Podcast Summary
Two influential figures in economics and finance discuss their backgrounds and passions: George Gammon, a free market capitalist and YouTuber, and Ran Neuner, a blockchain investor and CNBC host, share their experiences and insights in economics and finance.
George Gammon and Ran Neuner, two influential figures in the world of economics and finance, shared their insights and experiences in a podcast recording. Gammon, a renowned American real estate investor, entrepreneur, YouTuber, and teacher, is the host of the Rebel Capitalist Show and doesn't believe in traditional capitalism but supports free market capitalism and the Fed. Neuner, the co-founder and CEO of On Chain Capital, a blockchain investment fund and advisory service, is the host and executive producer of Crypto Banter, the most-viewed crypto show on CNBC. Both are based outside of the US, in South Africa (Cape Town for Gammon) and Medellin (for Neuner). They discussed their backgrounds, passion for economics, and shared stories about their experiences. Gammon, an entrepreneur since the 1980s, became interested in economics after retiring and studying Milton Friedman, eventually starting his YouTube channel in 2019. Neuner, who launched the world's first televised crypto currency show in 2017, shared his experiences as a blockchain investor and advisor. The conversation covered a range of topics, including their perspectives on the economy and their current projects.
From challenges to success in entrepreneurship: Stay true to your perspective and provide value to build a thriving community in entrepreneurship.
Both speakers have experienced significant ups and downs in their entrepreneurial journeys, from facing challenges and setbacks to building successful businesses and communities. They emphasized the importance of staying true to one's perspective and providing value to an audience to find success. The first speaker started a podcast after pushing back against a mandate and built a thriving community in the financial education space. The second speaker went from raising money for an internet start-up to building and selling the biggest marketing and advertising agency in Africa before diving into cryptocurrency and creating a 24/7 crypto media platform. Despite the challenges and long hours, they both expressed a deep enjoyment for their work and the communities they've built.
Labor market conditions align with Fed's goals despite concerns: The Fed's focus on reducing labor market tightness, despite potential unemployment increases, aligns with current labor market conditions. However, the accuracy and reliability of employment data are questionable.
The recent surge in jobless claims, which is the highest since October 2021, and the potential increase in unemployment due to rising interest rates, aligns with the Federal Reserve's (Fed) goal of reducing labor market tightness. The Fed's previous stance, as evidenced in their interaction with Senator Kennedy, was to prioritize controlling inflation over maintaining full employment. The Phillips Curve theory, which suggests an inverse relationship between unemployment and inflation, has been a part of their strategy. However, the validity of this theory has been debated since the 1970s. Additionally, the recent non-farm payroll report, which showed a significant increase in employment, was later revised downward. Furthermore, the number of consecutive months where the actual number of jobs added exceeded expectations has reached an unprecedented 13. The suspicious nature of these revisions raises concerns about the accuracy and reliability of the employment data. In summary, the current labor market conditions, characterized by high jobless claims and potential unemployment increases, are in line with the Fed's goals, despite the potential negative consequences for consumers and businesses. The validity and reliability of the employment data, however, remain questionable.
Unemployment data may be misleading due to adjustments and financial engineering: Critics argue assumptions in birth-death model for jobs estimation are inaccurate, Fed's focus on unemployment and inflation may be misguided, and near term forward spread is inverted, suggesting economic instability
The unemployment rate numbers released by the government may be misleading due to various adjustments and financial engineering techniques used to make the jobs numbers look better than they actually are. The birth-death model, which attempts to estimate the number of jobs created by new businesses, is one such adjustment. Critics argue that the assumptions made in this model are not accurate, leading to potentially inflated job numbers. Furthermore, the Fed's focus on unemployment and inflation as its primary mandate may be misguided in current economic conditions. Additionally, the near term forward spread, a metric used to indicate a potential recession, is currently inverted by over 200 basis points, suggesting economic instability. Overall, it's important to be cautious when interpreting unemployment data and to consider multiple economic indicators when assessing the health of the economy.
Market predicts economic downturn, potential recession: The market expects a recession and significant economic downturn within the next 18 months, potentially leading to double-digit unemployment and a Fed funds rate of 0%.
The market is predicting a significant economic downturn within the next 18 months based on the expected decrease in the 3-month treasury yield. This could potentially lead to double-digit unemployment and a Fed funds rate of 0%. The market's expectations, as indicated by the bond market, suggest a potential recession and a steepening yield curve, which historically has been a reliable indicator of economic downturns. The psychological component of Jerome Powell's decision-making also plays a role, as he may want to avoid being remembered as another Arthur Burns, who was criticized for not acting decisively enough during inflationary times. However, if the Fed does lower interest rates in response to an economic crisis, it could have negative consequences for the stock market, and those betting on continued rate hikes may be in for a rude awakening.
AI and debt crisis in job market and commercial real estate: The next 12-18 months may bring significant challenges to the job market due to AI and commercial real estate sector facing a debt crisis, potentially leading to increased unemployment and financial instability
The job market faces significant challenges from artificial intelligence (AI) in the next 12 to 18 months, potentially causing mass unemployment. Simultaneously, the commercial real estate sector, worth over $21 trillion, is facing a debt crisis with a large amount needing to be rolled over within the next 2 years. This could lead to a significant increase in expenses and a decrease in income for property owners, potentially creating a major problem for the economy. The combination of these two issues could result in a significant increase in unemployment and financial instability. It's important to note that these challenges are not imminent but are expected to unfold in the near future.
Economic shifts and potential recession: Experts predict a potential recession due to job security concerns, increasing reliance on credit, and declining savings, particularly for lower-income households. Real estate markets may cool down, but consumer spending remains strong.
The economic landscape is showing signs of shifting, with potential concerns around job security and increasing reliance on credit for everyday expenses. Real estate markets may be showing some signs of cooling down, but consumer spending, which makes up over half of the economy, remains strong. However, this spending is coming at the cost of declining personal savings, particularly for lower-income households. These trends, along with other economic indicators, have led some experts to predict a potential recession in the near future. Meanwhile, the tightening cycle in the economy is nearing its end, according to some experts. It's important to keep an eye on these trends as they develop and consider how they might impact various sectors and industries. Additionally, the rise of AI is another factor that could significantly impact the economy and labor market in the future.
The yield curve's significance for the economy and Fed actions: Lowering interest rates too much could worsen economic conditions, potentially leading to high unemployment, commercial real estate crashes, and significant declines in the S&P 500, while deficit spending to address downturns could exacerbate deficits
The yield curve is a crucial indicator of the economy and the Federal Reserve's actions. During times of economic uncertainty, the Fed may lower interest rates significantly to stimulate the economy. If the Fed were to drop interest rates from the current 5% to 0% or close to it by the end of 2023, it could lead to economic conditions worse than the 2008 financial crisis. This could result in high unemployment rates, a potential commercial real estate crash, and significant declines in the S&P 500. Additionally, the government's deficit spending to address economic downturns could lead to even more significant deficits, making it essential to keep a close eye on the yield curve as an indicator of the economy's health.
Potential volatility in treasury market due to economic conditions: Economic instability could lead to increased long-term interest rates, making it harder for the government to finance spending
The current economic situation, with the debt ceiling crisis and potential tax revenue decreases due to market downturns, could lead to significant volatility in the treasury market. This volatility could result in increased interest rates at the long end, creating challenges for the government in financing its spending. The difference between today's economic climate and historical periods, such as 1940, lies in the increased ability of governments and central banks to manipulate the economy through various levers, making it harder to predict the consequences of economic events.
The Fed's interventions are not preventing bank failures: The current monetary system is unstable, causing banks to fail despite the Fed's efforts to intervene. The lack of accountability and manipulation of data further complicates the situation, making it a risky environment for smaller banks and ultimately the taxpayer.
The current global monetary system is broken, and the Fed's repeated use of tools like quantitative easing and bank rescue packages indicate that they are constantly playing catch-up. The system's instability is causing banks to fail, and the Fed's interventions are not preventing these failures. Instead, they are creating a cycle where the Fed must continuously create new tools to address the problems caused by the previous ones. The lack of accountability and manipulation of data points by those in power further exacerbates the situation. The COVID-19 pandemic provided an example of the limits of the Fed's ability to intervene effectively, as the market continued to crash until government intervention finally stabilized it. Ultimately, the broken monetary system creates a risky environment where only the biggest banks, like JPMorgan, can afford to absorb the risks, with the taxpayer ultimately footing the bill.
Government interventions and economic manipulation: Government economic interventions like quantitative easing and printing money raise concerns about accountability and potential manipulation. Lack of transparency in financial reporting, especially regarding marking to market of government securities and mortgage-backed securities, can create distortions and lead to future crises.
The ability of governments to act like the Federal Reserve and implement large-scale economic interventions, such as quantitative easing or printing money, raises concerns about accountability and potential manipulation of the economy. The speaker expresses worry that in an environment of high inflation, the public may not support such actions due to the negative consequences they are experiencing. Additionally, the speaker criticizes the lack of transparency and accountability in financial reporting, specifically regarding the marking to market of government securities and mortgage-backed securities. These issues, the speaker argues, can create distortions in the economy and potentially lead to future financial crises. Overall, the speaker's perspective highlights the importance of maintaining transparency and accountability in economic policy and financial reporting.
Who will address economic instability's root causes?: Accountability and genuine solutions to economic instability may be elusive until there's a shift in priorities and a willingness to face challenges head-on, disproportionately affecting the poor and middle class.
The current economic situation, as discussed, raises the question of who will take responsibility for addressing the root causes and potential consequences of inflation and economic instability. The speakers suggest that it's not likely to be the political administration due to the desire to avoid being labeled as the "bad guy" during an election cycle. The Fed and other financial institutions could potentially step up, but accountability and genuine solutions may be elusive until there is a shift in priorities and a willingness to face the challenges head-on. The ongoing economic instability disproportionately affects the poor and middle class, who may temporarily benefit from stimulus measures but ultimately bear the brunt of the costs. It's crucial to remember that these issues don't resolve themselves and that true, long-term solutions require genuine commitment and accountability from all stakeholders.
Economic Instability and Inequality Widening the Gap Between Rich and Poor: Economic instability and inequality are widening the gap between the rich and poor, with potential economic catastrophe if the US defaults on its debt. Negotiation and compromise are necessary for a resolution, but it's unclear who holds the leverage.
Economic instability and inequality continue to widen the gap between the rich and the poor. The speaker's personal experience in South Africa, where the rich make up only 1% of the population and the poor 99%, illustrates this trend. In the US, the situation is not as extreme but is heading in the same direction. The speaker also warns of potential economic catastrophe if the US defaults on its debt, emphasizing the need for political negotiation and compromise. Jamie Dimon, CEO of JPMorgan Chase, is preparing for this possibility by holding regular war room meetings. The ongoing standoff between Republicans and Democrats over the debt ceiling highlights the urgency for a resolution. Ultimately, the speaker questions who holds the leverage in this situation and who will ultimately save the economy from crisis.
Debt Ceiling Negotiations: A Tactical Game of Threats and Concessions: Despite the ongoing debt ceiling negotiations, the US will not default on its debt. Both sides are using public statements to gain leverage, and the outcome will depend on negotiation skills and willingness to use threats.
The current debt ceiling standoff between the Democrats and Republicans in the US is a negotiating tactic, with both sides using public statements to gain leverage. McCarthy may be able to extract some concessions, but ultimately, the US will not default on its debt. The ongoing debate is about the terms of the deal. Goldman Sachs, among others, is taking precautions due to uncertainty surrounding the timing and outcome of the negotiations. The US's financial situation is precarious, with a large portion of its GDP not held in the Treasury General account. Negotiations will likely involve the most hated figures on both sides, and the outcome will depend on each side's negotiation skills and willingness to use threats. Ultimately, the debt ceiling will be raised, and the focus will shift to the terms of the deal.
US Debt Default: A Global Economic Threat: A US debt default would have catastrophic consequences for the global economy due to its impact on the global monetary system and the need for international cooperation to prevent it.
If the United States were to default on its debt, it would have catastrophic consequences for the global economy. This is because US sovereign debt is held by numerous countries and forms the foundation of the global monetary system. A default would be unlike anything seen before, such as an alien invasion, and would require all countries to come together to prevent it. It's crucial for Congress to understand its leverage in negotiations and not be swayed by the fear of reelections or future financial needs. The discussion about Argentina defaulting is not directly applicable to the US, as the implications would be on a much larger scale. It's important to distinguish between defaulting on payments and being unable to pay back maturing T-bills, as they have different consequences. The 2008 financial crisis serves as a reminder of the potential risks when the global monetary system relies on a limited number of collateral types, such as mortgage-backed securities and T-bills.
Potential global economic catastrophe from U.S. debt ceiling crisis: A debt ceiling crisis could cause U.S. Treasuries to lose value, potentially triggering a global economic meltdown. Holding assets like gold or commodities could help mitigate the impact.
The debt ceiling crisis could potentially lead to global economic catastrophe if not resolved, as the U.S. Treasuries, currently serving as a major form of collateral in the global monetary system, could lose their value. If the debt ceiling is not raised, the U.S. government may default on its debt, causing a ripple effect throughout the world. In such a scenario, T-bills could be the last remaining form of reliable collateral. However, even if the crisis is resolved, the Federal Reserve's plan to increase liquidity by purchasing more Treasuries could lead to higher short-term interest rates and a shorter average maturity of the debt, potentially causing budget issues for the Treasury. In the event of a default, it is crucial to hold assets that maintain their value, such as gold or other commodities. The potential consequences of a debt ceiling crisis are significant and underscore the importance of addressing this issue before it escalates.
Considering assets and liabilities during economic instability: During economic uncertainty, focus on both assets and liabilities. While assets like gold, Bitcoin, and property can provide value, paying off debts denominated in traditional currencies remains crucial.
During times of economic instability or potential default on debt, it's crucial to consider the assets you want to hold onto. While bullets, property, gold, and even digital gold like Bitcoin can be valuable, it's essential to remember that much of the world's wealth exists in the form of debt. Even if you choose to hold assets like Bitcoin instead of traditional currencies, you'll still need to find a way to pay back debts denominated in those currencies. For instance, if you have a mortgage, you'll still need to come up with dollars to pay it off. In the event of a global economic collapse, there could be a rush to acquire dollars, causing their value to spike. So while it's essential to consider the assets side of the balance sheet, it's equally crucial to think about the liabilities and how they'll be paid back. Ultimately, having a diversified portfolio of assets and being prepared for various economic scenarios is key.
