Vincent Deluard: Fiscal Dominance, Inflation Waves & the Future of the U.S. Economy

Welcome to The Puck, Venture Capital and Beyond, a show that examines the changing landscape of our world. Before we dive in, a quick word about who I am and why we're here. I'm Jim Bier, corporate lawyer and restructuring professional. I've spent the last two decades helping companies navigate their toughest transitions. And about eight years ago, I found myself having fascinating conversations with clients and friends about everything from venture capital to the broader shifts happening in our economy and society.

Those discussions were simply too good, so the puck was born. Now while we started on venture capital, hence the podcast name, the Puck Venture Capital and Beyond, We've naturally evolved to focus more on the and beyond portion of the title. Today, we explore how business intersects with the bigger forces shaping our world. I still run my restructuring practice by day, but now I get to host these conversations by night. It has become one of the most rewarding parts of my life.

Today's guest continues that tradition. The early twentieth century is very similar to the early twenty first century in many metric. And then after that, you get, like, basically fifty years of massive destruction of capital. And and we used all the tools that there was war, there was hyperinflation, there was outright default. And that's how we went from the high, most unequal society at the time.

Now we're kind of getting back there in the late nineteenth century, was the peak in inequality, and then by 1975 before, you know, we started inflating again. We are excited to welcome Vincent Desluard to the public. Vincent is one of the most original and thought provoking voices in global macroeconomics today. As director of global macro strategy at Stonex, he's built a reputation for cutting through the noise and connecting the dots between fiscal policy, liquidity, demographics, and markets in ways that consistently challenge conventional wisdom. He's rigorous, contrarian, and often early in spotting the kinds of structural shifts and risks that shape the next era of investing.

Vincent, welcome to the POC. Pleasure to be here. So before we dive into fiscal dominance in this new macro regime, can you tell us a little bit about yourself and how you came to focus on this space? Yeah. So if I go back far in time, I think it has to do with with my training.

So I was meant to work, for the French Ministry of Finance a long time ago. And, anyway, there was I got a scholarship to study The US, completely changed track, moved to Wall Street, started working in research for about twenty years now. But I kept, I think, from from this initial training, a a sort of fascination with fiscal policy and especially taxing, which is something that the, the French government is quite efficient at. I mean, we tax more than 55% of our GDP. So, yeah, we're pretty good at it.

And I always thought that was probably the most interesting metric. Like, all the money that comes in or out of the US government, I think, contains a wealth of information that is much more complete than what you can get with surveys, especially now that, you know, SurveyMonkey has destroyed the world and and no one answers anything anymore. And that that money is is hard cash. So by monitoring the movement in and out of in The US called the Treasury Journal account, I think you get a real time view of what goes on in the economy. And I'm convinced that this is the major engine.

Everything else follows after that. We have this kind of monetary sideshow that, you know, makes for good headlines. Oh, you did the Jacksonville speech here and there. We change quicker words here and there. But at the end of the day, you know, the expression of the buck stops here.

Right? I would say the buck starts here. It starts with the fiscal with with the with the budget. Because at the end of the day, the the US government is the only place that can create dollars. You just triggered something with me, and and I wanna focus on this.

I am someone who is stuck on this issue of taxing enough to meet your spending goals. And what I mean by that is I understand the notion of the government stepping in in a recession or when the private sector isn't spending and following Keynes' philosophy of of of fixing that. But we don't follow Keynesian economics anymore. We we run deficits even when we are growing. And so when you talk about the French taxing a lot and doing it differently, just from a long term perspective, do you think there is an advantage of having your democratic population in tune with tax and spend because then you really have adult buy in to what you're doing as opposed to, in a sense, these what I see imbalances building up because you spend money even if you don't really have the desire to pay for it.

Yeah. These are all great questions. So three thoughts on on what you said. The the first one on on balancing the budget, I do not believe I would go with the modern monetary theory view that at the end of the day, the only true constraint on government deficit is not how much tax revenues they can bring in, but it's it's how much inflation there is in the economy. There you know, the government is not a private agent like like you or me that needs to balance the books.

There is a natural demand for money, and that money can only come from the government account. So what that number is, we don't know. Right? May let let's say the the the the populous wants you can maybe approximate it with an ideal nominal growth of GDP. Right?

You need to finance that. So I would say, I think it varies. It depends on technology. It depends on the state of the economy. But at a general rule of thumb, I would think that the optimal deficit, would be one that it approaches the nominal rate of growth of the economy, which which has gone up since COVID.

So that's the first fault. The second thought on what you said, I thought it was spot on your your point on Keynes. We're going beyond Keynes. I 100% agree with that. The the idea of Keynes is you kind of is contrast to people spending.

Right? When the economy is hot, you know, you you you we started writing about this in the Great Depression, and we had an aggregate demand problem. So it's good, like, hey. We can just step in. Famously, you know, the idea of, like, you pay guys to dig a hole at night and fill it up during the day, and that creates output.

That's not what we're doing today. I think you're absolutely right. We run a deficit of seven and a half percent GDP at full employment, so we are way past that point. And, yeah, I agree it can be excessive. And and one way it's it's manifested itself is is in this kind of persistent inflation, which, again, we we still have.

I mean, it's been almost five years now since we had the last sub 2% inflation print. So that tells you that something in the sense of policy is, excessively loose. I would argue it's both fiscal and monetary, but primarily fiscal. And then your last thought, what about, consent to taxation? Your view that, yeah, the government will have this kind of natural tendency to expand because that's what democracies sorry, that's what bureaucracies do.

You know? You have power. You want more power, and the beef the path of least resistance is always to to spend more. And, yeah, I think you're absolutely right. And and if it keeps happening for a long time, you end up in a situation very much more like France is today, where that consent to taxation is is no longer there.

I mean, we had the the yellow vest protest seven years ago. We have something very very similar now happening with the it's called the. Nicolas is like this kind of fictitious taxpayer who is funding everybody. And and, yeah, he doesn't have a say in the system. And and, yeah, there is a major accountability issue, which we haven't really solved.

I mean, maybe The US is is is going there as well. The the one thing I would point out, though, is if that's the endgame, The US is not the furthest along down that path compared to the amount of taxation we do in Europe. I mean, think about, you know, the the VAT. Right? I mean, France is at 20%.

Spain is even higher. The US still doesn't have a VAT. Well, hold on. We're at 18%. Are you talking about the tariffs?

Yes. Okay. Long term, I agree with you. I I think I think the tariffs are, the canary in the coal mine. They are this first step towards a VAT, but but that for now, you know, we that that was, I think, the genius of of Donald Trump in a way what was to present this idea that I'm I'm gonna raise taxes, but but somehow I'm gonna get the Chinese to pay for it, which, you know, you you put it in these terms.

That's crazy. Right? How so you gotta send the IRA agent to China? We have implemented the most regressive, non progressive VAT tax in the history of the world from my perspective. We we have essentially basically said I mean, right now, our average tariff is 18%.

And at the end of the day, the notion that the exporters are going to pay for all of it is is silly. And Walmart and Amazon will eat it for a few minutes, and then they're gonna pass it on to the consumer. So we have essentially created of that in America. You know, again, I don't think people have figured that out yet, but I think that's what we've done. But let's keep going for a second because I'm curious.

I heard something recently about that part of what the Fed has done is in order to get people to buy our t bills, which essentially, you know, if you if you if you're getting our ten year T bill at, let's say, 4%, you basically, if you if you're getting the world to buy your T bills and you're saying, look, we are we are gonna have a covenant, which is if you take a basket of goods and you measure them, we're going to average inflation at 2%. And therefore, you can afford to buy our long term t bills because essentially you're long term inflation protected. And I know we're going to get to tips in a minute, but just stay with that for a second. When you look at the deal we made with foreign investors and you look at that basket of goods, I understand how that works. But when you look at young people today, at least in America, and I don't know what it's like all over the world, Young people are complaining about their inability to buy a house.

They're complaining about the cost of college, and they're complaining about the cost of childcare and health care. Those are not goods that have averaged 2% inflation for the last fifteen years. And if you look at what wages have done in comparison to being able to buy a house, they have not kept up. So again, is it fair to say that figures don't lie, liars figure that real inflation is not even the three or 4% that you're talking about? That we really, in order to get out of the political polarization we're in, we have to level with the American people and say that we have had asset inflation that has affected the middle class and young people?

A 100%. I mean, if you look at, the CPI, there was this chart a couple of years back that made the rounds. I think the New York Times did it where, they they plotted the CPI for various categories over time. And and, it basically summarize what you described, which is that there's not one CPI. There's two CPIs.

And there is a CPI of, I would argue, either you could call it even the things that are produced here or I would argue the things that are essential to the American dream, really. And that's where I think the the pain is felt. These things include buying a home, covering your family with with decent decent health care, and getting your kids to college. These are really the big ones. And then you can add some, you know, and series services around it.

But this to me is really the core of the American experience. Right? I I wanna work hard, be able to buy my home, provide for my family, and and make sure that my my kids can go to college. I mean, this is that CPI has been going up by 6% a year and very steadily. I mean, it hasn't changed all that much the high inflation of the seventies.

That that that's where it's been stuck. And then there is the other CPI, And that CPI is let's call it the China CPI or the Walmart or the TEMU chain. And that's everything that you can buy mostly from China, but but also other Southeast Asian economies. And that has collapsed. Right?

So it's it's UTV, your electronics, which further get adjusted by, you know, the hedonic adjustment, which we can talk about. The TV gets larger. So it's not cheaper, but in the eye of the BLS, it gets cheaper. Toys, clothing. And, yeah, that has massively deflated.

So you take the average of the two, and we have this beautiful, you know, 2% average inflation we've had since since the late nineties, really. But it was never a 2% target. It was the Fed could claim, oh, look what I'm doing. It's so great. I've I've I I as a result, I can cut rates.

I mean, restarted with the LTCM bailout in 1998. Like, this is the first time we had this notion of the the insurance cut. The view that the Fed is that happened precisely because we had the China shock, because the the all the goods electronics were taking down the CPI. Suddenly, the Fed, which usually, you know, had to juggle between employment and inflation. Inflation's gone.

I can do other things. I can, you know, help out. At the time, you know, let's just give them the benefit of the doubt. Oh, you know, we we can just skip that recession. Here you go.

Let's let's cut in 1998, and then, of course, we inflated the the .com bubble. We can argue whether that was a good thing or not, but at least initially, it worked very well. So, yeah, that's what allowed for this situation to develop. Going back to the tariff conversation, I mean, if we are going to force inflation back into this China basket of goods, then we see that this there's absolutely no way we can get to 2% in any realistic way. Right?

I mean, if you have your services, your college, your housing, still going up by 6%, and then you take the the one thing that was keeping inflation. You you bring it up to even now it's not insane amount of inflation. Yeah. I mean, I agree with tariffs so far. We haven't felt it.

I I think it will filter through over time. But for now, it's not a huge problem. Right? We're looking at 1.5% on on the cold goods, so it's not too bad. But even with that, we're far above that 2% target.

Now one way we could get back down to it is to try to get the cost of, let's say, the American dream basket down. The problem of doing that is we have an economy that has now been accustomed to these very high asset prices, and I suspect we'll not be able to take a significant write down in the value of assets because these assets are used as collateral for debt. They are how people save. I mean, you know, boomers have been told buy your home and appreciate and all these things. So that's why I keep going back to this idea that it's way easier.

The path of least resistance is to move the inflation target because all the other options would lead to politically unacceptable outcomes. So you talk about fiscal policy driving things. You talk about, to your point, inflation being a necessary component of this because of where we are in this cycle. But I think if I remember correctly, you said 7% deficits right now. So tell me with the math.

How can you have three or 4% inflation with 7% fiscal deficits? Well, I think that the number cannot work out. Right? If we look at The US the way you would analyze a Latin American country, what you want over time is a stable debt to GDP ratio. Right?

You can I mean, you can argue that at time, it can it can increase? And maybe we are in such a time, but, obviously, if if your debt grows significantly higher in the new GDP, you're running into trouble. Right? So how do you stabilize your debt to GDP ratio that more or less you need to get, the deficit to grow at about the same speed as nominal GDP? And, you know, since COVID, nominal GDP has averaged 7.5.

Nominal growth? Yep. Yeah. I mean, we've had on average about, 5% inflation. Okay.

That's high to 9%. And then, you know, since then I mean, we we haven't come back to two. You know? We stayed at that three range for eighteen months now, and real growth has been quite strong. It was around 3% before the election.

We had a kind of a one one quarter dip, which was reversed. I mean, we're going back to that two and a half, 3% range. So I'm not sure that it is as unsustainable as, for example, the the the the CBO says. There's also something else where where we can gain a little bit is if we keep, the cost servicing cost of the debt, below, the growth of tax revenues. Every time you roll over your debts, you cancel a little bit out of it, which is exactly where we are.

Right? I mean, if you take into account, like, the the duration of the debt, the the average interest on US debt is still below 3% Right. Because a lot of that Short term money. Right. And then and also but also we we issued a lot of debt in 2020, 2021 at least, you know Right.

1.5%. Right? So that nominally, that coupon is still extremely low. So every time we roll that over, you cancel you you you get you know? And, again, we have a 100% more than a 100% debt to GDP.

Right? So that that that spread between what you pay on debt and then nominal GDP, it's it's basically a a percent of GDP that you get from rolling over. And that's that's kind of the financial repression argument. Right? That's that's the easiest way.

You anchor the cost of of of your debt below nominal growth, and that actually allows you to have a deficit that's slightly bigger than nominal GDP. But then that inflation is being disproportionately felt by certain groups, those on fixed incomes and that don't own assets, and that's been leading to this kind of political instability we've been experiencing. Isn't that part of the challenge with I mean, I understand fiscal dominance. I understand working this off over time, but there's winners and losers. And right now, at least, we've got a pretty angry group of losers, don't we?

Absolutely. I mean, all that's why, you know, to go back to your your point on consent to taxation, I think that's the big issue with with with inflation and and having really inflation policy being decided by this weird combination of the Fed and the Treasury and and all these very indirect mechanisms. There is no accountability. I mean, I would almost favor a system where you can say, hey. Listen.

We we have this big fiscal issue. We we made these promises to to boomers that we really haven't had the money to fund. We have these very high asset prices. Our menu of option is, you know, maybe we can, you know, deflate asset prices so that gen z and millennial can can buy homes. Of course, that's gonna hurt, you know, older generation and and the asset owning class.

Or we can aggressively spend and hope that this increase, in nominal GDP is gonna translate into higher wage growth, and that that higher wage growth is going to benefit the younger generation, allowing them to buy off the overpriced asset of the older generation with putting the the brunt of the cost on the rentier class, with with financial repression. I think that's a very interesting debate. And there is no as you point out, there's no right or wrong answer. I mean, both of these choices involve trade off and different set of winners, and losers. But per your point on on accountability, I don't hear, the debate being made in these terms.

Instead, we still kind of hide behind the fig leaf of of this independent monetary policy, which is getting less and less independent. And in a way, I mean, there's a sound money case, like, you see Trump booing Powell, and that's that's not pretty. Right? You see Besson saying, we should be out by a 150 basis points. Observe.

Observe. But I think one one nice thing that this moment creates is this view that it shatters the illusion, that monetary is is kind of like god given, completely independent, oracle on the top of the hill. And we see that at the end of the day, it is a political decision. And as you point out, these distributional effects are massive. And to take that out of what should be the conversation, it's it's the most important question as as you point out.

Like, okay. Do we want young people to be able to start lives, to buy homes, or do we want to to preserve? Because in a way, you could argue the economy is quite great. Right? I would get that.

Like, I mean, you could say, look, the S and P is an all time high. The non profit rate is very low. Inflation is a bit high, but it's not too bad. Like, maybe we can do more of that. But, again, this creates winners, losers, and people don't I feel they get disenfranchised when they see very important decisions being paid without their input, and I think that's what's happening.

So let's mix it up a little, and let's add another variable into what's going on because what I'm trying to do is anticipate a year or two down the road. I agree with your analysis. We're here. We're gonna have more fiscal dominance. We've got this inflation issue going forward, and everybody's kind of dealing with certain variables.

Let's throw another variable in. I restructure companies for a living, and I've been working with venture capital, private equity, and the banks kind of doing this area for most of my career. And what I've seen is the venture world going from a few VCs in Los Angeles and a bunch up north to hundreds, hundreds of VCs now. And I've seen non banks come in from all over the world and fund our venture capital. We used to have venture capital up in Silicon Valley, then we had Silicon Beach.

I'm seeing venture capital backed companies all over the country, whether or not it's in Nashville, whether or not it's in Austin, whether or not it's in Massachusetts. I mean, essentially, we have got millions of people now working, whether or not it's in consumer products, AI, all sorts of different types of biotech, fintech. There's all this money that went in. And I've heard from reliable sources that two thirds of the VCs that were funded with all the trillions of dollars that we printed over the last fifteen years, that there is a day of reckoning coming, that liquidity is drying up, and that a lot of these non banks and a lot of these VCs are essentially going to focus on their winners. They're doing what's called continuation funds where they're transferring their companies to a new entity that allows retail investors to come in.

They're continuing their management fees. But at the end of the day, we are shutting down more and more companies that have gone through 100, dollars 200, dollars 300,000,000 of equity. How is that all gonna figure into this economy? Yeah. That's that's a fantastic question.

I mean, I I I worry about that too. I mean, so far, what we've done is kinda we we increased the pipeline. Right? I mean, if you think about the your traditional model of of of VC or private equity, right, in the nineties, you, you know, you had your series a, and then you went public. And and now you're talking about the series a.

So the private pipelines is is is a lot longer. And then after that, when you get the to the end of it, then you do a a continuation form. I I I read that 20% now of private equity exits are are continuation form or all these these, secondary buyer. Right? You sell to another shop and that allows you there is certainly, it feels like a Ponzi.

It feels like, the the question about the Ponzi is, of course, when if you can keep luring in more buyers, you know, the the music can keep going. And you certainly hear these calls now when when you talk about, oh, we need to get, you know, private equity into four one k. It's this exactly what you described. Like, a lot of money has been funneled through. I mean, some of it has worked.

You know? There has been spectacular successes. We are seeing a little bit of the, really the the glut used to be the IPO market. Right? There's really so little that price in the past two years.

So, I mean, that's why everybody was so excited about the the the Figma IPO. And that's how it played out, right, in in in 1999, 2000 is really we got that, you know, insane Europe when we we at the time, that seemed like a lot. We did, like, $5,060,000,000,000 dollars in IPOs a month, and that allowed to pretty much pass the hot potato just before a lot of these stocks drop by by 90%. Maybe maybe that is the end game, and maybe that's what we see in 2026. Like, if we do get, you know, a 150 basis points of cut, massive financial deregulation, Maybe that's the path.

If we go that route and we do things like lower rates, which I think seems to be inevitable, again, that lowers short term borrowing, but it doesn't really affect the long term necessarily. When you're looking at these companies that for instance, have all this illiquidity starting to work its way through the market. If there is a toxic debt problem out there with these non banks, if there is a debt problem out there with some of these companies, including the Japanese that have bought these junk bonds, is there going to be a another round of QE to bail out essentially this kind of market? And if there is another round of QE, are we looking at crazy inflation because we are in a different world that you describe, this fiscal dominance world? And can we do another round of quantitative easing without, you know, blowing up inflation.

Yeah. I mean, I I suspect that is, you know, one path. And there's this view now that, you know, QE is not inflationary because it was not. Right? We had a decade of of QE, and nothing really happened on the inflation side.

If anything, inflation kept falling. It all goes back to this to my original point of where does the buck start? Does the buck start with the Fed or does the buck start with the the government? And I I would think the buck starts with the treasury, not the Fed. So when the Fed does QE and the government is shrinking the deficit, which is essentially what happened in US and in Europe in the February, the only thing that that the QE does is really a a duration swap.

You issue a very short duration asset, a bank reserve, and then you use it to buy a long duration asset. So you you reduce the the duration of the private sector balance sheets, which then allows them I think another the reason why we saw so much money flow, into VC, into private equity is because here we kind of sucked out that duration in February. Right? People used to have, like, ten, thirty year bond that the Fed just scooped up. It's like, okay.

Well, I used to have this thirty year duration asset in my portfolio. I I need it because I have long term liabilities or whatever at this kind of long term goal. Rates are at zero, so it was kind of natural to replace that with, yeah, long duration asset, which, you know, of you could argue that VC is the longest duration asset out there. Right? Because you're you're really betting on this extraordinary high payout in the future.

So I guess what I was trying to say is it didn't have the inflationary consequences that we expected. It fed that private equity venture capital bubble, which in a weird way, by the way, had some deflationary consequences. When you had all these, you know, VC companies that were operating at massive losses, you know, basically, you customer acquisition cost. Right? I I wanna get there first.

I'm gonna subsidize. So that it was the model. Right? The the the the lime, the, all the millennial, subsidy lifestyle program, the the the food subscription. The way to achieve high growth was was to basically pay your customers to join with the hope of hiking later, hiking price today, which in some cases, many companies have actually succeeded in in doing that.

Right? If you get DoorDash, I mean, DoorDash was an example of, you know, bleeding cash and and eventually succeeding with that pivot of profitability. But yeah. So the first QE episode was not inflationary. So I think that will give indeed policymakers the illusion that they can keep doing it, because it's free.

But they will be, if I'm correct about fiscal policy, and I think I am. It's gonna be very different if we do QE with a 7% minimum. I mean, 7% deficit is the minimum. I mean, we have the best possible economic conditions right now. Tax collection are increasing by 9%.

We're getting money from tariffs. We had placed some cuts from those, I would think, and we still have a 7% of GDP deficit. So that's the minimum. If we do QE on top of that, again, instead of just being a duration swap, did that QE ends up effectively monetary financing? And we have strong demand for loan, yes, I I believe that next wave is going to be inflationary.

And, yeah, maybe that's the next wave. I mean, I always have this view that inflation happens in in waves. And I think that's one of the the issues with with the current crowds, and it's a onetime adjustment of price level. Don't worry about, you know, tariffs or don't worry about, you know, transit or inflation after the the lockup. Yes.

If you just look at one wave, you know, yeah, it's gonna go up. It's gonna go down. But this I mean, if you look at inflation over a long period of time, there's repeated waves. So I think you're absolutely right. Like, we we're going to run into a liquidity problem because we shovel a lot of capital that is, looking for the exit.

I don't think we can allow assets to be written down and and people to take the losses because there is certainly a lot of leverage hidden in the system. And then you you get this, you know, kind of chain reaction. Right? If you write down, you know, your asset is my liability. Right?

So, okay. Well, we write it down. I feel better. My you know, I have a lower liability, but now you have a lower asset, which is somebody else's. So we can't allow that to happen.

So you're absolutely right. And and then the the reaction will be to do more QE. And because we have a different stance in fiscal policy, I expect that will be the the the next inflation wave. So when you look at the reality of kind of what the next few years look like, I mean, is there apps and AI accelerating growth in dramatic fashion. Is there any way that we don't continue to get poor?

Because again, keeping this simple, if your debt is growing faster than you're growing, right? You're getting poor and you've got some people getting richer, obviously, because there's winners and losers. But in this scenario we're at where we're we're running these 7% or greater deficits that you are talking about, and inflation is running at 34% or or greater, depending on how you're measuring it. In a democracy, how do you get people back to believing in the system when we are essentially getting poorer? How do we break this cycle?

I mean, historically, that, you know, happens, quite violently. And it's a cycle we've been before. I mean, you go back to the the bible, I think, in Leviticus, a debt jubilee every so many years or something like that where, all the debts need to be canceled. I mean, I would argue that inflation, in a weird way, is some sort of a debt jubilee because it it allows to reshuffle the as you say, it it's a transfer. Right?

So you end up with a system where the existing debt cannot be sustained by by the debt holders. So somehow you need to change the you need to change the terms of the deal. So either you do that via the court system and it's it's kind of a messy process or, you change, yeah, the unit in which these these contracts are being written. And I think we we we seeing this process happening. I mean, it's the the the political manifestation of this is this increasingly violent swings between one form of populism to the other.

And I think the the pendulum is still swinging. My guess is that what happened to the Republican party with with the tea party and the rise of Trump is now happening on the left. And, the signs are everywhere for us to see. I mean, you see it with the the New York primary. You see it with the fight, the Orangutiki tour.

The energy on the left is very almost insuractional because of what you described. And and the biggest political issue is really affordability and whether young generations will be allowed, their path to the American dream. And then I think eventually, I mean, the the Democratic Party has been trying to suppress that for a long time. It it's been quite successful, but we may be at this moment where the barbarians are storming the gate. And my guess is, yeah, the next election will involve very significant shift in in policy making.

So you brought up Leviticus, which was an interesting place. I didn't see that coming. I'm gonna bring up the the discussion of what I consider the original Keynesian economic discussion, which was between Joseph and Pharaoh, where Joseph is interpreting Pharaoh's dreams. And he basically says in in the good times, you should save wheat. And in the bad times you should, you know, feed the people with the wheat.

Then it says later on, there came a pharaoh that did not know Joseph. And then we had the 10 plagues. And so it seems to me, at least the warning is that if you continue to eat your wheat in the good times, you know, and you're not saving enough, then eventually there will come a time where you are going to get poor and you haven't put enough aside for the winner, so to speak. And so with democracies under attack right now, looking at Europe, looking at America as an economist, are there things we can do to warn people or to get them focused on this so that we can do something that is perhaps painful but is honest so that we can avoid these more, you know, radical swings of the pendulum, as you say, back to the left and then further to the right. How do we, when you look at history, how do we break this cycle without a crisis?

I mean, the historical answer, it's it's it usually is a major crisis. I mean, we go in this kind of fourth turning, you know, Ray Dalio or long cycle of history. A great book I'm reading is called The Great Leveller. It's a very depressing book. It talks about basically, it goes with the, Piketty argument, which is that over time, inequalities naturally grow because the rate of return on capital is higher than the rate of growth of labor, r minus g, if you look at your dividend discount cash flow model.

And we build that in the model. I mean, that's that's the Piketty argument. Like, it's funny that most people who attack Piketty teach them. And this is the fundamental every every discounted cash flow model. R is greater than g.

Well, what is the consequence if r is greater than g? Over time, the people who have assets would have more and more assets. The problem is that these assets are sustained by the people who get g. Right? So you end up with exactly where we are today, where you have a huge the asset economy goes faster than the real economy that sustains the asset economy.

You have more and more assets of private equity stock, LBO debt being supported by the same number of GDP. And, yeah, eventually, the system can no longer work. Right? You you keep putting more and more on on the back of the of the camel. And, unfortunately, I mean, the in a a great level of book that I'm reading, it's the answer is a pandemic, wars, and revolution.

These are the things that the only times we had significant decrease in inequality because the the the outcome of what we're describing is the secular rise of inequality. Right? The people who are rich get richer, and the people who are poor get poorer. Historically, it's it's been solved by really just massive destruction of wealth. You look at what happened to Europe in in in the in the twentieth century.

Just I mean, what a massacre. You know? When when Keynes, you know, starts, you know, his career, you have this this imperial moment. It's very similar to these day. Right?

We had the robber barons in The US. We had this incredible globalization. We had a very advanced banking system. We had free trade because of the imperial trading system. You know, you could order UT from India.

You could move money from, you know, Argentina to to France, France then to Russia. I mean, it was, in some ways, the the early twentieth century is very similar to the early twenty first century in many metric. And and then after that, you get, like, basically fifty years of massive destruction of capital. And and we used all the tools that that there was war. There was hyperinflation.

There was outright default. And that's how this is equal we we came we went from the high most unequal society at the time. Now we're kind of getting back there in the late nineteenth century. It was supposed to peak in inequality. And then by 1975 before, you know, we started fading again, like, we had the most equal societies all over the world in US, Scandinavia, Europe, Soviet Union, obviously.

So that's the historical answer. I hope we can be, smarter, that we don't require this massive destruction of wealth. But, again, I think this conversation, I go back to this idea that it needs to be brought in the open. I am somewhat encouraged by the fact that whether we like it or not, I think the shift to populism is finally starting to put the real questions in front. And and you're just starting to see two visions emerge.

Kind of the the the property's left and has a point. Right? You look at this metric of affordability. You look at housing. Now you could argue that solution that they offer is bad, but at least they they are putting the right question at the sound of the debate.

And and the same thing goes for for for the right. I think things are a little blurry now because of the unique personality of Donald Trump who, in some ways, embodies the you know, he's at the same time a New York billionaire and a populist. He's very much in in in the culture wars, which I think are a distraction. But I think as as he fades away, we'll see kind of this kind of, like, populist protectionist movement, which is quite respectable also. The the right thing, no.

The the way to solve it is, you know, we're gonna reindustrialize. We're gonna we're gonna put a little bit of barriers, but we're gonna have to pay at the end of the day, we're gonna have to pay more inflation because it's gonna cost more. That was Trump's case about the dolls. Right? Oh, maybe you won't be able to have 25 dolls.

Maybe you just get two dolls. Right. But what I find interesting about both of these options is they both ultimately, they come back to the same conclusion that we need to accept a higher inflation while we go through this transition towards a more balanced system. And all of that makes sense. It's easy to throw up our hands and just say, well, this is gonna go on until we have a major war crisis.

But when you look at what's going on in China today and the debt levels they have, and when you look at the debt levels in Japan, and you look at the debt levels in general, the European Union seemed to be able to get some of this under control with how they dealt with Greece. Are there ways to get these conversations out in the open and really start to educate the American people in terms of and the world in terms of that there is no free lunch? And going back to what you said, if the answer is we're gonna live with higher inflation, to me, the challenge with that is that that is going to hit the people that don't own limited assets like real estate and people that need to still go to college, people that are retiring and on social security. The short term answer to the middle class has been, you know, buy Bitcoin. And my fear with things like Bitcoin is that it is being monetized with Tether and other cryptocurrency that has no limitation on how much you issue.

So it's like a fiat currency. The amount of money that's going into Bitcoin, you can argue eventually it's gonna be a store of value, but it trades and acts like a speculative asset. When you have all this air out there in these speculative assets that are in a sense creating this illusion of wealth, at the end of the day, if you stay with your theory that we're gonna continue to have this higher inflation, isn't that gonna disproportionately affect the middle class and the retiring people, and isn't that gonna lead to more and more political instability? Let me first respond on, you you brought up the successful deleveraging of the Greek economy, which is true, by the way. Amazing stat today.

For the first time, Greek bonds straight Greek yields traded under the French yield, which if if you think about, like, where we came from ten years ago, that's incredible. And it's it's a testimony to both the success of Greece and the failure of France. But I will say the process was not It was sheer violence. It really was. I mean, the, go back ten years ago, you know, the there was this memorandum that the, the troika, European Commission, IMF, and the the European Central Bank, imposed on Greece.

Then they had a referendum, and they do do we wanna do that? The people voted no. They they elected a series of the, like, kind of hard left party to renegotiate, and and it was solved by closing the ATM. Literally. Like, it's like, okay.

You you don't you don't want you wanna do that? Yeah. Fine. You know, the Greek banks are shut off the euro system and, you know, you go to the ATM and and then you put your card in and say, I'm sorry. No money.

So we're able to force it down the throats of the Greeks because, yeah, they have no recourse. Right? It's but it's been imposed by by force, brute force. I don't know if, you know, Greece is a tiny economy. They do not have that many option.

There was a debate. I mean, going back to Greek politics, Yanis Varoufakis, the finance minister, was was advocating, okay. Let's let's have a plan b. Let's be ready. But the reality is the series are went to power with promise, but no plan.

And when people have, you know, a weekend and and and no plan, they they end up losing. And, you know, I don't verify if he's had a plan or not. But if he had one, he was not able to implement it, and he and he was kicked out. So I don't know how applicable this would be to The US, whether we could impose such again, I mean, if you think about it, like, it's a really big deal. Like, the ATM is closed.

Like, the money that you think is yours is is is not yours unless the government agrees to a set of policy that I choose for you. If we don't deal with this in a balanced way, like, ultimately, what happened with Greece, even if it was, as you said, how it was forcefully applied. But look, ten years later, they're in a much better position. If you look at democracies and the pendulum swinging back and forth, if you're looking at where the puck is going and you're saying, okay, we're voting for leaders. We're in this fiscal situation.

We've got higher inflation. It's only a matter of time before these bubbles pop. I mean, I, I can't believe physics is going to be broken here. What goes up has to come down. And so if we don't copy something like austerity and the Greece approach, or we don't have a miracle with AI that grows us out of this, at some point, aren't we gonna continue to have this political instability?

I I think you're you're absolutely right. Again, it happened in Greece because there was a austerity could be forced by a third party which had overwhelming force and the population had no recourse. I don't see that in The US. Right? There is no there is no outside referee that can come or, you know, you can think about Argentina and and and then the IMF to say, okay.

This is what it's gonna be. So I think the system will have to create its own discipline. I think for for that to happen, you need extraordinary legitimacy. What what we're talking about really is is going back to this kind of fourth turning long cycle of history is is basically someone comes in and and and recessed the rule. If you think about Athens, ancient Athens, this is Solon was this mythical figure that, you know, Greece was having the same issues with with landlords and and and slaves.

And, okay, we're gonna have a new constitution, and that, right, really sets the precedent for Athens' prosperity is Solon just rewriting on everything. You can think about, for example, in in in France after the the trouble of the revolution, Napoleon comes in and say, okay. I'm gonna have the Banque de France and the the gold. But that for such a character to emerge I mean, at the end of the day, the problem is the legitimacy. Because you need, as you mentioned, these questions are there's gonna be massive distributional consequences of fixing the system.

Somebody is going to lose a lot. So you need someone who can enforce this and not lose its its head literally. I mean, in the case of French, that's what happened, in in the process. And I I don't see we see that. So for now, it's exactly what you point out, why we tell the young people, well, don't worry.

You can't buy a house. You you can't you know? And then because you can't buy a house, you can't get married. Because you can't get married, you don't have children. We have all these associated issues.

But you're all gonna make it. Right? You remember that meme? We're all gonna make it. Just to just buy crypto.

You just buy some crypto and more people will do it, and that will be your path to to riches in the same way that, you know, the boomers, they got to buy homes when they were in the twenties and the home prices went up. Well, we're gonna sink. Yeah. There's a big difference, though. You know?

It's not that because crypto is not like a house or, or a stock that provides a stream of income. I mean, it is on some level, I am I I believe people should own a little bit of crypto, but you should not do it with the hope that it will provide. It is not compound. Like, it's not going to compound like an asset, like like a stock does. So, yeah, I think for now, the the easiest is is just kind of this rotating bubble idea.

Right? It's it's like, okay. If it if it starts to deface somewhere, you you pump it up somewhere else. I think the limit will be when inflation becomes intolerable. That's the limit.

That's when the game ends. And, I I don't think we're there yet. Well, when you say we're not there yet, I think when you look at the extremes politically, and I'm not voting for one or the other, but when you look at what's going on in New York and when you look at what's going on in Texas redistricting and then what's going on with California with redistricting, I think we already are there. I think that we are like a frog being boiled in a hot pot of water that's very slow. I think the inflation is intolerable for the young people.

And I paid $30 to get my shoeshine the other day. So I actually think we are there and that some crises come in these big blow ups and some crises are much slower to perceive and figure out. My pitch to you and other economists is that we all get together and we do come up with the truth and we level with the American people as to what is really going on and that there is a difference between asset inflation and these bubbles. And if you're growing slower than your deficits, you're getting poor And eventually, eventually hope that we get a Roosevelt instead of a Mussolini or a Hitler, but we need an adult in the room, and the economists have got to give a lane for that person to emerge that can speak truth to power. To that year, I hope you're right.

But, again, I mean, go going back to this, you know, great depression analogy, it took a lot of circumstances for it to happen, and it played out over, ten years. Actually, more than that. He did three, almost three. And there were moments when really the political opposition to it was massive. I mean, we kind of now remember the kind of coming together 1944, the victory, the the, you know, the golden age of the fifties.

There was tremendous strife in between that process and and that process happened over over ten, fifteen years. So I I I hope that you're right, but I suspect it's gonna take longer than just, you know, the next electoral cycle. Well, Vincent, it was a pleasure. I really enjoyed this. This is exactly the kind of conversation we should be having and and podcasts allow us to have this conversation compared to, you know, you see NBC Bloomberg stuff where, you know, you get interrupted two minutes to sell bonus bills or something like that.

Like, this is the conversation we should be having. This is what economists, political leaders should be talking about. Well, we will continue in that vein. Let's stay in touch. Same here.

Pleasure. The Puck Venture Capital and Beyond is produced by CMG Advisors. If you enjoyed the conversation today and haven't yet subscribed to our show, you can find us on iTunes, Apple Podcasts, and SoundCloud. Feel free to leave a review while you are there and maybe even a five star rating. Thanks for listening.

We'll be back soon with a new episode.