one little example, but that's the private equity model. But just think throughout the economy how many companies have loaded themselves up with that, and maybe not necessarily always to just put money in the owner's pockets. But hey, they're struggling and the bank will loan them money so they can drag it out a little longer and not make tough decisions to either close down the business or trim operations that don't make sense or whatever. But hey, just keep adding up that debt. And then you get into a situation where the debt is so big there's no getting out of it, even with good decisions, which again, I kind of hypothesized. That's the US government's current position. Just the timing on that is less definite, because they print their own money. But there are so many companies out there that have just loaded up with that that will not be able to pay it back at reasonable interest rates.
Speaker 1:Back when I was a financial whatever planner advisor, I sat down with a couple that had a debt to income ratio that was just over the top and they had a below market rate mortgage and it was over 120% LTV, which is loan to value. It means that they borrowed if their house was worth $100,000, they borrowed $120,000 against their house. And I'm looking at the loan papers. I'm like the appraisal's right there. I'm like how did you manage this? And the wife's like, oh well, my dad is the vice president of the bank. Like okay, well, he did not in fact do you any favors here, because you are paying currently 85 cents out of every dollar you make to the bank and to your credit cards and to your car loans.
Speaker 1:I'm like how do you even make it on a monthly basis? My dad, the vice president of the bank. It's like this is the US government writ large. The US government is that daughter Squeaking special favors. It's in order to survive, and that's actually zombie companies too. We managed to get these special favors in this special condition in order to get ourselves a little bit longer financial life, and good for you. But you have not solved the underlying problem, which is you are not able to run your financial life at this rate of income.
Speaker 2:Yeah, yeah. So I don't know how far you want to go down this trail, but yeah, it's not pleasant. Hey, you go as far as you want, Because I love saying it's worse than that which I steal from Brett Weinstein from the dark course because he always loves to throw out.
Speaker 2:It's worse than that and he usually is right, I mean it's got a great great mind, it's worse than that because hey, okay, you lend money to these companies that shouldn't be getting this like. These loans don't make sense. You're putting off hard decisions, so you're piling them up with debt that they can never at some point not going to be able to repay, even if they started making good decisions, but also underlying that over that period of time.
Speaker 2:Are you doing this? All your muscles for executing smart strategies and actually improving the business are atrophy. Yes, right, so it isn't just like hey, it's becoming harder to do, you're becoming less capable because you're not using that muscle.
Speaker 1:It's like when someone gets to 650 pounds. You know you didn't just get there overnight, it happened over time, and if someone had stopped enabling you at 400, you might have started to make different decisions and not made it to 650. Yeah, yeah, no, that's 100% true. I never really thought about it that way. I guess our government is 1,050 pounds right now.
Speaker 2:Yeah, Because let's take one of these zombie companies. If you went to them right now, like my hypothesis, what I just laid out there is you go to one of them right now and you say okay, we're going to take away half your debt, so your debt burden is now manageable. Yeah, they'll be back in the same situation, because they don't know how to run their business without the debt. They've lost that ability, which is basically the foundation of capitalism.
Speaker 1:Right and it might not be possible for some of the companies, and that was the thing that always got people mad at venture capital back in, I guess, the olden days when interest rates were a little bit more reasonable at least not necessarily correct but people would come in and, like you said, they would take this company that's not managed particularly well and they would figure out how to manage it properly and help it make money. And sometimes that meant cutting in ways that would upset workers. And it was an easy sob story to go to, because for the longest time, I'd argue, the labor movement had very important things that it accomplished, I would argue, like in terms of worker protection and dangerous situations like Sinclair.
Speaker 2:The jungle.
Speaker 1:Yeah, the jungle I was going to say up in Sinclair's the jungle is probably the most often pointed to example, even though he was a flat out communist and liar. Yes, I was about to say.
Speaker 2:I can't let that pass.
Speaker 1:Don't let it pass.
Speaker 2:It's fiction, let's all remember it. It is fiction. It's taught in schools as nonfiction.
Speaker 1:Because some of the egregious stuff was based on actual, maybe directionally true, yeah, right, exactly.
Speaker 2:It's true in the Trumpian sense.
Speaker 1:Yeah, there you go, you know. I mean it's the same thing with child labor laws. Some children were, you know, ended up dead from horrible, you know, overwork, accidents or putting them in dangerous situations in coal mines or whatever. It was not the normal set of things, but it was enough that you could point to one egregious case and you could get child labor laws put on the books, even though that really put a lot of poor families even further behind the eight ball, Whatever. So the point is the labor movement had certain things to point to, certain injustices that they could point to that were legitimate and be like we really should reform this. By the 1970s they had, like, completely jumped the shark and they were doing and advocating for things that put us in such a disadvantageous position. Does that?
Speaker 2:that works.
Speaker 1:That works it works Roll with it. It put us in a completely terrible position relative to global competitors, and so, as a result, american industry really started to suffer, and some of these companies became zombie companies. Ford has been a was a zombie company for a long time.
Speaker 2:Yeah, Well, in early 1970s is when we want the gold standard. So, coincidence or not, who knows, I want to doubt. All the way back to your opening paragraph, we haven't dissected every sentence.
Speaker 2:I wish I had a written notes, but there's one thing no, no, that's one thing that I wanted to call out, which is funny. You may have done this on purpose, but you said that central banking is almost communist because it's centralized control of this thing, like it's in the communist manifesto To take over the money. Yes, it's like you know. Sociology, the academic study, comes from socialism.
Speaker 1:Yes, it is.
Speaker 2:It's Mark's founded sociology, mark's invented sociology, and the communist manifesto actually said hey, we need to control the money. So, like this, your little throwaway phrase that there's actually dead on, this is and a lot of people that are opponents of the central bank will point that out yes, yes, this is for sure a communist thing, not accidentally, I know they said you need to do it.
Speaker 1:Yes, the idea is. I mean and I don't think we're even using it necessarily as a pejority, even though we're not very much fans of the way it's gone it's really more of an issue of you have to be clear about what you're talking about, and I think that's one of the more obscure things that's happened is that the move to a national currency off of a gold standard one of the more interesting things in that book that's kind of a throwaway is in the year 1900, Amos points out, you could literally move between borders and currency was not an issue. There was no necessarily national currency that mattered because if you had it all converted to gold.
Speaker 1:Yeah, it was all converted to gold, so it didn't matter. You didn't have an issue trading across the seas from Southeast Asia to Europe, to America, because it all converted to gold. And so, as a result, the issues we have, where it's like there's these massive arbitrage opportunities to convert currencies where George Soros can make an absolute fortune. That didn't exist in the early 1900s and it's not necessarily a great innovation, and again, I've forgotten the number, but the currency market is something like $75 trillion or something like that. It's ridiculous numbers, like 25 times larger than the GDP of the entire planet.
Speaker 2:Yeah, the trading that happens.
Speaker 1:Yeah, is that what you're talking about? Yeah, yes, the trade volume that happens.
Speaker 2:So, yeah, it's crazy. So I'm gonna throw some stats out here that you're not gonna believe, but you're gonna believe them Either, trust me or just my listeners will probably shit their pants. Just trust me short term and then do a little research to make sure I'm not crazy. But I was listening to again. I was listening to a podcast. Surprise, surprise. Do you want to?
Speaker 1:plug your sub stack up into this. No, it's really good.
Speaker 2:I think we'll leave it out. But so I was listening to a podcast, I think, yesterday, the day before, where this guy was going through. This sounds like incredibly dry material. It probably is for most of humanity, but he does this research on money, on just the amount of money that's in the world, and by currency group, where it is, how much physical cash is in the world. So, like a bunch of really interesting stats come out.
Speaker 2:So there's like $10 trillion worth of physical cash in the world. All converts to dollars. Everything I'm about to say converts to dollars. So $10 trillion worth of physical cash in the world. Something like 40% of it is US dollars. And then there's Japanese yen and Chinese Yuan and Euros and whatnot. So there's $10 trillion worth of physical cash. But the monetary base so how much money is in bank accounts and all that stuff is $27 trillion. Right, you're laughing for the correct reason, I'm guessing. So if there's $27 trillion of all money in the world and we owe $34 trillion right now as a country, if we stole all the money in the world today, we couldn't pay back our debts, right? That's not good. It's hilarious though. Yeah, so that's a bad sign. And when you go back to your like. I've heard these.
Speaker 1:It's through a Bank Heist for America by God.
Speaker 2:Yes, but we're still short. We need to steal the money from who we just paid it to pay them back. We're still from literally everyone on the planet. Yeah so, but you talk about these FX things and I've heard these numbers before and I've never looked into it, so I don't know the real numbers or how true they are. But yeah, you hear these FX trading volumes there's trillions and trillions of dollars are traded every day in foreign currencies. I'm like how's that possible if there's only $27 trillion Dollars period? Yes, so again these derivatives on derivatives and bets on bets on bets kind of back to the big short that we talked about.
Speaker 1:Yeah, you figure out Selma West Rim Gomez, Selena Gomez sitting there making side bets.
Speaker 2:There was $200 trillion gambled on the US mortgage market, which was a $40 trillion. Like how does any of this make sense? So yeah, there's $27 trillion in the world period. We owe $34 trillion. Have a nice day Like there's good times.
Speaker 1:Yep, Yep. Going back to one of those earlier threads that I just wanted to mention because I'm such a history geek, Amos really lays out the case and I appreciated this, that he did this because it appealed to me of all of the times when an empire has debased their currency and what has followed has been a similar sort of pattern of decline. And just for listeners, debasing the currency is just inflating your way along in your economy. What we're doing right now is debasing the currency where your money is worthless, and so in Roman times it was because they would forge new coins with a less of a volume of gold or silver in them.
Speaker 1:And, by the way, this isn't the first time the US has had currency debasement problems. I was just reading a biography on Grover Cleveland and he had two different terms, and the panic of 1873 and the panic of 1893, I mean were largely driven by. All of a sudden, the US decided to start buying large quantities of silver, which is not as stable as a stable monetary system is gold, because there's way more silver that can be dug out of the earth than gold. Yeah, yeah.
Speaker 2:The volume available flesh weights quite a bit. So one of the things that make gold a great kind of stable 1.0 version of currency. It grows at 2% a year. You can't make it. There's only so much out there. I kind of know where it all is.
Speaker 2:It's for a metal, it was kind of easy to figure out if it was really gold or not. It has problems. It's not divisible, it's hard to transport, there's all these other things that Bitcoin improves upon, but silver was worse. All of a sudden, you just discover the silver mountain in Peru, right, and the amount of silver in the world doubles, right. That's like 100% monetary inflation.
Speaker 1:And at the time we were mining incredible amounts of silver in the Western United States, which is one of the reasons why farmers were incredibly indebted. And it's actually sort of a similar situation because I was reading a couple of different Western books. Tom Clavin wrote a trilogy about Dodge City, Tombstone and Wild Bill, and I've read two out of the three and it's just fascinating stuff. But Tombstone is a huge silver hit. But the farmers at the time you know, I remember, like William Jennings, Bryan Crossagull, and one of the things that they were trying to do at that point is that he was agitating for the silver because farmers thought they could inflate their way out of their debt, basically Because all of these farmers had taken on these debts they had to. Farming on marginal land, like the US government was giving out at the time, was incredibly difficult and they would start out in incredible amounts of debt because they needed to purchase the equipment and they weren't very good farmers and the soil was kind of crappy and all of this. And so they wanted the inflation to happen because they're like, oh good, my mortgage note is now 10 times easier to pay off or whatever. But they didn't realize that they were completely tanking themselves in the process of doing it and it's the same thing, like all of these silver miners and whatnot.
Speaker 1:So all the Western voters were highly in favor of this and all of the Eastern bankers were like inflation is bad, Don't do this. It's a funny reversal of kind of where we're at at this point, Interesting to read how history unfolds, debasing your currency yeah, no, it's bad news. It's depressing yeah, it is. But I did find it interesting like JPMorgan and all of these bankers at the time were talking about. They were actually the guardians or the sentinels saying you can't do this, you shouldn't do this, this is unwise. And the populists were like you're destroying us, you're trying to bury us, you're trying to crucify us on across the gold. And now it's like a complete reverse, where it's like the populists, Oliver Anthony, a couple of weeks ago, releases that single that went viral and he's talking about how your dollar ain't shit. Yeah, I mean, that's inflation.
Speaker 2:Well, and it's where you stand depends on where you sit. Right, is the famous saying. And so the New York bankers JPMorgan being kind of the king of them, back in the day, when we were trying to observe an international gold standard, these guys were going to get screwed if the US dollar tanked, because they were dealing with European counterparts and, like you said, asian counterparts. But I mean, the European counterparts were like, hey, if our money is worth less, they were going to get hung out to dry by the international bankers from France and the UK and Germany, etc. So we couldn't mess with the money. We were not the creator of the world's money. Fast forward 100 years and guess what, we are the creator of the world's money. We can mess with the money.
Speaker 1:We print it, we get it first, I was just writing down, like to mention, like your thing about how the wealthiest people after 2008 were the people who were closest in proximity to the money printer.
Speaker 2:Yeah, it's called the cantillon effect, cantillon, cantillon and so they're called cantillionaires in a clever turn of phrase is like hey, if you were closest to the printing press. Like these private equity guys like, hey, we'll go buy a company and then borrow the exact amount we paid for that company, pay ourselves back. We got a free company. You're very close to the printing press because you got free money from a bank. They got free money from the Fed. You were first in line for the money.
Speaker 1:I don't want to sound like too much of a conspiracy theorist, but anyone who's in the suburbs of Washington DC seems to be very close to the printing press, if I may say.
Speaker 2:Well, and why are all these companies moving their headquarters to Washington DC? I mean, I grew up in Seattle and when I was a kid, this was before Microsoft took off and before Starbucks got big and before Costco, and there's a bunch of companies out there now that are Amazon obviously.
Speaker 2:But back then it was Boeing. Boeing was the big local employer and a lot of kind of good high blue color, low white color jobs where my dad had a buddy who was like a drassman or something, that no college degree but he got a good middle class living out of helping draw up I don't know what the hell he drew, but help make planes fly. And they made planes and they were headquartered in Seattle and the B-17 helped to win World War II in Europe and the B-29 in Asia. So a lot of legacy there of building stuff. And then in the 2000s at some point Boeing moved their headquarters to Chicago. And why did they do that? They got some tax breaks from the city of Chicago.
Speaker 2:One of their biggest customers, united Airlines, was headquartered there. They wanted to be close to them. They moved their headquarters again and they moved their headquarters to Washington DC. It's like why they just moved last time? Because of where their biggest customer was. Like, okay, well, they moved it to DC and it's like, hey, their biggest customer is obviously the defense department, but they've had a bunch of regulatory problems with their planes, so they want to get really close to this bigot.
Speaker 1:That's the same thing that Microsoft did in the lawsuits or whatever. All of a sudden, they went from spending zero money on lobbyists to spending a ton of money on lobbyists having offices in Washington DC. It's like.
Speaker 2:Yeah, and Amazon wanted their second headquarters or whatever they split in New York and they're like, oh, maybe they protested.
Speaker 1:No, they split two, so they were going to do one in New York and one in Northern Virginia.
Speaker 2:And then they did it all, they moved it All in.
Speaker 1:Northern Virginia. Well, they did put the smaller SOP to Nashville too. The Logistics.
Speaker 2:Department. We got a little bit, but basically their second headquarters is in DC, so it's not because all their customers are in a title swamp Like it's. Yeah, there's a reason.
Speaker 1:It's not a pleasant place to live, climate-wise.
Speaker 2:But yeah, it's. How do you expect, if you're running an organization that's spending $6 trillion a year, you're going to write $100 checks, or you're going to write $1 million checks. Yeah, just for your arm's going to get sore if you're writing $100 checks.
Speaker 1:But the thing is too, they dole it to each department and each department kind of splashes the trough around or whatever you want to call it. But I mean the big one for me right now is it's like okay, so the Ukraine war is going on and you're watching money flow out to Ukraine and so much of it is flowing right back to US defense contractors. It's like oh, okay, well, so this is actually sort of a subsidy, in fact kickback to US.
Speaker 2:Yeah, yeah, and it's funny we mentioned Sam Bankman Frieder earlier. I didn't expect to get on Ukraine, but there's some mildly interesting conspiracy theories that he was pretty tied in with the Ukrainians, that there's a bit of money laundering going on there. Oh yeah, he was a huge donor to the Democratic Party, with stolen funds. It's nice to steal all your customers' money and donate to politicians I'll just say politicians probably, even though it was 90%, he said he donated to both sides.
Speaker 2:Who knows, they've disclosed where it went. So there were a couple of Republicans for sure, but you call it 85% Democrats just because of yeah, which is I mean ideologically not shocking given and they were in control of certain areas. That helped, right, but he was really in tight with the Ukrainians. The Americans send a bunch of money to Ukraine, Ukraine sends it to FDX, FDX sends it back to the politicians. That's one of the theories out. There is like, hey, this is just a money laundering organization.
Speaker 1:I was reading something not that long ago talking about how in third world countries the bribery is very obvious. It's like oh, I pay you a direct bribe, no problem, we've done business, it's good. And in the US it's like Joe Manchin's wife gets a contract from someone else who is tangentially related and then Joe is like well, I mean, I already kind of believed in this anyway. So this is not exactly a difficult vote for me. And people argue that the NRA owns politicians in this way. I'd argue that most of the cases it's kind of in their interest anyway. But if their spouse picks up a job or something, it's almost reputation laundering version of money laundering.
Speaker 2:Oh, for sure. It's easy to pick on Joe Biden. He makes it so easy. I mean, he's corrupt, senile, all the things that I'm not going to sugarcoat because I think these things are true, but it's easy to pick on him. Don't tell Philip Bump that he's a son. That is obviously a troubled individual and we all have kids and I can see standing up for your kids. But the politicians in DC have to be so pissed at Joe because like, hey, you can do most of this legally.
Speaker 1:Yeah, you made it really obvious Like you're doing it wrong.
Speaker 2:We're doing all the same stuff. Joe, You're screwing it up. Just color inside the lines. There will be plenty of money for you. But no, don't let your crackhead son run around with a camcorder Doing all the stuff he's doing. We're all doing the same thing, it's just you've got to be a little more subtle.
Speaker 1:I mean seriously, look how much Mitch McConnell's family has made from, I think, his wife's Taiwanese business holdings like their whole family, and it's stuff that would synergize probably pretty well with how Mitch maybe feels to begin with. But like yikes.
Speaker 2:And all this stuff Nancy Pelosi's worth $100 million yeah.
Speaker 1:Someone in, I think, columnists for the Daily Beast or one of these sort of center leftish outlets, wrote a book that was fairly nonpartisan takedown of all of the ways that politicians on both sides of the aisle are bulking the American people and getting wealthy while they're in office. And Nancy Pelosi is probably one of the most egregious just because she's so front and center. But the amount of money she and her husband have made while in office was like oh my goodness.
Speaker 2:Nine figures. It's unbelievable.
Speaker 1:And to your point. I wish I could have invested following. There's a Nancy Pelosi stock tracker and I'm like I wish there had been that like 30 years ago, and you could just follow along, because I'd be so wealthy now.
Speaker 2:And I hate the thing where, hey, one of the parties is doing something really bad and one of the parties is kind of doing something a little bad and they say oh hey, both parties do it Like. To me that's lame. This is one where, hey, they're both doing it?
Speaker 1:They both do it. Yeah, they absolutely do.
Speaker 2:This is totally, 100% terrible and it's I just go back to incentives and systems Right, so $10 sitting there to be spent. Yeah, okay, that's the one sentence that explains what's going to happen. Yeah, the pork bucket is awfully big Okay, the choff.
Speaker 2:Make that $500 billion. And you know, hey, people are going to notice when the parks are closed and all that stuff. So make that really severely limit that amount of money. Because, going back to the fiscal situation et cetera, what's unique about the time that we're in and actually I'm going to kind of ramble here for a couple of minutes, but hopefully I get somewhere interesting- so one thing before you do because I've called this the rating, the Treasury portion of the Republic. First agreed and we're probably going to land there.
Speaker 2:It's just you know, what's the cognizance of what's being done? So I've got this. You know it's easy. Like I said, hey, looking back at the SBF thing, hey, this guy's obviously a clown. How did anyone ever post him? Looking back to 1971, when we went off the gold standard easy for me to back fit stories that make sense. It doesn't mean they're true or this is why it happened. But here's my story Looking backwards, how I've pieced some of this stuff together from a kind of narrative standpoint. 1971, we go off the gold standard. Anyone that's called it 40 years old in 1971, before either one of us were born it probably realizes this feels shifty, right, like this Rickety's scaffolding.
Speaker 2:Yeah, this is rickety. So for I don't know what, the next 20 years, 30 years, 40 years while those people have some kind of sway they're like, hey, we're kind of getting away with it.
Speaker 1:Right.
Speaker 2:But small moves, ellie, yeah, yeah, yeah, but 40 years later is 2010. Right, so those people all out of power? Yes, except for Joe Biden somehow, because he was a senator then or very close to then, yeah, in the late 70s. Yeah so those people. So my narrative is like those people were all kind of like hey, we're getting away with it, be careful, yep. Like don't get reckless. Right Back to my. You know, joe's just blatant about the corruption. Like be more clever about your corruption. Yeah.
Speaker 2:All of a sudden you get into 2010,. You're like your politicians who are in their 60s kind of grew up this way, yes, or in the 50s, grew up this way. And it's like hey, we can do whatever we want, there's no consequences. We've been, there's been no gold standard. We've been printing money for 40 years. It's the Bellagio point. Yeah, it's, we can do whatever the hell we want. And so is it rating the treasury intentionally? Or is it just like, hey, the rules don't apply to us, because what? And hey, we can do whatever we want. And so you get the, the Joe's of the world. They're like, hey, we can print money, why not? We've been doing it for 50 years. Like, let's, let's get after it. And it doesn't work. And so it turns into rating the treasury. Yeah, I'm sure there are some people out there that really just have a tap right into it and like, hey, we know the music's going to stop, let's give them a bunch of the game right now. But there's some true believers out there.
Speaker 1:Yeah, mmt accolades Bellagio. Srinivasan made that point, though he's like the farther you get from a monetary fiat crisis, the closer you get to the next one, because essentially, people start to believe the game can be played forever. They never think the music's going to stop. Yeah.
Speaker 2:And agree that the point I think kind of makes sense. But it's also a tautology the closer you get away from one thing, the closer you get to the next thing on the timeline, of course, yes, yeah. The closer you get away from being born, the closer you are to being dead. Okay, yes, true.
Speaker 1:Well, I think not necessarily from their perspective, though, because the idea for them is we're never going to see the crisis. Oh yeah, that's when it happens.
Speaker 2:Yeah, like we're immune, and that's my whole. Point is like for 30 years there's people looking over their shoulders saying, hey, this is crumbling down if we're not careful. I remember being a kid and I think I've mentioned this before like, hey, people were worried about the debt. Like I remember politicians saying, hey, we're borrowing way too much money. This is in the 90s. We had like a trillion dollars in debt or less. Now it's 34 trillion, 34x that, and no one's worried.
Speaker 1:Oh well, yeah, no one in no one in power for sure. I mean there's like I don't know. There's 535 representatives and senators you could maybe get. I could maybe think of 10 of them, along with another five to 10 that are out of power. They're almost always on the almost all of them are on the Republican side. I would say there's probably a few fiscal responsible Democrats, I mean I think Tulsi Gabbard's probably. I talked about it at times, but I mean there's not very many. Rfk maybe RFK has talked about it. Yeah, yeah, he has. I mean, he's not elected to anything right now, but you know, running for president.
Speaker 2:Yeah, born Democrat. Yeah, you can't get away from it, but yeah, so it's that. That's my theory. Hey, we're definitely in the leaps of treasuring, but it's almost like people don't even realize they're doing it. It's just like, hey, we can print money and there's no consequence. Yeah, we can give another 80 billion to Ukraine for fireworks.
Speaker 1:Yeah.
Speaker 2:Like go blow it up, it's fun and it's that's. That's not how this works.
Speaker 1:It was at least a little funny though, because I think it was like right going into 2021, and Trump was on his way out of office and he's like, hey, because they were talking about another stimulus plan for COVID and I think he had said like, all right, give the people another $2,600. It was very much like, you know, directly raided the treasury kind of thing, and Congress was like no, it can't give the peons actual money, Like yeah, that's crazy talk.
Speaker 2:Well, if you go back and you look at the COVID response, it was something like the the bills to address COVID, the, the economic stimulus to address COVID, equaled out to something like $46,000 per American. Yes, and everyone got two grand. Yes, it wasn't a great. There's something funny there's $44,000 left, yeah. I went to? Why did Amazon double? Why did all these other? Like it's, the money didn't go directly to them, but it got there quick.
Speaker 1:Yeah, I had a long conversation with a guy who works for one of the departments of government that's responsible for hunting down the fraudulent cases of COVID-8. And he was telling me some of the stories and it's like, man, there was some absolute fraud and there's ones where, like he mentioned specifically, like it would go to certain Native American tribes and it's like it went to the chiefs and it was just gone. It's just you, you aren't finding a dime of that back and there's really nothing you can do about it at that point, even as a federal agent. And so they had to focus more on the areas where there was a clear system in place, where it's like, okay, this is definitely fraud, but like the fact that there is a money spigot and you can turn it on and it just disappears right down and you know the I don't even know what to describe it as a giant outhouse black hole.
Speaker 2:It's just gone Just goes into the financial system and starts getting passed around.
Speaker 1:Well, minnesota had a fantastic example of this.
Speaker 1:Actually before I, before I left, there was a case where they had some sort of nursery program, what's it called, day cares, and the there's a huge Somali community there and and Somali community comes from what you would call a low trust society.
Speaker 1:It's like it's very much about the family and the immediate family and the extended family and like anyone outside of that. You know, cultural norm is you can screw them and it's really not that big of a deal. So Somalis were setting up day cares and this is all recorded like there were prosecutions and everything. They stole something like $800 million in funds for day cares by running fraudulent day cares and saying that they had, they were, you know, putting these kids in the day cares and whatnot, and so they were just completely funded by the state of Minnesota and they were. They ran out $800 million in fraud and it just went into suitcases and went to Somalia. His people were getting, the criminals were getting on planes with $800 million and just flew back to Somalia and the money just disappeared and they prosecuted like I don't know very few of them because they couldn't catch them. Yeah, yeah.
Speaker 2:No, it's no. Accountability is kind of the point I was going with. So anytime you've been inside of a system, your views of it change. So two examples. I'll start with that one and then go backwards to private activity.
Speaker 1:Yeah, and feel free to go back to if you had a longer point and I cut you off on the previous thing and it's all good, I can talk forever on any of this stuff.
Speaker 2:The first 10 seconds is interesting, so cut me off. So the fraud thing is really interesting to me because there was a point in my career where I was the CEO of a healthcare company for several years and I came in as the CEO. I didn't work my way up, I was an outside investor and then came in as the CEO of that company and just did it for several years and we got audited really heavily by several government agencies I think four different government agencies in the first year which made me feel really good about the amount of red tape that it takes to deliver healthcare. But the reason I came in as CEO is because the company was sloppy in its operations. It took care of patients but it didn't do a great job of paperwork and we got audited and had to pay back the government on a couple of different things, but never once did they go to one of our patients and say did you get an oxygen tank?
Speaker 2:They looked for a signature on a line on the fourth page of a document that needs to be handed into Medicare to bill correctly. And hey, do all this stuff right. You need to do it right, you're signing up for these rules when you go into this business, but they would characterize that as fraud, like, hey, they're like no, go ask Mrs Jones. We've been delivering her oxygen tanks every week for the last three years. She's getting her stuff and we've been billing you the ridiculously small amount that Medicare pays for this thing, but we didn't get the right signature at the right time on the right piece of paper. That's fraud and thus all that service was free and it would be characterized as fraud or waste.
Speaker 1:Because you didn't get the signature, you were not entitled to bill for it. You billed for it and you received the money, and so, as a result, that's fraud.
Speaker 2:Exactly, and so anytime I hear people talking about oh we found all this fraud and it's like my impression is usually kind of biased towards you're finding people bad at paperwork the people that are committing the real fraud designed a bunch of crazy legislation that gave them that money legally Right, Like the real fraud is so big.
Speaker 2:The real fraud is so big and it's so covered with lawyers that people get away with it. So of course there's always some shady guy in Miami that's sending a bunch of bills to the government for Medicare that don't exist behind any patients. There's a lot of that, yeah, and we crack them down, like Florida's, the national capital of Medicare fraud, because it's got all the old people in one nut. So track them down, put them in jail, all that stuff.
Speaker 1:Why do Eastern Europeans have Medicare schemes? I've read about it's like, wow, that must be a. They kind of just zero in on, like look at all this weakness. Here there's the thing.
Speaker 2:There's the thing. So that's one thing from inside the system. Another that I just wanted to share because I talked about private equity earlier and I just full disclosure, I've been inside the belly of that beast up to some degree and worked with really talented private equity individual who I saw by multiple companies that I was involved in or tangentially involved in. He would tell me like hey, he could actually make the company better. He was coming in and taking distressed properties and really cleaning them up. And he would tell me, hey, you can't cut enough, like it's almost impossible to cut enough. And I'd see him go in and just cut, cut, cut, cut, cut. And these companies is like holy cow, the amount of waste and poor processes and whatnot. Like you almost have to do that to expose all this stuff. So, like when Elon went into Twitter and fired 80% of the people, there's a lot of that real stuff out there in businesses in the US where somebody comes in and says, hey, we're just going to cut away all kinds of stuff to find where the problems are.
Speaker 2:But you actually have to do invasive surgery to find what's wrong with this patient. There's a lot of cancer in there, yeah, and so you know saw this guy going, so there's real value to be added by private equity going in and doing this stuff. Finishing this story that I saw him do recaps, which is, hey, let's borrow a bunch of money from the bank and pay ourselves.
Speaker 1:And the incentives changed.
Speaker 2:In having been a beneficiary of some of that. You know I've got a full disclosure. I've been on the receiving end of some of that income, but I don't like that system. Yeah Right. And so it's like I'm not just spouting off of things I've read in the newspaper. Hey, I think this is the sort of I've seen this firsthand and experienced it.
Speaker 2:So, yeah, it's part of it is actually encouraging. Hey, you can go out and make a difference and make companies better and, you know, bring industries back to life or whatever, but it's if the incentives are bad. You can also, you know, do this stuff.
Speaker 1:Load them up with yeah debt and cash out immediately.
Speaker 1:And I mean that really does to me. I mean it's obviously not great what I would consider great ethical behavior, but like the check, cash is the same you got to feed your family. And to me the issue is really the incentive structure. It's like money should not be zero percent. Yeah, like ever, like a functioning non-socialistic monetary system. No one ever lends money for free. You need to get some sort of payback on that. If money is free, it means there's way too much of it in circulation.
Speaker 2:Yeah, basically it's saying there is no risk here. Yeah, the interest rate is the cost of the risk.
Speaker 2:Yes, and the risk is either duration or you know execution right, like, hey, 30 year loan Okay, there's all kinds of stuff that can happen in 30 years. I mean a little bit of cushion here. Or hey, you're a subprime borrower, like I'm only lowering it to you for eight months, but there's a big risk in this eight months, yeah, so both of those things factor in. But there's no such thing as no risk. Even the US government historically used to have to pay four or five percent interest rates, and the most credit worthy company or company country in the world so yeah, it's having zero percent interest.
Speaker 2:That is sort of flashing red light. It reminds me of times I've worked at companies that you know back in my past, where I remember working at a company and they're like oh yeah, we've never fired anyone. Like that is a terrible thing to say out loud. Like you've never hired someone that was incompetent or didn't show up to work on time or didn't like this was large companies Like that's. We're going to need to fix that, because when people don't perform, the ones that will. Either you get rid of people that don't show up and work hard for their teammates or the good teammates will leave because they're carrying the entire load.
Speaker 1:Yeah, so I mean, this is the thing I've never understood people who get mad about like you know, like you know, like, oh, they fired whoever. These are people who were never stuck in a group in high school in a group project where they were having to do all the work. Yes, they were the mooch who didn't contribute anything to the class project. Well, you know, others of us worked.
Speaker 2:I've been around lineup, I've had to let people go and I've been let go multiple times. And there's always this thing like oh, can you?
Speaker 2:believe that let this person go. They were so good and I'm like, well, if they're good, they're going to get a job real quick. And I've been let go and been disappointed in it and then really quickly realized, hey, they don't want me there, I don't want to be there, right? And it's like, hey, I can actually stop detach, look at the entire universe and say, hey, where should I be spending my time? And really do I think, oh, I should go back to the place that just kicked me out. That was not a good place to spend my time.
Speaker 1:The only caveat I guess I would say to that and I think you'd probably agree with this is in cases where a company has, in the due to incentives, let's say, moved overseas and taken all of that particular kind of job. You know, you've got somebody who's worked at that same place for 30 years or something. They're not quite ready to retire yet, don't have enough money to retire, have made bad financial decisions. I feel a little bad for them in that case. They're good at that. One thing A great example I can think of that I think you'll relate to is when Jaco started up OriginMain.
Speaker 1:He talked about how they had just about lost the ability to manufacture t-shirts in the US and he had to find these people who were the last ones. I figure someone who had worked in the t-shirt industry forever and was very good at that. They might not have been able to find another job if their factory moves overseas and I've heard a few of those cases. It's not super common, but there are people who had done the same job for 20 years and it's like they're maybe not the most flexible person. I feel a little bad for them. Someone like you, you're a high capacity dude. There's a lot of things you could do.
Speaker 2:Yeah, it's interesting. I think you make a really good point there. I always go back to kind of thinking about contracts and is there an explicit contract with you like, hey, I'm going to hire you for the next 30 years?
Speaker 1:Clearly not yeah.
Speaker 2:Generally not. Is there an implicit contract of like hey, if you commit yourself to learning this very specialized physical skill that's not transportable, I will commit myself to making a good deal good decisions to run a good company, so we'll survive economic downturn, so we'll all have jobs when those things happen? Yes, and so you get really quickly out of the legal and economic realm and into the moral realm. And one of the things that I wish I remembered where I heard this first, because I think this is just genius is that in the late 1960s and 1970s, the left and the right both made one huge decision or one huge mistake. The left made a huge mistake in taking morality out of relations between men and women, in sexual relations in particular. But the birth control bill comes along. It's like hey, free love, da, da da. Like taking morality out of relationships between men and women, the downstream consequences of that huge family formation, the communities.
Speaker 1:Well, and it leads to the consent only framework. That's the only thing that matters in a relationship between men and women.
Speaker 2:It's so many bad things came out of it. The right made a huge mistake in taking morality out of business yes, and that, hey, I'm the business owner here. I've got a duty to my employees to not lever up the company, even though I could get a new boat or do all these things. Where, hey, this is? We talked about morality through this whole thing, about taking on debt, and so taking morality out of the social relationships between people, and taking morality out of business just pretty much takes morality out of society. What's left, right, and so that's really interesting. And tying this even back further into economics, I was listening to another podcast recently I can't remember which one, but they were talking about religious strictures on lending. So there's some, yeah, religious out there where, like you know, there's strict user laws You're not allowed to lend money.
Speaker 2:That was Christianity up until about 1700 or so, and I've always, you know, having been a former banker, I've always kind of like scoffed at this. Like you know, if this is silly and you know why are these restrictions there? And the point that these folks made I think it was a philosopher named Stephen Hicks, who's the guy I was listening to, and he made the point where it used to be if there was a surplus, it was your duty to share it with your community. The only way you can do lending is if you have a surplus. Yes, so if you have surplus and you're lending it, you haven't shared it with your community. Yeah, You're actually charging for it.
Speaker 2:And so again, you get a community greater than 150 people really hard to make the surplus sharing thing work. Right, you get past the Dunbar number and all of a sudden you're trying communism at scale and it's a bad idea. But me squaring the circle of why did religions used to say, hey, loaning money is a bad thing? That tied it together for me in a way I'd never understood before. It's like, hey, your duty is to share when you have more than you need at a very local level. And again, that makes sense in your family and it makes sense even in your neighborhood or community. The Taleb philosophy, yeah, doesn't make sense at scale.
Speaker 1:At societal scale. Yeah, you run into some real problems. The Dunbar number is really interesting. I think it's like 2,000 people, no, it's 150. It's 150? Yeah, I was thinking that there was a it was referring to the like 2,000 person limit or whatever that you can't effectively remember the relationships beyond that scale of a town or whatever.
Speaker 2:You could be right. My recollection of it is the Dunbar number is 150. And once you have a group greater than 150, you can't use norms and shame and those kinds of things to keep people online working hard to. Hey, we're all going to share the meat, but some people are going to go cut firewood and some people are going to clean the hut and some people are going to actually go kill the mastodon and some people are going to do the yeah. Once you get more than 150 people, you can shirk.
Speaker 1:Like free riders show up and you can't keep track of everybody Free rider problems.
Speaker 2:So I thought it was 1,000. It could be 2,000, but it's whatever it's not 250 million.
Speaker 1:Yeah, no, it's not 850 million, yeah.
Speaker 2:No, it's not.
Speaker 1:That's interesting. We'll have to look that up. I'm sure someone will tell us whether it was. I could be talking about something completely different. When you said Dunbar number, though, I was like that sounds like the psychological concept I remember about community management, basically, yeah, I think we're talking about the same concept.
Speaker 2:There's probably no one single number out there but it's a sort of there's definitely a hard limit somewhere there's a small number where it gets bigger than that, you can't tell who's really pitching in doing their part. It's hard to have informal rules. You start needing formal rules. And back to morality. You need formal rules that are easy to understand, that are easy to enforce, that are enforced fairly on everybody. I was like, oh hey, here's the rules of the game. We're all going to play by these rules of the game. They all make sense. But also, hey, there are some things where, hey, this just isn't right. Yeah, and we're not going to do it.
Speaker 1:It's the argument, too, why you get into large scale cities and all of a sudden there's just so many people demanding additional this that the other thing. There's so many squabbles at that level. When you get to a certain number of people per square mile, who pays and who gets is really muddy. Well, even just this person is blasting music in their backyard until three o'clock in the morning. Not so much an issue if you're the only person on a 200-acre farm and the nearest neighbor is half a mile away. Starts to become an issue if you're in an apartment building with 300 people.
Speaker 2:Well, and getting back to something we were talking about earlier, where we said, hey, maybe we're tipping into a recession here and it isn't noticed yet. But the point was we're supposedly not in a recession and we're spending like drunk and sailors while we're deep in debt. When you're not in a recession is when you're supposed to be paying down that debt, and so how does this tie into what we were just saying? It's hey who pays and who gets is really interesting. Right now, everyone gets and nobody pays. And it's who pays? Everyone in the future Future Mike, future Robert are paying. Hopefully we're around long enough that it matters. I don't know.
Speaker 1:Hopefully we're around long enough or something terrible is what it sounds like I just said.
Speaker 2:So future Americans are paying for the stuff we're doing right now. We're spending like drunk and sailors money that we don't have. We're adding $5 billion in debt every day. Every day, we're adding $5 billion in debt, which is insane and it's going to have to get paid back sometime. And whether the payback is, hey, we all print a bunch of money, or society collapses or whatever, there's a cost the bill comes to. Yeah, there's no such thing as a debt jubilee. People's like oh, what if there's a debt jubilee? It's like debt jubilee. Have you ever heard of this term? No, so it's an ancient term where every I think it might be in the Bible somewhere, I'm not sure where every seven years, all debts are forgiven or something like that. And I can't remember where I heard this from. I did not make this up, but somebody made this point. It's really interesting. There's no such thing as a debt jubilee If you forgive all those debts.
Speaker 1:Yeah, that's the end of lending and monetary systems.
Speaker 2:Your debts are someone else's assets. You're wiping out a bunch of people. It could be my mom has T-bills, right. I say, great, I don't have to pay back my taxes, I don't have to pay back the government's debt. I might be wiping out my mom's retirement fund. So it's a big deal. There's no such thing as a debt jubilee, and we're racking up $5 billion of debt every day right now, and there's no end in sight. It's accelerating.
Speaker 1:Yeah Well, and the funny thing is, it's like there's no voting your way out of it, necessarily. Either you can vote for one party that promises they're not going to, they're going to cut spending, or whatever it never happens. It never happens, yeah Like liars. There's slightly less spending maybe, and usually that's in times of joint control.
Speaker 2:It's not slightly less spending. It's spending isn't growing as fast.
Speaker 1:Yes, that's it they call that cutting.
Speaker 2:Yeah, when spending doesn't grow as fast, it's called cutting spending. Yes, that's not true when you spend 3% more next year instead of 6% more. That's not cutting spending, correct. So, yeah, theoretically. I think there are much smart people out there that would say we've already passed the point where nothing can be done. Let's imagine something can be done. It's black hole physics.
Speaker 2:Yeah, here's the two things that can be done Cut spending, raise taxes yeah, and you need to do both, and you need to do it really quick and they both need to be big enough to hurt. Yeah, okay, if something could be done. It's those two things, and you do it right away. Like, hey, how do I lose weight? Diet and exercise? Yeah, like that's what you need to do right now. Anything else you try, trust me, it's going to end in tears. Oh, there's a new pill? No, thank you. Right. I keep hearing oh, there's new pills. Like I'm waiting five years for lawsuits. Yeah, right, because the pill that magically solves weight loss sounds like a disaster to me. Everyone's like oh, it's going to solve these problems. Like, wait till you see the problems it causes.
Speaker 2:Yes, like the problems it solves, may be small compared to the problems it causes.
Speaker 1:Your body does not naturally lose weight unless you are really truly blessed.
Speaker 2:Yeah, here's what we're going to do. We're going to disrupt your body's understanding of how much food it needs. Yes, oh, that sounds awesome.
Speaker 1:I wonder if there will be any unforeseen consequences of that Incredible losses of muscle mass, incredible problems with your stomach. I'm sure it will all be fine.
Speaker 2:Yeah, your body just passing food through without digesting any of it. I don't know how any of this works. None of it sounds good. Diet and exercise that's what you need, yep.
Speaker 1:At high volume. Well, I think that's probably a good place to stop. We've talked about consequences, so many consequences, absolutely. Thank you again for coming on the podcast again yeah, no problem, thank you, I'm sure we'll talk to you again before too much longer. Absolutely.