[Music] Luke, I don't expect a lot of Bank list listeners will own a lot of bonds, right? It's just, uh, I think they're hedged into different asset sets, you know, like definitely excuse younger, excuse, excuse crypto, not the bond Bond holder type. But in all these scenarios you just described, um, Bond holders take a massive haircut. I guess my question though is what if that's not enough? At some point the demand for B has got to kind of like, you like shrill up. The Market's smart enough to understand the play and what's going on and like, is there are other measures going to be needed? We had a recent podcast episode with Lyn Alden where we talked about a world of capital controls as well, and we can already see some of that creeping in, maybe not so much in the US, but maybe in some ways. Um, you like there's talk of a CBDC. I think you've called that dangerous before. Um, do

do you think that things could ratchet up to a level where giving bond holders a haircut is kind of like not enough, and the capital has to come from somewhere else, and we move to a regime of capital controls? I've heard of this book, I've not read it yet, it's called The Great Taking, I believe. I don't know if you've read that or have a preview of that, but that type of a world where the government comes and basically force confiscates like some level of wealth. I'm not sure exactly how this would turn about, but do you have any thoughts on the financial repression side? We're already 10 plus years into that, right? So in 2014, the Fed regulated US banks into holding more treasuries as high quality liquid assets, and we saw how that worked out last spring with BTFP. The banks started selling treasuries, or they couldn't sell treasuries because they

were so underwater they would had to take the earnings hits so the FED came in and basically swapped them out at par so that they didn't create a run on treasuries. As a result of the run on a few Banks 2015, money market funds in the United States were regulated into buying more tea bills. It crowded out private money market assets sent liore up sent the dollar up 2018. Trump tax reforms incentivized had contained Clauses incentivizing uh us uh pensions to buy more treasuries. Um and they did uh so you've you've seen all of this happen and this is just stuff that like Brazil and aren't gen Ina and various Emerging Market Latin American Asian uh Southeast Asian the in the late 90s countries do when they have fiscal problems and it's not been enough to your point and so ultimately there's ways you can there there are Extreme Measures you can take um you know I've talked about this before if you go to the financial.

accounting manual for federal reserve banks. You can Google that. It's online. It's a public document. Section 2, period 1. Uh, Treasury Secretary can instruct the FED to revalue the gold on the US government's balance sheet. 261 million ounces every 4,000 bucks is about a trillion dollars mechanically dropped into the treasury general account free and clear. No debt offsetting it. $20,000 an ounce is $5 trillion. Yellen could take that 5 trillion weight into the treasury bond market. Buy back 5 trillion in bonds overnight. Um, increase basically the money supply by $5 trillion overnight. Voila, US Deb the GDP. You just revalue the gold because the US has a ton of gold, right? I mean, it's like the most gold reserves of, uh, any country in the world. It's like, what? What do you mean revalue it? You could just like name your price. I mean, don't they have to go for a market value? What's the market, men with haircuts like mine and guns tell you.

what the price is. Wow, that's the it's it's in the Federal Reserve operating manual. So there's levels. I didn't know the has an operating manual, right? There's a financial accounting standards manual. Yeah, it's you can look it up. Google it. It's it's right there. And so yeah, so what happens is Yellen gets $5 trillion deposited into the TGA, and she buys back five trillion in bonds. Boom, overnight. Now the US debt, the GDP is, you know, between taking out five trillion in bonds and the resulting nominal GDP growth, which is going to fraking explode because you just increased the monetary Base by $5 trillion. Uh, so inflation's going to go nuts like that's in the cake. That's going to happen no matter what because we've done a bunch of stupid stuff with borrowed money for 30, 40, 50, 60, 70 years. So now you end up with debt to GDP 50, 60%. Now you can raise rate, take rates to eight. He great to 10, you nasty recession. Who cares? You're

not you going to put some private sector people out of business. But who cares? You're not going to threaten the solvency of the US government. They'll be able to pay 10% rates, and I'll be happy. You know, if you buy back all that debt, I'll be happy to sell my gold at $20,000 an ounce and buy 10-year treasuries at 10%. Great. It's just a wealth transfer now. So that's, yeah, that's one extreme thing you can do. The Great Taking is an example of another extreme thing you can do. And, what I can say is, I don't know David Rogers well personally. I know he's a former Cleveland guy. I know his firm was once a client of my firm. That's the author of The Great Taking. Like, what is the thesis of that book? The thesis of that book is pretty straightforward, which, and it's very meticulously researched and annotated and footnoted, which is over the

last 30 years us and Global policy makers have quietly converted ownership of most Financial assets from an ownership uh from legal ownership to uh I forget the legal term, but it is basically like a general claim on legal ownership. So that in the case of a too big to fail bank or series of too big to fail Banks failing, under the way it used to be, you owned the stocks in your mutual fund, those were yours post these changes quietly and surreptitiously made over the last 30 40 years. You don't own them anymore. They now, in the case of a too big to fail bank failure or series of failures, your mutual funds, your 401k, your IRA, your pensions, the paper wealth of this country, go into a general collateral pool to bail out the big Banks derivative books first and then if there's anything left over, you get your 401k back, your IRA back, blah blah blah blah blah. And with a quadrillion plus and derivatives, the answer, the chances of you getting much of any of

your assets back on net is Slim and numb and slim probably left town a few years ago. So that's the great taking in a nutshell. They just take your assets, just confiscate the. They already took. They, they already took your assets. You just don't know it yet. Wow, that's, that's the, the great taking was something that unnerved me in a way that I haven't been unnerved in some time. I, I'm adding that book to my reading list because it was just like so fascinating when I, when I stumbled across it. Um, you're like Luke maybe just two more things. We've talked about energy, we've talked about the monetary system change, who's going to, who's going to lose from that, maybe, maybe, um, who the beneficiaries of that might be. I, I want to talk to you about preparation, what we can do as individuals, but one quick topic before that is the US itself, okay. It seems really weak right now, uh, at least the, the tenure of this conversation has been right. We got, uh, you a terrible

balance sheet debt to GDP at like historic high. Uh, you have a tweet in your timeline somewhere that talks about the Baltimore Bridge. You know, remember the collapsing Bridge. How estimates for that rebuild, uh, take 10 years. Like we've got other, uh, countries like China outpacing us in every way. We've got, um, you, the, the, um, our, in interest rates on the debt that we pay in the US are now starting to exceed and have exceeded, uh, the cost of military, right, which is like also historic for the US. But, but yet you've also said you're bullish on the US over the next two decades. Can, can you square this for me with all of the headwinds that we're facing, some of the issues we've talked about even just a few on the list? I, I just listed out. Why are you still bullish on the US for the next two decades? Why am I still bullish on the US? So the US has still, I think the best, um, legal system, property rights, etc. It's not using it to its advantage as I think

it might eventually uh and I I think importantly it's certain more areas certain areas of the US I'm much more bullish on than others um and ultimately you know there's an apocryphal quote by Winston Churchill where he says the Americans always do the right thing after they've exhausted all the Alternatives and everything you just listed. And in particular that the interest expense is above defense spending were about out of all the Alternatives so like look at at the end of the day what's the right thing to do. Bond holders are going to get killed on a real basis we're going to go through a period of inflation that's really high and we're rebuild and we're going to do industrial policy and you know we're going to play catchup for a bit and wages are going to explode and you know things are going to be good. It's all a question of sort of how does it look like between here and there and what have you and look there's ways it could go really pear-shaped and and like.

I said there are parts of this country where I'm not bullish at all. Um, there's parts I'm very bullish on. So, some of it depends on where you are in this country. So, um, because some of the leadership is really, really bad, and some of it's actually decent people who get it. So, um, and the people at Washington, they're not... There are people in Washington that absolutely understand what's happening, what has happened, what needs to happen, and they're brilliant. And we don't ever get to see those people. We get to see, sort of, you know, the weather people who, you know, are on TV all the time. Um, you know, the spokesmodels, and they're not very impressive by and large, uh, and they haven't been impressive for some time. So, but the people that are actually sort of behind the scenes, there are some that are very, very good, and they know what needs to be done. They know. And so, it's just really a question of sort of how that plays out, where we clear the decks on debt, however we do it, and then

we start playing to our advantages instead of trying to you know maintain the real value of the bond market to keep some Wall Street guys and some you know some dollar people happy. They're going to be unhappy it is what it is. They had 40 Years of fun. It's their turn in the spanking machine. Well, hopefully the the US can take its turn in the spanking machine, swallow its medicine and and come back uh stronger. And it certainly seems like that that's the necessary course of action and that it won't be the end of the world uh to go through that and well yeah. I mean look the big part of the US has been in the spanking machine for 40 years. The US has spent the last 40 years subjugating the US middle and working classes to support the bond market, Wall Street, and Washington DC. And Washington DC has generally made horrible decision after horrible decision in trade policy, foreign policy, economic policy, and 40 years later they're now admitting that when you have the treasury secretary of the United States like Janet Yellen come

out and say basically throw 40 years of economic Orthodoxy in the trash in the Wall Street Journal like she did three weeks ago. She gets it. What did she do there? She came out and said, For 40 years, we were taught that if someone wanted to send you cheap Goods, you should send them a thank you note. I would never ever again send China a thank you note. National Security adviser Jake Sullivan last year to the Brookings Institute went up and gave a speech. US economic policy for the last 40 years has been wrong, Politico highlighted it in February. The Biden Administration is selling treasuries and buying uranium semiconductor Fabs, copper, nuclear power plants as of today. And yet there's still all these people, they want to own long-term treasury bonds. They're telling you this paper is bad on a real basis. They don't want to hear the message and that's fine. They'll hear it sooner or later. Markets are starting to hear it but like there's not one us, there's multiple.

Us's um and the part of the US that got subjugated the middle and working classes for the last 40 years to support Wall Street to support certain Washington DC interests as those DC interests sort of you know kick the pieces all over the board in foreign economic and trade policy. Those interests are now going to lose on a real basis and who's going to win is America you know and you can see this like the 1%, the 0.1% against the bottom 50% total net worth over the last 30 years. It's done this. High inflation. High wage inflation isn't bad for America. Plumbers are making 20% more a year and they got a 3% mortgage. That's called a debt Jubilee on their house. If you enjoyed all of that then you'll absolutely love the bankless newsletter. Join over 300,000 fellow readers all for free. Click below to sign up. [Music]

“They Already Took your Assets! You Just Don’t Know Yet” - Luke Gromen

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