Economics Series 2: Paul Musson / Inflation / Capital v Money / Real Estate

0:01 Welcome to another episode of Come Together. Paul Musson. We are live. Did I pronounce your last name right? You did it awesome. Well, congratulations on your book. Congratulations on on the book and congratulations on your semi retirement or retirement, I guess. Well, it was sort of supposed to be a semi retirement, but I think I'm busy now than I was when I was working full time. It's sort of seven, seven days a week for sure. Yeah, because I also have a free blog that goes out every week. All political economy instead of political. Paul, my first.

0:49 Name beautiful, I love it I. Love it, so much fun. Yeah, I guess the only difference would be that, you know, whether you're doing it for someone or whether you're doing it for yourself, you know, because I, I mean, I imagine that you don't want to ever stop doing fun things that you enjoy, you know, but as opposed to have. Yeah, no, that's true. But I was fortunate in that I also loved my job. You. Know I was a. Professional investor for over 30 years. I worked for a great company. I had a great team who are now continuing on what we all built together. They're doing a great job. They were all over at my house last Thursday for our annual team golf day. So.

1:29 So I'm still involved, but from the from the periphery. But it's all fun. Beautiful. Yeah, beautiful, beautiful. So tell me a little bit about about yourself, if you don't mind. Then we'll talk about the book and we'll talk about everything. But tell me a little bit about who you are first. Yeah, OK. Yeah, sure. Yeah. Thank you. So yeah, I was born in the UK and don't worry, I'm not going to go through my whole life history, but we moved to Canada when as a family when I was very young back in 1965, and then grew up in Montreal, moved to Toronto in 1990, December 1990, just looking for work. And. Yeah, I was literally sleeping on the hardwood floor of a bachelor apartment, like a one room studio and looking for work. Not, not.

2:17 Even a chair. I had no furniture at all and my first job was in a video store. Your younger listeners probably don't even know what that is. The blockbusters of the world. Exactly. Yeah. And yeah. Working nights and sleeping on the floor. I was 29 years old. That's how. Wow. Dart in Toronto. Did you ever have a vision of what you wanted to do? You weren't sure? Just I had a very broad vision. I knew I wanted to do investment analysis, but I was very naive about the structure of the industry. What you know, what the entry even looked like. I just wanted to, I knew I wanted to analyze companies, do investment analysis.

3:04 And so, yeah, so I knew that. And and that came to me very late in life, like when I was 25 or something. I was just going through university, taking all kinds of courses, not knowing what the hell I wanted to do. My big passion actually back then was reading stuff like philosophy and history and, and, you know, I couldn't wait to, to finish my, you know, school work so I could get home and read. And like, that's where I felt the real learning was. It's like Mark Twain said, you know, I never let school interfere with my education. That's right. That's right. School. Is necessary, don't you know? But. But yeah. And then and then going from one job to another, always trying to.

3:48 My attitude back then when I arrived in Toronto was I didn't want to be a burden on anybody, financially, emotionally, physically, nothing. That's how I sign off on my weekly blog is be free and do no harm, right? If you focus on not doing any harm and just doing the things that you like to do, I think you're a long way there to helping make the world a much better place. And there's other things you can do, too. But those two things. And yeah, so I did the best I could at every job that I took on, no matter what it was. And I tried to be pleasant. And you know, people got all kinds of shit going on in our lives that you don't know about.

4:34 Things worse. For them, why are you going to pile on top of that? You know, try to be a positive influence and it's amazing the the effect and the influence that you can have. Judge by the way with very with very minimal interaction too. Literally just eye contact and a smile is all you need it. Goes a long, long way and you know, you can bring out the very best in in good people. Conversely, if you're a jerk, you're in an environment that you know is a very bad corporate culture, bad environment that can bring out the very worst and very good people.

5:15 And like, I've been there. Like my God. I can't believe I said that or I did that. You know, what was I thinking? Well, I, I know what it was. It was the environment. It was, it was a conflict. Not I'm not a bad person, but boy. Yeah. Embarrassing. It was very hurtful. I don't want to do that anymore, you know, and yeah, so just going from not a lot of jobs, but here there do a good job. And, and then, you know, I think if you do a good job and your, your boss and your colleagues can rely on you, then they will enthusiastically refer you to other jobs, you know, as long as you're honest with them from day one about what your path is. And, and you know, I told my one boss that, look, I'm, I'm only going to be here for two years.

6:06 Because I wanted to I. Was an assistant to a stockbroker. It was tough job and after two years I said you know, you have to start looking for someone to replace me because two years is up. I need to, I want to get into research and she said. Paul, you've been straight with. Me from day one, I'm going to help you find a job and I got a job on the institutional trading desk at CIBC World Markets in large part because of her her referral. And yeah, she's. Still a friend today and she listens and reads my blog and she's reading my book and. That was beautiful in. 94 when? When? I that was a full year before I was born. Yeah.

6:46 Yeah. I'm. 63 now. So there you go. Very unconventional. Well, maybe it wasn't, I don't know, but it's unconventional career path. It's not like the the path that they teach you to take in school. Right, non non linear. Yeah, no, exactly. But it was, it was fun. And I learned so much and I met so many amazing people. And, you know, and then you learn about careers that you had no idea about. You know, like, how can you know what's involved, You know, being an assistant to a stockbroker unless you've done it. Or being an. Analyst or being an institutional sales and you know, settlements and stuff like that and yeah, so you learn as you go and you know, it's you know, it's not it's not all fun and games.

7:39 There are times that you really have to, you know, bear down and and and see through it because, you know, as I said earlier, you know, I was trying to do no harm and be a positive influence. Well, not everybody else around you is thinking that way, sure, but you can't let it get to you. Within reason, of course. Sure. And and if you can't fix it, then then you have to move on. And I had to do that a couple of times. And yeah, you give it the old college try. Be honest with people about what your concerns or issues are. And if you can't fix it, then don't remain angry at those people.

8:20 Just move on. Yeah, yeah, it's. Beautiful advice. It's really good advice, especially I think that I think what people struggle with and I've noticed, I guess anecdotally, but from a lot of my friends would be that they prefer the familiar devil and the unfamiliar solution. You know, like they prefer you're like, well, I know what I'm dealing with over here and like, I know what to expect. But like out there, I don't know what's going to happen out there. And, you know, at least at least I have the consistency or you know, I could at least I could, you know, predict within a relative, you know, with the relative accuracy, the way that my boss is going to treat me today or the way my Co worker is going to behave today. And even though it's not great, it's better than not knowing what's going on out there. You know, I think that's, I think that holds a lot of people back. Yeah, and it's, it is scary, you know, when you're change, when you're changing and you have a an income, especially if you've got bills you got to pay and stuff like. That, yeah.

9:12 And you might end up in a worse place, it's true. But if you do, then change that one too. Right. Just keep going until you find something you really love, because being stuck in a in a in a stressful environment is very unhealthy. Yeah, you know. For your longer term and yeah, and you want to be happy. You don't want to be just existing. Right. You know life. Is happening right now, you know? Don't just wait and hope something better comes along or that person will change or maybe they'll leave or whatever. It's not easy to do, but it really is for your own good, you know?

9:54 Yeah, it's beautiful. Do you think that, do you think that your interest in philosophy and I guess concepts and ideas, I guess and analysing them is concurrent or runs along the same theme of your interest in analysing companies and stocks and stuff like that? Do you think that it's just the way that you think and your train of thought? Yeah. I'm not sure. Be honest with you. Yeah, I don't know, Like, like. I was. But what about what about what about stock analyzing, company analyzing? Was it was attractive to you? Well, first of all, like, I love math. I'm not a math genius by any means. Like I, I was above average.

10:42 I always, you know, got good marks in math, but I was definitely not a math genius. But I like math. Like that, right? And I like accounting. And. I like figuring things out and you know when you're building your mall, when you're looking at a company and you got your income statement, balance sheet, cash flow, I would build it all myself, input all the numbers. I just love doing it. I loved inputting numbers. And then getting. Them all to balance all the three statements and then as you're building those statements statements yourself, you're going year by year, you're discovering things about the personality of the management team just through the accounting because there's a lot of latitude and accrual accounting like different decisions that management can make with respect to how they want to account for the business. And so that was so much fun over where's that big write off there or how come they change the depreciation here? But you know all this kind of stuff. So it's like sleuth detective work, problem solving. I was loved at that challenge.

11:44 I love meeting. I mean, who doesn't like really capable people? Like the class. CEOCFOS, very impressive people. Now you got to be careful because impressive people can you know, you can get your guard down. You now just you, you, you want to impress them that you know what you're talking about too. Well, no, you shouldn't be doing that. You should be trying to figure out how they're really thinking what the long term plans are. Do they make sense or, you know, or a day until lunch? Different businesses look researching different business models. Oh my God, I never even knew this type of business existed.

12:25 And that's also. That's tons of fun. Yeah, it's tons of fun and seeing how they are wowing their customers. You know, their customers love what they do in these companies, reinvest in their business all the time to make the product even better, to stay ahead of the competition. When you do that, you improve your operating costs if you make more money. But what that does is that attracts competition because you're making more money and now you have to lower your price. So if all this is working correctly without government interference, then prices should steadily decrease as companies increase their efficiency because the excess profitability gets computed. Away.

13:06 And that's right, we. Should have an economy getting ahead of myself here. Maybe, but we should. That is slowly falling prices. So all that productivity growth, the hard work and innovation and research and development, like people putting their own skin in the game, the ultimate beneficiary should be the consumer. And so if you have a flat wage, your income isn't going up every year. You would be getting wealthier as your flat wage would buy more and more stuff because prices are slowly coming down and. Yeah, so right. In reality, at least in reality, we know that's. Opposite. Yeah, because it's the opposite.

13:49 Because policy makers increase the money supply faster than the economy can produce stuff. And so there's more money chasing not as much more stuff as. So the prices of that stuff goes up. Right. They will tell you that inflation at around 2%. It's a good thing that you need inflation for an economy to grow. No you don't. In the last in the last 30 years well 1867 to 1897 till that 30 year period in the states money supply growth was only about four 4 1/2% per year to interrupts average. Yet the the US economy exploded in terms of productivity and so you had generally you had falling prices over that time. So you had falling prices, you had deflation, not. Inflation.

14:57 In an economy that was booming, right? Right. So empirically, by experience and theoretically, you can demonstrate and prove that deep inflation does not require for an economy to grow. And if anything, inflation of any sort detracts from the productive capacity of the economy, not that the economy stops growing, it just grows slower than otherwise would have grown. And so it's it's the what French economist back in the 1800s, Frederick Bastia, said that economist needs to look at what is not seen.

15:40 So if governments inflate and economy is growing, they will say, hey, look, well, we have 2% inflation, economy still growing. Yeah. But what you don't see is if they weren't inflating, the economy would have been growing even faster. So what? So what would the argument be for people to say that inflation, that that inflation is necessary? I mean, I understand, I understand what you're saying now, but it can't be that I is, is there another perspective or another argument that people make to to explain that away? Yeah, it's largely, it's sort of the Keynesian economic. Which is Keynesian is generally that with government spending right or government back spending is typically the idea government.

16:22 Well, the So what is called Keynesian economics today, I don't think John Maynard Keynes would recognize. OK, I. Think it's been bastardized, so what's the original idea and what's what's it become? Yeah. So I think that, you know, Keynes idea that he put forth in his book called The General Theory back in 1936, you have to remember the context as well. Yeah, the Western world was in the middle of the Great Depression. And. So he advocated for government spending. He he would have said that the Depression was a result of a lack of animal spirits and that people all of a sudden wake up and they're, you know, they're too afraid to spend their money.

17:13 And if. You don't spend your money, you're denying somebody else of an income, right? So if you won't spend your money, then the government will either tax you or borrow your money or print money which takes your capital from you. We can talk about in a second. And they will spend your capital for you. So they will. So the government can only spend capital by taking it from somebody else, the government. Doesn't. So it's for spending? Yeah. The government has none of its own money. Exactly. Yeah, or it has money, but it doesn't have capital so the government can print money. OK. And when it print money, they take your capital so and that and that's an important distinction which which we'll get to in a second. But I just want.

17:59 To which is capital versus money capital, Yeah, go ahead. Sorry, versus. Money, but let me just finish on the please. Animal. Spirits and why policy makers are convinced that inflation is a good thing. OK, decidedly not. And so it's not animal spirits that that caused the Great Depression. I mean, it's still highly debated what caused it. But there were things like Smoot Hawley tariffs that were put in place. I think it was 1930. So global trade ground to a halt. All of a sudden, President Hoover, Republican sent tax rates through the roof.

18:42 There were no income taxes. By the way, in. 19. 13 right and now. I think he took them up to 63% I think in 1932. 63% on income tax. Yes. And then Roosevelt in 1935 or 36, I think he took them to 75% or something like that. What? Yeah, the top, the top marginal tax rate in the 50s, they were over 90%. For who? How come I never heard about that The. Top incomer. I know a lot of people. I'm actually writing about it in my weekly blog section. And so right now the last couple of books have been on supply side economics.

19:29 I'm not a supply side economist, but I like learning about different economics and they've got lots of great stats in there. But anyways, getting off track. So, yeah, so the depressions or recessions are for the most part the result of bad policy, the bad monetary policy. And and this goes way back to the 1800s, even before there was a Federal Reserve, monetary policy was dictated primarily by the Treasury in the 1800s. So you you had the the Sherman Silver Act and Land Allison Silver Act and all this kind of stuff. But so so policy makers like the idea of inflation. Are people being having believing that inflation is good for the economy because it gives the central bank the excuse to increase the money supply and inflate and, and so then that affords enables the government to spend more money than otherwise could and be popular with the voters. And then when you're inflating the money supply, you're debasing the currency, you're making the money worth less. And so all the debt that you take on becomes worth less over time the more you inflate.

20:47 It's. Like governments, like inflation, and then they'll use excuses like the paradox of thrift. This is one of their favourites. What's that so? Yeah. So they will say that saving an investment is not a good thing for the economy as a whole, because, like I said earlier, the more you save. They will argue. Then you're denying someone else of an income because you're not spending your money. But this is really fallacious economic doctrine because when you save your money, it's not like your money is not spent. It's just spent in a different part of the economy. Your money is invested and the part of the economy that is producing goods and the intermediate goods part of the economy.

21:33 And so they will say that. So let's say the example I use in my book is that central bank will tell you that if there is 0% inflation, that's really bad for the economy because people won't be encouraged to spend their money because prices aren't rising. They think that you need to see rising prices to encourage you to spend your money before prices rise. And so I use the example of forget 0. I use the example of 2% deflation. So assume there's 2% deflation, which means that prices are falling 2% every year. So this is a central banker's nightmare that they think the economy will grind to a halt because everybody will stop spending the money because they're going to wait for 2% lower prices next year. So assume that you you have ATV and you want another TV for your basement for your kids so they can watch it down there and not make a noise upstairs in the living room. So this is a real.

22:32 Luxury and the TV is 300 bucks and there's 2% inflation. So your choice is your choices are you can buy the TV today for 300 bucks or you could wait a year and save yourself $6 and buy it for $294.00. Are you going to wait a year? No. No chance you're. Going to buy? It today exactly so anyways, it's preposterous economic doctrine. Well, I would also imagine, I'm sorry, I would also just imagine. And I think I think it's a big problem that exists in today's market is that people feel like no matter how much you save, you can't keep up with the cost of like the the amount that you're going to save over the course of a year or two or three. Can't possibly keep up with the amount of that, of that the prices are going to keep on rising over the course of two or three a year.

23:24 So like, why even bother? You know, I mean, I, I can tell you even about, you know, I mean, my own experience buying homes, you know, like it is crazy, you know, and, and people don't. And, and, and it used to be that I, I imagine at least, you know, I don't know what, and I'm sure there's a lot of more many factors involved in this, but you used to be able to save up. My dad told me before I bought my house, you know, I was caught asking whether it was a good idea. And he said, I don't know. I said, what do you mean? He said at the time when I bought my house, you know, in, in 1990, 4, he's like, I bought a $250,000 house. I was making $85,000 a year. And I, I, I, I, I spent approximately 1/3 of my salary knowing that I'll be able to cover it.

24:04 He's like, nowadays you, you know, if you, you know, you make $100,000 a year and you're buying an $800,000 house or a $700,000 house, how you, I, I don't know whether that's considered a good deal or not. And whether it's going to be worth more in a couple of years or not is almost irrelevant. Like how you have to be able to keep up with your bills right now, you know, So, you know, I, I feel like it's discouraging people from spending even more. No, no. Absolutely. And it's again, I have two chapters in my book on housing and. Explaining. Why house prices going up should not be happening. And again, it's it goes back to the difference between capital and money and how a free market system is supposed to work. So let me backtrack a little bit, but then I'll get right into housing.

24:56 Sure. And, and your listeners will understand, but your younger listeners in particular, how they're getting screwed and how my bet my my generation is benefiting at your generation's expense and younger. Sure. So in a. In a free market system, you should only benefit to the extent that somebody else is benefiting from your actions. So the example I like to use is let's say you make a bike and I make a suit. So we both created capital, right? The creation of capital in a form of a good or a service. That is what makes the world go around, people investing their time and efforts and ingenuity to create capital that they think other people would want.

25:47 And then they exchange that capital with each other. So then you make your bike, I make a suit, we exchange that with each other. No, I've got your bike. You got my suit. And importantly, none of this came at anybody else's expense, right? There was no bike and no suit in the economy. Now there's one of each, and we exchanged it and we do it, exchange it with each other. It's called direct exchange or barter. You can't have an economy with direct exchange. Barter, like once you get past, you know, 10 goods or something, it it just doesn't work, you know? Yeah. How many kitchen chairs would it cost to take a flight to Florida? You know, that sort of thing. So we don't do direct exchange. We do indirect exchange and we use money. So money is what's called the medium of exchange. We use money to exchange all the capital that we are all creating.

26:43 That's all. Money is there for store value, unit of account stuff. But that's essentially what it's there for, to exchange all the good stuff that we're creating. So if you increase the amount of money, you haven't increased the amount of stuff, right? All that happens is the prices that that that that stuff gets exchanged at goes up because there's more money. Right. So now let's say you make 10 bikes, 1000 bucks each. You sell them for 1000 bucks. So you've got $10,000. Now in your bank account, that $10,000, effectively what it's doing is temporarily storing those 10 bikes that you made.

27:29 That's where that value for that $10,000, it's the ten bikes that you created. When when you go and spend that $10,000, what gave you the wherewithal to go buy something else is that you made 10 bikes. You created capital. And. So when you look at whatever your material wealth is, house, car, clothes, whatever, that's supposed to be a reflection of material wealth cumulatively that's out there that other people have because your efforts, it didn't come at anybody else's expense. Now we're moving away from that and I'll get into that in a second. So let's say you've got your $10,000 in your bank account and you don't want to spend it yet.

28:15 You're going to save it at the end of the year going on a nice vacation. But before you get to spend your $10,000, the central bank double S the money supply. Now when they double the money supply, what they do is they print the money out of thin air. They don't create any capital to obtain that money. But is there a way to? Is there a way to a? Way to? To create the cap meeting, can they say we're going to, can we, we want to do a construction job and so we need people to do the work or something like that. Yeah, but to pay the people to do the construction work, they have to take capital from the private sector. Right.

29:01 OK, fine. Gotcha. OK. So good question. So, so when they print, the central bank prints money, it just prints it out of thin air, press the buttons. So that new money has no capital stored up in it, but it obtains capital as soon as that money comes into the economy, and it obtains capital by taking capital from the rest of the money that's already in existence, Correct. So as soon as they double the money supply, that new money takes 5 bikes from your $10,000 and puts it in new money. And so on your bank account, it still says that you have $10,000 in your in your bank in your bank account, but now it's only storing 5 bikes instead of 10, and so your $10,000 will now only buy half as much as it would have done.

29:56 Before the central bank. With the money supply, so that's how they take your capital from you. Government can take your capital from you in three ways, taxation, borrowing. You can lend them your capital or they print money and take capital from the money that you've already have. There's no other way for the government to get capital. That's it. So, so you, we should not be benefiting at somebody else's expense. We should all be creating capital and fairly exchanging it. But what's happening in this world because of monetary policy, which deliberately drives asset prices higher, it does so at the expense of the general economy.

30:41 And So what you have is, is, is becoming, there's still a lot of great things going on in the economy. But again, it's that which isn't seen. There's a lot less of it than there should be, which is why debts going through the roof, productivity growth has declined over the decades. It's moving towards like a game of poker now at a game of poker at the table, there's no net wealth creation. It's not that everybody walks away from the table a winner. It's a redistribution of wealth at the poker table, right? So increasingly we are moving to a redistribution of wealth in the economy rather than a creation of wealth. And so in a poker game, what you end up with is 1 winner and a bunch of losers, which is increasingly what the real economy now is starting to feel like for so many people. They.

31:37 See. The top 10% making out like bandits and life is really tough for everybody else, particularly for the bottom 50% who are far more hurt by inflation than higher income people. Sure. So back to housing. Yeah. So nobody should be making money on their home. A home, If you have a mortgage, it's like a form of forced savings. So you have to pay the bank back. And every time you do, you pay some principal and you pay some interest. Every time you pay some of the principal, it's like for saving.

32:18 So you're you're putting money into your home. And to clarify, sorry, to clarify people that don't know, principal is amount that I borrowed and then the interest is the percentage that they're charging me to borrow that money. So, so if I, if I take out a $300,000 mortgage or $100,000 mortgage, that would be the principal. And then if it's a 3% interest, then I pay a partial amount that I of the total amount that I borrowed from the bank and then X percent of the interest that I'm paying on it as well. Right, Exactly. OK, Yeah. Thanks for clarifying that. Sure. And so then over the life of your mortgage, if you have a 30 year mortgage, 30 years later you've paid it off and you don't owe the bank any money.

33:00 And so if you bought a home for $300,000, now you have a $300,000 home. That's your your home equity and you can use that for your retirement. But today, central bankers will encourage people to extract the equity from their home. So once you've paid part of your mortgage down, they want you to borrow on that. Excuse me, you go and spend it. So because when you spend somebody else's income and and so they never pay their mortgage down and you have older people who still got a lot of debt on their home, which is crazy. Oh yeah. And effectively what people were doing, especially in the boom of 06/05/06, people were effectively consuming their homes by. Extracting.

33:46 Equity from it and buying a big SUV and other big flat screen TV, whatever, more expensive trip. But back to housing and why nobody should be making money on your home. So our home, we live in Mississauga, which is a suburb of Toronto, and we bought our home in 2001 just when the central bank, the Federal Reserve, started what's called their wealth effect monetary policy targeting asset prices to drive them higher, to try and drag the economy up with it, doesn't work. Of course not so. Yeah, so our house for the last 24 years has gone up in price four times.

34:32 So what was our contribution to society that justifies my wife and I making four times on our home? Let me help you. It was 0. We did nothing. So if we did not do something to warrant making four times on our home, then our benefit must come at somebody else's expense. There is no apartment. Yeah, go ahead. I'm so sorry. So, but can you make the argument perhaps that that it's based on just the demand for people wanting to live in a beautiful suburb near Toronto and there's only limited amount of homes? And so the reason why your home value went up isn't because you contributed necessarily, but because other people want to live where you live and they can't. Yeah, so, and yeah, it's a good point. And for like big cities like New York or London, England or whatever, that's definitely true. And that, you know, it's going to attract people. There's only so much space.

35:36 Although New York. They start building up, right? But it's more expensive. But in suburbs, you know it should result in increased supply of homes. OK. Now the supply in the housing industry, there's a term in economics, it's called elasticity and inelasticity. So the supply of homes is less elastic. What that means is if demand goes up, yes, supply of homes will adjust, but it doesn't adjust overnight. You got to get permitting. It takes time to, but it does happen and for years, for decades, it did happen that house prices, yeah, they grow a little bit faster than that inflation, but not much, right?

36:22 In Canada, from 1970, I think it was 75 to 2000 or 2001, the average price to after tax income ranged from 6 to 8. So it's like 7 times as soon as the Federal Reserve wealth effect policy starting in 2001 versus Greenspan and then Bernanke, prices just continued to soar. And so we went from an average of seven times price to after tax income and we're now at 12. And that's why young people in Canada can many of them can't even dream of ever owning a home and. Raising a family.

37:08 This is a moral crime, I think. So a house is not a productive asset. So our house went up four times in price, not because all of a sudden it started producing 4 times as much stuff, not because it grew 4 times in size, not because it relocated maybe down to where you are in Florida and oceanfront view. No, it's the same economic good that a younger couple or a newcomer to our country has to pay 4 times for what we paid for it. And so it was a redistribution of wealth. There was no wealth creation in society, right?

37:51 So you made your suit. I made by bike. There was none. And then there's one of each. But when I make $0.04 in my home, there's not like four more homes were created. There's there's no more capital. It's still one home. Yeah. Distribution of wealth from the younger couple's bank account into our bank account, still the same amount of capital, right? And you know, I haven't done anything wrong. People, my generation, none of us have done anything wrong. We've played by all the rules and housing prices always go up and that's what we're told. And so you want to get in on the housing ladder. All this ridiculous terminology.

38:33 Well, and I get it, don't. I mean, they're not. There's no bad people here. It's just a bad system. Central banks see when you have a wealth effect through stock markets. So stock markets are rising because companies are putting capital to productive use and creating more capital, growing their sales, growing their profitability, hiring more people, paying them more. Everybody's winning. Stock markets go up to reflect the fact that more capital is being produced in the economy. That's a really good thing. That's a real wealth effect, real wealth being created, and the world is better off.

39:19 And the shareholders benefit too. Shareholders benefit. Employees benefit. Society benefits, suppliers, everybody benefits, right? That's the way it's supposed to. There are 6 constituents to a business. So shareholders, senior execs, employees, suppliers, society at large. And then the consumer, consumer or customer. Customer is number one, right? Because of all these six, the customer's the only one that pays. But it's, it's important that all of them are benefiting from this business model, right? So, so that's all really good. That's a really good true wealth effect. And So what you want to do is the central bank, you would want to establish the conditions that would allow for the most capital to be produced and then fairly exchanged through a medium of exchange money that could be trusted.

40:13 But the central banks decided they couldn't wait for all that stuff to happen. For all the productivity stuff to drive stock prices higher. So instead they decided to drive stock prices higher themselves and hope that that would drag the economy up with it, drive asset prices higher. And yes, the top 1% and top 10% will inordinately benefit from this, and they do. But their belief, policy makers believe, I think, was that the benefits of all that would trickle down to everybody else over time. Well, spoiler spoiler alert, they haven't and they won't.

40:54 You know. And theory will tell you that and empirically that is also what has happened, right. So they drove interest rates first to zero to drive the valuations of stocks higher and then they and then they drove at the same time making they say, well, we're taking mortgage rates. They started buying more mortgage-backed security to drive mortgage rates to ridiculously low levels. We're. Doing this to make housing more affordable? No, you're not making housing more affordable. You're making mortgage payments more affordable in a short time by driving interest rates down. But what what happens is it results in an explosion of demand for housing, Right. And so housing prices go through the roof.

41:35 And so when people later on are buying a house, their mortgage payments are no longer affordable. Yeah. And this is where we are today. Anecdotally, by the way, anecdotally with my I, I, I owned a townhouse before I bought my house now and I bought my townhouse in I think 2021 for about $300,000. And and then for a while, and this was I think 2021 and there's before it was a big bump. I think borrowing was still at 2 or 3%. And then, and within a year or two, it went up to like the I, I, I, an agent knocked my door and said you could sell your house for 4/4/15. And I was like, I'll do that. And the next day interest rates went up and I could not get a single offer. And I ended up, I think something for like 375 or something like that.

42:22 But it just shows just to just to, you know, bring your point to life Like, you know, just because interest rates are low does not necessarily mean that it makes it cheaper in the long run by any means. Exactly. And you know the trouble with all of this, I mean, not only have you priced a whole generation pretty much out of the housing market, I mean, I'm sure you've seen the stats of the average age of the first time home buyer in the States is way older now than it was back in the day. And there are certain societal things that have changed over time as well that will contribute to that to be. Fair expectations for sure. Pardon expectations, I'm sure.

43:02 My grandfather lives in a three bedroom, 1 1/2 bathroom with five people in the house, and no one wanted, and I wouldn't buy that if I knew that I was going to have three kids. I don't want to 1 1/2. I don't want everyone to share one shower, you know? So that's strange too, Yeah. Of course. Yeah. No so, but the the bad news. So there's two things, you know. First, a younger generation being priced out of the housing market. But to fix it you have to let interest rates and mortgage rates be determined naturally by market forces rather than dictate. How would that work? So just if the central banks stopped deciding on interest rates, and they do and may affect the short term interest rate, but the short term interest rate also has an influence on the longer term interest rate. And then when it doesn't, they will start what's called quantitative easing.

44:00 They print money to buy longer dated bonds and mortgage-backed security to drive those interest rates down, right. And so, so there's what's called actually before I get on to natural interest rates, I have to determine. Just let me finish my thought on the negative impact. Of this, yes. So first the younger people not price out of the market, and then for people, particularly younger people who have bought a house in the last five years or so, the only way to fix this is for interest rates to be naturally determined and stop driving them to zero. And for prices of houses to descend to their long term average of price to income, which would be again determined by market forces. But the problem for people who have bought over the last five years is that they'll end up being could be end up being significantly underwater on their mortgage. They would have like negative equity that the mortgage would be worth more than the house.

45:03 And then people feeling that they can't move because they can't take that loss. And this is a terrible thing, right? But it should not be prevented from happening. And because so these are your choices, save the equity in people's homes today or allow the next generation to dream about buying a house one day and raising a family. And the equity like for me that I've made in my home, as I said, I've made it unfairly. And so I'd be very happy to see the price of my house go back to what it was when we bought it in inflation adjusted terms, of course, because then that would mean the housing is becoming more affordable for people. And the money I've made, I made it somebody else's expense. Now to give that money to our, I have three daughters that money to them so they can afford to buy an over price, you know, but that's between a rock and a hard place. There is no easy way out of this quagmire. But this is what happens when you interfere with the market. All good intentions.

46:10 I don't think there was a conspiracy here. I believe that central banks primarily through arrogance. They thought they knew better and they thought they could take credit for doing this and, and they love the adoration that they get from Wall Street and. Everybody's happy. Driving stock markets higher and housing prices higher. Everybody loves them. But now we are in this unholy mess of which there is no easy way out. And So what they will probably do is inflate their way out. They'll tell you that inflation is a lot lower than it really is. It's called financial repression is a term that they use and they financially repress the populace. And so your money will be debased, the value of your money will erode over time, your savings. And to your point, then people start to feel, well, what's the point in saving?

47:04 You know, inflation is so high that my money is going to be worth less in the future. I'll spend it today. Policymakers actually like that because if you spend your money today, that makes GDP look stronger because all GDP is a measure of final spending. Final spending, 75% of it or 70% of it is consumption. But the more you consume, the more an economy consumes today instead of investing, the less stuff that will be produced in the future. And there's no ifs, ands or buts about this this. Is the less the less that we consume? Say that again. I'm sorry. Yeah. So the more that you consume, spend. Today.

47:48 Yeah. And the less that you save and invest, the less stuff that could be produced in the future because it was less investment, right? So if society is consuming more rather than saving more than that consumption results in a higher GDP number at the expense of a lower GDP number in the future. Right long term, right because. Because policy makers, they focus on GDP, which is a symptom. It's not a fundamental GDP is just final spending. So if final spending is growing, consumption is growing.

48:29 Let's say your consumption is growing because you got a fantastic job and you're creating all this capital and fairly exchanging it with others. So your GDP, your final consumption is growing because you're creating more capital that's allowing you to spend. But if you're spending is growing because you're saving less and borrowing money to consume. So if your GDP as a result of you taking a more and more debt then you're spending, your GDP is not going to be sustainable. Eventually you're not going to be able to service anymore debt. And that's what's happening in the economy. the US debt is going through the roof. I think over 120% debt to GDP now I think it is. It's, it's, it's so concerning and what, what if, what at least to me and perhaps you could, you know, I guess confirm or you know, confirm this or not, is that it feels like we just keep on building on like finding new ways to create more debt to push off the consequences.

49:29 So first, you have, you know, student loan, medical debt, credit card debt, buy it, buy now, pay later models that are going on right now that have nothing to do with your credit score or anything like that, which is crazy. You got auto debt. You got your mortgage. It feels like the entire American economy is just kicking the can down the line until we figure out a way to either start paying off the debt or just collapse under it, you know? Yeah, well, it'll be the latter. No will it's. What do you do? But well, the reason I wrote my book, which is called Capital Offense, why some benefit at your expense because they take your capital every time they print money. Like I explained earlier, the reason I wrote the book and I wrote it in very easy to understand terms. I wrote it for people who are not in the finance industry, who are not investors, who are not studied economics. And I use analogies and stories.

50:35 And if you read it, you will understand how an economy works and how it doesn't, and the difference between good inflation and bad deflation of what really causes inflation, all that kind of stuff. And the reason I wrote it in this way is because I think that the average person is very, very smart, particularly when it comes down to what to do with their own hard earned capital. They don't need policy makers or central bankers to tell them that this price is fair or you shouldn't be buying this or you should. You shouldn't be saving as much as you should be. No, they don't need anybody telling them they know what to do. And so once you have an empowered citizenry who really understands what's going on, you arm them with the truth. Then they can demand from our policymakers better actions, better decision making, and our policymakers will make those better decisions, but they'll only do it once we demand it from them.

51:35 And for years, decades, we've been demanding something else. They have convinced us, and they've been convinced, convinced by economists and people in academia with fallacious, ideologically driven economic doctrine that you can have your cake and eat it too. That you can have get something for nothing. You cannot. If you get something without contributing, it comes at somebody else's expense. So want people. The policymakers are good people. They just. They they want to believe in the easy way out, the popular way out.

52:15 But the popular way out is what leads to terrible consequences for the rest of us down the road. But it's hard for people to connect the dots between these popular, fun, nice decisions. It gave us all kinds of stuff years ago to now. We're screwed. And. And a like, a perfect example is back in 1983 in France, President Francois Mitterrand, he lowered the retirement age from 65 to 60. And so, oh, he loves us. What a nice guy. He wants us all to retire five years earlier. Well, I want you to retire at 30. That makes me even nicer. Doesn't come to somebody else's expense, right? And now?

53:00 There's the pension plan is in huge trouble, and the liability is foisted on to the generation that's following them. So all these people retiring earlier at the expense of the next generation. And so, you know, there's a saying that the people always get the government that they deserve. Yeah. In other words, while you voted them in. So stop complaining, you know, but you can only get the government you deserve. What's going on? Yeah, if you know what's going on, like if you don't know what's going on, if if they tell you that, yeah, we we'll just take on more debt and we'll drive stock prices higher and housing prices higher. And then it benefits will trickle down to everybody else. And we're all going to, you know, make a fortune. Rainbows and butter cups as far as the eye can see. You're going to believe it or not, then you're going to vote for that.

53:54 You run into the same problem when it comes to minimum wage. If people are judged arbitrarily. Choose a minimum wage, $20.00 an hour, $15.00 an hour. And you say, you know what? I, you know, I said minimum wage was $12.00 an hour. I'm going to decide now that I'm minimum wage that America is going to be $25.00 an hour. That's essentially the same thing, right? I mean, you're, you're, you're, you're forcing people to be, you're forcing people to get paid more even though they haven't really created more capital or done anything more to create more capital, right? Yeah, no, exactly. And you know, the and the issue is not, I don't think, minimum wage. OK. And. I think the issue is the prices that people have to pay with their minimum wage, either for food, gas or health care insurance or rent.

54:47 Yeah, house prices, you know, I mean, everybody wants people to make more money, but it comes at somebody else's expense. And, you know, it's, I mean, it's, it's not. People don't like the laws of economics sometimes because they can be very inconvenient, but they are what they are. And so in writing my book, you know, again, I'm not an economist. I've studied economics for the last, I don't know, 17 years. That's all I read Economic philosophy and monetary policy and stuff like that. But the laws of economics can be very inconvenient, and so when people don't like the laws of economics, they make up their own. It's called normative economics for. That.

55:42 Is being on ideology in a way they would want things to be rather than how they are. And it makes them more popular, especially with politicians, right? And, you know, some economists have likened it to getting angry at the law of gravity and blaming the law of gravity for plane crashes. Stupid gravity. No, it's just the law of gravity. Don't get angry at gravity. Get angry at the pilot or the manufacturer or, you know, whatever. Sure. And so, yeah. So there's no easy way out. But what I believe that again, people are very smart and I think most people want to do the right thing. Most people like to help people.

56:29 But and so but like we were talking about before we started recording, you know, the issues transcend politics. So people know that they're getting screwed, but they don't know how. And then? We always, If we're getting screwed, we want to be able to blame somebody because it's not our fault. It's not young people's fault. So who's to blame for this? And so if you don't understand what's going on, then it's very natural for Republicans to then blame Democrats and Democrats to blame Republicans. And. Even though in terms of it's had the same consequences over the last 25 years. Yeah, no, exactly.

57:14 It doesn't matter who's in power. Yeah. So I know beautiful people who are Republicans and who are Democrats. And for the most part, they believe in exactly the same kind of stuff, right? You know, But then if once there's a Republican and they're a Democrat, all of a sudden they hate each other. You know it's. Crazy. It's so sad what's going on. Yeah. But I, but I think that with a better understanding of truth and that it's a lot easier to be compassionate and, and, and that for for younger people who've recently bought home and if home prices go down and they sell at a loss, you know, there could be some sort of taxpayer benefit to help them out partially. Sure, at least you know, particularly if that benefit is coming from those who made a fortune on their homes. Right who?

58:09 I mean, I know and people my age, most people my age, when I tell them this thing about housing, you know, first I kind of shocked, but then they get it. And they said, yeah, you know, honestly, I never even thought about it. You're right. Every now and then I run across somebody who doesn't like it. And they like to think that they made a fortune on our home because they timed the purchase just right or somehow they deserve it. And they'll throw all kinds of stuff at me to try and justify and rationalize why they're making money in their home. And it doesn't come at somebody else's expense. And I understand.

58:54 I mean, they're few and far between, by the way. Most people can. But it's not a pleasant thing to hear because, no, for years you've thought, hey, I know what I'm doing in housing, you know, good for me, you know? And then I come along and say, well, no, not so fast, you know? And yeah, just, and, and I think particularly in America, you guys have such a can do spirit patriotism. When you're all facing something together, you all come together and and and we'll want to do the right thing. But importantly, people have to believe that we are all in this together, that it's not just me that's going to be making the sacrifice. It's not just me the one that's going to get screwed. Yes, the leaders, my boss, everybody. We're all going to, you know, we're going to struggle a little bit for a few years, maybe make some sacrifices. But coming out the other end, things are going to be fantastic.

1:00:01 And it's going to be a much fairer redistribution of the capital that we're all creating. And if people believe that, that's the end game. I think people will agree to do what's necessary and then the leaders will come to the fore to make those kind of decisions. And well, the alternative is that we continue on this current unsustainable path. And rather than a controlled implosion, you know, like when you you blow up a building and it all comes down, it doesn't is an out of control explosion significant collateral damage. Even worse is that we could get a significant change to our economic and political system, which at first would appear to be a good thing because there would be a much fairer redistribution of wealth, like through socialism.

1:00:56 But there would be far lower wealth being created and the world would be significantly poorer and ultimately anger angrier at each other because of what's happening. Right. So I have a couple of follow up questions. It seems that a lot of the issues are a consequence of policy in order to make short term gains and right. And I also noticed that it feels like, especially with corporate companies, there's enormous pressure, especially ones that have to answer to stockholders and, and and have and have stockholders.

1:01:39 The quarterly earnings forces them to try to create the short term wealth. Well, you know, decision to create wealth as opposed to long term company success, right? Because and Amazon was a notorious case of a company that didn't care about its, you know, it's valuation, I guess, or you know what, it's short term. They said we have a big picture in mind. And for a couple of years, you know, they didn't mind what the stock price was. I believe I could be wrong. I believe I recall reading that and and they were able to keep their eye on the, on the long game and they are what they are now, you know, but so do you think they would change? Like I, I think I heard Trump float the idea of changing quarterly earnings to half a year earnings or something like that.

1:02:23 Do you think that would make an impact? It would help for sure. And you know, my investment style and my investment team, we were very long term shareholders, long term investors. So when we were meeting with a company, the company would often start talking about what they were going to do the next quarter, what sales would be, what the profit margin would be the next quarter. We said we don't care. Right. We want to know what your sales growth and profit growth will be over the next 10 years and how are you going to do it? How much are you investing in the business? What are you investing in? What gives you confidence that you're going to win this game?

1:03:05 What are the biggest threats that you have longer term, either from competition or regulatory issues and policy makers and stuff like that? And you know, if the stock market and analysts and whatnot focus more in the long term, then company, it would change the behavior of companies and they would focus on longer term rather than on a short term share price. So companies, you know, if they're expected to hit a certain profit margin over the next three months or six months, they might start under investing in their business to save money to make their profitability higher. But they're not coming to the expense of sales growth in the future, right? Or, you know, they they want to drive their stock price higher.

1:03:47 So companies will, you know, if you have your own company and you take on debt to start your company, one of the first things you want to do is pay down the debt and stop sharing, you know, the profitability with the banks by paying them interest on your debt. And plus you want that confidence that if things change, you're not going to have too much debt and go broke. But then the in stock markets companies are rewarded for taking on debt because the market sees that the company is going to take on debt to buy back their shares and drive their share price higher than the executives then cash in on all their options. And there have been maybe a couple of examples in my book, or at least one. OK, you want to give a couple of them one or one or two examples. Yeah.

1:04:32 So General Electric took on billions, 10s of billions of dollars in the mid 2000s of debt to buy back their shares. So they're buying back millions of shares every year and this was driving their share price higher. And so every year executives were cashing in millions of dollars worth of options, but they're they were driving the share price higher not because they were creating more capital and the capital was growing and driving the share price higher because they were taking on debt to buy back shares and reducing the amount of shares in the market and driving the share price higher. And then they got into trouble and they because they had so much debt and they were having to start selling off parts of the business just to survive, right. You know, this is really bad corporate culture. And it's similar to what policy makers do. So when you have company management who rather than taking on debt to invest in the business and create more capital, they drive their share price higher by buying back shares.

1:05:40 Similarly, policy makers will encourage GDP growth through debt rather than a establishing the conditions for the efficient allocation of capital in the in the economy to create more capital to drive GDP higher. And what would be the sensible ways to do that? What are some tangible ways to what are some? What would be some tangible or actionable ways? Like if if that was implanted tomorrow in the States, what would that look like? Well, the first thing they'd stop manipulating interest rates. So the most efficient capital allocation in an economy is to is driven by what's called the natural rate of interest, very different from the neutral rate of interest. And these two often get conflated, but they're very different things.

1:06:35 So the. Natural rate of interest is determined by market. Players in the economy will have their own skin in the game, their own capital. So individuals, corporations, banks, and we're all making a risk return assessment about what to do with my capital. So if I'm going to lend my capital or you're going to lend capital to me, you're going to have to make an assessment with respect to what kind of risk I am. Am I? Am I? Going to pay you back the money or am I going to be gone? And so if I'm a higher risk, you want a higher interest rate, lower risk, lower interest rate. And so. You get millions of people and corporations, organizations, banks making all these decisions on a daily basis.

1:07:16 And what results is what's called the natural rate of interest. And this results in the most efficient allocation, the most productive economy. But what's central banks focus on is the neutral rate of interest, which is the rate of interest that allows for consumption spending and steady growth in the economy without resulting in inflation. And so they will they start taking interest rates down to encourage consumption and get GDP growing. And when they take interest rates down, what happens is people take on more debt to drive the economy. So it's debt fueled consumption, debt fueled spending. And so it looks like it worked while we lowered the the rate to get to that neutral rate to get the economy growing without inflation happening.

1:08:06 But then because people took on debt, they're servicing more debt. Eventually they have their spending starts a flat line because they can't take on any more debt. And so, oh, it seems about, oh, we have to lower the neutral rate again so people take up more debt. So the spending picks up and then it flatlines again. Oh, we have to say. And they're all mesmerized. They're astonished that the neutral rate of interest for some reason the last number of decades has kept grinding lower. And then they blame it on SEC global secular stagnation or or something like this. No, it's because you're taking it the neutral rate further and further below the natural rate the. Natural rate. That results in the most productive economy is up here. We've got interest rates down here, so people could take a more and more debt to drive GDP higher, right? And so the further you go down here, the worse things get. And debt.

1:09:00 And debt means long term, lower GDP, less spending long term. Because people have less money, they're more focused on paying it back. Wow. And so. There I have a quote in my book from Ludwig von Mises. He was, he was considered the king of the Austrian School of Economics. Brilliant. And he had a saying where he said that policy. So here's a natural rate, right? New choice down here. He said policy makers can deny you the right to receive the natural rate of interest where they drive it. Down here, you're getting this right. They can deny you the right to receive the natural rate of interest, but they cannot eliminate its existence. The natural rate, IE the most productive rate, is still up here, they're just denying you from getting it. Yeah.

1:09:55 And with the resulting consequences that that has for the economy at large so. Abolish the Fed. I'm just kidding. I'm just kidding. I'm just kidding. You know, the starting point matters, OK? And I, I don't believe that the Fed are bad people. They have a mandate, right, which comes from Congress, and Congress can change this mandate anytime they want. Presumably. Independent from the No, they're not. And I think Mcchesney Martin, he was a famous Fed chairman from the through the 50s and 60s. He said something like it was on a, like a free to choose Milton Friedman documentary.

1:10:49 Nikki said that the Federal Reserve is independent. Not independent from government, but independent within it or something like that, something cryptic like that. But the bottom line is they're not independent. They're definitely not. They're not. But so I wouldn't abolish the Fed now. I would have. It would have been better if the Fed had never been created in the 1st place back in 1913, I think it was. But it is here. So I think we if we just had a more responsible Federal Reserve, you know, who would be able to resist pressure from the government to increase the money supply.

1:11:36 But the problem is if you did have that sort of Federal Reserve, then Congress would probably just change it's mandate and change the people who were in charge. So, you know, Congress on board as well. And so again, Congress on board and and then the right people at the Fed and just have a more responsible approach to monetary policy and stop driving the money supply so high so quickly. That will go a long way to to fixing things. The other another way would be, well, stop bailing out Wall Street. Yes.

1:12:17 Stop, stop, You know, privatizing the profits and socializing the losses. That would go a long way if Wall Street and financial markets knew that the central bank would not come to their rescue with 0 interest rates and or quantitative easing. It would significantly. Change the behavior of market players and but they're doing the rational thing because they know that the central bank will come to the rescue, even though it comes at the cost of Main Street of the general economy, because the Federal Reserve has sacrificed the Main Street economy on the altar of higher asset prices. And the market players know this. So you get that out of the moral hazard, you get that out of the picture, things would be much better. And then this belief that I'm not anti government. You know, government's very important and a lot of great hard working people in government, but too much government is a really bad thing and government keeps growing and because it can only obtain capital by taking it from the rest of from the private sector.

1:13:30 The. More it takes the more and government spending is consumption, very small part of it is investment. So the larger government becomes, the more consumption that happens rather than investment and the poorer society becomes, the government starts becoming this entity of itself and you know, it's got it's own survival at stake and in mind. And again, bad systems bringing out the worst and good people. And so you need smaller government and not anti welfare. I like the fact that we can help people or employment insurance or medical insurance or whatever, you know, help people who can't help themselves. I mean that's really important and it feels really great to do. Within reason, sure, within reason because it all comes. There's no such thing as government benefits. They're all taxpayer benefits.

1:14:26 Taxpayers are the ones who pay for all of those things. So we should get that terminology out of lexicon or whatever. You know, it's not government benefits. It's not government subsidies. They're just. Channelling money from the private sector, one part of the private sectors to the other part of the private sector and reduce red tape, bureaucracy. You know, it doesn't mean there shouldn't be rules, doesn't mean there shouldn't be regulations, but within reason. Regulations should not be there to justify jobs, to justify careers in government. And yeah, so it's not going to be easy, right? But it's.

1:15:10 But I think just this understanding and acknowledgement with respect to how they really work and how they don't and who's suffering and who's benefiting somebody else's expense, you know, that's, I think that could be. A good starting right, right, right. And you give me a lot to you give me a lot to process over here you all have to think about and what happens, I guess worst case scenario. Well. The worst case scenario is that we just keep on doing exactly what we're doing and then it just, and then it like collapse.

1:15:51 Like what, what does it, what does it look like when we have too much debt and we and then we just don't have enough money to pay it back? What does that look? What happens then? Yeah. So what happens is the government, the most likely path that the government will take is what I mentioned earlier. It's called financial repression. And so you will be repressed financially. So the so they have so much debt outstanding that the only way I mean, they can't pay it back, raising taxes. And eventually, and a lot of the debt is held by people outside of the country. And so people start to get nervous that the US is not going to be able to pay back the debt.

1:16:38 And it's not just the US, it's all developed. I think our debt is downgraded, right, Has been downgraded the last couple of years, yeah. Marginally. I mean, if it's a corporation, that'd be like a junk credit rating. You know, right? Right. But. You know, but the US people will say that, well, the US can't ever default on their debt. And technically that's true because they can just print money. But it's like. No capital backing it. No, exactly. So if they just print money to pay you back the debt that you lent them, then yes, you'll get 100 cents on the dollar. But those hundred cents are only going to be worth half as much as they were when you lend them the money. Right, right, right.

1:17:23 Taken your capital from the money before they give it back to you and you're poorer. And so that's the accepted a lot of people's drives me nuts. A lot of people out there all will just revert to financial repression. Worked after World War 2 and all this kind of stuff, the government, we cut spending and we got debt to GDP down significantly after World War Two. Well, the situation today is completely different from World War 2. You know, the government spending during the war obviously went through the roof because they were building tanks and planes and guns and ships. And after the war, the government just stopped.

1:18:06 Well, we didn't stop. We just changed where it was going. It wasn't going to for American armies, it was going for other armies. Well, yeah. Well, in late 40s government spending plummeted because they didn't need to create all this war material. And so in the late 40's, the government was running a budget surplus. Right. And debt to GDP fell significantly because also at the same time they lowered interest rates from very high levels and the private sector productivity exploded. In the late 40s.

1:18:46 And then it sort of flatlined almost in the 50s because tax rates went back up again, as I mentioned earlier, to over 90. Percent. Yeah, there. Were I think there were 4 recessions in the 1950s. So people look at the 1950s as this glorious heyday of economic prosperity wasn't really late 40s was, and the 60s were, And it happened in the 60s because Kennedy was the one who first started lowering interest rates in the early 60s. And yeah, got off track. I can't remember how. We got that's OK. So then so I wanted to ask then if that's the case, because the World War Two example is a great example. You know, remember the movie Charlie Wilson's war with Tom Hanks?

1:19:31 You ever watched that? Yeah, it's about it's about how Tom Hanks plays the congressman Charlie Wilson that realized that the United States could fund the Afghans in the war against, against the USSR. And he basically just ended up, you know, they had like a $2 million budget and, and he ran like this Black Ops congressional, you know, committee and basically just had the reins to the purse. And they just started spending like crazy right now. On one hand, the emphasis of the movie was, you know what we did, you know, that we basically funded a quote UN quote secret war. But what the movie doesn't talk about would be the potential economic consequences of taking, you know, 255 hundred, you know, a billion dollars, whatever it is and in and, and, and, and giving it to the Afghans or let's say, even moving it to the private sector to create weapons to give to the Afghans, right? No one talks about the consequences of what that what that does to the American taxpayers. You talk about what it does over there in the Middle East, but it doesn't, we don't talk about what it does over here. And that has a pretty astronomical impact on, on our, on our, on our economy, doesn't it? Yeah, I'm sure it does.

1:20:53 How much I don't know. And it's and it's, I'm not belittling it, but it's not sort of my focus in my book. Okay. There's enough things to be angry about. Yeah, yeah, I don't want to be angry is the term. But I think to be frustrated. Frustrated, right Or conscientious as to I think that I think that I think the real, I think the problem, like what you said, is that it's so it's coming from so many different like places and so many different strands. It's hard to even like nail down what the, what the problem is. And I think, like you said, so many young people who are smart don't even know where to even start looking, you know, and Start learning about this stuff. Yeah.

1:21:36 And you know, the issue is that people believe that something can come from nothing. So when government is spending all this money, you know, they they never have to go and face directly the people that they're taking the money from. And so it just feels like there's this endless stream of money that they obtain or capitally obtain taxation or borrowing or. And then they hear certain economists tell them, yeah, don't worry, deficits don't matter, debt doesn't matter. We could just print the money and they don't think about the consequences. This is the problem. And, and, and by the way, I think before 1942 there's no such thing as withholding tax.

1:22:26 So you would earn your money and at the end of the year the government will tell you how much you owe them in taxes. So you would. Get the gross amount of your productive efforts. You would get fairly compensated what you produce. So that was a gross amount. This is how much capital I produce and somebody else out there has that now. And then the government come, OK, you owe us this much, but now with withholding taxes, you just get the net amount. Right. You you never see the gross amount. Yeah. And so you start to think, well, the net amount is what I earned. No, you actually earned way more than that. But the government took it, right. So it's out of sight, out of mind, something you never get your hands on it.

1:23:07 It's less, feels less painful. It was an ingenious thing that they did. Well, I would also imagine, I know for myself hypothetically, because it took me, I'm still working on my financial responsibility, right? I'm not, I'm not the most responsible individual out there with my $30 bottles of craft beer or whatever it is, you know, but I, you know, but I, I could imagine, I actually know this from, you know, experience. Like if I would got all my money gross and then at the end of the year, the government said, Hey, you owe me 20% or 15% of whatever you made, right. I, I bet a lot of people wouldn't have that.

1:23:48 I wouldn't have that just lying around. You know, I think that I. Think they would because if you know what the consequences are of not having it right and the focus the mind. OK, a lot. Of people aren't capable of it, they're not incentivized to. I see, right? I'm not saying we should go back to that. I'm just. Yeah, yeah, yeah, yeah, yeah, yeah. It's. Easier for governments, you know, to to spend money on whatever their projects are because they don't actually see the people and don't have to go and ask them for it. It's just taken automatically. And yeah, so it's just a mindset issue.

1:24:28 You think is is is the problem. Yeah, and. It's going to take a lot to change it. So what? So I guess the, I guess, and then the other solution would be to start creating more capital and to be actually, you know, creating more goods and services rather than just trying to get more money, trying to print more money and then distribute it, you know, because and. Printing more money harms the productive capacity of the economy. Natural rates, no bailouts for Wall Street and less bureaucracy increases the amount of stuff that's produced in the economy. But those who are in control prefer the the the former. Yeah.

1:25:14 Because then they're in power. And this is how you get elected, by spending more money. And yeah, So that that's the issue. Right, right. How long did it take you to write this book? Six years. Six years 'cause. I was, well, I was 'cause I was still working full time when I was writing it. I started in January of 2019 actually down in Florida in a place in South Palm Beach there and but I could only write on vacations. Right and. Sometimes I would go 5 months without even looking at it 'cause it was just too busy. And then in 2023, I decided to leave my employer.

1:25:58 As I said before, I love my job, my company. I just got so frustrated I wasn't able to finish the book. Right and. So and communication and and whatnot really became my real passion and I'd already started my my weekly blog, which people can access on my website for. Free they. Were going to put that notes up on the in the, in the in the. I'm set up in the notes for sure, yeah. Thank you. And yeah. And so that became my great passion and I just needed more time to finish the book. So if I wasn't working full time, I would have finished it, you know, a lot quicker, obviously. But but it was a journey writing that book for sure as well. And you learn a lot by writing, you know, by speaking.

1:26:40 By getting the. Thoughts out of your head and out there, you learn. Because for me personally anyways, when I'm just thinking about things in my head, I don't really challenge myself enough on my thoughts. Right. And I don't need to because nobody else knows what I'm thinking. Right. But if I'm going to put it on paper or send it out in my blog or put it in a book, all of a sudden we justify the world to see said boy. I better make sure this is right you. Know so you. Know a bit more thinking about it, You challenge it, you stress test it, you do a bit more digging. Oh, actually, I was wrong. You know, I never thought of that. But you don't, for I don't force myself to think of things through as much as I should unless I get them out of my head and on paper or verbally. And the way that you would structure, the way that you'd go about writing the book, was that you had a list of topics that you thought were significant for everyday people to understand, and then each chapter would be an elaboration on that. Yeah.

1:27:40 So not really. Like I knew what theme I wanted to discuss and help people to understand in terms of the difference between capital and money. That's a big one. Yeah. And how an economy really works and how it doesn't. And then I just started. Oh, yeah. Oh, yeah, I better talk about governments. There's 20. I better talk about housing. Oh, I better talk about inflation. I've got two capital inflation. Oh, I better talk about corporate culture. And bad corporate. Culture good. Corporate. Oh, I better talk about capital and Oh yeah, now we have to talk about stock markets. What are they?

1:28:22 Yeah, like why are they important? What's the good role the stock markets play? So again, easy to understand terms and yeah, so here there's nothing wrong with stock markets, right? There's just a lot wrong with what they have become. Right. Because of central bank interference and moral hazard and stuff like that. And yeah, so we're just started to build. Oh God, you know if. Because I really want the reader to understand and if the reader reads the book, they will understand what's going on and trying not to take anything for granted. Right.

1:29:02 You know, so you know, when I was first making presentations when I was a professional investor like 25 years ago, my main goal was to impress people with how smart I was. And if I. Impressed them and they thought I was smart. Then maybe they gave me their money so I could manage the money. I could make money. That way. And then, you know, I wasn't being entirely honest or intellectually honest with people. I was trying to impress them. And then I got get caught up in like little white lies and stuff like that where I'd leave out certain things that I knew that they would be interested in, but that might mean they wouldn't give me the money to manage. And so I just don't know about doing it anymore.

1:29:43 I am just going to tell the truth. There's a great saying. I have my book. I forget who said it, but you know, if you tell the truth, you never have to worry about what you said. Yeah, you have to remember what you said. Right. It's a beautiful line and. It's so, oh, it's so liberating. It just, it just feels so good and it's amazing the impact it has on people around you. Sure, you know. And so I want to empower my clients who are financial advisors, like financial planners and stockbrokers. I want to empower you with the most information and knowledge that I can so you can make the the most informed decision about what's right to do with your clients capital. And.

1:30:28 It might mean that you don't invest in our funds, but then that's a good outcome because it means that we're not appropriate for you and your clients. Long term thinking. Exactly. And yeah, and it and it works, but yeah. Anyways, so before we before we call it, I want to end on a more positive note. Can you give me some example of responsible corporate culture or corporate behaviour? Because I don't know of any positive. I can't, I don't, I don't. You don't hear people going on the news and talking about how great this corporation is or what they did that was so productive, you know. So you want to give me, you want to see if you can give me some positive news to end this? Yeah. Yeah, for sure. Yeah. The reason you don't hear the positive stuff, it's kind of, it's kind of boring and people like hearing like the scandals. And.

1:31:18 Well, I know from my, my own experience as a, as a small business, you know, work in a small business that people only write reviews and respond to you when they're unhappy and when they're happy, you'll never hear from them ever again, you know, So I believe it exactly. Well, so first, I would say that there are a lot more great corporate culture businesses out there than you think there are. And I believe that for a business to model a great business model to persist for a long period of time, you need a great corporate culture where all the constituents are benefiting. So like I was saying earlier, supplier shareholders, a senior exact employees, community at large and the consumer or customer, they all need to be benefiting from it.

1:32:11 And you know, in the short term the company can screw some of those constituents and make more money for themselves, but it comes at the expense of the business model in the future. So I would, I would guess that most companies understand this. A lot of private companies get it and they share in the success of the business, particularly with their employees and don't keep it all for themselves. And I use an example of my book of a company called Fastenal based in Minnesota. It's a pretty basic business. They distribute the fasteners, you know, screws and stuff like that. And we had a tour of their plant years ago.

1:32:53 And the plant manager, he's taking us around and he absolutely loves the business and he's so excited. So check out these screws are customers love us? No, nobody here goofs off 'cause if they do, we give them shit because it's our company. We're all in this together. It's holy smokes, what the Hell's going on here, you know? And so I asked the guy, I said, well, why do you love the business so much? They said, oh, it's management, ownership, you know, they treat us so fairly. They treat us like partners. They always listen to what we have to say. And we all share the success of the business. The more money the business makes, the more everybody makes, not just the owners and the senior execs. Then he said, oh, here's a great example. So the, the CEO was the founder of the business, right? So first of all, if you're the founder of a business, you started off on your own, you're probably doing every job. It's your baby, right?

1:33:49 And, and as the, as the business grows, you start hiring more people to do the stuff that you were doing so you could do other stuff. So if you're the founder and you know things aren't going right, you have more empathy for what your employees are going through because you've been there, you've done it. You're like a career executive, just come from MBA school and never started a business. You don't have that same sort of empathy. You can't because you haven't done it. So that's the first thing. So he said, Oh yeah, great example for you. So the, the CEO was the founder. We owned about 1/3 of the business. His wife also owned a good stake in the business, but a few years prior she had passed away. So the CEO took all of her shares and he distributed them to all the employees in the.

1:34:36 Company that's that's that's shocking, That's crazy. Yeah, you know, it's a great story. It's beautiful and I. Got permission from the company by the way, e-mail. Can I use the story in my book? And I said, yeah, go. Ahead, yeah. And but a lot more companies do that than you think. And just one other anecdotal example, I guess the IT was on a cruise and I was talking with the guy from England and he was talking about his business and they made furniture or something like that or appliances. And during the great financial crisis in 08/09, when everything turned down, you know, sales went through the floor. And so they went to the employees and said, look, we don't want to lay anybody off.

1:35:20 We're asking everybody to take a 10% pay cut. We, the senior management, we're going to take a 20% pay cut. Well, yeah, senior. Management can unfortunately take a bigger cut, but still. But we're all in this together. And then once business turns around, we'll make up that 10% and more, right? Like I said earlier, people need to know that we're all in this together. And he said over 90% of the employees agreed to take the 10% pay cut. Within. A few years, they're all, they've made all that up and paid them more. And there are a lot of companies out there that are like that. But we need more and we need more high profile companies to behave in that matter and but they're not rewarded by Wall Street for doing that kind of.

1:36:12 Thing that's the problem. Right. They're they're not incentivized. And I think it was Charlie Munger. He was passed away earlier this year. He was the sidekick of Warren Buffett, right? And he had a, he had a saying. It was something like, show me the incentive and I'll tell you the behaviour. Incentives matter, yes. And you need well structured incentives to bring out the best and the right behaviour in people that will lead to longer term success. But it might mean that in the short term that the share price doesn't grow as quickly as you would like, or GDP doesn't grow as quickly as you would like. Yeah.

1:36:54 And unfortunately we're not. We're our, our, our patience is getting shorter, not longer these days, you know, and. And it might not coincide with an election cycle or something. Right, right. Something. I understand, you know, it's, it's not rocket science, but we do need to change it, yes. Paul, I really appreciate your time. This is so much fun. I actually it's so funny because halfway through there's another topic I wanted to talk to you about, but I guess what, but I want to bring it up. Maybe we'll do it all fair. And I see if you could do another recording another time about it. But this is this is so much fun. I really appreciate your time. And I'm going to post the link to your book into your website. And I really appreciate this is this is this is great. This is really, really useful and what you're doing is really, really, really wonderful.

1:37:46 So on behalf of myself and everyone else that's going to learn a lot from this, I really appreciate your time. Thank you. Well. Thank you. It's been great effort. Midnight. Yeah, we'll do it again. Just let me. Know and when I'm down to Florida, I'll give you a call. Go for a beer. I'm a I'm a beer drinker too. So beautiful. Beautiful. All right, let me know when you're in town, OK? I'm looking forward to it. All the best, Paul. We'll talk soon. Take care. Have a good day. Bye.