Lawrence Lepard of Equity Management Associates rejoins me to talk about all the things that are breaking: 

  • Cost of living crisis
  • Are we going into recession and what timing? 
  • Boomer hate
  • US government debt
  • Policy responses
  • Social responses
  • The waiting game



Stephan Livera links:

Podcast Transcripts:     

Stephan Livera 00:02:10  

Larry, Welcome back to the show. 

Lawrence Lepard 00:02:11  

Thanks, Stephan. Really great to be with you again. 

Stephan Livera 00:02:13  

Always lots of things going on and yeah, you know I think probably the biggest one that just seems to be in the conversation now is this cost-of-living crisis. And I’m sure you’re seeing some of these similar videos where there are young people and middle-aged people who are just literally making TikTok videos and otherwise Video it’s just explaining they can’t even afford the cost of. So, I’m curious if you have any initial reactions on that and where does you know the Fiat money play into this? 

Lawrence Lepard 00:02:44  

Well, I mean, you know where the Fiat money plays in, but I’ll go over it. But yeah, I very much have reactions to that. I mean, it’s terribly sad and you see it kind of everywhere and, you know, we see the videos, you know. We see this. Oliver Gentleman who came out with this great song and it really struck A chord with kind of Middle America. And you know, I retweeted this morning on Twitter. You know, Civil War is one of the trending memes on. Twitter, I mean it you know in online it’s incredibly sad. I mean, you know, the central banks have behaved irresponsibly. We all know that they’ve printed a ton of money, and as a result, we’ve had widespread inflation and it hurts the most vulnerable. I mean, you know those who are closest living closest to the edge is suddenly their cost of everything. Goes up the cost of getting to work, the cost of feeding themselves, I mean the essential cost, their cost of electricity, it’s extremely painful and it’s all driven by Fiat money and the excesses of Fiat money. And I think we’re in the we’re approaching kind of the end game of the Fiat money regime, but sadly that’s going to take some time to play out and it’s gonna be a lot more pain before it finishes playing itself out, I think. 

Stephan Livera 00:03:50  

Yeah, and of course I agree with you, but I think there’s two sides to this story. As well because. It could also be that Fiat currency has caused people to try to live beyond their means, right? It made them believe that. I don’t need to live with my family. I can live out on my own. Right? Or and maybe there’s an element to which people are living more atomized lives and not family-oriented lives, and I’m wondering whether you think that’s also played into this also. 

Lawrence Lepard 00:04:17  

That’s a great question. I think that’s, I think that’s probably true. I mean, I think when the good times are rolling, you know people are they’re gambling and they feel like they have extra money and they maybe take on too much leverage, they buy more house, they need, they do things they don’t need to do. You know, certainly tough times cause you to focus in on you know what? What really matters, you know, and it’s really it’s your own personal health and survival and your family and that’s you know those are the things that are important and yeah a lot of the frivolous stuff I suspect is gonna have to fall by the wayside and some of that’s good you know I mean gambling on meme stocks. And you know all the crypto nonsense and. That stuff ought to go away because it’s it doesn’t add any value to the economy whatsoever So yeah, some of that is good and yes, people did make unintelligent decisions because they were misled into thinking asset prices would always go up, you know. Yeah, sure. I should buy that extra big house. I should lever it up. No problem. And you know, maybe that’s going to prove that it wasn’t such a wise decision. Right. 

Stephan Livera 00:05:14  

And I mean to be to you know, your point as well that is still a Fiat consequence, right It’s that people were. Misled by the manipulated interest rates and the manipulated markets for credit that we all live in. And so, it’s, yeah. 

Lawrence Lepard 00:05:26  

Yeah, I mean, I see that in some friends I know people who’ve taken out HELOCS, home equity line of credit and of course 2008 taught us, you know this that we could, you know, you kind of treat your home like it’s a bank account and you could borrow against the value. And I think they were offering HELOC rates as low as 100 basis points, 200 basis points and when you can borrow money at 1% a year. Well, Okay. Do it and borrow it and speculate and borrow and buy stuff. Buy it, borrow and live well, whatever. Well, as we all know, with the interest rates going up the way they have, those HELOC rates are now in those six, seven, eight% range. And suddenly that really starts to bite so yes, people were misled by the bad monetary policies. And Surf was just an amazing crime and it just, you know, having the cost of money be 0 for as long as they had it be 0 was just it was a terrible thing, really bad. It’s completely distorted the economy in every way. 

Stephan Livera 00:06:14  

Yeah, and it seems to really, genuinely it seems to be a global thing, right I’m seeing we’re seeing some of Videos of TikTok and people like this who are talking about their problems in America or in Canada. I’m hearing about stories even back in Australia, like we’re seeing news articles of families who can’t afford the mortgage anymore. I’m hearing now I’m born in Sri Lanka and I we were recently there for a family trip. I’m hearing about massive difficulty there in Sri Lanka like so it’s all over the world. And people unfortunately are not able to point their finger at the right problem, aren’t they? 

Lawrence Lepard 00:06:46  

In many cases, I mean obviously the Bitcoiners have figured it out but sadly a lot of other people haven’t. That’s why we say fix the money, fix the world. Well, I mean it’s very easy for these political tribes to get everybody, you know, all the blue guys saying it’s the red guys, the red guys saying it’s the blue guys and it’s really both of them You know, it’s neither one is clean and I suspect the same is very similar in other countries. You know that the politicians wants you arguing with each other rather than arguing at the at the core level, which is if we had sound money, these problems would not. Exist in the form that they exist. 

Stephan Livera 00:07:17  

And what we’ve seen as well is related to that earlier idea that artificially low interest rates caused these some of these beliefs. A related idea is this gentleman, I believe his name is Robert Henderson, and I think he coined this term or popularized this term of luxury beliefs, right? This idea that you know very rich people and maybe people who’ve been misled to believe they are rich, can believe certain ideas like a common example might be net zero, this idea that we can just have net 0 emissions and just live in this kind of fantasy. Utopia without energy with 80% of energy being fossil fuel or hydrocarbon energy and so I think to some extent, some of these so-called luxury beliefs are going to have to crumble, aren’t they? 

Lawrence Lepard 00:08:02  

You know, they definitely are particularly around you put out a good one with that energy thing  I mean the, you know, the other one was with the whole the whole COVID scare, I mean it you know, Okay, we’ve gotta save everybody’s life from what’s really just a bad case of the flu at enormous cost to the economy and a lot of other people. And so, you know with a with an untested vaccine that’s now turned out to be quite dangerous. So yeah, I mean luxury believes, I mean bad thinking. Fiat thinking is prevalent when the money is broken. You know there’s a lot of bad thinking in a lot of areas and it’s very unfortunate. I mean, we need to, you know, this is a crisis and it needs to resolve and we need to get to the other side of it because when we do know there won’t be any time for this, this stupid thinking. I mean, it’s all just going to fall away. 

Stephan Livera 00:08:48  

Yeah now, Larry, you’ve been through, you’ve been investing for a long time and you’ve seen many cycles. You’ve seen prior cycles play out So I’m curious if you see any parallels right dot com bubble, the 2007, 2008 GFC. Do you see any parallels and any insights that you could share? For younger investors and listeners. 

Lawrence Lepard 00:09:12  

Sure, I mean I have seen a lot of cycles. as you point out, I am old. Where and these. You know it’s these things do just repeat themselves over and over and over again. And I mean, this is from the beginning of time really. If you go back far enough, but you know you have boom and bust cycles, you know it was in the Bible, seven years of, you know, good times and seven years of bad times and. So yeah, I mean what? We’re in right now. I think we’re, I think right now a lot of people are confused and. They kind of think that we had this COVID crisis and that it created a lot of money and therefore created a lot of inflation.  And there’s a certain amount of belief I see, which I mean it, if in is an investor, what you kind of look for is the deviant view of, you know, what is it that the market doesn’t see that correct or isn’t looking at correctly. And in my opinion, what the market is not looking at correctly is the fact that we’re not going back. To the 40 years of deflation that we had from the 80s, early 80s into 2020, when you know in March of 2020, the 10-year bond hit you know 50 or 60 bips I mean. That’s not happening. The world has changed. Maybe not forever, but for a time, we now live in an inflationary world for a variety of reasons, and you know long list. But I think that markets have not fully accepted that and still you know the five by 5 treasury swaps as you know they think we’re going back to two or 3% inflation. People think Jerome Powell is going to be successful. He was recently hailed in some article. You know, the genius of your own pile. I mean to me that was like a flashing red-light indicator. Okay, this is about. To blow up again. And so, you know, to me the period we’re in right now, the raising of rates post you know post the problems, it feels a lot like kind of March of 28, 2008 where you know Bear Stearns failed, I mean Silicon Valley Bank to me reminds me of Bear Stearns and the big one hasn’t hit yet. But it’s going to hit. And so, there’s a lag effect. They started raising rates in February 2022 and there’s always a lag effect and you know it’s starting to really bite now I think and it’s going to continue to bite and we saw in these regional banks, these large regional banks, it’s going to happen in some of the smaller regional banks and it’s going to happen in other places, commercial real estate etc. And so in my opinion, things are gonna start to get pretty tough. And of course, the Fed will hang on too long to these higher rates. They’ll say they really want to calm inflation and then eventually something’s gonna break. And when it breaks, they’re going to change. They’re gonna pivot and They have to pivot because if they don’t. They’re going to have, you know, a credit collapse that’s going to rival the 1929 period, and some people think that’s what they want and maybe they do. But I kind of. Doubt it. I think at the end of the day, they’re Political Animals and they respond to what the greatest cry for is for, you know, to solve the. Pain and of course, the greatest cry recently and a year ago for sure, and even recently has been stopped. This inflation, you know, this inflation is eating us alive. Stop it. And so you know, Paul has been extremely aggressive at trying to do so. You know, inflation is starting to come down. I’m not sure how far down it will come. I’m not sure if it’ll continue. You know, they part of the way they were able to stop. It was releasing all the oil they released from the strategic petroleum reserves. So they manipulated one of the big components and. Inflation and you can only do that once, so you know my opinion is that we’re about to go the other direction here and you know the things will start. You know, unemployment will rise, businesses will have a hard time, things will start to collapse. We’ll have more Silicon Valley, like bank like episodes and they will stop raising. And then the stock market will probably. All because historically that’s the pattern and. 

Lawrence Lepard 00:12:41  

The bond market, I think will continue to fall and that’s the piece I think most people don’t get is that the bond market’s going to wake up to the fact that they just can never stop printing  And so when that occurs, you know you’re gonna see, in my opinion, much higher interest rates from here. And as we all know, there’s just a piece of this math that doesn’t work. I outlined it on Twitter yesterday with a with a thread that just. Those you know, I think tax receipts are down, I believe 7% federal government spending is up 14%, you know and the deficit is growing very rapidly and interest rates that chart on interest rates, which we’ve all seen U.S. government federal interest rate interest payments is really kind of going parabolic. And so, they cannot continue to raise these rates. And in fact, they’re going to have cut them or else there is going to be a financial explosion here that’s gonna make 2008 actually look relatively contained I think that’s very hard for most people to accept, but based on my reading of history and my experience doing this since the early 80s, that’s kind of what I believe is going to happen. Now the tough part is the timing. You know my partner says and he could be right. They could hold it together for another. Couple of years I kind of doubt that. I think a couple of years is too long. I think they might be able to hold it together another three to six months, maybe a year, I don’t know. But it’s coming. You can see the problems are coming. They’re building. So that’s kind of how I view it. 

Stephan Livera 00:13:58  

One other area now, obviously I know you’re a fan of Austrian economics as I am also and a promoter of Austrian economics now, one area that we as Austrians would critique the mainstream is we would say we would reject, let’s say Phillips curve thinking this notion that just because you’ve raised the interest rates that somehow that’s going to tamp down inflation. And it I mean, traditionally they, you know, the Keynesians and the neoclassicals, they sort of think of it like, you can have a tradeoff between having high inflation or high unemployment. And you know the central bank and the wise government should manage, you know, the money supply and the interest rates and so on to try to, you know, manage that. But I think then what happened is. In the 70s there was stagflation. It was high interest rates and high unemployment, and that sort of disproved that. But then it seems like and now I know you obviously know better, but it seems like the mainstream financial press are just falling back into that same. Keynesian frame. Do you have any insight on why they’re doing that? Is it just that they’ve forgotten Is it that they just haven’t read enough? Why is that? 

Lawrence Lepard 00:15:03  

I don’t know. I mean, I think the you know the Fed and the Keynesians have really polluted the entire economics, you know industry and commentary at and you know if you don’t believe their stuff you get thrown out, you’re not invited to any of the conferences, you’re not allowed to ask questions at the at the presses, press conferences etc. So, I think they just. You know, they conveniently ignore it because it doesn’t help you know their narrative. I mean, that’s kind of that’s my way of Explaining I think some of them are starting to realize it and they quote unquote know better. I mean, we’re seeing this whole discussion of, you know, kind of fiscal dominance. I mean, even there was even a Fed paper on it, so you know they realize they’ve got a problem, but I think that what they what they are good at, what they intend to plan to do and I’m sure they have a lot of things in their back pocket. To pull out as necessary is kick the can you know and so you know the BFP was a perfect example of. Taking the camp right? I mean, they had said they would absolutely never bail out the banks again. That’s what Dodd Frank said. They said the depositors would have to take care of cuts. We’re not doing too. We’re not making the mistake we made in 2008 again. Well, guess what? You know, Silicon Valley Bank got in trouble. First Republic followed. It looked like a large number of the regional banks were going to go down the 17. Million or Trillion dollars of U.S Bank Deposits were going to be at risk you know, yelling flip-flop back ang forth a couple of times. Well, we’re gonna guarantee them. No, we’re not. Yes, we are. No, we’re not. And then they realize that if we don’t do something to help them. Banks out. You know we’re gonna we’re gonna have a bank loan on our hands. And so, they created a program, you know, to basically swap, you know, good paper for bad paper or discounted paper. And so, you know, this is the kind of thing they do to keep their broken system going. And I think they have other things up their sleeve that they will kind of continue to do. But in my opinion. These, you know, the market is larger than they are and the market is going to overwhelm them. I mean a good. Another good example is if you look at the 10-year US or UK gilt yield you recall last fall in September that blew out and you know they the pound was falling fast and the guilt yield was going up very quickly and UK government had to step in to solve it and interestingly, you know they did for a while. But now that guilt yield is back above the time at which that last crisis occurred, and so, you know, the rates are going to continually March higher. That’s the fly in the ointment for their system. And you know if the. They lose the bond market and they have to start buying the bond market to keep rates low. It’s all over and the problem that they’ve got is that you know they are the biggest borrower. I mean, the US government has, you know, $33 trillion, roughly of debt, a large portion of which, I mean, you know, I would say over a third, maybe as much as 40% rolls in the next couple of. Years and it’s short. And so, at 5% or 6% or 7%, you know the interest expense for the US government is just gonna. It’s already approaching a trillion-dollar annual run rate You know, I saw projections that showed it could go to a trillion, 2 trillion, 4 trillion, 5 trillion. I mean, at some point, interest becomes the entire U.S. Federal deficit or federal budget. And so. This is a problem. This is a fundamental problem that that mathematical that they can’t really. 

Lawrence Lepard 00:18:12  

solve unless they can get interest rates down and the only way to get interest rates down is to inject more money into the system to make money more plentiful so that you know the supply of money increases and the rate of the money. Therefore false, but in so doing, the injecting money into the system is QE. It’s buying, you know those bonds and it’s printing, right. And so that is what they will in my opinion. Have to do. The only issue is when do they and in what way do, they do it? And the longer they delay the larger the amount of the print is gonna be. You know, it at some point, they’re gonna have to come back in. I mean, I think I’ve said on the record in the past, I think the Fed balance sheet which was is high almost as high as 9 trillion or to 8 I think it’s likely to go as high as 20 or 30 trillion on the next print, so it’s quite a it’s quite a pickle. They’ve got themselves in, but you know right now they’re in a period where they kind of look sort of smart. I mean, you know, Jerome Powell is being hailed as a genius for the way he’s managed this. And so, we’ll just, we’ll see how people feel about that in a year. Certainly in two years, I think they’re going to feel a lot. Differently about that. 

Stephan Livera 00:19:13  

And as they temporarily look smart right now, I guess I’m thinking about potential ways that they will try to have their cake and eat it too, right? So, I’ll give you an example. They in the you know if we rewind back to the 2008 you know or maybe even a little bit after they had the there was this whole concept of interest on excess reserves. And so, this idea that they would sort of help the banks but pay them also so that they wouldn’t loan it. Out so that in their view it would try to let them help bail out. Banks, but without causing an inflationary consequence. So, do you think they there’s a chance that they can try something? Similar to that this time around. 

Lawrence Lepard 00:19:50  

Very much so I mean, and you know there’s some great papers out on that that talk about how they’ve done that. I mean they are going. They have a lot of tricks up their sleeve, and they control all the levers of the monetary apparatus. And so, you know, they, you know, they created this reverse repo facility which absorbed a lot of capital you know. And of course, it made the Fed, you know, negative in terms of, you know, the Fed’s income statement, right? They’re paying out huge, you know, huge interest rates that people who put park their money there not to prevent it from going into the accounting but yeah, there’s no question they have. They have a number of dials that they use to try to stabilize prices, to stabilize the monetary system and keep liquidity out there. I wouldn’t be at all surprised to see them invent some new programs. I mean the BTFP, they invented that out a whole, you know, thin air and. And I suspect they’ll do. They’ll do similar things. You know, we’re also seeing that they’re doing everything they can to forgive as much debt as possible, I noticed last night I tweeted about. And Biden just announced he’s got a new program for forgiving some more student debt on some kind of a technicality, even though the Supreme Court said that he was unable to, you know, forgive the student debt. I didn’t dig into the technicality, but the point is they are going to do everything they can to keep the system running and functioning. And that’s the piece that people miss about the Federal Reserve. I mean, they have a dual mandate of full. And stable, you know pricing and of course they’ve failed on the stable pricing and they’re somewhat close to failing on the on the full employment. I mean, as Sailor points out, the employment numbers are all cooked, right? I mean, if you’ve got 40% of people not in the workforce, I mean, what does full employment mean? You’ve got all kinds of people have gone on disability. What does full employment mean? But the third mandate that’s not stated. 

Lawrence Lepard 00:21:31  

Was very obvious is to prevent financial. And you know what they’re doing right now is going to lead to financial dislocation and you know, March of 2020 was a perfect example of how when you have financial dislocation, they will come in all guns blazing to print money and keep the system going. March of this year, 2023, when Silicon Valley Bank was on the edge. Was another example of a very good example of. You know, there’s a, there’s a serious problem in the system. What are we gonna do? We’re gonna invent a new. We’re gonna invent a new program to solve that problem and sweep it under the rug.   But it was money printing and so there will be there will be more of those. But the fact that there will be more. Of those means that you know for us that there will be more money printing, which is back to our initial premise. You know as Bitcoiners, which is that Fiat is programmed at the base, you know it,  it literally cannot exist without debasement because you have to create the new money to pay the interest on the old money that you’ve got out there and that old money is, you know, the amount of old money is growing. In terms of debt, because money is loaned into existence and this is my pin Twitter feed which shows, you know, the GDP growth as against the growth and dept I mean, you just the two you know there there’s a fundamental problem here that it’s going to get reconciled and in my opinion it’s this is what this 4th turning is all about. You know the money is breaking. I mean I’m reading. I’m almost finished with the Neil House book, you know, and we are in the fourth turning and I’m shocked at how little he focuses on the monetary piece of it because it’s so clear to me that that’s the issue. You know, this isn’t. I don’t think this is going to be a Great War 4th turning. It could be, but I don’t think so. I think mankind has evolved to the point at which you know the largest powers recognized that to enter into a nuclear exchange would mean the end of all of us. So as a result, I don’t think we’re going to have a World War. The proxy war is probably continue, but I think that really what’s going to happen is all these currencies are going to fail. You know, I tweeted the other day. I mean we are all Argentina, you know or just or Turkey or just, you know or Venezuela or Zimbabwe or whatever, you know, whatever company you want to use, we’re just at various stages on the curve now that they could. Take some time. So, it’s. It’s not like it’s gonna happen tomorrow, but to me it’s clearly happening, and I would say I would submit at an accelerated pace. You know, if you recall in in you know the 08 crisis, we created $3 trillion worth of money. And of course, three or four years here, we created $5 trillion worth of money in 18 months. You know, on the COVID crisis, and my suspicion is the next one will be large enough that it will lead to a much bigger number and at some point, people are gonna wake up and realize, you know, these people really don’t know what they’re doing. And as a result of the fact that they don’t know what they’re doing, they’re gonna run us into the ditch. And therefore I’ve got to own something that they can’t print and, you know, tangible assets, you know, and Bitcoin and tangible Ledger and immutable Ledger really are the are the two natural choices so. 

Stephan Livera 00:24:27  

And so yeah, we’ve been speaking a little bit about the possible responses, as you said, they could make up a program there. Are talks of various different ideas out there. I recall if you went back, let’s say 10 years ago, there was a lot of talk about Bail-ins that was seen as a tool for the banks to sort of stay solvent. Everyone should take a you know, they lose the colloquial term haircut. This idea, you know, a nice way of saying we’re taking. Money. And this was a narrative in Cyprus in 2013 as well, that there was a Bailey in in the banks and that drove, you know, whether or not that was why people were buying Bitcoin There was a Bitcoin price pump around that time, so there’s kind of this idea of bail-ins There’s the idea of bail-outs. There’s the concept of, you know, BTFP and these various. Financial programs. I think these are probably some of the likely policy, let’s call them policy responses. Do you have any others that you can think of that they could do that are you know, government policy responses? 

Lawrence Lepard 00:27:06  

Yeah, I think they’re going to at some point get smart and recognize that gold and silver and Bitcoin are the exit ramps and they don’t want people using the exit ramps. I mean, this is what, you know, Elizabeth Warren’s anti crypto army has gone after and. I think you know having been screwed by them constantly throughout my career, watching them, you know, take moves that are adverse to my positions like banning short selling of financials since September of 28 of 2008, you know I it wouldn’t surprise me at all if the narrative starts to develop that these sound money guys are ruining our good Fiat system. And therefore, you know, Gee, if you own Bitcoin or gold or silver, you need to report what you own. And we’re doing it for tax reasons because we think you’re all tax cheats and you know, and furthermore you need to, you know, tell us how much of it you own and maybe give us the addresses and then if they want to get really aggressive, they could start to say. And by the way, you know, there’s we they could see a monetary reset coming. I mean, I think right now they’re not doing these things. They’re not smart enough to do them. I think they might get smarter as time goes by and, you know, by the way you guys are about to get windfall gains as a result of what’s going to happen with this monetary reset and therefore. You know capital gains tax on Bitcoin and gold and silver is now 90%, you know, so I don’t put anything beyond their reach of trying to save their own asses. You know their system is going to blow up and they know it I think. Or if they’re smart, they know it. And so, I suspect there will be moves they will take now the beautiful thing about both Bitcoin and gold and silver is that they’re bearer assets that, you know, they can ask me how much I have, but I, you know, I have boating accidents all the time. And I just, I keep losing. You know, and I and I think you know, there’ll be a race which is, you know, how can they figure out who’s got what? How to get control of it and how to mess us up versus how quickly is their system disintegrating and as their system completely disintegrates, you know the new system, whoever runs the new system isn’t going to care how many Bitcoin I have or how many you know, ounces of gold I have because they’re likely to be. Somebody who’s in the same boat, you know, the people, who, the people who are going to be saved by this whole thing are the people who have sound money. I mean, when the dollar becomes worthless and I sincerely believe that within my lifetime, I’m 66, within my lifetime, the dollar will become worthless. The dollar will fail. I sincerely believe that I think it’s probably likely to happen between 2028 and 2032. Which is kind of the end of this 4th turning as projected by Neil Howe. I mean he says. If he adds everything up, he said maybe worst case, longest ever 4th turn. It could be 2038, but that’s still within my lifetime. So, I think the dollar is going to fail because I think it has to because of the math. I mean the only way it does it, the only way they’re able to extend it, Stephan, is if they, if they preempt that failure by getting really smart and tough, and I’m not sure without a crisis they could do it, but what do I mean by smart and tough? They means test Social Security and Medicare. They stopped. They shut down half of our bases all around the world. They cut the military budget in half. They go heavily into nuclear to reduce our electrical power costs. They, you know, they basically balance the federal budget, which to me the odds of all these things happening are quite small. Absent a crisis, forcing them to do it, but it’s possible. I mean it it’s not outside the realm of possibility. And if they do those things, then I think the dollar will won’t fail. But again, I look at our political constellation, I don’t think the odds of those things happening are very high, at least not what I based on what I see today. 

Stephan Livera 00:30:46  

I see, yeah. So essentially it would take massive, massive spending cuts and that is going to be politically infeasible given. 

Lawrence Lepard 00:30:53  

And also think of what those spending cuts would do to the economy. I mean, I, you know, massive spend, I mean it would, I mean any way you look at it, I mean, sadly, and it really is sadly, because the whole world is gonna suffer. But sadly, there’s nothing but pain ahead here for a. While until we get through this thing. You know the bright side of that, sadly, is that on the other side of it, you know, we’re going to a lot of this nonsense that we see in the society and world today. It’s going to just fall away and everybody’s going to go back to kind of, you know, core values and, you know, grifters and bh artists and politicians and a lot of the people who’ve done extraordinarily well under a crazy Fiat. You know, they’re gonna be wiped out and poor. And the people who’ve you know, been careful and husband and their money in sound in the form of sound money. They’re gonna be, relatively speaking better off and able to I think return in the country at least the country, I want to live in the United States to more of its founding principles. You know, I mean, maybe we’ll have term limits. Maybe we’ll have a second constitutional convention. I don’t know what will happen, but, but, you know, things massive change will need to take place. And I think you know, the only way, sadly, I think the only way to get to that massive change is everything is so F up. That everything’s on the table, you know. And so that’s. Yeah, that’s how kind of how I see it. Unfolding, you know. 

Stephan Livera 00:32:08  

Yeah, it’s a sad, but you know, I think there is optimism on the other side of that. And so, we’ve been talking a little bit about at a government level, government policies and things like that. But I think maybe there’s also an element at a social and a cultural level. That maybe that will also be part of the shifts too, like so as an example, instead of this idea that everybody has to move out at 18, maybe it’s more like, no, you actually live with your parents for a bit longer and you, you know, instead of paying for multiple homes and apartments or whatever you, you know, we there’s a focus on that and maybe that is part of the social response. To this also. 

Lawrence Lepard 00:32:42  

 Absolutely, and I also I think you know some of the some of the individualism I think will fall away. They’ll be. much more. I mean, I’m in the millennial generation, I have 3 millennial kids and I see them as being much more concerned about the overall well-being of the world and the economy and their fellow beings than my generation of boomers who are all just about let’s see how much we can get. Let’s see. How fast we can get it? I mean really, to be quite frank, I mean in the Reagan 80s, that was what it was all about and that’ll be because. You know so much pain will have been doled out that it’ll be like, hey, you know, can’t we figure out a way here to make the world a better place for everybody, not just for the 1%? So I and I really sincerely believe that could happen and will happen is likely to happen. You know the hero generation of the millennials I think is gonna bring in usher in. A much more egalitarian world with a better set of values, and that’s my belief. 

Stephan Livera 00:33:38  

Yeah, that’s interesting because we are also seeing along with that cost of living crisis, I’m also seeing a little bit of a generational war. And you might have. You might be seeing this also where there’s a bit of. Boomer hate or boomer? People are sort of saying, look at these boomers out, look how easy they had it. They could have just bought stocks and bonds and gone to the beach for 40 years and now they wake up and now they’re rich and. Now there are young people who are in their 20s and 30s who can’t buy a home who can’t get, you know, paid enough to raise a family. This kind of concern. I’m curious. Any reactions you have on some of the generational conflict? 

Lawrence Lepard 00:34:13  

I mean, no doubt, no doubt, I mean, there are a lot of, you know, greedy boomers who, you know, have done extraordinarily well. I mean, you know, look, it wasn’t as easy as it looked. I mean, there were lots of ups and downs, a lot of people who’ve done well, you know, worked very hard for what they’ve got. But yes, they are hanging on to it. And you know there’s a lot of wealth concentrated in the boomer. Cohort and. You know what’s the what’s? A practical matter? What’s happening is a lot of boomers are helping their kids out because they have to. I mean, the average, you know, 20-year-old today, how they are gonna on a 20-year-old salary. How are they ever going to be able to afford a house? I mean, they just they can’t. I mean it’s just the economics are just so tipped upside down and so this will get resolved. And I, you know, I completely understand the boom or hate, I mean. You know, particularly when you look at like the US Congress and all these elderly people who are in there and you know, they’re just, you know, they’re so backward looking, you know, and I mean, back to the student loan thing for just a moment. I mean in in general, I believe that when a debt is taken, it should be. Repaid however, having. Said that, you know, there’s something to be said. I mean in in the GFC we loan money to the. To the banks for free, basically zerk, you know. And yet you know, I think we charge 6% on student loans. I mean, what’s that all about? Why do the banks get a 0% interest rate and students have to pay 6%? You know, I mean there there’s a certain amount of, you know, unbalanced as I think you’ve alluded to between, you know, the between the generations and the boomers are going to have to have their, their benefits cut severely and they will. And my sense is they’ll be able to live with it because, you know, they’ve had a good run and you know, I mean the. One thing that that also could get solved throughout all this is just the whole healthcare piece. I mean healthcare in the United States is just such a disaster. I mean, it you know, it’s not really healthcare, it’s sick care. And so, you know, that’s another big bugaboo of mine that, you know, everybody’s gotta start eating well and exercising. And because, you know, that’s a that’s a long-time preference activity, right. So, you know, look it but yes, there will be generational. 

Stephan Livera 00:36:10  

Yeah, for sure. 

Lawrence Lepard 00:36:14  

Strife and probably there should be, and you know it’s time for a lot of these boomers to go and it’s time for. More and you know all I would say because I am a boomer right in the heart of it, probably almost in the peak year as born in 57 is, you know, don’t put us all in the same bucket. You know, they’re boomers who get it. And then there are boomers who don’t and, you know, some of us like myself are, you know, that’s kind of what I’ve dedicated myself to, is trying to fix this. System because it’s, you know, it’s a broken system. It’s an unfair system and I care about what my kids and my grandkids are gonna, you know, be living in. And you know, I figure at this stage of my life, the appropriate thing to do is to try and work towards a better system. 

Stephan Livera 00:36:55  

Yeah, I mean, that’s very admirable. And certainly, I see there are some boomers out there who get it like yourself and people like, you know Gary Leyland and others out there and yeah, first, of course. And so, it’s interesting that we’re seeing some of these demographic battles in a way, because as an example, in Australia, there’s a big there’s, you know, fighting going on about the superannuation. System because it basically it’s kind of similar to the 401K system for Americans. But the gist of it is that they had a preferential tax array. Different. And now what’s happening is they’re sort of saying, well, actually now we need to tap into that. And so there are all these people who’ve had kind of like a forced savings in a way, but it’s put in this pool that they can’t access until they’re 65 or 70 or until the technical term is preservation age. And so, then it sort of creates this new football, that it’s a government, you know, controlled. Or it can become a government-controlled pot of funds and yeah So, it’s just like a really, yeah. 

Lawrence Lepard 00:37:51   

Yeah? That’s certainly you mentioned earlier. You asked what are the things government can do. One thing I could easily do is say, look, your 401K, you know you’re gonna lose your tax benefits and your 401K if you don’t use half of it to buy government bonds. I mean, I’ve kind of been expecting that as a possible, you know, they’re certainly. I mean they look they can do anything they want. And they’ve got a problem, which is they’re deeply, deeply indebted and getting more and more in debt. And the math suggests that that’s going to come to a conclusion here at some point. 

Stephan Livera 00:38:21  

So, it’s more just a question of timing then and you know how long can they kick the can, is it going to be one or one of you know a few years or is it really going to be more like you know a decade or two decades or three decades? 

Lawrence Lepard 00:38:31  

I don’t think it’s two or three decades. I could see a decade and I just. I’m just looking at the slope of the curve and things are happening more quickly and. They’re happening at larger scale and so and I think you know how I think is pretty good and is generational cycles. I think he’s got this one right. If you assume this 4th turning kicked off in 08 and these things typically last 20 years, you know it. It feels to me like at the end of this decade, you know, the system will be going through substantial change. And which will be painful, but ultimately very positive for the for the human race. We’ll get a we’ll enter a new a new season with a better currency system. And you know, all this debt will have been resolved and frankly, a lot of it will. Have been written off, you know, so. 

Stephan Livera 00:39:16  

And that’s going to be challenging for some people too because. For them, that other person’s debt is their asset, right? They may be bond holders. And so, they’re going to have to take a loss and that’s going to be rough for them because they’re going to feel like, I made all this money after investing, and now it’s getting written off. And, you know, you can see that. 

Lawrence Lepard 00:39:33  

Absolutely not there. Look, there’s, you know, they’re winners and losers here in this whole thing, sadly. And the losers, I mean the biggest loser without any doubt is going to be anybody who holds any sovereign’s debt, because these sovereigns have proven themselves to be irresponsible and that this crisis is unfolding at the sovereign level, and that’s why it’s called the everything bubble. It’s unfolding at the level of the money itself, and so, you know, the odds are high, in my opinion, that the money becomes worthless. I mean the, you know, people think it can’t happen because the US has all the military and where the reserve currency or the largest country, etc. etc. But if you look at what’s going on here, the pattern that we have. You know, basically this has happened over and over again in Third World and emerging countries. You know, Reinhardt, right off in their studies and all have shown that, you know out of 100 examples of countries that have gotten this much debt to GDP, you know, I mean like 99% of them, you know either default or massively inflate you know to get out of it and so. Even though we are the world’s reserve currency. Let’s see. I don’t think that lets us out of the mathematical problem. I think it’s, you know it’s there. It’s going to exist. 

Stephan Livera 00:40:36  

And so that’s the other big talk of town is this depolarization narrative. And are we moving into a multipolar world now? I think there’s a few things on this, like our friend safety and he his idea. His view is more like look, a lot of countries want to try and set up their own alternative. Maybe bricks is going to try but at the end of the day. They still need to have a credible enough bond market for other investors to want to buy. There to buy that thing and you know, it’s kind of like the Ronnie Coleman quote. Everybody wants to be a bodybuilder, but anybody wants to lift this heavy weight and it’s kind of like that, but with government bonds. And so, even though the US is the worst, not the is bad. the US dollar is kind of, you know, devaluing it’s still less bad than the alternatives. So, I’m curious how you’re seeing that when you kind of blend all of that together, this idea of a multipolar world. 

Lawrence Lepard 00:41:28   

Well, look, I don’t think the dollar is going away and I’m actually friends. Brent Johnson and I and I subscribed to his milkshake theory that, you know, the dollar is the best of all the shady currencies. They’re all Fiat currencies. They’re all shady, but you know, for historical reasons, the dollar is the leading one. But what I think what I think is happening, that’s very important is that you know, the dollar used to be, you know, 95% of all trade. You know, was denominated in dollars and that’s changing. That’s logistically change. Literally and logistically changing and you’re starting to see countries invoice each other in their own currencies and just trade directly skipping the dollar and then the other issue here is you really are talking about two different things you’re talking about what do you, what currency do you? Trade in so that you need to buy it briefly in order to buy something else, and then you’re talking about what currency do you want to store your value in? And I think. What’s going on is that more and more people, more and more countries are coming to realize that the dollar is not a reliable place to store value. And so, you know, the bricks in particular have said we’re tired. You know, we’re going to make the rules now. We’ve got all the commodities you don’t you need our commodities. You’ve under invested in common. These for 20 years, we’re going to change the rules, you know, and we’re going to make you either pay in terms of, you know, using our new bricks currency, which I think they’re gonna probably announce in in a few days on August 22nd, so. With Africa or, you know, we’re gonna go to something that’s more, you know. And I believe what it will be. It’ll be gold backed or gold linked, and so you know what they’re saying in my opinion is, you know, we know your Fiat is losing 7 to 8% every year compound overtime and we’re not going to hold it. And so, you know it’s just one more. Or Jenga block being taken out of the debt structure of the United States. I mean, you know, as Luke Gromen points out, since 2014, foreign central banks have been net sellers of U.S. Treasuries. I mean, we used to be able to run these deficits and, you know, we have buyers all over the world for our debt as a result of the credit worthiness in the United States, that’s no longer true. China is now a net seller of U.S. Treasuries and yet all these central banks are also net buyers of gold. Sadly, they’re not. Net buyers of Bitcoin yet. They haven’t moved to that step. They’re on their way to getting there, but they just don’t understand it yet, you know, except El Salvador and so. You know, they, they recognize that they need to denominate value in something that governments can’t print because they’re very much aware of the issue as well. I mean it’s one of these issues that’s just becoming more and more clear to everybody and like so many things in life, I mean, you know, you the first people through the door are going to do the best, right? I mean, the people who bought Bitcoin. $2.00 or $20.00 or $100 or even $3000 you know are going to do better than the people who are buying it at $300,000, which you know there will be plenty of buyers at that level and. And so, you know, it’s like when you’re in a crowded theater and the fire breaks out, first people get out there. They’re the best escapees. You don’t want to be at the end of the line, you know, as the smoke kind. You know billows up and so you know, it’s becoming more and more clear that these currencies do not store value. And so, you know, and it doesn’t matter which one you’re in and it it’s interesting to me what’s going on in Japan. You know that, I mean, Japan could actually be one of the first ones to fail. I mean, you see the yen now starting to really Slide and then you’ve got the. A Japanese Monetary Authority, you know, basically letting their band of what they’re willing to accept as a yield on their ten year go up in order to try and prevent that slide. And of course the yen has been somebody on Twitter headed up. The yen is the ATM at the at the World Financial Casino. It’s the ATM in the in the lobby because people borrow in yen because it’s so cheap in order to speculate and everything else. And so if the yen starts to fail and then interest rates start to go up, you know, there’s another source of liquidity drying up. So, you know, things are things are breaking. I mean you can just if you have to kind of look between the cracks. That things are breaking slowly but surely and you know, eventually they’re gonna accumulatively break enough that I believe we’re gonna have something that looks again like the 2008 crisis that you know. And you know the signs and people say, what do you look for? Well, there are there really three prices I check when I get up in the morning. Okay, I checked the 10-year yield. 

Lawrence Lepard 00:45:36  

I checked the price of gold, and I checked the price of Bitcoin and you know, I find it very interesting here that in spite of you know, the toughest monetary tightening campaign. Since 06 or 05 or 6 or even since you know back in. Greenspan stays, or Volcker State? Well, almost this stuff is Volcker days. You know, I mean, real interest rates having fallen by 506 hundred basis points, that gold is within 5% of its all-time high. And Bitcoin is up 75% this year to date. And So, what what’s going on here is these two sound money assets smell what’s coming. You know, they’re not buying it. They’re not, you know, I mean, in the past, if you’d had this kind of an interest raising rate, raising campaign. And God would have gotten slaughtered. It just would have gotten completely hammered and some of that Bitcoin rise is coming out of the FTX bounce or the FQDN low. I mean, we all know 15,000 occurred because FTX blew up, but the point is that the markets are saying we see what’s we we’re looking around the corner and we know what’s coming. We know that. Is, you know, Jay Powell can say whatever he. Wants, but we know what he’s going to be forced to do and his words are just words. I mean, that’s the thing. I encourage everybody to understand. I mean, remember when he was saying inflation is transitory and we’re not even thinking about thinking about raising rates? I mean, that was that wasn’t that long ago. It was 2021 fall of 2021 I mean the dot plot. Had you know interest rates going to, I don’t know, 75 bips or something, maybe 100 bips you know up from 30 bips right, you know and here we are at 550 I mean, you know, these guys will do whatever is expedient for them at the time and then they will claim that they, quote unquote, had to do it. You know that they stopped the ATM’s from not working. I mean, you know, that’s was the claim in 2008 when, you know, Paulson was on his knees begging to Nancy Pelosi. You know, if you don’t give us this tarp. Mail out you know the ATMs are going to stop working and the entire country is going to shut down. And of course, they she fell for it, and they fell for it and they gave him the money. So, you know that another moment like that is coming. We just don’t know exactly when, but we do know that it’s coming and we do know that the policy response, in my opinion, they’re those people who think they’ll let us go into a Great Depression. I don’t think so. I think they will respond the way burns Arthur Burns did, and they will. They will turn around and they will, you know, drop rates and start printing again. They have to so. 

Stephan Livera 00:48:03  

Yeah, well said. And so, when it comes to this question of, you know, we’ve seen the yield curve invert, which is also a classic indicator for recessions coming. But there’s normally a time lag to these things. So that you know people are talking about how the housing markets around the world are dropping or in parts of the world, and that cycle can take a few years, right? It might. We might be only one year into that and maybe it takes two or three years for the property down cycle to happen and then at that point, that’s when they the so-called policy response comes. 

Lawrence Lepard 00:48:32  

Actually, talking about this and I’ll put it up on my Twitter feed when it comes out, I just got it in my e-mail. But as a gentleman who was a friend of mine named Dan Oliver, who was really a great monetary historian, is writing a book on the history of money, and has done just really in-depth research and he goes back into the 1800s. He looks at these, and it tends to be the lag effect. If you kind of average it out, tends to be about two years from the time at which the tightening begins. That’s it really bites hard in about the two-year time window and so, you know, Powell started raising rates in February of 2022. So, two years would be February of 2024 and. My opinion is it might happen this fall. I mean, I kind of to me, Silicon Valley Bank felt like Bear Stearns failing. I mean, Bear Stearns failed in March of 2000. And the GFC hit in September, October, Bear Stearns, I thought, this is big. This is. I mean, I’m sorry. Something about this is. Big and, you know, six-month lag. So, we could see fireworks this fall, but maybe not. Maybe we make it into next year. Maybe we make it into late next year. I don’t think we make it 2 years, I think. That this fall next year? You know, this is things are going to start to things are going to start to happen in. An accelerated pace. You know, now, you know, they’ll counter them and that may drag it out longer. So, we have to be prepared for that but at the end of the day. What I rest on is the mathematics of the situation and so as a result of that, you know I’m a very long term investor in my time preference is extremely long. But when I’m investing, I don’t need it. In fact, it’s probably for my kids or my grandkids. And so as a result, and my goal is to maximize it. And so as a result, you know, I’m just very comfortable to sit here and watch the watch, the circus. You know, watch the circus come to town because the circus is coming. We know that. And it could be a hell of a show, right? We know that and I and I find it kind of, you know, amusing to, you know, to watch what the Fed had say and do, and this, that and the other. And I and I and there’s, like, there’s certain signposts like to me, you know, as I said, I there was an article recently, you know, the genius of Jay Pollock thought Oh boy, that’s a sign post. You know what I mean?   All right, Jay, we we’ve hit. We’ve reached Pete Jay Powell right now. I mean it’s, you know, that’s like the business week cover. That said in 1979, it said the death of equities and you know that was right before we started the 1980s. The largest, you know, run in the bull market and equities we’ve had. A long, long, long time, and so you know, to me, this is a very good negative indicator that the genius of Jay Powell is about to start fading very, very quickly, in my opinion. 

Stephan Livera 00:51:08  

And you know what? And I’m sure you’ve seen this as well historically that that’s part of the cycle. We’ve seen Alan Greenspan lauded as this amazing figure. We’ve seen Ben Bernanke given awards and, you know, lauded as a hero. So, you know, he wrote his book called The Courage to Act. That’s Ben Bernanke’s you. Know book title. 

Lawrence Lepard 00:51:25  

Right. He won. He got a Nobel Prize right for ruining the financial system. 

Stephan Livera 00:51:27  

Right, yeah. 

Lawrence Lepard 00:51:29  

He gets a Nobel Prize, right? How do you do that? 

Stephan Livera 00:51:32  

So, I guess it comes down to a cultural like that’s where the culture is. And that’s where, let’s say the financial press and the talking heads, the typical talking heads are just talking in that way where they’re very much praising the central bank, praising the government for being such great stewards and managers, whereas obviously those of us who are skeptical are looking at that. Hey, that’s a warning. And we are, let’s say, playing a waiting game. 

Lawrence Lepard 00:51:56  

Yeah, there’s a lot of irony in those kinds of things as my father, as you say, you know, god has a sense of humor, right? I mean, it’s just before, just before. He’s about to get the shade kicked out of him there, telling Paul what a genius he is. And we’ll see. Let’s see how that looks in about a year or two I. Think it’s going to look substantially different, you know? 

Stephan Livera 00:52:13  

Well, there you go. Well, I think that’s probably a good spot to finish up I think you know we’ve covered a lot of things. But fundamentally I think it’s fair to say things are breaking so. 

Lawrence Lepard 00:52:22  

I think breaking they’re taking a little longer than I thought, but they are breaking and. You know, I think the you know the good news is we have these great exit paths and you know the and I think our job and I know you do it. I know Swan does it and I know you know everybody I know does it and that’s what I do on Twitter. Our job is just to spread the word as much as possible because you won’t get a do over on this. I mean it. You know, if it if it happens the way I think it happens, you know, Bitcoin will be through, you know, I mean the odd, the chance to buy Bitcoin below $30,000. I mean, what a gift this is. I mean, what a just an amazing gift. I mean, you know. The fact that you could be a whole coiner still, I mean that an average person, you know, obviously 30,000 is a lot of money, but that that real people, real normal people could you know buy one whole coin and that’s an amazing gift because I you know I don’t think that’ll happen that’s not likely to happen again you know after this next run and you know I think I think on the next run. Will take off. Go through 3000. I think Bitcoin will be through 100,000 and you know the inflation will be. We’ll be back in it and it’ll be, you know, game on and as we all know it, you know it’s, you know, it’s suddenly and then all at once, right. I mean on another podcast to give an example of how quickly a, you know, a stadium fills up with water. I mean, exponential functions are hard for people to understand, but when confidence is fully lost. I mean these there’s no limit to how far these things can go in terms of their value as measured in dollars because there’s really no floor to what the dollar can be worth because ultimately the dollar, you know, if total confidence is lost in the United States government, the dollar will be worthless. And I know that’s hard for most people to fathom, but I don’t think it’s entirely outside the realm of possible outcomes. And in fact, I think it’s one of the more likely outcomes. So, but that’s just me and I’ve. Been wrong a lot so. 

Stephan Livera 00:54:12  

Well, no, I think that’s right. I think it’s more just about having the right time preference and the time period. on that right, because I’m sure people are gonna. Say the dollars worth is, well, not tomorrow it’s not gonna happen tomorrow. 

Lawrence Lepard 00:54:25  

No, Let’s talk 10-year window, 10-year window, pretty comfortable with the projection I’m and like I said I could still be very wrong. We’ll see, but I think people who save in terms in Bitcoin terms or silver and gold terms are gonna be they’re gonna appreciate the fact that they’ve done that versus some of the other choices they have for where to put their money. 

Stephan Livera 00:54:44  

Fantastic, well, that’s a great spot to finish. Larry, where can people find you online? 

Lawrence Lepard 00:54:48  

Yeah. So, I have a website, you know, the videos are up there. Our quarterly letters are up. There’s a free sign up for the quarterly letters. We won’t spam you, and then I make a lot of noise on Twitter just at my name @LawrenceLepard and most of it’s just anti central bank anti Fiat money. 

Stephan Livera 00:55:04  

That’s what we love to see. Well thank you Larry and hope to see you soon. 

Lawrence Lepard 00:55:09  

Enjoyed it. Thank you. 

Stephan Livera 00:55:11  

I hope you enjoyed the show. If you did, please make sure to leave a like and share the show with your family and friends. Get the show notes at Thank you and I’ll see you in the Citadels. 

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