Boom, Bust, and the Cost of Politicized Policy

Something big is happening in Washington right now, and it has the potential to reshape everything you and I do as investors.

A few weeks ago, the Trump administration attempted to remove Fed Governor Lisa Cook, only to have an appeals court block the move on legal grounds. 

At almost the same time, Stephen Miran—one of Trump’s economic advisers—was confirmed by the Senate to the Fed’s Board of Governors by a razor-thin margin. 

On one side, an attempted subtraction. On the other, a confirmed addition. All of this is happening right before a major policy meeting, and it’s not hard to see the writing on the wall.

Trump’s takeover of the Fed is not a question of if—it’s a question of when. Whether it unfolds in a matter of weeks or drags out over the next few months, the direction is set and the outcome is inevitable. 

The endgame is to bring interest rates down and, if necessary, use quantitative easing to drive bond yields even lower. That kind of policy would flood the system with liquidity, and the immediate effect would be a booming economy. Asset prices would rip higher—stocks, real estate, gold, Bitcoin—you name it. If you own assets, you’d feel wealthier almost overnight.

But of course, there’s another side to this coin. A dollar that weakens under the weight of easy money. A gap between the asset-rich and the asset-poor that grows even wider. Rising inequality, rising tensions, and perhaps a long-term cost to the credibility of the U.S. financial system.

So is this takeover of the Fed a good thing? That depends entirely on where you sit. If you’re a wage earner with no meaningful assets, it’s bad news. If you’re an investor, it’s a reminder that ignoring policy shifts like this is done at your own peril. 

The time to prepare is now, not later. Don’t wait for rates to drop before acting. History shows that buying assets in a descending rate environment has been one of the most powerful wealth-creation maneuvers in the United States. 

Think back to 2008. The Fed responded to the financial crisis with unprecedented rate cuts and waves of quantitative easing. What followed was more than a decade of explosive gains in stocks, real estate, and other assets. 

Those who bought while rates were falling built extraordinary wealth. Those who stood on the sidelines missed out.

But don’t take my word. Listen to noted economist Richard Duncan explain the dynamics of this situation in this week’s episode of Wealth Forula Podcast. 

Learn more about Richard Duncan:

richardduncaneconomics.com

Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at phil@wealthformula.com.

By devaluing the dollar by 50% against the end of the mark by 1990, the trade deficit that had come back into balance.

Welcome everybody. This is Buck Joffrey with the Wealth Formula Podcast. Coming to you from Montecito, California. Uh, today before I begin, just a reminder. Go to wealth formula.com. If you haven’t done so and you are an accredited investor, join the Accredited Investor club. Lots of things coming in there in Q4.

Lots of tax mitigation, strategy related investments, that kind of thing take advantage a hundred percent. Bonus depreciation, take advantage of discounted assets and so on. So again, wealth formula.com. Now, uh, let’s talk about today’s show. Interesting one. Um, it’s with, uh, Richard Duncan again. Uh, and, uh, he’s an interesting guy, uh, and I wanted to talk to him because something big is happening in Washington right now, as you know, and it has the potential to reshape everything you and I do as investors.

As you may know, and as I am sure you probably know, a few, a few weeks ago, Trump administration attempted to remove, uh, fed Governor Lisa Cook, only to have appeals. Courts block, uh, and, uh, uh, move block the move on legal grounds. And at almost the same time, Stephen Moran, one of Trump’s economic advisors, was confirmed by the Senate to the Fed’s Board of Governors, uh, and uh, on one side and attempted a subtraction on the other, a confirmed edition.

All of this is happening right before a major policy meeting, which by the time you hear this is going to be. Uh, concluded, which is the, uh, announcement of either a 25 or 50, uh, basis. Point cut. Uh, you tell me because I’m doing this right before that meeting, uh, Trump’s takeover of Fed is, you know, really not a question of if it’s a question of when and how, and.

Whether it unfolds in a matter of weeks or drags out over the few months, uh, the direction is set and the outcome really, in my view, is inevitable. Right? The end game. What is the end game? The end game is to bring interest rates down and if necessary, use quantitative easing to drive bond yields down as well.

And that kind of policy. What would happen? It would basically flood the system with liquidity and immediate effect would be booming. To the economy, right? Asset prices would rip higher stocks, real estate, gold, Bitcoin, you name it. If you own assets, you will feel wealthier overnight. But of course, there’s another side of this coin.

Uh, you know, a dollar that weakens under the weight of easy money, a gap between the asset rich and the asset poor that grows even wider rising inequality, rising tensions, and perhaps the long-term cost of credibility of the US financial system. So the question is. You know what, this whole takeover thing, it sounds, you know, uh, it sounds sneaky, it sounds bad, and especially on the, if you listen to mainstream television, but is it such a bad thing, the takeover of, of the Fed?

That depends entirely where you sit. If you’re a wage earner with no meaningful assets, if you’re poor, it’s bad news. If you’re an investor, it’s a reminder that ignoring policy shifts like this is done at your own peril because the time to prepare is now. Don’t wait for rates to drop before acting.

History shows that buying assets in a descending rate environment has one of the most powerful wealth creation maneuvers in the history of the United States. All you have to do is look back in 2008, the Fed responded to the financial crisis with unprecedented rate, cuts and waves of quantitative easing.

And what followed was more than a decade of explosive gains in stocks, real estate, and other assets, which basically just ended. I mean, gosh, right? So those who bought while rates were falling, built extraordinary wealth, and those who stood on the sidelines missed out. And that is playing out in real time again, in my opinion.

But don’t take my words for it. Listen to Richard Duncan. Uh, he is clearly not a pro. If you’ve listened to him in the past, he calls balls and strikes, and if anything, he’s been sort of not on board with the Trump administration, the plan, but listen to what he has to say about this. We’ll have that interview right after these messages.

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He’s been on the show, uh, several times before. He is an economist, an author known for his work on the global financial system and credit dynamics. He’s the creator of Macro Watch, which is an online video newsletter analyzing economic developments and the author of several influential books, including The Dollar Crisis, the Corruption of Capitalism, and The New Depression.

Uh, how you doing there? Uh, Richard. Great buck. Thanks for having me back on. Yeah. Nice to talk to you. You’re in, uh, Thailand, right? That’s right, that’s right. Well, good to, good to uh, uh, connect. It’s a sort of an unusual time. I think my time here is now 6:00 PM and, uh, it’s what, eight 8:00 AM your time. Uh, so it’s, it’s, it’s interesting how, uh, the business ever gets done between those two countries.

But, um, anyway, um. It’s hard during this podcast with the strange hours between gear and there. Yeah, yeah, yeah. Absolutely. Well, let’s talk about some of the things that you’ve been talking about. Uh, first topic, I think, um, that you’ve been sort of, uh, talking about is Will Trump and the Fed. And, um, so you have a video where you asked that question and you say that the, the Fed independence could become, uh, be coming to an end.

Tell us what that really means. Tell us what the background is here. Well, yes. Let me do again with the background. Yeah, because we really are living in extraordinary times as far as developments in the US and the global economy go. President Trump is very serious about remaking the American economy.

When he says, make America great again, he means it. And his plan to do that is to re industrialize the United States and to do that, he has a strategy. There’s a very clear plan. In fact, this plan is laid out very clearly in a paper published by Steven Moran, who is the chairman of the Council of Economic Advisors, and who has just become the next Fed governor.

He’s now a fed governor appointed by, uh, nominated by Trump and approved by the Senate. So in this paper by Stephen Moran, he lays out a, a three step strategy on what Trump. In tends to do what Trump should do, uh, regarding tariffs. And this paper was published in November last year. So the three step strategy is first put very high tariffs on all the United States trading partners.

Second, threaten all of those trading partners, if they retaliate, threaten them, that the United States will no longer defend them militarily. And then the third step is to then convene a meeting of these intimidated allies. And pressure them into devaluing the dollar. Something like we saw at the Plaza Accord.

This would be called the Mar-a-Lago Accord. So, so actually that’s what’s been happening. This has been a very clear blueprint as to what’s going on. We put on the very high tariff step one, we’ve threatened to remove our military protection. If anybody retaliates, that’s step two. Both those things are done, and so now they’re probably working on step three, which is devaluing the dollar.

Hey, hey, can I interrupt you, Richard? In order to devalue the dollar though, isn’t that, isn’t that as much just, um, I, I, I don’t know what, uh, the other nations would. They just relative to ours, they can just go in and step and devalue the dollar, or, I mean, are, don’t, the markets sort of dictate that the markets play a role and we’ll come to that in a moment, but yeah.

In the Plaza Accord. In 1985, the US got Japan and Germany to agree to devalue to allow their currencies to appreciate by about 50% against the dollar. The dollar was devalued by 50% against the yid and the mark in order to try to bring the trade deficit back in the balance. By 1985, the trade deficit was running out of control for the first time.

This worked when by devaluing the dollar by 50% against the end of the mark by 1990, the trade deficits that had come back into balance. And these were more or less brought about by government intervention rather than market forces. Yeah, it’s, um, yeah, I guess the, the mechanics maybe beyond the, the scope of what we’re talking about, but, um, I was just curious on, on how that works.

So, yeah, so what Trump wants to do is to, as I said, re industrialize the United States, but deal. As part of that, he wants to bring down the US trade deficit, bring the trade deficit back into balance, and here is where things become very dangerous. Trade between countries had to balance where the world was on a gold standard, or even the Brett Wood system because under a gold standard, if the country had a big trade deficit with another country, it’d had to pay for that deficit by shipping its gold to the other country.

And gold was money. So if we just stay in that country would run out of gold and stop. They would have to stop buying things from other countries and trade would come back into balance. So as long as the Britain Woods system was in place, the US didn’t have a trade deficit. But soon after Britain Woods broke down in 1971, by the early 1980s, the United States started running a very large trade deficit with other countries with the rest of the world.

And in fact, this trade deficit became so large last year, it was $1.2 trillion. This became the driver of global economic growth. It created a global economic revolution. It ushered in the age of globalization. It allowed the trade surplus countries like China to grow into a superpower. And altogether the, the cumulative US trade deficit since 1980 has been about $17 trillion.

So that’s found $17 trillion off into the global economy who created very rapid global economic growth. And it’s also supported US economic growth because. By buying things from other countries with very low wages like China and Vietnam and now and Bangladesh, that’s very disinflationary. So that drove down inflation rates from the double digits in the early 1980s to very low levels before COVID struck.

And that allowed us interest rates to follow the very low levels, very low interest rates, helped the US economy. In numerous ways, and it also pushed low interest rates, allow asset prices to rise, home prices and stock prices. So that helped the US economy. Low interest rates helped the US economy, and at the same time, the countries with the trade surpluses who were accumulating dollars had to invest those dollars back into the US dollar denominated assets because when they sell things in the US they’re paid in dollars.

They take the dollars back to China or wherever they came from. They’ve gotta do something with the dollars. And what they do with them is they buy treasury bonds or they invest them in the US stock market. And so this massive inflow of foreign capital was the direct result of the trade deficit and the capital inflow pushed up bond prices and that drove down interest rates.

It also pushed up the stock market and created more and more wealth. So now the problem is we have a. Big global economic bubble that has resulted from these trade deficits. You have a big credit bubble around the world. If you bring the US trade deficit back into balance, it’s going to cut off the fuel that has allowed that bubble to form the dollars going off into the world economy as a result of the US trade deficit are the bubble fuel.

If you head off the trade deficit. Dollars stopped going overseas and they also, the capital inflows stopped coming back into the us. So you get in a situation where without the capital inflows in the us, that would mean less foreign buying of US government bonds. So less upward pressure on US bond prices, and that would mean less downward pressure.

Government bond yields. Let me interrupt you again, uh, Richard. Just ’cause um, you know, I think some people, like, you know, we, we get in these conversations and sometimes there’s some basic questions people have and, and one of them, the way you describe the trade deficit when I’m listening to that, it’s like the, the thing that comes to my mind is why do we care if we had a trade deficit, if we were benefiting from it in the first place?

Well, that’s a question for you to pose to President Trump. Well, so the, the idea, his idea then, is it not that the, the issue with the trade, the trade deficit is it’s, it’s, it’s basically robbed us of manufacturing. That’s the main, is that the main driver from President Trump? Yes. And that is, and he is right to point that out.

That is the reason that US manufacturing has been hollowed out since the 1980s. This is left behind the American middle class whose relative wellbeing has stagnated since that time. And those are the people that for President Trump, many of the people who support Trump and President Trump has said he’s going to in this de-industrialization of the United States and re industrialize the United States by putting a place very high tariffs.

So what do you see happening here? Um. Moran gets in there. Okay. Obviously that’s not control of the Fed, but I think one of the, the, another video that you had talked about, the Fed’s final days. So talk a little bit about that, if you would, because, uh, the reason it’s so important for President Trump to take over control of the Fed, which he’s on the verge of doing, is because his policies are are very inflationary.

I putting up high tariffs on all of the goods being imported in the United States. This is going to cause the inflation rate to move higher. And by trying to re industrialize the United States, that will mean more factories will be built in the US or more Americans will be working in those factories.

And this is happening at a time when the administration is also deporting very large numbers of people. So the, we have a labor shortage to start with. In the US the unemployment rate is only 4.3%, which is very near historic loads. So if you do these things in combination, it’s very likely to, the tariff will create the first round effect higher goods prices, and then when you begin re industrializing the country.

So that will create a second round effect of higher wages and higher prices, and this is going to push up the inflation rate. And at the same time, if you’ve had less capital inflow coming in from abroad, that’s also going to put upward pressure on bond prices, making it more difficult to finance The government bonds, low interest rates because there’ll be less foreign capital coming in.

So it’s very important for him to take control over monetary policy. Because if the inflation rate starts to move higher, continues to move high, the low is 2.3%. In April, the fed’s target is 2%, and last month it moved up to 2.9%. So it’s moving higher now and it’s likely continuing moving considerably higher, in my opinion.

Normally, when the inflation rate is moving higher, fed with high, the federal funds rate and push interest rates, higher policy rates. President Trump doesn’t want the interest rates to go higher. In fact, he’s been very clear that he wants interest rates to go much lower. The federal funds rate is currently about 4.33%.

He said he’d like for the federal funds rate to be much closer to 1%. So if he takes control over Federal reserve policy, monetary policy, you can have the Ford FOMC. Vote for considerably lower interest rates on the federal funds rate. And he is very close now to taking over control of the Federal Reserve.

So far, Richard, and, and maybe this just is a function of time, um, inflation ticked up a little bit. It didn’t be seem to be that dramatic ’cause. It’s simply because in your view, tariffs have not been in place long enough. Yes, I think that’s right. The tariffs have not been in place long enough. The many companies stocked up on inventories when they knew that higher tariffs would soon be in place, and they’d been buying down those inventories, but now the inventories are running out and they’re going to either have to choose between taking a hit to their profits and presumably therefore also to their share prices or passing on the higher cost of the imports to.

Consumers and at higher prices and higher inflation, and similarly bond, the bond markets actually have, you know, uh, the bond, the, the tenure’s gone down. Um, talk about what’s going on right now with the bond markets compared to what you think’s going to happen. So this is interesting because last year, the federal funds rate three times in September, November, December.

But from the time the Fed started cutting, the 10 year bond yield has actually moved higher. It’s still higher now than it was in September last year. The 10 year bond yield has been moving lower over the last couple of weeks ago. I think in anticipation, one of the fact that the Fed is now expected to cut the federal funds rate at its FOMC meeting on September 17th, I had 25 basis points.

Also by the realization that once President Trump does have complete control over the fed over US monetary policy, if he’s going to cut, he’s going to instruct the Fed to cut interest rates radically. Right. But, but how does that affect, I mean, how does that affect the bond markets, which you know, are not really under the control of Fed?

Uh, because, I mean, you know what? I was talking, I was referring to something that, that happened recently. Obviously what you were talking about with the fed, uh, fed funds rate going down, the bond market’s going up and, you know, for, for, for regular everyday business people and stuff, a lot of, a lot of the, uh, interest rate that we, that we pay is mortgages, for example, are based on the bond market more than they’re the Fed rate.

So that, that’s a problem. But this time around with the anticipation of the Fed rate being cut. The bond markets actually went down too simultaneously. And maybe because of, maybe because of the fact, this fact, but there was a significant, uh, adjustment to the labor market, uh, to the jobs market news. I think they basically showed in the last few months there was almost, what, almost, almost a million jobs, less than they, they thought I, is that the reason, do you think that the bond market reacted the way it did?

Yes, I do think that is part of the reason why the bond yields are moving lower because of the downward revisions to the J numbers. But before I really answer your question fully, let me explain what is going on with, in terms of the President gaining control over the Federal Reserve. So the Federal Reserve is made up of a Board of Governors, seven governors based in Washington, DC.

And it’s also made up of 12 regional banks. Each regional bank has a president, so they’re 12 presidents of the Federal Reserve Regional Banks. Uh, eight times a year. The Federal Open Market Committee meets to vote on interest rates and also on the size of the Fed’s balance sheet. In other words, quantitative easing or quantitative tightening.

Now, here’s the thing. The seven governors always get to vote at every FOMC meeting, but only five of the regional presidents get to vote at this meeting. So there are 12 votes in total. Five presidents. Of the seven governors. The rules are if there are four Fed governors out of seven, a simple majority, four out of seven, and most Fed governors have the power to fire.

Any or all of their Federal Reserve bank presidents, and they also then have the right to approve the replacements of those then presidents. So what this means is if President Trump can appoint four of the seven Fed Governors, or if he has influence, if they are on his side and do what he wants them to do, then he can.

In theory, fire all the Fed Federal Reserve bank presidents and appoint new ones. And the new ones, they would have five votes on the FOMC at every meeting along with the four governors that support him. So that would give them a nine to three vote in every FOMC meeting. Does he have that kind of, uh, I, I guess I I, in terms of the governors that are on there right now, does he, do we know if they’re generally pro-Trump agenda right now?

I mean, ’cause obviously you’re gonna take, they, it would require them to, to make that maneuver against the presidents. Right? Right. And we do know precisely the most recent meeting, Christopher Waller dissented and also Michelle Bowman dissented. Both of those people are interested in replacing Chairman Howe as chairman of the Federal Reserve when his term expires in May, and they are, we can say on Team Trump, they, so they, the Fed voted to hold interest rates steady, that they dissent it.

They voted to cut the interest rates in Lyme of what President Trump wants to happen. Now more very recently, the President Trump just nominated and the Senate approved. Stephen Moran to be the third Fed governor. So that’s three votes for team Trump and President Trump. Last month fired Lisa Cook and claiming that he was firing her for cause because of fraudulent mortgage applications.

Therefore, if he succeeds in firing her, then he will replace her and with a fourth fed governor, and then he will have four out of seven. Fed governors on Team Trump, and they would then have the right to fire all the federal reserve night presidents or any dare to disagree with Trump’s policy. So once he has four governors on the board, which will happen as soon as he can get rid of Lisa Trump, and he will have complete control over monetary policy.

Now, the reason they said that, bringing this conversation now back to your question about the bond market and bond yields normally. If the Fed were to cut interest rates sharply as the president wants at a time when inflation is moving higher as it is now, and as expected to continue to do this, would cause investors in the bond market to come up very alarmed because they would expect that much lower interest rates, but overheat the US economy and lead to even higher rates of inflation very quickly so they wouldn’t be willing to buy.

US government bonds at current yields because they would expect higher rates of inflation. They would demand higher interest rates on government bonds, and just for example, no one would want to buy a 10 year government bond yielding 4% if the inflation rate is 5%, something more like 7% yield. So here’s why it’s so important for the President Trump to get control over the Fed and over monetary policy.

’cause if he’s first, he wants them to slash the short term interest rates to much lower levels. That would tend to be inflationary and that would tend to push up bond yields. But when the bond yields start to rise, if the president has control over monetary policy, then he can instruct the Fed to launch another round of quantitative easing.

Right. So basically buying up the bond market and driving those, uh, interest rate, ultimately the, the yields down. That’s right. There’s no limit as to how much money that Fed can create so that if instructed to do so by the president, the Fed could begin creating dollars and using those dollars to buy government bonds.

And they could do this until the bond prices rise and the bond yields fall to any level the President desires. And I think this is the scenario that will ultimately play out here. Once President Trump asked all over this, so going back to the, the paper that Moran wrote, okay, so that effectively, that’s kind of the plan, right?

So you bring down the fed rate, uh, by getting control, you do quantitative easing to bring down, uh, bond yields, and that creates a recipe for significant growth because of low interest rates. Business, real estate across the board. So then the theory I, I presume on the, on the Trump side is we do that, we grow at an enormous rate and to hell with inflation at that point.

’cause we’re gonna be growing so fast. Is that kind of the theory then that, that, that you think that they have, uh, on, on the Trump side? I think so, and yes, the inflationary could certainly move significantly higher, but it’s not certain that the government would actually report the actual true inflation numbers because after all, the president has recently fired the, the head of the Bureau of Labor Statistics because he was unhappy with the job numbers that she released a couple months ago.

And so. Government employees are gonna be very reluctant to report any job, any inflation numbers that the present president wouldn’t approve of. So it’s not sure that the government would be reporting the true inflation numbers, but this scenario that we just outlined would create, create an extraordinary economic boom in the us and the much lower interest rates in the quantitative easing would also drive up asset prices, create a stock market.

Boom, make home prices go much higher. All the asset classes gold. Cryptos, everything would move except, and, and, and the dollar would, the dollar would weaken significantly. The dollar would crash. That’s right. And that goes back to the part of the Moran paper you cited where he was talking about essentially, um, you know, even more devaluing it relative to various currencies.

That’s right. This Moran paper had two main parts. Chapter three was about tariffs and the tariff strategy. Chapter four was titled Currencies, and it discussed various strategies to devalue the dollar. One was part of the tariff strategy. We’ve already discussed forcing our partners into a Mar-a-Lago accord and agreeing to a lower dollar.

But he also discussed unilateral approaches to devaluing the dollar. For instance, he said that the Fed could create money and buy foreign currencies. Accumulate foreign currencies and push up the value of the foreign currencies and thereby drive down the value of the dollar. This is essentially what other countries have been doing to the United States for decades, buying up dollars and accumulating foreign exchange reserves and pushing up the value of the dollar.

So this would turn the tables on them. This one approach. He also suggested the United States could impose a, a tax or a user fee on the treasury holdings. Foreign central banks. So rather than pending foreign central banks’ interest on US government bonds, as is their right, he proposed withholding some of that interest was a tax in order to encourage them to sell their treasury bonds and to reduce their dollar holdings, which would drive down the value of the dollar.

So, and he discussed the importance of the correct sequence, tariffs first, and then the currency devaluation second. Because the tariffs give the United States leverage over its trading partners. So we’ve had the tariffs. Now it looks like the dollar devaluation is the next phase. So the net result of this, from what I can tell, would be ultimately, you know, significant, uh, a significant asset bubble, right?

Like significant growth in asset prices. So. Those benefiting would be people who already owned assets. Those, um, you know, you, you have an increase in disparity wealth. Tell, tell me, tell me the big problems that you see with this. Um, you know, with this happening with this, if they get what they want, obviously they think it’s the right thing for the United States.

They think it’s what’s gonna make. America great. Again, my sense is that you don’t believe that. So tell me why many things would happen. The wealthy would become wealthier, but I think the average Americans would also benefit from higher wages. As the reindustrialization of the country takes place, they would receive higher wages and the country would be significantly re industrialized, which would be a very good thing.

We can’t depend on other countries, especially potential. In the, in the next war for our steel and to build our ships and for pharmaceuticals and all the other things, we need much less computer chips. So I think the reindustrialization in the United States is a very good idea. I think it would benefit all Americans.

Of course, the rich always benefit most in in every environment, unless it involves much higher taxes on the rich, but that’s not on the cart. So I think the Reindustrialization would be a good thing. Now the problem is, is that this would probably create such a big economic boom that would last for several years, but ultimately this boom slash credit bubble slash asset price bubble, every boom ultimately pops.

And then few down years down the road, we would probably have a new systemic financial sector crisis. The leverage would become extremely high ultimately. The US private sector would run into difficulties as it did in 2008, and it was unable to repay its mortgage obligations, and then the banks would begin to fail and cascade into a new systemic financial sector crisis.

So that’s the threat that we get a big boom and then we get a big bust that there is hope that. There is a way to avoid that, and that’s one other element of this strategy that we haven’t really discussed or hit on yet. Now, once the President gains complete control over the Fed and complete control over monetary policy and begins using quantitative easing to push down bond yields, it won’t take him very long to realize that he can also use the fed and money creation to fund his US Sovereign Wealth Fund.

As you know, president Trump created a US Sovereign Wealth Fund in February, uh, through an executive order and having the Fed create money and use it. But money to invest in new industries and new technologies on a very aggressive scale should actually induce a technological revolution in the United States that would create a, a productivity miracle and turbocharge US economic growth.

Actually restructuring the economy. If he had his US Sovereign Wealth Fund financed by the Fed on say, a trillion dollar or multi-trillion dollar scale over the coming years, then the US Sovereign Wealth Fund could do things like invest in artificial intelligence, but not only that, in developing energy capacity so that the energy is available to, for the data centers that are necessary to run the ai.

He could invest in things like developing fusion, which could ultimately, in the not too distant future, lead to much lower energy cost and invest in things like quantitative robotics, vedic engineering, biotech nanotech. And by investing in these new industries on an aggressive enough scale, it could create a long lasting economic move fueled by a new technological revolution.

And that can actually see us far a decade or two into the future if cherry down on an aggressive enough scale. So we’re looking at an additional move into state directed capitalism, which we see Trump pursue already through a number of ways, creating the US Sovereign Wealth Fund, taking a 10% equity in Intel, getting other countries to.

Agreed to give the United States money for President Trump to invest in any way he see fit, taking a golden share in the US Steel. All of those areas are clear examples that the president is interested in state directed capitalism. And if done right, this could actually be a very good thing for the United States.

This is what China has been doing for a very long time, and China’s been so successful at it. They are now a very serious threat to US national security. China is a technological superpower, and China is investing through their government war in new industries and technologies in the United States is, and we’re now neck and neck in that race for AI dominance.

Whoever develops artificial general intelligence first or super intelligence is likely to end up ruling the world. And there’s a real chance that’s going to be China. Therefore, we need to take extraordinary measures to make sure that that doesn’t happen. And this is an opportunity for us to do that.

And I believe President Trump may very well take advantage of this opportunity. It seems, this seems to be the direction that we are going. I believe that would be a good thing. All of this sounds very positive to me. Uh, what’s a downside here? I mean, you mentioned, you know, an asset bubble. Ultimately that corrects, but I mean that happens in cycles where there’s booms and busts.

I mean, what should be we be concerned about in this scenario other than a significant loss of the val? Value of the dollar? Of course, there are always many things to worry about. One is increasing income inequality. It won’t be long now before the United States has trillionaires, and we’ve already seen the political power.

That people with hundred, 200, 300, $400 billion can bring to bear on elections if we have even at where we are now. It undermines democracy and creates an oligo, oligopoly, oligarchy, and that is not good for democracy. And this would lead to even greater income inequality for for London. Also, the unprecedented aggressiveness of President Trump’s.

Maneuvers are also consolidating power in the office of president in ways that we’d never seen before that could set precedents, that establish a trend that lead to even greater consolidation of power under the executive branch in years ahead, in ways that might turn out to be very undesirable historically.

Richard, are there examples? Where Central banks have lost their independence, and you know, what we’ve seen happen in those situations. The United States had a central bank before the Fed, and it was ended all together by Andrew Jackson, I believe, in the mid 1830s. In between the mid 1930s and 1913 when the Fed arenas was created, there was no central bank and at that time, the Treasury Department.

Carried out many of the functions that the Fed now carries out. For instance, during the Civil War, and again in the 19, in the 1890s, the Treasury Department created money on large scale and used it to fight the Civil War and for other purposes in the 1890s. So that’s one example of, you could say Auto Atlantic Central Bank, losing independence, but it was destroyed, all gathered and replaced by the Treasury Department.

So, um. From a practical standpoint, fed loses its independence and the net result of what you have kind of laid out for us, ultimately being sort of devaluing of the dollar. It seems to me that when investors, if they believe that to be true, the best way to protect themselves is to own assets. Is that fair?

But yes, that’s fair. That’s right. They can own assets or they can. Sell their dollars and buy yen or buy euros. That’s another way to protect themselves. That is the purest play. If you try to become very clever, then things become quite complicated. If you expect a short dollar devaluation against the yen and the Euro, the purest way of play that is to buy the yen and the Euro.

I don’t think I’ve seen you necessarily talk about this. Um. This other issue that’s been on my mind is that, you know, in terms of artificial intelligence, you’ve, you’ve talked about sort of the, you know, that this is fundamentally gonna change the world. Whoever controls AI, controls the world. One of the things about AI is that it is almost certainly a deflationary technology.

How much, uh, where does that play a role in, in the economy? How do you, how do you think that’s gonna. Come together the next five years. Well, we’re certainly right that it would be deflationary over the longer run, but it may be inflationary in the short run in terms of driving up energy choices. For instance, the big tech companies now are investing so much in data centers.

I believe I’ve read not long ago that four or five largest US tech companies are investing. Close to $400 billion next year in ai, according to their announcements. That’s more than the European Union spends on its military in total. That just puts this into perspective, and what they require is energy, new energy sources.

The United States doesn’t have enough energy capacity currently to allow these debit data centers to give all of the energy that they need, so we’re likely to see. Energy prices, electricity prices bit higher. We’re also likely to see a great deal of construction, of new types of energy production. Both those things, along with the investment into AI by these big companies, could all push high prices higher.

The near term, and China, for example, has been very clever since 2000. In 2000, the US had about three times as much electricity generating capacity as China does. China has expanded its electricity capacity by eight times since then, and it now has two and a half times as much electricity generating capacity as the United States does.

And according to all reports, they’re developing new nuclear facilities, nuclear power plants very aggressively, whereas the United States has not done that for decades. So we’re really behind the curve in terms of having the. Electricity generating capacity that we need to compete with China and that’s going to have to be ramped up or we’re going to lose this AI war.

And that’s going to put upward pressure on a lot of different choices. You know, you talk a lot about tracking credit. Uh, that’s a big part of the way you see the, uh, financial world. So what are some of the key signals you’re watching right now that could show us where this is headed? I always watch the total credit of the us.

You can say total credit is the flip side of total debt. One person’s credit is another person’s debt. So the easiest way to measure total credit is by measuring total debt. The data is more available, and this means the debt not only of the US government, but also the US households and corporations, Annie Mae and Freddie Mac, and the financial sector.

So the the total credit number. First went through $1 trillion in 1960, not 64, and now it’s something like $150 trillion approaching. I’m sorry, I haven’t looked at the number recently, but it’s just absolutely exploded. Well, sorry. It’s much closer to a hundred trillion dollars last year, so now it’s about $105 trillion moving toward 10 trillion.

So it’s been this critic growth that exploded once dollars ceased to be backed by gold that unleashed the amount of credit that could be created in the US and with the world. And this credit explosion has has fueled economic growth globally. I always say that capitalism, which was driven by saving and investment, has been replaced by what I call creditism.

Our current economic system is driven by credit creation. Consumption. So credit growth is absolutely essential Economic growth, and this explosion of credit is the reason that the world looks the way it does. Now, when I look out my window here in Bangkok, I can see hundreds of skyscrapers that were not there 20 years ago.

And these are the direct result of this new economic system that’s involved an explosion of credit globally, and that’s created an enormous wealth boom. Most recent data for wealth in the United States showed that the total wealth in the United States household wealth, so this is all of the assets of all of the Americans, minus all of their debts.

It increased by $9 trillion during the second quarter alone, and it’s currently, the total number now is $176 trillion of wealth in the United States, $60 trillion. In the last five and half years, it’s up 50% in the last five and a half years. Lemme repeat that. It’s up $59 trillion. Total US government debt is 35, let’s say 35, 30 $7 trillion depending on how you count it, but this is practically enough to pay off all the US government debt twice over.

This is the creation of wealth in just the last five and a half years. So there’s an explosion of wealth. The problem here is that if you compare the level of wealth to the level of income, that gives you a ratio, the wealth to income ratio. So this is household sector wealth, which is now $176 trillion.

If you could compare that to disposable personal income, this ratio is now something like seven 80%, which is much higher than it’s ever been before. The average going back to 1950 has been. Five 80%. Now it’s seven 80%. The only other times it’s become significant. The above its long-term average was during the.com bubble in 2000 and during the property bubble in 2008.

Then it got up to somewhere roughly around 650. So now this wealth to income ratio is way out of line already suggesting that. The problem with this is if income is not high enough. It’s very difficult to support the higher wealth levels ’cause people need to have income in order to be able to pay the interest on their mortgages.

For instance, if home prices are extremely high and income is in rising, but income is flat, it doesn’t take long before people no longer have enough income to be capable of tying the interest on their mortgage debt. And then attend policy correction. Is that, is that a marker of, of, uh, income disparity as well?

Because you’re, you’re measuring the full wealth of the United States versus the, I guess, the average income, right? Or not average, but the income. So, so, so a higher ratio would indicate a higher dis, uh, wealth dis or, um, income disparity. Is that That’s right. And that’s another, that’s another narrative about great income inequality because.

Wealth is more equally sprint and more people have moral income to be able to buy assets and buy them on an affordable and sustainable way. Anything else that you think we ought to know right now about what’s going on with this particular topic? No, I think that’s the big picture. This is truly revolutionary because what we’re talking about is changing the way that the global economy works.

The main driver of the global economy has been the US trade deficit. Now the objective of the tropical administration is to eliminate that trade deficit and to re industrialize the United States. This is a very big experiment and to make this work, the president is pulling out all the stops to take over control over the Fed and US monetary policy.

And if he does, then perhaps he can pull this off in terms of. Using the Fed to invest in the US Sovereign Wealth Fund and stimulating US economic growth, creating a technological revolution, a long lasting economic prosperity. But it’s a very big experiment. There’s real risk, but this global bubble that has developed under criticism could implode with the catastrophic conses.

Yeah. Richard, uh, it’s been a pleasure as always. The, the, um, newsletter, the video newsletter that you do is called Macro Watch. Can you tell us a little bit about that? Yes, thanks. I started Macro Watch 12 years ago. Every couple of weeks I upload a new video discussing something important happening in the global economy, such as we’ve been discussing today, and how less likely to impact asset prices.

These videos tend to be 20 or 30 minutes long and contain 30 to 15 charts that can be downloaded. So if, if your listeners are interested. They can find Macro Watch on my website, which is Richard Duncan economics.com. That’s Richard Duncan economics.com and I’d like to offer them a discount code that will give them a 50% discount.

If they would like to subscribe to Macro Watch, it’s a go to the website and hit the subscribe button. They’ll be prompted to put in a discount coupon code if they’ll use the code formula, they can subscribe at a 50% discount. So I hope they will check that out and at the very least while they’re there, they can sign up for my freed lock.

Fantastic. Richard, it’s always a pleasure. Thank you so much for your time and um, this conversation. Thank you, BAK. I look forward to the next time you make a lot of money, but are still worried about retirement. Maybe you didn’t start earning until you’re thirties and now you’re trying to catch up and meanwhile you’ve got a mortgage and private school to pay for and you feel like you’re getting farther and farther behind.

Good news. If you need to catch up on retirement, check out a program put out by some of the oldest and most prestigious life insurance companies in the world. It’s called Wealth Accelerator can help you amplify your returns quickly, protect your money from creditors, and provide financial protection to your family if something happens to you.

The concepts here are used by some of the wealthiest families in the world, and there’s no reason why they can’t be used by you. Check it out for yourself by going to wealth formula banking.com. Again, that’s wealth formula banking.com. Welcome back to the show everyone. Hope you enjoyed it and the moral of the story.

Buy, buy, buy, buy assets, and don’t sit around in cash because as Robert Kiosaki says, savers are losers money. Uh. Dollars are going to, uh, not be worth nearly as much as they are right now in just a matter of few years. So, uh, get off the sidelines. You have a descending rate environment. Do something if you want to join our Credit Investor club, uh, get exposure to some deals there at wealthformula.com.

That’s it for me this week on Wealth Formula Podcast. This is Buck Joffrey signing off.