Jason Hartman starts the show by discussing the K-Shaped recovery and how professionals able to work online will thrive. He discusses the idea of a smaller economy, Biden on the 1031 exchange and the impact it would have on real estate. In the interview segment of the show, Jason hosts Chairman of Whalen Global Advisors LLC, R. Christopher Whalen. Whalen discusses migration matters of people and businesses as a result of the pandemic. He explains how companies have been forced out of the old way and are finally adapting to digitizing their businesses. Later, he looks at the Fed and how they want to keep clear of deflation. He discusses his booked Inflated: How Money and Debt Built the American Dream.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:54
Welcome to Episode 1535 1535 many Have postulated about the different shapes of the recovery. And what these all refer to is if you’re looking at a chart, you know, a economist, like yours truly spent a lot of time looking at charts, charts, graphs, and data and trying to make sense of the world and what’s going on. I have, I believe, rightly predicted that we will have a modified square root recovery. And now Lynne Alden is out with saying the same thing. she tweeted about that maybe two weeks ago, and I was talking about that a few months ago. And what that basically says, Is that just visualize the square root sign for a moment, visualize that it’s got things moving along in a horizontal line, then it goes down into a valley, a V, kind of a V shape, and then it goes up, and on the other side of that V, it’s higher. And then it flatlines again horizontally. That’s a normal square root sign. Well, what I said was it would be a modified square root, meaning that we were going along a horizontal line, and then we go down, and then we go up again, but not as high as before. In other words, my theory is that we are actually moving into a smaller economy, the economy will be smaller. And I have a lot of evidence for this. I take just one segment, for example, tourism, air travel, that industry is not going to come back for a long, long time. It will come back eventually. But again, I believe this whole COVID-19 84 scare is really, either way new listeners, the 1984 was totally intentional. b i get it. Yeah. George Orwell, just I tell ya, if you haven’t studied George Orwell Lately, go back and read 1984 read Animal Farm. This is the kind of stuff nobody reads in school anymore. It used to be standard reading years ago when I was in school used to see people carrying these great books around and and hopefully learning the lessons. So we would never go there. But here we are, sadly, this Orwellian nightmare that we’re in anyway, as we come out of COVID-19 84. And the economy recovers, I think will recover into this smaller economy. And that’s my prediction. Now, some people have predicted the V shaped recovery that’s hopeful the U shaped recovery where it is bounces around on the bottom for a longer time the W where it goes up and down again. You know, there’s the swoosh, the Nike swoosh boy, Nike shirt lucked out on that one, that they people think it would be a solution recovery economists are promoting their brand, their overpriced chews but you know, some have also predicted Case shape recovery. And you know, there’s a lot of evidence for this one too. Now, Mish Shedlock, who’s been on the show before, and who also was one of our speakers at our venture lions mastermind group meeting in Chicago a few years back. And he is talking about what others have talked about as well. And this is the K shaped recovery. Now, the K shape doesn’t really work on a graph very well, but just look at it like a K. And this kind of recovery is good and bad. It’s very uneven. As I’ve said many times this is a very uneven situation, and it’s frankly very unfair. And the K shape is where the professionals, the white collar workers, the knowledge workers, the people who can easily work remotely because they’re in the information age. Those people are going on the up Part of the K, that branch that goes up there, life has actually in many ways improved, or at least three economic situation has improved. And I know for me, this whole thing has been pretty good. You know, I can’t complain. So you know, businesses good. People are buying properties. We’ve been remote and virtual workforce, my whole company, all my companies since 2012. We gave up our last office space when the lease ended, and nobody really wanted to work in the office anyway. So this has been a virtually no adjustment for us. Same, you know, business as usual. So we were already working remotely and most professional people can just work remotely, so they’re not that affected. But everyone else is, well, not everyone. Of course, the building industry is moving along just fine. There’s been no shutdowns or really real restrictions for them because, you know, if you’re framing a house laying bricks or pouring a foundation. You don’t need to socially distance you’ve already been socially distancing, right? So a lot of industries are just going on. But if you’re in the restaurant business, sadly, that’s been a pretty tough slog, dry cleaners, you know, people aren’t dressing up. So they’re not dry cleaning anything, because they’re just wearing their polo shirts and T shirts at home. So, you know, it’s it’s uneven, right? So the lower half of the K people are moving down the socio economic ladder, and the information workers, the people that can adapt, they’re moving up the socio economic ladder, especially if they’re in like Internet related businesses that actually benefit from the stay at home world and you know, home shopping, ecommerce, and so forth. Right? So that’s the case shaped recovery, and Miche makes the case for that and others have as well, and we should get Mitch back on the show because he hasn’t been on for a long time. He’s interesting. Guy, and then you look at the robots subsidy he talks about in this article, and how you know, this push for the $15 an hour minimum wage, you know, Bernie Sanders and all the other clueless people behind it. You know, it seems good on the surface, right? Pay people more blah, blah, blah. Yeah, that’s right. But it just encourages businesses to automate those people out of a job more quickly, and discourages hiring. And, you know, this has been proven many times that you raise the minimum wage you can have, you can raise the unemployment rate. And you know, that’s just logical. Peter Schiff did an article years ago called minimum wage maximum stupidity. Now, what does the government have to do with it? Why should they get involved if someone wants to work, someone wants to hire them? Let the two parties agree they’re consenting adults. I mean, this is not child labor. You know, it’s not slavery, they should be able to make their own bargains. And so this is interesting thing to K shaped recovery. Keep thinking about that. As Time moves forward now, the disaster candidate, Joe Biden, who is unfit to be president, you know, yeah, yeah, you could say Trump’s on fit because he says, He says offensive things. But Joe Biden is just all around, you know, on the verge of stability. Look, he just doesn’t make any sense. And he said, really stupid, offensive things. For years. Wasn’t he the one that said Obama was a clean black, and then, you know, he got the job as his vice president. You know, like, he has these children to rub his legs and I mean, he’s just too creepy for for reality. But of course, the media never reports this because they’re friendly. Damn. So and they report every gaffe Trump makes, you know, like, he’s just the devil, right? It’s just, it’s ridiculous, folks. It’s absolutely ridiculous. But regardless of any of that, none other than the Jeff Bezos owned Washington Post. The left wing liberal Washington Post has an article about Biden and how he wants to take away the like kind 1031 exchange rule that he wants to kill it. Okay. And Bloomberg also liberal, you know, Bloomberg, right, another left wing guy and publisher, obviously, he’s talking about this too. And so Biden wants to kill the 1031 exchange. Now, if you’re a real estate investor, and you support Joe Biden, you really need to have your head examined. Okay. It doesn’t matter what your liberal beliefs are fine and dandy. That’s all well and good. I mean, I hate to even use this phrase, because it’s so shopworn and overused, but I’m going to say it, okay. My personal belief. I’m a libertarian. So, a libertarian. I think, at least my interpretation is, by definition is socially liberal and fiscally conservative, I hate to even use that, you know, worn out saying because it’s just so worn out, okay? You know, it sounds cliche. I hate to use a cliche, but I don’t care what people do in their private life. It’s none of my business. And it’s none of the government’s business, you know, sleep with whomever you want. It’s not for me to say, you know, I can have my own moral opinions about things. But do those things deserve to be legislated or enter into the sphere of government? No, they don’t. Government doesn’t have anything to do with that unless it affects another person. If you’re impinging on someone else’s liberty, then the whole thing is up for grabs and government does need to get involved. But there are many things, including things that have been classified as criminal behavior that are victimless crimes. They should not be crimes. It’s totally stupid. Let’s get out of the business. legislating morality, you can’t do it, it doesn’t work. And it’s not right. Okay. It’s just not right. Okay, but you should legislate a smaller, less intrusive government. Okay, so that’s just where I stand, and that’s where a libertarian would stand. And by the way, I am to a large extent, but I disagree with her on a lot of things to ein Rand or bring your name up again. You know, the great book Atlas Shrugged the life changing book atlas shrugged. Who is john Galt? If you haven’t read it, you know, you gotta it’s a good time to sit down and read 1200 pages because Hey, you got time, right? Or watch the movie at least in three parts. Or, you know, watch the old movie The Fountainhead made in 1948, where you can learn all about Howard Roark, etc. But anyway, you know, she called libertarians. The hippies have the right. Whereas usually you’d consider a hippie to be a leftist Right, in this 60s hippie image, but libertarians she called hippies of the right. So I don’t know, whatever. But I don’t agree with iron Rand on a lot of stuff. I don’t agree with her atheistic beliefs either, you know. So whatever, right? It’s it’s complicated, but Joe Biden wants to kill the 1031 exchange. And he’s been very explicit about it. So what is it? Well, you know what 1031 exchanges are because you listen to this brilliant podcast, but the history of the rule is that it creates more liquidity in the real estate market. And this article in Bloomberg in left wing Bloomberg says the rule regulating a light kind exchange, sometimes referred to as a 1031. exchange for the tax code designation has existed in the tax code for many decades. Until recently, the exemption applied to an array of assets, including things like industrial equipment and rental cars, so you could exchange rental Kars, Congress eliminated that provision for most of the tax cuts and jobs act of 2017. And the Trump, it was the Trump administration’s signature legislation. And but it left the door open for real estate. Now Trump, love him or hate him is what I have called our first real estate president. So how important is this to the real estate industry? The exemption is projected to save property investors, you ready for this? Okay, so it’s a big number $51 billion in 2019, or between 2019 and 2023, according to Congress’s Joint Committee on Taxation. It’s not the only benefit in the tax code that primarily favors property investors. But real estate developers can claim write offs for losses on borrowed money. They also get to claim depreciation On buildings, which, unlike farm equipment, or factory machinery, generally increase in value. And that’s the beautiful thing, by the way, you get depreciation as a real estate investor on appreciating assets. Right? That’s a beautiful thing. But we’re not talking about that here. They’re just mentioning these are other tax benefits, as we all know. Okay. So and then the article has to point out that Trump said he used depreciation to reduce his tax bill. Well, duh, of course, it’s legal. It’s recommended. It’s the incentive, the IRS wants real estate investors to provide rental housing. So they give us this incentive, and it’s a beautiful thing. Thank you very much. Okay. Why is Biden targeting this particular thing? Why does he have the 1031 tax deferred exchange in his sights, why does he want to kill it? Okay, with his ak 40 Seven or is ar 15. That’s a throw that in because you know Biden is anti Second Amendment. Okay. The next presidential administration will be looking for ways to raise revenue to fill budget holes created by the pandemic induced economic slowdown. Biden says he wants to use the proceeds from eliminating the rule on sell. He wants to eliminate 1031 exchange and use that money for child care and elderly services. targeting this particular loophole gives Biden an opportunity to try to embarrass Trump for avoiding taxes. I mean, this is only in this crazy leftist media world we live in. Could this be used to embarrass him? I wear that as a badge of honor. I’ve done many 1031 exchanges. It’s a great thing, and I’m doing exactly what they’re incentivizing me to do. And all real estate investors should guess what, what do property investors say? The article goes on. say, okay, they say that like kind exchanges improve liquidity in the real estate market, and that eliminating the benefit would reduce the number of transactions that could generate tax revenue. Duh. Of course, that’s exactly what would happen. People would just sit on their properties, there’d be less liquidity. So you’d have fewer lenders making money. You’d have fewer exchange accommodator companies making money. You’d have fewer escrow companies making money, fewer settlement attorneys, fewer title companies making money and fewer investors and guess what else you’d have happened? You would have a real estate market or you’d have a lot fewer contractors and Home Improvement people and paint companies and flooring companies and everything under the sun cabinet makers making money the people who sell light fixtures electrical contractors. If you eliminate the 1031 tax deferred exchange, you’d have a whole lot less improvement and the whole market would become stagnant. Okay, that’s what I’m saying. Let me go back to the article and tell you what it’s saying. They point out that the industry is already reeling from the fallout of the coronavirus pandemic, which has shuttered hotels and shopping malls and led property owners to skip payments on billions of dollars in debt. Now, that’s true in the commercial property side, certainly not true in the residential property over here business is booming. And we all know that, but in the world of commercial properties, like shopping malls, retail, hotels, and you know, office properties, that is certainly true. So if you want to make a mark market stagnant, just increase taxes and take away incentives, and you’ll cause stagnation. All you have to do to know if this is true is look at stagnant Europe. And there you go. It’s a great example. Oh, We got to get to our guests. But before we do that, if you need help reach out to us, Jason hartman.com or call us. If you’re in the US and not one of the 188 other countries listening to the podcast, call us at one 800 Hartman that’s a US only phone number. And webinars, asset protection. A lot of people have asked about that estate planning, asset defense, Jason hartman.com slash asset. Check out our webinar running this week on that exact topic. And I know that many of you have taken advantage of our friend and bargain attorney, offering those services. He’s really done a great job and has really provided some great value for our clients. So be sure to check that out. And let’s get to our guests. Let’s talk to our Christopher Whalen as we talk about inflated. It’s my pleasure to welcome our Christopher Whalen. He is chairman of way And Global Advisors LLC, and works as a consultant and analyst focused on financial services, mortgage finance and related technology companies. Christopher edits the institutional risk analysts. He’s author of several books, including the best selling inflated how money and debt built the American dream. Chris, welcome. How are you?
Christopher Whalen 19:20
I’m doing great greetings from New York City.
Jason Hartman 19:22
Yes. The epicenter of a lot of the stuff that’s going on now. And you know, since you are in New York City, we’ve been talking a lot on the show about this mass migration that i i think i was predicting before anybody, at least anybody in the real estate space out of cities, are you finding that to be true? It’s just beginning really, but are a lot of people talking about that? I certainly, you know, I know a lot of people are in the Hamptons and such and the outlying areas.
Christopher Whalen 19:50
Any thoughts on that? I think there were different waves when the city shut down, and all the hospitality and you know, restaurants and entertainment Fine Arts almost industries were shuttered. So all those kids, many of them had to go home live with mom and dad, because they don’t have a job. We’re very big supporters of American Ballet Theatre, they’re not gonna have a season this year, right? Those kids aren’t working, they’ll have to go home. So that impact was initial, and then you have others, families, businesses, who are thinking about precisely the question you just asked. And I gotta tell you, there are several very large employers in New York City that are going to relocate, partly because they want to, they want to put their people in different locations. You know, Goldman Sachs, for example, they have now split their entire investment banking team in the three and they’re not gonna let them visit one another. Wow, completely partition them. And I think that’s prudent. But how do you manage the commercial building when you have to waiver everybody who walks in the door? Yeah, it’s
Jason Hartman 20:55
just, it’s just, it’s just impossible. It really is. You’ve got to have something waver and take their temperature too. So it’s really, this is an epic sea change in the way the world operates. It’s just unbelievable. But long term, there are some good things coming out of it for sure. I mean, companies are creating a lot of efficiencies that they didn’t have before. You know, Joseph Schumpeter is one of my favorite economists. And in that creative destruction he talked about is happening, lickety split, it would have happened over the next five or 10 years, but now Necessity is the mother of invention. And, you know, everybody’s really been pushed into it. And you know, those, those efficiencies will last far beyond the pandemic. And I think they’ll just be ingrained in the whole system. And that’s very beneficial to a lot of things and in probably deflationary overall, right.
Christopher Whalen 21:49
Well, it could be example, residential mortgages, which are gonna have a great year this year, by the way. Yeah, they’re gonna do a record issuance two and a half trillion dollars. Yeah. They sent everybody home. They sent them home with printers and scanners and PCs and whatever. The technology was already there, right to enable that. And so what we’ve really done to go back to your your comment is, we had the capacity to change, work patterns and behavior and all of that. But we were still doing business in the old way. to a large degree, the technology was helping, and it certainly increased efficiency in many ways. But we’re still coming into the office, we’re still commuting every day. This is going to blow that up. And it’s going to result in a change in behavior that I think is going to be long term. And unfortunately, when you look at things like commercial real estate, and urban centers that were built for density, and very tense usage, that’s going to change.
Jason Hartman 22:46
Yeah, either by preference or by by force or both, right? Nope, no question about it. And the other efficiencies that I didn’t mention is that I think we will see some reduced pressure on wages, as people move to the suburbs, they’ll find their cost of living drops. And of course, employers will take advantage of that by, you know, either freezing salaries or even lowering them. Maybe they give them an allowance for home office or something like that. But overall, I mean, think about it. You know, I have many friends that live in New York City, young professional types, and, you know, they’re paying four grand a month rent, they got a 600 square foot condo or apartment they’re renting. And, you know, if they go move to the suburbs for 1500 dollars a month, they can get a nice home in the suburbs with a yard and a two car garage and, you know, 1500 square feet for you know, 14 1500 dollars. I mean, that’s just
Christopher Whalen 23:46
Yeah, pretty much the other side of this though they’re invoking something or another economist, is it? You know, the Dutch built New York City has a grid for efficiency, right? They wanted to pack as many people in as possible. If you Read short those book about your city at the center of the world. And that dynamic is important to commerce. It’s very important to organizations. You can’t run everything remotely.
Jason Hartman 24:11
I agree with you. I think it’s a High Tech High touch professional accommodation. That’s the best Yeah,
Christopher Whalen 24:17
for the rank. And finally, I made a fight to train people. If I have to supervise people, Mm hmm. You know, it loses something it does along the way.
Jason Hartman 24:27
And conferences to the conference business. It does lose something, but it gains some things too. So,
Christopher Whalen 24:34
yes, you know, it’s a mixed bag, better quality of life. If you have a family, you don’t have to commute every day. I think what you’ll see, by the way, is they’re going to rotate people in and out of offices. They’re going to give them the choice to come in when they have to. I work on a trading floor with some of my colleagues. So we’re spaced out. That’s fine. Yeah. Do I have to be there every day? No. Definitely not. Yeah, right. And I think that’s what’s gonna happen because of liability. How can employers and buildings and cities deal with that aspect of this? They really can’t.
Jason Hartman 25:06
You know, I’ve really been puzzled about that one. And you mentioned, you know, I mean, you come into the Goldman Sachs building in New York City, right. And you got to sign a waiver. I mean, are you kidding me? But, you know, I don’t I don’t know how Trial Lawyers could even substantiate liability for catching coronavirus. I mean, how can you prove where you got it? Or didn’t get it? You know, I mean, that’s, that just seems impossible to me.
Christopher Whalen 25:32
Well, fortunately, the courts are closed, so we don’t have to worry about
Jason Hartman 25:37
the real thing. But I know i think i think that kind of thing. You know, you can’t attribute liability to you know, how do you know you got it at the office building versus the grocery store versus from your spouse or your significant other. I mean, you know, that’s just, that’s impossible. Anyway, that’s all interesting, but your book is super interesting. And I know you’ve got a few books. But I’d like to ask you a little bit about inflated how money and debt built the American dream. This is a fascinating topic, because what I love about your book is you really look back into a longer historical perspective. The Bank of the United States, you know, free banking and private money. Many people don’t really even think about it. But before 100, little over 100 years ago, we had some other versions of central banks, right. Tell us about that history. And, and you know, how Lincoln was a money printer, and then, you know, bring us up to the robber barons in the Golden Age Gilded Age. I was I was watching a really interesting little documentary about Andrew Carnegie last night. So this is fascinating.
Christopher Whalen 26:43
Well, when Abraham Lincoln took office, the US government was broke. The soldiers were headed home because they only served for a set period of time. So he had to figure out a way to finance the war. And one of the ways he did this was by creating a new Class of banks, national banks that could compete with the state chartered banks around the country, which were really the powers at the time. And they did not support the war. By the way, the bankers in New York and Boston, were very happy with the slave trade and the cotton trade. And they were not at all supportive of Lincoln. So national banks were able to issue paper currency that was partly levered by having treasury bonds in their vault. This was something that state chartered banks could not do. So they try to bank set up gold in the vault, and then they could issue paper. This goes back to the great economist Badgett, and his writings about low interest rates and the need to get money out of the hands of private individuals into banks so they could create leverage, right. So through the war, and in the period thereafter, the US was growing very rapidly. And you had both traditional hard money, gold and silver coins. You’ve had bills Were redeemable in gold and silver coins. And then you had these unbacked greenbacks, these new paper dollars that were issued by national banks. And these circulated for a while they were at a deep discount to hard money after the war, but then they traded back to par.
Jason Hartman 28:20
Just to make sure we catch this, Chris, what is hard money to find hard money, if you will, for this conversation? It has different meanings.
Christopher Whalen 28:28
Well, traditionally it’s it’s gold and silver coinage could even count
Jason Hartman 28:34
with Platinum today, I think. Okay. Sure. And would you count the silver certificate?
Christopher Whalen 28:39
Yes, yes. Yeah, because it was it was exchangeable. It could be paid at the option of the holder in hard currency. That has gone away right after your seizure of gold in the 30s. Other changes in the law laws have slowly but surely. detached money in the sense of Legal Tender dollars from precious metals. And it said evolution that, you know is basically created the inflationary situation that we see today. But you know, before the creation of the Fed in 1913, JP Morgan was essentially the central bank in 1907, the great crisis, Theodore Roosevelt handed JP Morgan a pile of cash and he said, go fix it. There were a lot of busted trust banks, what we would call non banks today. And Morgan triage them and the ones that were insolvent to get rid of and the other ones he kept, but that was a little unseemly politically, and that helped Woodrow Wilson and members of Congress eventually create a second central bank in the United States. So the history is important, but ultimately, it was driven by the need for liquidity. So he had been flow of the commercial sector of the agricultural sector and traditionally caused problems No, in times of harvest, everybody was flush. But for the rest of the year, they had to live on credit. And the credit of banks was not reliable. In fact, the funny story your listeners will love this said JP Morgan was never a member of the New York clearing house. They always made the members of the clearing house wait in the lobby, to do business with them. They saw themselves as better than that. But the bankers are not really willing or able to stand up when the country needed liquidity and that’s why they created the Fed. And that’s why they created many other agencies during the Great Depression, total housing agencies, or the Small Business Administration. All of these came from a need to somehow put more juice in the system to prevent contagion and prevent as my dad would tell us to keep people on the streets. Okay, so grew up in 1930s. Right, right.
Jason Hartman 30:56
It just take us to the sort of the overall premise of slated. When you use that title, you’re not talking about inflation per se, right? You’re you’re talking about this in a different way, just how the whole economy is levered, right?
Christopher Whalen 31:13
Well, that’s right. It’s the inflation of the currency. But it’s also the inflation of assets. Because as you create new ways to add debt and add liquidity to the system, you naturally allow price speculation, you’ll have growth, you will allow all sorts of activities that would not occur in a system that was rigidly fixed. In other words, if you had a rigid gold standard, there would only be so much money, right? And the competition for that money would be intense depending on what was going on in the economy. So that was really the thesis it was to try and explain to people that you know, America Of course, but any society has this dynamic, and particularly for the United States after world war two To Bretton Woods, when the, you know, the current currency system was set up, the dollar became the world’s money, it became the means of exchange, it became the unit of account, for better for worse. And so what that means is that the US can behave very badly when it comes to fiscal issues and inflation. But the rest of the world is essentially short dollars. And they’re in a bad state. Look at Argentina. The Argentine peso is now 75. This morning, my wife is from waterboy, which is around 35. Argentina used to trade at a premium tourists give you some sense of what’s happened down there. And anybody who can or has the means to do so is going to leave the country. So it has grave consequences when countries are forced to fund themselves in dollars and can’t manage that they would have been a suela example. Right. The whole country has basically been destroyed. So decelerations even China. have this problem Europeans have this problem surely.
Jason Hartman 33:02
Ba and you know, that’s what’s so interesting about all the detractors of the dollar, all the people saying, oh, the dollar is gonna collapse. It’s fiat money. Well, compared to what I you know, I mean, they just never seem to ask that fundamental question. And that, you know, the dollar is backed extremely well, it’s backed by the biggest military the human race has ever known, you know, that the US is not going to like voluntarily relinquish its reserve currency status, that it enjoys
Christopher Whalen 33:35
it Good job good finds you. You don’t choose to be the reserve currency of Britain, for example, very colonial, but
Jason Hartman 33:42
I like that. So wait, wait, wait, that’s an important point. It’s a job that finds you. So meaning that the US didn’t volunteer to be the reserve currency or the dollar did he, you know, volunteer. The world found it and said this is the this is the best thing we can find. So you were talking about Britain, go ahead.
Christopher Whalen 34:03
Well, the rest of the world was bust after the war. I mean, the most European countries, they were in horrible, horrible
Jason Hartman 34:10
strain where you’re talking where you went to of course.
Christopher Whalen 34:13
That’s right. Yeah. And you know, I think to some degree after Korea, but really World War Two, and we spent the money, we lent the money, we forgave money to get the world back on its feet. And those countries in turn, traded with us and they accepted the dollar as the means of exchange.
Jason Hartman 34:30
So what’s the Marshall?
Christopher Whalen 34:32
dollars big? What
Jason Hartman 34:33
was the Marshall Plan really like a great business plan to create the almighty dollar reserve currency?
Christopher Whalen 34:41
That’s interesting. It was, but they didn’t see it that way. At the time, I don’t think Americans in that era realized what they had happened upon, right. I don’t think they they kind of knew that they had taken over for the British after World War One. The Brits were broke, and they handed us the ball and say here, you’re in The world power. But it was only after world war two when we did rebuild Europe and we did rebuild much of Asia, that we took that role. And as I say it evolved over time. It wasn’t automatic. But today the dollar is the only currency that’s big enough to support global trade. Right? You can’t do it in euros or yen. And those are the only two alternatives. The ruble, no, the Chinese currency, absolutely not. So you know, we we are the de facto means of exchange and unit of account for the world. But we a store of value. It depends. It really depends on the perspective, but I would say no, I think the dollar is the default means of exchange unit of account for global trade, global investing.
Jason Hartman 35:46
Yeah, very interesting. Very interesting. Where are we now and what can we expect in the future? As long said that I think the dollar and the US government can just sort of continue to defy gravity. That they can keep creating more money, keep doing bailouts, you know, everything from the stuff we saw during the Great Recession to, you know, now that the PPP and all the rest? Are there any consequences? Or is this just sort of like this fantasy land where they can just print more money and just have more bailouts?
Christopher Whalen 36:20
You know, I think the first consequences that we do have real inflation. The statistics don’t measure it very well, I agree, but from the perspective of an individual prices are pretty consistently going higher. And this is partly because the Fed has decided that deflation is bad. They don’t want to repeat that. So they are constantly injecting funds into the system. Since Ben Bernanke and Janet Yellen, or along the Federal Reserve Board, we’ve adopted this thing called quantitative easing when they basically bought bonds from the banks, and thereby inject cash into the system. The trouble is, you can’t go back So today we have $7 trillion in the system open market account. And I would tell you that the Fed is not going to be able to let that go down very much we learned in 2018 2019 than what we let the balance sheet shrink, bank deposits shrink, too. And liquidity in the money markets shrinks. So what does that mean? It means that the Fed is going to basically gonna have to maintain that size portfolio, and they will be monetizing trillions of dollars worth of Treasury debt. So to your point, yes. This is kind of a neat deal. Yeah. If we could just make trillions of dollars for the Treasury did go away. That takes the pressure off the fiscal side, but I don’t think it takes the pressure off individuals. I think that’s one reason why stocks keep going up. Right? It’s definitely a reason why real estate keeps going up in a manic sort of fashion.
Jason Hartman 37:51
Yeah, and it really makes the distribution of wealth very uneven and it just keeps getting worse and worse. But you said that individually. are experiencing much more inflation than the you know, the official stats would say, and I couldn’t agree more. Any idea what that real inflation rate is? I mean, you know, john Williams from shadow stats has been on the show before. And I know that he keeps track of that it varies from person to person, of course, but you know, just fine. Throw the question out there for you.
Christopher Whalen 38:21
Well, the cost of housing is certainly galloping along at double digits. That’s obvious, just from the data. When you look at CPI and some of these other measures, what I would say is that you ought to just double them. And that will give you a better idea of what the man on the street the woman on the street is seeing when they walk into a grocery store. There’s all sorts of indexes you could use. But I think, you know, when you increase the amount of currency in the system, it does have a long term effect, and it forces people. The competition for assets, whether it’s for investment purposes are just a place to live or work intensifies. And even though rates are Low, that doesn’t seem to be helping a whole lot. It helps debtors. And it helps indebted governments but it doesn’t help people who save. I have to penalize those who who do the right thing, right? And you’re constantly bailing out those who do the wrong thing. So for example, you see the Fed buying corporate bonds, which is pointless buying somebody who’s existing that is not going to help them if they’re insulted. But explaining this to people in the Board of Governors is difficult. I do try periodically, right? It seems like they, they have a Keynesian view that says they have to do something. Right. Right.
Jason Hartman 39:37
And we have this culture that nobody wants to have any pain anymore. It’s like the Fed and Treasury. They have to insulate us from all pain. So they create these zombie companies. They keep them going when they should be destroyed and someone should start a new company right but
Christopher Whalen 39:54
that’s a bank. There’s a bank you should have been wound up 10 years. Yeah, why? The German government doesn’t have the money. They don’t have the wills. And frankly, US regulators have dropped the ball to Yeah. You know, they’re the biggest custodian and residential real estate, by the way. Wow. But you know, it’s just politically impossible for the Europeans because they don’t have any growth. There’s no money, so they can’t fix their banks. That’s the one word you’re not allowed to mention in Europe, by the way, if you’re in government circles is bank.
Christopher Whalen 40:30
Banks are relatively in good shape, but they’re gonna really take a beating next couple of years. Yeah.
Jason Hartman 40:36
It’s a crazy time in history. It really is. Hey, Chris, you are a fascinating guest. I’d love to have you back. You know, on a regular basis, give out your website and tell people where they can learn more about you. Of course the books are available in all the usual places.
Christopher Whalen 40:50
Yeah, that’s, that’s correct. My website is RC Whalen wha le n calm. And of course, you mentioned the institutional risk analyst which is my A blog. I am also a contributing editor to National Mortgage news if you really like geeky, hardcore mortgage stuff, and write for the American Conservative and some other publications, excellent massive on Twitter under IRC Whalen. Excellent. Come join us. We have lots of fun.
Jason Hartman 41:15
Excellent Christopher Whalen. Thanks so much for joining us.
Christopher Whalen 41:20
Thank you very much.
Jason Hartman 41:26
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