Richard Duncan of Macro Watch

Welcome to the Puck, Venture Capital and Beyond, a show that explores the evolving landscape of the venture capital world. We'll have candid conversations with today's VCs and entrepreneurs who are shaping those changes. I'm Jim Behr, managing partner at Behr, Negron, and Troff, and president of CMUG Advisors. This podcast brings change makers to the table to discover the inner workings behind the decision making strategies and ultimately to how they got to where they are today. Today, we have something a little different for you.

I have the pleasure of sitting down with Richard Duncan, economist, author, and speaker. Richard is also the host of Macro Watch, a video newsletter where he analyzes current events impacting the global economy. In this episode, we take advantage of Richard's deep knowledge of the world economics to understand how decisions of the past have led to our current environment. I am pleased to welcome Richard Dungan to our show, your macro watch videos, and your all the things you've done with respect to economics and so forth. And the reason I wanted you on the show was because I believe that you have several gifts, but one of them is taking complex subjects and breaking them down in digestible descriptions that people can understand.

And so at a time when we are reading about the fact that our federal deficit is as high as it's ever been and it's as high as it was after World War two, I guess one way to kick this off, Richard, is from your perspective, how did we get there? Let me step back. Do you wanna start with giving the audience a little bit of your history and how you got to where you are today? Well, where I am this morning is in Northern Thailand outside of Chiang Rai. I live in Thailand.

How I got here, I grew up in Kentucky, went to Vanderbilt, and by chance ended up backpacking around the world for a year. And I saw Southeast Asia in early nineteen eighty four and realized it was booming economically. So after a couple of years back in The US at business school at Babson, in 1985, I flew to Hong Kong and found a job working as a securities analyst for a Hong Kong Chinese stockbroking company, analyzing the stocks in Hong Kong. From there, I joined James Cable Securities, a very large British broking company that was eventually taken over by HSBC and became the head of research in Bangkok in 1990 at a time when it was experiencing a true economic miracle. But by 1993, it was clear that this miracle in Thailand was turning into an enormous economic bubble.

You could look out any window and see hundreds of cranes being built on the horizon, and it was easy to understand that there just simply weren't enough people with enough money to move into all of those condos. Because I was managing such a large research department, I had a big team of people, a big team of analysts working for me, and it became clear that it wasn't just a glut of property, it was a glut across every industry. So I had a number of years to think about what was blowing Thailand into an economic bubble. And, of course, the bubble blew up in 1997, and the following year, the Thai economy contracted by 10%. GDP fell by 10%.

The stock market fell 95% in dollar terms from top to bottom. And so that was my education in bubblenomics. And what I realized is that the thing that had blown Thailand into a bubble was capital inflows, massive capital inflows going into the banking system, causing very rapid deposit growth, forcing very rapid credit growth. The credit growth created the boom. The boom ultimately bust, and Thailand's economy went into crisis.

And not only was it Thailand, but it turned out to also be Malaysia, Korea, and Indonesia. So at that point, I started calling up the IMF and the World Bank, and I harassed them until ultimately I had a three week consulting job with the IMF in Thailand. And then I was hired by the World Bank and moved to Washington and worked for them there for a couple of years in '98, '99, and 2000. And that was very interesting timing because at that point, The US was being blown into an economic bubble for many of the same reasons, and so the .com bubble ultimately blew up. So then I moved back to Asia, worked as a banking analyst, and started writing books.

I wrote my first book, The Dollar Crisis, in 2002. It was published in 2003, and the theme of that book was that the enormous US trade deficit was destabilizing the global economy by causing the countries with trade surpluses, most notably Japan, to to blow into economic bubbles, and then later Thailand, Indonesia, and Singapore, and more recently China. But I also wrote that these trade imbalances were blowing The US into an economic bubble that would inevitably pop, and that's what happened in 2008. After that, I moved to London and became the global head of investment strategy for ABN AMRO asset management, looking at all asset classes globally. And more recently, I've returned to Asia.

I'm now living in Thailand again, and I produce a video newsletter called Macro Watch that analyzes trends in the global economy and discusses how these trends are likely to impact the financial markets, and wrote two more books after the dollar crisis and have now nearly finished the fourth book, which is going to be called The Money Revolution, how to finance the next American century. So jumping into that, Richard, one of the things that I know you talk about is that if we take advantage of this kind of once in a lifetime opportunity to continue to, quote, print, borrow money, whether or not it's disease or AI or other things, we can compete better in the global economy and so forth. And we're gonna get into that. But can you help us understand how did we get to this place now where, as the world currency, we have certain opportunities available to us in The US that perhaps we didn't have available to us at a time when we had the gold standard of Ridden Woods. Do you wanna give us a little background?

So I believe that our economic system now works in a way that it's very different from in the past when dollars had to be backed by gold. And the way that our economic system works today creates really unprecedented opportunities if we just understand how the economic system works and take the utmost advantage of that. So let me explain. The big break came in 1968 when Congress changed the law so that the Fed no longer had to back dollars with gold. Afterwards, there was no longer any gold backing whatsoever.

It lingered on a few more years until the Bretton Woods system broke down in 1971 when president Nixon no longer allowed foreign countries to convert their dollars into gold into US gold. But afterwards, this fundamentally changed the way our economic system worked. Under the gold standard or the Bretton Woods system, there were a number of constraints that limited policy options and that constrained how the economy itself worked. And once the Bretton Woods system broke down, once dollars were no longer backed by gold, those constraints were removed. First of all, under the gold standard or the Bretton Woods system, trade between countries had to balance.

That's easy to understand. Under the gold system. If one country had a trade deficit, a large trade deficit with another country, it had to pay with gold. For instance, if England had a big trade deficit with France in the nineteenth century, England's gold would literally be put on a ship and sent over to France. So since gold was money, England's money supply would have contracted.

That would have caused a terrible recession in the in The UK. Unemployment would have gone up, and they would have had deflation. The opposite would have happened in France. France would have had more money, credit would have expanded, the economy would have boomed, there would have been full employment, and they would have had inflation. So pretty soon, the poor English would stop buying so much from France, and the rich French would buy more from the poor English and trade would come back into balance.

There was an automatic adjustment mechanism under the gold standard that ensured that trade between nations balanced, and that's the way trade worked up until the Bretton Woods system broke down. The US didn't have a significant trade deficit really until the early nineteen eighties. And then beginning in the early nineteen eighties, really in the Reagan era, The United States discovered it could buy things from other countries and it didn't have to pay with gold. It could pay with essentially dollars or more accurately treasury bonds. And so The US started running very large trade deficits in the nineteen eighties.

And by 1985, The US trade deficit had grown to three and a half percent of GDP. This was entirely unprecedented. It was very disturbing for global policymakers, so they met at the Plaza Hotel and reached the Plaza Accord and agreed to devalue the dollar by 50% against the yen in the mark. After that occurred, trade came back into balance. But then in the early nineteen nineties, China entered the global economy and The US trade deficit once again started exploding.

So by 2006, The US trade deficit had blown out to $800,000,000,000 that one year alone. That was 6% of US GDP. This changed everything. First, when The US buys $800,000,000,000 worth of goods from other countries, more than it could have done otherwise, this is very, very beneficial to the economies of the other countries. The larger The US trade deficit became, the more the global economy boomed.

It completely transformed Asia. For instance, all of Asia's economic growth that I've lived through and even before I got here, beginning with Japan and Taiwan and Korea, later going on to Thailand, Malaysia and Indonesia, and now Vietnam and China. All of this economic boom in Asia over the last many decades has been the direct result of the growing US trade deficit, which would not have been possible under a gold standard. Secondly, because of this globalization, The US was extremely disinflationary. Before, when trade balanced, if the US government spent too much money or if the Fed printed too much money, then it very quickly led to full employment in The United States because at that point, we had a relatively closed domestic economy.

And full employment would drive up wages, and also the stimulus would lead to full industrial capacity utilization in The United States, for instance, at the automobile factories and at the steel factories. And so quickly, we would get into a situation where we had wage push inflation such as that which we experienced in the late nineteen sixties and in the nineteen seventies, when the inflation rate moved up into the high double digits. But once we started running these very large trade deficits, we no longer had a closed domestic economy with a workforce somewhere around 100,000,000 people. Right. Instead, suddenly, we had a global economy.

And in the global economy today, there are nearly 8,000,000,000 people, and 2,000,000,000 of those people live on less than $3 a day. So suddenly, because of these trade deficits, our economy moved into an entirely different economic environment with vast excess capacity of labor and vast excess industrial capacity, most notably now in China. So that has meant that it's been possible for the US government to run very large budget deficits. For instance, after the crisis of two thousand eight and again now. And also that's made it possible for the Fed to literally create trillions of dollars to help finance these government budget deficits all without creating consumer price inflation in The United States.

So that creates a very different economic environment than we understood that we lived in. All of classical economic theory was built around the assumption that gold was money, and that imposed constraints on what was possible. But once gold no longer was money, suddenly that enabled us to have a global economy with no concern about trade deficits, but it creates grave dangers. Because once dollars were no longer backed by gold, an explosion of credit occurred. Total credit in The United States is equal to total debt.

I'm not just talking about government credit or government debt. I'm talking about all the debt in the country. Of course, total debt equals total credit. You can think of this as all the debt in the country, government debt, household sector debt, corporate debt, financial sector debt, all the debt. Well, total debt first went through $1,000,000,000,000 in The US in 1964.

Over the next forty three years up to 2007, on the verge of the crisis, it expanded 50 times to $50,000,000,000,000. And now it's grown to $79,000,000,000,000. So just within my lifetime, we've seen an 80 fold expansion of credit in The United States. And as a percent of GDP, this credit was growing much more rapidly than the economy. So around 1980, the ratio of total credit to GDP in The US was around 160%.

But as credit exploded in the subsequent decades, by 2009, it reached 360%. So during that period, credit growth became the main driver of economic growth. This was something that was also very new. Back in the days when dollars were backed by gold, things didn't work that way. Credit didn't grow that rapidly.

Instead, capitalism was driven by businessmen who would invest. Some of them would make a profit. They would save that profit or in other words, accumulate capital, hence capitalism, and repeat, invest again. So the growth dynamic that drove capitalism was saving and investment. That was pretty slow and difficult, but that was the way that capitalism grew.

I believe our economic system now has evolved into something quite different that I call creditism. And the growth dynamic in creditism is not saving an investment. It's credit creation and consumption, and more credit creation and more consumption. And this created extremely rapid growth in The US and around the world, literally pulling hundreds of millions of people out of poverty all around the world and transforming Asia where I've lived for the last three decades. The problem is this new economic system, creditism, requires credit growth to survive.

Between nineteen fifty two and two thousand nine, every time that total credit in The US adjusted for inflation grew by less than 2%, The US went into recession. And the recession didn't end until another big wave of credit expansion occurred. Credit grows by less than 2% adjusted for inflation, there's a recession. If credit begins to contract, there is going to be a depression like there was in the nineteen thirties. So the nineteen thirties, credit contracted.

We went into a ten year depression that didn't end until World War two and massive government spending and the Fed financing the government spending. The same thing started to happen in 2008, but this time, rather than allowing credit to contract as the policymakers had in 1930, this time policymakers jumped in with trillion dollar budget deficits and finance those deficits with trillions of dollars of paper money creation by the Fed, and in that way they reflated The US economy and we didn't collapse into a great depression. We have a different economic environment. That wouldn't have been possible in nineteen thirties because at that time, the Fed had to maintain gold to back the dollars it issued. Therefore, it couldn't issue a limitless amount of dollars the way that it could in 2008 and subsequently.

But now, this is another important change. It is possible for the Fed to create as many dollars as it chooses. And by doing so, it enables the Fed to finance these massive government budget deficits that have kept The US from collapsing into a depression in 2008 and again this year. And it finances these large budget deficits at low interest rates, and the low interest rates support the asset prices and support the economy. That's how we got here.

That's where we are now. We're essentially on government life support. And, Richard, all of that makes sense to me, when an American company, whether or not they're an apparel company or a bike manufacturing company or a toothbrush manufacturing company, it was normally paying $15 an hour, $10 an hour, or $20 an hour to a employee working in a factory in Detroit, if all of a sudden there are a 100,000,000 Chinese people that are working in factories manufacturing goods for The US, we ship our dollars over there. And as long as the owner of the factory values that currency and then the employees value that currency, whether or not it's converted out of dollars or not, I can understand where it keeps going and it's been going. But one of the questions I have for you is regardless of how much money we print or borrow, the money ends up somewhere ultimately.

And when you look at the distribution of that money across the world, you've got Chinese people driving Mercedes, and you've got Chinese people living on, as you said, 3 to $5 a day. You've got Americans who are essentially owning companies like Peloton, who are making billions of dollars, but who are essentially paying $5 a day to have those Pelotons made in China. And as this has gone on, those dollars that go to China, that $10,000,000,000,000 that we have, quote, ended up with in terms of a trade imbalance, that money comes back here. It buys our stocks. It buys our hotels.

It buys our houses or otherwise. But one of the unintended consequences of this is that that money that's been printed, yes, it's raised, as you appropriately pointed out, the standard of living of hundreds of millions of people all over the world. But aren't there winners and losers in in The US? Meaning, when China then takes those dollars that have been printed and invested in their economy, when they come back and they invest those in America, they get invested in real estate, which is an asset. They get invested in the stock market, which not everybody owns.

But it seems to me, at least, that one of the reasons that 30% of the American population has benefited so much by this is if those dollars don't get spread out equally, they get spread out among, quote, capitalists that own capital. How do we do this? If we print $10,000,000,000,000, and I know you think that creditism creates this amazing opportunity, but how do we distribute it in a way that keeps everybody feeling in America, at least, that it's fair? Okay. Well, yes.

You raise a very good point. When we first spoke a couple of weeks ago over the phone, we both mentioned that we had a moment when we were in China and saw factories full of young women earning $5 a day and realized how that would change the world. I saw that in early nineteen eighty nine, and it became instantaneously clear that this was going to lead to enormous trade imbalances between China and The US and deindustrialize The United States, and that's what occurred. Let's walk through how this process actually works. When Chinese companies sell their goods in The United States, they get paid in dollars, and they take the dollars they've earned back to China, and they wanna convert those dollars into the local currency, the Chinese yuan.

But if they converted that many dollars, I mean, for instance, a couple of years ago, China's trade surplus with The US was a billion dollars every day, more than $400,000,000,000 a year. So if they converted that amount of dollars into yuan in a free market, that would have driven up the Chinese exchange rate, the value of the yuan to such a high level that they would no longer be competitive in the global market. Their exports would have stopped growing, probably even contracted, and China wouldn't have grown anymore. China's growth would have come to a stop sometime in the mid nineteen nineties if that process had been allowed to play out. But to prevent that from occurring, China's central bank, the People's Bank of China, the PBOC, they intervened in the currency market.

When these Chinese manufacturers exchange their dollars into yuan, the PBOC created yuan from nothing and used that newly created yuan to buy those dollars at a fixed exchange rate so that the Chinese currency wouldn't appreciate. So the Chinese exporters were able to convert their dollars into yuan, and they could do anything they wanted with their money. What they have ultimately did, of course, the money ended up in the Chinese banking system leading to very rapid deposit growth and very rapid credit growth fueling China's enormous economic boom and ultimately blowing China into a bubble. But meanwhile, China accumulated something like $3,000,000,000,000 in this process. They created the equivalent of roughly $3,000,000,000,000 of yuan and used it to buy dollars.

This is something else that could not have occurred under a gold standard. It wouldn't have been possible because they would have been required to hold gold to back the money that they created, but they no longer are. And so they accumulated $3,000,000,000,000 And what did they do with those $3,000,000,000,000? They didn't just bury them under the great wall. They needed to earn interest income on them.

So they bought treasury bonds or bonds issued by Fannie Mae and Freddie Mac. And as they did, it pushed up bond prices in The US, and that pushed down bond yields. So that pushed interest rates lower in The US and it caused the Fed to lose control over US interest rates. For instance, in the mid nineteen nineties, the Fed started hiking interest rates in mid two thousand four. And over the next twenty four months, they hiked the federal funds rate by 425 basis points to five and a quarter percent.

But the ten year bond yield didn't move up as it normally would have been expected to do with such tightening. And the reason that bond yield didn't move up is because the PBOC was creating a lot of yuan, buying trillions of dollars, investing in treasury bonds, pushing up their price and driving down their yields. It will cause the Fed to lose control over US interest rates and over The US economy and very low interest rates in The US. And this inflow of foreign money going into The US, as I've just described, blew The US into a bubble, and that bubble blew up in 2008. And that was process that I was describing in the dollar crisis published in 2003.

Right. Not only were the trade surplus countries being blown into bubbles by their surpluses and by the fiat money that their central banks were creating, but this money came back into The United States and blew The United States into an economic bubble as well. And when the bubble popped, then the government had, by 2008 in The US, the private sector couldn't take on any more debt. It had too much debt and defaulted on the debt, and that's caused the crisis of two thousand and eight. So the government stepped in.

Over the next four or five years. They had a trillion dollar budget deficit a year. And between 2008, over the next ten years, the gross government debt more than doubled. And it was the increase in government debt that kept the economy from collapsing into a depression in the way that it did in 1930. And in order to be able to finance so much government debt, the Fed created 3 and a half trillion dollars between 2007 and 2014.

So to put that into perspective, the Fed was created in 1913. During its first ninety three years up to 2007, it had only created $950,000,000,000. Over the next seven years, it created 3 and a half trillion dollars more. In fact, just in 2008, the Fed created more money in one year than it did during its first ninety three years. The government had a choice.

Let the bubble collapse into a new great depression with all the social chaos that would have produced domestically and internationally, or intervene and keep the bubble inflated. And so they chose to keep the bubble inflated. But even with all the government debt that was created, that was still just making total credit in The US grow just slightly more than 2% a year. That wasn't enough to drive the economy. So the Fed became aggressive in trying to inflate asset prices.

And through a combination of 0% interest rates and round after round of quantitative easing, the Fed was able to make the net wealth of the American public more than double between 2009 and now. And as wealth increased, anytime the stock market wobbled, the Fed would do something to make it go back up again. The Fed became a hostage to the S and P. If the stock market started to fall, the Fed would make some announcement that would make it go back up again. And even in 2019, even long before this pandemic began, don't forget the Fed started cutting interest rates in the middle of twenty nineteen and cut rates three times, and they relaunched quantitative easing on a very big scale starting in October last year.

Also, that the stock market would keep going higher. And so asset price inflation became a necessary supplement to credit growth to ensure that The US economy kept expanding. So this is the way that policymakers have been directing our economy to make sure that it continues to grow and more importantly to make sure that it doesn't collapse into a new great depression. But this is a long way of getting back to your question about income inequality. The necessity of pushing up asset prices has resulted in greatly increased income inequality in The United States.

And you can see this spectacularly just this year as a result of the $2,800,000,000,000 the Fed has created this year so far. We've seen Nasdaq on fire and stocks like Tesla doing miraculous things, and the billionaires earning billions of dollars in twenty four hours stretches. So this has the undesirable consequence of leading to growing income inequality. But that is a price well worth paying given that the alternative is a new great depression, which you will recall during the nineteen thirties, The US economy contracted by 45% when left to market forces, and unemployment jumped to 25%. And the depression never ended due to market forces.

The depression only ended when the US government massively expanded its borrowing and spending to fight World War two. Between 1941 and 1945, US government debt expanded by five times in four years, and that ended the depression. And the Fed helped finance that by expanding its holdings of government debt 11 times in those four years, and that ended the depression. Not only did it end the the depression, it allowed The United States to win the war. And furthermore, that massive expansion of government borrowing and investment created two more decades of rapid economic growth in The United States.

Well, Richard, so we're not necessarily gonna solve all the world's problems tonight, and I know you are a student of history. I think we're both in agreement that we would like to avoid a major war, we'd like to avoid a major depression, and we'd like to avoid a major revolution. And from my perspective, what goes up comes down. I think I mentioned this to you when we spoke a few weeks ago. You know, when my father was ill, towards the end of his life, they put him on steroids.

I literally thought he was gonna live to be 120, but when they took him off the steroids, he deteriorated pretty quickly. You and I have the same goal, which is we wanna live at peace. And as a student of history, I remember reading The Guns of August by Tuckman, and it basically said that World War one never ended, that essentially World War two was a continuation of World War one. And what I use as a metaphor is to compare the two thousand seven and eight crisis with today, which is we printed all this money back in 02/1978. It got us, quote, through the recession, but we never really completely came off it.

And I know we backed way off until 2016, but then we started up again. My concern is, how do you have a soft landing? Because this can't go on forever. Meaning, yes, we have raised the standard of living for hundreds of millions of people, if not billions of people. But you've been in Thailand for the last many years.

I've been in The States. And going back to when I went to China, which was probably around 1997, '96, I saw the same thing and went, oh my god. This is gonna be transformational. But there were what I would call a few rich people in America. There may have been a few billionaires in America, and there may have been a few five and ten thousand square foot houses.

Now let's fast forward twenty years. There are 45,000 square foot houses in Bel Air. There are beach houses that were a million dollars that are $25,000,000. There were college tuitions that was $5,000. It's now 50 or $60,000.

There are lawyers that were making a half million dollars that are now making $8,000,000. We have grown the middle class up, meaning there are 30% of this country where people come out of college, and if they get a job working at Google, they make $200,000 a year. But the minimum wage has not gone up anywhere near the same amount. People working as secretaries, as mid level management have not seen those same increases. We've had protests in this country in the last six months where people come out and say eat the rich.

We've got an election coming up in two months. Putting political sides aside, their young people in this country are saying we are being locked out. Whether or not you read the meritocracy trap, winners take all, or capitalism in the twenty first century, there are 70% of Americans who say, hey. This has been great for China. We have no problem with that.

It's been great for Vietnam. It's been great for Thailand. It's been great for 30% of Americans. But for us, 70%, not so much. Yes.

We can still go to Walmart and buy a toothbrush for the same price we could pay twenty years ago. But how do we, Richard, continue the creditism that you're talking about, but doing it in a way that doesn't create bottlenecks, that does it in a way that creates more fairness so that that 70% doesn't vote for a revolution? Okay. Well, so every generation is responsible for solving its own problems. We don't get to decide which problems we inherit.

Right. But we have to analyze our problems and also correctly analyze the economic environment in which we are living to see the tools available to us to solve those problems. In the early two thousands, when I wrote the dollar crisis, I could see The US was blowing into a bubble, and I believed it was going to pop. And when it popped, I thought there would be a very severe depression at that time because I couldn't see any way out of it. But there was a policy response I didn't anticipate that was quantitative easing.

I didn't imagine that it would be possible for the Fed to create trillions of dollars in the way that it did, And I think no one else really imagined that either Right. Because we had all been taught that that would lead to very high rates of inflation. Once I lived through the policy response and saw this massive amount of quantitative easing and realized and discovered and saw that it didn't lead to high rates of inflation, then this opens up a whole new window of opportunities that I didn't realize existed before. So in terms of how do we solve the problems that you described and other problems as well, I believe that this new environment that we find ourselves in creates opportunities if we just recognize them and exploit them. For instance, during the first half of this year, the US government's budget deficit has been well, in the first eight months of the year, the deficit has been $3,000,000,000,000, and the Fed has created $2,800,000,000,000 to help finance that.

And so far, the Fed is struggling to reach a 2% inflation target. Right? There's no inflation on the horizon at these consumer price level. So what should we learn from this? And similarly, not just this experience, but from the 2008 experience.

Government debt more than doubled, and the Fed's balance sheet expanded by about five times. And there was no inflation at the consumer price level. K. So what does this tell us? This tells us that it is possible for the US government to borrow on a multitrillion dollar scale and for the Fed to finance that borrowing at low interest rates by creating money on a multitrillion dollar scale without causing inflation at the consumer price level.

So what should we take away from that? What should we do with this information? Well, what we should do with it is to understand that this gives us the opportunity for the US government to borrow on a multitrillion dollar scale and invest in new industries and technologies on a scale that's never occurred before. In my new book, which is going to be called The Money Revolution, How to Finance the Next American Century, what I'm advocating is that over the next ten years, the US government undertake a multi trillion dollar investment program in the industries of the future. Things like artificial intelligence, quantum computing, robotics, genetic engineering, biotech, nanotech, green energy, and that the Fed finance as much of this as it can at low interest rates.

I don't put a specific amount on my recommendation as to how much the government should invest, but I use an example of $10,000,000,000,000 over ten years and show what that would do to the government's level of debt and to the size of the Fed's balance sheet relative to the size of The US economy. Let's use that example, $10,000,000,000,000 over ten years. Well, what we've seen is that just in less than six months, the government has incurred $3,000,000,000,000 of additional debt, and the Fed has financed that with $2,800,000,000,000 of money creation. That reassures me that if the government can do that in three months, it should be no problem whatsoever for the government to invest $10,000,000,000,000 over ten years. And if it did, this would induce an extraordinary technological revolution.

It would turbocharge US productivity and US economic growth. The economy would grow far more rapidly, and we could along the way, of course, it would be necessary to invest in education and research and development at universities and across the board so that the dissatisfied people today who haven't seen any income growth in decades, all of these people would benefit through much stronger economy, higher wages. But moreover, these sorts of investments that I'm describing, they would produce economic miracles and technological marvels that would radically improve human well-being across the board. And a trillion dollars is still an extraordinarily large amount of money. Just one example, the US government now invest $136,000,000,000 a year in research and development through a variety of its main agencies.

136,000,000,000. Multiply that by ten years, that's $1,360,000,000,000. Well, if we added $10,000,000,000,000 to that, that would increase the r and d budget by more than 700%. Right now, the National Cancer Institute, which is the main government agency charged with finding a cancer cure, and cancer, by the way, kills six hundred thousand Americans every year, their annual budget is $6,000,000,000 a year. Well, that's peanuts, and it's not working.

We're not curing cancer. The Fed was creating $6,000,000,000 an hour at one point earlier this year. We have the opportunity to radically expand the amount of investment that we are doing. And if we do, we really have a shot at curing many of the diseases, as well as greatly enhancing US national security and improving our environment and restoring the environment back to some better state of health. This is the opportunity that our new economic environment presents because the Fed can create money without gold backing.

And because of globalization, there are no inflationary pressures at the consumer price level. So we need to take advantage of this, and we need to do it as quickly as possible. And if we do, we are going to all benefit just extraordinarily across the board. And so how do we do this? Well, of course, the government invested all of the money that led directly to NASA and the landing the man on the moon.

That was all a government directed enterprise. So that would be one way of doing this, but perhaps a better way would be for the government to act as a giant venture capital company and raise this money and then set up joint venture companies with the 10,000 most promising American entrepreneurs and scientists. So the government raises the money, the Fed finances as much of it as possible, and the government funds joint venture companies lavishly. In exchange for the government funding, the government keeps a 60% equity stake, the entrepreneurs and the scientists keep a 40% equity stake, and they manage the company. And when one of these joint venture companies discovers a cancer vaccine or a cure for Alzheimer's, you list that company on Nasdaq for $5,000,000,000,000, and this entire investment program very quickly pays for itself many times over, and we cure all the diseases, solve our Social Security issues, our Medicare problems in the future.

Now we can sit back and wait thirty years for Medicare and Medicaid and Social Security to all go bankrupt, or we can cure all the diseases in the meantime. This is a once in history opportunity where the US government can borrow and invest trillions and trillions of dollars over the next decade with the Fed financing that with paper money creation at low interest rates without causing inflation at the consumer price level. Well, I think we're moving in the right direction. In November or December last year, senate minority leader Schumer made a speech in front of the defense establishment in Washington at an a conference on artificial intelligence because Washington has finally woken up to the danger of China developing artificial intelligence before The United States does. Given that China's won the five g race, America's not even in the five g race.

Schumer said he was going to propose a law for The United States to invest $100,000,000,000 over the next five years in new industries and technologies like artificial intelligence. Well, I was happy to see that. That was a small step in the right direction. It was some indication that Washington was aware of the dangers confronting us, but $100,000,000,000 is not going to have any impact. This year, China, for the first time, invested more in r and d than The United States did.

And if current growth trends continue by the end of this decade, China is going to be investing 40% more than The US is in twenty thirty. If that occurs, China is going to get artificial intelligence first, and that means that would be the twenty first century equivalent of China having a nuclear monopoly. Whoever gets to AI first, artificial general intelligence first, the future belongs to them. Afterwards, their computing power will increase exponentially, and everybody else will be left behind and will become Chinese territory, essentially. We can't allow that to happen.

Then a few months ago, my response to Schumer was I tweeted, I'll see your 100,000,000,000 and raise you 9,900,000,000,000. That's the scale we need to think about. We shouldn't be talking in terms of billions. We need to be talking in terms of trillions. So then Joe Biden has now published the Biden plan calling for $300,000,000,000 of investment in r and d over the next four years.

Okay. 300 over four years is better than 100 over five years. Still, it's far from enough. So we need to ramp this up. We need to realize the opportunities that we have before us.

And if we do, we can make our economy grow so much faster that these discontented people that you described, who are right to be discontented, they will have no reason to be discontented any longer. Our economy will be growing so quickly, and the opportunities that will open up for them will be so vast that we'll be back in the heyday of the nineteen fifties and sixties when the the country experienced rapid economic growth and great leaps forward in social justice. So, Richard, before we get into how people can get macro ed and read some of the things that you're doing and keep up with these trends so that they can anticipate and understand the great complexities that, as I said, you break down simply. I do wanna push back a little. We have a political system where 300,000,000 people vote for our politicians who, quote, print money that is potentially spent in a 7,000,000,000 person economy.

So our political system does not match the world economy. So the dollar is the world currency, and yet the people that elect leaders that promote that economic system are elected by 300,000,000 people. And we have red states, and we have blue states. So I wanna push back a little because we haven't had wage inflation at the worker level that has been outsourced to China. So when you have a supply and demand situation, bottlenecks, oil's limited.

So if you frack, you create more oil. With people, when we were on the gold standard in the seventies and we were mostly hiring US workers, when wages went up and you couldn't outsource that, you didn't have inflation. If I want somebody to change a light bulb, I gotta pay them here. So instead of paying $20 an hour, I may pay $70 an hour. A lot of what you're discussing is printing money and sending it overseas where because of the standard of living overseas, people can live on $5 a day.

That doesn't work in The US. So we print all this money and we do all this r and d. If we pay people overseas to do the r and d, we won't have inflation in The US. But if we print all this money and we hire people to deliver goods and we're printing all this money here and we're only using US people, we're gonna create a bottleneck. So what's gonna happen is we're gonna print all this money.

We're gonna mostly use people overseas to do the research, and the person that is administering that at Google will make $200,000 a year. But the person in Pennsylvania who's living on a farm is not benefiting. And those are the people that are electing the politicians that are printing this money. So that's what I see breaking down. Okay.

Well, you certainly raise fair points there. I would say a couple of things. The money that's spent on r and d would be primarily spent through US universities and US agencies and would be done in The United States. Right. Secondly, while I like to focus on investment in research and development because of the clear rewards and profits that would generate in this environment we are in.

It would also be possible for the government to borrow and invest in infrastructure across the country so that it employs more people in the red States and across the country so that they do have jobs and can rebuild The US infrastructure. I don't talk about that as much because it's easier for me to demonstrate that r and d is going to produce technological breakthroughs that will become extremely profitable and yield extraordinary benefits. But in this environment, you know, I talk about $10,000,000,000,000 over ten years. Well, maybe 2,000,000,000,000 of that can go to infrastructure Right. Or to paying school teachers higher wages.

This is a very bold plan I'm describing. That said, we have to be humble about this approach. We won't know how much we can invest until we try. So this has to be done through trial and error. Right.

If it turns out that, of course, we're not going to be able to spend $1,000,000,000,000 next year, invest $1,000,000,000,000 next year, it's going to have to be ramped up more gradually. But if we find that we are investing too aggressively and that's leading to meaningful rates of inflation at the CPI level, then we can scale it back until those particular bottlenecks are overcome and the inflation rate comes back down again. And then we can ramp it up again. Alternatively, if we find that we can spend even more than we currently anticipate without causing high rates of inflation, then we should spend even more than $10,000,000,000,000 over ten years in these new industries. This doesn't all have to go to research and development trying to develop artificial intelligence.

It can go into infrastructure and other parts of the country so that the people who are discontented now will begin to benefit immediately. Now that makes sense. So, Richard, help me out for a second. If people want to learn more about the trends and subscribe to your videos and newsletters, Can you spend a minute telling us how they can find you and take advantage of your wisdom that you're constantly publishing? Thanks, Jim.

So, yes, my main goal is to write books and to describe the opportunities and to look for solutions to our society. It's not enough just to say we're all doomed and stick our heads in the sand. We need to find solutions to our problems. And that's what I am trying to do with the books I'm writing. The next book, as I've said a couple of times, is The How to Finance the Next American Century.

I'll be happy to discuss that with any of your listeners if they would like to contact me. Right. But in order to earn money, I publish a video newsletter called Macro Watch. And in Macro Watch, I explain how the economy really works today. It doesn't work the way it did in the past when money was backed by gold.

With MacroWatch, I explain the forces that drive the economy and the financial markets in the twenty first century, not in the nineteenth century, in the age of Ludwig von Mises or even John Maynard Keynes or Adam Smith. That's not the world we live in anymore. We have a different environment. Our economy works differently. In Macro Watch, I explain how it works.

Every couple of weeks, I upload a new video describing something important that's going on in the global economy and how that's likely to impact stocks, bonds, interest rates, currencies, commodities, property, etcetera. So if your listeners would like to check that out, they can find Macro Watch on my website, richardduncaneconomics.com. And if they would like to subscribe to Macro Watch, I would like to offer them a 50% discount. If they click on the subscribe button, and they'll be prompted to put in a coupon code. If they use the coupon code puck, they can subscribe at a 50% discount.

And if they do, they'll receive one new video, essentially me making a PowerPoint presentation every two weeks for the next year. But also they'll have immediate access to something like seventy hours of videos in the Macro Watch archives along with four courses that explain in detail how the economy really works now, how we got here, and where we're likely to go. So I hope they'll check that out and at the very least sign up for my free blog at richardduncaneconomics.com. And also if they want to learn more about the book, they can contact me through the website. I'd be happy to discuss these ideas.

The proposals that I'm making in this book would benefit everyone. They would greatly improve the lives of the poorest segment of our country, greatly improve the lives of the middle class, and it would greatly improve not only the wealth but the well-being and health of the richest segments of society as well. After all, I'm talking about government funding $10,000,000,000,000 of investments with the 10,000 most promising American entrepreneurs. This is something that we need to promote together because this is the solution to the rather dire situation our country is facing, not only economically and politically in terms of domestic politics, but geopolitically. If we do not ramp up our level of government investment in research and development, We are going to be overtaken by China in the very near future, and China will be the dominant global economic, technological, and military superpower.

And once they are, it will be very difficult for us to ever regain our preeminence. If we don't invest much more aggressively, then our destiny will no longer be within our own hands. China will overtake us within the next decade, and that's something that we must not allow to happen. I love John Kennedy and the whole notion of the the missile gap back in the sixties and also the space the whole space race and the way technology played a role. And you and I are not gonna agree on everything, but we agree on a lot of things, And we certainly agree on the fact that we can't fall behind, that we've got to keep our r and d and our economy strong.

We've got to develop AI. We can't lag on things like five g that we lost. We agree on all those things. And the other thing I will say is that whether or not you come from a red state or a blue state or whether or not you're for no deficit financing or for deficit financing, I think one of the things that you're brilliant at is that you take very complex issues and you break them down and you explain them in very concise ways. And so I would urge people to subscribe to Macro Watch, to watch your videos, to read your commentaries because, again, whether or not they agree completely or not is somewhat irrelevant.

The fact is you want a seat at the table. You've gotta be educated, and so I thank you for that. And let's keep the debate going, Richard, because in this world of polarization, we're not gonna solve all these issues overnight. But if smart people read and discuss and talk about these things, we're gonna come up with solutions. So I feel like I've got a new friend in Thailand and a source of information that's been incredibly beneficial to me.

And so thank you so, so much for doing what you're doing. Jim, thank you. And I'm hoping that this new book will popularize these ideas and the possibilities, the opportunities in front of us because I believe our future literally depends on it. Well, Richard, I look forward to, quote, buying your book and being a student of it. We will stay in touch and I hope to talk again soon, but thank you so, so much for making yourself available today.

Jim, it's my pleasure. It's been a real pleasure meeting you and I'm glad to have a new friend in LA. Okay, Richard. Be well. Stay well, my friend.

Thank you.