The Money Printer is Firing Up But It's Different This Time

The federal government looks like they are about to try to thread the needle to deal with the worst debt crisis this country has faced in almost a century, and if they don't pull it off, it will accelerate the debt crisis into a full-blown catastrophe. Specifically, they are going to try and stimulate economic growth and recovery with money printing without simultaneously causing high inflation. This did not go so well for them last time they tried this, but it has actually worked in the past. Right now, the U.S. debt-to-GDP ratio is at 122%, and there are only a couple ways that a government can deal with a debt load that is larger than the size of the economy that it can tax. The first way is through austerity, and that just means spending less. I'm pretty sure the last chance that we had to get somebody in office that could actually get us to spend less money was Ron Paul, and that ship sailed a long time ago. The second option is to just default, and they say, we're not going to pay the debt back, but then they aren't able to borrow as much as they want in the future, so they're not going to do that either. Now, the third option is money printing. The problem with this is that money isn't actually printed into existence, it's loaned into existence. So every dollar that adds to the total supply of dollars at the same exact time adds to the future demand for dollars. In other words, the total debt load always has to increase faster than the total money supply growth. This is not a huge problem if the money supply growth goes to fund new production and economic growth, but it is a massive problem if that money supply growth does not cause an increase in economic growth and production, because then you get the increased cost of the future liability without any of the increased production to pay for it. And that brings us to number four, which is what they're going to try to do, stimulate economic growth, but they're going to try and do it through money printing rather than just taking a backseat, laissez-faire, deregulating and let the economy do what the economy would do on its own. If you take a look at this chart, this is the money supply chart, you can see that it really increased very quickly in 2020 and 2021. And then the Fed realized their mistakes, saw the inflation that they unleashed, tried to back off for a bit. Money supply shrank for a time, and then they realized they couldn't keep on going that way or else we'd face a deflationary death spiral. They started printing again, and the money supply has been increasing since. Important to note here, though, that not all money printing is created equal. To demonstrate, let's go through a thought experiment. Imagine every single dollar in existence doubles. And so if you had $100 in your checking account, now you have $200 in your checking account. If you had a million, now you've got two. Prices of everything would also almost immediately reflect the increased purchasing power across the board. Which means that even though on paper you might be twice as rich as you were before, in terms of purchasing power, that would not actually be true. Everything would cost twice as much. So similar to when a stock splits, there's no real change on wealth. You might have gone from owning 10 shares to now owning 100 shares, but each share is worth one-tenth of it was before, so it's an even wash. Now, for phase two of this thought experiment, imagine they print a quadrillion dollars. Right now, again, the money supply is only $22 trillion, so if they printed a quadrillion, that'd be a lot of money. But imagine they actually print this money, they put it on a big pallet, one quadrillion paper US dollars, they load it up on a SpaceX Starship, and they ship it off to Mars. Technically, the money supply did increase by a quadrillion dollars, but nobody has access to it. Therefore, it's not going to be spent. It's not going to enter the economy at all. There is no change. There is no net effect. There is no impact. It's basically the same as no money printing. So on one end of the extreme, we have evenly distributed money printing that has essentially no effect on real wealth. On the other end of the extreme, you have perfectly isolated money printing that has no effect on wealth. But what about somewhere in the middle? What if they do some money printing and then hand it out to some people? Well, the first people who get their hands on that new money get to spend it at prices that have not yet changed. So they receive new purchasing power. They spend it. They receive real goods and services in return. That new money then gets deposited into somebody's bank account, who then gets that income to go spend on something else. And then that money then goes to the next person in line who spends it on something else, and it works its way throughout the economy and along the way, bids up the prices of goods and services because we have more purchasing power, more demand than there would have been otherwise because we have new money entering the system. Eventually, by the time that money reaches the end of the line, prices of everything have been pushed slightly higher. And the last person who gets that new money has been paying higher prices the entire time, and now finally they get the new money, but they're already out the purchasing power from before. By the way, guys, debt crises like the one I'm talking about here are just one of a large number of potential black swan events that could impact the market, the economy, and your portfolio. We've got wars. We've got bubbles. We've got unexpected events happening all the time. And if you want to know how I'm protecting my portfolio and positioning myself to even take advantage of these events, then this is your last chance tonight, Wednesday, April 15th, 7 p.m. Eastern Time. I invite you to join me at my Black Swan Trade Event. The event is completely free. I'm going to cover how I've personally used black swan trades in my own portfolio to profit from unexpected events. I'm going to show you how I've used these trades to take home returns as high as 1,700% in as little as 11 days, how I profit from rare market events that few people see coming, and why I think this might be one of the best plays to get into right now. I'm even going to give away a free copy of the Black Swan book by Nassim Taleb, and it is signed by him. This book is worth over $400. I'm going to give it away to somebody at the end of the call. But this is your last chance to register. The event is tonight. So you do have to register. Spots fill up quick, but it is completely free. All you have to do is click on the link in the description below. It's going to be good. Hope to see you there. So the way that the money supply increases and the path it takes through the economy matters because it represents a true transfer of real wealth from the people who get the money last to the people who get the money first. This is why all the money printing that happened during 2020 and 2021 led to such a difference in the economy between the top and the bottom. Yes, there were some stimulus checks that were handed out that immediately got spent on consumer goods and then some speculative assets. But the majority of the money printing that happened did not go out of stimulus checks. It was loaned to the government, and then the government spent it to government contractors, EBP loans, grants, and it filtered its way through first to the people who are most politically connected. By the time the prices of assets and goods and services had been bid up higher, the couple thousand dollars that individuals got in stimulus checks were long gone, and they had been paying higher prices for a long time before those wages increased. This is what happens when central planning determines who gets the money instead of the economy deciding who gets it through prices and voluntary exchange. When prices and voluntary exchange are the determiner, the result is a growth in real production. When central planning and government officials and bureaucrats are the deciders, it's the kleptocrats and the politically connected who get rewarded. Okay, so now that we've had the primer on how money growth works, let's go back to the problem. Debt to GDP ratio 120% plus. Like I said, we've been here before, and that was at the peak of World War II. You can see the US government successfully printed our way out of it. There were financial repression, capital controls, yield curve control, all sorts of central financial engineering in order to print money to pay for all the debt that the government had accumulated. But there was one key difference between then and now. Spending collapsed. You can see pre-war, the federal government spent under 10% of GDP. You can see post-war, it didn't quite get back down to those levels, but there was a massive drop from wartime 40%. Meanwhile, the government currently spends 22-23% of GDP. Again, to put this in perspective, the spending that got the United States to World War II levels of debt compared to GDP was 40% of the economy. We're back up to the same levels of over 120% debt to GDP, but we've been doing it because we've been, for decades, spending over 20%, almost a quarter of GDP every single year. And look at this slow buildup. This is not something that has spiked like it did during World War II that can easily come down. During World War II, they directed so much of the natural resources and the productive capacity of the economy to the war effort. Factories were literally making things just for destruction, whether it was tanks, guns, airplanes, and then sending most of our most productive people to go destroy those things. There was very little real production contributing to a growth of real wealth happening in the economy. Once the war ended, that effect reversed itself. All those factories started producing real stuff that people wanted and needed again and stopped destroying those resources. All those people stopped going overseas to destroy things and people and actually started working to produce things that people wanted again. Nothing of the sort could happen right now. Entitlements like Medicare and Medicaid and Social Security are not going to drop off a cliff anytime soon like they would need to to get federal spending under control. They're actually increasing. This is why the deficit gets worse every single year because the government cannot tax enough to pay for its liabilities and so it has to borrow more and more, stack even more debt onto its debt just to continue funding everything that it's currently borrowing for. Okay, so I think we've hammered home the problem, debt to GDP ratio. They're spending money that they don't have and there's no way to slow that down. Next piece of this puzzle that they are going to do to try and thread this needle so that they can print the money without triggering hyperinflation is bank deregulation. There's a rule right now on banks called the Supplementary Leverage Ratio. And without getting too technical, basically this rule forces banks to purchase U.S. Treasuries and then it penalizes them for doing so with their risk limits. So there's an argument coming from inside the Federal Reserve right now that this year they should be deregulating the banks to remove the Supplementary Leverage Ratio. This will do two things. Number one, it will allow banks to purchase an unlimited number of U.S. Treasuries. Banks just like the Fed loan money into existence. So that will solve the government's problem of not having enough money to borrow from the financial system. It'll push interest rates lower because there will be a bunch of demand for Treasuries that they don't have right now. It'll be kind of like QE, but instead of the Fed doing it, it's the banks. The second thing it'll do is it'll remove Treasuries from the risk limits for banks, which will unleash their balance sheet to lend to the private economy. Right now, banks are forced to use some of their risk limit to lend to the government. And so there's very little left over that they can lend to productive private businesses. Completely freeing up their balance sheets in this way will unleash lending, cheap lending, on the productive economy. And because it's banks doing it that still have a profit incentive instead of coming through the government through things like PPP loans or direct stimulus checks, there's a much higher chance that this lending actually goes to finance real production, real profitable production. This means interest rates for corporate debt broadly will go down, refinancing will be available, capital will be freed up for more production, let alone more capital available to borrow to finance new production. This will also influence interest rates for individuals to borrow and refinance. In short, this will cause a lending boom both to the government and to the economy. The reason why they think banks will do this is because they've tried this before. In 2020, they temporarily suspended this supplementary leverage ratio, and banks did what they expected them to do, which was they just started lending like crazy. This was one of the reasons why that first year felt so crazy, like there was so much economic activity, so much money flowing around. Because there was. Now, the mistake there was also that it was financed by a ton of money printing QE by the Fed, who does not have any profit incentive or need to turn a profit. And so, because it would be banks doing it by themselves this time, there's the chance that it wouldn't trigger the extreme high inflation like it did in 2021. But obviously, no guarantee. Which means, through the course of this year, we have two potential scenarios that we're looking at. Scenario number one is that banks use their freed up balance sheets to lend a lot of money to the government by a bunch of US treasuries. This pushes treasury interest rates down so the government can reduce its deficit slightly. Good thing. Stop paying so much just in interest. But banks also use their massive freed up capacity to lend to the private economy. Businesses borrow, they invest, they hire, and we all get more of the stuff we want and need. Real economic growth happens. GDP increases. The total pie gets bigger. Now, there's still more money floating around in the system as a result of this. You still have the potential for inflation. But because we also have more stuff, that will offset at least some, maybe all, of that inflationary pain. The second scenario is that banks just decide to only go buy treasuries. And they don't really want to extend more lending to the private economy. Maybe they lend into financial markets. Things like hedge funds. We get more leveraged buyouts. Private equity. Private credit gets bailed out. Which means we get asset price inflation. And then we get inflation in goods and services. Meanwhile, the rest of the economy doesn't have any boom. This is the effect I described before where the people closest to the new money get richer and the people farthest away from it pay the price. It's important to note here that both of these scenarios are broadly bullish for asset prices. If you're expecting either of these things to contribute to a market crash, that's just usually not the way it works when a government is facing a sovereign debt crisis. Asset prices usually don't go down unless the government chooses austerity or default. Both of the most likely scenarios that we're facing here, asset owners come out ahead. Which is why I make videos like this. To prepare and educate people, you need to be an asset owner. As much time and energy and money as you can afford to pour into a well-built portfolio is going to be maybe the only financial lifeboat you have going into the future. Things are only going to get worse. The debt is only going to grow. The entitlements are only going to grow. The liabilities are only going to grow. The system shouldn't work this way, but it does. So position yourself as close to the money printer as you can. And again, if you want more specific tactics of how I play these unexpected events when they move markets quickly with extreme volatility, please don't forget, join my event. It's happening tonight, Wednesday, April 15th, 7 p.m. eastern time. You've got to register for it. Link is below. Thank you for watching. Have a great day.