Doug Noland

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. This bubble has gone a lot longer and a lot bigger because of central bank credit, because of government debt, but they've over issued both so significantly that you're really risking a crisis of confidence at the very heart of finance. What if the biggest financial bubble in history isn't in stocks, crypto, or real estate, but in the very system that holds the global economy together? In this episode of the Puck, we sit down with the veteran market analyst, Doug Nolan, who has spent more than three decades studying credit cycles and financial bubbles. From the .com boom to the mortgage meltdown and today's explosion in private credit and AI financing, Nolan discusses the possibility that we are living through the final stage of a massive global credit bubble, one fueled by leverage, shadow banking, and endless liquidity.

If he's right, the next financial shock won't just hit the markets, it could reshape the entire financial system. There's a lot to cover, so let's get to it. Doug Nolan, welcome to the POC. Great to be with you, Tim. Thanks for having me on.

Well, and tell tell us just a teensy bit about your background before we get into talking about your real expertise on credit and bubbles. Sure, Tim. Yeah. I'm getting old. I started my investment career back in 1990 working for a bearish hedge fund manager.

We had a great 1990, great year. Everything was going our way. And then everything changed, and I spent much of the 1990s trying to understand how this impaired banking system that we saw in the early 1990s morphed into this just phenomenally powerful financial system powering this prosperity, this this boom. I worked, Prudent Bear for sixteen years, Prudent Bear Fund. I've been with David McElvaney for, I guess, the last nine years.

So I've got a bit of a unique perspective because I've I've been a professional bear and I've spent a lot of the long bull market trying to figure out what the heck's going on. So I think that's that's a little bit my edge Analytically, I think I can look at things a little differently than than the typical Wall Street analyst. Well, and that makes sense, and that's great and one reason we wanted you on the puck. And as we're talking about debt, for instance, and we're talking about bubbles, you you talk about bubbles back in the nineteen nineties. And so credit bubbles, you know, now are becoming a more mainstream discussion point.

What were we missing back then, and what are we still missing? Yeah. Excellent question. So back in the nineteen nineties, I became convinced that finance was fundamentally changing. It was out with the old banking system, traditional banking, bank lending, driving credit growth, And all of a sudden you have this growth in, you know, hedge fund finance, Wall Street finance, derivatives, securitizations, Fannie and Freddie, the GSEs.

And to me, it was a complete change in the way finance operated, what was being funded, the amount of system leverage. I was convinced in the nineteen nineties, especially late in the decade, because I had seen the 1994 bond market blow up. I I'd seen Southeast Asia in '97, long term capital management, and, Russia in '98. So I'd seen enough that this new credit was unstable, it was feeding speculative asset bubbles, and I, at the time, thought that it was only a matter, you know, I thought the Fed would kind of come to understand this finance and start to rein it in. Instead, they accommodated it with, you know, aggressive rate cuts when they needed to, bailouts when they needed to, and then, you know, a trillion dollars worth of QE when they need to do in 2008 and then, and then 5,000,000,000,000, right?

With with COVID. So I think what people are missing is, if this is a different type of finance, it is highly unstable, the Fed has been able to stabilize it by only creating bigger bubbles and bigger problems. So everyone thinks that this is just business as usual and I'm saying this is the, you know, the greatest bubble in in the history of mankind. And, you know, I started my blog back in 1999. I was convinced, right, that this was a bubble.

You know, I called it the credit bubble bulletin. It's been twenty six years on a weekly basis. I didn't expect bubble to be in the title for long, I thought the bubble, you know, the Nasdaq bubble, the tech bubble was going to burst and then I would just call it the credit bulletin. And here we are twenty six years later, it went from the tech.com bubble to the mortgage finance bubble and then back in April 2009, I started worrying about the global government finance bubble. The greatest bubble in his- potentially the greatest bubble in history of mankind because the bubble had gone to the foundation of finance, it had gone to government debt, sovereign debt, it had gone to central bank credit.

Both of those basically enjoy insatiable demand. So those are the bubbles that can really go for a long time, go to great excess, and have the greatest structural distortions and maladjustment, not only to your financial system, but perhaps even more importantly to to your real economy. So staying with the assumption that we have a lot of debt, which I don't think many people would disagree with. What I think you'll get disagreement about is how long this can go on for. You know?

And and people will cite, well, look at how long Japan's been doing it. Now I understand rates are going up in Japan a little, but they're still under 2%. So I guess the question is for our listeners who were like, yeah, they've been hearing this, and in some ways they've been hearing it since 1999 as you said. And then we had the .com bubble. Well, we got through that.

We had the mortgage bubble. We got through that. When this blows again, which it inevitably will, and you've got the repo numbers going up right now, you've got liquidity tightening, and you're gonna have a bunch of bad debt out there and and and so forth. Government's gonna come to the rescue. I mean, Jay Powell's on the way out.

Trump's gonna put in a much more ease oriented person. So at the end of the day, what what's wrong with just continuing to buy up all this toxic debt? We'll take this $6,000,000,000,000 up to $25,000,000,000,000. I mean, why can't this go on forever? Right.

And it seems to have been going on forever. I've studied different cycles and I've come to believe, and this is not just me, it was just things get crazy at the end of the cycle. These cycles can go a long time. And at the end, you you start to see a really rapid acceleration of credit growth. You see a deterioration in credit quality.

You see these rapid speculative blow offs in in asset prices and market prices. So systemic risk, if you can imagine a chart, it grows exponentially at the end of the cycle. It goes into this self destructive mode. We saw that in, you know, 2006, 2007 in in, subprime mortgage derivatives. What we've seen in the past two to three years to me is unbelievable As far as you had this huge ramp up of repo financing of of treasuries.

And this has created literally trillions of dollars worth of liquidity. And this liquidity is fed into the asset markets, it's fed into the stock market, it's fed into private credit, it's fed into the AI bubble. So you've got this situation where everything has become so overheated and basically kind of outrageous, you know, the whole AI arms race and you know, what we've seen, you know, the type of financing arrangements and private credit. I was with you until you mentioned Mhmm. Tying kind of repo and Sure.

This incredible expansion of what we would call private credit. I remember when we did PPP loans. I remember when we were buying up toxic debt. I remember when we kept interest rates down by buying our own debt. And I understand that when you have bad collateral, you can come to the window and you can borrow, and there is that that that staves off a liquidity crisis, so to speak.

But I know we're running a $2,000,000,000,000 deficit right now, and my brother is constantly reminding me it's pretty hard to have a recession when you're doing Keynesian economics and you're, you know, you're raining $2,000,000,000,000 out. But you you seem to say that either it was intentional or it was certainly predictable that something went on with repos that we're gonna just gaslight and really throw gas on this fire when it comes to private credit. I don't understand that. That. In other words, I understand the PPP and how they finally got money out to people.

I understand the SBA loans. I understand keeping interest rates low. But how how have we thrown even more gas on this fire, if I'm understanding you correctly? Yeah, and Jim, I'm going to share my analysis that's not easy to understand and it's so unconventional that nobody believes it. Okay.

And they didn't believe it when I talked about it in the late nineteen nineties. Okay. Okay. So if you get a hedge fund right now Okay. That goes into the repo market and borrows to leverage a treasury security Right.

To do a basis trade is what they're calling. Okay? So it borrows money in the repo market, buys a treasury. Okay. Okay.

That money that they use to buy that treasury, goes back into the marketplace, feeds right back into the money markets, and the hedge funds can borrow it again and again. It's like the old fractional reserve banking, the deposit multiplier without any reserve requirement and I know that won't resonate with a with a lot of folks. But this is unfettered credit creation and people look at the, you know, the $7,000,000,000,000 worth of money market fund assets and they they say, okay, this is all the cash on the sidelines waiting to buy stocks. And I'm looking at it completely differently. I'm seeing money market fund assets have inflated almost $3,000,000,000,000 in three years.

Okay. So help. Yep. I understood that people were able to borrow at the window, so to speak, because for sake of argument, they're having a collateral squeeze. They need to come up with, you know, collateral.

And so they're they're borrowing it the short term overnight rate or however that works. Explain to me how that gives a hedge fund an ability, not not a bank, a hedge fund, the ability to essentially, what you're saying, create unlimited money. Right. And hedge funds, there's different motivations out there. There's the basis trade.

Yeah. Hold on. Let me go back. It took me a while to understand the carry trade, But I understood until recently how the Japanese, by keeping their rates really low, would allow people to essentially buy their Mhmm. Debt, so to speak, or borrow money from from Japan at 1% and then buy our T bills and and pocket the spread.

And as their rates go up, that carry trade becomes harder to do. So what what I hear you saying is that with all these these T bills now that are in the Cayman Islands that we've been reading about, that that somehow with this basis trade, which I don't pretend to understand, that the hedge funds are doing something similar in terms of pocketing this spread? Correct. And there are lots of different trades in the world right now. That's part of the problem.

You still have this massive carry trade. Borrow cheap in Japan, Switzerland or whatever else and buy higher yielding instruments. Okay? That's the carry trade. The basis trades a different type of a trade where the hedge funds are leveraging to buy treasury, let's say, a five year note, then they short the futures contract and they play that little spread between the cash treasury note and the futures contract.

And it's a small spread, but if you do it 50 to 70 times 75 times leveraged, then it's essentially free money as long as the markets don't dislocate. Okay? So they've done this trade enormous, you know, the the estimates are a trillion dollars but we know there's hedge funds that you know hold $2,000,000,000,000 worth of treasuries in the Cayman Islands. You know, estimates are you know they ended '24 at over $3,000,000,000,000 worth of treasuries, the hedge fund community. So they are leveraging, they borrow in the repo market by the treasury.

And I'm seeing that mechanism of borrowing in the repo market creates marketplace liquidity. So Doug, so seeing what this remains. Mhmm. Sure. So they're basically borrowing at short term rates and buying long term bonds.

Well, they can do that. Okay. The basis trades a little different where Okay. Essentially that's what they're doing, but they're also hedging their interest rate risk by shorting the treasury futures. So they're not making an interest rate bet here.

They're just playing that spread, but they are, as you say, borrowing in the repo overnight markets, and that's the source of liquidity and why that's so important to me. Let's say they've done this $23,000,000,000,000 over the last three or four year, you know, three years. That has created these ultra loose financial conditions. And it's the loose financial conditions even when the Fed was raising rates, it kept the credit game going, it kept the the the equity, well I believe a bubble going, it just, there's endless liquidity right now in the marketplace and it's a global phenomenon. International markets, equity markets are strong all over the world and I believe it's because of this speculative leverage that is fueling, liquidity over abundance and feeding this, you know, late cycle speculative blow off.

So when the when the Fed lends this money to these hedge funds, where where does it show up on their balance sheet? And I mean, is it like, you'll hear, oh, you know, there was 50,000,000,000 of treasuries, you know, were borrowed at the window last week or whatever. I mean, when you're talking about trillions of dollars like this, where does it show up on the balance sheet? Okay. And I'm gonna back up a little bit.

I'm gonna going to go back to the nineteen nineties. When the bond market had a blow up in 1994 because of speculative leverage that unwound in in when the Fed started to raise rates, Fannie and Freddie came in and acted as quasi central banks. They would go in and borrow in the short term money markets, take that liquidity and then buy debt securities that the hedge funds had to liquidate. They were like a quasi central bank. They didn't have to go through the Fed.

They would just borrow in the money markets. What I'm seeing right now is the hedge funds, they don't have to go to the Fed. They're just going to the money markets. They're just going to the repo market. And right now, you had the Bank of England out again this week.

You have the the BIS, Bank of International Settlements out warning of these basis trade leverage. You know? So the central banks, I think, are very nervous over this hedge fund leverage globally. The Fed, they they don't say say anything, they're just kind of out of it. They're they're not really involved in the trade and and and don't talk about it, but they've had some report, you know, they've had enough research by staff economists that they clearly know what's out there.

And why is it dangerous at this point? What are people worried is gonna happen? Well, I do not like as a as an analyst, I do not like when you have speculative leverage driving liquidity because it's very unstable. It's going to feed on itself. It's self reinforcing on the upside.

It's gonna feed speculative excess blow offs, but it doesn't Jim, it just doesn't work in reverse. If this leverage starts to unwind, all this liquidity that's been created, it disappears. It's an unwind of the liquidity. We saw this, you know, in '94. We saw with long term capital management.

We saw this huge in 2008. We saw during COVID. In during, you know, March 2020. You had this basis pay basis trade start to unwind by the hedge funds. And what causes it to unwind?

A dislocation in the marketplace. All of a sudden, if there's a lack of liquidity and these spreads start to do strange things and the hedge funds start to lose money, then they have to reduce their leverage. Because you can't stay highly levered if you're losing money. So let's look at what's been going on. You have tremendous amounts of money that have been invested in these quote non bank, we call them shadow banks, non banks, non regulated institutions.

We know that trillions of dollars has gone into whether or not it's buying up commercial real estate, refinancing apartment buildings, going into biotech, going into technology, going into apparel. The amount of money that these non banks from all over the world have invested in the American economy is a staggering amount of money. And we know many of those loans are not amortizable. A lot of them, for instance, are why we had this great Black Friday because you had a lot of these, you know, pay later types loans. That comes from non bank debt.

There's all this money that has gone out into the system. And as Jamie Dimon said, you know, as some of these have starting to fail, you know, where there's one cockroach, there's there's more. I restructure companies for a living. I know there's more. I I'm I'm friends with people at large financial institutions that talk about the number of companies that they know are zombie companies, both in private equity and venture capital.

We never saw that in private equity before because even if you had to restructure their balance sheet, there was a lot of earnings. Now you have a lot of these companies that really have very, very little revenue because they really were willing to take on debt and MCA debt without the earnings to amortize this debt. As some of this private credit goes bad, how does that blow back on these hedge funds, and how does that contribute to the unwind of the basis trade? Because it is it is only a matter of time before more of this toxic debt comes due. Right.

And, Jim, this is such an important issue. It is such an important issue, and I'll make a general comment about subprime high risk lending, and you know this better than I do, but I, you know, I've I've been following this stuff for a long time. It works miraculously when financial conditions are loose. As long as a high risk borrower can continue to borrow money, he's not going to default. He's not going to.

Right? And it could be a credit card borrower, it could be a small business, it could be a large company. As long as they have there's availability for them, liquidity in the marketplace, they'll continue to borrow and and stay current enough on their debt. That's part of the dynamic here. There's been this artificial liquidity overabundance that has perpetuated this high risk lending boom, this private credit boom.

It is very vulnerable because all of a sudden, if liquidity evaporates in the marketplace, you're going to have enormous numbers of defaults when when people can't go out and borrow money to to make debt service payments. So that's why this is all tied together. And if the hedge funds unwind this leverage, then immediately credit conditions are going to tighten. And what makes this very interesting, we've had First Brands, we've had Tricolor, we've had the initial signs of of how egregious the lending has been during this cycle. So the system's all vulnerable to a tightening of financial conditions.

And let me while I'm rambling you, let's not forget, I look at AI as potentially the greatest subprime lending boom in history. They're going to need trillions of dollars here for this arms race build out of data centers, of electricity, of all of that. The first part of this arms race has been by the big tech companies that have all the cash. Well, we're going to be moving beyond their balance sheets. We're already seeing signs of the market looking at Oracle differently now.

The credit default swap prices of Oracle because of their leverage. Meta. Right? The market now is looking at AI deals differently than they were a couple of months ago because the credit environment is starting to shift and people are starting to worry what the environment might be without, liquidity or abundance. So this potential deleveraging, de risking, deleveraging in the hedge fund community is tightening financial conditions.

It hits everywhere. That's what has me really concerned. It goes from private credit, subprime generally, it goes to consumer finance, it goes to AI finance. And you could rather quickly have have a heck of a problem there. Okay.

And let's say that we start moving in that direction. Won't the Fed just start buying up the toxic debt like it did before? Before? I mean, we've seen this play before. Everyone said, oh, the world was gonna come to an end, and they they took it to 6,000,000,000,000.

Aren't they just gonna take the balance sheet up to $20,000,000,000,000 and keep the party going? Yeah. They might they might have to. They might not have any choice because if we have a major deleveraging, you know, we went from 1,000,000,000,000 of QE to 5,000,000,000,000 to q of QE, the next QE could be ten, twenty. There's there's no doubt about that.

But we have an inflation issue now that we didn't have in the past. We have a government debt issue that we didn't have in the past. So they're playing with fire right now and I think that's one of the reasons you're seeing this huge price increase in in the precious metals, gold, silver, platinum, etcetera, is because I think some of the sophisticated players are realizing that there is a real systemic risk here for a financial accident, you know, a global financial accident because the central bankers, more money doesn't solve the problem. It only makes a problem bigger, you know, so there might be a recognition that, okay, what else do we do now? And the other thing, Jim, we went from the tech bubble to the mortgage finance bubble and the mortgage finance bubble was a lot bigger because you could use triple a rated mortgage securities.

So that bubble went longer and a lot bigger. This bubble has gone a lot longer and a lot bigger because of central bank credit, because of government debt, but they've over issued both so, you know, significantly that you're really risking a crisis of confidence at the very heart of finance. And I know people will think this is doom and gloom stuff, but I've been following this now for decades, and this is coming to a head, I fear. And I the timing of this, you never know the timing, but the next crisis is it's gonna be a big problem, big problem. And when you say it's starting to get closer, I mean, you know, my brother always teases me a clock's right at least twice a day.

I mean, I just put a newsletter out saying that I do think that we're gonna see the error that continue to come out in 2026 because if you look at Bitcoin coming down, if you look at Zillow's report, which it said 53% of the houses it sells have to have a price reduction, and that average price reduction is 10. It seems to me the air is starting to come out. And if you look at the stock market, the air has come out a lot most of the companies in the S and P, but now you've got these big AI companies that are taking up a dramatically disproportionate share of the index. So the liquidity does seem to be coming out of the system if you look at Bitcoin and you look at housing, for instance. So do you agree that there is seem there there is this kind of liquidity kind of slow coming out of the balloon right now?

And and if that's true, what's causing that? Right? And is it gonna accelerate? But first, we have to understand why is it happening? Okay.

Let's go back. We'll go back to First Brand and Tricolor. These, bankruptcies kind of revealed, you know, serious shortcomings in private credit and credit generally. And that, you know, that it's securitizations, the insurance, the ratings, the quality of the lending. You can go right down, you know, right down the line.

So at that point, you know, we've seen weakness in in some of these big private credit stocks, significant weakness. So I think there's recognition now that we could be at a turning point for the credit cycle, which is extremely important considering the length, the duration of that cycle, and the excesses. This is a very vulnerable credit system. Now you see in crypto, the crypto has reversed sharply. There was a lot of leverage there.

There was a lot of basis trade leverage in crypto where the hedge funds are buying crypto and shorting the futures and doing this on leverage. So we're now seeing deleveraging in crypto. And generally, what you see is you see contagion now from one place to the next. So I think there is at least some hedge funds that are impaired now, that are forced to derisk, to deleverage. That leads to less liquidity, and that makes the next hedge fund a little bit more nervous and a little less willing to embrace risk and leverage.

So you start a contagion, and I'll remind everyone it took fifteen months from the subprime blow up with the Bear Stearns credit funds back in June of o seven until the crisis became systemic in October 2008. So these things take a while, but we're definitely seeing, you know, signs in the market of of of this. And you've also seen the long short funds struggle in the hedge fund community. You saw a parabolic rise in, you know, short stocks, a huge squeeze. So that hurt some players.

And even back in April, Jim, if you remember back in April, I think it was very important when we started to see derisking, deleveraging start to gain, you know, momentum in the marketplace, you you saw treasury yields rise. Right? You saw risk rise and you didn't have a safe haven bid in treasuries. And that was the flashing warning that the next deleveraging could be more problematic than than previous. So to me, it's all kinda lined up, and I think the hedge funds now know that risk is rising and that and they need to manage risk more carefully.

And that's that's an important cycle turning point. Now people are saying the Fed's gonna ease in December, and isn't that just gonna accelerate this liquidity bubble expansion in the short run at least? Well, it could, but, you know, we had this proliferation of global leverage over recent years, and that's carry trades, basis trades, and it's basically everywhere. US, but it's everywhere. And it really took hold more recently because of the global central bank easing cycle.

The central bankers were going to ease and they they have, they've eased the feds, you know, what is a 150 basis points or whatever. They've eased a lot and that really threw gas on this leverage speculation. I think we've already seen the leverage based on the perception of rate cuts and I think a lot of players probably say that the rate cuts are if not coming to an end, they're going to be slow going forward because of this ongoing inflation issue. So I I don't think there's a lot of juice left from from these central bank rate cuts. I could be wrong, but that's kind of the way I see it.

So do you see us in this kind of classic catch 22 where we're damned if we do in the sense that if we print more money, we're gonna have inflation. But if we don't do anything, we're in a deflationary cycle? I mean, are are there any examples of things that have worked in these situations, or is this just gonna be a really kind of we're gonna go go from an inflationary environment to a deflationary environment? I mean, how do you see this playing out? Yeah.

And I don't have a good answer for you. And on on this inflation debate, inflation deflation debate, I've always said, you know, I'm gonna take it one day at a time because I think a lot depends on the dollar, what the dollar does. I could see the dollar in a very serious downtrend because of our fundamentals here, right? Serious dollar devaluation. But I also could see the scenario where we've seen it in the past where you have an unwind of trades and you could have the dollar go up versus a lot of other currencies.

How the dollar moves probably will determine a lot of commodity prices, import prices, and such. I on the side that inflation will surprise in the upside. I'm not in the hyperinflation camp necessarily that could change in the future because I see this deleveraging coming especially in the asset markets, which would be very painful for this k shaped economy that's driven by the upper end, you know, making money in the in the markets and such and spending a lot of money. You could you could see, you know, deflationary impacts from from, collapsing speculative bubbles, especially in the stock market. And as you mentioned, you know, there's plenty of there's plenty of excess in real estate markets markets, especially, you know, upper end, upper end residential real estate, I think, is very vulnerable to to what could unfold.

And when you talk about the dollar, are we the least dirty shirt, so to speak? Because at the end of the day, we have this debt challenge in America, but doesn't everybody else? And at the at the end of the day, isn't the whole world in a sense they followed us in in terms of this unlimited liquidity after o seven, o eight. China was able to fuel it because it had this incredible growth. But now as I understand it, worldwide debt is growing faster than the economies are growing on and so we are shrinking.

I mean, it was working for a while, but now if you're only growing at 3% and your interest is 3% and China is not pulling the whole world along because of its double digit growth, I mean, we are in this classic cycle now where the debt is growing faster than the world economy. So when you look at the dollar and you start to try to figure out where is it gonna be versus everybody else, how do you predict what it's gonna do relative to these other countries? Yeah. It's very difficult to predict. And to me, it's a sequencing bubble bursting sequencing issue where where the bubbles burst first.

But when I think about the dollar and I it's all relative. Currencies are all relative. I look at what's unfolded over in China and I'm just in shock, you know? Their credit growth, you know, the past year is almost $5,000,000,000,000 Their banking system, you know, it it's there has to be a tremendous bad loan problems there as the real estate bubble continues to deflate. I look at Japan and what they've done with their debt there.

It's frightening. Europe obviously has serious problems. So that's my predicament, you know, as a currency, speculator. But what really worries me is when this bubble bursts, it is a global bubble. And when the o eight bubble burst, we had China, we had the emerging markets, which were kind of fledgling bubbles that were the locomotive to pull the global economy along even when The US was was impaired.

We're not going to have that this time. So when this bubble bursts, you know, it's going to be a much different situation financially, economically, but also this ensures that they will throw out everything, all stops. I'm assuming the administration, global politicians, central bankers, because the risks are so high now, so elevated that that they will respond aggressively. It's not going to change, how it all ends up, but it it makes the scenario difficult to to know in advance. Yeah.

No. I I tend to agree with you, and I think that when you look at AI as being kind of this savior. I mean, and to me, it reminds me of, you know, classic stories like Egypt thinking that its magicians cut out smart smart, quote unquote, physics. I mean, they're you know, what goes up comes down. And I, you know, I I think we know we have this debt crisis.

But instead of saying, okay, we're gonna just do what we did with Greece, which is to tough it out and pull things in and grow out of it, we're we're doubling down on just printing money. And we we know that can't there's winners and losers. I mean, we know that ultimately, you're gonna have a very, very aggressive young population that's gonna be pushing back. And and we know that the boomers are gonna presumably people on fixed things incomes are gonna get diluted, but it's it's not a stable situation for democracies when you have young people whose wages are not going up and they're not able to buy houses and health care and everything else. And that that to me seems to be the trap we're in that we're we're we're not able to meet their expectations.

And, Jim, that's such an important point, and it's important domestically. It's certainly important internationally. Let me throw out a little bit more bubble analysis here, big picture macro. I believe, you know, when when you're in a bubble, when you're in this long upward cycle, the perception is that the pie is growing, That the pie is growing, that if everybody cooperates, if you integrate, if you have alliances, everybody benefits. Okay?

Over time, as bubble excess continues and you you get more inequality, more distortions, perceptions begin to change. The perception becomes that the pie is stagnant or maybe even getting smaller. So it's a zero sum mentality where everybody wants to get their share. And what you start to see here is you see animosity, disintegration, conflict. Well, we're seeing it.

Right? We're seeing it globally with the very fraught geopolitical environment. We're seeing it domestically with this egregiously imbalanced economy and inequality. The whole Trump phenomenon, I think, is a consequence of decades of inflationism and all these distortions and inequality in in the system. And the young people today have every reason to be outraged.

Right? The the way the system is functioning has functioned. And that's sure. They can print more money. It's only going to make this these problems worse.

Right? So there's there's no solution here for money printing, and they risk destroying confidence again at the heart of finance, at the heart of the financial system. And the the the consequences of that, you know, we don't even like to think through those. I mean, I guess the good news if we're trying to focus on a positive thing in the same way that we had all this speculation in the twenties, and then we ended up having the 33 act and the 34 act, and we had Joe Kennedy running the SCC, And we really started to try to come into a more balanced approach to finance and, you know, avoiding these great, great imbalances. A hundred years later, you know, maybe we're back to a similar place.

History seems to rhyme. But it is the good news that comes out of this that we will eventually realize that having recessions is actually a good thing in clearing out the the bad stuff and that essentially getting back to understanding things like moral hazard and accountability and covenant loans. I mean, good debt versus bad debt. I mean, isn't the reality that there will be a self correction here at some point and we will hopefully get back into a more balanced approach? Right.

And I can say, you know, as someone who's written, you know, twelve, thirteen hundred of these credit bubble bulletins on a weekly basis for all these years, I do it because I think there's value in contemporaneous analysis. And my own view is, you know, the great depression in the roaring twenties, I've studied that so diligently. That crash was because of the excesses of the boom. Milton Friedman came in the early 1960s and changed the nerve and said that the fed caused it by tight money. Bernanke comes and says that that the Fed caused the Great Depression because they didn't print money.

I've been on a personal, agenda here trying to to say that's not the way that's not true. And we now have the ability to see our mistakes and hopefully going forward can do things differently and, We don't want experimental central banking. Right We don't want experimental central banking. Right? We don't want that.

We don't want to have massive federal deficits. The problem with bubbles, Jim, is you got to recognize them early because if you don't recognize them early, you're not going to deal with them later. Nobody wants to burst a bubble that's going to cause a lot of trouble in society. Right? Nobody.

So you've got to get them early. So I'm hoping the good thing that comes out of this is we can change economics, get back to sound analysis, focus on on things that are important, and and and not let I'm rambling here. But for capitalism to be successful, and right now you have a lot of, especially young people, turning on capital. Capitalism is not the problem. The problem is finance, unfettered finance, undisciplined finance, deficits, a lot of the egregious, you know, types of, financial structures that Wall Street uses, the GSEs and and what they've done.

You know, I want the focus to get back to to, you know, stable money. And it sounds crazy, but there's really it's central to everything. If you don't have stable money, you're not you're not going to have stable markets, you're not gonna have stable economies, you're not gonna have stable societies, and you're not going to have a stable geopolitical environment. Right? So there are a lot of lessons to learn, and I'm with you.

I think we're going to learn them here, and things are going to be done better going forward. Well, amen. Doug, circling back for a second, how to find your weekly work so people can stay connected to your analysis? Yeah. You can search my name or just go to creditbubble.blogspot.com to to find my work.

It's also available on Seeking Alpha, Talk Markets. The one thing that I didn't mention before, there is more talk about bubble analysis now, bubbles. Now I shouldn't say bubble analysis because there's not a lot of analysis. Talk about bubbles and especially with AI and technology stocks and there's a lot of talk about that valuations aren't that excessive, and there's a lot of focus on PEs and that kind of thing and so called fundamentals. It's very important to realize that when you have these bubbles, that the fundamentals get inflated, that the fundamentals become part of the bubble.

Our $2,000,000,000,000 deficits that we're having right now, a lot of it financed by hedge fund leverage, that those $2,000,000,000,000 deficits are feeding into people's incomes. They're feeding into corporate cash flows and earnings. Everything's getting inflated from this. So the traditional, you know, way of looking at valuation for bubbles is is not the story today. The story is this unsustainable finance that's driving credit growth, speculative excess, and especially, you know, this AR arms race and subprime lending.

Could not agree with you more. And, Doug, it was a pleasure having you on. We are definitely living in interesting times. Incredible times, Jim. Yeah.

And thanks so much for for having me. Hopefully, you know, listeners find some value in the analysis. Talk of Venture Capital Beyond is produced by CMVG 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.

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