Jason Hartman starts the episode by discussing the Gold Standard. He looks into Nixon’s reasoning for going off the gold standard and what Nixon did that staved off massive inflation. Then, he is joined by George Gammon to talk about Operation Twist, a program previously ran that aims to manipulate yields. George explains how it worked and how it might be used again.
Announcer 0:02
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 1000s 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 on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:52
Welcome to Episode 1672 1672. And we’ve got my buddy George gammon back on the show today, I think you’ll find this to be an interesting discussion. And I am speaking at a live event that he is hosting, got top billing there, by the way, folks, say and you’re welcome to come join us. He’s got early bird tickets on sale. Now. It’s June 11, through the 13th in Miami, Florida, just south of where I live here in South Florida, in Miami, June 11. Through the 13th. You can go to rebel capitalist live for that. And check that out. And I just was looking at something today that I thought was darn interesting, and wanted to share it with you. And that is the whole topic that is really in the news a lot nowadays. What is that topic? Is that the immigration disaster at our southern border? No, it’s not that topic. Is it? These multi trillion dollar spending programs? No, it’s not that topic. This year, is the 50th anniversary of an important event. Some of you know what I’m talking about, don’t you? Don’t you? Yes, you know, right. That event is back in 1971 when we went off the gold standard. And, you know, we went off the gold standard in steps, right? This was just the final step where we were completely untethered to gold. And I’ve talked about before how Nixon’s famous trip to China was right around that same time, cannot possibly be a coincidence. I’ve theorized forever, and I’ve never heard anyone else do this site. It’s just my original thought that Nixon was thinking, we need a whole bunch of cheap labor, because we’re gonna have inflation.
Well, let’s see if we were right. Back in 1971, a brand new beautiful home would cost you $25,000. The average income was $10,600. A new car was 30 $600. The average rent was 150 bucks a month in tuition to Harvard University. Which last year, of course, was on zoom for 50 grand here. Talk about a ripoff. I mean, talk about a ripoff. Well, back then it was only 20 $600 to go to the movies. It was a buck 50. Now, by the way. I remember actually, as a kid, they had Matt named movie specials at this one theater. This one cheapo theater. I don’t know I could be wrong about this. But I think at the Pickwick theater on Pico Boulevard in Los Angeles, those Saturday afternoon matinee movies that we used to go to, I think they were 50 cents. They were so cheap. Gasoline was 40 cents per gallon back in 1971. Actually, you know, this is actually wrong. I remember seeing lower gas prices than that where it was like 28 cents a gallon. postage stamp to send a first class letter was eight cents. eggs were 45 cents a dozen. I almost said dollars. fresh ground hamburger was 62 cents a pound. I don’t know how much it is now. Because I don’t buy that. But a loaf of bread was 25 cents. I know. That’s about $4.50 now, so yeah, there you go. There’s no inflation. But the amazing thing is that really, really I mean, it is out there. Everybody’s starting to say inflation is coming. In fact, hyperinflation is coming. Now. I’ve been saying there’s just got to be a lot of inflationary pressure for a long time. So take it for what Worth, folks. But that’s the 1971 prices. And we are in the 50th anniversary year of that final tether being severed once and for all, no more link of the dollar to gold. No more convertibility. And here is President Nixon himself, saying that it’s temporary. Remember what Milton Friedman said, there’s nothing so permanent as a temporary government program. Listen in for yourself. Let’s go back to 1971. The third indispensable element, and building the new prosperity is closely related to creating new jobs and holding inflation.
‘Audio Clip’ 5:46
We must protect the position of the American dollar as a pillar of monetary stability around the world. And the past seven years,
‘Audio Clip’ 5:56
there’s been an average of one international monetary crisis every year.
‘Audio Clip’ 6:00
Now who gains from these crises, not the working man, not the investor, not the real producers of wealth. The gainers are the international money speculators, because they thrive on crises they help to create them.
Jason Hartman 6:16
In recent weeks, the speculators have been waging an all out war. He’s referring largely to George Soros there. I bet. I’ll just bet Yep. But isn’t it interesting that he says protect the dollar, the stability, the complete opposite has happened, he had to know that right? He had to know that this would be disastrous for the dollar. And it has been, and it has not helped the stability of the dollar at all. It’s only heard it. So it’s like, everything that happened is the opposite of what he’s promising here. On the American dollar.
‘Audio Clip’ 6:52
The strength of a nation’s currency is based on the strength of that nation’s economy. And the American economy is by far the strongest in the world.
Jason Hartman 7:00
And he didn’t help, you know, like he said, the working person, right, the complete opposite happened when Nixon severed the link to gold. The cantillon effect ran rampant. And every time we see another bailout, another anything, the cantillon effect, where the people closest to the money, the banksters, the Wall Street people, they get the richest the politicians of course, they get the richest, and a little bit, you know, just some crumbs, trickle down to the working class person. So is it a scam? Of course, it’s a scam. Everything’s a scam nowadays. And listen, by the way, I want to just in defense of Nixon for a moment. Okay. I’m not sure that any other president would have been able to do differently. I just want to point that out, given the circumstances at that time, it with a backdrop of history, I think pretty much any president would have done what Nixon did. He just happened to be the guy who was there at the time. So you know, I’m not actually picking on him too terribly much. I’m just picking on all of them. I’m picking on the system, because I think that it would have just happened anyway. But the one thing really good that Nixon did do that muted the effect of this dramatically, like I said, and you know, I’m the only one saying this, you know, if you if anyone else has said it, please go to Jason Hartman comm slash ask him, let me know. But he opened up China. And that was historic. And I give him huge credit for that. Because without that, the inflation would have been in sane, it was already bad enough. But it would have been much, much worse. So that’s enough of all that, folks. Without further ado, let’s get to our guest today. Let’s talk to George and hear what he has to say.
Hey, it is my distinct pleasure to welcome my good buddy George gammon back to the show. And he’s been doing a little dancing, learning the twist. Not that kind of stuff. But the Federal Reserve has been doing some dancing, you know, back around, I don’t know, maybe 2011. They were trying to find more creative ways to print fake money out of thin air. It’s always what it boils down to, in some way. And they did something called Operation Twist. And George says there’s a new version of this happening. So George, can you give us a history lesson? You’re so great at that tell us what their original Operation Twist was and what’s going on now?
George Gammon 9:50
Sure. Well, the Fed has what they call, you know, call them quote unquote, assets on their balance sheet. Those are usually mortgage backed securities or treasuries and these treasuries can be different, some of them can be what we call t bills, which may mature in three months, a month, something like that. So short term, and then others may be very long term, but we call it notes or bonds, so 10 year, or 30 year treasuries. And so with Operation Twist, what they do is they try to buy the long dated treasuries to try to bring down the yield curve, in other words, bring down interest rates in the real economy. So let’s think about mortgages. If mortgages are loosely tied to the 10 year Treasury, if they can artificially bring the yield down to the interest rates on 10 year treasuries, effectively, they’re going to bring the interest rates down on mortgages, or that’s kind of the goal, right? So what they did at the time is they didn’t, they actually didn’t want to print more bank reserves, believe it or not. So they sold some of their short term treasuries and the T bills, and they bought some of those longer term treasuries. So they’re trying to get the yield curve down, get those interest rates down in the real economy, without having to create any new bank reserves or expand the size of their balance sheet on net balance. So that was back in an I don’t know if that was 2000 talents, right around there. But now they’re considering doing it again. And they haven’t outright come out and just admitted it. But Janet Yellen is in charge of the Treasury. Now in the Treasury has an account with the Fed, it’s a checking account, just like the primary dealer banks have. And it’s just like your checking account that you have a Bank of America, or Wells Fargo, except that it’s not at a commercial bank. It’s with the Federal Reserve’s so this TGA is the checking account, if you will, for the Treasury. What happens when they collect taxes, or they sell bonds at auction, all the funds, the proceeds go into the TGA. And then when they write STEMI, checks, stimulus,
Jason Hartman 12:10
I love lingo we’re getting George stimming.
George Gammon 12:14
or bottom line is when they spend money back into the economy, that check is written. And it when it’s deposited, it’s deducted from the TGA. There’s a bit of a difference there, because it’s creating a bank liability, a commercial bank deposit. And so then that’s a liability, the commercial banking system. So it has to be matched up with a, an offsetting asset. So the asset or the bank reserves going from the TGA into XYZ bank wherever the check was deposited. But that kind of takes us down a rabbit hole. Bottom line is the TGA, prior to the GFC, would usually float around $4 billion, 4 billion with a B, as far as the balance, pretty much when the money came in, the government would go ahead and spend it and it was just kind of this revolving door.
Jason Hartman 13:04
I have the feeling you’re about to share a giant number with us. That’s much more giant than 4 billion. But
George Gammon 13:09
yeah, now it’s 1.6 trillion.
Jason Hartman 13:12
Oh my god.
George Gammon 13:16
So we’ll go right to the punchline, I was gonna tell you what happened between the GFC. And now but go ahead. Well, you know, with Obama, he took it up to about 200 billion, Trump took it up to about 400 at one time over a trillion. And now Janet Yellen is sitting on $1.6 trillion. So why is this important? goes back to what I was saying. When the treasurer wouldn’t when Janet sends Mr. Hartman a steamy check
Jason Hartman 13:43
what I don’t get a steamy chat. I feel so left out.
George Gammon 13:49
You can go on Tick Tock and show the world. But let’s say that you get XYZ person gets the check. Again, they deposit it at their Wells Fargo. So then the bank reserves the offsetting asset has to go from the TGA, which is the account they have with the fed to the Wells Fargo account with the Fed. So there’s an offsetting asset to match that liability, the check that you just deposited at your local bank. So let’s think this through. Janet Yellen has come out and said that she’s going to draw down the TGA by $1.1 trillion. Okay, for the next four months, maybe she doesn’t want to issue any more new bonds at auction. I doubt she understands the situation thoroughly. So she’s just thinking, Okay, we got 1.6 Why not just spend it instead of having to issue more bonds at the auction? That makes sense, right? Right. Why borrow more when we’ve got 1.6 trillion in our checking account. The problem here is that when she spends, let’s say, a trillion dollars, that means two things. Number one, there’s going to be a trillion dollars of additional bank reserves in the country. banking system. And number two is that’s going to increase m two money supply by a trillion dollars in, let’s say, four months. So let’s focus on the bank reserves. First and foremost, if we think about quantitative easing, all that is, is the Fed printing up bank reserves to buy treasuries, or mortgage backed securities from the commercial banks themselves. That’s what a lot of people call printing money as base money. So if we think that, okay, quantitative easing has made the stock market go up in the past, and it kind of distorts the financial economy as far as price signals during QE three, which was just an unfathomable amount of quantitative easing, that was about 85 billion per month, currently, because of what I call the cerveza sickness,
Jason Hartman 15:57
which we all love that, yeah,
George Gammon 15:59
yeah. So currently, the Fed is doing quantitative easing to the tune of 120 billion per month, which a lot of people would argue that’s why the stock market has just gone up to nosebleed levels. It’s why we see a lot of the insanity that we see today, in the s&p, the NASDAQ, etc. Well, if Janet spends, let’s say, 250 billion a month, that’s going to be an additional 250 billion of QE, on top of the 120 that they’re already doing. So that’s going to be $370 billion worth of QE every month, without four months. So why is that a big deal? Well, and let’s just set aside the m two money supply so that there’s more currency units, a trillion dollars more currency units in the real economy chasing goods and services, as well, as you know, the supply of stuff is decreasing. Therefore, it’s going to put a lot of pressure on consumer prices. But what happens is the banks that now have these additional bank reserves, they don’t really like to just keep them at the Fed, because they don’t get much of an interest as couple basis points at that. So they like to buy t bills, those short term treasuries we were talking about, because through a process called rehypothecation, which is bananas in itself, the bottom line, I won’t go into that, but they can make more money by holding t bills than they can by holding bank reserves. So right and that, George, is that the reason? I heard a lot of complaints about that, you know, the banks are basically playing the arbitrage, right? Is that the reason that not enough of this money trickled down during the Great Recession? And maybe that’s happening now to its cantillon thing, right? Where people close the money or hoarding the money, kind of Yeah, I would argue that it’s just a simple risk reward equation for the commercial banking system. So would you increase the size of your balance sheet, to create a loan to Xyz entrepreneur in the real economy, when you just got done with the GFC, interest rates are at zero, everything around you is telling you that the economy is shaking? Or do you take that balance sheet capacity during the repo market? rehypothecation does create derivatives in the financial economy, the risk reward is better for them. Oh, that balance sheet capacity in the financial economy? Of
Jason Hartman 18:47
course. I mean, I understand why they’re doing it. I’m just saying, you know, kind of coming from the perspective of isn’t the whole point of all these programs is that the whole point is, ostensibly, it’s supposed to help the people, right? And
George Gammon 19:01
it’s supposed to help people by bringing down interest rates, right real economy can increase spending and do all these things that Keynesian economists think are fantastic, right? But going back to those bankers are so there. What this does, is this creates a massive amount of demand for these t bills, which is why if you look at the yield curve, or if your listeners have been watching CNBC or Bloomberg, they always talk about the yield curve really steepening. So the 10 year and the 30 year rates are going up dramatically, while the short end of the curve, the rates aren’t going up at all, they’re still almost pegged right at zero, and the market is doing that even more so than the Fed, because there’s so much demand for those. So just let me for clarification, if there’s demand for those t bills, the price goes up. If the price of a bond goes up, the interest rate goes down. The problem we’re coming into Now’s the we could have a situation where there’s so much demand for these t bills because of what Janet Yellen is inadvertently doing that the interest rates on the short end of the curve go negative. So you’d have this bizarre situation where a three month t bill would be trading at a negative interest rate. While a 10 year Treasury, the interest rate would be going up at the same time. Yeah. So this causes a lot of problems. For hedge funds for solve a lot of issues. I’ll just put it that. One thing for a German boons to go negative or a jgb, which is the Japanese debt. It’s a whole other ballgame for American US Treasuries to go negative, even at the short end of the curve, although,
Jason Hartman 20:49
is that just because the US has the biggest economy and the most influential central bank? Or is there another reason for that? All right, why
George Gammon 20:56
on the reserve currency to and the Treasury can’t issue new debt at negative yields. So it gets really weird. And a lot of these sovereign wealth funds have these on their balance sheet, a lot of the hedge funds are what we call risk parity. So they’re levering up to buy these bonds of the interest rate goes negative. I don’t even know how that plays out. But it’s a precarious situation, at the very least, right? So I don’t think the Fed is going to want interest rates to go negative for a sustained period of time with these t bills. So number one, the probably going to call Janet Yellen and say, What the hell are you doing? What are you thinking, I’m sure that JP Morgan and Goldman Sachs are going to have her on speed dial saying you don’t understand what you’re doing right now. Stop. Yeah. But then the other thing is, takes us back to our original topic the Fed can do is Operation Twist, 2.0, right, because the Fed has some of these t bills on their balance sheet. So what they can do is they can sell the short term t bills, if they sell them, that creates more supply. If we have more supply, theoretically, the price goes down, therefore the interest rate goes up. So they have this mechanism that they could try to employ to bring those short term interest rates up above negative if they dip down. The problem here is the Fed only has about 300 billion of these t bills on their balance sheet. So after they sell those, they’re done. And if the problem still exists, then it could hit the fan. And then they’ll by the long end of the curve, because at some point, interest rates will get high enough to where they are, number one, affect the stock market dramatically, which was what we saw in 2018. And number two, they start affecting the real economy. I mean, you can imagine what would happen if interest rates, quote unquote, normalized, and mortgage rates went from 3%, to say, 10%, very detrimental, so they’ll probably come out and do what we call yield curve control, right? like they did in the 1940s. After World War Two, she basically kept long term interest rates and bought as many bonds as they needed to, to make sure the interest rates did not go above a certain level on the tenure, therefore, the real economy,
Jason Hartman 23:25
George, that begs the question, the interest rates are artificially low. They’ve been that way for a long, long time, especially in the last year. What do you think is the real or the natural interest rate for say, a 30? year home mortgage? maybe nobody knows. Because the market so manipulated, right?
George Gammon 23:44
I can tell you where historically, it’s been. I mean, historically, mortgage rates are right around, what six 7%, something like that, that we’re going back to, I’m just trying to think of a chart I’ve used in one of my videos, probably going back to I mean, the late 1800s, the writer on that number, name seven, eight.
Jason Hartman 24:08
So what does this all mean? As you’re talking, I’m thinking this is all sounding inflationary. Do you concur with that?
George Gammon 24:17
Yeah, because if we take a step back and think through the process of Janet Yellen spending, the 1.1 trillion, it’s not only going to increase the amount of bank reserves in the system, which is what we just talked about, but it’s also going to increase the amount of deposits in the commercial banking system, because that’s she’s spending an extra trillion dollars and people are going to cash those checks, they’re going to deposit those checks. So that means that we’ve got an extra $1 trillion worth of currency units that are in the economy chasing goods and services. If we look at the unemployment rate, which I think is understated, but then We think about how many businesses have gone bust during the lockdowns, 2020, and what we’re seeing now, and how many of those businesses are not coming back when we look at supply chain disruptions. And then we think through the average income of an American going up significantly, during the same time at which there’s very high unemployment. And we have a reduction in goods and services. I mean, there are no certainties. But you’d have to argue that the probabilities of consumer price inflation, I’m not talking about asset, price inflation, but consumer prices, the stuff you buy every day going up significantly in 2021. And I think it would come as a surprise for most of your listeners and viewers to understand how much incomes have actually gone up, up, they haven’t just stayed the same during the STEMI checks and increased unemployment benefits. But as an example, in January of 2021, alone, average income, if you just took an aggregate total of the United States went up by 10% 10%. In one month. That is a staggering number. I mean, yeah, you go back to the Industrial Revolution, and we didn’t see anything even remotely close to that type of economic boom, if you will, if you’re a Keynesian, you just look at the aggregate demand. And then going back to 2020, the numbers get even more staggering. And this is from the government’s own website. It did some research on this the other day, so from the it was the Bureau of Economic Analysis. And they did a study showing they actually had state by state, which is really fascinating. But then they took an average of all the states and incomes from q1 of 2022, q2, of 2020, went up by over 30%. Over 30%. Did you in the state of Massachusetts, Jason, they went up by over 70%.
Jason Hartman 27:04
believable?
George Gammon 27:06
I mean, just think about that. Okay,
Jason Hartman 27:07
but what part of the income distribution spectrum is that? I mean, that’s certainly not true of low level workers.
George Gammon 27:16
Yeah, because they’re getting the stimulus money. And the people who are unemployed, going back to 2020, are making more money being
Jason Hartman 27:23
unemployed than they were working right now talk about bad incentives, you know,
George Gammon 27:28
so you incentivize people to not go to work, which some people could argue that that’s good, because of health reasons, I’m not going to get into that debate. But the bottom line is, if people aren’t working, there’s less stuff, period, if incomes go up by 30%, and the amount of stuff goes down
Jason Hartman 27:48
by 30%, he pretty much got one way for consumer prices to go just expand on that a little bit. That’s a super important point. So obviously, limited supply of goods and services, increased supply of currency units, equals inflation, and price inflation
George Gammon 28:05
and
Jason Hartman 28:06
consumer price inflation. But certainly, we’ve seen tons of asset price inflation too. But you know, that’s, of course, a different, slightly different topic.
George Gammon 28:14
Yeah, because a lot of people are taking this money and going into GameStop, right, just speculating, you know, becoming a wall street gamblers
Jason Hartman 28:21
really, whether they’re buying a new house, or I was gonna say they could be using
George Gammon 28:25
as a deposit, buy a new house as well. But we talked about the income side of the equation, but we also need to think through the expense side of the equation, when you have a rent moratorium, and you have a mortgage forbearance. So people’s incomes go up by 30%, but their expenses go down by, let’s say, 50%, if you’re spending 50% of their income,
Jason Hartman 28:44
and the savings rate has just
George Gammon 28:46
skyrocketed. And that’s why you see the savings rate go up. But that’s also why you see the trade deficit go to the moon. No one’s really talking about except for Schiff. And so what’s happening is because we’re not creating AI, we weren’t really making anything before, but now we’re really not making anything. And so where do we have to get the stuff we actually buy? We have to import more and more and more and more. And that’s why you see the trade deficit is skyrocketing.
Jason Hartman 29:14
So tell us more about what this means to us in that earlier statement you made about the Fed and the inner workings of the Fed. And Yellen, all the actions she’s taking, you know, you said, well, it could hit the fan. What does that look like? What does that mean?
George Gammon 29:30
Well, I mean, this affects these huge hedge funds that have focused on a risk parity strategy. And if and I’m not an expert enough to know, you know, what their balance sheet looks like or what their portfolio looks like and how much this would or would not affect them. But if it did significantly affect them, then you’re talking about pension funds. Because, you know, to use Bridgewater as an example, you know, Bridgewater is the largest hedge fund on the planet Earth. So, you’re going Have a lot of pension funds, they’re gonna have a substantial portion of their capital invested with a strategy that could be heavily reliant upon treasuries having a positive yield, or at least a zero yield. You know, once they go negative, it really throws a wrench into engine or into the gears, potentially, potentially. And I want to be very clear, I’m not an expert on hedge funds or risk parity strategy. So I don’t know if this would just be maybe a little speed bump, or it can be something catastrophic.
Jason Hartman 30:32
So what is catastrophic? Or, or even a speed bump look like? What does that mean? What do we see as common folk
George Gammon 30:39
would be something like the repost spike that we saw in 2019 and September, where it was a huge deal, but it only lasted a couple days, and most
Jason Hartman 30:48
Americans didn’t know. And you were one of the few people really reporting on that. By the way, he did an awesome job. And if you typed in repo market, you’d see George gammon right there.
George Gammon 31:01
As far as for the geeks, who are really into the financial plumbing in the monetary system, is a pretty, pretty big deal. But for everyone else, notice, as far as you know, something catastrophic. I mean, you’re looking at GFC,
Jason Hartman 31:16
the global financial recession. Yeah, global financial
George Gammon 31:20
crisis, the Great Recession 13 years old, although if you had kind of a domino effect, like that, now, the outcome would be far worse without the intervention of the Fed, and the government because the debt is so much higher on the consumer balance sheet and the corporate balance sheet on the sovereign balance sheet at the state level. I mean, pretty much everywhere you look, people in entities have much more debt now than they had back in 2008. So that would add a lot of gunpowder.
Jason Hartman 31:57
To the explosion, are those when you’re talking about those debt numbers? You know, you see all this stuff out there? I look at all these charts all the time you do too. You know, are those debt numbers adjusted for inflation? Or so those are, that’s real debt, then a lot of times a percentage of GDP? Yeah. Okay. So interesting, a better apples to
George Gammon 32:17
apples comparison there. Now, why is the consumer balance sheet so leveraged, most likely, because housing prices go up pretty much if you look at the consumer balance sheet, and I haven’t done this, but I would imagine, it’s pretty consistent with housing prices. So in other words, when housing prices go up, the consumer debt to GDP goes up as well.
Jason Hartman 32:40
So that means people are buying a new house, the new house has a bigger mortgage. But the important thing to know about that, and I don’t think it’s quite as dire as one might think, hearing that on the surface, because that debt service payment is actually cheaper, because of the low interest the artificially low interest rates, which can’t last forever. Yeah,
George Gammon 33:03
they can’t. But they can last a very long time and a lot longer than most people would assume, using that concept of things that seem insane, and things that are obviously manipulated, they’re not a market action. What’s the saying, you know, that the market can remain irrational longer than you can remain solvent? That is very, very true. I think if you would have asked anybody you said, okay, the in 2020, the government is going to have $5 trillion in deficit spending. So they’re going to increase their debt by $5 trillion, which just to put into context, from 1776 32 years, the United States government accumulated 5 trillion in debt in 220 years. Yeah, we accumulated that much debt
Jason Hartman 34:00
just in 2020. And those 220 years had multiple wars crises, Spanish flu. I mean,
George Gammon 34:08
yeah, so just staggering stuff. So if you would have said, if you would give given some metrics like that, he would say, oh, if there’s no way that it can last, it can’t survive. You can’t keep kicking the can that far down the road? But sure enough, here we are, you know, I
Jason Hartman 34:23
believe they can kick that can down the road for quite a bit longer. You
George Gammon 34:28
know why? One of the things that brought me to that conclusion is, I was just going through that tweet storm from Michael burry. Yeah, there’s a recent one. Yeah, where he was talking about hyperinflation. He was talking, he actually referenced my good friend, Lynn Aldean, one of her charts and her appearance on macro voices and what she was talking about, very similar to, you know, what we’re saying where if the Fed just buys assets, it’s really not inflationary. It’s not creating currency units in the real economy. But when the Fed monetizes the debt directly, that’s creating more Currency units kind of similar to the process we talked about before. And burry reiterated that on Twitter, but he also mentioned a book that he was reading called dying of money. And it’s an in depth analysis on the Weimar Germany hyperinflation, in addition to the inflation we had in the United States, in the 1970s,
Jason Hartman 35:24
which was nothing compared to why Mars Zimbabwe, Hungary or anything else or Argentina,
George Gammon 35:29
right, yeah, it wasn’t. But the seeds were sown many years in advance. So when we think about the why Mr. Germany situation, they’re real inflation, or they’re going around wheelbarrows full of cash and stuff that was really within about a year 1923. And then 1922, is when you really start to see some inflation that created what we call Gresham’s law. So you can imagine if all these foreigners that own dollars right now, if the dollar was depreciating by 50% per year, those dollars would most likely come back to the United States to buy anything, you know, that was a hard asset. And the reason is, is because if the dollar was depreciating, people would want to exchange the dollar for something real, correct? Yeah, so it’s Gresham’s law where the the bad money chases out the good, right, that would create more currency units circulating that create higher velocity. And that would just take the inflation to the next level, which it did in Weimar Germany, but the whole point there is going back to 1914. That’s when they went off the gold standard. That’s when they really started printing money for World War One. It started in 1914, the seeds were being sown, but you saw the result for the effect of that in 1923, somewhat, nine years, 10 years later, now, lag time, give some context there. So people understand how dramatic it was from 1914 to 1918, where they didn’t really see too much of a move, relatively speaking, and consumer price inflation. So from 1914 to 1980, they saw combined prices doubled. He said, what a lot GEORGE Yeah. But if you look at an annual basis, it’s only about 15% per year, very consistent with what we had in the 1970s here in the United States. But m two money supply increased nine times, nine times. So they increase their money supply by 60% per year, pretty much.
Jason Hartman 37:37
Just incredible.
George Gammon 37:38
consumer prices only went up by 15%. What happened? Is this load them into this idea that, well, what’s the problem here? You know, if we’re creating all these additional currency units and all this additional demand, and the only price we have to pay is an additional 15% of goods and services on net balance. That’s
Jason Hartman 38:00
a huge win. Right? We might as well keep doing it, as we’ll keep doing it. Right? Yeah,
George Gammon 38:05
yeah. So they kept doing it. And to the point where what really lowered them to sleep, which was kind of the straw that broke the camel’s back was between 1920 and 1921 and 1921. The Mark, the German rice mark, which was their currency unit, appreciated against the dollar.
Jason Hartman 38:26
It went up in value. Why would that happen? Why? How does their economy was booming? Okay, they
George Gammon 38:32
were an export powerhouse. They were doing, the economy was on fire. Yeah. And so their currency, a lot of demand for the currency. So from that almost two year period, if you look at a chart, from 20 to 21, the end of 21, the dollar went down in value against the rice mark, the rice barn went up in value, just a mere year, not even a mere six months, before they started using the rice markets. Toilet paper.
Jason Hartman 39:01
Yeah, not as I was gonna say kindling, but it was actually used in the fireplace to produce heat because the heat you could extract from the money was more valuable than the money or I should say currency.
George Gammon 39:12
Let me give you another shocking statistic. Yeah. Okay. At the end of I believe it was 2021, or excuse me, 1921. And it’s all in this book. And you can download it free on the internet. It’s,
Jason Hartman 39:23
and by the way, I want to tell you about the book. So you can also buy it on Amazon. Speaking of inflation, it’s $494 for the hardcover, but you can get the paperback for 49 bucks. It does not have very good reviews either. Fantastic. That’s it for right there folks in the reading. It’s
George Gammon 39:43
awesome. So like it was, I believe it was 1922. So at the beginning of 1922, there were 190 billion worth of rice marks in existence. So there there are 100 90 billion rice marks. That was all the rice marks in the entire planet Earth. One year later, it would have taken that many rice marks to buy a newspaper.
Jason Hartman 40:11
That’s just unbelievable. I mean, unbelievable. It’s absolutely incredible. The stories you hear out of the Y Mar history. Do you know the one George about the man that was trying to go into a market and he had his wheelbarrow full of currency, right of Marx. And he couldn’t get the wheelbarrow through the door. And someone came along and dumped the money out, but ran away with a wheelbarrow, because that was more valuable. Oh, yeah.
George Gammon 40:41
And so let’s take that back to today. You know, why does that matter, George? Well, number one, to your point, things can last a lot longer. While the seeds are being sown. Let’s remember that the money supply was increased. At the beginning, when this hyperinflation was brewing, the money supply was being increased by 50 60% per year. Now, I want to remind everyone, in 2020 alone, the United States money supply was increased by 25%.
Jason Hartman 41:12
So I understand 25% isn’t 50 Yeah, but it’s damn close. That would indicate inflation is coming. And a lot more people are starting to talk about that. I’ve noticed people that I respect,
George Gammon 41:24
but it could be five years down the road. It could be you know, these things take a long time to play out.
Jason Hartman 41:29
Sure. And we’ve also got to remember that, of course, famous last words, this time, it’s different. I mean, you know, the US has the reserve currency. Germany did not think Gresham’s law still kicks in good money chasing out bad, very interesting. Anything else. You want to wrap this up with George?
George Gammon 41:47
No, that’s it, man. Thanks for having me on. It’s always great to talk to you.
Jason Hartman 41:51
Yeah. Well, any action steps? How about a quick action step on this? What are you going to say there?
George Gammon 41:55
Make sure you got a 30 year fixed rate mortgage? Yeah. With a little bit of gold on Bitcoin if that’s your thing, and make sure you got a 30 year fixed rate mortgage?
Jason Hartman 42:04
Yeah. And you know, I agree with that all too. Well, George, give out your website.
George Gammon 42:08
It’s just George gammon.com. And people if they just Google me, they can find my YouTube channels. George gam and find me on Twitter is ga m m o n.
Jason Hartman 42:17
Good stuff. George gammon. Thanks for joining us. Thanks, buddy.
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.
