[00:01:47] Clay Finck:  Richard, your book, The Money Revolution, has just been so instrumental in my understanding of our current financial system and how exactly we got to where we are today.

It’s been over a year since you’ve been on our show, so I think an update is in order. very long overdue. For those in our audience who missed your previous episode on the show that really discusses a lot of your book and a lot of what’s happening in our economy today, how about you give us an idea of the overall premise of the book?

[00:02:05] Richard Duncan: The overall premise of the book is that Our economic system changed in very fundamental ways back in 1971 when dollars ceased to be backed by gold up until that time, the economy worked in a certain way, the way that it had for really more than 100 years under the Bretton Woods system and the gold standard before that.

[00:02:25] Richard Duncan: And afterwards, the economy now works in a very different way, and it’s really important for everyone, the general public. Investors and policy makers understand how the economy works now, because it’s not the way they were taught at university. And it has very important implications for our future because the way it works now has created a situation that is potentially very dangerous if we don’t manage the economy correctly.

[00:02:49] Richard Duncan: But on the other hand, it also. presents extraordinary opportunities if we make the most of the new way that it does work now. So here’s the story. When dollars had to be backed by gold, that constrained the economy in a number of ways. For example, the Fed was not free to create as much money as it pleased the way that it can do now.

[00:03:07] Richard Duncan: The Fed had to hold gold to back all of the dollars that it issued. That constrained how many dollars the Fed could create. Now a second and very important change is that when dollars were backed By gold, that meant that the United States had to keep its trade, international trade, in balance.

[00:03:25] Richard Duncan: And that’s because if the US had a big trade deficit, it would have to pay for its trade deficit by sending its gold overseas to other countries. And that would shrink the US gold supply. Gold was money, so that meant the money supply would contract. And with the money supply contracting sharply, the economy would go into severe recession or depression, and of course that couldn’t be tolerated.

[00:03:48] Richard Duncan: So it was very important to trade within countries that had to balance. And up until the Bretton Woods system broke down, the U. S. did have a trade balance. It was in balance. We did not have large trade deficits, but after the Bretton Woods system broke down, it didn’t take the U. S. very long to discover that it could start running very large trade deficits with other countries, initially Japan and Germany, and it didn’t have to pay for the trade deficits with gold anymore.

[00:04:13] Richard Duncan: It could just pay with paper dollars. or treasury bonds denominated in paper dollars, and there was no limit as to how many of those the U. S. government could create. So by the mid 1980s, the U. S. trade deficit had grown to just an unprecedented size of 3. 5 percent of GDP, and it just kept growing after that.

[00:04:31] Richard Duncan: By 2006, it had reached 6 percent of GDP. And the cumulative trade deficit since Bretton Woods broke down, cumulative deficit actually on the current account has been 15 trillion. The United States has bought 15 trillion worth of goods from the rest of the world over and above what the rest of the world has bought from the United States.

[00:04:55] Richard Duncan: Now, why is this important? It’s important because when the U. S. started buying things from countries with very low wages, Like it does now, China and Vietnam, Bangladesh, India, this was extremely disinflationary. It drove down the cost of manufactured goods, and it also put downward pressure on wages because instead of hiring Americans, corporations built factories overseas and hired Chinese people working initially for 5 a day.

[00:05:24] Richard Duncan: More now, but in many parts of the world, you can still hire people for less than $10 a day. Tens of millions, hundreds of millions of people. So this was very disinflationary and it drove down the inflation rate in the US In the early 1980s, the inflation was in the double digits and interest rates were in the double digits.

[00:05:42] Richard Duncan: But as globalization kicked in on the back of the growing US trade deficit, this put downward pressure on inflation. Inflation fell and fell, and so interest rates could fall and fall. And this is the reason we didn’t have inflation for so long. 2000 and the time when COVID started, the inflation was extremely low.

[00:06:01] Richard Duncan: Occasionally it dipped into deflation and the Fed had a hard time off. Making the inflation rate hit its 2 percent target. It tended to be below 2 percent very often, and this is because of globalization and globalization happened because after the breakdown of Bretton Woods, the U. S. could run big trade deficits for the first time.

[00:06:20] Richard Duncan: So this was a very important change, something that had not been possible before. So with very low inflation and very low interest rates. This meant that the government could borrow much more money than it had been able to in the past, could borrow more money and spend that money and stimulate the U. S.

[00:06:37] Richard Duncan: economy without creating high rates of inflation. And if necessary, the Fed could even print some money. And buy some of those government bonds to help finance the government’s big trade deficits, again, without causing high rates of inflation, whereas before, say, in the 1960s, if the government sent a lot of money, then because there was, it was a relatively closed US economy, not a global economy, trade had to balance if the government overstimulated the economy by spending too much.

[00:07:07] Richard Duncan: That would result in full employment, which would tend to push up wages, and it would also result in full capacity utilization. All the U. S. steel factories would be working at full capacity, all the car plants would be working at full capacity, all the industries would be working at full capacity, and prices would tend to go up, and that would lead Between prices going up and wages going up, this led to inflationary upward spirals.

[00:07:31] Richard Duncan: But once we started buying things from Chinese workers, then that wasn’t a problem. The government could run the economy hit by having large budget deficits and a lot of government spending without causing high rates of inflation. So these were all problems. Very fundamental changes that occurred when dollars used to be backed by gold, suddenly the Fed was free to print as much money as it dared, trade no longer balanced.

[00:07:53] Richard Duncan: So we had globalization and disinflation and very low inflation, very low interest rates, and the government could rev up the economy with big budget deficits without causing inflation or high interest rates. So this was a fundamental change. And, finally, at the same time, total credit started to explode.

[00:08:10] Richard Duncan: Not only government debt. But the debt of all the sectors of the economy started expanding and, for instance, the total debt in the United States and total debt and total credit are two sides of the same coin. One person’s debt is another person’s asset. So total credit in the U. S. first went through 1 trillion in 1964.

[00:08:30] Richard Duncan: This year is going to go through 100 trillion. So a hundredfold increase in total credit in the United States in, let’s say, 60 years. And this credit growth was so phenomenally strong that it became the main driver of economic growth. I describe this as capitalism evolved into creditism. The economy changed in fundamental ways because in the past, under capitalism, the dynamic that drove economic growth at that time was businessmen would invest, Some of them would make a profit.

[00:09:03] Richard Duncan: They would accumulate that profit as capital and reinvest again. It was investment, saving, investment, and saving. That was the dynamic that drove economic growth under capitalism. But under the system we have now, creditism, that’s not the way things work anymore. Our economic system is not driven by investment.

[00:09:21] Richard Duncan: Saving and investment is driven by credit creation and consumption and more credit creation and more consumption. And this has been a lot easier than capitalism. This led to much more rapid global economic growth in particular and completely changed our world. Cities like Shanghai. would not exist today in their current form if we remained on capitalism, because China couldn’t have run its massive trade surpluses with the U.

[00:09:46] Richard Duncan: S. China would still be a very poor developing country, as it was when I first saw it in 1986. That’s the premise of the book. A money revolution got underway when dollars ceased to be backed by gold. in 1971. And that has fundamentally changed our, the way our economic system works. And it’s very important for everyone to understand that credit now drives economic growth.

[00:10:11] Richard Duncan: And without credit growth, the U. S. goes into recession. And if credit contracts significantly, it goes into a depression. 

[00:10:18] Clay Finck: Wonderful. What you said there towards the end was really what stuck out to me when I tuned in to your previous interview is that We no longer live in a world of capitalism.

[00:10:29] Clay Finck: We now live in a world of creditism. That just really stuck with me because understanding that credit drives our economy today, it’s just so important. That’s why I wanted to bring you on to get an update on why it’s so important and where we’re at today. 

[00:10:44] Richard Duncan: That’s so important, Clay, for everybody to understand this, because if you look at a chart of total credit, as far as we can go back, as far as the data goes, the only time credit has contracted.

[00:10:56] Richard Duncan: was in the 1930s. And we all know what happened then. At that time, we still had a capitalist economy. And during the roaring 20s, there had been a credit boom. That was really the result of World War I. So much government debt was created in World War I, and the European countries went off the gold standard.

[00:11:15] Richard Duncan: They bought a lot of things from the United States. They had to pay for them with gold. So the U. S. got a lot of Europe’s gold. The gold supply in the U. S. expanded rapidly. That allowed credit to expand on the back of the gold expansion. And the credit boom created the Roaring Twenties. But in 1930, all of the credit created during the Roaring Twenties couldn’t be repaid by the private sector.

[00:11:37] Richard Duncan: And the government didn’t know what to do. They were a laissez faire capitalist. They had no clue what to do. They had to back their dollars with gold. So the Fed couldn’t create a lot of money and support the economy through quantitative easing, for instance. And so they just stepped back and let market forces work.

[00:11:55] Richard Duncan: And market forces worked. The debtors couldn’t repay their debts. They defaulted. So the lenders who had lent them money, they all failed. A third of all U. S. banks failed. By 1934, the U. S. economy had shrunk by 50%. And the unemployment rate was up to 25 percent and the entire world went into economic collapse and it ultimately led to World War II.

[00:12:17] Richard Duncan: And that crisis didn’t end, the depression didn’t end until 1940 when the US government realized they were about to be in the war and started spending much more radically on military spending. In 1940, the US economy was still smaller than it was in 1929. But once they began the massive government spending on the war, that stimulated the economy and the Fed started printing a lot of money to finance the government’s borrowing during the war.

[00:12:46] Richard Duncan: And by the end of the war, the U. S. economy was 5 years later, in 1945, the U. S. economy was twice as large as it was in 1940. So it was only the massive government stimulus that we got because of the war that ended the Great Depression. So fast forward up to 2008, we had a big credit boom. And in 2008, the private sector, the households and other corporations couldn’t repay the debt they borrowed.

[00:13:12] Richard Duncan: And I don’t know how well you remember that, but I remember it all very clearly. The banks all started to fail and Fannie Mae and Freddie Mac failed. And had the government done what it did in 1930, Just stepped back and let market forces work. We would’ve replayed the Great Depression and perhaps now be in World War iii, but instead they, because we were no longer on the Bretton Woods Gold back monetary system, had a whole lot of new options that they didn’t have.

[00:13:37] Richard Duncan: In 1930 first, the Fed created roughly $5 trillion. First, the government started running a multi-trillion. The government ran budget deficits of more than $1 trillion for four years in a row, 2000. 8, 9, 10, 11, maybe into 12. And the Fed created a lot of money through quantitative easing, through three rounds of quantitative easing.

[00:13:59] Richard Duncan: They created trillions of dollars that helped finance all of the government borrowing and all of the government spending and the Fed financed government spending that prevented the economy from collapsing. It prevented credit from contracting. They pumped the money into the economy. So all of the banks didn’t fail and we didn’t fall into a Great Depression.

[00:14:19] Richard Duncan: And despite all of the government spending and all of the money created by the Fed, we didn’t have high rates of inflation either. After 2008, the highest the inflation rate went was 3. 8 percent I think in 2011 and by early 2015, we actually had deflation again. Which was better: the Great Depression policy approach, let’s call that the austerity approach, a decade of depression and despair, followed by a world war, or what’s happened since 2008, where the economy just kept growing and everything is really.

[00:14:53] Richard Duncan: Turned out really very well, but in comparison, things were rolling right along and COVID struck and this time things were different. The government had 2 examples to choose from the 1930 strategy of. Allowing the economy to collapse with a 2008 strategy of keeping the bubble inflated.

[00:15:14] Richard Duncan: Of course, they kept the bubble inflated again in 2020, this time, truly massive government borrowing in just 3 months in the 2nd quarter of 2020, the government borrowed 2. 9 trillion dollars in 90 days. Government debt increased by 2. 9 trillion dollars in 90 days in the second quarter of 2020. And the Fed financed that by creating roughly the same amount of money at the same time.

[00:15:38] Richard Duncan: And so they sent out stimulus checks to the Americans. So even though they were locked at home, they still had money to spend. The problem this time was that we also had global supply chain bottlenecks. That caused very big problems. Factories in China were shut down and shipping was disrupted and suddenly the Americans had a lot of money to spend, but they couldn’t go out and spend it on services.

[00:16:01] Richard Duncan: So they went out, so they ordered through Amazon or over the Internet. They ordered iPads, telephones, computers and running machines, all of which are made in China, but because of bottlenecks, they couldn’t get to the U. S. And so that pushed up inflation that contributed to higher inflation. And then as soon as those pressures abate.

[00:16:22] Richard Duncan: Russia invades Ukraine, and suddenly that causes a spike in global oil prices and a spike in wheat prices and other commodity prices. So we got another bout of disruptions to the global supply chains. So between the disruptions in the global supply chains, combined with the, all of the money that the Americans had to spend from their stimulus checks, this led to high rates of inflation this time.

[00:16:44] Richard Duncan: Whereas it didn’t after 2008. So fast forward now to February, 2024 and we didn’t collapse into a great Depression, but we did have at one point CPI was up to 9.1%, I think in June, 2022 at the peak. But now that’s gone. Inflation’s back down most recently to 3.1%. And we have a higher level of government debt and we lived through some unpleasant inflation for a couple of years, but we didn’t collapse into a Great Depression and the global economy didn’t implode.

[00:17:17] Richard Duncan: And here we are, and everything, the unemployment rate is near the lowest it’s ever been in my lifetime. The economy is growing quite rapidly and the US economy is performing very well relative to most of the other countries in the world. So again, things have worked out very well. Relative to the way it could have turned out if they had adopted the austerity approach again and allowed the economy to collapse, we wouldn’t have had inflation.

[00:17:42] Richard Duncan: We would have had massive deflation and massive unemployment. 

[00:17:46] Clay Finck: Let’s zoom in and talk about how credit has developed over the past few years. So essential in how our economy operates. So in 2020, the floodgates of credit really just opened up. The Fed printed around 5 trillion to help backstop the financial system.

[00:18:05] Clay Finck: Interest rates were lowered to zero, which really encourages people to borrow and create even more credit in the economy, businesses, and individuals. So given that our economy is dependent on this perpetual credit expansion, paint a picture for. How the credit environment has developed ever since 2020.

[00:18:25] Richard Duncan: So there are really only five or six big sectors of the U. S. economy when it comes to who’s borrowing the money. The government is the largest followed by the household sector and then the corporate sector and then the GSEs, the government sponsored enterprises, Fannie Mae and Freddie Mac, and then the rest of the financial sector.

[00:18:46] Richard Duncan: And then non corporate businesses. So if you look at those six and you can see who’s borrowing the money and if you project out how much those sectors are likely to borrow in the future, then you’ll have a good idea of how much credit is going to grow if you can project correctly. So since the crisis, government borrowing has.

[00:19:09] Richard Duncan: been by far the biggest driver of credit growth, ranging from a third to a half, most of the time, most of the credit, most years, the increase in government borrowing has accounted from a third to a half of the increase in all borrowing, but more recently. Over the last two years, the rate of credit growth of the other sectors has all started to come down now from relatively high levels.

[00:19:34] Richard Duncan: It’s all, the credit growth has been slowing for all the sectors except the government, but over the last 12 months, government borrowing has now accounted for 55 percent of total credit growth. And in the most recent quarter, which was, we have data for the third quarter of 2023, government borrowing actually counted for more than all the credit growth because some of the other sectors actually had a contraction in their credit growth.

[00:19:58] Richard Duncan: We’ve become very dependent on government borrowing and government spending to keep credit expanding. And if you look back to 1915, every time total credit, this is all the credit in the US, the credit of all the sectors that I’ve been discussing. Or the total debt, whichever way you prefer to look at it.

[00:20:15] Richard Duncan: Any time total credit grows by less than 2 percent adjusted for inflation. In other words, nominal credit growth less the CPI rate. If it’s less than 2%, the U. S. goes into recession. That happened 9 times between 1950 and 2009. Every time credit grew by less than 2%, the U. S. went into recession. Now, it’s been less consistent.

[00:20:37] Richard Duncan: Since 2009, in part because quantitative easing has become such an important part of driving the economy and other factors. So I always refer to the 2 percent recession threshold and what we’ve seen is that the credit is actually growing less than 2 percent when adjusted for inflation. Even with all of this government borrowing and spending and looking ahead, the total credit number now in the U.

[00:20:59] Richard Duncan: S. is something like 97 trillion dollars. It’s very hard to make it grow by 2 percent adjusted for inflation. If you assume. That the inflation rate is going to be 2%, and then we need 2 percent adjusted for inflation. That means we need total credit growth of 4%. 4 percent of 97 is roughly 4 trillion a year.

[00:21:19] Richard Duncan: So who’s going to borrow 4 trillion? The government’s going to borrow maybe 1. 5, 1. 6. Who’s going to borrow the rest? It doesn’t look like we’re going to hit the 2 percent recession threshold again anytime soon. And for that reason, I still continue to believe that it is likely the U. S. will go into recession.

[00:21:35] Richard Duncan: Because credit growth is too weak to drive the economy. And on top of that, the Fed has been removing liquidity through quantitative tightening by destroying 95 billion a month, which is not helpful at all either. I, like most other economists, expected the U. S. to go into recession last year. It didn’t.

[00:21:51] Richard Duncan: I’m still going to stick To my guns and say, I do think it probably will go into recession this year, although there aren’t many signs thus far that it’s headed that way. 

[00:22:02] Clay Finck: You brought up that interesting statistic that looked at data from the 1950s to 2009. There were nine times where real credit growth grew by less than 2%.

[00:22:11] Clay Finck: which ended up leading to a recession. And I feel like this word recession is just used all the time and not enough people talk about what it actually is and what it means for you and me as people that operate in this economy. Can you define what a recession is and what the implications of a recession are in the economy?

[00:22:32] Richard Duncan: Sure. So under normal circumstances, the economy tends to grow. That means the output that is created by the United States grows every year. In part, it grows because the population grows. And in part, it grows because productivity improves. But during a recession, the economy Actually becomes smaller. In other words, it produces less than it did the year before.

[00:22:55] Richard Duncan: And when that happens, we tend to cause prices to fall and falling prices are not welcome because it makes it more difficult for companies to earn enough money to pay interest on their debt, for instance, or to make new investments. And that kind of environment companies tend to fire their workers.

[00:23:16] Richard Duncan: And when you start firing your workers, and the workers have less income, so they spend less. And when they spend less, the factories produce less. And it tends to spiral down for a while. Normally these things, the recessions tend to be relatively mild, but sometimes they can become very severe and turn into a depression like we had in the 1930s.

[00:23:37] Richard Duncan: And so these days, and for some decades now, the government manages the economy at the macro level to make sure that the recessions are mild or avoided altogether. And they do that by increasing government spending, running larger budget deficits, and also that is all facilitated by the Fed creating money to help finance those budget deficits at low interest rates, or the Fed also tries to control the economy.

[00:24:03] Richard Duncan: If it goes into recession this year, for instance, which I think it will. The Fed will reduce interest rates and lower interest rates will help stimulate the economy because then businesses can borrow at a lower rate of interest and become more profitable and households can also borrow at a lower interest rate of interest.

[00:24:19] Richard Duncan: And for instance, making it more affordable for them to buy homes, or even to spend more on their credit cards. So this is how the government attempts to manage the economy at the macro level. And by making sure the recessions don’t get out of hand. And so people, many people don’t like to hear this. The idea of the government managing the economy is very disturbing to a lot of people, but everyone still needs to be aware of the fact this is the reality.

[00:24:45] Richard Duncan: If you don’t understand the government is managing the economy at the macro level, you may do some very foolish things. So it’s very important to try to anticipate what the government is going to do next. And how that’s going to impact credit growth and liquidity and how that will impact the financial markets and the economy.

[00:25:02] Clay Finck: You mentioned, I’m going to reference that statistic you said again, where real credit grows by less than 2%, we tend to enter a recession. But there’s many interesting things happening today that make today different from a year’s past. I think that statistic ends right before the 2010 -2011 timeframe where we did see some credit contraction, but you mentioned that QE was likely a big reason that we didn’t enter a recession during that time period.

[00:25:28] Clay Finck: And then another interesting thing about, 2024 is we just had this huge Boost in credit and then the stimulus checks in 2020 in 2021, and that’s helped the economy trudge along and continue to head upwards in 2023, we had GDP growth in 2023 after I believe a contraction in 2022.

[00:25:47] Clay Finck: So I’d like to hear more of your insights on why you foresee every recession in 2024. 

[00:25:54] Richard Duncan: So I think the reason that we didn’t have a recession in 2023 is because of the amount of stimulus. that the government hit the economy during 2020, 2021 and 2022 was so enormous. It was on a scale, almost as if the country were on a war footing.

[00:26:12] Richard Duncan: This kind of government spending that you would experience during a major war when World War II happened, of course, the government pulled out all the stops and spent as much as it had to make sure that we won the war and that increased government debt very radically, but all of that increase in government debt during the war that continued to stimulate the U.

[00:26:32] Richard Duncan: S. economy for the next 20 years into the early 1960s. And I think what we’re experiencing now is something similar. There was so much stimulus and the total government debt just over the last four years has gone up by 11 trillion by a third in four years. So this is such a massive stimulus that I think the economy is still benefiting from that.

[00:26:56] Richard Duncan: And just consider the boom that happened in the stock market and across all the financial asset classes. And after the initial downturn in late 2020, 21, 22, the stock market soared, right? People became very much wealthier, anyone who had financial assets and money was just so freely available. We had this, the SPACE frenzy, and so companies could borrow, could obtain money so easily that this must have given a significant jolt to the tech industry.

[00:27:29] Richard Duncan: For instance, companies like OpenAI. would have had such easy access to money. That it would have funded them and perhaps facilitated some of the major technological breakthroughs that we’re now experiencing on the AI front. And so this, I think this explains why the economy has been as strong as it has been.

[00:27:47] Richard Duncan: And in fact, it may explain why the economy will continue to be strong this year. And who knows for how many more years we’ll see. 

[00:27:55] Clay Finck: I’m also interested to get your take on the primary drivers of credit growth. You had mentioned sectors of the economy that drive the overall credit growth. You have all these private corporations, private individuals that think about things like interest rates, and then the government can do a lot of what it wants to do since it has a bit of access to the money printer.

[00:28:16] Clay Finck: So other than interest rates, are there any other primary drivers of credit growth? 

[00:28:22] Richard Duncan: Interest rates, but also, of course, as we’ve discussed, The government borrowing itself is such an important component of the total overall total, as I’ve said. Between a third and a half of all credit growth is government, so therefore it’s very important to keep an eye on politics and on, for instance, the push toward austerity that we often hear about because everyone needs to be aware that if they become very alarmed about the size of the U.

[00:28:51] Richard Duncan: S. government debt and therefore decide that We must reduce the government debt. We must reduce government spending and reduce government borrowing. Then that’s going to cause total credit growth to contract. And when total credit growth starts to contract, the U. S. will go into a severe recession. And corporations will become unprofitable.

[00:29:09] Richard Duncan: They will fire workers. Unemployment will go up very sharply. Consumers will spend less. And the GDP will shrink. The economy will become significantly smaller. So austerity, rather than bringing down the level of debt to GDP, instead of making the level of debt to GDP go down, will actually make the level of debt to GDP go up.

[00:29:30] Richard Duncan: because it will cause the GDP to shrink so significantly. So that’s why austerity is such a bad idea. Let’s keep it simple. Austerity is equal to death. You have enough austerity, you’re going to kill the economy and result in a new depression that is not going to be something relatively mild, as we frequently see.

[00:29:51] Richard Duncan: Significant austerity Any attempt to bring down government debt in a meaningful way would bring about a new Great Depression, like the 1930s, with consequences that would be catastrophic for us, not only in terms of personal suffering through unemployment. But also on a geopolitical scale, if the U. S.

[00:30:10] Richard Duncan: economy goes into a depression, then the geopolitical consequences of that could also be catastrophic. We perhaps could no longer afford to maintain military bases abroad, which would embolden the U. S. economy. Our enemies take advantage of the situation, for instance, encouraging China to take over Taiwan, which would be a disaster on its own because all of the computer chips that we rely on are made in Taiwan.

[00:30:37] Richard Duncan: And this is particularly problematic now that we are in this AI revolution that is changing the world. Whoever develops artificial general intelligence first. Wins. And if we lose Taiwan, then we’re going to lose the AI race, and then that means the future belongs to China and will be relegated to a secondary.

[00:30:57] Richard Duncan: or worse status in the world at China’s mercy effectively. We’re talking about if we had significant austerity, this is, we’re looking at the consequences would be something like a fall of Rome scenario. When Rome fell, there was a recovery. It just took a thousand years. Austerity is death.

[00:31:16] Richard Duncan: That’s what we need to avoid at all cost. Yes, is it a problem that the U. S. government has increased, government debt has now increased to 34 trillion? Yes, that’s unfortunate. It is unfortunate that we have to pay a lot of interest on that government debt, but the alternative would be cataclysmic if it did not increase to that level.

[00:31:36] Richard Duncan: And so the question is, how do we get out of this situation? And I believe the best way we get out of this situation where we have high levels of government debt is for the US government to borrow and fund. a very large scale investment program in new industries and new technologies through joint venture projects with the private sector.

[00:31:56] Richard Duncan: For instance, I believe that it would be very easy for the U. S. government over the next 10 years, for instance, to fund a 5 trillion or even a 10 trillion dollar investment program with the government borrowing the money and setting up joint venture companies with the private sector. Now picking out the 10, 000 most promising American entrepreneurs and scientists.

[00:32:18] Richard Duncan: And setting up joint venture companies with them, funding these joint venture companies lavishly with borrowed money with the Fed, perhaps financing some of this borrowed money as required and setting up joint venture companies and targeting industries, such as artificial intelligence, quantum computing, nanotechnology, green energies, neurosciences, And all of the other advanced industries that you can imagine.

[00:32:44] Richard Duncan: That sort of investment would turbocharge U. S. economic growth. So the GDP, rather than growing 1 or 2 or 3 percent as it has recently, we would start seeing economic growth rates of, 5 to 6, 7 percent a year, and the economy would grow rapidly enough so that the ratio of government debt to GDP would increase.

[00:33:05] Richard Duncan: would shrink. Meanwhile, these investments would produce technological miracles and medical marvels. If we make that sort of investment, which I believe we can easily afford to do, no, seriously, we could cure all the diseases. We could expand life expectancy by potentially decades. And we could shore up the U.

[00:33:22] Richard Duncan: S. national security so that we don’t have China nipping at our heels now as the second global superpower. On the verge of becoming the first global superpower, these sorts of investments would finance the next American century. So that was the name of my book, The Money Revolution. The subtitle was, How to Finance the Next American Century.

[00:33:43] Richard Duncan: And this is how to do that. By making large investments in new industries and technologies. And then when some of these joint venture companies do invent a cancer vaccine or a cure for Alzheimer’s disease, list them on NASDAQ for a trillion dollars. With the government keeping, because the government has a 60 percent equity stake in these companies, the government reaps massive benefits from the listing of these companies when they make technological breakthroughs, and not only would it bring down the total level of government debt relative to GDP, there’s a real possibility we could pay off all the national debt through this sort of investment program.

[00:34:18] Richard Duncan: So that’s what I mean. Our economic system has evolved from capitalism into Creditism, creditism. We need to understand how it works and manage it. It is being managed. The question, is it going to be managed well or is it managed badly? If it’s managed badly and we have austerity and allow Credit to begin to contract through government austerity, then credit will contract and will collapse into depression because we have a very big credit bubble, and Creditism must have credit growth to survive.

[00:34:46] Richard Duncan: But keeping that in mind, since the economic system must have credit growth to survive, let’s have the government borrow the credit and invest it in new industries and technologies. That’s the opportunity that we have under this new economic system of ours. So those are the choices. Austerity is death.

[00:35:02] Richard Duncan: Investment is prosperity. I’m advocating the investment. 

[00:35:06] Clay Finck: I think you’re absolutely right that austerity is not a path that the government wants to go down. And I do want to touch on AI a little bit later, but I had a few more questions on what’s happening today. Many have forecasted that the Fed is going to be Cutting interest rates in 2024 in light of falling inflation.

[00:35:26] Clay Finck: CPI inflation topped out around 9. 1 percent in June 2022, and now it’s all the way down to 3. 1%, but that’s still above their overall target of 2 percent inflation, but it’s on its way down to potentially heading that direction. So I’m curious if you anticipate rate cuts in 2024. 

[00:35:47] Richard Duncan: I do anticipate rate cuts in 2024.

[00:35:49] Richard Duncan: Yes, as you mentioned, the inflation rate has been coming down. It looks like it’s going to continue to come down. The most recent CPI number was. A little higher than people had expected or hoped, but, the Fed focuses on personal consumption expenditure price index, the PCE price index, and it also looks at the core PCE price index.

[00:36:10] Richard Duncan: It consists of three parts, that index. One is core goods inflation, and we’re actually seeing deflation there. Goods prices are falling, so we have deflation in the goods prices. The second component is housing services. And there we still have high rates, something like 5. 6 percent annual inflation.

[00:36:31] Richard Duncan: But the way this is calculated, it’s almost certain that this is going to fall very sharply because there’s a big lag in how they account for the decline in rents. So that’s going to fall as well. And the remainder is core services inflation, excluding housing. And that too has been coming down significantly and is likely to probably continue to come down.

[00:36:53] Richard Duncan: If you just take the last 6 months of the monthly data and annualize it, we’re now actually at a rate of inflation that’s below the Fed’s 2 percent inflation target. So it does seem very likely. The Fed will cut interest rates this year. The Fed itself has said they expect to cut rates three times.

[00:37:11] Richard Duncan: Until recently, the market was expecting the Fed would cut rates six times, but now they’ve dialed that back a bit. Yes, it’s very likely that we will see rate cuts this year, unless there is, there can always be unexpected developments. For instance, if we have a war, or anything else that once again disrupts global supply chains, then we’ll get high rates of inflation again, and then all bets will be off.

[00:37:31] Richard Duncan: But, hopefully that won’t happen. It probably won’t happen. So we’re looking at rate cuts ahead and that should create a favorable environment for the stock market, and it might be interesting to discuss at this point how the Fed actually controls interest rates because it doesn’t control them the way it used to in the past.

[00:37:46] Richard Duncan: The Fed created so much money through quantitative easing that there’s just more supply of dollars. Then there is demand for dollars. So remember when the federal funds rate was 0%, the 10 year government bond yield dropped as low as 60 basis points. And between 2020 and 2022, the government 10 year government bond yield ranges between 60 basis points and 2%.

[00:38:11] Richard Duncan: Now, when the Fed decided it was time to raise interest rates, how did they do that? How do they make the interest rate? How do they make the federal funds rate go up? They did that by actually paying interest on bank reserves. When the Fed creates money, it buys a government bond. Usually, it pays for that government bond by making a deposit into the reserve account of the bank that bought the bond from all the banks that have bank accounts of the Fed.

[00:38:40] Richard Duncan: They’re called reserve accounts. When the government, when the Fed buys a government bond from a bank, it pays for it by making a deposit into the reserve account of that bank at the Fed. And that creates bank reserves, the money that the Fed is depositing. Is not money that already existed in the past.

[00:38:59] Richard Duncan: The act of making that deposit creates the bank reserves. It creates money. Bank reserves are one of the components of the money supply. Bank reserves plus currency and circulation. That is base money. That is the base money supply. So the Fed creates money. That’s how they create money. By creating bank reserves from thin air.

[00:39:17] Richard Duncan: They created so many bank reserves. that the banks didn’t have any place to invest all of these bank reserves without pushing interest rates down toward 0%. Now, in order to make the interest rates go up, the Fed had to actually pay interest to the banks on the bank reserves, something that they had never done before 2008.

[00:39:38] Richard Duncan: They were not legally allowed to do this before 2008. But now, the Fed is paying 5. 4 percent interest, On bank reserves, and so the banks won’t lend that money to anyone else at anything less than 5. 4 percent because why would they? The Fed’s going to pay them 5. 4 percent on their bank reserves. So they’re not going to lend money to anybody else at less than 5.

[00:39:59] Richard Duncan: 4%. Now, when the Fed wants to begin lowering interest rates, what is, how it does that is instead of paying 5. 4 percent on bank reserves, it will reduce that to 5 percent and interest rates will come down because nothing, the Fed is no longer holding them up. And later it would reduce it to 4. 5%. And then 4%, maybe 3.

[00:40:18] Richard Duncan: 5%. The only thing that is holding interest rates up now is the Fed paying interest on them. Many people are worried that the government budget deficits are so large that the government’s going to have to borrow a lot of money, and that’s going to push up interest rates. In this environment we’re in now, with so much excess liquidity created by quantitative easing, That’s not the case.

[00:40:37] Richard Duncan: That’s not the way it works at all. If the government borrows money, that does take money out of the financial system. But as soon as the government spends the money that it borrows, that re-injects the money right back into the financial system. So there’s no reduction in liquidity because of the government borrowing, as long as the government spends the money that it borrows.

[00:40:55] Richard Duncan: Government budget deficits in this environment are not going to drain liquidity and push up interest rates the way they did in the old days. They used to call it crowding out. Right now we have so much excess liquidity, the government borrows and then it spends, and so it just re-injects the money into the financial system.

[00:41:13] Richard Duncan: The only thing that is going to change the level of liquidity is quantitative tightening, and that’s what the Fed’s doing now. The Fed is destroying these bank reserves through quantitative tightening. Quantitative tightening is the opposite of quantitative easing. I just explained how quantitative easing works.

[00:41:29] Richard Duncan: The Fed buys a government bond, and it pays for that bond by making a deposit into the reserve account of the bank from which it bought the bond, thereby creating bank reserves and creating liquidity, creating money. Now the opposite is occurring. The Fed is, in essence, to make a long story short, is essentially selling government bonds that it bought in the past.

[00:41:49] Richard Duncan: And when it does, it sells them to a bank. And when the bank buys the bond, the Fed takes payment by debiting the reserve account of that bank. It takes money back out of the reserve account. And so there’s less money in bank reserves, which means there’s less money in the financial economy in the financial system altogether.

[00:42:07] Richard Duncan: And that drains that and that destroys the liquidity when the Fed sells a bond and takes the money back from the bank. It doesn’t keep this money in some safe somewhere if the money just disappears when the Fed takes it back just in the same way that the Fed creates money out of thin air when the Fed does the opposite to quantitative tightening, it destroys the money and disappears back into thin air.

[00:42:29] Richard Duncan: And so the government budget deficits are not going to drain liquidity and drive up interest rates. As long as we have so much excess liquidity, the Fed has to pay interest on bank reserves to keep the interest rates as high as they are now. And it’s going to start paying less. And so interest rates are going to fall.

[00:42:47] Richard Duncan: But if quantitative tightening continues right now, the Fed is destroying roughly 95 billion a month. That adds up over a year, that’s something like 1. 1 trillion dollars. Right now, the amount of excess liquidity is roughly, my estimate is, I would say, 4 trillion dollars. They’re not going to destroy all of that excess liquidity.

[00:43:07] Richard Duncan: The last time they tried quantitative tightening was in late 2019. And they went too far, they destroyed too much liquidity. This caused a little crisis in the repo market. And they had to relaunch quantitative easing, more or less turned around on a dime. Went from quantitative tightening to quantitative easing again.

[00:43:23] Richard Duncan: In September 2019 to ensure that there was sufficient financial liquidity in the markets. So this time the Fed is not going to continue with quantitative tightening for too long. In fact, we’re already beginning to hear the Fed talking about when it’s going to start winding down quantitative tightening.

[00:43:38] Richard Duncan: They will probably tell us more when at the next Fed meeting. So it looks like they’re going to start reducing the amount of quantitative tightening sometime later this year. And probably end it all together sometime in the first half of next year, if not earlier, so that they don’t drain too much liquidity from the financial markets.

[00:43:56] Richard Duncan: And every time the Fed reduces the amount of quantitative tightening that it’s doing, the stock market will welcome that. Just like every time the Fed reduces the federal funds rate, the stock market will welcome that. So looking ahead, it looks like we’re going to look, have rate cuts. And less quantitative tightening, both creating a positive environment for the stock market and investors, of course, something bad could always pop up, but at least that seems to be positive.

[00:44:21] Richard Duncan: Very positive. In fact, if interest rates come down we’ll see tech stocks rally even more in particular, and the riskier asset classes will tend to perform the best when interest rates are coming down. 

[00:44:32] Clay Finck: Yeah, there is that idea that’s been going around that large budget deficits are going to drive up interest rates, slow down the economy, but that seems to not be the case.

[00:44:43] Clay Finck: Now, we broke off the gold standard in 1971, and you shared that statistic earlier that sort of blows your mind when you think about it. A hundred x increase in credit over a 60 year time period. So our money supply has just exploded ever since. We’re no longer constrained by the gold standard and money creation and credit creation.

[00:45:03] Clay Finck: And this has really offered a host of benefits to society and it’s brought about a lot of abundance and. Many different ways, but it also hasn’t come without its negative effects. I’m curious to hear your take on the primary drawbacks of our modern day economy of creditism and this dramatic rise of credit and the money supply in our economy.

[00:45:27] Richard Duncan: Okay, yes, but first of all, just let me reiterate that while there are problems, they are so much less severe than the problems we would have faced if credit had not expanded like this, or heaven forbid, we allow credit to contract. With that on the table, there are two, I think, very important concerns.

[00:45:45] Richard Duncan: One is our creditism, which requires credit growth to expand. We have nearly. In 2024, total credit will exceed 100 trillion in the U. S. And if credit contracts, then we’ll go into a severe recession or depression. And that’s a very big problem. So that’s a problem. That’s one of the negative consequences of this new economic system.

[00:46:07] Richard Duncan: We have a credit bubble. If we don’t keep it inflating, it pops. And if it pops, it effectively, the consequences could be catastrophic, so that’s a very big concern. That’s why we have to keep the credit expanding, which we can easily afford to do, by the way, because, for instance, U. S. government debt to GDP is roughly 120 percent.

[00:46:26] Richard Duncan: Japanese government debt is 260 percent. So Japan hit our level of government debt to GDP a quarter of a century ago, and they’re still going strong, so we don’t need to worry about suddenly hitting some sort of real debt ceiling limit. We just need to worry about the Congress imposing an unrealistic debt ceiling limit, which they are opposing, imposing on the economy.

[00:46:48] Richard Duncan: So we can definitely keep the credit growing if we have the right government policies. And so that’s 1 worry is that we won’t do it. Politics will intercede and that. There’ll be a big demand for austerity and that ruins everything and pops the bubble and we go into crisis. The big drawback of this creditism is that we don’t keep the credit growing, even though we easily can.

[00:47:11] Richard Duncan: Now, a second drawback of this system is that it has allowed China to emerge as a grave national security threat to the United States. China’s economy has evolved from being a very poor developing country in 1986 when I first moved to Asia. To begin, they are the second most powerful country in the world, and they have a plan.

[00:47:31] Richard Duncan: They have a plan to invest in new industries and new technologies on an extremely aggressive scale. They’ve written all about it, and that’s what they’re doing. And they’re on the verge of overtaking us technologically. And if they do, then they will overtake us economically and militarily as well. So that wouldn’t have happened under capitalism.

[00:47:48] Richard Duncan: That’s only something that has happened as a result of creditism. Now, I think the politicians are on. On both sides of the aisle, understand that China is a threat and they’re taking measures to try to rein China in or slow China’s growth. And at the same time, they’ve also taken important steps in the direction that I’m advocating.

[00:48:07] Richard Duncan: For instance, the Chips and Science Act. A couple of years ago, allocating 52 billion of investment in semiconductor factories to be built in the United States, along with something like another 280 billion to be invested in the other high tech industries that I mentioned earlier, that was a big step forward is just not enough.

[00:48:29] Richard Duncan: And we also had the. Inflation Reduction Act, which seems now set to result in people saying up to 3 trillion new investments over the next decade in green energies and technologies like that. So those are important steps forward for the United States to invest in new industries and technologies.

[00:48:48] Richard Duncan: The problem is, it’s just not enough. Even if you look at the entire Chips and Science Act, that’s, I think it was 380 billion, 360 billion. We need to be doing that every year, not, not once every five years, because China is going to be doing that every year. And if they do, and we don’t, they win and we lose.

[00:49:05] Richard Duncan: It’s that simple. So that’s the second problem with this creditism system. It’s allowed the rise of China to become a severe threat to U. S. national security and everything we hold dear. 

[00:49:16] Clay Finck: Yeah, I would also argue that the way our modern day economy is set up, it really creates this.

[00:49:22] Clay Finck: situation where you have winners and losers at the individual level, I’d argue probably globally, but I know certainly in the U S where you have this wealth divide and income inequality. And I think this credit is the way it’s designed, it really favors asset owners. So the top 1%, the top.

[00:49:39] Clay Finck: 5 percent that own a lot of the assets like real estate, the stock market, they just get wealthier and wealthier over time as their incomes continue to go up. And the assets that they own continue to go up as well. And then when you look at what the bottom 50 percent of people own, they tend to get left behind as their incomes don’t keep up with inflation.

[00:49:59] Clay Finck: And then they really don’t own much if any assets such as investing in the stock market and such. 

[00:50:07] Richard Duncan: Yes, but I do think you should also add that while the income inequality gap is increasing, the overall, even the level of well being of the people at the bottom end tends to be higher than it was before.

[00:50:21] Richard Duncan: So it’s not as though they are becoming absolutely poor. They’re just not becoming richer at the same rate as the rich. I tend to avoid talking about taxes because a lot of people don’t want to be taxed. And I don’t want to alienate those people, but if you are concerned about growing income inequality, and if your listeners are concerned about income, growing income inequality, which is undeniable and extreme, then you should all vote for politicians who will raise taxes, On the wealthiest people in the country.

[00:50:51] Richard Duncan: That’s the easy solution. We don’t want to stop the pie from getting larger. We want the pie to keep growing. If you want to prevent it from all going to the wealthiest, then we just make it grow. We just redistribute the growing pie. There’s a very easy solution. Just vote for politicians, demand that billionaires pay taxes.

[00:51:08] Richard Duncan: One might argue that anyone making more than a billion dollars a year in income could pay 50 percent interest on everything above a billion dollars a year income. I don’t think they would suffer as a consequence personally, but that’s not a policy I’m going to advocate. But, everyone, anyone who’s concerned with income inequality, there’s a very simple solution.

[00:51:26] Richard Duncan: If you all vote for politicians who vote, who promise to tax the wealthiest people, this problem goes away and everybody gets richer. 

[00:51:35] Clay Finck: So in being a student of history and reading books like yours, it sure seems that the rules of the game of investing have really changed since 1971 when we broke off the gold standard, and one could maybe also argue that the rules have also changed Since the great financial crisis, when the fed turned on the QE spigot and started implementing that QE on a massive scale.

[00:52:00] Clay Finck: So from an investor’s perspective, I’m curious if you would agree with this assessment, and I’m also curious what you believe are the key things for investors to watch in this modern day economy. 

[00:52:13] Richard Duncan: Okay, so what investors need to watch is they need to keep in mind that credit growth drives economic growth.

[00:52:20] Richard Duncan: So you need to monitor how the credit is growing now and try to forecast how it’s going to grow in the future because that’s going to have a major impact on economic growth. Secondly, they need to keep an eye on liquidity because liquidity tends to be one of the most important factors driving asset prices.

[00:52:35] Richard Duncan: So what I mean by liquidity is when the Fed creates money through quantitative easing, it tends to push up asset prices, as we saw immediately after 2020 and also after 2008. And when the Fed is destroying money through quantitative tightening, as it’s doing now, better be careful. If that goes on too long, it’s going to result in insufficient liquidity, causing asset prices to fall.

[00:52:57] Richard Duncan: I think we’ve avoided that so far since quantitative tightening has been going on. Quantitative tightening, I sometimes describe it this way. Imagine a ballroom full of investors, and they’re having a party, and everything’s fine. The Fed begins quantitative tightening, which is essentially sucking air out of the ballroom.

[00:53:15] Richard Duncan: At first, no one notices, but after a while, when it becomes difficult to breathe, They notice and they all run for the exits and then you have a financial crash. So we’re getting to the point now where The Investor’s are just beginning to notice a little bit that it’s getting a bit stuffy in here and the feds notice that also.

[00:53:32] Richard Duncan: So they’re likely to stop quantitative tightening before too much longer, but if they don’t, it’s going to be a big problem. So keep an eye on liquidity and credit growth. But also it’s very important to keep an eye on politics because if the austerity side wins, then it’s going to be a disaster, both for the economy and for the financial markets.

[00:53:51] Richard Duncan: No, I try not to be political in my views. I think what I advocate generally benefits. Everyone and I try to avoid all discussion of politics whenever possible. But I’m, I am confused by why so many Republicans are demanding austerity because it actually flies in the face of their most successful economic policy in my lifetime.

[00:54:10] Richard Duncan: The Republicans were most successful under President Reagan and under President Reagan, the U. S. government ran huge budget deficits and during his 8 years in office, I believe the U. S. government debt tripled. President Reagan understood that the United States needed government. needed to invest in the military and he did.

[00:54:28] Richard Duncan: And that created the biggest economic boom of my lifetime. And this was the greatest, most successful policy I’ve believed the Republican party has experienced during my lifetime under president Reagan. And now they are advocating the exact opposite. Rather than having the government invest in our country, they’re advocating making the government spend much less, which is the opposite of Reaganomics.

[00:54:50] Richard Duncan: It would have catastrophic consequences. So I think they should rethink that and go back to the policies of their favorite president, President Reagan, do what Reagan did. And that’s my advice to both political parties. What they need to do is to run a campaign of investing in new industries and new technologies and invest on such a great scale that.

[00:55:09] Richard Duncan: It will supercharge the economy and make everyone much better off because we’re not investing on the scale that the government is not investing in new industries and technologies on the scale that they did as recently as the 1960s. For instance, they’re much half the level that they did in the past.

[00:55:23] Richard Duncan: And I was very fortunate. Being able to, I was in, a congressman saw my book and since I spoke with you last, invited me to come to Washington and explain the ideas in the money revolution to some of his colleagues. So just about a year ago, I went to Washington and at a policy dinner, told 15 members of the House Ways and Means Committee, more or less what I’ve been telling you today, that we need to invest.

[00:55:46] Richard Duncan: And if we do, we’ll thrive and prosper, and the money revolution makes it possible for us to do that because the economy doesn’t work the way it did in your great grandfather’s day when dollars were backed by gold. There’s been a money revolution that creates extraordinary opportunities if we just take advantage of them.

[00:56:03] Clay Finck: Now, I had said that I did want to get back to AI here. And the last third of your book is actually committed to what you’ve been talking about with the need to reinvest in our economy. And from here, I’d like to get your perspective on where the U S is in this sort of AI race, because I think many people naturally believe that the U S is far in the lead with companies like Nvidia, Tesla, and all the other magnificent seven names.

[00:56:31] Clay Finck: How do you view where they’re at globally?

[00:56:34] Richard Duncan: It does appear now that the U. S. has really developed a lead. It wasn’t clear that was the case when I wrote The Money Revolution. I started writing that book in 2018 and 2019. It was more or less finished by the time COVID started and delayed because of COVID.

[00:56:49] Richard Duncan: It wasn’t clear that the U. S. was in the lead, but now as a result of these generative AI models, it certainly appears that things are accelerating almost exponentially. But I think AI is now a macroeconomic event. So over the last six months, I’ve made videos on each of the magnificent seven. And it truly is extraordinary what they are doing.

[00:57:10] Richard Duncan: NVIDIA dominates the chips that AI runs on, and between OpenAI, Microsoft, Google, Bard, Gemini, and all the other models, they’re growing so rapidly. And the people at the center of this revolution are telling us, if you think GPT 4 is impressive, Wait two years. It’s going to be 10 times more powerful.

[00:57:34] Richard Duncan: So China doesn’t have the chips. I don’t think they are, I think they are investing a lot of money in AI, but they’re not on par with where US tech is now and that could be fatal to them given the lead we have and the exponential growth that is occurring. Hopefully we are going to win this race.

[00:57:55] Richard Duncan: In a very clear and undeniable way, because if we lose it, it’s going to mean that we’ll be dominated by China. It will be China’s world. 

[00:58:04] Clay Finck: I’m also curious if you have a view on this. It seems like China is going through a crisis of their own right now. Their stock market has really been dropping in 2024 as it did in 2023 as well.

[00:58:16] Clay Finck: Are they making policy errors and looking at the bigger view of how we need this perpetual credit expansion or how do you view what’s happening in China? 

[00:58:25] Richard Duncan: I view what’s happening in China with alarm for a number of reasons. It is true that their economy is facing very serious problems now.

[00:58:35] Richard Duncan: I’ve lived in Asia since 1986 most of the time, and I watched the big economic boom here. I was in Thailand during the first half of the 90s, and the first 1990, 91, 92, 93, everything was great. But by late 94, 95, 96, it was clearly a bubble, and that bubble blew up in 1997. There was too much credit, too many condos that nobody could afford to move into, too much excess capacity for everything, and the bubble popped.

[00:59:02] Richard Duncan: And Thailand’s stock market fell 95 percent in dollar terms, and the economy shrank by 10 percent in 1998. And something similar happened in Malaysia, Indonesia, and Korea. And at that time, I expected the same thing was going to happen to China. That was a quarter of a century ago. China’s bubble didn’t pop.

[00:59:21] Richard Duncan: They’ve just kept it growing year after year, and that has radically improved the standard of living in China. China has much better infrastructure than the United States does, and as I’ve said, they’ve become the second global superpower now and may overtake us if we’re not very careful. But they’ve reached the point where they probably have twice as many condos as there are people living in them, so they can’t keep growing through the property sector anymore.

[00:59:45] Richard Duncan: And that’s as much as 25 percent of the economy, perhaps, when you take everything into consideration. Also, the rest of the world is sick of absorbing more and more Chinese exports every year. And so they’re beginning to put up trade tariffs against Chinese goods, and that’s creating very big problems for China.

[01:00:00] Richard Duncan: So China’s struggling because it’s very difficult to keep this up. Credit bubble is growing, but at the same time, Xi Jinping has really reasserted the Communist Party’s control over the economy and it seems that there’s no one who can stop him from doing whatever he chooses to do. So if he’s certainly choosing to invest very aggressively in new industries and technologies.

[01:00:22] Richard Duncan: But if he one day decides to attack Taiwan, then no one can stop him as far as I can tell, although I am not the world’s greatest authority on China or Chinese politics, but so it seems to me, and if China does attack Taiwan, then the United States will defend Taiwan and there will be a very terrible war.

[01:00:40] Richard Duncan: And in that war, I foresee the real possibility of China occupying very large parts of Southeast Asia. because not much divides China from Thailand, for instance, just a thin strip of Laos and Burma. They now have bridges connecting southern China to northern Thailand. It wouldn’t take Chinese tanks long to get here.

[01:01:00] Richard Duncan: So if a war were to occur, it would be very difficult to keep China out of Southeast Asia, and no telling how far that would reach, essentially as far as their tanks could drive. And this would be catastrophic for me personally, and for this part of the world. And, of course, the war would be terrible for everyone.

[01:01:19] Richard Duncan: We wouldn’t have access to Taiwan’s semiconductors. And so the whole AI dominance that we currently enjoy would be threatened, and it’s a real problem. That’s why I think it’s so important for the United States to continue to support Ukraine, because if an authoritarian state is allowed to win in taking over this.

[01:01:39] Richard Duncan: neighbor democracy, then it will embolden China to try to do the same in Taiwan with catastrophic consequences. So just as it would have been better to stop Hitler in the 30s instead of appeasing him, it would have been far cheaper to have stopped Hitler early. We’re in the same sort of situation now.

[01:01:58] Richard Duncan: We, it’s cheaper to stop the aggression now by showing dictators that they can’t conquer their neighbors than it is to allow them to conquer them. and to keep the conquest expanding until it becomes a world war. Yes, I am worried about China. China is a real threat to U. S. national security, and its economy, though, is also facing dangers.

[01:02:18] Richard Duncan: And as China slows, they’re going to try to pump more cheap products into the U. S., which will be, and globally, which will be deflationary. And another reason inflation is likely to come down and interest rates are likely to come down. We already have trade tariffs on Chinese goods to keep out their cheap products.

[01:02:34] Richard Duncan: Otherwise, prices in the U. S. would be cheaper than they are now. 

[01:02:38] Clay Finck: Tying back to your points on AI, I’m also curious if funding really needs to come from the government because I think about how these magnificent seven companies, a lot of them have just massive balance sheets. Think about all the capital that Apple has put into buybacks, for example, that could have been reinvested back into things like AI and artificial intelligence and such.

[01:03:01] Clay Finck: And, with Tesla and NVIDIA, being a more recent rise. So is it a problem of needing capital or is it really just a matter of time, letting these top tier engineers continue to innovate and really just a matter of letting them do what they need to do? 

[01:03:18] Richard Duncan: Rather than focusing on just AI, let’s talk about fusion.

[01:03:21] Richard Duncan: Is there enough private capital going into fusion? How long is it going to take to develop fusion? Fusion would solve all of our problems. Free, Low cost fusion. If we can bring it down, then we have an infinite supply of non-polluting energy, which will allow us to run over all of our AI and cure it, with AI creating all the miracles it will create.

[01:03:40] Richard Duncan: So there’s not much money going into it. From the private sector going into developing fusion, the government could devote a trillion dollars into developing fusion over the next five years without causing a ripple in the financial markets. And so rather than getting fusion 25 years from now, we could get it 7 or 10 years from now, and that would be a complete game changer.

[01:04:00] Richard Duncan: So that’s just one example, and there may seem to be a lot of money in AI at the moment, and it is relative to what was the case in the past. But if you look across the whole spectrum of high tech industries, the government could fund this on such a greater scale that it would produce results in such a quicker time frame.

[01:04:18] Richard Duncan: Now I’m all for curing all diseases and extending life expectancy as quickly as possible. So I’m advocating, rather than austerity, the alternative is floor it. So I’m in the, I’m on the floor of the camp. Let’s put the pedal to the metal and invest in these new industries and induce a new technological revolution that makes us all healthier and wealthier soon.

[01:04:45] Clay Finck: Richard, I really appreciate you joining me on the show. You just have so many interesting takes that I just find so valuable and think the audience will as well. Before I let you go, how about you give the audience, let them know how they can get in touch with you, get in touch with your book and any other resources you’d like to share with them.

[01:05:03] Richard Duncan: Great. Thank you for giving me the opportunity to share my views with your very large audience. But as I mentioned, my business is MacroWatch. MacroWatch can be found on my website, RichardDuncanEconomics. com. That’s RichardDuncanEconomics. com. Every couple of weeks, I make a new video with a PowerPoint presentation describing what’s happening in the global economy and how that’s likely to impact asset prices.

[01:05:27] Richard Duncan: So your listeners can sign up to my free blog there. They can also contact me through that website and send me messages. So take a look at richard duncan economics. com. 

[01:05:38] Clay Finck: Amazing. I’ll be sure to get all that linked in the show notes. Thank you so much, Richard. 

[01:05:42] Richard Duncan: Thank you, Clay.

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