The Exchanges

Q Ray, can we, can I just ask back on China? You know Chinese leadership. You've spoken and had relations there for many years. Can you share with us your point of view on how they think about their position in the world, and how you understand their intentions?

A Yes, I'll give you, I'll give you my thoughts. I'm not making judgments, I'm just passing along, ok? Um, They, they think there are two different systems, two different approaches. They would think that an autocratic and a, ah, an autocratic system, ah, ah, they used to have a committee that would make it, but they would say it would be very much like a company. If you had a company, you have a board, you have the executive committee, and so on and so forth, and you make, make sure you get the leadership. And then they would say, um, that the world should have a competition, and that, ah, throughout history, There are these competitions in all the various ways we talk about, and there's an emergence of that, and that there's an inevitability, and I think we say that there's an inevitability, for a, um, a conflict, because there's a containment, And then there's a desire to expand, and it's like almost keeping a lid on a boiling pot, that's the type of situation. I can go on at length about the particulars of their thing. They're, they have a very good historical perspective because their history's been literally 5000 years, like we think of ours. They remember the particulars, and all the leaders study that, and there is a cycle that they're very conscious about. So, for example, the big risk that they believe is instability. So, she says, um, that the big, um, the big storm on…

AI assessment note: “They think there are two different systems, two different approaches.”

Q you have these like large re-transformations and reallocations of power. But in a world where we are now sort of almost on the precipice closer than we've ever been to this sort of form of abundance, whether it's quasi-costless energy, whether it's food that's available to be printed or made or what have you, what do we fight over in this next great conflict? Like, what is worth fighting over?

A Um, ok, so let, let me first deal with the productivity thing. Throughout history, productivity's been the greatest, and so if you take the twenties, we had the productivity, most inventions, most patents, and so on, in the twenties. You also had a debt problem, and you also had a wealth gap problem. Um, so, um, I believe that in terms of the new technology, we're gonna really see new technologies, now, they can be used for weapons, or they can be used for productivity, but we're going to have to have a reorganization Of how are we going to redistribute the wealth and opportunities and so on? So if we come back, I think we just have to look at what are we fighting for now? What's going on? And I think that, um, of course, there's a fight over money. If you have a downturn, if you have a debt problem, And I think there's good reason to believe we will. We'll, we can get into that in a minute. But, um, they fight over money, and they fight over differences in values. In other words, the differences in values, like, um, how do you educate your children? What is, um, transgender issues, and education issues, and those types of things. And so I think you're seeing those things to fight over. You're seeing plenty to fight over. And let's say we don't fight. Let's pray we don't fight. Let's, what we need is to come together. But, um, if, let's say we don't fight, you're still gonna ha…

AI assessment note: “they fight over money, and they fight over differences in values.”

Q for a number of years at this point? Or is it because China is structurally abandoning the US dollar and treasuries and moving more into gold and other central banks are moving into gold? Is it because Individual speculators and market participants are getting bubbly with gold. What's your view on what's gone on with gold and how it relates to the market's acknowledgement of the stage that we're in?

A It's the big cycle, and what you have to understand is that gold is not a precious metal that's speculated on, like most people have come to think of it as. Um, it is, um, the most established money that, it's the second largest reserve currency that central banks hold. And so, what we've seen is for various reasons that I've pretty much covered, the economic, the supply-demand, the political, the geopolitical, for those reasons, central banks themselves have acquired Gold to build that up, and individuals and others are looking for an alternative money. The question is, what is money? So when we're thinking about this, money, mechanistically, money is debt. What I mean by that is that if you're holding money, you're holding it in the form of a debt instrument, And if you, um, are holding a debt instrument, what you're getting is a promise from somebody to deliver you money, ok? And what, as I mentioned in the beginning, the power of the central banks, when they have too much debt, is to print money. Okay, so if you've got that down, okay, then you can understand what's happening, okay, because the question is, Dave, what money do you think is safe?

AI assessment note: “central banks themselves have acquired Gold to build that up, and individuals and others”

Q No, I think this is really interesting, because I think you're saying if you don't fight over the historic Area battlefields, right? If we're not fighting over resources, we are going to fight over social issues, or social constructs, or social beliefs. So, I, I.

A But you, but I'm also saying you're going to fight over resources. Like, it, it, we have debt, and it, And will operate as though it doesn't matter, and will continue to have the pile. If you look at history, and we can get into why it is, it is not that that goes on a while. And you can't continue to increase your living standards by borrowing more than your, ah, spending. You know, you can't keep accumulating your debt, because it has to matter. So these types of things, as they build up, as the debt builds up, as the wealth gaps build up, And we are, the values gaps build up, and then there's difference in reaction to controls. Some people, so you see the movement. We will have things to fight over at the same time as we hopefully will have a productivity miracle. I think that in the next five years, I think year by year, we're going to go through a time warp. You're going to see radical Disorder in the next five years as each one of those things comes to path. First with the, the elections as we have. Then we have the conflict with the geopolitical conflict. Then we have, um, the climate issue, which by the way is a very expensive issue. We should talk about how, how costly that issue is. And then we're going to have, um, this issue of technology which can provide the greatest miracle But also is a, is, is a weapon.

AI assessment note: “I'm also saying you're going to fight over resources.”

Q Why hasn't Bitcoin performed in the same way? In the same period that gold's climbed 80% since we last talked, Bitcoin's down 25%. What's your view on what's happened with Bitcoin and why that hasn't played the role that many thought it was going to play, which is the safe haven asset?

A There's an important differentiating characteristics of Bitcoin. And then there's also, you know, like who owns it and why they buy, why they bought and sell. Okay. So Bitcoin does not have privacy. Any transactions can be monitored and then indirectly perhaps controlled. Central banks are not going to want to buy Bitcoin and being able to hold it. So it's not just individuals, it's institutions and so on, but most, you know, and central banks, So that there are attributes of that. There has been, um, some question or thoughts of the development of, you know, new technologies like quantum computing and so on. Can there be issues regarding that? And then there's, um, you know, who owns it and what are the other exposures that they have in their portfolio? It tends to have, um, a pretty high correlation with, uh, the tech stocks. So from an ownership, you know, just the supply demand is affected by if somebody gets squeezed in one thing, they sell something that whatever else they have. So there are those dynamics. It's a long way and it's a relatively small market. That's a relatively controllable market. I think a lot of attention has been given to Bitcoin, but as a money, you know, it's, it's, it's, it's small in relationship. To, um, gold. And so, uh, you know, those are the dynamics. There is only one goal.

AI assessment note: “It tends to have, um, a pretty high correlation with, uh, the tech stocks.”

Q Is there not enough productivity driven economic growth in this nation at this time to give more people the opportunity to improve their income, improve their wealth, improve their livelihoods? Is that the fundamental issue we're dealing with at the moment? Or is it that, you know, people aren't prepared or educated to be productive and therefore the system itself has failed them?

A There are three things basically that you need to do to be successful. You have to first educate your children well, and so that they are capable of being productive and also educate them in civility so that they are civil with each other. The second is then they have to come out to an environment that is an orderly civil environment that people can compete and work with, with, with, and, and compete and work with each other to be productive. That, that works for the most people. And the third thing is you have to stay out of wars. You have to stay, you not have to have no civil war and no international war. If you do those three things right, you will have a successful country. That's all throughout history. Ok, we're having problems with those.

AI assessment note: “There are three things basically that you need to do to be successful.”

Q for their labor contracts. Drivers can now make a 180 grand a year. I mean, just, there's a lot of money to be made, but then there's this Real, but also hyperperceived imbalance. And I just want to get your sense of how much of this is the social media phenomenon of just never having enough, and how much of it is true when you look at data like that?

A There's a, there's, there's a huge, um, wealth gap, um, and the nature of our, our economy is producing this, so I can rattle up a bunch of statistics. What happened, um, As happens in these cycles, is that when you have, ah, the type of situation we have, the government will take on the debt. And it'll send out the money. So the mechanics of that were that there was more checks and more money sent than there was, ah, loss of income by a lot. So a lot of money went out, and as a result of that, the financial conditions of the household sector improved, generally speaking, while the financial conditions of the government sector Ah, the, the government got into a lot more debt. That's very classic at the end of the cycle. Because there's a set, an imbalance between demand and purchases of bonds, there is the central bank buying those bonds. That monetization. Ok. So now, that's what the wealth gap looks like. And also, that also creates more of the inflation.

AI assessment note: “So now, that's what the wealth gap looks like.”

Q Okay, fair enough, and that's not good, but I mean, I guess my question is, why don't you have more criticism for our elites who are running all these institutions, who are making these decisions?

A I do. I, I mean, it depends what you're. I, I, I, I wrote a piece about four, four years ago, which says why and how capitalism needs to be reformed. And I believe that on these issues of equal opportunity and not that, we've got a big structural problem. And that, um, everything needs to be reformed. I'm not against capitalism, but it needs to be reformed. And part of the big problem, just analytically, mechanically, is that, um, it's, it's, the profit system alone does not direct resources adequately. Let's say if we take the climate, for example. Um, there was costs, terrible costs that come from climate. It's not built into the system education. Look at the gaps in education. This, the structural system means that the central government can, ah, that state government controls education. Then you get to the town, and at the town level, It's the town that controls the education, how much they pay, and so then you create wealth gaps with rich people being able to take care of their kids in a way that other people can't take care of their kids, and that creates an opportunity gap. That's a structural problem. It has to be taken on full, looked at, reformed, and we, in order to pull this thing off, we have to do it together, ok? We cannot do it with one side fighting the other side with irreconcilable differences.

AI assessment note: “I do. I, I mean, it depends what you're.”

Q the importance of making sure that interest rates remained low for us to kind of manage the effect and the impact of the stage and the cycle that we're in. What's your view, I guess, today on where rates are and how the Fed has acted over the past year relative to what needs to be done to soften the effects of the stage and the cycle that we're in?

A Because we have so much debt, federal debt, Um, interest rates are one of the three main considerations. There's the, um, taxes, there's spending, and then there's interest rates on the debt. But you can't make interest rates, um, severely artificially low, because one man's debts are another man's assets. And if you make those interest rates too low for the creditor, You will produce the dynamic that we understand. In other words, you'll produce a lot more borrowing. You'll put it into things, and you can fuel a bubble, and so at the same time, uh, you can't have them so high that the debtor gets squeezed unaffectively, so there's a balancing act, you know, keep them high enough that they're adequate For the creditor, but not so high that the debtor. And so when you have a lot of debt assets and liabilities, because for every debt asset, there's a debt liability. And when you have a lot of those, that balancing act is, is very difficult. This made more difficult, you know, because of what's called the K economy, you know, in other words, there are bubble elements that are going on in the part Of the economy, you know, where, um, you know, the question is who will be the first to be a trillionaire and, and, and that, you know, that top one percent of the population and all of that at the same time as you have the other part of the economy where, um, for example, 60% of all Amer…

AI assessment note: “when you have a lot of those, that balancing act is, is very difficult.”

Q It sounds a little like there may be this The inevitable path of the choice that no one wants to make between some form of socialism and some form of fascism. Is that where this goes?

A I think you were, we're moving toward the, that war. We're in that war. We're in what's state, what I call stage five of a cycle. Okay. In the book, I describe the pattern that's happened over and over again. And when you get to this position, when there are a bad finances, Combined with large wealth and values gaps, and irreconcilable differences, and you have external threats as well as domestic threats, You have this dynamic. I think that's where we are. I'm like a mechanic. My goal, I'm not ideological. I'm just a practical guy trying to make money in the markets and trying to describe things, and that's what it looks like. I think when we look at the bubble question on AI, what a lot of people don't realize in bubbles is that through all technologies, they think that they Are betting on the technology when they buy the stocks in the companies. That's not true. Ok, there's a giant difference between the behavior of the companies and the behavior of the technologies. And that the norm is, in these, is that a lot of companies won't survive in the start. Very small percentage, and they'll all fight, and so on, but the technologies will go on, and it'll be great. The technologies will. So I want to emphasize to people that dynamic, and I can go on and describe, you know, what it's like. Of course, we've seen it to some extent with the 2000 books, Bubble in the technologies and …

AI assessment note: “I think when we look at the bubble question on AI”

Q Just frame for us your thoughts on debt for a second. How do you think about debt as an absolute construct or a relative construct, especially sovereign debt? You know, the, there is a U.S. debt, but then there are also every other 182 countries who have a ton of debt, and so how do you think about debt, debt to GDP, relatively and in absolute terms?

A For any country, and quite often Many countries, because they go through the cycle together, as they did in the thirties, um, what happens is debt rises relative to incomes, and what that means, mechanistically, is that debt service payments rise relative to incomes, and, um, and so it squeezes out consumption as the compounds, and What happens is there's a realization that they have to print money. So I think you're going to see, in the next downturn, another move to print money. There are certain things that are going on now that means that the big risk comes when they don't want to hold those bonds anymore, ok? Because the supply-demand, think about that supply-demand, has a deficit, it has to borrow. And so it sells its bonds. Who are the buyers of the bonds? Why do they buy? The buyers of the bonds buy because there's an attractive return. Not only do you have to sell those amounts of bonds, but when they start to realize that I'm not getting good returns on those bonds, they can sell those bonds. There are 30, one trillion dollars of bonds. But what would they, what would they own instead? Um, they always own, um, uh, tangible things, and those things can also be, it could be equities, It could be other, many other things. It could be gold, ok? Gold has always been, um, accepted as a money because it's, nobody else is, there's a saying, gold is the only asset you can have…

AI assessment note: “what happens is debt rises relative to incomes, and what that means, mechanistically”

Q were taken were wrong, or did Doge fail because the system itself cannot be changed at this point in the cycle? That there's too much capital flowing, the economy is too dependent on it, there are too many individuals and businesses that are dependent on it, and it's structurally impossible to pull our way out of it. I mean, does Doge tell us something about what's possible at this stage?

A Yeah, you're talking about, um, taking an inefficient government and making it efficient. Ok, and having to do it quick, because there are elections, and if people don't like it, then, you know, you lose your mandate. And in a, um, society in which no matter what you do, you're criticized and torn down. So, you know, we have the fact of, uh, the question of does democracy and our system lend itself toward the sort of, um, executive leadership that both makes it efficient and makes it acceptable for all people. You know, there was a lot of, uh, cutbacks Um, you know, things like school lunch programs and things, you know, um, and then trying to do it surgically. So it's, um, how do you do that effectively, quickly in a manner that, uh, doesn't, uh, cause so much controversy that the government falls. So if you look at history, that's why I deal with the political If you deal with history and you deal just even common sense, think, you know, like, uh, are you going to have the executive leadership that's going to be able to make this satisfactory with most people, um, you know, and, and do that quickly. Uh, I think that's, that's a hell of a, hell of a trick to pull off.

AI assessment note: “I think that's, that's a hell of a trick to pull off.”

Q in place a number of tariffs under the Emergency Economic Powers Act, which the Supreme Court in the last week or so overturned. But looking back on the economic effect of tariffs, what do you think economists got right and wrong about their predictions about the effect tariffs would have on the economy, on consumption, on inflation? And are there things that economists fundamentally missed or didn't understand and why?

A Yeah, I, I think so. First of all, um, there's the, uh, tax revenue part of Them. I mean, thinking of it just as, uh, revenue. And I think that people don't, all economists, make the mistake of not including taxes in inflation. And what I mean by that is, if your, if your taxes go up, That's inflation. I mean, why should it be any different than if your cost of housing goes up? Why shouldn't it be part of the inflation calculation number? It's taken, it's taken money out of your pocket. I mean, it's probably the, you know, for a lot of people, the biggest expense. And so when they say inflation is something separate, you know, I think it's changing the form Of, uh, of inflation in a sense. So what I mean is, you know, through history, tariffs used to be the biggest source of, uh, revenue for government throughout most history and in most countries. Okay. So it is a, um, I think it's viewed, it's, it's a totally valid way of raising money and it should be kept in consideration For that, and, and you get the foreigners paying a portion of it. But there's also, as part of the big psycho question, is the problem that we have that we are not independent. Ok, we've had a hollowing out. This is the big question, you know, that we've had a hollowing out of manufacturing the middle class and so on. Now, are we going to try to build that And what is the plan to build that? Or are we goin…

AI assessment note: “economists make the mistake of not including taxes in inflation”

Q continue. So two part question, what do you, how does everything you've learned and studied impact your thinking when one person, an authoritarian, uh, Xi Jinping is running China and disconnecting it from the rest of the world in terms of their ability? Um, and then do you consider this, if they did succeed in becoming the dominant power in the world, what do you think that does for humanity?

A There are a bunch of questions. I'll try to remember them and take them once at a time. I think China's gonna be a big power for the foreseeable future. I think the basic picture in China, ah, the United States, the emergence of India, and so on, is we're gonna, the world order's gonna change in a very profound way. We can't say who's gonna be the winner and the loser of this game, but I think we do know that, um, this conflict is gonna be with us, and it's totally changing the world order. When you're asking, like, who's gonna be the winner of this game, um, like, I'll, I'll tell you history. In the history of democracy, as, uh, Plato described in the, um, in the Republic, there's a cycle, and one of the great vulnerabilities of democracies is the disorderliness, the anarchy that comes from a conflict. And, and so you're asking me to compare democracy and, um, also what I'll call capitalism with, ah, authoritarianism and, um, let's say, let's call communism, that version of it.

AI assessment note: “you're asking me to compare democracy and, um, also what I'll call capitalism with”

Q have conversations with all the market participants that you know, and you know, everyone that's of size and scale, where are we in terms of folks converting their wealth into gold or their money into gold? Like how much more do we have to run in terms of the dollar denominated value of gold in the market cycle as this great rush for the doors rush for the exit happens?

A Two things that come to mind. What I, what I look at is literally who has what assets, including like central banks, what is the money in, and so on, and, and what is that mix? And I look at the amount of wealth relative to money, or I look at the amount of wealth relative to gold. And what we've seen is that there's an enormous amount of wealth And there was an enormous amount in central banks of the other money relative to hard money gold. And so we've seen about what I would call It go from an extremely small number to something that is a less small number. That price increase and that change in composition has brought it almost, not quite, but almost toward, uh, the average of what it's been, uh, over a period of time. So, uh, being out of balance. However, Because the wealth is, total wealth is still so large relative to money. That's a real, uh, issue. So let me give you a practical example of, of, of this. Wealth taxes and wealth Being a risk. One question that might be asked are, are we in a bubble? In other words, are AI stocks and other such stocks in a bubble? That's a, if you want to get into that, we'll get into that. But one of the things that we know from that is that one of the characteristics of bubbles is that there becomes a need for money That requires people to sell their assets to get money To meet that need. Now, quite often that need comes from borrowing…

AI assessment note: “One question that might be asked are, are we in a bubble?”

Q of the total federal workforce. As this administration has reduced the size of some of these agencies, reduced the size of that workforce, what happens to those individuals? Do they go work in the private workforce and become productive? Or do you think they're getting subsumed by other government agencies, either state or local or government service providers to do work that fundamentally is not productive to growing the economy?

A I, I, I haven't studied the numbers. I, I don't think I can adequately answer that. I would say Government is extremely inefficient. It has a role. It has an important role, but even that role it's handling very inefficiently. Other governments handle that role of, um, maybe education, some of these things in a better way. We need fundamental, we need, you know, best thing you could invest in is education. But anyway, where they go and what they do, Um, from the government and, and, you know, the other inefficiencies is a problem. The one thing that's good about, uh, the system, um, that the capitalist system in a sense is it doesn't live if it can't, uh, if somebody either won't bet on it or it doesn't make a profit. So, um, yeah. So I think, Wherever it goes, um, it's, wherever those people go, there are just so many inefficient people and inefficient systems.

AI assessment note: “I haven't studied the numbers. I, I don't think I can adequately answer that.”