Transcript
George Gammon, the rebel capitalist, joins Ben Nadelstein on The Gold Exchange podcast to talk about the Fed, global finance, gold prices, and what it takes to survive and thrive in today’s economic order.
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Transcript
Ben Nadelstein
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein. I’m joined by the one and only George Gammon, the rebel capitalist. George is, in my opinion, one of the best thinkers in the entire world for the intersection of macro, liberty, investing. He’s built a reputation for cutting through the noise, bringing together rebels investors, freedom-minded people, all at the rebel capitalist events, which I hear are incredible. And of course, he challenges the mainstream narrative when that’s needed. Today, we’re going to dive deep into the Fed, global finance. We’ll talk AI, corporate takeover, what it takes to survive and thrive in today’s economic order. George, welcome to the show.
George Gammon
I want to be clear, Ben. It’s not just your opinion. That’s everyone’s opinion of me. Everyone believes that I am the foremost thinker in macroeconomic economics. No question about it.
Ben Nadelstein
Absolutely. Yes.
George Gammon
Have you got that? I’ve got some oceanfront property in Arizona to sell you.
Ben Nadelstein
Yes, I’ve been there. It’s incredible property. George and I hang out there all the time. We have mojitos, and we We talk macro. George, let’s start off. The macro environment is really wild. I mean, you know it’s bad when you have people calling me saying, Ben, what’s going on with the tarips? What’s going on with gold prices? It feels like the macro environment is in the news today. Let’s kick things off. What do you think the biggest risk that is facing the economy right now? Or do you think that the headlines are just having people click when in reality, things are going to be a lot more stable going forward?
George Gammon
Well, I would argue that we are on a downward trend prior to the tariffs. As an example, I did a video the other day talking about Southwest Airlines, and their CEO came out, said that, I don’t care what you want to call it, the airline industry is in a recession. If you go back and look at when domestic demand really started to plummet, it was back in January, and it wasn’t just right after Liberation Day. In fact, if you look at overall travel, a lot of people have been blaming that on Trump. There’s a lot of things I’m very critical in regards to Donald Trump’s policies. But you can’t blame him or tariffs on the slow down in travel, because if you look at the trend, you go all the way back to Biden, and the trend is the same. The trend accelerated with Trump, that’s for Sure. But we were already in a massive downward trend, which would tell me that the global economy was definitely slowing down. Now you’re starting to see all of these CEOs come out and pretty much say the exact same thing. Mcdonald’s just came out yesterday and said that their same store sales declined to the degree to which they hadn’t seen since COVID, the depths of COVID.
George Gammon
I mean, look at all of the soft data as far as the consumer sentiment surveys, and those are all pointing in the same direction. It was an outlier with the Democrats there, with the University of Michigan survey, but now the Republicans are pretty much… They might not be as pessimistic as the Democrats, but they’re all singing from the same hymn book that the labor market is dramatically deteriorating. I think that’s the way to time these things. If you look at past cycles, they all It went out the same way. This goes back to your original question, and one of the main reasons why I thought the economy was fundamentally unsound even prior to the tariffs that we got. I think that was just the straw that broke the camel’s back. But one of the main points that I would look or point towards is interest rates. If you look at the curve, two tens as an example, that was inverted. Everyone knows that, inverted for about two years, maybe a little over two years. Then you start to see the steepener, which is what you always get when the Fed starts dropping rates. Then once that curve steepens out, usually it’s getting close to the time when the stuff hits the fan.
George Gammon
Now, what you really have to look for as far as when you know definitively, because the NBR is never going to come out in real-time and say that we’re in a recession. As an example, in 2008, they didn’t announce that we were in a recession until December of 2008. They said, Oh, yeah, by the way, we’ve been in a recession for the last 12 months. I was like, Well, thanks. We appreciate that. So you can’t rely on the NBR, but I think what you can rely on is the labor market. And the labor market right now The hard data is not that bad. I have to admit. The SOM rule is no longer triggered. We are at 4. 2. I mean, we had 177,000 in non-farm payroll today, which isn’t great, but it was higher than expectations. Although I will say, I don’t know if you saw this, but they downwardly revised the month prior pretty substantially. I think it was from, was it from 225 to 185, something like that? So it’s this game that we’ve been playing and that we were playing in the Biden administration, that every headline number is rosy, and then they downwardly revise the past month or the couple months prior.
George Gammon
And so it’s not a great number. It’s not horrible, though. And if you look at initial claims that came out yesterday, it’s starting to trend higher. I think we’re at 2: 40, 2: 45, something like that, maybe 2: 20, 2: 20 the month before. We’re not at that threshold of 400,000 that is usually that final indicator saying that, Okay, it’s not that the stuff is going to hit the fan, but the stuff is hitting the fan. We’re not there yet, but you see it trending higher. Another thing, too, that even if the underlying economy, let’s say, is fundamentally sound and that everyone is just overplaying the tariffs and the impact that they’re going to have on the US economy, still that goes into psychology. It’s that old Michael Jordan saying where he said, Republicans buy sneakers, too. Well, Democrats buy sneakers, too. And even if the Democrats are crazy and they don’t know what they’re talking about, they’ve got Trump derangement syndrome, and they think the economy is bad just because they’re watching CNN, but in reality, the economy is booming and yada, yada, yada. It doesn’t matter if 50 % of the United States has Trump derangement syndrome, and therefore, they’re not spending.
George Gammon
That doesn’t matter. Regardless of why they’re not spending, it’s still going to heavily impact the economy. And then you talk about all the other things with the uncertain. We hear that word just constantly nonstop. But I think there’s a reason for that, and that when businesses are just looking into the future and they don’t know what’s going to happen, then they’re They’re likely going to spend a lot less, and they’re going to tighten their belts. And that means more or less of the aggregate demand, more of the tightening of the belt. I was talking about the Democrats, and you get the businesses, the small mid-size businesses doing the same thing. You get more of the belt tightening, which is a further reduction of aggregate demand, which is going to negatively impact GDP. I guess the main takeaway is the economy, in my view, was just going through a typical cycle. It’s the same cycle that we’ve seen going all the way back to the 1950s, where the Fed increases rates, they get to a level, they pause, the two-year treasury starts to drop, and then the Fed starts dropping rates, not to get ahead of an economic recession, but in response to an economic recession.
George Gammon
I don’t see why it’s different this time. But it never happens overnight. It’s always slow motion. I think that’s the process that we’re going through right now. I’m not saying that this is going to be the GFC, but I would like to highlight the fact that during the GFC, 2008, yields on the 10-year treasury, as an example, from March to July went up by almost 100 basis points. The CPI, when the Fed started cutting, was right around 3. 5, and that was September of 2007. And in July of 2008, the CPI was at 5. 6. So the CPI went way up. And by the way, if you look at the Wall Street journals during that time, when we had that 5. 6 print on the CPI, so that would be the Wall Street Journal from August. It was early August, the day after we had that CPI. They were saying Stagflation, stagflation, stagflation. The Fed cut rates way too much. They’re losing control the long end of the curve. And heading into the latter part of 2008, they’re going to have to start cutting rates again. That was the narrative in the mainstream media, in the Wall Street Journal.
George Gammon
And two months later, the Fed had rates at zero. So these cycles, it’s never a straight line. It’s never linear. There’s always back and forth. There’s always volatility. And I mean, talk about volatility, that goes back to April seventh, April ninth, and when we had the stock market really falling out of bed, tons of volatility to the downside. Then you had the dollar going down. You had a huge decline in the dollar very, very quickly, which is unusual. And that was combined with yields going up. I remember the 10-year on that Monday, intraday, went up like 35 basis points. And that is a crazy move when the stock market is declining. The VIX is at, I don’t know what it was in, let’s say 40. And you’ve got the dollar plummeting, but it’s not unprecedented. If you go back and look at history, That’s exactly what happened in March 2020 at the beginning, and it’s also exactly what happened in September of 2008. It’s usually this dynamic, in my view, where where the foreigners are selling maybe because they have to, maybe because they want to, and that’s a sign of cracks in the monetary dam, if you will.
George Gammon
It’s not necessarily just exclusively because China is giving the finger to Trump, and they’re dumping all their treasuries, and therefore, they take those dollars, they buy euros to buy the German boon or something like that. It’s usually a sign of stress. Usually, when foreigners are doing that, they’re not doing that from a standpoint of strength. They’re usually doing that from a standpoint of weakness. The fact that it is unprecedented outside of times of extreme volatility, or when the stuff is hitting the fan, I think, should be a huge red flag that it’s happened more recently. Again, I don’t like the tariffs. I think they’re on net a bad economic policy, even for domestic manufacturing, and we can talk about that. But I would not blame the tariffs solely on a recession if we have one. I think the economy was headed for one regardless.
Ben Nadelstein
From this beginning of our discussion, I’m just hearing this is a market for gold. I mean, you have uncertainty like crazy. You have economic policy. You’re seeing prints that are going sometimes in the wrong direction, being revised in the wrong direction. For a lot of people, they’re like, Okay, the stock market can have intermove days, volatility like crazy. Obviously, bonds are potentially also on the chopping block as well in terms of policy. I want to start, obviously, I want you to actually give me the pitch of why you think gold could be in a bear market, where you think actually gold could turn around here. We’ve had, obviously, a very great big bull run in gold. So first, why don’t you start off giving the pitch of where you think gold could actually weaken, and then let’s talk about where you think gold could continue its run.
George Gammon
It’s all about liquidity. It’s very, very simple, actually. If you think that… Let’s just assume, and again, I want to be clear, we’re talking about probabilities. We’re not talking about certainties. And these things are just absolutely impossible to time. I’m not saying that we’re in a recession now. I have absolutely no idea. I’m just reiterating what the data is telling me. But what I am saying is that I think the cycle is likely to play out in the same way. That means curve inverts, that means curve steepens as a result of the Fed dropping rates. You get a bowl steepener, which means the front end goes down faster than the long end. Again, you got a lot of noise in between there. That’s usually when the stuff hits the fan, once you see the unemployment rate spike. I’m not saying that we’re there yet. I’m just saying that in my view, my base case is this cycle plays out the exact same way that it’s played out since the 1950s. And so far, The progression has been consistent, I think. So going back to what you were saying about gold, and it’s all about liquidity, all about liquidity.
George Gammon
So if we have a dot-com type of recession that’s pretty much just balance sheet and you don’t have a big liquidity event, then I think I would not be surprised if we get to the bottom here in this most recent pullback very, very quickly. That said, if you are in the camp that this is not going to be just a balance sheet recession, if we do have a recession, but it’s going to be more systemic, which would create a liquidity event similar to the GFC, then gold could go down substantially, but that’s your buying opportunity. It’s really where, first and foremost, is your base case, we go into recession? If yes, is your base case, we have a liquidity event or we don’t have a liquidity If your base case is we have a liquidity event, then we probably haven’t seen the bottom yet in gold. If your base case is we will not have a liquidity event, then we’re probably pretty close.
Ben Nadelstein
We spoke with Bob Murphy on the channel. He’s an economist, a friend of yours, WEE macro combatant. Bob was talking a lot about what you were saying with this yield curve and the uninversion, how basically it’s been a 100% accurate indicator of an upcoming recession. Now, he said, to To be fair, this round of yield curve inverting and uninverting has been the longest by far we’ve ever had.
George Gammon
I don’t know that it has. Okay, tell me. The reason I say that is because in the middle… I don’t know how to do a screen share or it could pull up charts just to be precise. But if you go back to the curve inverting during the GFC, and your viewers can fact check me on this one. I don’t have the chart in front of me. I was doing this right off the top of my head. I believe it inverted in 2006. And I’m almost positive it was inverted a good… Or from the beginning of the inversion to the point where we started recession, it was at least two years, maybe two years, one month, two years, three months, something like that. But the thing is, if we would have been in the middle of 2008, we would have been saying the same thing. We would have been saying, Oh, the recession isn’t here. The recession obviously isn’t here. That stupid yield curve, well, that’s dead. You might as well throw that away as an indicator. It’s because the NBR didn’t announce that we had been in a recession until December. So a year late.
George Gammon
And then you look in the rear view mirror, and then you’re like, Oh, yeah. It started in, let’s say, January of 2008, which shrinks the time from when the yield curve inverted to when that recession hit. So my point is, We could be in a recession right now. Let’s not forget, we had a negative quarter of GDP, right? And I get it. There’s a lot of nuance to that because of front running tariffs and everything. But I could make just as easy a bear argument for that negative 0. 3 print, even considering the front running of the tariffs and whatnot because of inventories and a lot of other things. I could make just as easy a bear argument as I could a bull argument. We’ve already had a quarter negative GDP. Let’s also remember that when the NBR did come out in 2008 in December, they revised everything. Everything got revised down. When you’re sitting there in the middle of, let’s just say, March of 2008, you’re like, Oh, wow, unemployment is not that bad. Oh, wow, no negative GDP yet. It’s nothing but rainbows, sunshine, and blue sky. Stop all that fear mongering that you’ve They got there, that stupid yield curve.
George Gammon
Just forget about it. Then when we actually get the announcement, then they go ahead and revise everything down. You’re like, Oh, yeah, that positive print was a negative 4%, or I’m just making this up just to illustrate the example. But we could be in the middle of that right now. I would just shelf the idea that we’re a lot longer in the tooth than 2008. Maybe we are. Maybe we are, but maybe we’re I’ve heard some arguments that this time around, the Fed is being hyper vigilant.
Ben Nadelstein
They’re keeping an eye on every little crack that can appear, and this time, they’re going to move faster than ever. Give me the George Gammon take on that conspiracy theory.
George Gammon
Easy. Look at the two-year Two-year. The Fed always follows the two-year. Always. It is way up today because we got the non-farm payroll that exceeded expectations, although it was bad. I think that’s a knee-jerk reaction. I would be willing to bet that the next couple of weeks, the two-year will go right back down to where it was under 3. 6. Let’s just assume right now that we fast forward to next week, the two-year is down 3. 6, call it Fed funds at 4. 33. The Fed always follows the two-year. Don’t take my word on it. Your viewers can just look up a FRED chart of the Fed funds versus the two-year treasury yield. And when you do that, you see that It’s not just on the way down, it’s on the way up as well. The two-year treasury always goes first, and then the Fed races to catch up. And usually by the time they catch up, then it’s going back the other way, and they’re just getting whipsawed back and forth. They, the Fed, getting whipsawed back and forth. They’re always behind. The market is always, always ahead of the Federal Reserve. Always. I mean, look at them right now, for heaven’s sakes.
George Gammon
They’re sitting there worried about inflation? What are you even doing? I mean, look, the The CPI is down to 2. 5 %. Now, I am not saying that this is an accurate reflection of overall price increases, but I am saying that it’s a decent proxy for the trend. And so it’s down from 2. 8 to 2. 4. Why? Well, that’s mostly because of energy prices. Okay, well, if you look right now, oil is plummeting. I mean, you want to talk about a recession indicator. Oil today is down like 57, 58 bucks, right? Down from, what was it a month or two ago, maybe 70? Yeah, it was in the low 70s. Yeah, so I mean, it’s down huge, and it’s mostly down due to demand or demand expectations declining, right? So my The point there is the last CPI print included energy prices from March. The report said that that was the main reason we went from 2. 8 to 2. 4. What are energy prices doing in April? As far as I can tell, I don’t know what the price of gas is doing, but I would assume that there’s a correlation between gas and oil.
George Gammon
If so, then the energy prices for the next CPI print are going to be even lower. Now, are the tariffs going to offset that? Maybe. I don’t know. Maybe not. But all else being equal, you would see a CPI print of maybe even 2%. And last time I checked, that was the Fed’s target. Now, I know it’s not CPI. They They look at another- PCE, all these other metrics, right? Yeah, there’s one that they really get hyper-focused on. But again, we’re using that as a proxy of the overall trend. I mean, that is one thing that I totally agree with dissent. And Trump, now, they may be saying that Powell should lower interest rates to reduce the interest on the debt or whatever it is, and I don’t really buy into that. But I do believe that if we’re just looking at the market, what the market is saying, the market is screaming that Jerome Powell should be reducing rates, and you don’t have to take my word on it, just look at the two-year treasury. But this is not the first time The Fed has been off sides. They’re always off sides. Just go back in history, the Fed is always, always, always, always, always behind the curve.
George Gammon
So it’s just crazy to me that everyone hangs on their every single word and just assumes assumes that they’re going to be ahead of the curve this time when they never, ever, ever have been in the past. I was listening to one of my favorite podcasts today, and one of the speakers who’s really been in markets for a long, long time trading, he said, If I can’t tell you why the price is where it is today, then I can’t tell you where the price is going tomorrow. I They have to know. If I don’t know, I’m on the sidelines. So it’s the same thing with the Fed. If they can’t tell you, specifically, what’s going on right now, how on Earth can they ever predict the future? And the bottom line is they can’t because they never, ever, no matter how many econometric models they have, no matter how many beige books they have, no matter how many PhDs they have, they don’t have as much information as the market. They never, ever, ever will. And this is why the market always leads the Fed. But what’s just bizarre to me is the CNBC types and the talking heads and the experts, they think it’s the opposite.
George Gammon
They think somehow the Fed dictates where the market goes. Like, oh, my gosh, to avoid a recession, the Fed just got to drop rates, and then we won’t have a recession. As if that’s ever, ever happened in the past. It’s wild to me that you can just throughout history, and you’ve basically got a baseball player with a batting average of zero, literally zero. But yet for some reason, we’re looking at that same baseball player and hanging on their every word. And when the game is in the ninth ending and we’ve got to have a home run, for some reason, we’re putting that guy at the plate. Instead of taking the marketplace, which is your guy that’s got a 400 batting average and hits 50 home runs a year, I mean, that’s what we’re doing. We’re ignoring golf. We’re ignoring Tiger Woods. We’re getting two lessons here, right? One from Tiger Woods and one from some guy who’s a 30 handicap. And not even that, like a 40 handicap. The guy’s never broken 100. And for some reason, we’re taking the advice of the guy that’s never broken 100, as opposed to the advice of Tiger Woods.
George Gammon
I I don’t get it.
Ben Nadelstein
George, for those who are only listening and not getting to view our beautiful faces, you’re wearing an End the Fed hat and an End the Fed shirt. I’m in full agreement. I think we should End the Fed. But Do you think that there is appetite for that with the current administration? Do you think there’s a Powell versus Trump header that’s going to happen here, or do you think that the Fed remains in control? Trump will tweet or post something about how he’s unhappy, but at the end of the day, they’re their independence remains?
George Gammon
I think their independence is going to remain. I don’t see that as a high probability that the Fed… But then you got to ask, are they political to begin with? Maybe, maybe not. But I think what’s even more important is the reason why I wear an End the Fed hat. It’s not the same reason why most people would want to end the Fed, because most people want to end the Fed because they believe that the Fed controls the economy, and they believe that the Fed controls the dollar, and they believe that the Fed controls interest rates as opposed to respond to interest rates. I don’t believe that. I don’t believe that If the Fed does quantitative easing as an example and takes their balance sheet from whatever, call it 6 trillion up to 6. 5 trillion, I don’t think that has any impact at all. I can’t see the evidence for that. If you really understand how the monetary system works, you realize that banks really don’t need bank reserves. The evidence that I would point to is in 2007, prior to QE, the Federal Reserve had about 40 billion in bank reserves. Those are the bank reserves that the banks were actually using for interbank settlement.
George Gammon
And this is where M2 is 7. 5 trillion. And by the way, you go back to 1980, and the system had 40 billion in bank reserves. Exact same amount. But M2 was 1. 5 trillion. And by the way, that’s not just United… Excuse me. That’s exclusively US M2. That does not include global M2. So think about what global M2 in dollars, or not just global M2, but global dollar M2, is what I should say. Think about what that was if the domestic economy was 7. 5 trillion. There’s no way to actually quantify it totally because of the shadow banking system and whatnot. But you would have to assume that there’s at least 30 or 40 trillion outside and inside the United States, and that’s backed up with $40 billion in reserves. And you’re telling me that somehow the banks were using those for interbanked… Now, they were using them to some degree, but the bottom line there is the banks They can settle on their own balance sheet. They don’t need the Fed’s balance sheet to do that. The point is that the Fed isn’t at the center of the monetary solar system. The banks are.
George Gammon
If they’re not at the center of the solar system or the monetary solar system, and they don’t really control rates, they just more follow rates and manipulate them, then why should we end the Fed? This is the question that I always get. It’s because they’re distorting markets, not through mechanics, but through psychology. And the example I always use is one of these Indian witch doctors that they had that would do the rain dance. So everyone thinks that the witch doctor makes it rain, that when they come out of their TP or whatever it is, and they do their march around the fire for an hour, oh, my gosh, you better get ready. So all the other Indians are going to go out there, and they’re going to load up on seeds, they’re going to load up on fertilizer. They’re going to go down to local Home Depot or whatever, and they’re going to take all their savings, and they’re going to dump it into planting more corn and growing more crops because, oh, my gosh, the witch doctor guy just did three laps We’re on the fire, and we know that it’s going to pour for the next six months.
George Gammon
So that is a huge misallocation of resources. This is malinvestment because it might rain, it might not. They don’t realize that that guy control the weather patterns. Whereas if we didn’t have the witch doctor or no one paid attention to the witch doctor, and they actually paid attention to science, then they could better predict the weather patterns, and then they wouldn’t misallocate those resources, and we wouldn’t have the same degree of malinvestment. You see, this is why we have to end the Fed. It’s not because they really mechanically make a difference. It’s because psychologically, everyone thinks they do, and therefore, they take action based on this belief, and then it’s a self-fulfilling prophecy, and then we get markets just wildly distorted at all time highs. I know the CAPE ratio is down lately, but it was at like a 38 when we could have taken that capital and instead of thinking, Oh, my gosh, let’s just dump it into the market because the Fed is doing QE, we could have taken that capital and allocated it to, I don’t know, how about creating more goods and services? And that, at the end of the day, is true wealth.
George Gammon
Andgrowing the real economy instead of growing the financial economy. You see, this is my point about the Fed, and it’s something that I think most people really overlook because they want to believe, even the Austrians, even my buddy Bob Murphy. I’ve told Bob this many, many times. I’m like, You know that you’re doing the Fed’s bidding, right? And what I mean by that is if you go out there and say, The Fed is doing this, the Fed is doing that, the Fed is doing the money printing, and blah, blah, blah, blah, blah mechanical control over anything. The only thing they have is psychology. So if you get my buddy Bob Murphy or my buddy Peter Schiff or my buddy Doug Casey or any of these guys out there saying that the Fed is doing this, they’re playing right into their hands. What we have to do is we have to go out there and say, Stop paying attention to the Fed. Look at the marketplace. Ignore the Fed. They don’t matter. They don’t do anything. The only thing the Fed does do, and I want to give a huge shout out to my great friend Lynn Alden, and she’ll point this out, that they bail out the banks.
George Gammon
And that absolutely unequivocally, without a doubt, makes a big difference. That plays into the psychology. But it isn’t necessarily because the Banks don’t have enough reserves. It’s just the banks aren’t willing to lend to other banks. So they have the ability to, they just don’t have the willingness. But outside of times of crisis, like 2008 or when they said the BTFP, that’s a perfect example. Outside of times like that, the balance sheet, in my view, really doesn’t matter. Hopefully that makes sense. I’m sure I pissed off every single one of your viewers.
Ben Nadelstein
Well, that’s good. They like getting pissed off. Let us know in the comments what you think. It It sounds like what you’re saying is, in general, people are over indexing on the Fed. They hear the Fed say, We’re raising rates, we’re lowering rates, we want this program, we want that program. The markets move incredibly because of these few pronouncements, when in reality, the real economy, things that have actually changed, like consumer saving or the power of AI, that hasn’t really changed with interest rates. You feel like there is a cat and mouse game where the markets are moving because of the Fed’s pronouncements, even though the Fed’s pronouncements are really just after their pronouncements. What is something- I think you could…
George Gammon
I mean, a lot of people will say, Oh, George, well, if you look at a chart of the Fed’s balance sheet and you look at the chart of the S&P, they’re tight at the hip. So obviously, QE mechanically does make a difference. And I’ll say, Okay, but why don’t we zoom out a little bit. What I mean by that is let’s just look at how much the market went up in 1990 to 2000. And then compare that to how much the S&P 500 went up in 2010, 2020. In percentage terms, it went up more from 1990 to 2000. How? The Fed wasn’t doing QE. So if anything, you could argue that QE actually was a retardant, that QE actually reduced the S&P to a level where it actually would have been higher without the QE. Because if I can sit there and point at times where, let’s Let’s just say there was a… Again, I don’t have the chart in front of me, but let’s just say in the 1990s, we had a 50% increase in the S&P 500. And from 2010 to 2020, we had a 40%. If I can point to a time with no QE where the stock market went up, you at the very least have to scratch your head and say, Okay, maybe, just maybe, there’s a variable here that might be slightly more important than just the Fed’s balance sheet.
George Gammon
Another Another thing that I’d like to point out, which I think your viewers might find interesting, is in the late ’90s, I think they might do it today, but I always looked at the late ’90s. The Fed would come out reports at the end of the year summarizing their open market operations. And this was, again, when they only had 40 billion, so they weren’t doing that much. And they openly, explicitly say that they did not create reserves, and then the banks would lend. It was the opposite. So therefore, the opposite of what you hear in the mainstream media, the opposite of what you hear not just from the Austrians, but the Keynesians as well, because the way They have this money multiplier thing where they think that the Fed creates reserves, and then the banks are like, Oh, great. We have all these extra reserves. Now we can go out and lend more and create more M2 money supply. It was the opposite. So what would happen if you read these reports is The Fed would sit there and look at what the level of bank lending was in the last quarter. And then they would try to project out over the next quarter what the amount of bank lending would be.
George Gammon
Then they would go ahead and create as many, even though they weren’t using them, or they didn’t need them, let’s say. But then they would create the amount of reserves in advance that they thought the banks would need based on last quarter’s lending trajectory. So again, it’s completely backwards. The banks would lend, and then the Fed would create the reserves to back up the lending that they thought the banks need or needed. When the mainstream just has it, and on both sides, they look at it in the complete opposite way. So I don’t want to drone on here because I know we’ve got a lot of things to talk about. But in fact, check me on this stuff. I would strongly encourage your viewers just look at a a chart of bank reserves, a FRED chart. You can pull it up in 10 seconds and look at it from 1980 to 2007. And then look at a chart of M2 money supply and ask yourself, how is this possible if the Fed was at the center of the monetary solar system? And so, that end of rant.
Ben Nadelstein
George, you did say you do think the Fed has one important tool that they really do use, which is bailing out banks that are in trouble.
George Gammon
That’s the worst thing. That’s probably the biggest reason we should end the Fed, because we have to go back to a free market economy. And in a free market, like Milton Friedmann always says, the loss is just as important as the profit. In fact, Who was the person that said that bailing out the banks and whatnot? It’s like Catholicism without hell. I forgot who said that. I’m probably butchering the quote. But yeah, we’ve got to go back to good old fashioned free market capitalism instead of this crony capitalism where we’re bailing everyone out. We got to let people fail. We got to let banks fail. And unfortunately, I apologize, but if we allow banks to fail, there might be some depositors that take a haircut on that. You just got to be more prudent about what you’re doing with your savings and where you’re putting your money and what the bank’s balance sheet looks like. But that’s, I think, the best way that we… Here’s another thought experiment for I trace this whole, the Fed is just at the center of the monetary solar system, and whatever they do, that leads to asset prices going up and the Fed put.
George Gammon
I take this all back to Greenspan. Especially with long-term capital management. That was the first time when they got involved with the bailout. It wasn’t directly, it was indirectly. But that was the first time where they drew this line in the sand or explicitly made it evident to the market that they weren’t going to allow people to fail if it was systemic, let’s say. And then you had the GFC, then you had Greenspan. Every little time you would get into… Back then, the market didn’t even need to go down. Remember Y2K? I mean, you’re probably too young to remember that. But I’m sure a lot of your viewers remember then that was supposed to be the end of the world because all the computers only had two digits or whatever instead of the four digits. That was supposed to bring down the whole entire planet. So what Greenspan did is he actually dropped rates to get ahead of that. So we just sitting there tinkering and doing all this crazy micromanagement, which is why people started to pay more and more attention to the Fed. But you have to Zoom or you have to go through this thought experiment and ask yourself if they never would have bailed out long term capital management, if they never would have done bailouts during the GFC.
George Gammon
Let’s just assume for a moment that they never did those bailouts, but they did QE. They let everyone fail, but they also did QE to take your balance sheet to the same level. Do you actually think the stock market would be where it is today? I mean, I don’t. I think there’s an extremely low probability because people would take that capital and they would… It’s always a risk-reward. What you’re doing by taking away the Fed put, if you want to call it that, is you’re increasing the level of risk. Okay, well, then they would need more reward to go ahead and allocate that capital. If they’re not getting it, they’re going to take that capital and they’re going to look for a place where it’s better served. What that’s always been in the past, before we financialize the economy was in the real economy, creating goods and services that actually made us richer as a society. To me, that is the number one reason we should end the Fed, to get the stupid bailouts and go back to a free market.
Ben Nadelstein
Do you think that that desire to focus on the real economy, push away from financialization, do you think that’s something that’s happening now? Tariffs maybe being a misguided way to do it, but do you think there’s a focus now on the real economy where people are saying, Hey, listen, I don’t know what the problem is, but I want it fixed. We might be seeing the beginnings of at least a push towards that realm.
George Gammon
Yeah, as long as it’s not a recession. There are no atheists in the foxhole. You sit there and claim that, Oh, yeah, I want to take the punishment. I want to take the pain. We got to take the medicine, whatever it is, and we’ve got to get rid of this financialized economy. And that’s all fine and dandy. And everyone’s singing from the same hymnbook until the unemployment rate goes up to 10 %. Until you have the crisis, until you have the economic pain. And then, especially today, we just wave the white flag as fast as we possibly can. I mean, the COVID was a perfect example, right? So I think that another way to look at it is look at how the bailouts have progressed. We start with just long term capital management. Then you go to, what was it, TARP, I believe, was the bailout in the GFC, what was that, 800 billion? I mean, that’s like a rounding air compared to what we did during COVID. And it’s a lot faster, too. The response time is a lot quicker, which tells me that… Forget the talk. Let’s just look at the actions. And the actions are telling me that the American people, as a society, can tolerate less pain, not more pain, regardless of what they tell you on Twitter, or regardless of what they say, or regardless of even how they vote.
George Gammon
Trump likes to say that he doesn’t care about the stock market and all these things. Okay, but he does care about a recession. He does care about a depression. How do I know that? Because he told us. Remember when the bond market froze up? Was that April ninth, 10th, something like All of a sudden, the very next day, he’s like, Oh, yeah, sorry. We’re going to do a 90-day pause. All the chest beating and everything that I did before. I’ll just forget that for a moment. If you have any doubts, don’t worry. Art of the deal. 5d chest. But he comes out and does the 90-day pause. And he explicitly said, Because I’m cool with a recession, but I’m not cool with a depression. And then let’s also look at another thing they’re trying to do, if we take them at their word, is they’re trying to reduce the deficit. What’s going to happen in a recession? The deficit is going to skyrocket in a recession. And that’s not even they spend much or spend that much more, which they will, but it’s the tax receipts will plummet. I don’t care what the tax rate is.
George Gammon
The tax receipts will absolutely plummet, right? Because tax receipts, as of the last 30 years, really tight at the hip with equities. And so if that goes down, so your tax seats. And then look at what Trump did during the surveys of sickness. Let’s remember that the Stimmies, that was not because of Joe Biden. That’s Stimmies, the PPP, the lockdown, all that stuff. That was under Trump. That was not under Kamala Harris or Joe Biden or whoever you want to blame it on, right? So if you’re pissed off that we had the huge consumer price inflation of 2021, 2022, you got to lay some of the blame on Trump. And if his actions of the past can help us predict what he has the tendency to do or may have the tendency to do in the future, if we go into unemployment, let’s just assume for a moment, that spikes at the 7, 8 %. The stock market goes down by another 20 %. We start to see housing going down, and you do get a couple of quarters where it’s obvious that we have negative real GDP. I see see Trump doing something. He might not lift the tariffs.
George Gammon
He might still talk a tough game there and try to negotiate these deals and whatnot. But I think that the fiscal side of the equation will definitely change quite substantially. If that happens, then the Fed is going to have a lot of cover to go ahead and cut rates, because in that environment, we’re not going to see the CPI skyrocketing, even if we do have likely the CPI is going to come down. A lot of people talk about stagflation. I like to point out that during the 1970s, when we had those recessions, they were disinflationary. I don’t know that they’ve looked at a chart because they just assume that the inflation rate just went up constantly throughout the entire 1970s. And it didn’t. It absolutely did not. So as an example, 1974, 1975, when we had that recession, and again, I don’t have the chart in front of me, I think that the CPI topped out around 10, 11, something like that. And then once you had the unemployment rate spike, which is what we see in pretty much every single recession. Then you saw disinflation, where the CPI went from, let’s just say it was 11.
George Gammon
It went down to maybe four, five, something like that. But it did that over a two-year span. Within the 1970s, you had disinflation for two years. Now, it is true that the CPI was still high. I mean, four is still way above where it should be. But it just goes to show you that our starting point right now, or if our starting point is 2. 4, or let’s just say it’s even three, the probability that it’s going to be higher than three once you see that unemployment spike is incredibly low, even with the tariffs, because back in the 1970s, it was oil. Remember, we had the oil skyrocketing. So if oil is an input to every single cost, how do we not have accelerating inflation? How do we have decelerating inflation? And the answer is because if income aren’t going up at the same level, whether it’s oil or tariffs or whatever it is, the consumer is having to rob Peter to pay Paul. So you have some prices going up, but because that aggregate demand is being taken away from another part of the economy, you have those prices going down to a point where the unemployment rate goes up, and then these prices have to come down as well, which is when you get that overall or that rapid decline in the CPI.
George Gammon
So I don’t see… I like these cycles. I guess I’m just a cycles person, especially if there’s a 90 or 95 % correlation. And so that’s another one of those things where I don’t know why it would be any different this time. Another thing, too, that’s interesting is the money supply. People will say, Well, this time, if we go into a recession, we’re going to see the inflation rate skyrocket because we had all the money printing from 2020 to 2022 when the M2 money supply went up by 20 or 25 %. But what’s really interesting is if you go back to ’70 to ’74, the money supply growth was actually higher than it was from 2020 to 2024. It was higher in the 1970s, and we still had disinflation with the recession. Anyway, that’s why I don’t really like treasuries. But in this type of environment, I tell you what, I’d rather own treasuries than equities, for sure.
Ben Nadelstein
George, as we head towards the end of our interview, I want to do a lightning round with you. You can answer as short as you want, as long as you want. And let’s start here with gold, Bitcoin, and farmland. For the next part of Trump’s term, which do you think is going to outperform the most?
George Gammon
Wow, that’s a toughie. Good question. The conservative investor me, which is what I am at the end of the day, would say gold. But if I’m going to harness my inner speculator, like my good friend Doug Casey, I would probably go with Bitcoin. Now, I’m going to stick with gold. I’m going to stick with gold. And the reason I’m going to stick with gold is because I know why the price is where it is today, and therefore, I’m comfortable Having a base case or a prediction as to where it will be in the future, where with Bitcoin today, I don’t know, to be honest with you. I don’t know why it’s at 97,000, as opposed to 87 or 107. Therefore, I’m just going to try to play it right down the middle and be a little bit more prudent about it. As far as farmland, I haven’t really looked into it, so I don’t have an edge. I don’t know if it’s cheap right now. I don’t know if it’s expensive. I don’t really have an opinion on it. Other than the fact that I do really like commodities, I think we’re in a commodity super cycle, but that doesn’t really mean that commodities go up over the next year.
Ben Nadelstein
Okay, next one for you. So you’ve had tons of rebel capitalist guests on your show. Who’s someone that came on, you thought, Oh, I’m going to clash with this person, but you ended up agreeing with them and vice versa?
George Gammon
Well, I interviewed… What was the gentleman his name. He likes to claim that he’s a Communist, but he’s a Professor. Is it Professor Wolf?
Ben Nadelstein
Richard Wolf, yes.
George Gammon
Does that sound right to you?
Ben Nadelstein
From my alma mater, UMass Amherst.
George Gammon
Okay. So I interview, and I apologize, Richard, but that was, I think, 2020 when I interviewed him, so it was quite a while ago. He likes to be, I think, a little hyperbolic. I think he likes to ruffle feathers, which is why he calls himself a Communist. He’s more someone that just believes that the workers should own the equity in the company when rubber meets the road. It’s not too completely… It’s not like he’s just… He might say that he’s a diehard Marxist, but he’s not. He’s really not. I had a lot more, I don’t know, in calm, but I disagreed with him on a lot less than I thought I would. That’s probably the person that sticks out the most.
Ben Nadelstein
Okay, next one for you, George. So in one sentence, what is money?
George Gammon
I would answer that by telling you what most people perceive money to be. Most people perceive money to be commercial bank deposit liabilities. At the end of the day, that’s what most people think money is. If they look at their checking account balance and they have $1,000 in there, they think that they have money in the bank. That is nothing more than… It’s an illusion. There’s no money in the bank. It’s just simply an IOU, it’s a receipt. I think most people see money as a commercial bank liability. They don’t think of it in those terms. They think of it money as a bank, but technically, that’s what it is. The reason I would focus on that definition more so than my good buddy Mike Maloney, which if you want to get into it, is actually the proper definition of money. It’s because what the public perceives money to be is what is most important when you’re trying to figure out the monetary system, when you’re trying to figure out interest rates, the gold, silver, Bitcoin, farmland, whatever it is. Because it’s not about what you think, it’s about what the market thinks when you’re setting up a portfolio.
George Gammon
And the market believes money is fiat currency. And fiat currency in today’s modern monetary system is not green pieces of paper. It’s a very small, small fraction. It’s just simply commercial bank deposit liabilities. And once you understand that, I think you have a much better understanding as to how the monetary system works. And by the way, you have a much better understanding as to why the Fed’s balance sheet really doesn’t matter at the end of the day and why the banks are at the center of the monetary solar system, because there is no limit to the amount of commercial bank deposit liabilities banks can create. They can create their own assets. They can create their own liabilities. What they can’t create are green pieces of paper, or they can’t create gold, or something like this, but they can’t create green pieces of paper. So if you understand that the financial players, the whole entire world, other than some Austrians and sound money guys, see money as something that commercial banks can literally create an infinite amount of, or without the Fed, by the way, then I think it helps you better understand the system, which in turn will help you better set up your portfolio.
Ben Nadelstein
What’s an underrated asset that people don’t have in their portfolio or don’t think about often enough?
George Gammon
Well, right now, it’d probably be miners, but your audience is going to be quite a bit different. If you had the average Joe and Jane, I think they’re underweight miners Probably. But what else? Oh, you know what I’d probably say is long volatility. Yeah, that would be it. Because if you think about volatility, most people think they have a diversified portfolio, but it’s not. Because they’ll say, Oh, I’m completely diversified because I own commodities, I own equities, I own real estate. Okay, that’s all short vol. I can explain that if you like. That’s all assuming that volatility is going to decrease, because If we go into an environment where volatility is ever increasing, then it’s likely that all three of those asset classes go down. So you’re not diversified. That true diversification would be if you have a portfolio that is hedged for volatility, and you had components of your portfolio that were long volatility. I think that’s most It’s a blind spot.
Ben Nadelstein
An important factor. Last question for you on this rapid fire round. Where do you see silver? Obviously, the gold to silver ratio has been way out of whack for people who follow it. Do you think that silver is just becoming a more industrial type metal, or do you think that the monetary aspects of silver are going to shine in the coming years?
George Gammon
In the coming years, I would say so. But over the next six months or a year, I think the gold-silver ratio is where it is for a reason. I think the market is pretty much telling you everything you need to know, because it is true that you’ve got that industrial component, like you said. I think that silver is just telling us that there’s a high probability of a recession. I would much prefer to buy silver, especially if gold dips. If we do have a liquidity event and gold goes down by, let’s just say, 15, 20 % or something like that, usually what triggers the reversal of that move is the Fed coming in and doing the PSYOPs that we talked about earlier, like QE. And then all of a sudden, the market’s like, the Fed’s got our back. Psychologically, they do, mechanically, they don’t really have it. But let’s just assume that’s what the market thinks. It’s not about what we think it’s about what the market thinks. And once you get past the liquidity event, then Silver probably takes it on the chin even more than gold. And that’s when I would want to be overweight silver, as far as a speculation.
Ben Nadelstein
George, final question I ask all guests. What’s a question I We should be asking all future guests of the Gold Exchange podcast?
George Gammon
How many electronic reserves did the Fed have on their balance sheet in 1950 compared to 2007?
Ben Nadelstein
I love it. Nice and technical. George, where can people find more Rebel Capitalists and more you?
George Gammon
You can go to the Rebel Capitalist YouTube channel, George Gammon YouTube channel, or on Twitter. I’m rumbling. I’m probably over exposed. I’m everywhere on the internet.
Ben Nadelstein
It’s been great speaking with you. Thanks so much.
George Gammon
Thank.
