 Um, let's talk about economic challenges to my optimism. So yesterday, I did a show on Labor Day, and I talked about the fact that American worker has done pretty well over the last few years. Not as well as he could have done on the freedom. Not as well as he could have done with more freedom, but pretty well. In other words, wages have risen on an inflation adjusted basis. They've risen quite a lot since the 1970s, which the left love so much. Quality of life, standard of living has gone up. People today, I don't know if I said this yesterday, but I'll say it now. People today live in bigger homes. People today have smaller households, so the money they make is split over fewer people. So they have some people today have more income to consume. People today, most Americans today, when I say people, I mean most Americans, most Americans today drive much, much nicer cars than they did. In the 1970s or 80s or 90s, they travel a lot more. It's amazing how little Americans traveled 30, 40 years ago, and how much Americans travel today. Not enough. They should travel a lot more, but how much they travel, particularly internationally. Americans, I mean, by every dimension in my view, Americans today live better lives than they used to. The standard of living is significantly higher. Now, I'm not making a claim that it always will be. I'm just saying that it is right now. And that I do not see yet, although I could change my mind about this, I do not see the apocalypse. I do not see us going into a Great Depression. I do not see the complete collapse of the US economy. And indeed, I will also say that I've been hearing about the complete collapse of the US economy for 40 years, at least, maybe close to 50 by this point. I hear it all the time. And it doesn't happen. And not only am I hearing, I participate in those debates and I've been participating in those debates since the 1990s as a finance professor, and then it's 2000s as the CEO of AI and as a podcaster since the mid-20s or whatever. So, yeah, I've sat next to Peter Schiff, as he's told the world in 2008, 2009 is going to end, and it didn't. So, and I thought things would be a lot worse coming out of 89, although I got it right. I said the consequence of 2008, 9 will not be hype inflation, would not be complete collapse of the US economy, but would be what it turned out to be, which is slow economic growth, stagnation. And I was right back then, and hopefully I'll continue to be right. So let's take on some of the challenges that Ran has for me. He put them up on Twitter. And, you know, these are honest challenges, the real questions. And so it's good to get them out there. And I'm sure a lot of you have the same kind of issues. And I see Liam has some more issues, so we'll cover those as well. But let's start with some of Ran's issues about my presentation of the status quo, the world as it is today. So he says, is standard living really higher? If so, why does the US trade deficit keep getting higher? I don't understand that. I mean, I'm an economist and I don't understand the connection. I mean, quite the contrary. This is my prediction. The higher the American standard of living is, the more wealth Americans create, the bigger the US trade deficit is going to be. The US trade deficit, in my view, is inversely related with growth in living standards. Why? Because what makes it possible for us to buy goods overseas, goods that are good and cheap, and we're buying them overseas because they're better and cheaper than buying them here, which in and of itself raises my standard of living. Because instead of spending $2,000 on an iPhone, because I'm importing it, I can spend $1,000 on an iPhone. So it raises my standard of living because I have an iPhone and I have $1,000 in my pocket, which I can spend on other things. So importation, importing things is one way in which our standard of living goes up. Indeed, the more trading partners we have, the more people we have to trade with, the higher our standard of living becomes because trade is not zero sum, it's win-win. And if I can trade with a billion people around the world, and the fact, and we'll talk about why they want my money, we'll get to that in a minute, but the fact that I'm trading with them increases my standard of living constantly. So running a trade deficit is many times evidence of a rising standard of living. So what are they getting? Why are they willing to trade with us? Well, they're getting dollars. And they wouldn't trade with us, and this they believed our dollars were worth something. Now, they don't want to buy a lot of stuff from us, because the fact is what we're selling is not that interesting to them, because we're selling ideas, we're selling design, we're selling innovation, we're selling the cutting-edge stuff, which they can't afford, they can't really do anything with. So what do they want with our dollars? Why do they keep taking our dollars? Because they know that the best place in the world to invest, the safest place in the world to invest, and the best place in the world to invest if you want innovation, if you want progress, if you want to return on your dollar, on your money, is the United States. So what reason we have a trade deficit is because foreigners want our dollars. And why do they want our dollars? Because our dollars, they believe the most valuable currency looking into the future. And because they believe the U.S. economy is the economy most worth investing in of all the economies in the world. Now that's the reality. Now, you can talk about the dollar, you can talk about incentives, you can talk about a million different things, you can talk about inflation, and all the problems we have in the U.S., but markets, and I'm a, you know, I don't believe markets always wait, but markets are pretty good. They're better than most economists. Markets are telling us the opposite. Markets right now are telling us they could be wrong. Markets, the trade deficit is telling us that the rest of the world, smart people all over the world, $1, so they're selling us stuff like crazy. And they're investing it in the United States. Why? Because they believe in our economy more than we do. So, you know, we'll start with, with that. So trade deficits are good thing, not a, I mean, they're a neutral thing. I mean, they're generally often a great positive. So I try to cop over something that's not working. That's not working. That's not working. All right, I'll get it. So it's trade deficits very relevant to almost any economic calculation. And indeed, every dollar that goes out of the United States comes back to the United States. So why do we care? I said this throughout Trump's presidency. And I said this way before Trump's presidency. And this is economics 101. This is, this is Adam Smith. This is trade deficits don't matter. And the fact that they want to invest in us, the fact that our dollars are worth so much means we are producing something. You might not be able to see it exactly, because a lot of what we produce is ideas, ideas about production. But we're producing something unbelievably valuable to foreigners. And that's why they trade with us. That's why they trade with us. So trade deficits, an indication of a rising standard of living, not a declining one. You say imports up 250 billion in a month, in a month 2019 to 350 billion today. Yes. And that's a sign of two things. One, the tariffs are stupid, because tariffs were supposed to reduce imports and they don't. They just attacks on Americans. And the fact that people want our dollars and the fact that they're still producing stuff that we want. And there's actually and there's actually nothing wrong with the, with that going up. Now, why is government debt ballooning to 30 trillion? Because our government is spending money like crazy. It's very simple why the debt is ballooning to 30 trillion. Because the four years of Trump were a fiscal disaster. It has nothing to do with, with your trade deficit under Clinton, the last couple of years under Clinton, the US ran a surplus and trade deficit was very high. Why? We don't fund the trade deficit through government borrowing. We fund the trade, we fund, government borrowing is a phenomenon of government spending. And government is spending is out of control. It was out of control under Trump. And then it's out of control under Biden. It was out of control under Bush. It was out of control in the beginning of, you know, Obama's presidency is a little better towards the end. But the government is printing money and spending it like crazy. And yet in spite of all that, foreigners, smart foreigners still want to hold dollars. Because in spite of that, it's the US government is better or put it this way, not the US government. This economy is better than the alternatives. There is no such thing as somebody says Clinton ran a surplus after reading Social Security. Every government, every single government reads Social Security. Social Security is built as a way to read it. So Clinton didn't do anything that every other government has not done and didn't do in the past. It ran a surplus because, because the stock market went through the roof and they got massive tax revenue from capital gains. And because the 1994 Congress flipped to Republican, the House of Representatives and the House of Representatives refused to approve spending bills. They kind of deal with Clinton to really reduce spending. I mean, Clinton also passed welfare reform, which no Republican has done. So actually, Republican Congress and the Republican Congress and Clinton actually, pretty good, pretty good. All right, so that's one. Trade deficits don't matter. Government debt matters. It matters to the US economy. The US economy is in trouble long term because of the debt. The debt is partially responsible with the inflation we have right now. The debt is also a drag on the economy. It's one of the reasons that wages are not even higher. It's one of the reasons we're not investing even more in increased productivity. It's one of the reasons that economic growth is not dramatically higher. Government debt is the albatross around our neck dragging the US economy down. And one of the amazing things that one has to appreciate about the US economy is in spite of this massive government debt, the economy is still doing okay, not doing great. It's done okay. All right, Ron says, in unfunded liabilities, estimated anywhere between $150 to $300 trillion, the government promised. Absolutely. Consumer debt will get to. So let's take the unfunded liabilities. Yes, the United States government has anywhere between probably $100 and $200 trillion of unfunded liability in terms of the $30 trillion that they have explicitly on the books. Yes. And the long-term prospects for the United States are inflation and very little growth and ultimately much higher taxes and maybe ultimately default. The US government is going to go bankrupt at some point. I just don't think it's tomorrow. The US economy is doomed ultimately unless something changes dramatically. It's just not going to be tomorrow. I don't think. And the fact that it's going to happen does not eliminate the fact that right now life is pretty good economically because it is. Consumer debt is at all times high. It's not, not even close. It's actually in many respects at all time lows. So if you could look at consumer debt as a, just a number, yeah, it's at all time highs. But if you look at consumer debt as a percentage of consumers' income, then it's at all time lows, not all time lows, but it's in the last, I think since the graph I saw since 1980, it's lower than it's been since 1980. It's consumer debt is not the problem. Consumers are doing fine. So and corporate debt, yeah, but most of that corporate debt was issued at 0% interest rates. And corporations also, I believe, you can check this out, sitting on historical levels of cash. They've never been so cash rich. Certainly companies like Apple and they have Apple, for example, has a lot of debt and a lot of cash. If it had to, it could use the cash to pay off the debt. Corporate balance sheets. I mean, there are zombie corporations and I've talked about zombie corporations who are basically debt, but the good corporations, the successful corporations, the apples of the world, and there are a lot of them in the United States, actually have some of the healthiest balance sheets they've ever had. So there's a lot of rhetoric about consumer debt, not as a percentage of income. You can pull it up. I pulled it up this afternoon. I should have had it in front of me. Let's see. I can actually pull it up. Consumer debt percent of income. All right. Household debt service payments, which is how much do the households have to pay in order to service their debt? Like on a monthly basis. Let's show you this just because so you don't say, I make stuff up on the Iran book show. Let's see. There we go. I have to shrink the graph a little bit to fit. We'll shrink it. We'll go there. Shrink it a little bit more. And we'll go there. There you go. See? This is so 1980, approximately. Yeah, 1980. So you can see that consumer debt peaked. Again, this is household debt service payments. This is what matters. How much money do I have on a monthly basis to spend on servicing my debt? Now, this is because of the low interest rate environment, which is very good for borrowers. And to the extent that they had fixed payments, they could service the debt. Mortgages are fantastic. I have a mortgage of 3.78%. I know people who have mortgages at 2.5%. I mean, that's brilliant. And look, servicing costs peaked in 2006. 7. Right now, the close to their lows. Last year was the low. They're rising now because, and now rise more as interest rates increase. But my guess is a lot of consumers will pay off their debt. If I have a variable rate mortgage, I would pay it off or refinance it. But a lot of this is going to stay low because a lot of people took out mortgages that were fixed rate. 15 year, 30 year fixed rate mortgages. Under 3. Under 3. So what's the panic? So they have a large number. The number is big. But they can service us. They can pay it. This is a percentage of disposable personal income. Not even a percentage of income, disposable income. I think we're in great shape. I mean, I don't think we're in great shape because of the government debt number. I think the government debt number is the problem. But if we look at, let's see. I mean, corporate debt is high because they all took advantage of of low interest rates. But I don't think, I don't think there's any problem, right? There's any problem. But remember also corporate debt, the interest payments are tax deductible. So you have a huge incentive to take on debt as a corporation, take on as much debt as you can. All right, let's go. Asset bubbles have created huge gaps between rich and the middle class. Yeah, I mean, to some extent, that's true. But of course, the middle class has benefited enormously from asset bubbles. One of those asset bubbles arguably was a housing market. Almost all middle class Americans own their home. They made a lot of money. There's also you having the baby boomer generation starting to die off. There's going to be this massive transfer of wealth from the baby boomers to the kids. A lot of that is going to be in the form of real estate that has been indeed inflated. How much will it go down? I don't think it's going to go down a lot, because I think in addition to the monetary inflation, there's also a massive under supply of housing. So the housing prices will go down, but they're not going to go down a lot because there's a shortage of housing in the United States. I don't think the gap, I've talked about the gap many, many times. I don't think the gap is that big. Oh, the other way in which the middle class has benefited from asset bubbles is the middle class has its pension plans, has its savings in 401ks. They have it in the stock market. And they benefited as the stock market has gone up. Now the stock market's coming down now, so everybody's wealth is taking a significant hit. But this gap between rich and poor and rich and middle class is nonsense. You know, one of the most interesting statistics is the fact that the middle class is shrinking in the United States. Why? Because more and more of the middle class are becoming rich, not because they're getting poor. So the whole rhetoric about inequality and the rich getting richer at the back, it's just not true. I wrote a whole book about this. The average person can't buy a house without taking a mortgage. Yes, always. It's always been the case. We've always taken our mortgages to buy homes, at least since the 1940s and 50s. I mean, a mortgage is subsidized by the government, so there's a massive incentive to take it because it's really cheap. It's a way of consumption smoothing, which I am a huge fan of, and I think most Americans embrace. Why not take a mortgage? It's not to use mortgages to buy a house. And if I could get a 50-year mortgage, I would get a 50-year mortgage tomorrow, if the interest rate was right, right? I mean, the longer the mortgage, the better it is for the mortgage taker. The idea that mortgages are bad, that mortgage is a sign of poverty is the exact opposite again. Mortgage is a sign of financial flexibility. Mortgage is a sign that I can take on the debt. Again, you saw the debt servicing ratio is, I mean, it's easy for me to service my debt. And if the mortgage was 50 years, then it would be even easier. But that's a massive benefit because we know, for example, particularly when asset prices are going up, if you can use cheap leverage to buy asset prices as they are going up, you make a fortune. You actually make a massive return on your capital. So middle-class Americans who bought their home using mortgages at low interest rates, are making a killing. And how are they making a killing? I mean, it's exact opposite. Unfortunately, most of these things that we're talking about are exact opposite. All right, let's see. What else? Things that actually matter, like land housing, have gone up dramatically and that makes it hard for people to start a family on a broad scale. That is a frustration in the population. Yeah, I mean, costs have gone up. There's no question about that. It's not good. A lot of that is a consequence of regulation, of land regulation, of constraints and supply. A lot of it is regulation and employment. But at the end of the day, Americans, it seems like no matter what you do, about 63 percent of Americans own their home. They own their home. 63 Americans the rest don't. And you can artificially try to get that up to 70 percent and then you get a housing crisis, which is what happened in 2008, because you artificially did something. But the equilibrium rate of home ownership in the United States is around 63 percent. By the way, in Canada, it's exactly the same. It's about 63 percent. It hasn't gone down from that. People are not losing their homes. People are not being, I mean, the problem today with housing is there are not a lot of enough houses. That's what's driven up the cost of housing. Nothing else. Cost of living is going up. Rent is through the roof right now. Again, not enough housing. So I'm not saying everything's rosy, quite the contrary. I'm a huge critic of it here, right? I wish we had a free market. I wish the government would stop spending like crazy. I wish they would cut our taxes. I wish they cut the regulations. I wish they would do away with licensing laws. You know, people would be richer and wealthier, but to think that the U.S. has gone backwards over the last 30 years in terms of economic prosperity is not true. And it's just wrong. It's just wrong. People are upgrading their homes. They're not downgrading their homes. Houses have gotten bigger and bigger and bigger every decade. People do the right thing and save instead of taking loans obliterated by government-created inflation. True. True. Inflation is really, really bad. And the problem, but the problem with savings, interestingly enough, is not the inflation. The problem with saving is that the government held interest rates at zero artificially. And therefore, you couldn't save. But if you put the money in the stock market, you benefited from that. So the government is manipulating. It's screwing around. It's doing bad things. But there's nothing wrong with taking on mortgages. There's nothing wrong with taking on debt. I mean, debt gets a bad wrap. I'm a huge advocate for using debt smartly in your financial planning. Sure, health is much better because I became unbelievably expensive compared to the 1960s. Sure, but people have insurance. And insurance is expensive. But what is it? 92 percent of all Americans have health insurance. Only 8 percent are uninsured. Look at the price to stay at the hospitals. But nobody pays that price. Not a single American pays that price. And you're right. Health care system in the United States is horrible. It should be private. It was in many respects better as a system in the 1960s. But you're healthier. If you have insurance, you get the best treatment, the best healthcare treatment in the world. We still have insurance companies that are very good because they're over-regulated, over-controlled, and they're too expensive because of regulations. But again, to blow that out of proportion, most people, 92 percent of all Americans have insurance. And if you have insurance, you're doing fine. You don't pay for that night in the hospital. The insurance company does. So we have all electronics, planes, and better safer computer, smartphone, et cetera. That's a big deal. It's a big, big deal. You guys don't remember life without computers and smartphones. I do. So for someone rich who got the basic covered by standard of living, it's up dramatically. You know, the entire middle class, the entire working class, standard of living is up. I showed you their incomes. And inflation-adjusted dollars are up. Their pensions are up because they're invested in the stock market for 1Ks. They have, I don't know anybody who doesn't have a smartphone. It's not just rich people who have smartphones. And the fact is computers make poor people more productive, and therefore they're one of the reasons why wages rose. Average person is not, is struggling, sure, because of government policies and they shouldn't be struggling. I agree. But they were struggling in the 1970s. People forget what the 1970s were like. My argument is they're struggling less today. And their standard of living and quality of life is higher today than it was in the 1970s. They might still be, quote, struggling because they want all the goodies because they're consuming all the goodies. But they're not struggling more than they did in the 70s. Again, everybody forgets the 70s and how difficult things were in the 1970s where inflation was just as high and the economy was much, much, much worse than it is today. And they're not swimming in debt. It's just not true. Again, I showed you the graph. And we have to remember that all this is financed by cheap debt and by government inflating the currency supplies. Yes, government is screwing this up and government is the problem and we will have to pay the price for what the government has done. Because the U.S. hold the world with reserve currency. Why does it hold the world with reserve currency? Why? Why does the world use the dollar as a reserve currency? Because it is still true that the world, at least, you might not, but the world thinks that the U.S. economy is in the best position long term to justify the value of its currency. It's the most stable and it's the one that is most likely ultimately to be able to pay its debt, if you will, to live up to the value of the dollar. Now, we can disagree with the world on that, but you're taking a risk when you're disagreeing with a lot of smart people out there. And I agree with you that in the end, the unfunded liabilities, the increasing government spending and all of that, dollar was gold a long time ago. It's not gold anymore. It hasn't been gold since 1971. Since 1971, the world has been stupid. 50 years. 50 years, it's had an opportunity to shift to another currency. 50 years, it's had an opportunity to go on the gold standard. 50 years, it's had an opportunity to abandon the United States. But gold is losing purchasing power. Gold is not money in the world today. Nobody uses it as money. It's not even a hedge against inflation. It's not. It's, what's it, 1700? It's down as inflation has taken off. It's just not what it used to be. The world has abandoned gold as a hedge against inflation as money. So the world still holds the dollar as its reserve currency, and it values gold in terms of dollars. It trades gold in terms of dollars because they still believe. Now, I agree that ultimately that all has to end because ultimately the United States, if it continues on the path it's on, is going to go bankrupt. But it doesn't look like it's going to happen anytime soon, or at least markets are telling us that it's unlikely to happen anytime soon. And you know, what else is there but markets? Central banks are not holding gold. If central banks were holding gold, then what you would have is a massive decline in the supply of gold, and gold would go through the roof. The fact is that you have a very deep market in gold. There's a massive change in transactions going on in gold, and the price is going down, not up. Holding leads to shortages which leads to price increases. Yeah, I mean, I don't know why Germany asked for gold. Maybe they wanted to sell it. Maybe they, maybe they wanted to sell it. Who knows? But yeah, the stories all the time of central banks buying gold, but there are no stories about central banks selling gold. But they are and have been. And the fact is the world is not on a gold standard. The euro is not on a gold standard. It's been printing like crazy. The yuan, the Chinese currency is not on a gold standard. They're printing it like crazy. Maybe they moved it from New York to Germany because they wanted to sell it. It was easier to sell out of Germany. They didn't want the US tracking what they were doing with it. Who knows why the Germans wanted their gold back? They're still accepting dollars for BMWs. They're still accepting dollars from Mercedes-Benz. We're still importing a huge amount from Germany. Why do they take dollars if they don't want? They could dump the dollar. Of course, most central banks sell gold secretly. They never sell it publicly. There's no incentive for them to sell publicly because of what people would interpret it meaning. That's fine. Maybe central banks are holding gold. So what? It doesn't make one eye out of a difference. Even if they were holding gold, so you're suggesting to me that central banks really understand what's going on. But markets, investors don't. I don't buy that. I think central bankers and banks are the most ignorant in the world. So when you tell me that the wealthy in the world, the investors of the world, the hedge funds of the world, the smart money in the world is holding gold, that'll be interesting. But as far as I know, the smartest investors in the world have gold, like most of us have a certain percentage of our portfolio in gold, but they're not particularly aggressively buying it. Again, if they were, gold prices would go up. I expect consumer inflation to increase, to stay at a high level over the next few years. I do not expect hyperinflation, but I expect consumer inflation to be high. I don't expect the Fed to be willing to do what's necessary. And it's quite possible that out of the common spiral, we will ultimately get a kind of US bankruptcy. But I don't think that's necessarily the case. And it's completely predictable. All right, guys. The Fed is screwed. And I expect many, many years, as I've expected before, I expect many years of economic stagnation. But I expect the rest of the world to do worse than the US, with exception maybe of the UK, but I expect Europe and China and much of the rest of the world to do worse than the US. I think corporations are going to do fine. I don't think, I think the zombie companies, and there are a few out there, the zombie companies will fold and they'll go out of business. But most US businesses will do fine as interest rates go up because I don't think most US businesses rely on debt to run their businesses. And they can cope with higher interest rates. What they can't cope with is what the businesses that can't cope will go bankrupt. And you will see rising bankruptcies. And I think that's healthy and that's good. It's what should have happened during COVID. It's what should have happened in 0809. The Fed has constantly bailed out zombie companies. It's time zombie companies went out of business. But most US businesses are incredibly profitable and can handle significantly higher interest rates. But like always, like all of my predictions, I plan to be here in the next few years and run, you can come back and tell me I was full of it, or you can come back and tell me I was right. We will see. We will see. Thank you for listening or watching The Iran Book Show. If you'd like to support the show, we make it as easy as possible for you to trade with me. You get value from listening. You get value from watching. Show your appreciation. 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