America’s Largest Wealth Transfer Has Begun, Are You Ready?

Dave Meyer:
This is On the Market, a BiggerPockets podcast presented by Fundrise.
Hey everyone, welcome to On the Market. I’m your host, Dave Meyer, joined today by Kathy Fettke. Kathy, how are you?

Kathy Fettke:
I’m pretty good. I got something from my grandbaby, so I probably sound a little stuffed up. It was worth it.

Dave Meyer:
Yeah, I’m sure it was worth it. Hopefully, everyone’s okay though?

Kathy Fettke:
Yeah. Yeah, absolutely. Rich did not get it. He’s just working out in the garage.

Dave Meyer:
Okay, wow. Lucky for him. Well, today we have a very interesting show and guest. We have Chris Martenson joining us, which was a guest of your recommendation. Can you tell us why you were so excited to bring Chris on today?

Kathy Fettke:
Well, I met Chris years ago. Actually, my husband, Rich, was a fan and a member of Peak Prosperity for years. Chris has been able to… He says… This is how he says it, “He doesn’t lean left or right. He’s up or down,” meaning integrity or not. He just uses a lot of data to help try to understand what’s happening and maybe some ways that we are being misled or intentionally confused. So he’s just able to really bring that data forth and then help at least me see what it means. Like, “What do I do with this information? We know something’s wrong. Most people know something’s wrong. Is this normal to have this much debt? Is this normal to have a discussion about the debt ceiling every year?” So we know there’s a problem and he’s just really able to paint a picture that helps people like me understand it better.

Dave Meyer:
Great. Well, we’ve obviously already spoken to Chris. It’s a really fascinating interview. He has a very good way of discussing the history of the Fed and monetary policy and providing some context about what is going on with inflation, where it might be going. It’s a different perspective than we’ve heard on this show. So I encourage everyone to hear Chris out and let us know what you think about this episode once you’ve heard Chris and his sometimes grim view of what’s going to happen in the US economy over the next couple years. But our goal on this show is always to bring on people who have well-informed opinions regardless of what those opinions are, if they’re well-informed, which Chris certainly is. We want to hear him out, and I thought it was a really interesting conversation.

Kathy Fettke:
He has a gift in being able to make very complicated topics more understandable.

Dave Meyer:
Absolutely. Yeah. So I think you guys should buckle up. This is a really good episode. I think you’re going to walk away understanding the Federal Reserve, money printing, inflation in a much better way than maybe you have in the past. So hopefully you enjoy this conversation. We’re going to take a quick break, and then we’re going to bring on Chris Martenson from Peak Prosperity.
Chris, welcome to On the Market. Thank you so much for being here.

Chris Martenson:
Hey, Dave, Kathy, so good to be here with both of you today.

Dave Meyer:
Well, we appreciate your time. Can we start by just having you introduce yourself to our audience and tell us how you got into being an econo blogger?

Chris Martenson:
Yeah, sure. Hey, my name’s Chris Martenson. I have a PhD from Duke in Pathology and MBA from Cornell in finance. I spent a bunch of time in the corporate world. I worked at Pfizer for three years. That didn’t work out between us. It was not a great relationship for the both of us, but I learned a lot there. And then I worked at a company called SEIC, doing things back into the business side. Somewhere along the way there, 2001 happened when I was this genius investor with everybody, and then my portfolio got shredded. And I’m a curious guy so I started asking like, “Why did this happen?” I started uncovering things. Next thing, it’s really consuming all of my attention. I took a sabbatical that became permanent from that job. I was vice president of a pretty large company at that time, and I started blogging.
So at that time, I’m 42. I have three young kids. Don’t take any career advice from me because I ditched all that to start a blog before there was any monetization. It wasn’t easy to make money off blogs back in… This was 2005. By 2006 though, I was really curious. I started digging. I found things out about the economy that today seems so quaint, but at the time I was like, “Oh my gosh, the Fed prints money out of thin air, $5 billion this month.” So that was concerning, but I saw these long-term unsustainable trends that was like, “Well, hey, there’s no mathematical resolution for the entitlement programs on and on.” So that concerned me, and then I started connecting more dots and it became this thing that I started delivering horrible lectures.
I’m so glad nobody listening to this came to any of them because this was me early stage wrestling with a big giant story in church basements, talking up to audiences of 80 people, charts, eight hours of this guy blabbing. It was awful. But eventually it condensed and it became this thing called the crash course where I connect the economy to energy and then also to the environment. And to sum it up, it’s just very unsustainable so I said, “Wow, this is all going to change what would be the response.” And then that became my business. So now it’s a company called Peak Prosperity. It’s a very large online web community. We’re dedicated to resilience. And the way we focus on that is around lots of different forms of capital. And so yes, I’m pretty good at problem definition, but I really like the solution space because you got to make decisions, you got to do something. But really it was just a passion that became a mission. And fortunately that also became my money. So I’m very fortunate in this regard.

Kathy Fettke:
Well, the Fed just raised rates again. What are your thoughts about how that will impact the banking situation and looming recession?

Chris Martenson:
I’ve been a long critic of the Fed. They both give too much punch bowl and then they take it away too abruptly. And so this time, this is not just a rate hike cycle. This is the most aggressive one that we’ve seen in the last series of them going back 20 years or so. It’s not just that we’re five and a quarter percent now, which is going to have lots and lots of impacts. It’s that we were at zero not that many months ago. And so this has caused all kinds of things. At the time of this recording, obviously we’re seeing the regional bank failures. This was just preordained. There was nothing you could do in their situation when you have to match out your duration on your bond portfolio and you’re getting treasuries 10 years at 1.5%, right? Or less. That’s a recipe for disaster.
But we saw that same yield seeking behavior do horrible things in the shale oil space. Obviously, a compressed cap rates like crazy in the real estate space because everybody was yield chasing. You had big giant pensions out there who have fiduciary responsibilities on a long horizon. And when you had year after year after year of basically zero money, 0% money, what do you do? Well, you chase. And so we saw that chasing. And my summary of this is actually by this famous economist from the 1800s, John Stuart Mill, who said, “Panics do not destroy capital. They merely reveal the extent to which it has already been hopelessly betrayed.” So all those deals that happened… I mean, I’m old enough to remember two years ago when we had $19 trillion of negative yielding sovereign debt. What even is that? Well, it’s today’s losses is what it turned out to be. So that’s the world we’re in. And obviously, things are going to break now for a bit.

Dave Meyer:
Well, this is exactly why we wanted to bring you in. Chris, you have a very sophisticated understanding of the Fed and monetary policy. And so I’d love to just take a little bit of a step back and talk about exactly what you were just talking about, sort of the introduction of all of this new monetary supply during the COVID era and what you sort of at a high level think the broad implications for all of that “money printing” is over the long term. We’re obviously seeing some impacts in the short term, but how do you see this playing out over the next decade or so?

Chris Martenson:
Well, Dave, great question. And for everybody listening, I know it sounds a little wonky, little arcane, but if you don’t understand what the Fed is up to, you’re basically playing in an arena where you don’t know what the rules are. So the Fed has to be tracked. It has to be watched. It’s really one of the most important sources of information that you could learn about. And it’s not all that tricky, right? What the Fed does is they print money out of thin air and then they distribute it. And it obviously doesn’t get evenly distributed in the economy. So next question is, where’s it going? Who gets it?
So to actually answer your question, I’m this kind of guy, I got to rewind a little bit. 1987, we have this stock market crash. Alan Greenspan does something no Fed chairman had ever done before where he rode in. I’m sure he felt important. He’s new in the role. He’s dealing with all these Wall Street executives and they come up with this deal and they rescued the markets. Yay. Instead of allowing that creative destruction to just wipe out some, we had a little exuberance. People take some losses. So that was the first instance of what was called the Fed put, specifically the Greenspan put, put being an option that lays a floor below which you know that you’re safe because the Fed won’t allow prices to go below that level.
So what happens when you do that? Well, humans being humans, incentives being what they are, Wall Street said, “Well, if we’re going to take risks, we should do it bigly.” So they did. More risks got taken on. Then 1994 we had this hiccup again in the corporate bond market. It was bad, but it was a hiccup. And Alan Greenspan rode in and basically removed all reserve requirements from banks so they no longer had to keep something in reserve. We talk about the fractional reserve banking system. We had one prior to 1994. 1995 onward, no, no fraction. So banks could now do whatever they want. They can loan crazy amounts. So they did. That’s called the ’90s pets.com, dot, dot, dot right? Little hiccup around 1998, long-term capital management. Oops, emergency. Another bailout.
And so the risk just got worse and worse. And then that gave us the 2000 crash, which is now again, my origin story, why I’m talking to you because that was the crash that made me wake up and go, “Something’s not right here. I better understand this game.” And once I did, I realized, “Oh, here’s the story I’m laying out so far.”
’87, “Oh no! They swerve. The Fed has to grab the wheel and get the car back on the road. But oops, they over steered. Now they have a bigger thing to deal with.” ’94, they steer the other way. And then ’98, back the other way. And then 2000, and then Bernanke comes along and he is the architect of everything that we have to deal with now because he gave us those 1% blowout rates forever from 2005, ’06 onward that gave us the housing crisis, right? Because again, you drive interest rates really low, you distort the price of money, and human behaviors change on the other end of that. It’s just how it works.
So then we had 2008 that crash, then they swerved the other direction. 2008, all the way from all of our histories founding, from the very beginning till 2008 had necessitated the creation of $883 billion on the Fed balance sheet. That’s how much total money stock they’d put in the system. Within just three months after Ben Bernanke takes the wheel and does this thing called quantitative easing, that had shot up to 2.4 trillion. So imagine that. All of the country’s history, every bridge built, every mile of road paved, every school built, everything we ever did was 883 billion. And then in just a few months, now we have 2.4 trillion in the system, right? Okay, so now we have some heavy distortions going on. And carry on, 2019, it’s still going on. We had this repo market disaster in September of 2019. Remember 10% overnight rates. That caused the Fed to have to grab the wheel and turn the other way, but then COVID.
And now we have to talk about something that takes everything I’ve just talked about and make it pale in comparison enormously. We went from about 4 trillion to nearly 9 trillion on the Fed balance sheet. 5 trillion in just three months. And it’s extraordinary that that happened. Never before in history, unelected people suddenly making the decision that 4 trillion is the right number, 5 trillion is the right number. This time that also through the PPP loans, what happened was the federal government started to grab some of that 5 trillion. It didn’t just go to Wall Street driving up stock prices and bond prices, but some of that got out to Main Street. A lot of it got up to Main Street, and now we have inflation out on the street as a consequence of that. And here we are.
So there’s really no easy way back from this at this point, but the story is simple, over steer to over steer larger and larger. And so the prediction I have is simple. The Fed’s going to have to do this again, but next time it’s even bigger and people need to be ready for that.

Dave Meyer:
Chris, I have so many follow up questions for you on that.

Kathy Fettke:
Right. We do.

Dave Meyer:
But before we get into it, I just wanted to ask a clarifying question to help our listeners understand. When you say money on the Fed’s balance sheet, can you explain the significance of that?

Chris Martenson:
Sure. Absolutely. So I know most of all your listeners are familiar with the financial statements, right? But the balance sheet of the Federal Reserve is where it keeps its assets and its liabilities and its capital. So an asset to a bank is somebody else’s debt, right? A liability to a bank is somebody else’s asset, right? So when I put money into a bank account, that’s my asset, bank’s liability. So we just have to remember, banks are just on the opposite side of the transaction. So when I say the Fed’s balance sheet is growing, it’s putting things onto the asset side of its balance sheet, which means it went out and it bought mortgage backed securities, it would buy treasury notes. And so when I say the Fed buys them, how does it do that?
Now, you or I or anybody listening to this, when we buy something, we have to have some cash on one side of our balance sheet so that we can go out and use that cash. When the Fed buys something, let’s say it buys a billion dollars of mortgage backed securities from a primary dealer, it just reaches out, informs them, “We’re taking that billion dollars” and a billion dollars in cash or currency shows up in their bank account, right? Where did that cash come from? Well, it’s the Federal Reserve. They got their magic keyboard out and they go, clickety-click, click, click, I need a billion dollars, and it goes over. And so they take the mortgage back security and a billion in Federal Reserve credits show up over there. It’s cash.
So when the Fed’s expanding its balance sheet, what they’re really doing is taking debt instruments off the market and pulling them on their balance sheet and pushing cash out there. The reason they do that is they figured that when financial institutions are not in the business of having cash on the balance sheet, they got to do something with it. So if I’m the Fed, and Dave, I take your mortgage backed securities from you, which we’re paying you, I don’t know, four and a half percent, and I give you cash in a zero yielding environment, you’re like, “I got to do something with this,” right? And that’s why the Fed does it. They hope that this provides stimulus. Dave’s going to go out and do something with that billion in cash I just gave him, and maybe he’s going to loan it to Kathy and she’s going to do something great with it. So that’s why they do it. They’re just pushing cash out there, knowing that cash out in the market provides lots of liquidity and hopefully it stimulates something. Did that explain it?

Kathy Fettke:
It does. I mean, to me, it just sounds like one big Ponzi scheme honestly, that you could just make money out of thin air and then lend it and charge people for it. Anyway, that is what it seems like. But what’s the impact that this massive, massive amount… I mean, some say as much as 13 trillion. I know I’ve been saying 7 trillion, but really how much money was created since 2020?

Chris Martenson:
Well, we have to look across. This is a global thing now, right? So we have to at least include the G7 central banks, and that number is close to 20 trillion right now. And they’re starting to wind it back a little bit now, but 20 trillion excess dollars. Because if I took the names off of the NIKKEI, the German DAX, the Footsie, all these major stock indices plus the Russell, the Dow, the S&P, the Nasdaq, if I put all those charts up on any given day, but I took the names off, only the most seasoned of prose could tell you who’s who because they all trade in synchrony right now. So we have this one big global monetary system. So you can’t just track what the Fed is up to anymore. You kind of also have to understand what’s the ECB doing? What’s the bank of Japan doing? Because they’re all actually doing the same thing, which is throwing a lot of this liquidity, which is thin air cash out into the system in the hopes that this all sort of works out and resolves.
But Kathy, you’re getting to the heart of this, which is that simply printing money doesn’t guarantee that it’s going to do what we need it to do, or it’s going to stimulate the right sorts of behaviors. It’s a very blunt tool. You throw trillions of dollars out there, cross your fingers, and guess what? A lot of it doesn’t go to productive uses because it goes to speculative endeavors instead. And so bubbles everywhere. That’s what we’re in the business of seeing right now, is we have multiple bubbles across multiple asset classes and they’re in danger of all being pricked at the same time. But that’s what the central banks do. They blow bubbles, they prick them, they clean up the damage. Wash, rinse, repeat.

Kathy Fettke:
Where do you see the biggest bubbles and the biggest concern?

Chris Martenson:
Well, I mean, we obviously had huge bubbles in the so-called crypto space, which is actually digital forms of currencies, right? So remember, even coins that were started as a joke suddenly were worth tens if not hundreds of billions and all of that. So that’s an example, right? I’m old enough to remember the 2000 internet craze, which was we had all these strange explanations. So a bubble is anywhere you have a strange explanation like, “Oh, it’s eyeballs. Oh, you don’t understand. This thing is worth more because X, and X is a really weird reason you don’t totally understand.”
So we saw it there. Certainly we saw it… Inflation is everywhere and always a monetary phenomenon. That’s what Milton Friedman said. I believe him. And so you see inflation where the money goes. So for a long time they said our inflation was low because they measured it in terms of the price of milk and gasoline and things like that. But the money went to Wall Street. So what did we see? Right there during that whole run up through till 2020, we saw trophy properties going exceedingly expensive, right? We saw Gulfstream 650s. You couldn’t get your hands on one, large waiting list, huge waiting list for giant yachts. Art auctions were going crazy. Large diamonds and other gems went nuts. Those are all places that people who got that money dumped on them, that’s what they buy.
So we saw tons of inflation, but we have to include we saw inflation in the stock and bond markets. At the same time, we saw price earnings yields go just through the roof, these super high price earnings, meaning we’re paying a lot of money for low earnings in stocks. We also saw bonds yielding less than zero negative yielding, which bonds are up, prices and yields go opposite directions. So as the yields go down, the price goes up. So prices going up is inflation. So we saw a huge inflation. Stocks, bonds, many classes of real estate, Bitcoin, trophy property. It went everywhere. It was one of the more massive moments of inflation that anybody’s lived through.

Kathy Fettke:
I mean, some people are saying it’s going to be a recession of the wealthy because people who could just blow money on art and all of a sudden… Or will it trickle down to everybody?

Chris Martenson:
Okay, now we’re down to it. So there’s only two paths, okay? There’s only two paths left. One, we go down a deflationary path. And in deflation, these are punishing. Nobody likes them. It causes austerity. But really it’s the holders of bonds get crushed and the holders of equities often get crushed as well. That’s a really unpopular road to take because nobody likes it. But in particular, who tends to hold all those bonds and stocks? Well, it tends to be the Federal Reserve, it’s employees, it’s friends, it’s neighbors, it’s relatives, and the entities they hope to go and work for someday. That only happens when it breaks on them and they can’t control it. So that’s a very rare event.
Alternatively, we have to inflate this away, right? And so inflation is always the preferred route. That’s the direction they want to go. All their statements to the contrary. Inflation’s awesome because everybody has to chip in for that, right? It steals from every single bank account. So if I could, inflation is often characterized as this mysterious thing, like a comet was an omen to the Romans were like, “Oh, there’s this inflation. Where’d it come from?” But it’s an act of policy. And inflation, what it does is it’s not the price of things going higher. We got to flip that. Inflation is the value of your money going down. So if I have money in a bank account yielding today 4%, but inflation’s 8%, I’m going to lose 4% purchasing power. Who took it? Where did it go? Because purchasing power is a real thing. It evaporated apparently. It didn’t. It was stolen a way and it was taken as an act of policy.
So inflation is always the preferred policy because it nibbles at everybody, but it helps those who are most highly indebted, which includes the federal government get out from under that. And so that’s what they always try to do. The problem today is that we no longer exist in that unipolar world where the United States prints and the world has to take it. There’s this extraordinary set of developments over in what’s happening in the so-called BRICS countries who are gaining a lot of power. And so we’re at an extraordinary moment of… It’s a regime change from unipolar dollar-based world to multipolar. And that’s a huge transition that has a lot of potential implications.

Dave Meyer:
Well, don’t you think all the inflation and money printing is sort of fueling the BRICS countries to try and become and establish themselves as a more popular reserve currency because they don’t want to have the negative impacts of monetary policy of the United States?

Chris Martenson:
Absolutely that’s part of it. Because otherwise they just have to absorb. Whenever we decide to export our inflation, their choice was eat it. So that’s not popular, but we can actually date this, Dave. We can put this to a moment. February 28th, 2022, four days after the Russian invasion of Ukraine, the United States comes forward and says, “Oh, we’re seizing Russia’s sovereign reserves,” which proves that they were neither sovereign nor actual reserves. This was actually one of the biggest moments in our financial histories where basically the United States said, “We don’t even care if you’re a nation state. We don’t care if you came by your money. Honestly, we decide we’re going to freeze that and seize that.”
Not unlike what Canada did with those people who donated, I think, quite legitimately and legally to the truckers movement that was happening up there. When they seized people’s bank accounts, they contravened every known rule in law. And those are two warning shots across the bow that if you’re a brick country, you’re like, “I don’t want to be exposed to that. The United States can just be unhappy with me someday and take everything that I’ve worked for, traded, honestly dealt with, saved.” However you came by it. That was the moment. And so that really put the rockets on that particular development. They’ve been kvetching about things for a long time. But that was the moment, and I’m astonished at how fast this is actually beginning to unravel here.

Dave Meyer:
Yeah, it seems like almost every day there’s some news about it. But I would imagine the research I’ve done about it seems like they have high intent to do it, but it might take a little while for them to really establish themselves. But if they intend to do it, it will probably continue to move in that direction.

Chris Martenson:
Yeah, I mean, they’re doing well. So there was another warning shot, which was not only did we seize Russia’s sovereign reserves, but we also cut off their banks from what’s called the Swift system, which is how banks do interbank messaging to settle. And if you’re cut off from that, you can’t be part of the banking system. So they develop their own. And so there’s actually already… China and Russia are using a different system. So it’s really hard to convey, but the United States in a lot of Western interests, we had extraordinary power because of having that financial position. That just all got undercut and taken away and I kind of… Not I kind of. I wish we’d had legit debates about like, “Is this a good idea or not?” This feels way beyond what the executive office ought to be able to just unilaterally decide to do. We should have had legit debates in Congress and the Senate like, “Do we really want to do this? Because here are the possible consequences.”
And editorially, I feel like this administration and current crop of DC folks, they seem to be really bad at understanding that there are causes and then effects, like, “I do this, then that happens.” They seem to be blissfully unaware of what those impacts might be, but this is really a huge development that’s happening, and it’s happening faster than I thought it could have. And so we’re just going to have to watch that. It could unwind… This could go faster than people think.

Kathy Fettke:
Chris, I mean, I’ve known you for a long time, and you’ve talked about this and warned about this for, like you said, for decades now. And here we are. And here we are. So what would be the impact if more and more countries went this way and stopped using the dollar as the reserve currency?

Chris Martenson:
It’s huge. So August 15th, 1971, the United States, we were still, through Bretton Woods, tied to this gold standard. That was little inhibiting. We didn’t like that. So Nixon announced temporary suspension of the gold window and turned out to be permanent obviously as all things government temporary theme seemed to be. But what are you going to do then? So what’s the dollar backed by? We’d already just violated that Bretton Woods Agreement. And so what happens? Inflation’s raging. This evil genius, Kissinger, comes along and enshrined something in ’73 with a deal with Saudi Arabia saying, “Oh, if you sell oil, why don’t you just trade it in dollars?” In fact, we enshrined this thing called the petrodollar where all oil traded anywhere in the world was traded in dollars.
So country A, B, Z, they all needed dollars to buy oil and everybody needs oil, right? So it was this beautiful thing. And that’s what’s in the business of unwinding right now, is this thing called the petrodollar. And it’s as simple as this, does oil have to be traded in dollars or not? Because if it is, and you’re a country that wants to buy oil, your Chile say, you have to have dollars, which means somehow you have to run a positive trade balance with the US, which means the United States gets to run this horrifically large trade deficit, which we’ve done forever, right? When that unwinds, there’s approximately, last I saw, about 10 trillion US dollars that are parked offshore because of that petrodollar business.
All right. What could threaten the petrodollar? Oh, Saudi Arabia just a couple days ago announced they want to officially join the BRICS. They’ve already inked deals with China to give them preferential access to their oil. They’re going to trade it directly in Yuan. So the dollar is already under attack. This isn’t like it’s going to happen or when. It’s happening. So if that happens, here’s the simple summary. All these dollars floating offshore, many of them no longer are needed by their host country, so what do they do with them? You either sell them so the dollar starts to fall, or you say, “Maybe I should buy something with these dollars while I still can.”
So the point here is that anything that trades internationally that we might want will suddenly become more expensive. But what’s actually happening is there’s too many dollars out there chasing them. So it’s the dollar losing value. So prediction would be within a few years, we would see hideously high internationally traded oil prices in dollars, most commodities. Anything that that’s really traded in bulk by the US, which is almost everything at this point because we offshore our manufacturing, we gave that away, that’ll come back, but that’s a long slow process. And so that would be my prediction, is we’ll just see things become… Anything that isn’t nailed down, you can put on a boat, gets more expensive.

Dave Meyer:
I want to switch gears a little bit, Chris. This has been super interesting, but I want to ask you about a couple of recent events then just get your take on them. The first one is the debt ceiling. Janet Yellen came out and said that they expect that the treasury could default as soon as June. Curious how you view this entire situation. What are the potential implications of a US default?

Chris Martenson:
Well, the implications are so dire it won’t happen. How many times have we been down this path? So, “Oh, no. Looming debt ceiling discussion.”

Dave Meyer:
I like your confidence because I’m scared.

Chris Martenson:
Yeah, 99% chance the debt ceiling gets raised, right? And you’ve even seen maybe, they just started floating this idea of like, “We could print a trillion dollar coin.”

Dave Meyer:
Oh my God, this coin idea.

Chris Martenson:
At any rate, bottom line is there’ll be some brinkmanship, we’ll get there. There’ll be some concessions by the Republicans, which won’t really do anything. We are facing a really huge sea of red ink in the United States for the next 10 years at least. And a recession when one comes will only make that more extreme. So lots and lots of printing and there’s no other way around this. Because a debt default if one did happen, there’s two ways that could happen. First is what’s called a technical default. The government actually misses a payment or two, but it’s not permanent. It’s just these bonds that were due Monday, we had to pay them on Wednesday or something like that. So that would be a technical default. That would trigger lots of chaos.
But if they actually went into a full-blown default, meaning, “Hey, we can’t pay you back the total amount. If you had a billion dollars of treasury bonds, we can only afford 800 million or something like that,” that’s chaos. All the analyses I’ve seen, that doubles unemployment right away. It crashes all kinds of things. That’s literally a lights out kind of a financial moment. So it won’t happen. But the alternative to that is we’re going to see lots more printing. And without some sort of handcuffs that would prevent Washington from just spending more and more and more… Because that’s all they know how to do. That’s their muscle memory. There’s nobody in there that even knows what a balanced budget even might look like, right? So we have that ongoing.
And then as well, the congressional budget office in December of ’22 came out and said, “Oh, hey. You know that social security lockbox, the trust fund, which there’s nothing in, it’s literally a three ring binder with a bunch of IOUs from the treasury unit? Even that goes to zero by 2033.” And so the analysis they ran said, “Oh, either we have to cut benefits to retirees by some horrifying percent, or we’re going to have to raise payroll taxes to 18%,” 17.9% from their current 12%, 12.6. So that would be one of those two or some combination. More payroll taxes, less going to retirees and all of that.
So these are all the things that have been building, they’ve been building a long time. It’s why Kathy, Dave, I take this long term… That’s why I have to rewind to 1995 because it’s not like we just stumbled into a series of accidents. “Last year, we made some mistakes. How do we get out?” This has been decades in the making, and the summary is simple. People like a free lunch. Washington wanted to both conduct wars and cut taxes and we wanted to live beyond our means. It’s a very old story. It’s why households get in trouble. And so we have to figure out what we’re going to do.
The unfortunate part is I’m sure your listeners know. Now, there’s another angle to this story, which is now they’re talking about these central bank digital currencies as a means to sort of deal with this situation. But the current system is absolutely insolvent. Not bankrupt. Bankruptcies is a legal proceeding. It’s insolvent. The liabilities and assets, they just don’t line up at this point in time. So if people ask me for like, “Chris, I’ll give you 10 seconds. What do we need to know?” I say, “Listen, you just have to resolve the answer to this one question. Who’s going to eat the losses?” Bankers don’t want it to be them. Congress doesn’t want to have to…. Everybody’s sort of scrambling in this story, which is why it’s so essential to have this macro context because if you can see that there’s this game being played, which is about who’s going to eat the losses, there are ways to position yourself to not be, in Texas terms, the sucker at the table, you know? You got to figure out what you’re going to do about that.

Kathy Fettke:
Oh, that was going to be my next question. How do we not be the-

Dave Meyer:
Great transition.

Kathy Fettke:
Right. How do we not be the sucker at the table? I mean, how do you protect yourself? Where do you put your money today?

Chris Martenson:
This is a great question. So for financial capital… And again, I talk about eight forms of capitals being important to your resilience going forward. But financial capital’s always where we start. If you don’t have financial freedom, all the rest are kind of much harder to accomplish.
So this story’s been played out over and over again throughout history. We can see it in Zimbabwe, we can see it in the Austria Empire in 1918 through their punishing inflation. We can see it in Venezuela. Same story, hard assets. So let me rewind a bit. So 1918 to 1923, one of the more punishing rounds of inflation in Austria. We saw people in Germany carrying their wheelbarrows full of worthless marks and all of that. How did that happen? It’s funny, when you read books about it, they call, “Oh, there was this great wealth destruction. All these people got wiped out,” right? No, the people who got wiped out had their money in German bonds. At that point in time, they had their money in increasingly worthless currency.
The actual wealth of the nation… So here’s what we have to flip our thinking. Wealth is not money. It’s a marker for wealth. Real wealth is land, trees, soil, houses, productive factories. It’s tangible, real things. The rest of it is just sort of paper claims on that, and it’s wonderful except when that blows up. So everybody who’s fully exposed, if you’re one of these people, if you’re listening and you have 100% of your wealth is tied up in things that you can find on a computer screen only, it’s exposed. So I’m over here saying, listen, when the dust settled though, after that whole Weimar explosion, they said, “Ah, this middle class, so much wealth was destroyed,” that’s not what happened. Wealth was transferred. There was still just as many farmland, acres, factories, roads, hotels as there was before the inflation is after. Who owned them, now that changed.
And so that’s what we’re watching happening even now in watching JP Morgan picking up the bank assets of First Republic for basically pennies on the dollar, right? That same wealth transfer’s about to happen. So the way you protect yourself is you make sure you have a significant portion of your wealth on this side of the wealth transfer line, which is the productive asset side. So hard assets, gold, silver, oil. I love oil. I love natural gas here for other reasons that are about supply and demand. I love productive real estate, and I love… Well, I’m talking to you from a small farm. So these are the kinds of things I love most.

Kathy Fettke:
Productive real estate. What’s productive real estate? Like factories? Or what do you mean by that?

Chris Martenson:
Yeah. So imagine… There’ll be some carnage for a while obviously, and the dust will settle. And guess what? We’ll have an economy again that we’ll pick up out of this. Right now as we’re speaking, in Leavenworth supermax prison, there’s an economy running. People will always have an economy, that’s not an issue. The question is, what form is it going to take? People are always going to need… If you think about Maslow’s of needs and at the bottom you’ve got warmth and safety and security and food and shelter and things like that, those never go out of style, right? And so productive real estate to me are, it’s the means of production. So people are always going to need… We’re always going to need to eat. We’re always going to need to stay warm. We’re always going to need houses to live in. This will always be true.
So those are the places where… Again, to rewind a bit, when I said there were stories about certain crypto assets that were very hard to penetrate, or the idea that Tesla wasn’t a car company, it’s a data company and I didn’t quite understand what that meant, I just default to, the kiss. Can I understand it? Can I actually understand what the value of this asset is and how it delivers value to other humans? It’s like that. So I am busy buying as fast as I know how trees, I love forest land right now. I love farmland right now. There’s certain places where I think if you just look at just from a real estate standpoint, if you’re looking at the migration patterns of where people are going, you have to get back down to the fundamentals around that. So you know this far better than I do. The migration patterns are really powerful right now. There are various localized supply demand imbalances that are still with us and will be with us for a long time. So it’s at that level that I’m talking about productive real estate.

Dave Meyer:
Chris, do you consider diversifying assets outside of the United States too? Like if the US is particularly at risk, would you buy bonds in different countries or real estate in different countries? Or how do you look at that?

Chris Martenson:
I don’t have real estate footprints in other countries at this point in time. I’ve looked at it, I’ve studied, and I couldn’t quite bring myself to pull the trigger on that. And the reason for that is I’m unsure what… If this gets out of control and things really devolve for a bit because the United States overdo it and the dollar takes a crash or something, it was unclear to me how that would play out for me as a stranger in a strange land, for instance. There’s that. However, I am hedging my bet. So I do have gold and silver stored in vaults through various vaulting operations, and I have those parked in various jurisdictions as a means of hedging my bets at this point in time, so I do that. But I haven’t really tried to figure out how to invest in emerging economies or anything like that because everybody’s tied to the dollar system in ways that are really hard to analyze.
Emerging economies, these are the BRICS nations in many respects. They have about $5 trillion, Dave, of dollar denominated external debt. What does that mean, right? I don’t know. So I spent a whole month down in Buenos Aires 2016. It was a lot of fun. Even then, it was pretty crime-ridden. People said you take your phone and you turn towards the wall and you hold it tight while you make a call and never leave it on your… Even if you’re eating at a 5-star restaurant, you would never leave your phone while on the table because somebody will just grab it and off they go. So crime was a thing then, but when I was there, officially it was 16 pesos to the dollar. Unofficially on the street it was 18. I was just talking with a friend from there yesterday, it’s 490.

Kathy Fettke:
God.

Dave Meyer:
[inaudible 00:40:58].

Kathy Fettke:
Wow.

Dave Meyer:
And the whole place is really… Your money is your social glue. When the glue let’s go, lots of things break. So I know a lot of people who move to Argentina under the idea that, “Hey, this is a good, safe, very European-centric South American country that we could maybe make a second home in.” And now I’m looking at that going, “It’s so hard to predict how these things are going to turn out.” But 490 to the dollar? They’re suffering down there with all the attendant social ills that come with that.

Dave Meyer:
All right, Chris, you’ve given me a lot to think about, I’ll tell you that. Is there anything else you think that our listeners should know in navigating the current economy?

Chris Martenson:
Well, you got to keep your eye on the big picture, watch these things. It’s going to play out over a long period of time. But I do think that it’s time for people to consider their resilience, and this is something… So that’s all we’ve done a lot of problem definition. It’s clearly happening and mistakes were made and now we have to get through this. Now, I don’t believe at all in just hunkering down and waiting for to be hit with a rolled up newspaper. This is going to be a period of time to flip this story when generational wealth is lost and made and the dividing line is going to be the people who can see this clearly coming. We’re going to have to take really bold risks. We’re going to have to make decisions with imperfect information. We’re going to make some mistakes. Hopefully, fewer mistakes than successes. But I’m absolutely convinced that this is a time when massive wealth is going to be transferred. And to get on the right side of that, you just have to see where that’s coming.
Secondarily though, if there are these other forms of capital that we talk about, your social capital, super important, right? Not just how many people you know at all, but how well do you know them and what kind of relationships do you really build with them?
Quick aside on that, I always seem to have an aside. So Zimbabwe, 1997 a Zimbabwe dollar actually had a value. By 1998, it had almost no value. By the year 1999, you could find these hundred trillion dollar notes, one of the most punishing rounds of inflation ever. And there were people in Zimbabwe who saw it coming, they got ready. They bought gold, they stored some food. They did all those responsible things. There’s only so much food you can store. So that stuff all ran out in a year, year and a half, you know? But this was a nine-year burn on their currency. So Phillip Hazlin goes in, asks the question after the fact and says… That’s the author, and says, “Well, who did well?” Some people did well. The dividing line between those who really surv thrived and those who survived or didn’t was their social network. That was the one variable. It was like if you know somebody, you can always find what you need, right? Back to that idea, the supermax prison. There are people conducting business, right?
So it was really your social network. So my advice here is get your social networks. If you haven’t been, get back in attend church and get to know people and attend events and really get to know your closest neighbors and all of that, because this is, I think, going to be a huge dividing line for a lot of folks, and it’s really important.
Another big one, just one more out of the eight, your emotional capital, super important. Let’s imagine you have all the money you need and you got good friends and you know a lot of skills and all these other forms of capital. But if you fall apart, if you get that tunnel vision and you can’t even operate during the crisis, this is going to be “all the rest is for not.” So this is a great time for people to figure out how to take that deep breath, really clear out if you find anxiety about all this stuff, you got to find the source of that, clear it out, and figure out how you’re going to operate. And if you can’t, find somebody who can, because there’s people out there who are fast adjusters and other people aren’t. So this is just entrepreneurship. What are you good at? What are you not good at?
If you’re not good at fast adjusting, find somebody who is who can figure out how to pull the trigger and move when everybody else seems frozen, because that’s a critical determinant of success. It’s why people make it to the seal team and they don’t. You need people who can make quick, good enough decisions under highly imperfect information sets, and that’s the world we’re in right now. Oh, and plant a garden.

Kathy Fettke:
I knew you’d end with that.

Dave Meyer:
Well, Chris, thank you so much for being here. We really appreciate it. It’s been a fascinating conversation. If people want to learn more about you and follow you work, should they do that at peakprosperity.com? Or where’s the best place to connect with you?

Chris Martenson:
Yeah, that’s the best place. So I’ve got YouTube presence and I’m on Twitter and all that, but peakprosperity.com is where we have the community coming together. Remember I told you I built this thing called the crash course and I was insane about doing that? That was problem definition. I have the same level of insanity today about connecting people with other people. We find each other virtually so that we can find each other in the real world. That’s the true power of the internet today. So that’s what I’m pouring all of my team’s effort into, is figuring out how to create really just the best number one online resilience community we can so that people can find each other, because again, your social connections are going to be a very important determinant going forward. So that’s who I am, that’s what I do. I connect dots, but I want to connect people. So that’s who we are, and you find us at peakprosperity.com.

Dave Meyer:
All right, thanks again, Chris. We’ll hopefully see you again soon.

Chris Martenson:
All right. Thanks, Dave. Thanks, Kathy.

Dave Meyer:
Kathy, what do you think about our conversation with Chris?

Kathy Fettke:
Well, it’s a little depressing really, but it is a strong dose of reality. These are conversations I’ve had for years because right about the same time, early 2000s, I also discovered this whole banking system and it just seemed really unfair to me and I’ve been aware of it. But at the same time, you just have to figure out how to survive in that kind of environment where there’s things out of your control.

Dave Meyer:
Yeah, I hope he’s wrong. But yeah, I think he makes some really compelling, interesting points about just the level of money printing and what’s going on. I don’t know as much about this as Chris, so I can’t specifically agree or refute some of the points he said. But I think the thing that really stuck with me was this image of the Fed just pulling their car all the way to one side of the road and then all the way to the back, because that is just so clearly happening. It’s just like we’re sending the economy too far in one direction, we’re sending you too far in the other direction. Honestly, I didn’t really understand. It went all the way back to 1987. And so we’ve been in this cycle where we’re correcting then over-correcting then going back. Again, I don’t know the specifics as well as Chris does, but that type of scenario, that does not smell good to me.

Kathy Fettke:
Yeah, it’s been a question I’ve had for a long time, is we’ve sure printed a lot of money, but where has it gone and has it really improved our society? Has it improved things? It sometimes just feels more like that investment. You put money in and then the person in charge of the investment just spend it on their plane or a really nice dinner.

Dave Meyer:
Right.

Kathy Fettke:
It’s like, “Where did it go? Did we get new buildings? New roads? Or did it just go to somebody who, like he said, bought a new jet?”

Dave Meyer:
Yeah, I mean, that’s what you see in these super low interest rate environments, is like luxury goods. People who already have money do really well. People who own assets tend to do extremely well at the expense of people who are up and coming or just working an honest living. And so that obviously has really negative implications. And unfortunately, it doesn’t seem like there’s an easy fix.

Kathy Fettke:
Yeah. This is partly why my mission has been to help people increase their financial understanding, because it really comes down to voters voting… We vote with our money, we vote with our wallets. We obviously vote vote for the people who make these decisions. So we have to take on that responsibility of really understanding what’s going on so that we can vote properly. If you’re wanting certain things for the government to pay for, who pays for that ultimately? And unfortunately, there’s a disconnect there where people get really excited getting these checks and so forth and you turn around and go, “Oh, but now I’m paying for it through inflation,” or “I’m paying for it potentially in higher taxes.” So there’s no such thing as free money. We’re going to pay for it in the end.

Dave Meyer:
Yeah. And it seems like though, at this point, how do you even turn off the spigot even regardless of… Is there a policy solution to it?

Kathy Fettke:
Well, I think people like to think that certain parties, political parties, are better financially, but it’s all of them love to spend money. Politicians just spend money, and they can. So is there a solution? I think Chris said it. They’re just going to keep printing more money to cover up the issues and to pay the debt and to pay for all these things that we promised the constituents of America. So how do you operate in that environment?
And I think we’re all really aware. I talk about this a lot. If we know inflation is a way of life, well, you better buy things that inflate, right?

Dave Meyer:
Mm-hmm.

Kathy Fettke:
You better buy the right kinds of things or invest in the things that you know will be worth more and that will be affected by that inflation in a positive way. Again, of course, real estate. All you have to do is look at charts and see that it just keeps going up because it’s a hard asset that people need and want. Farmland, really I hear that a lot. I wouldn’t know what to do with farmland if I bought it, but-

Dave Meyer:
Me neither.

Kathy Fettke:
… I know that a lot of wealthy people are.

Dave Meyer:
Yeah, people seem to do that. Well, luckily, Jane, my partner likes to plant garden, so-

Kathy Fettke:
Oh, good.

Dave Meyer:
… I got that one covered, yeah.

Kathy Fettke:
Wonderful.

Dave Meyer:
I think it’s a hobby though, not as an inflation hedge, but she just enjoys it. But at least we’ll have some carrots.

Kathy Fettke:
At least you’ll have some carrots. And that’s what Chris… He ends every single session, every single talk with, “Plant a garden. Plant a garden,” because there are things you can control. And you can plant a garden. You can grow food so that you at least find ways to have control of the situation, and that’s just one of them. I’m terrible at growing food though, so I wanted to talk.

Dave Meyer:
Me too. I’m just good at eating it.

Kathy Fettke:
Yeah, me too.

Dave Meyer:
All right. Well, thank you so much, Kathy. This was a lot of fun, and thanks for bringing Chris on. If anyone wants to connect with you, where should they do that?

Kathy Fettke:
realwealth.com is my company, and then of course on Instagram, @kathyfettke. I’ve got the blue check mark now, but I guess anyone can get it so it’s really not that special.

Dave Meyer:
I can’t get it. I don’t understand. I think it’s because I’m in the Netherlands, it’s not available here.

Kathy Fettke:
Yeah, I think in America you just now have to prove your identity and then you get the blue check. But I like it because at least you’ll know it’s me and then not a fake.

Dave Meyer:
I know. I can’t get it. I was using a VPN to try and show that I was in the United States. It did not work.

Kathy Fettke:
Oh, well we’ll just have to deal with the fakes of you, the most recent being you in a bikini, which was fantastic. If you see an Instagram fake of Dave in a bikini, it may or may not be him.

Dave Meyer:
Yeah. Yeah. You’ll never know. You’ll never know if it was real or not. But I am @thedatadeli, no underscores, no extra letters or anything, just @thedatadeli if you want to follow me there. But thanks again for listening. We hope you enjoy this episode. We always appreciate feedback for me, to either Kathy or myself, you can always send that to us. And we will see you next time for the next episode of On The Market.
On The Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, researched by Pooja Jindal, and a big thanks to the entire BiggerPockets team. The content on the show on the market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.