Speaker 1You must own gold, but I bet you don't really understand why. I admit I didn't completely totally understand it until I met today's guest, Luke Grohman. He is brilliant and I promise what you're about to hear is nothing you're going to hear anywhere else. It is the most credible argument for what's going to happen to the U.S. dollar and why you must own gold. Before we do that, Dr. Ron Paul, the former congressman, and I recently did a presentation and you can see it. You can go see it for free at ronpaulwarning.com. And we talked about many of these same issues. What's going to happen to the dollar? Why you must own gold? What kind of a crisis you can expect to play out over the next several years? And what you need to do to prepare yourself and your family for it. Buying gold is just one of those things. So go to ronpaulwarning.com. Have a look at that. See what you think. All right. Let's do it. Let's talk with our guest, Luke Grohman. Let's do it right now. Luke Grohman, welcome to the show. It's great to have you here. I've been wanting to get you here for a long time and thanks for coming to join us.
Speaker 2Sure. Thanks for having me on.
Speaker 1So I was thinking, knowing that we were going to speak to you today, I was thinking recently that it sure feels to me like it's more important to understand macro issues than ever. I don't know if that's because I'm more interested in them or because it really is. And I have this, I started getting this idea that it's sort of like the opposite of, you know, maybe a developing economy that's been through, you know, socialism or something. And it's coming out of that and making market reforms. And so then it becomes, you know, the macro becomes less important. And until that moment, that's all anybody cares about. Right. Is the government and what the policies are and whether or not you want to put a dime anywhere near that country. But then it becomes, you know, less important and individual businesses become more important. I feel like we're heading in the opposite direction in developed economies now. Am I out to lunch with this? Is this a dumb idea? Let me have it.
Speaker 2No, I agree with it entirely.
Speaker 1Oh, okay. All right. We got the right guy, at least to talk to me anyway. So, of course, you know, a macro guy might, you know, that might be a thing a macro guy would say. But right at this particular moment, there is this confluence, right? There's midterm elections coming up. There is the ongoing, you know, there's the two-week or six-week war that's in the Middle East that's more than two or six weeks and has ended several times. And then all the implications of energy and everything downstream. And then there's interest rates, which maybe on an absolute historical basis aren't terribly high, but have come up quite a bit after the Treasury Secretary said, I'm the house, and everybody instantly seemed to want to bet against the house. Is that not a riot? I mean, but this moment seems, it seems fraught to me, to put it simply.
Speaker 2Yeah, I think fraught's the right word. You've got a lot of different crosswinds and into a, from a starting point of a very fragile equilibrium. And that equilibrium has been disturbed. And so once you start disturbing fragile equilibriums, you know, there's a lot of history is replete with policymakers who thought they could light a stick of dynamite in a nitroglycerin plant and control when they explode. And so, you know, there's a lot of history is replete with policymakers who thought they could light a stick of dynamite in a nitroglycerin plant and control when the explosion stops. You know, we'll see if that's the case. And maybe it's different this time. Maybe they can sort of, you know, lick their fingers and, you know, stop the explosion right before it, it, you know, the fuse hits something very bad, but I'm not optimistic.
Speaker 1Right. So when, when would you say, when would you go back to to say, well, this is for the current moment that the, the equilibrium really got knocked on its key. So, you know, I think that's a good question. I think that's a good question. You know, it's one of these things, I thought one of the best descriptions of the situation
Speaker 2is a friend of mine, Jason, who's actually over in Asia. And he said humans are really good at feeling rate of change, but they're really bad at feeling rate of speed. In other words, you know, you get on a jetliner, you get to the active taxiway, pilot hits it, you can feel that. You're technically going slower than you are by quite a bit when you're in the air. But when you're in the air, you unbuckle your seatbelt, you stretch your legs, you go to the bathroom, you get a cup of coffee, blah, blah, blah. Yeah. And so I think the rate of change is the, it started probably in 08. Maybe even 2000 with how we, but, but certainly 2008 with how we handled the bailouts and how we politically handled the bailouts. And we're just now seeing the fallout, I would say, starting with the election of Trump in 16, we're just now starting to see in the last 10 years, the fallout of, of, of how we dealt with 2008 politically. And now we're getting to the part where we really don't like it, right? The, the, the riots in the streets. And, uh, you have a socialist mayor of New York city. Um, these are, these things are going to continue because social, socialism was the way out. You, you know, you, you can't say that socialism is good for one class of people and not the other in a democracy and expect people to not vote themselves. The same thing that wall street banks got in terms of treatment 18 years ago. So I think that's kind of where the acceleration started. And we've been accelerating more slowly or at a rate of change basis. But now the problem is we're flying 400 miles an hour. Everything feels like, oh, well, you know, nothing's really broken, but it's like every day you're like, oh, there's an executive shot in the streets in New York. Oh, well, uh, there's, you know, Charlie Kirk assassinated on, on live up and that's nothing. Oh, there's someone taking a shot at a president of the United States. Oh, that's not right. These things are momentous had they been the moment, but the problem is we're doing 400 miles an hour towards a mountain face. And I think COVID was a massive acceleration in terms of really breaking strictly the financial equilibrium. I would, I would probably agree with you. That was probably COVID, um, followed by the Ukraine war followed by how we reacted to the Ukraine war followed by, um, you know, the, the wars this year have been a very, very bad idea. I mean, if the goal has been to destabilize equilibrium, they've done a major job. They've done a magnificent job. If that was the goal of the Trump administration and their second administration, if they just wanted to break stuff and blow up the world, burn the thing down to the foundation, then we're on the right track. But wasn't the goal, you know, cause again, you, it's, it's easy. It's easy to light a house fire. It's harder to put it out and control where it goes.
Speaker 1Yeah. And if you don't know that you are lighting a fire and you think you're building a house, boy, is that, that is, that's even worse. Right. Trump thinks he's building a house and he's just, uh, he's pouring gasoline on a fire. Um, you had a really cool post. Let's, let's get a little more specific here. You had a really cool post recently that I certainly didn't put two and two together. You said many people were talking about real rates, the highest since whenever, and people are debating whether or not the U S is in fiscal dominance. And then you said very, if you're blending the chocolate of us, real rates with the penis.
Speaker 2U.S. net international investment position. So after '08, let me back up. net international investment position is simply what foreigners own of Americans versus Americans own of foreigners. If we go back 40 years, there was something called the Soros imperial dollar cycle, where Soros recommended, hey, we need to defend the dollar. Let's raise rates aggressively in the mid 80s. And that led to a virtuous cycle for the United States of higher dollar, higher rates. And because the United States had a positive net international investment position of roughly 10% of GDP, we had more assets overseas than we had here. And so those assets came here. And so you had this virtuous cycle of higher rates, higher dollar, higher asset, prices, lower inflation. And it screwed the rest of the world, right? You had crises in Latin America, you had crises in Southeast Asia. Okay. There's been a school of thought about that we can run imperial dollar cycle too. And the problem with that is that instead of the U.S. net international investment position being positive 10% of GDP, we have more assets there than they have here. The U.S. net international investment position is negative 80 to 85% of GDP, which means they own way more here than we own there. And when you trace it back to when did this really go, it went from positive 10% in the mid 80s to negative 8% or so by 2007, 2008. After 2008, it's gone from negative 10% to negative 80% in 18 years. Unprecedented. Freefall. And what that means in plain English is that America never recovered from 08. We didn't recover better from 08 than Europe or Asia or anywhere else. What we did was we hocked our family silver, our assets for one giant party, one last big party for the boomers. We can't let their home prices fall. We can't let stock prices fall. We can't let any of that happen. And that's part of what, you know, there's reasons for that. But there's a lot, it's the overwhelming consensus narrative, conventional wisdom that we recovered better because, you know, hashtag Morocco, we're better. And there's things we do better, of course, but that's not why we recovered better. We recovered better because we hocked our assets to the world at a pace unprecedented in 250 years of American history. What that means in terms of implication, as it relates to the chocolate and peanut butter then, and fiscal dominance and real rates is, remember what happened when we jacked real rates positive in the mid-80s? Capital flowed here. Foreigners had, we had more over there than we, now the opposite runs in reverse. Foreigners own our country. We hocked our country to foreigners for 18 years. Our stocks, our bonds, our real estate. And that's fine. That was a policy choice. The reflexive implication of positive real rates, though, is that the dollar starts to rise. And the problem is that one last little piece of context is that foreigners have borrowed 13 to 14 trillion dollars in dollar-denominated assets, or in dollar-denominated debt, excuse me. So on their one hand, they're short 13 to 14 trillion in dollars, which is the part everybody always talks about. The dollar squeeze, the dollar squeeze, the dollar wrecking ball, the milkshake, all of it. It's all sort of a version of squeezing that. And what virtually nobody ever talks about is the 80 trillion, 70 trillion, 65 trillion gross, 22 trillion dollars net in the other hand. That are long dollar assets, including 10 trillion dollars in treasuries, nine and a half trillion in treasuries. And so when the dollar goes up, these people's dollar borrowings get squeezed. Oh, they're screwed. No, they're not. They pick up the phone and they go, hey, sell me a hundred billion in treasuries. Want to be done by the end of the day? Boom. They come back tomorrow. Dollar goes up more. Sell me another a hundred billion. Oh, it's not enough. Okay. Start selling equities. Okay. Now do real estate. They will sell treasuries. And equities of America until their hands bleed until they are zeroed out on that. And that is the, where the chocolate and the peanut, but that's the, you know, I'm dating you. You got the reference of the chocolate, the peanut butter. We're dating ourselves of, of, of men of a certain age, right? That's the, that's the Reese's peanut butter cup that the chocolate people and the peanut butter people are not putting together, which is when Warsh hikes rates, 25 basis points, mm-hmm. He kicks off a debt death spiral for the United States and the West. It's a gamma event for rates. The dollar goes up a little. These guys got to sell. What do they sell? They sell what they can. They don't sell what they want to per se. They would love to sell all the crap they have that are of American assets on their books, right? The private credit and this, but they can't sell that stuff because they're locked in. So guess what they sell? They sell what they can't. They sell treasuries. So now they sell treasuries. So rates go up. So when rates go up, guess what happens to the dollar more? It goes up more. Uh-oh. Now they got to sell. Now they got to sell more treasuries.
Speaker 1It is not a linear issue.
Speaker 2It is a convex gamma event. And pretty soon they're going to start selling. One of two things is going to happen. They're going to start selling equities as well. And oh, by the way, equities are the US economy at 230% of GDP. Because when you sell equities, net, we've done the work. We've gone through IRS data in detail for the last 12 years. And what we see is that net capital gains plus taxable IRA distributions alone are 200% of the growth of US consumer spending, which is 65, 70% of GDP. In other words, mechanically, the massive, powerful US consumer mathematically cannot grow unless stocks rise 10 to 15% a year. It's a mathematical certainty, especially when you realize that's just net capital gains plus taxable IRA distributions. That does not include any exact comp, which is taxed as ordinary income. And so if stocks fall and stay, down, your deficit is going to blow out non-linearly, which means your issuance is going to rise non-linearly. And the dollar is going to rise, which means foreigners then have to sell more in treasuries, which means rates are going to rise. They are in a debt spiral. And all it took was 25 basis points this time. It took more in 18 when Powell did it. It took like three or four or five hikes. And it brings us to a decision point, which is, it's very simple because we've seen it six times. And the treasury market is going to break. You're going to get treasury market dysfunction. The move index today was it was 110 last week, up from 70 in literally two weeks since he raised rates. And when it gets to 120, 130, 140, he's going to have to make a choice. And this is the peanut butter and the chocolate that people don't get, which is, is the US in fiscal dominance? Technically, by the purest definition, no. But the only way that's really actually functionally true is if the Fed is going to break. So if the Fed doesn't break, then we're going to have to make a choice. If the Fed is going to break, then we're going to have to make a choice. If the Fed doesn't break, then we're going to have to make a choice. Another five bad days in the market, in the treasury market from reaching, he's going to face a choice. He Warsh or he Besant, which is, do I stand aside and let the US treasury market function? In other words, something's going to happen like happened in 2019 when repo rates spiked to 8% to 10%. If we wanted to not be in fiscal dominance, the Fed could have said, deal with it. You figure it out. Mortgage rates reprice at 10%, 12%, 13%. Stock market crashes 50%, 60%. That's going to accelerate the debt loop. But yeah, then we're not in fiscal dominance. Sure. But what did they do? Not QE. They bailed out the treasury market. 2020, Stan Druckenmiller, which is ironic because Stan Druckenmiller has been talking, he's like knee deep in all this stuff. 2020, he got in CNBC and said the treasury market crashed at the depths of COVID. I've been doing this 40 years. I've never seen that. And that has implications for dollar reserve status. And so they bailed out the treasury market in 2020. That's what it was. Let's fast forward to 2022. It wasn't so much the Fed that time. It was Yellen at treasury. She weakened the dollar by 40% from 4Q22 through 1Q23. At a 40% annual rate because the treasury market was dysfunctioning and crashing. We can go forward to 1Q23. After 2020, when the Fed encouraged the banks to buy all these treasuries and all this duration, then they raised rates on them. Again, if they didn't want to be in fiscal dominance, in 1Q23 is Silicon Valley and Signature Bank are blowing up and treasury yields are rising rapidly because they are offloading treasuries because they are upside down. On their treasury portfolios, they were going to touch off a bank treasury run. What did the Fed do? They implemented BTFP, bank term funding, whatever program, buy the effing paper. What was that? That was a bailout of the treasury market to prevent what was starting. Banks were going to sell treasuries, which was going to drive the price of the yields on treasuries up, the price of treasuries down, which is going to force more selling, wash, rinse, repeat. They couldn't. Again, so 2024, Yellen, again, what she do? She does treasury buybacks, starts shifting back end or sorry, excuse me, 4Q23. We have effectively a failed treasury auction, 30-year treasury auction with a five basis point tail in late October 2023. Again, she could have stood aside hey screw it we're gonna let treasure auctions fail we are not gonna allow ourselves to be in fiscal dominance what'd she do she shifted issuance to the front end early 24 you know she she tapped the reverse repo by doing that great that's just delayed qe that she controlled rather than power 24 she runs out of reverse repo what'd she do treasury buybacks for the first time in 25 years bass and criticizes it then gets in the seat doubles the size of the treasury buybacks it's like these guys that's why i say this i get very aggravated with this this purity and and i'm also very thankful for it because again if they put the peanut butter and chocolate together you know i might not have a job but they don't so the peanut butter and the chocolate together are positive real rates drive the dollar up that's going to drive and it is it is already started a chaotic unwind of the treasury market which then drives a chaotic unwind of western sovereign debt market and that will continue until either the treasury market and western sovereign debt markets collapse along with the economy or they do what they have repeatedly done since 2019 which is they act to bail out the treasury market and and they won't call it bailing out the treasury market they never do it is maintain treasury market functioning it's important for financial stability that the treasury market is functioning okay great that's fiscal dominance if you cannot stand aside and let the treasury market dysfunction you're in fiscal dominance dude that's full stop full stop historically
Speaker 1this is the way though isn't it they always the thing that gets me is historically um you you always see governments they're always sacrificing the currency to bail out the banks and bond markets that's always the way it goes but it's like what do you it it all it there there's a lot of you know dollar doomers i'm in the newsletter world it was basically built in the 70s on you know dollar doomsaying and buying gold stocks and stuff uh and those people are still around um but the thing that gets me is that you can bail out the treasury market and bail it out bail it out without killing the dollar really i mean it relative to gold you know we're four thousand bucks but you know it's priced relative to a lot of other stuff like yen and euros and pounds and things too isn't it so it's it's um it's hard to kill the gold stock market it's hard to really um to it seems to me like the dollar is um it's certainly nothing like the dollar doomers you know pure gold bug folks are saying uh it's it i used to be one of those i totally admit it but then i then i looked around i was like it's just not happening you know i know folks who have been they've been predicting like the crack-up boom you know the weimar crack-up boom for decades and it's just not happening you know it's just not happening you know it's just not happening it's like you we we can do this we can you know i am the house i can bail this thing out i can do it and so far can we though can we yeah i totally agreed can we though so far so so you know in gold
Speaker 2terms that you did in gold terms the s&p 500 is down what 35 percent uh since 2000 it's down you know since 2018 when powell had to pivot it's down about 20 percent in gold terms s&p total return it's that you know so it's that's the dynamic and so that is the start of the crack-up boom right by the way that is right that's how you nobody right yeah yeah you measure it in gold right yeah and so a couple things one is that this is the comparison that a lot of people make to make themselves feel better but they don't understand the game that the chinese are playing in particular but the russians as well which is the value of real things what we are do what what what the chinese are doing or is exactly what we did to the brits and the brits were you know we've got the reserve currency and we have been it for 150 years and we'll be forever more and then we'll do a couple of them walls and then all of a sudden they've got to go ask the americans to borrow for world war ii and what did the americans say to the to the brits you know what no dollars gold or dollars and that was it because and then and then when the brits needed help you know the coup de grace finally that was like the mortal wound but the coup de grace of course was suez where we just said we're done you know we'll cause a reserve we'll cause a run on your currency and it was over that's how we did it to them that's what the chinese are doing to us right we listen to what we're hearing on the iran war we can't fight an iran war without chinese industrial bases that's what they're saying that's the that's the rare earth thing right and so the day is coming where and i think this is what part of what we're trying to avoid with some of the things we're doing which is um we're trying to kind of get away from this but that then feeds on the feedback loop right we want our cake and we want to eat it too which is we don't want to find ourselves in five years or eight years where we're not going to be able to get away from this and we're not we the chinese say fine you know what we're done here you either pay us in yuan or you pay us in gold but we're done and that is the moment where the dollar dies um now paradoxically the way out of that is you have to settle in a neutral reserve asset we can't reshore we will never be able to industrial base with the dollar as it's been structured since 71 the post 71 dollar has to die for america to win if the post 71 dollar stays in its current form if we don't or even a modified form of it we will lose because we won't but we don't have an industrial base you can't go to war i mean look at the brits today you know jacob reese mogg on with tucker over the weekend i mean he sounds great but like he has no idea of what real gdp is what real power is which is our our economy is twice the size of the russians when i have time yeah you're about to find the difference between financial services gdp and energy gdp because the russians have been fine for 12 years without right british financial services the brits are about to find out exactly what happens to an economy when you're short diesel and it ain't pretty and it ain't good for your financial economy so that's the one side of it and the other side is when you go to that neutral reserve asset that you have to get out of this problem and in my opinion that's gold it could who knows when you do that what happens is your currencies reorder on a balance of payments basis that's just straight math well who's the dirtiest dirty shirt on a balance of payments basis it's the dollar and it ain't even close and so to pair the paradox is to get out of the situation where the chinese go you want our dollar only and then we're screwed because we will have no industrial base and we'll have to do it all rapidly and if we want to move towards the hamiltonian economics that besant has talked about and that u.s trade representative greer and vance and trump have all talked about in the second term explicitly or implicitly you have to go to gold as a neutral reserve asset which means the price of gold's got to go to the friggin moon number one you got to start seeing the u.s effectively settled deficits in gold oh by the way the biggest export of the u.s for the first eight months of or excuse me from from from september of last year through the through the four first four months of this year was gold and it is still the second or third biggest export of the united states since trump took office for the second time and as that happens and what you're going to see is the price of gold the dollar will collapse against gold and the dollar will fall against the yuan the dollar will fall against the yen because they are creditors uh the dollar will fall against the euro because it is a creditor and the dollar will probably rise and the dollar will probably rise against the sterling because as we look at the sdr basket because the sterling is it's i think the worst of the worst if we move to a neutral reserve asset which is clearly where we're going uh in my opinion and the united states is clearly on board with it under this administration so i that to me is the whole you know is the dollar gonna die it's it's it's a you know look it's all it's all relative but then it's also understanding the what what are what's what's the actual game that is afoot what are the motivations and then what are the what are the implications if you don't kill the dollar or if the dollar doesn't fall like that's the u.s military isn't going to sit around and be like you know what let's let's let the wall street guys keep getting rich on this dollar system this post 71 dollar system and we'll just trust the chinese to make all our weapons for us they've been saying for 15 years they're not going to let it happen right they'll kill the dollar first you know the kill the dollar
Speaker 1first did you see that um just in the past few days here um that the treasury has hired judy shelton i don't i don't know if you saw that as a some kind of an advice i do i couldn't find the exact position but it was an advisor to the treasury secretary i think it was which i found very interesting considering you know what you're talking about with um with gold she has for our listeners sake she's she's advocated a gold-backed treasury instrument um and now she now she's working for scott percent do you find that as interesting as i do or no
Speaker 2oh yeah oh yeah especially when i pair it with warsh's calendar which just you know the foia freedom of information act calendar that just got released for august which showed that um warsh in august met with axel merck of merck investments who's a gold guy and followed that afternoon by zoltan pozar who's been talking about oh yeah gold uh for four years now as a neutral reserve asset and given what i've seen since which is you know and and who else warsh met with in august which was basically everybody you would need to meet with domestically and foreign to make some sort of big currency system shift yeah i find it very fascinating will it work yeah yeah and i think you know shelton she's she's brilliant and they i i can contain the long end easily her her her proposal will absolutely contain the long end the 64 000 question is is you got to get the price of gold right because if you say gold's 100 back bonds right blah blah blah blah blah it's not gonna do the trick because i'll buy the bond and then i'll convert it to gold and the second you say you can't convert it at that price your whole scheme's done you got they get one shot it's that m&m right you got one shot to get this right what's the right price of gold that's the question we don't care about our domestic holders right basically we have loaded boomers up with bonds we're going to inflate them away they've got to pay for their own care that's just that's just how the math works so i don't think we're going to get the price of price of gold right necessarily for them but for the the key is the foreign holders of treasuries that's the that's the audience we need to see for shelton for
Speaker 1shelton there are a few yeah
Speaker 2yeah so i've tracked this number for years it's been sort of my p.e multiple every time i hear someone say oh there's no way to value gold i'm like that's crap that's wrong here's why the fact is the united states is official gold holdings at market price relative to the foreign held treasuries outstanding has been effectively a p.e ratio of gold for going back 100 years long-term average of that ratio is 40 to 60 so basically if you take the market price of gold times the 8100 ounces or excuse me 8100 tons 261 million ounces of gold that the united states owns and then you compare that market price of that gold to the foreign held treasuries outstanding long term that has been 40 to 60 percent today that number with the massive rally in gold that we have had is 12 percent so gold would have to rise between five and four and five x just to get three to five x three and a half to five x just to get to the long-term average uh as recently as 1989 that percentage was 20 it had never been below 20 um now when you have a dollar crisis like we did in 1979 80 that was 130 percent so in in that's a gold bubble people say oh there's gold bubble that's crap a gold bubble is 1980 when the market value of u.s official gold was 130 percent of the foreign debt outstanding which means everyone that owned a foreigner that held a u.s bond could have exchanged it for gold at market price and we still would have had 30 percent of our gold left over that is not that's that's if we get a real honest to goodness dollar crisis it's not my base case but i think we're going back to 40 to 60 percent because otherwise shelton's program won't work because you're going to have a whole bunch of people buy our bonds exchange them and we're going to go right back to you know july of 1971 we were bleeding flows
Speaker 1that's right that's how you get
Speaker 2they'll clean us out right and so to me for this program to work you got to price the gold right and the right price is say 50 so let's just say 50 percent for easy math right 50 percent uh that's a 4x from here right so at 16 to 18 thousand dollar gold mm-hmm that'll work that'll work and now you can and look at a 16 to 18 thousand dollar gold i'll sell gold and now real rate or the rate of the u.s treasury on those bonds will fall to one or two percent and now you can issue those all day long now you can issue them but the price of gold is going to rise because the more you issue you either better out to go out there and buy the gold first or you know you're going to get called on it it but it introduces the discipline of gold again on the fiscal situation which is
Speaker 1it's actually a mind blower to me i've become so cynical of government's willingness to do anything like um exercise anything like what we might call some self-discipline you know that that if if something like that happened i would just be i'd be ready for it i own gold i've told my readers to buy gold and that you i've told them you must own it actually you i believe you must own it um but that's simply because of the long-term mechanism of a fiat currency versus you know versus real things but what you're talking about is quite a bit different that's a that is a re that is a massive re-rating like you know we're calling it 4x here um yeah and i think
Speaker 2it could be more i mean look the chinese have been effectively you look at china people people been complaining about china's unfair they need to revalue the yuan right how often we heard that they need strengthen you dollar they're cheating yep the chinese retort to that is america if you want a stronger you want against a dollar let gold if the problem is not that you want against the dollar the problem too weakly you want against a dollar the problem is too strong a dollar against gold and why is it too strong it's because american authorities have been managing the price of gold going back forever you can see it in wiki leaks back to the futures launches in the 70s 70s you those are u.s cables those are u.s diplomatic cables admitting that was the whole point of the futures market was to dissuade ownership and to control price uh the growth of the unallocated gold credit gold market in london starting in the 80s um i know people that were close to that i know that was the purpose of it you can go to 2019 where jp morgan was charged criminally under racketeering laws my father-in-law was a teamster official like the racketeering laws made the gold desk at jp morgan crapped their pants and every other gold desk on wall street crapped their pants like i worked in the business for 30 years 25 years like the sec civil charges were like holy crap like criminal charges whoo right so the chinese you can go back there's another u.s embassy cable from beijing in 2009 chinese saying we're growing the americans always suppress the price of gold and so it's part of the reason we're buying gold is because we know that that's not the right price 2014 uh shanghai is going to be the price of gold in the future 2014 shanghai is going to be the price of gold in the future shanghai is going to be the price of gold in the future shanghai is going to be the price of gold in the future shanghai gold exchange president says when the the old model of gold being consumed in the east but priced in the west is going to change when china has the right to speak in global gold markets pricing will be revealed that's as they were launching the shanghai gold exchange international board which essentially was reopening the gold window without washington's permission aided by russia starting to sell oil and yuan and and net settle in gold buy gold instead of treasuries so like this whole things people say well it's going to take forever to change a dollar it's been underway for 25 30 years folks uh we're getting down to like you know the seventh eighth ninth inning of this change and this shelton thing is very interesting so the chinese i think would absolutely be on and when you look at you know the trillion two surplus the chinese ran last year they imported i think it was 900 something tons of gold if you look at the price of gold that china imported needed to balance china's trade surplus 2024 it was 26 000 per ounce in 2025 it was nearly 35 000 per ounce china runs a big take gold to 26 people like oh china needs to balance trade they got to rebalance gold at 25 000 china's running a balanced trade and oh by the way this is what the chinese did to the brits in the 1760s they didn't want any of the british product you want silk you want tea great you want porcelain awesome give us silver give us gold we don't want you know and what would the brits do right the brits say well here we're just going to hook your people on opium and blah blah blah blah and central humiliation so on so forth so you know to me it's all right there and i think it's going to be one of these things where you're either going to own it or you're not you know it's going to be basically you know over a weekend over a month over two months
Speaker 1right you can't be late for that you can't you can't watch it in real time you you either own it before or or you know or you don't missed it
Speaker 2yeah no that's exactly that's how the last currency system changed people don't really realize this right there was a bilderberg meeting in in late 73 kissinger was there, a bunch of the oil guys were there. And you can find this in the historical record, they decided oil prices were going up 400%. And over the next six months, they did. They got themselves a war to provide the cover of it. And boom, oil rose 400%, basically to be made big enough to back the dollar. And when someone, you can read about this as well, the Sheikh Yamani, the former Saudi oil minister, gave multiple interviews about this over, you know, from call it 2001 to 2010. When the Shah of Iran, or when he called the Shah of Iran to ask why the Shah was raising oil prices 4x overnight, the Shah of Iran, Yamani said, the Shah said, I don't know, ask Henry Kissinger. So like, my point is, is that these types of decisions are made behind closed doors. They're made behind closed doors. And when they happen, right, you either owned oil, there was no point on the chart of oil once it started moving in late 73, 400% in the next six months, where you're like, now's a good time for me to jump in. You either owned it there and you wrote it, you didn't buy in the whole way. And by the end of it, like, boom, we have a new system, have a good day. And then you can deal with the different fallouts, et cetera, et cetera, et cetera. But I think that's going to be kind of the same type of thing this time around. And I think the Shelton News and the Merck News and the Zoltan News and, and, and it's all, you know, it definitely raises, you know, if, if, right, if we, if, if Tornado Watch is when the conditions are right to have a tornado, you know, a currency system change watch, the conditions are all there. Will it develop into a tornado or a currency system change? We'll see. It's a very political thing. I don't know. But boy, I would say for the, the conditions are the most ripe that I've seen. And I've been sort of talking about this for a long time.
Speaker 1So. As I look around the world, like, who else is taking this seriously besides you? I mean, I think, I think I sort of am. But, but I'm still, you know, is, is this really going to happen is still a constant question in my mind. You, you frame it in terms of math, almost like the physics of finance. Like you sound like, you are really confident it's inevitable, whether it's within, you know, five years or 10 years, this there, it sounds like you're telling me there isn't going to be a major monetary reset. There has to be one is what I'm hearing. Do I have that right?
Speaker 2Yeah, you have it exactly right. And the reason I'm so confident is the math, like you said, which is the United States is a reserve currency issuer. And right now, with the economy good US, what I call true interest expense, right? The interest in the interest like obligations of our government. So I, let me back up. I once had a gray beard that worked with Stan Druckenmiller say to me, Luke, the debt and the deficit, none of it matters until you have to print the interest. Once the debt is high enough that you have to print the interest, it's over. And I was like, wow. That's true. And so back in 2018, I really started studying it in those terms. Now for the United States, this isn't just interest. Everyone was just looking at the interest relative. And it's not like to GDP interest to GDP is that's a silly, it's a silly number. What he really said is once interest is two bigger percent of receipts, you're done. It's not interest to GDP. It's interest to receipts
Speaker 1to tax receipts.
Speaker 2Exactly. Yeah, exactly. Once you have to print the interest, you're done. Okay. So I started studying it and I made one last adjustment to that. I called it sort of a money ball adjustment, right? The movie money ball. Everyone's like, oh, you know, paying up for all these guys who have high batting averages, but there's no difference between a guy who hits a lot of singles and a guy who walks a lot. A walk is the same as a single functionally, even though it doesn't show up in your batting average. And so the Oakland A's were able to be very competitive by basically buying on the cheap players that walked a lot. The money ball, like interest expense of the United States is not simply the debt times the rate you pay on the debt. And there are also 70 million baby boomers. They are owed 150 to $200 trillion. That is a debt. It's off the balance sheet. So we never count it. But as it comes on balance sheet, that is the interest on that off balance sheet liability. And when we do stupid wars for 20 years, veterans affairs, which was $60 billion, outlay in 2003, when we invaded Iraq is now a $400 billion per year outlay growing 10%. It is 8% of receipts growing two and a half times receipts. This is a Weimar problem. This is the war reparations problem. By the way, social security, Medicare, Medicare on this basis are 80% of receipts growing two X to three X receipts. And so I started graphing this in 2018, 2016, maybe it was 2018. Anyway, my point was, was I said, okay, it's going to go over. It was 2016 because by then I was, I was looking at the big three. I was looking at defense interest, interest and entitlements. And I said, all right, by 2021 or 2022, we're going to be at a hundred percent on the big three, a hundred percent of receipts, interest entitlements, defense. I was wrong. The Fed started raising rates and we hit 100% on the big three in 2018, four years, three to four years early. So that the 2018 was when the gray bear is like, no, no, no defense, whatever it is. It's when you have to print the interest that you're done, that, you know, it's a mathematical certainty in COVID we hit 120%. And what did we do? $600 billion a month immediately in QE. The treasury, market broke and they did it. It was like, okay, that was the proof of concept of once you go over a hundred percent of receipts, you're done. And they're going to react now. Where are we today? 103% of receipts in a good economy. Some would say booming, some would say booming for
Speaker 1just those three, for just those three, for interest, not even those
Speaker 2three for vet, for, for interest. Entitlements, veterans, no defense. You had defense. We're 140, 135. They're done. It's over. Now people say the dollar should be falling. That's, you know, as Lee Corso, you say not so fast, not so fast. Go back to my peanut butter and chocolate dynamic. All else equal foreigners are short 13 to $14 trillion on one hand and their long $22 trillion net on the other. We get to about 95%. And again, that's true interest expense, entitlements, interest veterans affairs. So true. And once true interest expense, it's about 95%. The United States starts crowding out global dollar markets with their borrowing. So the dollar starts to rise. Short-term rates start to rise. We talked before what happens when the dollar and rates start to rise, they start selling treasury. So rates start to rise faster than they start selling stocks. And then you have a treasury market dysfunction and they come in, print more money, wash, rinse, repeat. We've seen this over and over. And so the challenge, the reason why I know with certainty that it's going to happen one way or another, we can discuss how it's going to happen. It can happen the nice way. It can happen the ugly way is we're at 103% today in a good economy. So one of two things are going to happen there. We know the treasury market's going to rise. The dollar's going to rise. Rates are going to rise non-linearly. Treasury markets are going to start to dysfunction. Then we get into our decision points. Are they going to print money to calm it? Are they going to let treasury auctions fail? Treasury auctions start to fail. Then all of a sudden, at some point in that, the collateral value of the US treasury market, which backs everything, will start to be called into question. When that happens, if that's the choice they make, I don't think it's going to be the choice they make. But if they choose, if Warsh chooses to be called into question, then that's going to be the choice they make. If they choose to be a tough guy and stand aside, then you will start to see collateral pull out of banks and moved into things like gold, silver, commodities, even equities, something for safety. And the system will change because gold will now be the safe asset, not treasuries. Gold will be the reserve asset, not treasuries. Or we will do what we did in 2020, 21, 2022, which is going to be the best asset in the world. And if we do that, then we will be the best asset in the world. What happened to true interest expense? It went from 120 to 85. okay great then what happened our president recently tweeted
Speaker 1about how that works by the way we can inflate our way out of this he said it yeah
Speaker 2and yeah exactly and you know i got tagged in on a bunch of that and and 22 people were saying paul needs to be the next volker he needs to be brave what i was saying was if he wants to be brave he needs to let this run for about another three years and that will save the dollar system as structured if he raises rates now he's going to put himself in a position where he screws himself because he's going to push interest back the true interest expense back above 100 and then he has a choice how do i want at some point how do i want to lose the long end do i want to lose the long end by tightening rates or by loosening rates and that moment came in the fall of 24 remember he cut rates by 50 basis points with the long end boom yeah the long end took off wars just heightened rates what the long end do boom took off hated it hated it they hate it either way they're done either way so that's why i say i know now there's two other ways out of this one is look if we wake up if we get back together in 12 months and the sickest 30 to 40 percent of boomers are dead right that will flatten the curve of entitlement spending big league don't think it's going to happen the other thing is if we can somehow get china and russia we can basically put boris yeltsin's in charge of each of them willing to sell their wealth of their nations to the united states and western elites for pennies on the dollar all in dollars again without any war or any disruption then then i'm going to be wrong too but failing those two highly unlikely things happening this is a certainty and the nice way is we bring in judy shelton and someone who knows what they're doing and how to do this and yes we have a period of inflation and the boomers get inflated on their bonds but you know what they've been getting bailed out every crisis forever and they're look the boomers are the richest generation in history and they are getting 80 of every tax dollar as a generation and i know there's a very much a k shape within the boomer uh generation just like there is in this country without a doubt yeah and to your point you need to own gold listen boomers your government didn't care about you in vietnam why would you ever think they care about you now why would you think they wouldn't send you to vietnam send your bonds to vietnam that's what they're gonna do they have to do it there's no choice and so that's the happy outcome the bad outcome is you know we we don't because i say that's the happy outcome is because we can reinvest we can plan for it we can reshore we can do a lot of the things you're seeing the trump administration attempt to do um we don't plan for it we just do what we did in 22 23 which is you know let's just you know inflate and and buy more stuff from china then in five years we'll wake up and the chinese are gonna go hey you want our gold only and that's you're then you're gonna get basically what looks and feels a lot like a version of latin american hyperinflation in the united states of america because we won't have any industrial base right people say oh the dollar can never collapse dollar collapsed against oil collapsed 90 from 2001 to 2008 and what we get for it massive oil production we're now the biggest the only way shale made sense was because the dollar collapsed against oil full stop doesn't work at 15 bucks doesn't work at 25 doesn't work at 35 doesn't work at 45 worked fine at 100. same thing now imagine we put in the infrastructure first we get sort of a running start manufacturing start bringing back raw materials steel aluminum and then the dollar collapses against all of it what's going to happen you're gonna have the greatest economic boom in american history since after world war ii now boomers and their
Speaker 1bondholders no screwed screwed financials right the financial financial side right the whole financial
Speaker 2side gets screwed and guess what it should it got bailed out four times in 30 years yeah it's high it should have fallen over years ago that's right
Speaker 1george i interviewed george gilder he said it's hypertrophy the high the financial sector is a hypertrophy it's way too big and uh there a reckoning is coming um this is actually a good place for me to ask my final question and by the way uh i just want to know we normally do you know a slightly less than an hour for the show luke and i am riveted by you right now and i could do i feel like i could do three hours and the first thing i want to ask you before i get the final question is where can folks read more uh where can folks read your stuff do you have a book you have a website tell them tell them what where they can find
Speaker 2you yes uh so i mean i do have some books uh there mr x interviews they're on amazon but the best way to read though they're a bit dated the most the best way to reach us is on fftt-llc.com uh more information about both our mass market and our institutional research products and then i'm i'm on x as well at luke groman yeah
Speaker 1yeah he's a good follow on x i can vouch for that folks um okay so my final question is the same for every guest no matter what the topic even if it's a non-financial topic um feel free to repeat it if you're if your answer is something you've already said during the course of the interview you know you can just repeat it but the the question um is simply this it's for our listeners benefit our viewers benefit if you could leave them with just one thought today this is your chance what would you like it to be sounds like buy gold but i'm not going to put words in your mouth i think it's i mean i think gold is be by
Speaker 2gold as part of it's not the the fix to everything i think it is a part of a fix of the financial side of it but for me it is more about being under levered or unlevered and being very mentally flexible and tough there's a lot going on that has never happened before and uh most frameworks most analysts i see just want to kind of overlay something that happened you know well this is just like 2000 or this is just like 98 or this is just like and i'm not going to put words in your mouth but i'm going to put it in your most very very rarely do they go did they go back before 82 and then we had the inflationary period like well this is like the 70s and it's like people aren't going back far enough in history to understand what's really happening here and i'm not saying i have a full understanding of history but i have an understanding of how unprecedented this is i think more than most people which is to say no we've never seen debt to gdp this high we've never seen and and by the way globally you know globally we've never seen debt to gdp this high we've never seen debt to gdp this high we've never seen supply chains this fragmented ever we've never seen derivatives on the debt on the interest rates on everything this high ever we've never had the ability those three with the ability to destroy the entire world in an afternoon like we now have with the weapons we have we've never had um the pace of technological change overlaying all the i keep seeing people say well you know ai everyone always finds something else to do we we moved everybody off the farms in the 1800s and everything was fine and i'm like yeah over the long span of history but was ever everything wasn't so fine in europe from 1914 to 1945 and then again from 46 to 89 so like it's sort of like other than your husband getting shot how was the play mrs lincoln these people that are like people will find something else to do yeah they will but you know that could easily be the last time we had something even somewhat close to this pace of technological change that something else was 10 to 15 percent of the population of eurasia was killed in wars and political political revolutions from 1914 to 1945 and then a cold war for another 40 years so like that's why i say i think it's so important to be on the right track and i think it's so important to be on the right track and i think it's so under levered or unlevered and flexible just and and mentally mentally flexible mentally tough because things are gonna you know things are gonna keep getting weirder and that's like the nice way of putting it um you know unless there's some sort of you know do x machina miracle that shows up and sort of you know saves everything just to wrap it up in time like macgyver like that i think it's super important for investors to just be unlevered not too concentrated and very flexible of mind because you just you just don't know the overton window is not just wide it's been completely shattered all right that is
Speaker 1an awesome answer um thank you for that and thanks for being here luke i like i said i really enjoyed this i feel like i could do it for two more hours thanks so much
Speaker 2thank you very much for having me on dan it's great to be here you bet
Speaker 1wow okay so i've been in the uh you know sort of newsletter game since um well i was hired in november of 1997 by a guy named bill bonner who really helped create the industry from his kitchen table starting in like the early 70s mid early to mid 70s and a lot of those old newsletter folks were serious gold bugs who were constantly talking about the collapse of the u.s dollar and they had a good run in the 70s of course because gold went from you know whatever 35 bucks to 850 and the dollar lost about three quarters of its value that decade so um they looked like geniuses you know for a while there um and then for a long time they kind of didn't and um and then you know i came along in in 1997 98 when they were sort of at their nadir i mean you know it was like gold was i think gold hit two i want to say 262 um having hit 850 in 1980 80 or 81 boy you'd think i'd remember that one anyway that's the approximate time frame but um so the past few decades couple of decades here two or three um talking about the collapse of the u.s dollar uh has been frankly kind of dumb and people keep doing it and doing it and do it and doing it um in a not in a sort of wing nutty not credible way i have to tell you that what we just heard is the most credible thing about uh the the you know impending extreme weakness of the u.s dollar that i have ever heard i mean i i just want to you know as soon as i turn this microphone and this camera off i just want to ingest you know luke groman in in large gulps because that his understanding of the situation and did you hear the historical context of it all he knew all the historical points to hit i just thought that was brilliant it really lit my mind afire um with this topic which has been on my mind anyway i've been thinking a lot about um the the financial sector sort of being a what george gilder calls a hypertrophy getting too big and and affecting the supply of physical things and i think that's going to right itself and and that you know the dollar will lose value gold will rise a lot in value you heard luke talk about 4x a 4x rise just to sort of fix things in the monetary system so um i'm right on board with this and i hope you are too because i think it's very smart and did you hear his advice when i asked him for the final question he he said don't you know be under leveraged or unleveraged and learn to think flexibly great advice really great advice i mean buy gold you must own gold but don't be too levered up either wow uh that was a another great interview and another great episode of the stansberry investor hour i hope you enjoyed it as much as i really honestly truly did and remember to hit like and subscribe and sign up for our free daily email opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of stansberry research its parent company or affiliates
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