The Final Phase of the Debt Supercycle | Edward Chancellor

Episode 431 https://hiddenforces.io/podcasts/the-final-phase-of-the-debt-supercycle-edward-chancellor is the seventh episode in the Hundred Year Pivot podcast series. In it, Demetri Kofinas and Grant Williams speak with Edward Chancellor, a financial historian, award-winning journalist, and the author of "Devil Take the Hindmost: A History of Financial Speculation." Eddie, Grant, and Demetri discuss how excessively interventionist monetary policies and widespread speculative excesses have prolonged the final phase of a "Debt Supercycle," whose bursting will likely usher in a new era of financial repression, marked by increased capital controls, currency crises, heightened geopolitical risk, and social turmoil. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 07/24/2025

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. What you're about to hear is the seventh episode in a podcast series hosted by me and my co-host Grant Williams titled "The Hundred Year Pivot." In it, we speak with some of the smartest and most plugged-in people we know to help position ourselves, our organizations, our families, and our portfolios for the once-in-a-century economic, political, and geopolitical reordering that we believe is currently underway.

• 0:43Demetri Kofinas?

  In today's conversation, Grant and I speak with financial historian and award-winning journalist Edward Chancellor. Edward is the author of Devil Take the Hindmost, a famous book about the history of financial speculation, and is currently a columnist for Reuters Breaking Views and a contributor to many other publications, including The Wall Street Journal, Money Week, New York Review of Books, and The Financial Times. In this wide-ranging conversation, Eddie shares his perspective on how interest rates, monetary policy, and speculative excesses have shaped our modern economies by providing an insightful narrative that traces the evolution of money and finance from the period of the classical gold standard to the rise of free-floating fiat currencies.

• 1:27Demetri Kofinas?

  We also explore the concept of a debt super cycle and the potential consequences that may arise from a generational reset, such as increased financial repression, capital controls, currency crises, and geopolitical and social turmoil as the debt cycle reaches its climax. The episodes in this series are published a week ahead of time on both the Hidden Forces and Grant Williams podcast subscriber-only feeds. If you want early access to these conversations, go to hiddenforces.io/subscribe and join our premium feed so you can listen to this episode and other subscriber-only content on your mobile device using your favorite podcast app. Just like you're listening to this episode right now. If you want to join in on the

• 2:11Demetri Kofinas?

  conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, access to special research and analysis, in-person events and dinners, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice. All opinions expressed by me and my guests are solely our own opinions and should not be relied upon as the basis for financial

• 2:52Demetri Kofinas?

  decisions. And with that, please enjoy yet another thought provoking and deeply reflective conversation with our guest, Edward Chancellor.

• 3:05Speaker 01

  Welcome, everybody, to another edition of the Hundred Year Pivot. We're back. And when I say we, I'm joined, of course, by my co-host, the fantastic Dimitri Kepinos. Hello, my friend. How are you?

• 3:15Demetri Kofinas?

  I'm doing fantastic. How are you, Grant?

• 3:18Speaker 01

  I'm very, very well. We've both been away. You to Italy and me to your homeland of Greece.

• 3:23Demetri Kofinas?

  Oh, that's right. You were in Greece. You were in, where were you in Greece? Are you able to share that with us?

• 3:28Speaker 01

  Up in the northern part of Greece.

• 3:30Demetri Kofinas?

  Northern part.

• 3:31Speaker 01

  Skopelos and Skiatos and...

• 3:33Demetri Kofinas?

  Oh, right. The Sporades island chain.

• 3:35Speaker 01

  Beautiful. Yeah.

• 3:36Demetri Kofinas?

  Yeah, I went on a sailing trip on those islands once, back when I was actually willing to be involved in the actual process of sailing. I'm no longer interested in going on a vacation that requires me to do any work. But it was me and seven other friends and we did the whole chain from Skiatos to Skopelos to Alonisos. And then we went to the fourth barren island.

• 3:59Speaker 01

  You say it.

• 3:59Demetri Kofinas?

  There was a fourth barren island that we moored off of and we found a fisherman who sold us some lobsters.

• 4:06Speaker 01

  Was that Palatia?

• 4:07Demetri Kofinas?

  I mean, was that what it was called? I don't remember it being called that. I remember it being called like we were, I think we called it like Hedgehog Island or something. I think that, but I'll have to go back and look.

• 4:16Speaker 01

  Well, I was, I was on a boat too, a friend's boat, and it was, it's just magnificent. It's just a beautiful country, mate. It's just.

• 4:21Demetri Kofinas?

  I learned this is beautiful. It has a beautiful old city at the top. I mean, an old town. Did you go up to the old town?

• 4:27Speaker 01

  Didn't, no, we didn't go.

• 4:28Demetri Kofinas?

  It's enchanting.

• 4:30Speaker 01

  We, no, we just sailed the whole time. We were just sailing around. We moored. It was, it was beautiful. It was absolutely beautiful. But hey, we're back and we're both back to work now. And you know, it's, uh, the one thing about having time like that is you, you just keep thinking about all the things that you've thought about, but haven't had time to really sit and think about, because there's always something else you need to do. And so having the, the kind of week that I had to just decompress and sit on the boat and talk and think, it was just magnificent. And a lot of the conversations that we've had in this series are just still rattling around my head and I feel like we're about to have another one. Just when I, I kind of emptied some of it out. I've cleared space for our guest, Eddie Chalmers, to fill, no doubt.

• 5:08Demetri Kofinas?

  Absolutely. Yeah. I'm, uh, I'm looking forward. You know, Eddie is an example of, you know, when I, when I went the quote heterodox, it's such an ugly word, heterodox, but when I basically went off the reservation in economics after I got my bachelor's degree in the early 2000s, there were certain people that I discovered early on in that journey. Jim Grant was one of them and Eddie, also an economic and financial historian, is an example of another one of these intellectual giants whose works had a, a huge influence on me at a time when I was just beginning to question the basic tenets of standard economic theory as it had been taught to me in university. So it will be very exciting and interesting to get his perspective as a historian and a lifelong student of political economy

• 5:53Demetri Kofinas?

  on some of the themes that we've been exploring on the 100 year pivot.

• 5:56Speaker 01

  Yeah. I, you know, Devil Take the High Most is not only a terrific book, and anyone that's listening to this that hasn't read that, I would strongly encourage you to read it, particularly now. But you know, it had a profound effect on me. The first time I read that book, and I've read it two or three times since. And each time it's just such a fascinating set of studies. So I would encourage people to read that. And, and you know, I keep coming back to what Eddie writes about. He's written about financial speculation and his most recent book, The Price of Time, he wrote about this history of interest rates. And I believe strongly that, you know, they say money is the root of all evil, but I think money is the root. Of all these problems and corrupting money by making it too cheap for too long. I think a big part of this hundred year pivot we're talking about is that working its way through

• 6:39Speaker 01

  the system, this idea that you can't corrupt these things forever. And along with working out the societal pressures, the pressure that's built up in the world of money is a big part of that. So I'm looking forward to having the chance to talk to Eddie about that.

• 6:50Demetri Kofinas?

  Yeah, so let's do it. Let's get him on.

• 6:52Speaker 01

  Let's do it. Eddie, welcome to the Hundred Year Pivot. Thank you so much for doing this. It's been taking us a while to get this organised with some missed emails and all kinds of stuff. But we're both delighted you could join us. Thank you.

• 7:02Speaker 02

  Yeah, please be with you. Nice to see you again.

• 7:05Speaker 01

  You know, this podcast, Dimitri and I started, it's a very random journey. It was really begun because we had just had this feeling that things were changing and it was an awful lot of stuff going on that we didn't really understand. And so we thought we'd kind of speak to as many people as we could that could give us all kinds of different, maybe vectors to come at this change from. And of course, right at the centre of it all, particularly from where we start and work our way outwards is money and interest rates and time and prices. And we both thought, who better to speak to that than the man that wrote the book, The Price of Time? I mean, there's no better way to do that. So I guess just to start things off, if we can, I'd love to get a sense from you. So we're calling the show The Hundred Year Pivot. The last hundred years of interest rates have been a very particular era, particularly the last half of that century.

• 7:51Speaker 01

  And it's a very broad question, but I wonder if you could give us an overview of that, interest rates and the price of money over this last hundred year period that we're talking about.

• 8:00Speaker 02

  Yeah, I can try. And I think the first thing I would say is this is not quite a hundred years ago, but almost a hundred years ago, society started making this shift from a gold-based currency system to a fiat-based monetary system. And you can say it happened, you know, I mean, obviously you had the German hyperinflation of the early 1920s. So it happened in fits. And as you know, it happens in fits and starts the shift from a metallic-based money to paper-based money. And why that's important from the perspective of interest rates is that

• 8:42Speaker 02

  When you have a metallic based money, amount of money is by definition limited. And so to some extent, finance complicated because you've always got banks making loans out of nothing, but to some extent, there is a limit on how much, on where interest rates can go. They can't go very high and they can't go, or they, historically, they never went very low under a metallic based monetary system. Now, what's interesting in the last hundred years, as I'm sure you're aware, is we have

• 9:20Speaker 02

  had higher highs in interest rates and we've had lower lows in interest rates. And it seems to me pretty obvious that that would not and could not have happened in a world in which the money stock was defined. If one was defined and limited, and think of it this way, it's, you know, I think I end my book, The Price of Time, citing the Cambridge economist Dennis Robertson, and he's talking about, I can't quite remember what, you know, you need a price, let's say, for a packet of matches, and that will coordinate the supply and demand. He says, just like you need a price for some ordinary good, you

• 10:03Speaker 02

  need a price of interest in order to coordinate the supply and demand of savings. But once you move this into a fiat world, everything in a way is, you know, hyper-real. So there are no limitations. So then, you know, first of all, as you know, as you're well aware, you know, you get, you have a capacity for high inflation and for very, very high and for hyperinflation. So what you see at those times, say, Germany in the twenties, I know the case in, in Argentina, and I think Brazil, probably a couple of other Latin American countries, where you get interest rates going up, you know, tracking the inflation up into

• 10:45Speaker 02

  the thousands of percentage points a year. And even then, at such times, the interest rates tend to be, let's say, loose compared to the inflation rate and the money printing. But so you see, have that capacity for interest rates to go very high. And then what we saw more recently.

• 11:06Speaker 02

  Was the capacity for interest rates to go to extremely low levels. So it's true during the Second World War, the US Treasury and the Fed together coordinated interest rates, they fixed the 10-year yield. And I think the short-term rate, the Treasury note rate was fixed at about 75 bips or something like that. But anyhow, you can see that anyhow, we had low interest rates during the war. We then moved to the highest rates where, you know, under Volcker in US history. And then we moved to a zero rate. And more interesting, I suppose, from a historian's perspective, is that we then, we also moved to negative

• 11:48Speaker 02

  rates. And given, you know, thrust of my argument, the book was that, you know, interest serves all these important functions, and that it puts a price on time, and that all economic and financial activities take place over time, that human beings are by nature impatient, i.e. they have positive time preference. Well, if you put a negative rate, you're actually reversing everything. You're, you're, it's really, to my mind, the most unnatural thing you can do in finance, you know, except for perhaps, you know, micro strategy, yeah,

• 12:31Speaker 02

  what's the exchange traded note, levered exchange traded notes on micro strategy stock. Anyhow, look, as we know, there's a lot of weird stuff going around still. But that negative rate, at, you know, after five millennia of positive rates, was, to my mind, you know, the most extraordinary thing we'd ever seen.

• 12:53Demetri Kofinas?

  Eddie, I have a question. When did the The material distortions on the price of credit begin. Was it the breakdown of Bretton Woods? Or was it maybe something closer to the admission of China into the WTO beginning in the 21st century or something around that time? When would you sort of like really point to as the start of the the start of the distortions that have led us to where we are today?

• 13:20Speaker 02

  Okay, well, I mean, first of all, you know, if one was going back historically, you know, my book had a chapter on John Law and how John Law fiddled the interest rate in France in the in 1719, controlling the central bank, absorbing the debt. So there's the first example in which you have a central bank, a person who is wearing the cap of a central banker along with a few other caps. You see the first time where in a fiat money system, because Law introduces paper currency of a manipulation of an interest rate generated from paper money. And that's associated, as you know, with the Mississippi bubble and so on. And then you could say, you know, go through the 1920s.

• 14:01Speaker 02

  The 1920s, the US was officially on, you know, what people call the gold standard, but it was actually technically a gold exchange standard. So and there were all sorts of problems with the sort of flow of gold around the world at times. So and I would argue, and not originally, but I belong to the camp that thinks even the 1920s, where you had, by our standards, relatively high rates, the rates were probably look as if they were too low relative to the productivity of the time. And therefore, that played a role in, you know, contributing to the, you know, great boom on on Wall Street. So Bretton Woods period, you know, 19, roughly 1944 to 71, it's, you know, that's a period in which, again,

• 14:43Speaker 02

  the sort of hybrid monetary system, part gold, part money. But it actually with capital controls, we see relatively few speculative bubbles in that period. You get a lot of speculative excess as Bretton Woods is is breaking down in the 60s. You know, tronics booms, the go-go markets, the late 60s. But by and large, relatively free of speculation. And then if we just ignore this, let's ignore 70s and 80s. You get into the you get into the 90s and then it's really a matter of taste as to when you choose your beginning point for.

• 15:23Speaker 02

  This cycle of speculation that we've been on. In fact, actually, some would date it back to the Fed's intervention after the October 87 crash. Others point to the fact that the Fed in the early 90s, you know, after the savings and loan crisis and the recession and the banks at the time were in a great deal of trouble. I think Citibank was having sort of quite, you know, sort of solvency issues and the Fed manipulated, if you will call it that, a positive yield curve and you had very steep yield curve, which was very profitable for bailing out the banks, very profitable for the hedge fund guys

• 16:04Speaker 02

  like Soros and I can't remember, I think Julian Robertson and there was a guy called, it was called Michael Steinmetz at the time.

• 16:12Speaker 01

  Steinhardt, yeah.

• 16:13Speaker 02

  Steinhardt. So there was a lot of sort of carry trading speculation that goes on into the 94, we get the bond market crash and you get the Mexican crisis and then you get a response to that and then you go on into the LTCM, which is what's late August, September at 98. I didn't grant, you know, that, do you know the fellow called Doug Nolan?

• 16:37Speaker 01

  Yeah, I know Doug.

• 16:38Speaker 02

  Yeah. So I was actually talking to Doug earlier this week, actually, and we were just talking about it and Doug would say, you know, Doug's fixated or was fixated on how the government's sponsored enterprises expanded their balance sheets, acting like sort of mini unauthorized central banks in the 1990s. Anyway, you go, you, and I remember Doug giving, you know, writing right back in 98, he talked about the, he had a note he put out called a coin in the fuse box. And he argued that Alan Greenspan had stuck a coin in the fuse box. So the system wasn't, wasn't, wasn't tripping as it ought to be, but it was just, you know, heating up. And so the way I see it since then.

• 17:23Speaker 02

  Is we've just had these succession of speculative booms underpinned by central bank support and monetary policy and whether you go from, you know, as I say, LTCM to the dot com bubble, then post dot com bubble, you get, you know, you get your one percent interest rates in two thousand and two and you start inflating both, you know, US real estate and the mortgage credit boom. And then, you know, you move through the GFC into the, you know, era of zero rates and quantitative easings. And I, so there is, I don't know the, you know, there is this old nursery rhyme that we used to learn, I don't know if people

• 18:08Speaker 02

  learn it anymore, about a little old lady who swallowed a fly and it goes, she swallowed a fly, I don't know why it wriggles and tiggles inside her. And then she swallows a spider to catch the fly and that also sort of wriggles and tiggles inside her. So then she swallows a bird to catch the spider. Yep. And then she swallows a goat. And then eventually she swallows a horse to catch the goat and then it suddenly abruptly ends. She's dead, of course. And in a way, I see the progression of what's happened over, I mean, let's call it the last, you know, thirty

• 18:49Speaker 02

  years, as is progression from one extreme speculative excess to another. And that, you know, that held through to late twenty one. Then we had the interest rates rise and you saw, and that's probably roughly at the time you and I last spoke, when that book came out in summer of twenty two, and likewise with Dimitri. But then, you know, you did, you got a, you know, a big sell off in the equity market and a huge sell off in the bond markets. And, you know, all SPACs went down ninety percent. And then over the last three years, I'd sort of been trying to keep track. Of what's been happening in terms of higher interest rates have fed through into

• 19:34Speaker 02

  the system and what consequences they've had. And you see them all all over the place. I mean, I, I, you know, I mean, for instance, you know, take renewable energy. I mean, I dare you away, you know, the renewable energy index down. Well, you know, when I last looked about seventy five percent, but I I think depending on which index, you, you know, there is a sort of clean energy index, which was down about sort of eighty percent. And there's a clear example where you have things like, you know, wind turbines and and solar farms with huge upfront costs where they appear to look viable in the period

• 20:13Speaker 02

  of ultra low rates and then unviable when interest rates rise. Or, you know, in technical language they use in the energy world, the levelized costs of these things goes through the roof when interest rates rise. And then, you know, there was Wall Street Journal, I think, had a piece last week about how trophy, how the bottom have fallen out of trophy art. You can see the consequence, I mean, more obviously, you know, commercial real estate and so, you know, many weak, apart from the US residential housing being sort of weirdly strong, many other parts of the world, very weak residential housing markets. But what I mentioned all that just as a prefix to saying, well, you know, the

• 20:53Speaker 02

  speculative boom that then, you know, came out around AI and how that inflated and how, you know, Bitcoin that had been crushed in twenty one came back. And then, you know, new jokers like MicroStrategy and so forth came on to see. So this is a bit anomalous to what you see in history. Normally, you'd see a nice, you know, clean break, like go think back to the dot com bust, you know, things started to blow in, you know, roughly April two thousand. It took a while for that to feed through into the big tech stocks. But basically, by the autumn of two thousand, it was pretty clear the.

• 21:37Speaker 02

  The thing was over and I I remember describing, because I'd written, as you know, that history of financial speculation, devil take the high mess. And I remember saying to my editor, analysing what was going on then was a bit like shooting fish in a barrel. It was so easy because everything was, if you knew the narrative, it was pretty predictable. I think what's going on now is, yeah, that's sort of, we're not really, the fish aren't really in a barrel any longer. They're sort of, I don't know what they're in, you know, they're in the ocean. So it's a bit more surprising, it's a bit curious. And I'm not, you know, I still think that my, you know, essential take of moving from one bubble to another, and the bubble's getting bigger, and those having to be underpinned with a

• 22:19Speaker 02

  monetary response. I still think that analysis holds. Although, if you'd said to me, you know, three years ago, the Fed's going to jack up rates and, you know, we're going to get super speculative excesses, I would have probably not. But that's what we've seen.

• 22:38Speaker 01

  So Eddie, if I may, that's a fascinating background for all this. Thank you. When I look back on that period of on and off the gold standard that you talked about at the beginning of this period, it seems to me from my reading that the basis, the foundation upon which everything was built was the gold standard. So periodically they would go off it, which made it much easier to go back to it, because that was the status quo that everyone was used to. And the anomalous periods were when we went off any kind of metallic or bi-metallic standard. We've obviously had an extended period now, a lifetime for many people, where we've had a purely fiat system. And so that becomes the norm, that becomes the status quo. And so any, any concept of returning to any kind of metallic standard

• 23:20Speaker 01

  involving gold, silver, platinum, or any combination of the three, seems completely unworkable and unthinkable for people. Except when you look at the length of this particular cycle, the, the, the advantages that a purely fiat system bestows upon elected officials is very much a feature as opposed to a bug, because it does allow them to borrow and spend, it does allow them to promise and pay for stuff, and it has allowed central bankers to prop everything up. But it feels to me as though, over this extended period of time, once you reach the point where the feature is no longer a feature, it does become a bug.

• 24:01Speaker 01

  There's no real way back from that without some kind of pain being inflicted somewhere in the system.

• 24:08Speaker 02

  I agree, I agree that you don't get out of this situation without pain. I actually, I wrote a column yesterday, which goes out in Reuters Breaking Views tomorrow, where I was looking at this whole, you know, this issue of the debt super cycle. And I used to have a column in the FT and I did look at, you know, the last time I addressed the debt super cycle, I think it was back in 2011, wrote a piece about it. And Ray Dalio's got a book out called How Countries Go Bust the Big Cycle. Anyway, it's basically, I don't know whether it's taken from it, his previous book, which I didn't actually see, but it's a pretty conventional look in its way of what long

• 24:53Speaker 02

  debt cycles or super cycles look like and when they come to an end. And actually, although, you know, Dalio's not a good writer and incredibly repetitive and so forth, the sort of nub of the argument, which is that based on Bridgewater's study of, you know, of historic debt booms is that debt booms, you can't pile on debt ad infinitum to start with. And secondly, you know, the countries that are arriving at the end of their big cycle or their super cycle, if you want to call it that, you know, they have a certain number of common features, you know, such as, well, obviously start with, you know, record levels

• 25:35Speaker 02

  of total debt, large fiscal deficits, they tend to, they tend to have, you know, current account deficits, you have these twin deficits, they tend to have rising debt service ratios as, you know, relative to the government income. And they tend to have short maturity on their borrowings. And, and I was just looking at my piece, you know, Britain, the US and France, and really all those countries tick those boxes. So, yeah, I would think if we accept that debt can't, you know, carry on rising further, that we are getting pretty close, let's say, to the end of the debt. The big debt cycle or super cycle.

• 26:18Speaker 02

  And when you get to the end of it, again, the very conventional analysis that or conclusions that Dalier puts forward, which any of us would have said, is that, you know, you can expect the central bank to monetize the problem, you know, sooner or later. And then we'll then we'll have to see, you know, you said there's a sort of inevitability to the fiat money system, a fiat money system that has helped grow, you know, grow the role of government and in particular, as you know, this incredible growth of entitlements. So that the share of what they call discretionary spending in a government, in any of these

• 27:01Speaker 02

  government budgets gets smaller and smaller. I'm saying off the top of my head that in the States, I think it's roughly sort of, let's say roughly about 25% of government spending is now deemed to be discretionary. So I don't think that that can hold. You know, I think that these systems in which build up both, you know, vast amounts of debt, in our words, sort of bringing consumption forward from the future or giving people or or providing, so to speak, assets to people, but assets that are not backed with anything because those government bonds, as you know, in theory, their value comes from the discounted,

• 27:43Speaker 02

  you know, the future government surpluses discounted to net present value, which well, there aren't any. Everyone knows the whole thing is a sham. The whole thing is it is just a Ponzi scheme and and really is a Ponzi scheme towards the end of your debt cycle because the borrowing, an increasing amount of borrowing is just going towards the debt servicing. And this is, you know, as mentioned, there are, you know, there are certain things that we have seen since interest rates.

• 28:15Speaker 02

  Rows that would have sort of fitted very much into my framework of these are the problems caused by the actual rates and this is the sort of thing you might expect. But what again, what I wouldn't have expected, and I'm sure none of us expected, is that these governments would be running, five years after the lockdowns, would be running these deficits of five to to seven percent, you know, five, six percent in the UK and France, seven percent roughly in the States. So there's almost a societal imperative to move inexorably towards the bust. I mean, for instance, the the Office for Budget Responsibility,

• 28:57Speaker 02

  which is the UK's sort of fiscal watchdog, they commented, I think, in a report out a couple of months ago, they said, there seems to be the public's expectation of what the government can do for them and how it can bail them out, you know, or face existing a new risk, appears to be growing. And to go back, you know, obviously, that was the case during lockdown, and my view all along was that this lockdown would just would not, could not have happened because it was so staggeringly expensive and so staggeringly disproportionate to the actual risks that could be analyzed. It could only have happened

• 29:39Speaker 02

  with this very cheap government funding. So and for instance, British government was in effect, you know, borrowing from the Bank of England with the Bank of England, you know, roughly a sort of pound for pound, the Bank of England buying gilts to equivalent to the British government's deficit. The British government was in effect paying ten basis points on its line. Well, you know, if you borrow ten basis points and you don't really, you you have a political class whose, you know, time horizon is extremely limited and and is fixated on its opinion polling, well, of course, they're going to borrow a lot. Again, what I found weird.

• 30:18Speaker 02

  And I don't really understand is why, since interest rates have reset or normalized, why this binge continues? Because, as I say, it accelerates, you know, it brings you closer and closer to the end of the cycle. And, and what I was thinking about when I was writing my piece is that this is not really just purely a financial issue. This is actually also cultural in the sense that our society, our society is, as everyone says, very polarized. You have, and there's again, partly it's a consequence of our incredibly financialized system is you need have, you need incredible growing inequality. And so what I think's

• 31:03Speaker 02

  happening really is that you've got a mass of people out there with no real stake in the system, who, you know, haven't actually got a huge amount of assets, got rubbishy drugs. Of course, they want the government to, to finance them. And then, you know, frankly, they, I don't suppose they give a damn. Quite rightly, they give a damn if the bond markets blow up or, or if the government finances blow up, which, as I say, I think they must be on course to do. I mean, it's pretty negative, but when one thinks about it, that looks be where we're going.

• 31:34Demetri Kofinas?

  So Eddie, I have a lot of questions that derive from what you said, but just to clarify something, what does it look like? I was gonna ask you, what does Ray Dalio suggest it looks like when a country goes broke? But maybe it would just be better to ask you. I mean, what is your conception of what that means?

• 31:50Speaker 02

  Well, I mean, again, the three countries I mentioned, Britain, France and America, they all have negative net international investment positions. You know, they all run current account deficits, they're, you know, pretty lousy savings rates and foreigners have a big position in their bond markets. And what happens is, you know, the foreigners give up, you know? And then the foreigners give up and then you get into, you know, it's obviously different. The euro crisis is obviously different in the sense that, you know, countries like Greece had given up, you know, their control over their currencies. But what you saw like, you know, playing out in, in, in Greece was, again, you know, reversal of foreign capital flows.

• 32:34Speaker 02

  And, you know, in the case of Greece, had it had a currency, an independent currency, obviously the currency would have collapsed and you would have got high inflation but stuck in the eurozone, it had a sort of deflationary bust. I mean, I think probably these countries that issue their own currencies and control their own central banks, uh, will, um, you know, will, will have these, you know, that they were, their currencies will be chronically weak, they'll be running, you know, that, that bonds will sell off, the currencies will sell off. And then, you know, and then you have to see what happens, you know, whether you get then the central bank, as I say, you know, almost certainly comes in, buys bonds, carries on funding the government. As you know, inflation, it's as much psychological as anything else.

• 33:19Speaker 02

  You didn't, I mean, that's again, what's quite interesting in the history of the hype, of the German hyperinflation is you, you can see that when they changed the monetary system in, in, when it was sort of November or October twenty three, the inflation came to halt overnight, even though the money supply was technically increasing. So in other words, it is to some extent, you know, all in the mind. So it really depends on how people respond to it. But then you, you have to sort of, you know, anticipate what the government's going to do. And, and one point that Dalio does make, which I think people, you know, have to, will probably have to wake up to, is that up until the nineteen eighties, capital controls were

• 34:01Speaker 02

  a very common feature of big government bust. And in fact, you know, as you know, in, in the euro crisis, you had, well, you had capital controls prior to the euro crisis in Iceland, then you had it in Greece and in Cyprus. See, I, I would have thought, and that's going to be, you know, pretty hellish for people's, um, you know, a- asset allocation and investment, um, i- if they impose capital controls, but it may be. That you can, that may be the only way forward. I mean, I don't know whether you've had Russell Napier on your program. I'm sure you've spoken to him. Well, Dimitri, you and I did a thing with Russell, didn't we? A couple of years.

• 34:42Demetri Kofinas?

  We've all done it. Yes, we did one with Russell and Helen Thompson, but we did one with Grant recently as well.

• 34:47Speaker 02

  So Russell, you know, Russell is, you know, the standard carrier for financial repression. But, you know, financial repression, you know, normally requires capital controls. So, because otherwise, you know, like, you know, I've got, I mean, you probably, we've all got these, you know, fintech apps on our thing. You know, I can move money into any currency I want to the drop of a hat. And, you know, using, I got Wise or whatever. And so you can't financially repress me unless you somehow other stop me, you know, force me to keep my deposits in your country.

• 35:27Speaker 02

  So I think when the upshot happens, then, you know, that's one probably quite likely outcome. Oh, can I just say one other thing? This is a point that Dalio makes, and I think it is, again, fair enough, is that as you move through the cycles, the course of the cycle is from, of the long cycle is from sound money and relatively low debt and relatively moderate interest rates. By definition, high levels of debt, but also to, you know, to easier money, to weaker forms of money.

• 36:05Speaker 02

  And as the system resets afterwards, you get a return to sound money. I mean, anyhow, that's the sort of, that's your little template of how it might happen. And in which case, you know, Grant, get back to your earlier point, do you stick with this fiat currency, this paper currency?

• 36:27Speaker 02

  That, you know, that, yeah, that, you know, has been useful for smoothing business cycles, you know, for sure, but at the costs of huge distortion, economic and social and financial distortions. And my view is one shouldn't. And the question then would be, you know, would there be a consensus when you move, when you go past the end of this, this, this current, you know, big cycle and, and with this sort of denouement, would there be a consensus for a new monetary order with a sounder backing? And, you know, one, one can only hope, we just have to observe and, you know, if we're still alive at the time to, you know, chip in our, our, our pennies worth.

• 37:12Speaker 01

  It feels like that it almost has to go that way ultimately, because at the end of the cycle, the impetus is not provided necessarily by this idea of gains anymore. It's a fear of losing. It's a fear of losing the purchasing power of what you have. You're losing your savings. And it's interesting, you know, because what you book the price of time. And we've, we've lived through this era of artificially very low interest rates. And what low interest rates do is they, they give you the opportunity to have a very low time preference. You, you are able to buy assets and fund them for a long, long time and take very long views and build capital the old fashioned way. But what we've seen here with these very low rates has been exactly the opposite. It's been this prioritization

• 37:57Speaker 01

  of a very high time preference. And people have tried.

• 38:00Speaker 02

  Can I just say one?

• 38:01Speaker 01

  Yes, please.

• 38:01Speaker 02

  But is that if those rates were set, so to speak, by the market, reflected the collective time preference of a society, in other words, a low rate being an indication of a very patient, thrifty, capital accumulating people, such as the Dutch in the 17th or 18th century, that was a time where people thought that the low interest rate reflected the strength of a civilization, that the lower your rate was, the stronger your civilization was. And that's a comment by, you know, this fellow Eugen von Bernbecker, one of

• 38:43Speaker 02

  the luminaries of the Austrian School. Anyhow, you know, go forward into our current era and actually the ultra low rates, as you're suggesting, they don't reflect.

• 38:55Speaker 02

  You have ultra low rates that look as if people are patient. And then you look out and you know, you've got people trading meme stocks or cryptos or the like. In other words, with very short time preferences. And you have a political class with incredibly short time preferences too. So I'm, it's just for me, you know, it's another side. The interest rates really didn't reflect actually what was going on. Well, you know, we're completely corrupted or distorted.

• 39:26Demetri Kofinas?

  I just want to propose that we might be thinking about this in a paradigm that may no longer hold in the future. So I don't expect, for example, the People's Bank of China and the Chinese Communist Party and the Chinese government to ever necessarily fall back on a hard money standard. I think that that is obviously not a preferred way for a command and control, state capitalist society to operate. And I just wonder whether or not we may be moving in a similar direction here in the US. And part of that, I think, could be driven by innovations happening in technology that allow governments to exercise more control over their populations.

• 40:09Demetri Kofinas?

  Also, I think, to me, the really interesting and concerning scenario involves the political repercussions of the things that we're describing today. And, you know, people, certainly debasement of the US dollar would benefit, would help reduce the real value of the outstanding US government debt. But it would do little, if nothing at all, to alleviate the challenges facing the sort of bottom 90% or 80% or whatever the percentages of the country that's been struggling. Especially because we no longer live in this sort of industrial economy where labor is a large input.

• 40:49Demetri Kofinas?

  And so the reduction of the value of a country's currency makes them more competitive in the race to build up market share in the export driven economy. So. I guess my question is, first to you Eddie and Grant, feel free to respond. What is the risk that maybe we could see a rise of left-wing populism in the US? And we don't necessarily fall back to a place where we have a revaluation of money, but rather we just go deeper into the vortex of a more socialist, command and control-driven US economy and that this also is the case for other developed countries that are facing similar challenges?

• 41:24Speaker 02

  Yeah, I mean, I think that's a reasonable scenario. I think it would be blithe to assume that you're suddenly going to move from this distorted world to a sort of libertarian paradise, you know, sort of the, a million milays will bloom. I mean, it'd be a nice idea as far as I'm concerned, but it's, I don't think it's in the bag. You know, you can see, well, you see what's happening in, you know, the New York mayor's race, you know, they're, yeah, so it could easily shift to a system in which it's very punitive against those, you know, who've accumulated anything, or those who, I can see that happening.

• 42:05Speaker 02

  And you're particularly clear in Europe, but it's pretty clear in the States of the polarization, you know, of populists on both the left and the right attracting, you know, followings. I think in terms of, I mean, my hunch is that, you know, America is a bit closer to its, you know, it really, you know, there are more people who love freedom in the States and there are few people who love freedom genuinely in Europe, which is the whole, you know, one of the arguments, you know, for those of us who voted to leave the European Union was it was a bureaucratic superstate and we didn't particularly like that. But, you know, Europe has a strong bureaucratic side to it.

• 42:48Speaker 02

  You know, Europe also has a strong tradition, the bureaucratic side of it, the academic side of it, of being very, you know, giving China a very easy ride. The natural bureaucrats love China because they just see it as a Mandarin state in which you have a small number of, you know, of officials who have complete control. So, yeah, I could see one Moving to, you know, you know, Europe in particular, I could see getting sort of funny enough, getting closer to China and and adopting more of this, you know, Chinese type controls, you know, and and that would go into the, you know, the currency, you know, I'm I don't I don't think the Europe Europeans getting anywhere as far as I know with with their own central bank

• 43:30Speaker 02

  digital currency. But but as you know, in the case of China, and I think it's really, you know, it really comes from Xi Jinping seeing what, you know, what Alibaba and Tencent being able to do with their own, you know, their own sort of monetary systems, their own their own private monetary systems. Xi realized that you could have a system in which you observe people and control the flow of money. And I think that, to my mind, somewhat dystopian outcome is, yeah, is a possibility, I'd say.

• 44:04Demetri Kofinas?

  So one of the features of the Cold War was the ideological competition between the Soviet Union and the United States, based around the economic models. The Americans were promoters of free market capitalism, and the Soviets were promoters of state-driven communism. It seems that there is something going on today that is somewhat similar, though it's not acknowledged, which is the competition between the Chinese state capitalist model, which is not the same. It is sufficiently different from the Soviet model. And then what we used to think of as American free market capitalism, but which has, I think, become a more corrupt form of capitalism today. So we don't quite know what we stand

• 44:45Demetri Kofinas?

  for and what is the alternative. And I wonder if we're also doing ourselves a disservice by not actually being more forceful and explicit about what we stand for. But to your point, I do think, you know, to your point about Americans loving freedom, I think it is encouraging to see the current Treasury Department and Scott Besant and the Trump administration throwing their weight behind stable coins, because stable coins are a furtherance of the decentralized dollar. They're a furtherance of private sector issuance of dollars, and they're certainly not an endorsement of central bank digital currency. So so my question is, like, is something similar happening today? Should we be more forceful in in in staking a claim in what we stand for? And do you see evidence, actually, in the policies of this administration that we may, in fact, be moving more towards a

• 45:30Demetri Kofinas?

  free market, an explicit embrace of of the free market model within the new digital paradigm?

• 45:36Speaker 02

  Yes, a complicated question. The, the, I just, I want to just get back to this question of state control of economic activity. And you say China's state-directed capitalism is one model. And then you say that what we have had, and I, I would say this is partly furthered by these distorted corrupted interest rates, is you might call it, we have a sort of rent seeker's capitalism fostered by the ultra-low rates, which I, you know, I'd say private equity was part of, and that shift, you know, and a move towards monopolies. You know that my friend Jonathan Tepper wrote a good book called The Myth of Capitalism,

• 46:17Speaker 02

  where, you know, which is, you know, an analysis of how capitalism had been undermined by the shift towards oligopolies and monopolies. And then, of course, you've got the tech monopolies. So that's not the capitalism Adam Smith. And then, you know, the other thing I find very interesting, and read quite a lot about, occasionally write about, is the whole net zero thing. Because the forced energy transition is really the most ambitious type of state direction and control that one could envisage, or at least that I can envisage, because all activity, all life, requires, you know, the expenditure of energy, the use of energy.

• 47:00Speaker 02

  And I do think when you look at, I don't know, I mean, in Britain, for instance, we have something called a climate change committee, and they, you know, do these scenarios and make these suggestions that sort of seem to have almost semi, almost sort of semi-legal statutory authority, saying this is what people must do, this is what people should do. And, you know, those of us, you know, those of us looked upon it, you know, a bit of scarred, say, well, actually, you know, we live in a hydrocarbon civilization, which, you know, everything is based on, and if you, if you pull the rug out under people very quickly, then the civilization collapses. And the reason I mention that is that clearly

• 47:40Speaker 02

  under the new administration in the US, they, you know, they have clearly defined themselves against This encroachment of the state into selecting, into forcing people off hydrocarbon energies, of selecting and subsidizing particular types of their favored energies, whether it's so-called renewables or whether it's, you know, providing subsidies for electric vehicles of the like. So I think in that sense, and I think that is something, you know, clearly separating what the US trying to do now to what is happening in Europe, for instance, and, and you know, in Europe, I mean, you're probably, you must be aware, is,

• 48:25Speaker 02

  what is it, you know, a month or two ago, the entire Spanish electricity grid went down and, and taking down bits of, you know, Portugal and, and bits of France too, because of over-dependence on, on, on unreliable renewables. The reason I'm mentioning this is just that, you know, that, that whole net zero area or the forced energy transition gave, you know, to my mind, the, the greater scope for, um, for the, for the bureaucrats to envisage and dictate what people would do. Now, I mean, the fact that it wasn't going to, it couldn't conceivably have worked with the current technology

• 49:07Speaker 02

  and that, you know, individuals, countries attempting it achieved absolute nothing on their own. I mean, people have sort of ignored, but I do think in that case there is, you know, America is trying to do something different. I don't quite know the current state of antitrust, uh, in, in America. Obviously, you know, things did seem to have changed, uh, underlying a kind of, at the FTC, you know, a more, if you were more robust antitrust, uh, policy. Um, I don't, I don't know where things go from that, but I would say that America is changing. Whatever you think of President Trump, he, he is elected because a lot of people were dissatisfied with the system.

• 49:50Speaker 02

  And, you know, a lot of changes are being put in place, you know, as I said, particularly in, on the energy front. And, and, you know, Scott Peasant is a full intelligent guy. You know, I've met him a few times before his Treasury Secretary and these, he, these conversations that we're having. Exactly the sort of conversations you'd have with Scott, who'd be engaged with it. None of the stuff we're talking about is at all foreign to Scott, let's say. He knows exactly, I mean, from what I gather, he would seem to, he talks to the same sort of people as we talk to and reads the same sort of books as we read.

• 50:26Speaker 01

  It's interesting, Eddie, you know, because, as I said, this podcast we call The Hundred Year Pivot, because it feels like there's something very big happening. And Dimitri's talked about America moving more towards a socialist model. And you've mentioned the word civilization collapses at the end of this thing. And that fits very much in with this feeling that Dimitri and I both had, that there's something big moving. And, you know, I look at Scott Besant and the Treasury role, and I, I've not met him. I have very good friends that know him quite well, and they've all said great things about him. And to your point, they've echoed those sentiments about he understands all this, he's listening, and he's asking the right questions, and he's talking to the right people, which is encouraging.

• 51:10Speaker 01

  However, it feels to me as though the coincidence of this period of change, this shift, this reversal of a lot of things that have been going on over a long period of time, it's not coincidental that it's happened at the time the cost of money has gone up. And I feel like people reverse this. They think that, oh, the price of money's gone up because things are getting weirder. Personally, I think it's the other way around. I think the trigger for a lot of this is exactly what you've written about in your books, the fact that the cost of money is going up. And I look at Scott Besant, and I look at what people say about him, and what you've just said about him.

• 51:48Speaker 01

  And yet what I see is someone who seems largely trapped and isn't able to do the right thing based on everything he understands to be true. But is forced to do either the expedient thing or more possibly the least damaging thing and just try and keep this thing together, whether he believes it's right or wrong, whether he believes it's the it's the proper long term thing to do. We're past that now. It feels as though we are in the triage stage and the triage is going to go on until the patient dies. I don't know that the patient can be saved at this point, but it's, I mean, perhaps palliative care is a better analogy than triage, I'm not sure.

• 52:27Speaker 02

  So, yeah, I mean, I look, I wouldn't personally want to be US Treasury, it's actually the, I mean, look, you know, it'd be it'd be nice, it'd be nice on one's CV, but, you know, yeah, I think brilliant impossible job. And in particular, given that, you know, Trump has, you know, big spending proclivities and, you know, Besen, you know, has has taught, you know, I think he says, you know, one of the reasons he took the job is he doesn't want America to go bust. But, you know, whether he's actually succeeding in preventing American going bust is hard to say. I'm clearly, you know, if one, you read the newspapers and they say, well, you know, on issues such as, you know, on issues such as tariffs

• 53:09Speaker 02

  and this and that, Besen would appear to be, you know, so to speak, the reality principle, whispering in Trump's ear, saying, would you really want to do that? So, you know, at least I would guess that he's doing, you know, more good than half, I mean, even if he's not doing a huge amount of good. By the way, on the subject of your hundred years, when I was reading, I read the Ray Dalio book alongside a book which I'd say was sort of good in parts, you probably come across Neil, is he called Neil Howe, who does this?

• 53:42Speaker 01

  Neil Howe, yeah.

• 53:43Speaker 02

  Yeah, and he has this, he has this idea of four generation cycles. And so they last sort of roughly, I think, roughly eighty eight years or ninety years. And Dalio's cycles, which, you know, didn't have any sort of theory towards them, I just think he just measured the historical debt cycles.

• 54:04Speaker 02

  He talks about the, you know, an eighty year cycle, saying, wait, these long cycles and your hundred year, your hundred year flood, they're not, you know, they're not so far off. And I do think,

• 54:19Speaker 02

  when I, you know, you say, well, you can't explain this apart from the interest rate, you know, creates some of this, you know, these distortions that bring us to, to the end point. Sure, yeah, you know, the very low, you know, if interest is the cost of leverage or the cost of borrowing, well, yeah, once they brought it down, you were going to get more of it. But also, we live in a world that actually wanted the lower, you know, that there was a demand for it. There was a demand for something out of nothing. And now, you know, look, you know, we all, you know, we obviously understand, you know, the demand, you know, the demand for easy money on Wall Street, because, you know, if you have access to cheap funding,

• 55:00Speaker 02

  you can do things, you can make money, private equity and so on, or, you know, leveraged buybacks, you name it. But there seems to be, you know, more broadly, a demand for, you know, for government borrowing to fund welfare spending and transfers. So you could say that actually the, because everything is, you know, is complex and interactive, that the interest rates, the ultra low interest rates both distorted the society and the economy and the finance system, but they also, the fact that they were brought so low also sort of reflected some demands within the society. And, and look, I mean, the easiest way of saying it, you know, we used to talk,

• 55:41Speaker 02

  you know, about kicking the cat and we, or they used to talk about, I mean, you were talking about earlier of people with very short time preferences or time horizons. Well, you know, and so in these ways, the ultra low rates allowed, you know, consumption to be brought forward. Now, I mean, what I liked about, I mean, I found the, this book on the so called fourth turning. It gets, there's a lot of, to my mind, a bit of mumbo jumbo in it about, you know, different generations having different characteristics and those reflecting archetypes, blah, blah, blah. But just take, you know, take your, you know, ninety to a hundred year cycle.

• 56:21Speaker 02

  And say, yes, you know, society moves from a position of cohesion and responsibility, we might even call it rationality, to eventually sort of breaking down. And I don't quite know why you have these, you know, eighty to hundred year cycles. But one of the things, you know, that the one, you know, Lisa, I feel so strongly about when we see things over the last, you know, particularly over the last five years, is the incessant madness of the modern world, you know, whether it's in the, you know, I mentioned earlier, this sort of absurd idea that you're going to give up hydrocarbon

• 57:05Speaker 02

  energy overnight, or the gender stuff, or the lockdown excesses, this and that. We live in a world, you know, that, that almost is striving to break itself down, or society that is striving to break itself up. And I think that, that, I mean, I, I think that probably explains why the debt growth is so strong, because no one really wants to put a brake on it. And so from an investment perspective, if one analyzes it, and I like, I mean, like, all of us like to analyze these things and then think, you know, what does this mean from an investment perspective? And it, it means that, you know, people's wealth, what they think of as their wealth,

• 57:47Speaker 02

  you know, is, a lot of it is not backed by anything, that a debt, you know, that we call government debt, you know, a risk-free asset. But it's, if you look a different way, it's a pure risk asset. Like, it's, it's the riskiest asset you can have, because it's something backed by absolute nothing, given that the governments can't produce fiscal surpluses, and that therefore is entirely dependent on people retaining confidence in it. And I think, go back, you know, you know, I watched your program on, on gold, which is interesting. I think that, you know, is very bullish from a gold perspective. I think that the, and one of the points Delia has, it wouldn't surprise you, is that,

• 58:31Speaker 02

  you know, on average during these, you know, the end of the debt super cycles, on average, gold outperforms bonds by seventy one percent. And, you know, obviously, the case of I mean, the German hyperinflation might be an outlier, but I think the entire national debt of Germany that, let's say, had been, you know, two or three times GDP. By the end of the hyperinflation, all those issued bonds, you know, wouldn't have bought you a single gold, you know, gold coin. So in that sense, you know, I think we we moved into a world of fantasy in which a lot of our wealth is fantastical.

• 59:10Speaker 02

  And we will sooner or later, and we have, we were, we're already somewhere along the lines. But we are moving gradually to a world in which, you know, wealth will be more closely attached to things of, so to speak, real value. And that's something I've been sort of hammering on for about three or four years. And again, go back to the hyperinflation in Germany, they had this thing called the the flight into things of real value, the defluct into Zachfertan. And I think we are in the process of a flight, a very slow one, of a flight into real value. And I, I think, you know, if you try and, why has gold done so well

• 59:54Speaker 02

  over the last, you know, when it's probably been running for about fifteen months or something like that? That it would seem, you, you, one gets these things wrong and gold can move to any number of different things. I know central banks are buying it, you know this better than I do. But I'd sort of guess that the strength of gold is telling you that it's a sort of harbinger of breakdown. But, you know, one could be wrong because, you know, as you know, the, the gold bugs will own gold through, you know, through, they'll hold it when it's going up for completely the wrong reasons, you know. And then, and then they'll take a hit when it goes down. But to now, like, I don't know what you feel, but now it feels in my bones like the the movement in gold is relatively solid.

• 1:00:39Speaker 02

  I mean, I'm not that, you know, other, other metals might not be more attractive. And I'm also thinking from just an asset allocation perspective, that, you know, if you look at the end of your hundred year cycles, if they end in crisis, you really, you probably want to have an asset allocation, which is roughly fifty percent gold, fifty percent equities. You don't want nominal assets, you know, paper assets or nominal assets at such times. That's my thinking anyhow.

• 1:01:07Demetri Kofinas?

  You know, I don't know if this will be a popular question with the audience, because I feel like maybe people will want to hear more about gold. But your comments about this longing for destruction, you didn't use the word longing, but earlier in your response, Eddie, you talked about how there seems to be this urge to tear things down. It reminded me of this conversation I had with Joshua Schreier, who is the host of this really beautiful podcast called The Emerald, where he goes on these very long poetic monologues. And he had one called, I think the title was, "So You Want to Be a Sorcerer in the Age of Mythic Powers." And it was about artificial intelligence. And there was this point in the monologue where he said that there is, we long for annihilation.

• 1:01:50Demetri Kofinas?

  He actually had this interesting audio that he extracted from a panel of sort of tech luminaries where, you know, Elon Musk has also made comments of this effect, that maybe the purpose of human beings was to bootstrap AI. And in a lot of these conferences, I don't know that this is going on anymore, but it was certainly going on for many years, where there was kind of these conversations about existential risk. And in the case of this particular example, these luminaries were sort of laughing, kind of giddily. And he said, you know, what are they laughing about? And I think Joshua was trying to suggest that maybe the reason that we long for annihilation is that we feel overwhelmed, again, I apologize for going in this direction, I know it's very different from finance, but that we feel overwhelmed by the responsibilities

• 1:02:32Demetri Kofinas?

  that we carry and by the sort of godlessness with which we live, that we have surrendered the idea of there being a power greater than us, and we are ourselves, see ourselves in many ways as gods of this earth, and that there's a desire to experience awe, and that there is something kind of psycho-spiritual going on here, that we are on a sort of, almost like on an uninterruptible course towards trying to cause a reset of some sort. And I'm throwing that out there, just to, I'm curious to hear what each of you thinks about that.

• 1:03:05Speaker 02

  What you're saying would fit with the, you know, the theory around, you know, the so-called turnings and getting to the fourth turning. And I think this whole idea, it goes back to this 15th century Arab historian called Ibn Khaldun, who was talking, I think, in roughly 100 or 120 year Dynastic cycles for when a dynasty establishes itself and, you know, grows stronger and then over several generations come weak and corrupt and and in the end, you know, what he calls the destroyers, what he says, you know, it ends with, you know, complex laws, evasion of laws and people seeking to destroy the dynasty.

• 1:03:47Speaker 02

  And then, you know, and I I don't know, ending in civil war or a domestic or external civil war. And then, you know, the regeneration of society where we stop having all these luxury beliefs, if you want to call them that, and also we stop conflicting with each other over things with, you know, frankly, issues such as, you know, gender stuff, which is frankly, you know, completely irrelevant. I mean, it it's neither here nor there. And and it's sign of, you know, huge, to my mind, sort of extreme decadence in society that it gets its, you know, its knickers in a twist over these things.

• 1:04:25Speaker 02

  And it may be, you know, it may be that that this is a natural progression, you know, within civil life, you know, that the mankind is a sort of restless creature, unfortunately. And so, you know, even when he has things good, they're not good enough. And and, you know, he seeks to to then overturn or to reimpose new values, to change, you know, whether it's, you know, religion or whether it's, you know, now just ideology of imposing new ones and then turning against each other in this sort of most, you know, dismaying way. I mean, take for instance, this whole issue of racism, you know, everyone sort of accepted anti-racism and suddenly it was weaponized against us, actually the anti-racism.

• 1:05:09Speaker 02

  It's it's there's so much madness in this world. And again, I would have thought, you know, you look back, you know, America in the 30s, very divided society. Obviously, you know, Germany in the 20s and 30s will be, particularly in the 20s, extremely divided society. And so those divisions, how do they end? It can be the case within a democracy that an individual can come and lead and bring people to their, you know, to bring the nation together. Now, I'm not a huge fan of Roosevelt, you know, for his economic policies in the 30s.

• 1:05:49Speaker 02

  But clearly, as a war leader at least, the war, you know, the war brought Americans together. And, you know, their divisions from the 1930s were overcome. America, you know, was a more united, more consensual place after the war. I mean, and even, I mean, look, blasted Germany, you know, Germany just, you know, I committed the most heinous acts in, in history, you know, it was completely leveled as a country and yet reemerged out of it, you know, in a way, conformist, boring bourgeois society, same in Japan, yeah.

• 1:06:29Speaker 02

  So, well, come on, say, the future is, we can, you know, whether one, I, I'm not very keen on, on, on putting decades to cycles and being, you know, prescriptive, saying it is inevitable how something, you know, what the outcome is going to be. But it would seem as if somewhere other, you know, the divisions in our societies, and they're not very different in Europe to the United States, that some conflagration at the end of it will maybe what is necessary to bring people together to, I don't know. I mean, but as you say, you know, within our field, it would seem to me that, you know,

• 1:07:09Speaker 02

  the issue is, to speak quite narrowly, the issue is, you know, is one of debt and, and how that debt gets purged out of the system. And, and that, you know, the financial crisis can be the catalyst for a societal collapse. But it can also actually be the catalyst for the reformation of society. So actually, it could be a good thing. And I actually think, you know, going back to my work on interest rates, that of course one understands why the central banks kept interest rates. You know, low after the financial crisis. But what it meant was that things didn't really change that much. I mean, look, get back to private equity.

• 1:07:51Speaker 02

  Private equity was getting sort of gangbusters in two thousand six, seven into the GFC. And then, you know, it came back. Those guys should have lost a lot of money and their portfolio companies should have gone bust. But actually, they were able to borrow, as you know, you know, the lowest, easiest financing ever by, you know, by late two thousand nine. So it all continued. So the financialization, the economy continued, so on. And so we've avoided our bus at the expense, potentially, of making the final conflagration or beggar. But also, I think perhaps of these societal rifts, like Greece, for instance.

• 1:08:32Speaker 02

  I mean, I don't follow it particularly closely, but Greece now, you know, would seem to more or less got its act together. So you're growing faster than the rest of Europe apparently, you know, whereas, you know, whereas these other countries, you know, expect to add, you know, ten or twenty points to their debt to GDP over the next few years. Greece is bringing its debt down. It runs the fiscal surplus. And this is why I suppose at heart, I'm an Austrian in sense, I'm a liquidationist. And my view is, yeah, when you're in a bad position financially or even, you know, the government position, yeah, you need to liquidate structures and rebuild them. And that's, you know, what Greece went through.

• 1:09:13Speaker 02

  Not very pleasant, but probably came out, I would say, you know, I would say Greece, I think, is probably in a stronger place today than, say, France.

• 1:09:24Demetri Kofinas?

  It absolutely is. I can tell you that culturally especially. I mean, Greece is a different country than it was before the financial crisis. And quite frankly, it's a different country than it was during the course of my entire lifetime.

• 1:09:35Speaker 02

  And Dimitri, can I just say, so and you think, wasn't beforehand the idea that, you know, the government could, you know, bail, you had the people, you know, that you, the Greece could continually borrow from within the EU. So in a way, if you will, it's like sort of rent-seeking mentality with it. And that that has been purged by the system.

• 1:09:54Demetri Kofinas?

  Well, one of the biggest reforms that I've seen in Greece, besides the fact that it's become more entrepreneurial, actually, you know what? I take that back. It hasn't become more entrepreneurial. More of Greece's entrepreneurial spirit has been channeled into the private sector and out of the illicit economy. I think this is what the demand-side Keynesians like Paul Krugman, who were advocating for stimulus during Greece's financial crisis, didn't quite appreciate, which is that the state and the bureaucracy in Greece had become such an operational burden on the economy that Greeks were habitually pouring so much of their entrepreneurial energy into figuring

• 1:10:37Demetri Kofinas?

  out ever more clever ways to game the system or to locate the right connection to help them land a cushy job or a lucrative contract. And so you had this at once both adversarial and patronizing political economy that was suffocating innovation and generating a whole lot of misery and complaining among the populace. And so I think what you've seen in the last 10 years is that a lot of young Greek emigres who were educated abroad in elite universities in England and the United States have moved back to Greece to start companies. And while there are many factors to explain this, I think the economic depression that the country went through brought people together in ways that I had never experienced in my entire lifetime.

• 1:11:20Demetri Kofinas?

  And it also made them much more grateful for what they had in a way that transformed the country, not only economically, but also on a spiritual level.

• 1:11:29Speaker 01

  You know, I listened to the two of you there. It's again, you know, Eddie, I keep coming back to the importance of what you've written about because, you know, Dimitri, you talked about this wish for annihilation that you were talking about. And Eddie, you know, you talk about some of the divisions in society. And it strikes me that to get to where you are, Dimitri, for people to want the system to be torn down is a point of hopelessness, essentially. And Eddie, you know, the divisions you spoke about, whether it's politically left or right, whether it's racism, I mean, you know, the human beings, there is always racism because every human being mistrusts people that don't look like them or talk like them or believe in the same things.

• 1:12:12Speaker 01

  And those are, those are things that are always there under the surface for many, many people. But it's only when the divisions become rich and poor. That these things tend to blow up, you know, because suddenly there's this feeling that other people are doing much better than me. And whether it's your financial nihilism, Dimitri, this kind of hopelessness that I'm so far behind now, I can't catch up.

• 1:12:34Speaker 02

  But Grant, can I say, I mean, what's

• 1:12:36Speaker 01

  Yeah, please, please, please.

• 1:12:37Speaker 02

  What's interesting is that you know, you get, I mean, look at the States. And again, it's very similar to happen in Europe, that the people who are most nihilistic actually come from the richest families, don't they? You know, it's the crazy extremists, you know, at Columbia or Harvard or the, the rich, you know, all the rich kids, you know, supporting, what's it called Mondam? How do I pronounce his name? The mayor?

• 1:13:05Demetri Kofinas?

  Zoran Mandami, I think.

• 1:13:06Speaker 02

  Mandami. So that's, and you get back to this, you know, the, you know, potentially economic catastrophe, civilizational catastrophe of the accelerated energy transition that tends by and large to have been supported by very well off people, educated people. And in that sense, you know, actually, so, yeah, you, there is, you know, a class divide. But in some ways, the, you know, the people with less, fewer assets often, well, they're much more conservative. And that, that, that is, again, that it's a bit abnormal. It's a bit, you know, Alice in Wonderland, that the people who have everything, you know,

• 1:13:47Speaker 02

  want to embark upon actions that would blow everything up. And also the people who benefited most from their society, having the strongest visceral feelings against the society that, you know, these are all Alice in Wonderland character, where the, you know, everything turned upside down. It's not quite normal. It's, it's not completely abnormal because you've always had, you know, a large number of. Of communists or this and that from privileged backgrounds, but it seems more pervasive today. It's a sort of quirk, the thing, we have this inequality and yet, some rather, it's all, you know,

• 1:14:26Speaker 02

  the people who are angriest are also actually those who seem to have, you know, been born with, you know, several silver spoons in their mouths. Just bizarre.

• 1:14:37Speaker 01

  Yeah, I'm not sure about that. I understand why you're saying that, where that comes from. But I just think a lot of these uber-rich guys that, like the Peter Thiel's of the world, who were saying some of these outrageous things about the end of society, the end of mankind and all this kind of.

• 1:14:51Demetri Kofinas?

  You saw that interview that he did with Ross Douthat, where he asked them about the Antichrist?

• 1:14:55Speaker 01

  Remarkable, remarkable. But I think those people are just given such a platform now that they become representative of a small but important class of people. And I'm not sure that's necessarily the case, but I think if you divide vertically, if you go left and right, if you go along race grounds, if you go along religious grounds. Once you draw the line horizontally and you go up and down, rich and poor, all the racists, all the left wing, all the right wing, every race and religion, every creed, they're all below that line. So you grab everybody below that line. And you're not just looking for the racist and the non-racist, you get all of them. And I think that's the problem with this horizontal line, is that

• 1:15:41Speaker 01

  the target, the people who are a focus of people's ire are the rich, and the rich have done themselves no favors by making themselves incredibly prominent, more and more so in fact. And, you know, there's a certain amount of lightning rod behavior going on. And that's why I keep coming back, at least what you wrote about, you know, I think money facilitates them getting rich in the first place. Low interest rates facilitate the borrowing of money to gather assets and all the things that have helped a lot of these rich guys, these super-rich guys, become rich. It's all been financialization and share price improvements and all the things that financialization bestows upon them.

• 1:16:20Speaker 01

  And you know, now there's this sense that we're never going to catch up with these people. And guess what? The cost of money is going up and that hurts the wrong people. And these super rich guys who seemed aspirational now just seem incredibly out of touch, not because they're saying anything different, but because the people who are now below that line are outraged by it rather than saying, oh, well, look what Peter Thiel's saying, because I was doing pretty well until now, and now the cost of money's gone up, inflation's gone up, my bills have gone up. How dare he say that? How can he be so out of touch with poor people like me who are struggling to make ends meet? And I just keep coming back to this idea of how important money is in society.

• 1:17:02Speaker 01

  And by extension, the price of that money is arguably the most important price on the planet. I'd be curious to hear your thoughts on that.

• 1:17:12Speaker 02

  I attended one of Jim Grant's conferences about, I don't know, seven or eight years ago. There was a Swiss guy who's near my current member talking about inflation. And he was citing a short story by Thomas Mann, the German novelist, describing the hyperinflation. And the guy's reading of this Thomas Mann story was that money is the medium through which we transmit our values. And it becomes a stable currency in ways associated with stable values in a society. And that once you inflate everything away, then then actually society itself becomes

• 1:17:56Speaker 02

  disordered and values become disordered. And the reason I mention that is that, you know, we were talking earlier, you know, about interest being, you know, time preference and how all our decisions involve time, our financial and economic decisions, and that how the price of things, you know, the price of capital assets is is determined to a large extent by the discount rate or the interest rate. And it seems to me that it's possible that that distortion.

• 1:18:29Speaker 02

  Of of the interest rate. And I think I try and describe this in my book, it has so many ramifications that it upsets both, if you will, the real economy and the financial economy. And then it upsets the real economy in a number of different ways. I'd argue just by, sort of, you know, in effect, by encouraging misallocation of capital and slowing. This is a Jim Grant point, which is that it slows the pace at which things turn over. Because you don't have an impetus to be more efficient. And yet you have also this hyper-financialised economy. So it may be, yeah, that to some extent, that, you know, the dislocations of the society

• 1:19:13Speaker 02

  have been fed by this manipulation of rates and and that. I mean, we would we would accept that in any other field. We think if the government went in to maintain the price of something and distort the price of something, we would see how the consumption and investment and so forth around that, whatever it was, you know, sort of widget, whatever, would be distorted. But the interest rate people, they hadn't thought that deeply enough about it. But having said all that, you know, we are moving. You know, we have moved back to more normal era of interest rates. I would have expected by now, you know, society's wealth to have started to

• 1:19:54Speaker 02

  move decisively downwards, whereas actually, you know, US stock market highest ever level valuation levels, highest ever, probably, I don't, I haven't checked it recently, but, you know, the Fed's household net wealth, you know, I guess it's probably must be again at the highest level ever. So we have a sort of weird, interesting disconnect now. And you're bound to see this because, you know, it's written about from time to time between, you know, what the interest rates are telling you and and the valuation of all assets. Like, for instance, you know, I think I'm right in saying that the Schiller, well, that there is no equity risk premium, you know, anymore on the US stock market, for instance.

• 1:20:37Speaker 02

  So the cyclically adjusted price earnings ratio is trading will be at a lower yield than the 10-year Treasury. And I think, I don't know, a 10-year tips around, what are they, about 2.3, 2.5%? I haven't looked at them. But again, that would, there would be very little, even if you take an inflation-protected bond. Very little leeway. So it may be that, you know, we're in an era which everything hasn't quite, you know, that things, you know, that things don't quite make sense, that you'd have all these high asset prices as you move back to the normalization of rates. You'd expect, I mean, it take for, and I think I mentioned it in past, I mean, US residential real estate

• 1:21:18Speaker 02

  in aggregate is sort of weirdly, I know people lock in long rates, you know, and their mortgages and states, it's sort of weirdly high relative to other places. So it may be that the states catch up some or other and that this disconnect between the interest rates and the valuation is no longer holds. We'll see.

• 1:21:42Speaker 01

  Well, Eddie, look, I've just seen the time and I know you have to walk your dogs before you go out for dinner. Dimitri and I have kept you for far longer than we had planned to. So listen, thank you so much for doing this. It's been equal parts fascinating and thought provoking. And I know I'm going to go away and think more about this because you've, you've set another load of wheels spinning in my head. So I thank you for that. And I look forward to your editorial coming out in the next couple of days and digging into whatever it was you had to say. So thank you.

• 1:22:05Speaker 02

  Okay. Well, very nice to speak to you again, Grant. Very nice to speak to you again, Dimitri.

• 1:22:10Demetri Kofinas?

  It's great to see you again, Eddie.

• 1:22:11Speaker 02

  My pleasure.

• 1:22:13Speaker 01

  Well, the, it's just fascinating, you know, Eddie's work has been extraordinarily important, I think. And, you know, having the chance to talk to him about the importance of money and the cost of that money. It's interesting, you know, some of the places you took us and some places he took us, I keep coming back to this idea that money plays a far more important role in, in all this than most people are seeing.

• 1:22:35Demetri Kofinas?

  Yeah. I mean, the other thing that I didn't bring up, because it's always challenging these conversations. You want to try to keep some kind of coherent storyline in place. But one of the things I wanted to ask Eddie that I didn't was how his concept of the price of time as being the interest rate comports with a world where maybe our concepts of moral hazard driven by the bailouts that occurred over several decades. I mean, he mentioned not just the 2008 financial crisis, but also LTCM, that these, this created a sense of moral hazard and that that may be a bigger source of distortion on the price of time than the actual interbank lending market and the, the lower Fed funds. That's

• 1:23:17Demetri Kofinas?

  something that, you know, again, we, I didn't have a chance to ask him. Cause I think that, you know, back to this thing about financial nihilism, I think. The thing that's really been detrimental, in my view, that's been most detrimental, has been people's loss of respect for money. It's not just that the price of money is cheaper. It's that people have lost respect for it. We've gone through various stages where lots of people, younger people in particular, have viewed it like toilet paper. And I don't know if we've talked about it on this series, but I've certainly talked about it on my podcast in the past, especially during that 2020-2021 period, where you had those memes of Jay Powell

• 1:24:01Demetri Kofinas?

  like holding on to the podium, and money's flying out of it, and it's like, "Money printer, go brrr." And I think that, again, that's where a lot of my thoughts around nihilism came from. So I think it goes much deeper than just the lowering of interest rates. It is all the things we've done to distort the market's pricing of money and the pricing of time.

• 1:24:22Speaker 01

  Yeah. And that once money's mispriced, everything's mispriced, because that money's the common denominator. And that includes values like morals and principles and all those things. Everything becomes mispriced. I think it's... There's a fascinating thread to pick on, and I have a funny feeling we'll be back to it again at some point in this journey, because it's not getting any less complicated with each episode, is it?

• 1:24:44Demetri Kofinas?

  It is not.

• 1:24:45Speaker 01

  But that's the fun. We knew this when we set out. And I, for one, just revel in this idea that I don't know what we're going to talk about, where we're going to go with it all, but it all feeds back in somewhere. And at some point, we may feel like we have a clearer sense of this, but in the meantime, it's fascinating to get all these different angles.

• 1:25:01Demetri Kofinas?

  Yeah, I'm looking forward to the next episodes that we have planned, Grant, and I'm sure our listeners are too.

• 1:25:06Speaker 01

  Well, all that remains, I guess, is to thank our guest Eddie Chancellor for the time he gave us. As I say, do check out Eddie's, those two books, The Price of Time and Devil Take the High Must, are extraordinary reads. And as Eddie said, he writes for Reuters and the FT, and you'll find Eddie's work everywhere. And I would encourage you to seek him out wherever you can find him. We will be back with another conversation in this series. In the meantime, thanks to you for listening. Dee, listen to this again soon.

• 1:25:31Demetri Kofinas?

  Looking forward to it, Grant.

• 1:25:34Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @Kofinas and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.