 Now, we're up 135% and it's increasing. The bank reserves, which to me tells me, there are liquidity problems in the banking system and with that, there's no way they're going to cut back on the money supply. You do not have a stable system. I wish it were otherwise. I see very bad times ahead, very high inflation, potentially hyperinflation. Inflation is in the news, whether you're looking at the escalating costs of just being alive, the record number of companies actively talking about inflation on their corporate earnings calls or Federal Reserve Glitterati, who recently observed that inflation was high, but transitory. It seems like things are getting hot. I'm Adam B. Levine, and this is Speaking of Bitcoin. I'm joined as always by the other host of the show, Stephanie Murphy. Hi there. And Jonathan Mohan. Hey, hey. Andreas is out this week. On today's episode of Speaking of Bitcoin, we're digging into this growing topic no pun intended with the help of special guest, John Williams of Shadow Stats, who's, frankly, a personal hero of mine. Got to say, John, thank you very much for your time today. My pleasure to be with you. So my goal today is to understand not just how inflation is measured and what it really tells us, but how and why, just broadly speaking, government statistics have a tendency to change how they measure whatever it is they're measuring over time. But to start, let's zoom back to the 1970s, a period that we're told had historically high inflation. So OK, John, it's the start of 1971 before Nixon closed the gold window. Can you pick up the story from here? Well, let me pick up the story a little bit before there, because what you'll find is that up through 1970, 71, going back to the early days of the Republic, the inflation pretty much had gone along with the price of gold and the currency was tied to gold at that point in time. Nixon moved off the gold standard. And all of a sudden gold prices start to soar. And so does the actual inflation rate. So they seem sort of tied together. But to come the early 1980s, the people in the federal government said, gee, we've got a problem here because inflation is rising and we need to boost cost of living adjustments here to keep people even with social security. So in order to do that, what they did was they changed the way they reported the CPI to lower the headline cost of living. And the first big shift was, I think it was 1982, they revamped the cost of housing, major portion of consumer price index. What they did at that point in time was to completely redefine it instead of where they had had a component, just a sub component of the index that was tied to the actual cost of what's a buying a new home, which people did. What they did was they reclassified the index to homeowners equivalent rent, what a homeowner would charge himself to rent his house from himself. And then the monthly inflation was calculated in terms of how much he would raise the rent on himself each month. Absolute nonsense number. That sounds like a nonsense number. Like, was there any kind of discussion at the time when that change was made that sort of justified it? Or what was the argument for doing this outside of what you talked about, which is the government would like to keep cost of living adjustments, which the government has to pay for with money it could use, you know, that they tax from us, obviously, but that they could use for other things besides paying, you know, the people who they owed it to. What was the argument? I know no rational argument for it other than what they described. They're just trying to cut it down. Nonsense, they had no way of estimating that. What I can tell you is the effect for that one year was that it knocked one and a half percentage points off of CPI, annual inflation. Now, in this last year, we had in terms of the headline inflation for 2020. I think we had headline CPI inflation around 1.3 percent. So had this one change not been made instead of being 1.3 percent and assuming just went along and did it the way it had been done before, you'd be up closer to three percentage points in that headline number last year. But that was not the only change. They made change after change going forward, trying to reduce the cost of living adjustment. The changes were made up into the 1990s, but the effective cumulative change is about seven percentage points. What I started to do at the time, and I argued with the people back in the time, was whatever they took out, I just added back in. I said, okay, here's what you're taking out. I'm just going to keep calculating it the same way you were doing it. The difference it has made since the early 80s is about seven percentage points. So right now, where we're looking at an extraordinarily high headline for the existing series, six percent, let's say year to year change, that would be up about 13 percent on my basis. And there's a lot of evidence that what I have done here and what would have happened had they not played the games is a much better indicator of headline inflation. So when we're talking about your measurement, effectively what you're doing is you're just using the way that inflation was calculated before all of these adjustments started in the 1980s. And then you're just saying, all right, well, if we use the same data that we have today that they're using to generate today's inflation measurements, but we use the old methodology. What do the numbers show us? And what do they chart over time, right? Exactly. And what they do show, what you're telling us is that there's about a seven percent difference between the way that inflation is calculated today versus the way that inflation would have been calculated then. So yeah, so that's in terms of year to year change. Right. In terms of year to year change. So then what that tells us is that if we're looking at inflation that is, you know, nominally call it four percent, but then has an additional seven percentage points added to it, we're looking at only about a third of the inflation that according to the way the government calculated these numbers in the 1970s and previous to that, that would be. So we are actually at around 13 percent inflation. Yeah. I just want to point out, like we didn't really give John this introduction, but I just want to say, like, so what John is doing with shadow stats is calculating government statistics about inflation, but not just inflation also, like the economy and unemployment, which we can also maybe get into just using their own yardstick, but from a different time and then comparing that with what the numbers are now. Is that right, John? Effectively. Let me just give you a quick background here on me. I was in a family business from a kid on where we imported a chainsaw from West Germany. I was educated to take over the company and, you know, in the economics and such. I got into economics, found it very interesting. And in the late 70s, I had developed along with some other people, some new econometric models on the economy that were pretty good in forecasting what was going to happen. When you get into an econometric model, as I use today, there's been grand scale things to try and forecast where things are going into the future. You need some kind of a lead time because all the underlying variables of their coincidence, you have to first assume what the underlying variable is going to be before you can make the forecast. So I specialized in developing econometric models where it could predict and it could go about nine months into the future with actual numbers based on what had already been reported. You didn't have to make underlying assumptions. And with that, I developed a pretty good client base. The problem was that again, in the early 80s, the government started to just revamp the numbers. And it was not just inflation. Indeed, we usually got later the unemployment, the GDP, there are all sorts of factors that got manipulated, restated. So that's when I found a shadow stat, because I knew where the numbers were, but it was not what was being reported in the headline data. So what I found myself doing was specializing and putting out effectively restated things such as the inflation, such as the GDP, in terms of where they were in terms of the way the average guy would view the economy. Back before 80, most people found the numbers reasonably accurate. You get after that, the average guy says, well, gee, you know, I'm getting these inflation adjustment payments, but I'm not able to keep up with my lifestyle. The reason he's not able to keep up with this lifestyle is that the inflation numbers are understate. The GDP booming along, but guess what? A good part of the GDP is tied to inflation. And then this is where the inflation numbers have all sorts of unusual twists. But in terms of the government's standpoint, that there are a number of advantages from having it understated. Number one, in terms of rehab to make cost of living adjustments, which the government had to, the lower the inflation rate, the better. Number two, in terms of reporting headline economic data, the way most data reported are net of inflation in what's called real terms. And the higher the inflation rate, the weaker the economy, the lower the inflation rate, the stronger. So if you could reduce the headline inflation, guess what? You could increase the GDP. And that's exactly what they did. And I figure right now that if you had the same GDP, the same type of calculator on the GDP, as it was before all these fanaticans started, what we're seeing is GDP growth right now, real growth. It's maybe 2% below where it was, which means basically after they started all these gimmicks, you haven't had much real growth, the real being again, the inflation adjusted growth in the GDP. And then as we got along into the politics tied to NAFTA, they changed the way they counted the unemployed. The big thing there, 1994, right outside of NAFTA, they decided to redefine the unemployed measures. The headline unemployed stayed the same, but they had broader measures. The broadest measure they had there included discouraged workers. And these are people, they were classified as discouraged workers because, A, they weren't looking for work. But the reason they weren't looking for work was because they couldn't find a job. After 1994, if they couldn't find a job after one year, they're no longer counted. Yeah, but they're still unemployed. They're still unemployed and they're still discouraged. They're still looking for work or want work, but they've given up. So the difference knocked you up another 9% or such on the unemployment skill right now. I mean, I'm looking at unemployment over 20% in terms of people who would like a job, but they've given up looking for work against what is otherwise a very heavily inflated unemployment rate still with all the crazy things out of the pandemic. And on top of that, the Bureau of Labor statistics has not been counting all the unemployed people from the pandemic. If you read their monthly press releases, they'll say, you know, here's how we calculated dump the dump. However, we may have misclassified 600,000 unemployed people as employed. We're telling our people they need to do better in their surveying. This has been going on since the pandemic started. They still haven't been able to get it straight now. And if you listen to Fed Chairman Powell, he admits very openly, he said, look, the unemployment rates understated. I didn't hear him say anything at this last press conference, but the one before he had it up around you figure is up around 10%, which in terms of regular unemployment calculation I could buy. So you're looking at circumstances here that are not normal, not realistic, and some in substance. Now I'll give you some background to it. Number one, the economy is not as strong as advertised. We've had a much deeper plunge in activity. We're much lower from recovering where we should be in inflation is running a lot higher than their advertising. It's not a happy circumstance. And at some point, the markets are going to be catching up on that. So John, I have a big picture question I want to ask you. It seems like a lot of these statistics are basically being manipulated to the point where they don't really match with people's experience of their life. Yep, that's true. Yeah. And I think everybody knows that. But what is the benefit? Like, why does the government continue to do this if it's so obvious that these are not an accurate reflection of people's lives? Is it just about cost of living increases? Who benefits from manipulating the GDP numbers, for example, to create a rosy picture of the economy when it's maybe not true? Well, in terms of the where you have a direct financial benefit is with the CPI numbers. The rest of it is political. And look at the popular press, Wall Street. They're all tied together. Wall Street always tries to put out a happy picture because they want to sell stocks. The people who are involved in the the economists with the big houses there always try to put out a rosy picture on the economy. I'm independent and I can't tell you how many times I run into people say, Oh, I completely agree with your outlook. But you know, I have to say it's like this. I'll give you a very specific example without getting into names. Really, is it more like a decade or two back? Maybe even three decades. But it was with on CNBC. I was talking to the people there and I told them I was looking at a recession in the next year. It was probably in the 80s. Like, you get the specific dates. And I explained it to them and the people there said, Gee, that's very interesting. I had had some dealings with them. They want you to come on and talk about it. But you know, then, since you're contrary to the consensus, which at that time was for forming economy, we need to have someone on to provide a counterpoint. So that's fine. So they bring on a well noted economist from Wall Street who was providing the counterpoint. The two of us sit in their green room before the show going back and forth. He says, Well, what are you looking at? I said, Well, based largely on what's happened to the money supply, I'm looking at a recession in the next year. And he says, Yeah, I think that's the consensus. We get on the air. I give my pitch. He says, We're going to have a booming economy in the airhead. He had to put that out because of the nature of his employer, Wall Street press. You have something of a financial press here that has to cater to Wall Street if they want to get advertising and things like that. Wow. And that was decades ago. I'm still seeing it happen. It's, you look at the press and you see a real bad number of building and they look who puts out the positive side on it and they come up with all sorts of inventions. I'm talking here now really pre-pandemic because of pandemic circumstances beyond anything anyone's ever seen before. But right now we're starting to get real hype as to how good things are. And things are indeed are better than they had been. But for people trying to measure the economy, I can tell you two things. Number one, we're still in a depression and number two, until related circumstances, which I'm about to highlight, you're not going to be seeing a recovery. Before you get into that, John, I just want to ask you just another follow up question to that. So if people's common experience, as you say, doesn't match up with the official numbers, I would think that the government kind of loses credibility over time when they're reporting on the status of the economy. At what point did they lose all credibility, or do you think that they already have? Well, from my standpoint, they have, but in terms of the average person, a lot of people out there who, frankly, are willing to accept what they hear. They're not economists. I can tell you, the average guy is not doing as well as advertised even today. The thing I find most powerful about what you do is you were saying before someone was asked your opinion. But on the website, Shadow Stats, it's very hygienic. You're just taking what the government used to say and applying that metric. So it's not, this is what John is saying. This is what the canonical statement that the government would make was, and then it changed to this and then it changed to that. And I know that it's so overused, but what you do is shine a spotlight on like a true instance of Orwellian double thing, where it's like, now we're at war with Britannia. Now we're at war with Oceania. We've always been at war with Oceania. You look at the way that they calculate inflation and it reminds me sort of like civil engineering. No one ever goes and says, well, in the 1970s, they had this understanding of civil engineering, but now we have a better understanding of civil engineering. But when looking at buildings from the 70s, we're only going to apply our understanding of civil engineering in the 70s on those buildings. And we're only going to look at civil engineering on buildings today that are built with our understanding of civil engineering. It's a better understanding of reality. You apply the best understanding consistently. But what you shine a light on is it's much more like a mosaic, like a quilt of fraud, where every time they change the structure of how they calculate it, it's always narrowcasted to the few years that they apply it to. And then the next year they change and the next year they change it. When you look at the actual graph, it's not here's one consistent framework for evaluating it. It's here's this quilt of all these different untruths that are internally inconsistent to one another. But that's the reality you have to live in. Yes. But I've never heard it expressed that way, but you're absolutely right. The only thing I would qualify there is that with the inflation numbers, the games they played, they sort of ceased in the late 90s. But nonetheless, at that point, they done the damage to the system. They never got it all the way to where they wanted it was pretty close. With the GDP, they have ongoing games that they're playing with that in terms of inflation and such. With the employment, that was redefined in 1994. And the effects of that are ongoing, but it was massive in terms of its impact. So in some of the numbers you have sort of breakpoints where all of a sudden the things changed. And the other like the GDP just ongoing with some of the creative things they come up with. I think where it draws its most sort of stark conclusion is I try to sit down with someone who's well school in economics, manages a family fund, but is a traditional Keynesian. And I say, well, look, here's how they pulled the shadow stats website. Say this is how they calculated inflation in the 70s. This is how they calculate it today. Let's just apply these heuristics consistently across time. Is it true using the understanding that the 70s was a depression that right now we have an economic boom or is it true using the understanding that we're in our session right now that the 70s was an economic boom, because you have to agree to one of these frameworks for reality. You can't say that both are true yet neither are true. But depending upon the outcome, they're both true but not true at the same time, which is the current understanding of when you look at inflation. Yep, that's a fair assessment. Let me tell you why I use the name shadow government statistics. Because they keep looking at the numbers. And we have extraordinary problems upon us right now with the pandemic. Now I can give you some heads up and things that are coming within the next month or so. Extraordinary. And the Federal Reserve's in the center of this. I mean, they like to play a they're a very political. And of course the politicians on both sides like to have happy numbers. But the Fed right now is in a very difficult circumstance. And what's happened here, really extraordinary. In terms of the economy, this goes back prependemic. Standardly, the government data would get overstated and then you'll have benchmark revisions and they'll bring the numbers down. So all the happy presses, yep, no, we're moving along here. Average guy says, Hey, that's great news. And they're some are feeling well, some aren't. But those who aren't, they said, you gotta do better. They try to keep a positive spin to it. But when you look at the benchmark revisions, they go back and report it on a consistent basis. Industrial production, which is a key underlying factor in the economy. Published by the Federal Reserve, put together by the Federal Reserve, actually a fairly good number. It's very well thought out, very well surveyed. And every year they go through a benchmark revision, except three years ago, the government shut down with a because of the budget deficit. A certain survey was not completed. So they didn't benchmark that year. The next year, they didn't benchmark either for no excuse. So after two missed benchmarks, they didn't benchmark this year. What they did, this just recently published, and will impact the GDP, which gets its annual benchmark revision at the end of July, July 29th, they revised industrial production lower by five percentage points, as of the point we're entering into the pandemic. And what it shows is that instead of a stable way, they had sort of a flat economy going on. What the revised numbers show is that the economy peaked in 2018, and that we've been in a recession since August of 2018. And we're in a recession, going into the pandemic collapse, which nobody's talking about. I am I'm writing about it. But so what happens is the pandemic collapse now starts at a lower level. The pandemic trough is now at a lower level. It now has a much higher goal to try and recover where it was. So what's happened here is deeper than reported. It's going to be more difficult to recover from, or no ways close to recovering the pre pandemic levels, which happened to say pre pandemic and recession because recession was feeding right into it. You're looking at something here that when they revise it, the end of July, this is the GDP. I'd be very surprised if you don't see the GDP, take a basic hit downward, it's going to move everything downward. And all of a sudden, the pandemic steeper, the recovery steeper, and all the downturn was not pandemic. We were in a major downturn before the pandemic started. You're seeing that as well in downside revisions to the trade deficit, retail sales, payroll employment. I always try to look at reality. If you know where reality is, you can live with it. You can just pour it. Exactly. You know, Jonathan was saying something earlier about, you know, the differing standards. This all, you know, the creation of a narrative that isn't matching with reality that most people feel. This reminds me of the psychological term gas lighting, which is basically when an abuser does things to undermine someone's trust in their own perception of reality. And I think you can say, yes, that is exactly what is going on on a mass scale. It's trying to, you know, make people doubt what they're perceiving, which is that no, you know, the economy is not as great as the official numbers are saying. And they're saying, no, no, no, everything's fine. See, look, we have these statistics, but they don't tell you that the way that they calculate those statistics and the devils and the details has been heavily manipulated and changed to create a certain narrative. So I want to take us in a slightly different direction here, but building off of that. So this is not a partisan issue, right? So much of our world today is politics and so much of our politics today in the United States is about the Republicans versus the Democrats, right? And you got people who, you know, it's kind of like sports is how I look at it, right? It's people like pick their favorite team and then they root for that team and you boo and you hiss at the other guys, right? Because they're the bad guys. But ultimately, what we're talking about here in the gas lighting that Stephanie is talking about there, this is not partisan. This is something that has continued and escalated even under multiple administrations across both political parties, right? Sure. It is to the politicians benefit to have a healthy economy. And I can give you three or four examples real fast here. But irrespective of party, if you have control, there are sorts of things you can do. Lyndon Johnson was a great manipulator. He had a cooperative infrastructure and he could get the numbers any way that he wanted. Richard Nixon, he wanted to he didn't like the way that unemployment numbers were being reported. So he approached the Bureau of Labor Statistics. He said, look, why don't you just report the unadjusted number or the adjusted number, whichever is better? And they said, no, we're not going to do that. Well, they Nixon was assets and his liabilities. He didn't know the numbers too well. I saw in the Clinton administration, a direct manipulation. But before that, the Bush administration, George Bush, when he was running for reelection against Clinton, I know people I had employed people who were involved in the process. The headline GDP was boosted from outside sources, cooperative outside sources to try and help Bush get reelected didn't happen. He didn't get obviously didn't get reelected. The Clinton administration, I was looking at the payroll numbers. I like to tear numbers apart. And the there's a period of time there where the payrolls were increasing by an exact $500,000 a month, I would send me 500,000 jobs a month. And it wasn't necessarily just that in a given month. But you look at the revisions and the revisions, when we've worked out that 500,000 category, I called the guy and I said, oh, we wouldn't do that. And of course, it stopped after that. As long as numbers have been around, the politicians have been involved with them. The average guy has a good sense of what's going on with reality. And going back to the fellow I learned a lot from was Albert Sindlinger. He used to do consumer surveying for Herbert Hoover, met him a number of years ago. He was separate from the conference board and that type of surveying on consumer sentiment. What he did, instead of asking people, you know, we think the economy is going to be better in the year ahead, he would go out and actually ask people people and he had a big survey base. Do you think the employment at your place of business is going to be up or down six months from now? And he put it on a personal level and asked direct questions. And he's able to get very accurate responses that tended to lead the economy and was used by a number of presidents up through the last George Bush administration. Sindlinger died some about that time. But the point is the average person knows how he is doing. And that's where things got a little screwy in the electoral process. Because people in the political system think they can, if they just put out those happy numbers, that's going to move the electorate. It may not, depending on circumstances, if they're bad enough. Again, the average guy will say, Hey, I'm not making it. I'm going to vote against the incumbent. And that's what got Donald Trump in on a surprise against Hillary Clinton, because the economy was not as being advertised under the Obama administration. Same problems. Now, what I'm saying here now with the revision of the industrial production numbers is that the economy wasn't quite as strong as advertised under Donald Trump either. But there are a lot of other issues that went into this last election that I'm not going to get into it. I've just put that one aside, but I can tell you there's some unusual factors there with the economy. Don't you think this sort of fundamentally comes from the two different camps about what is the economy and what is inflation, namely the Keynesians and the Austrians, where, you know, does objective reality measure or is it only the consequential perception of what's occurring that matters? And you see a play out in inflation and, you know, to the detriment of everyone. I would contend that it's the reality. And then the average guy, if they're telling him, you know, inflation is only 2% but he's, he can't make his ends meet and he thought he was okay at 2%. He knows there's something wrong there. If people have accurate numbers, they can live with them. You give people hype numbers. That leads to all sorts of misunderstandings, again, particularly in terms of things like cost of living adjustment, where the government had a fine idea you will give you will give you an annual cost of living adjustment on your social security to make sure you don't fall behind. But guess what? They monkeyed around with it. And when we're seeing something here right now, that it's going to be interesting to see how it works out. It's going to help people, but not as much as underlying reality, because of the current spike in inflation, which is real and is much worse than being advertised. Well, I think we've been talking a lot on the show about hyperinflation and the everything bubble. And, you know, at what point do you think people are beginning to realize that, you know, if everything is in a bubble, that's just called inflation. You're very close to it. We're looking at inflation knowing it really is an inflationary circumstance that no one in the United States are seeing in modern times. And it's tied to the Fed's money creation. They don't have a model for handling this thing. They're guessing at it as well as saying, oh, of course, we can pull this back any time. So what would happen in the last year that I found absolutely extraordinary? I've always been tracking the money supply. They stopped tracking the money supply M3, so I keep tracking that. And then they changed. All of a sudden last year, the things started to get a little unusual. When you looked at the money supply M1, which is the narrowest measure, basically cash and M2, which is the cash plus savings accounts and other less liquid assets. If you looked at the year to year change in the money supply M1, as they were reporting it, and the money supply M2, as they were reporting it, year to year, as you got past the pandemic, all of a sudden you started to see an acceleration year to year in the M1, which is the cash, effectively near cash, and you're getting a 50, 60% year over here. Never seen anything like that. You're seeing maybe 20, 30% in the M2. What that told you was that you were seeing a flight to liquidity. People in the current circumstance wanted to be more liquid so they're moving their cash into M1 from M2. The Fed didn't like the message that was sending. So they did an extraordinary thing and they redefined M1, the narrowest measure, to include savings accounts, which is the bulk of M2, less liquid. They said, well, we changed reserve requirements so they're really the same thing with liquidity standpoint. There's no evidence of the shift there in terms of behavior. But by putting that in there, they brought the M2 level down to, let's say you're up at 25% with the M2 that maybe M1 would be up at 30%. The more liquid, the higher the percentage rate. That was nonsense. That was a deliberate effort to up you skate what was happening. And at that point in time, they're reporting the numbers on a weekly basis. All of a sudden they go to a monthly basis. They don't want people to see what's happening. Well, they also renamed that metric. And Adam and I were talking about this offline about how much of what the rename metric is is still going to wholly be what the old metric was. Like 93% of M2 is now M3. M1 accounts for 93% before or something like 13%. M1 no longer exists. It's effectively M2. What I've introduced is a concept of basic M1, which is the old definition of the FEDGE going back to 48. When they introduced the concept of the money supply, their basic money supply, which is what I'm calling it, basic, with a quotation mark around it because that's mine, that there's M1 is there. I've got this basic M1, the M1 they have now has got all the savings accounted, but the old basic money supplies, basically currency and demand deposits, checking accounts. And that's still there. What I have in that measure is 83% of what the old M1 was. And what we just saw in the most recent reporting is that year to year, except by it's up by 80%. Never seen anything like that. By killing the M1, do you think we should be concerned because I remember when M3 got discontinued. And 18 months later, we had the great financial collapse. And a lot of people said that had M3 had been continued being disclosed that it would have served as an early bellwether for the collapse that was occurring, should we read into the fact that they have functionally discontinued M1 in the same way that the FED might have seen indicators there that would indicate something bad was occurring. And because they didn't want the tail to wag the dog, decided to discontinue M1 in the way that they discontinued M3. Well, there are two answers to it. The reason they got rid of M1 was because of inflation fears. They know that people see it soaring money supply growth, they're going to think inflation. There is an issue here that is uncomfortable because what you're seeing with the redefined monetary base effectively, but they haven't redefined the monetary base. What you're seeing with the monetary base, which underlies the money supply numbers. Monetary base is not the same thing as the money supply, but it drives a money supply. There are two components. One is currency, which you'll also see in the money supply. The other is bank reserves at Federal Reserve banks. Well, if you look at the money supply numbers, we're seeing year-to-year growth rates that have never been seen before. You look at the monetary base where that record levels in recent times, but the only time it was surpassed was during the banking collapse of the Great Recession. The banking system literally collapsed and they flooded the system with reserves to keep the banks afloat. And you were up 4,000 or 5,000 percent year over year. That's what you're competing with now in the monetary base. That's why it's not at an old-time high. Those reserves never came back down. They came back down a little bit, but never came back down all the way. Now we're up 135 percent and it's increasing. The bank reserves, which to me tells me there are liquidity problems in the banking system. And with that, there's no way they're going to cut back on the money supply. You do not have a stable system. I wish it were otherwise. I see very bad times ahead. Very high inflation, potentially hyperinflation. Let me just make a quick point here because there are a lot of inflation specialists out there and they'll say, oh, you can't have inflation without high velocity of money. Velocity of money, very simply, is the speed with which the money supply turns over within the economy. And sure, the money supply is turning over rapidly. That'll tend to give you a strong economy. And when you get a strong economy, you tend to have higher inflation. But when you look at prior incidences of hyperinflation, such as the Weimar Republic or Sambabu, which is another story, you didn't have the surging economy. What you had was a surging money supply against a weak economy. And that's what we have had here. And the reason that you're seeing the inflation right now is because of the extraordinary money supply growth against the extraordinary weak economy. And that's where the danger is that they can't bring that into balance very soon. And to pageant are really an impossible circumstance at the moment. They don't want to see an economic implosion. Nobody does. The collapse, that's their risk. So that's why they keep pumping the money supply in there. The federal government's going to keep going along doing everything it can in terms of expanding its spending. We have Janet Yellen, former Fed Chairman as Treasury Secretary. They're going to create as much money as they have to here to keep the economy from collapsing. But in the process, the way I'm reading it is they've opted for higher inflation, as opposed to economic collapse. And they may get both. I think we're headed for a hyperinflationary collapse. So I was born in 1984. Everyone who you're talking to on this call, like we literally never lived in a world in the United States that hasn't had this sort of like comprehensive misrepresentation of data for like broad political purposes, but irrespective of politics. That is the entire world that we have lived in and have never really known anything else. And, you know, you mentioned before that, like the reasons why data is important and why having accurate data is important is because it allows you to make good decisions. It allows people who then have to live in that world that this data is supposedly accurately describing. It helps you make decisions. And in the absence of that, you're making decisions that you think are right, but are actually wrong because the data that you are basing those off of is systemically wrong. That's what I was looking for, systemic manipulation of data. So for the last, I don't know, probably half a dozen years as I've come up on this topic, I've been increasingly saying, if you can't control reality, but you can control how people talk about or measure or the sort of terms they use to discuss and think about, you know, these things, that's almost as good as controlling reality. You're not controlling reality, but you maintain many of the benefits that come from having the reality that you wish it were. Politically, that's about 70 percent. You do have people out there who have a good sense of what's going on. And I can tell you that the average guy has a sense of how he's doing. He knows how he's doing. You can't fool him. And that's where the politicians get it wrong. And that's where the system will fall apart because people are not going to buy the political spiel, oh, here's what's happened, dump the dump. If it hasn't happened, and I've heard the average guy, he's going to know what's happened and he's going to vote against the people that put it on him. Is your read of this situation that this is the kind of really short term focus of electoral politics just generally that has led to this situation? Or do you think that there is a sort of broader motive here than that? Because I mean, thinking about it intellectually, it seems like plausibly, this could be just each time, you know, like a government comes in each time, you know, like the party changes hands or whatever, you've got them saying, well, the other guys didn't fix it. So I'm not going to be the one who takes the hit for finally resolving this problem, right? So I mean, like, how do we get out of that? Is there a way out of that? And is that your read of the situation? Well, it's indeed it's evolutionary and each political party that comes in has found its own temptations to try and improve things and maybe do a little bit beyond that with their propaganda. What we have right now is a real crisis. I mean, this is, had we had more stable circumstances coming into the pandemic, we might have a better outlook, but the pandemic has turned the world upside down. It's a real crisis in terms of the economy. If you look at the average guy right now, and I'm talking about how the average person feels, not what you're hearing in the hype, payroll employment, people who are employed, basic economic indicator, year to year change. And this is a reason that they do all sorts of things with the payroll employment numbers. But if you look at the year to year change, you're getting about as honest the numbers you can get right now from the government, not the GDP, but from the year to year change and the payroll employment, you're up 10% year over year. But that's only because the numbers collapsed a year ago. If you look at the current employment, the payroll employment levels against where you were at the pre pandemic peak in February of 2020, you're down 5%. That's like being down 5% year to year in a normal circumstance. You've never seen anything like that since 1946 when the US economy was being restructured to a peacetime from a wartime agenda. Effectively, you've never seen anything like that since before World War II, the Great Depression. And guess what? That is not a recovering economy. That's not a recovered economy. Payroll employment is a basic economy in economic numbers you get. So that all this hype about, yeah, the economy's never recovered, not there. And the average guy knows that. So you're getting now politics being built into this crisis. So, John, I think we have very effectively laid out the case here that the numbers we see from the government that relate to the economy are not accurate and true to life and especially people's lived experience. So, John, what do we do about it? How can we save ourselves? What is the best way to hedge against inflation to have the best life we possibly can? And what do we do? Well, in terms of the numbers to vote the better judge out of office, you need someone who raises this as an issue and someone will. I mean, I hope it's not like Adolf Hitler, but I mean, believe it or not, that's, you can get very radical political change here because if we have such a dichotomy between what people are experiencing and someone comes along and says, hey, boom, boom, yeah. Let's think this through. Do we need to vote someone out to get Ben Bernanke or was it Alan Greenspan or is it Janet Yellen? I'm not sure which point in the voting someone out to replace someone gets us a better Fed chairman. You can't revoke the Fed is not subject to a popular vote. That's my point. It's the administration. And let me put it this way, you're subject to Wall Street here. Wall Street controlling this money, big money. And it's things have to probably have to get worse before you're going to see some kind of a voter revolution. I hate to say that, but the things are not going to be getting much better here as they're advertising. I think you're going to have a voter rebellion at some point here. I don't know when. I mean, we can talk about it as we go along. But I can tell you that things are not as advertised. And the from the average person standpoint, do the best to preserve your wealth the best, especially can stay liquid. I wouldn't put much money in the stock market at this point. It will be a point in time. It'll be a wonderful buy. But yeah, that kind of brings me to the next part of this question that I wanted to ask you, John, which is you often hear from people who are concerned about inflation in particular that precious metals are the solution. They're the best hedge against inflation. And of course, our show is speaking of Bitcoin, right? And so we talk about cryptocurrency. And a lot of people view cryptocurrency also as a hedge against inflation. So what are your thoughts on that? Do you think that precious metals or cryptocurrencies can act as an inflation hedge? Are you interested in those at all? Or are you kind of agnostic on that? Well, in terms of cryptocurrencies, I'm not an expert. Oh, I told you that up front. Are you dealing with any particular cryptocurrency? We would be talking about Bitcoin to be clear. Okay, the nice thing about Bitcoin, as I understand it, is they have a limited universe of what's being created or what's been created. That's a plus. That's the same thing that you have with gold and silver. It does not have the acceptance of gold and silver. And the gold and silver physical, you have a history there that goes back millennia. I'm going to say the same amount of gold that would buy a loaf of bread and ancient Rome will do it today. And the interesting thing I found with my alternative inflation measure, and this was accidental that I found it. It was not delivered in the design. But when I set my index, I went back to 1970 when Nixon went off the gold standard. And I think it's at the base of 100 and maybe gold was 70 bucks at the time. I'm not quite sure what it was, but it's close enough. And when I eventually plotted the two together, I found that my index went right up with the price of gold. And in fact, gold tended to lead it. And so my personal recommendation for people is to own physical gold, not paper gold, physical gold, and that tends to preserve the purchasing power of your assets over time. The cryptocurrencies is a very interesting concept. And again, I don't know as much about it as I shouldn't. And you don't have a long history here. But I can tell you one thing that is sort of interesting. You look at hyperinflations. And that's a problem that we're going to have here. And I don't care what you have. If you look at the velocity of money, you pump the high money supply into a collapsing economy. That's when you tend to get a hyperinflation. You need to look at that as well from a crypto standpoint as to where it might have some relevance. But if you look at the great hyperinflation, probably the worst one ever was in Bobwe. And that mean they got to a point of what had been a $2 bill, eventually was sort of their standard exchange became something like $194 trillion bill. Just adding zeros all over the place. Adding zeros all the way along. And you wonder how could that could survive so long by doing that? Well, what they did was as they were going through their hyper inflation, people are very smart. They'd say, well, okay, I just got paid today. It's going to drop by 100 percent tonight. So I'll quickly go and exchange it for US dollars. And they'd use us dollars as a backup. And then it was they needed the local currency that they'd convert. So they keep trying to mitigate their losses by going to something other than the Zimbabwe dollar. But it got to the point. And please excuse any vulgarities here. It's just the way it happened. There's a border station with South Africa. And if you went to the restrooms there, they had and there's a very famous photograph, but it's actually true. A sign there that said, you know, please use toilet paper, nose and bobby dollars. I kid you not. And when you get to that point, it effectively becomes nonsense. You don't have that with a cryptocurrency. You're holding you don't have you don't have the Bitcoin you're holding it at a fixed level. Well, you literally can't use it as toilet paper either. Well, no, that's the point I'm getting this point back. So thank you. That's the point I was trying to get around to because where you now have talk of crypto dollars or something like that, the cryptocurrencies actually could enable hyperinflation. If you had a crypto dollar, they could issue you a hundred trillion dollar credit electronically. They don't have to print a hundred trillion dollar bill. You no longer have the paper that's going to be jamming all the restrooms are in the country. You know, I think this whole like central bank digital currencies thing is a very good marketing scheme because the dollar is already digital. The only thing that makes Bitcoin unique is that it's a bearer instrument, right? It's bearer digital currents. Yeah. And so when I hear central bank digital currency, all I hear is let's demonetize physical notes. And so my thought is the only thing that the dollar isn't at this time is bearer when it's digital. And so if you say let's make a central bank digital currency, you're not going to make any of the attributes of Bitcoin. The only thing you're going to do is just sneak in a demonetization of every physical note. And then when you do that, you can finally get negative interest rates because you can just apply Demerage and apply explicit velocity to funds that you send to people as a programmatic rule. I'm not quite following you there. Basically, what he's saying, John, is that right now the Fed can't reach into everybody's wallet. And to an extent, everybody's bank account and actually subtract the amount of money that they have if they want to. Whereas once you've got this as a digital currency, cryptocurrencies are in theory, this decentralized thing, but actually physical paper bills are much more decentralized than central bank digital currencies will be because there's no central element of control to them in terms of modifying balances or things like that. Whereas once you get onto the digital side, well, I mean the Fed has a tool in its toolbox that's a new tool that allows it to stretch this thing out one more day. They're going to use it. Yeah. At the end of the day, the digital currency unit of the dollar is always competing against the physical bearer instrument of the dollar. And so there's only so far the central bank can go against your balance on a spreadsheet in a bank that wouldn't result in you withdrawing it physical notes as a bearer instrument. And so my thought is all this nonsense about digital central bank currencies is just a way for them to demonetize physical notes so they can do all manner of disgusting things like introducing explicit rules for velocity on your account and creating real negative interest rates. Nominal. Makes sense. You get to that circumstance. My recommendation be get into physical gold and barter and what you deal because you're going to be heading into a very rapid debasement of the currency. They do that you're heading for a hyper inflation. I know what you're looking at is not something that's per se hyperinflation or you're looking at as an alternative here. They do that with the currency you're going to have a restructured monetary system. That will not survive. I have one question that I'd really like your take on. And I'm not saying the quote is attributed correctly. But the reason why it's so sticky is because we all feel it in our gut and we fear it and it feels true. Which is what do you say to the sentiment that in the future you will own nothing and you will be happy about it. Nonsense. Own something independent of the government such as physical gold silver. It will continue to trade. I know people. I knew people and most of them are dead now or there have been children of people who went through the hyper inflation in Weimar Germany and this is when you get to the point your currency is worthless. You had circumstances then this world came out of the effects of World War II and German reparations to France and such. But as the hyperinflation kicked in it came in so quickly that this before it really got bad. You could be you could go out and say you wanted to have dinner night. You could still do that by dinner at a restaurant. But you'd have to negotiate the price before you sat down because it'd be more expensive afterward. You could have a fine bottle of wine the night before and the next morning the empty bottle of wine was worth more than it had been the night before filled with an expensive wine. One guy told me about his father who had traded his shirt for a can of beans and got down to barter system and it's not bad to think about bartering and whatever might be involved here in bartering because you have solid things you can barter. We're talking about things get really bad circumstances that can save people's lives. This is not a happy circumstance. I wish we didn't have the pandemic right now we'd be having a little bit of a different circumstance. But we're at high risk right now of going into hyperinflation as I see it. And so this guy trades his shirt for can of beans. He says I'm going to take the can of beans home and we'll have dinner with it. Open the can of beans if can of beans had gone bad. There are lessons that you learn there but physical gold and silver there are other assets of value. And I don't know quite how you structure this with the digital currency but if it's recognized as something of value you can do things with it you can survive. It's important it's basic and you need some small change. Now digital currency presumably can get that down to any decimal point that you I don't know. One one hundred million is the division currently within Bitcoin. One hundred million satoshis is one Bitcoin. Okay. That's interesting. Send me an email. I learned the terminology. I'll send you an email. What I would look at from the standpoint of physical gold and silver which is a field in which I normally deal in what which I normally recommend. You take an ounce coin of silver to the grocery store. It's tough to buy a pound of hamburger with it. What you need are some physical bags of silver. So you can trade a silver quarter dime or something like that. That's the type of circumstance in forgetting the digital currency just in terms of the hyper inflationary history of the world and physical currencies and precious metals. That's the type of thing that you need is a backup. How do you translate that into Bitcoin. I leave to the genius of you people because we've come up with all sorts of things I've never seen before. Well even though we were born after all this manipulation of the statistics started maybe we have some hope in thinking ourselves out of it after all. So thanks John. Well thank you. Very interesting conversation and please we'll talk again either formally or informally. Always happy to talk. Great. We really appreciate that. Well folks that's all the time we have for today's episode. A big thanks to John Williams for this enlightening conversation on a complicated topic. If this discussion has been interesting to you make sure you check out shadow stats dot com where you can see all the numbers we've been talking about and read John's very insightful alternative analysis of new statistics as they come out as compared against the government's current standards of measuring them. Today's episode featured Stephanie Murphy, Jonathan Mohan and myself Adam B Levine. This episode was edited by Jonas and featured music by Jared Rubins and Gertie Beats straight from the street. If you enjoyed today's show do us a favor and leave us a review on your favorite podcast player. And to all of you out there thanks for listening.