"What's Coming Is WORSE Than A Recession" — Jim Rickards' Last WARNING

[Music] I think we're in a very dangerous place must be worse than a recession middle class is getting wiped out we've been talking about this for months or longer and this was at a time when the Fed was saying inflation is coming down wall Street's inflation is coming down they're going to cut interest rates the Fed was still saying we expect three interest rate Cuts between now and the end of the year mean they were saying this in beginning of April free interest trate Cuts between now and the end of the Year everyone thought that there would be no cut at the May meeting nobody thought that but you still had June July September November December that's five meetings the fed's on a crazy schedule they don't meet every month it's like every six or seven weeks but eight meetings a year is what it boils down to so you had five meetings you know June July September November and December and you're talking about three Ray Cuts okay no problem five meetings three Ray cuts that seems to work except and this is what we said a while ago inflation is not coming down now that's the story that's the narrative that's what Wall Street likes to talk about because they just want to sell your stocks so it goes by a couple names the first name is the pivot when would the FED pivot from rate hikes to rate Cuts that's the information pivot they stopped hiking rates in July 2023 so that is true they're just on hold for the time being but they're not even close to a rate cut and that's what we've been saying but W stre started talking about this two years ago it was the summer of 2022 remember the FED started raising interest rates in March 2022 at the time rates were zero when I say rates we're talking about the FED funds Target rate so it's a very really short-term overnight rate we're not talking about 5e notes and 10 year notes those are different but the overnight rate that the FED targets it was Zero at the beginning of March 2022 well they just started hiking March 2022 they finished in July 2023 so about 15 months of rate hikes and they got it up to 52% which is where it is now but Wall Street started talking about the pivot in the fall of 2022 now they didn't say it was going to be that month but they said you know early 2023 the fed's going to cut rates well then that turned into like mid 2023 and then it turned into late 2023 and then it turned into early 2024 here we are in mid 2024 and they were still talking about it but they've been wrong for almost 2 years and we said they were wrong we didn't say the Fed was going to raise rat you can't take that off the table but we said they were definitely not even close to cutting rates so what's the kind of backstory on inflation inflation peaked in June 2022 99. 1% and by the way just do a quick footnote on the definition of inflation it shouldn't be complicated but people make it so when I talk about inflation I'm talking about the Consumer Price Index CPI comes out monthly computed by the Bureau of Labor Statistics and it's measured on the year over year basis so you look at the monthly index and you say what was it a year ago that month and then that's it that's how they can that peaked in June 2022 at 99. 1% by the way the highest since the early 1980s you had to go back over 40 years to find inflation that bad was 9.

1% by June 2023 so a year later it had come down to 3% the Fed was putting up the mission accomplished Banner well it wasn't mission accomplished yeah 99. 1% down to 3% nice job but it wasn't two I mean they were trying to get to two they had what they call the last mile how do you get that last a little bit down well the problem is it's been going up ever since so here we are almost 10 months after that low of 3% in junee 2023 and it's higher inflation is higher than the prior month and you know at this point the prior year so inflation is not just stuck it is stuck but it's actually been going up all you have to is look at that and if you're worried about inflation if that's your job you're the Federal Reserve your job is to get inflation under control and inflation has stopped coming down and it's starting to go up how on Earth you going to cut interest rates well the answer is you're not you can't do it JP was like well we've seen good data and we need a little bit more he said we're not quite there yet we're just about there but we need some confirmation I think was the word he used so a couple months like that then boom we're ready to cut race they never got the confirmation it went up and why was it going up well oil prices were a big contributor when oil prices go up it filters through the whole supply chain SO gas at the pump is an obvious one by the way if you go to a AAA gas prices triple A has a really good chart and course they get their finger on the pulse and they show regular gasoline Nationwide average they can break it down 100 ways but regular gasoline Nationwide average that number is higher than was last week last month and last year it's been going up course just in time for the election this is not something that Joe Biden particularly wants to see but it's not just guest at the pump that's the most visible sign and people they know they up with their guest pump and say ah price went up again cing word to fill up my SUV or whatever it is but that price filters into everything you buy because everything involves Transportation if gasoline's going up Diesel's going up well everything moves by truck or a train as the case may be but mostly trucks everything you buy in the store every loaf of bread Kangas fresh vegetables whatever it gets gets there by truck and the trucks have to pay more for their diesel they have to charge more for the freight and then someone's going to have to raise the price of goods so because of the transportation effect which I just described and a lot more airf fares you know jet fuel Etc the price of oil and the price of refined products gasoline kosene which is jet fuel and Diesel go up and then everything goes up so that's one of the drivers it's not the only one but it's one of them and how's it going to change and the short run two of the three biggest oil suppliers in the world are Russia and Saudi Arabia us is the other one well Russians and Saudi Arabia and by extension OPEC they're called OPEC plus are cutting down on production now they're fighting a tide I mean the world kind of wants to deflate we disinflate and that is happening around a lot of the rest of the world it's not happening in the United States there are other reasons for that including you know concerns about the geopolitics Iran just hijacked the cargo vessel in the Straits of fuz the hoodies have shut down the SE Canal the big oil tankers are going around Capa op in South Africa it's a long way the oil is still getting through I'm not saying that you're not going to be able to get gasoline I'm just saying that if you add transportation costs and time delays and geopolitical uncertainty and other factors on top of what we've already seen this is what you get the economists always say when they dream about these things is because they don't have enough to do so I talked about CPI well they invented CPI core that's when you take out energy and food and that's a little more well- behaved well thanks guys see energy and food is what most people spend most of their money on you can take them out and get a different time series if you want but that's not what people actually pay they pay CPI and then they came up with something called super core well what's super core well supercore you take out food energy and house okay so if you live in a tent and eat canned goods fine but those are the three biggest things that people spend money on gas at the pump food at the grocery store and housing costs and then of course the energy price feeds into home heating air conditioning whatever you have this is like 70% of the average household budget maybe more and they say well we don't count that because we're Eggheads take everything I just said and there's another inflation index called pce personal consumption expenditure that's the one the FED uses same thing pc pc core PC super core it's all garbage you can compute it I understand I can look at the spreadsheet or an equation and understand it but I also understand that that's not what people pay people pay CPI that affects their attitude towards the economy that affects their political Outlook that affects everyday Behavior it affects other consumption if I'm spending more at the gas pump okay I have that much less to you know go out to dinner or buy a show ticket or some new clothes or whatever it is so this has Ripple effects that are enormous some people I would say theoretically you can distinguish between supply side inflation and demand side inflation the difference really quickly supply side kind of what we've been talking about oil shipments are reduced bottlenecks go back to 2021 2022 and the supply chain broke down and there are concerns about that economic sanctions coming out of the Ukraine war new economic sanctions on Iran those are all things that affect the supply side but a funny thing can happen which is if it persists long enough it leeches over spreads over to the demand side the demand side is psychological it's people saying you know this inflation it's hanging around longer than we thought it's getting worse I was going to buy a new refrigerator in 6 months maybe I better buy it now before the price price goes up and then you know a new car or furniture or whatever it might be I better go get it now before the price goes up that is a psychological behavioral Factor but if enough people do it guess what you start bidding the price up the manufacturers can't keep up Etc I think we're in a very dangerous place meaning the inflation right now what we just talked about is coming from the supply side so that's pretty clear but at what point kind of tip over into the demand side we're starting to see that we're starting to see pretty good union contracts are getting pretty good raises states are raising minimum wages Etc a lot of that's counterproductive certainly the minimum wage has to lose jobs but in the short run if you have to pay people more you're going to raise your prices Somebody went into a McDonald's in California the other day and ordered like a normal meal I don't know 12 piece chicken Big Mac whatever and it was like 25 bucks you don't go to McDonald's to spend 25 bucks you must have go to a restaurant that's how the California minimum wage low is starting to filter through into prices so it may tip over to the mass side but in the short run I'll just wrap up by saying the following Matt W Street has been wrong for 2 years by the way the expectation today is that there may be no rate cuts through the end of the year I think think that's probably right then of course the Wall Street be they're always out of touch you know they're staring at the screens all day so they say yeah okay you're right not June not July so they're going to raise in September are you kidding me the September fed meeting is 5 weeks before the election do you think that the FED wants to walk into the election buz off if they cut rates in September after not doing it for over four years 2020 was the last time they cut rates 5 weeks before the election they cut rates that's the last thing the FED fed says we're not political they are highly political trust me I Mayan I worked with senior fed officials and partners with former fed Vice chairs you know spend a lot of time with the FED as a regulatory lawyer they're highly political they read the papers as the saying goes so they're not going to cut in September just for political reasons so then now November December if you're just looking at inflation you're not going to cut but if we're in a recession which we may be that's a separate topic you may have to cut because of the recession because of rising unemployment but the FED thinks that can't happen and Wall Street thinks that can't happen I have news for you it can happen it has happened so what do you call the combination the a f assumption is if unemployment's slow inflation gets high unemploy goes up and inflation comes down that's the fed's Assumption so they actually don't mind if unemployment goes up a little bit because it'll bring inflation down but what happens when you have high unemployment and high inflation at the same time the FED things that can't happen it has happened it's called stagflation stagnant growth with inflation in prices I live through in the late 1970s early 1980s unemployment was 10% but interest rates were 15% don't tell me unemployment and interest rates move inversely sometimes they do but sometimes they can both go up together it's called stagflation and I see early signs of that so it's a little bit troubling but all I can say to our viewers is Wall Street always gets this wrong the FED always gets it wrong the reason they get it wrong is because their models don't work their models are garbage but the inflation is real it's going to stick around but grow seems to be slowing so we may end up in this kind of stagflationary episode so QE which doesn't work they printed $ 10 trillion and the economy was flat to down for the 10-year period from 2009 to 2019 so coming out of the global financial crisis in 2009 until Co average annual growth in GDP was 2. 2% % during the Reagan Administration 1983 1986 the US economy grew 16% in real terms that was over 5% a year for three straight years that's growth that's what the American economy can do even if that's not totally sustainable you should be able to grow three and a quarter 3 and a half% on a consistent basis that's what a developed economy should be able to do so 2.

2% is pathetic I mean you can get out the pom poms if you like but that's what we have for 10 years my view is that the US economy has been in a depression since 200 7 and people say well wait a second Jim you know recession is two consecutive quarters of decline in GDP and that is the rule of thumb it can last three quarters sometimes longer but they tend to go 6 to 9 months of declining GDP 2 or 3/ qus that's the technical definition of a recession and it is and so people say well depression must be worse than a recession so if recession is 2 quarters the depression must be 10 quarters of declining GDP and we have not had that but that's not the definition of a depression a depression doesn't mean continual declines in GDP it means below Trend growth means depressed growth and it was what I was just saying earlier if growth potential is 3% and you're growing at 2% that gap between 3% and 2% over time is trillions of dollars of lost growth has the economy been growing yes it grew in 2023 and so far in 2024 but it's depressed growth relative to potential and that's what a depression is and if you want an example just look at Japan Japan has been in a depression since really 1990 December 31st 1989 they rang the New Year's e Bell and then boom the stock market fell out of bed declined I think 75% it just got back about a month ago the Nic index just got back to where it was in 1989 which is about 40,000 so nice going guys took you 34 years to recover your meltdown and that's all they've done is recover it it hasn't G up much since then Japan has had nine recessions since 1990 well you can chart the recessions but I caught one long depression it's a 34e depression I would say the US has been in a depression since 2007 so that's what 17 years years we got maybe got 17 more years to go but that's why everyone's out sorts that's why real incomes is not coming up that's why income distribution is you know the rich get richer is the same goes and they do and every day Americans are falling behind and the middle class is getting wiped out you can still look for a technical recession within that time series security doesn't work government spending deficits that's fiscal policy security is monetary policy that's what the FED does and deficit spending his fiscal policy and that's what the Congress does how does QE actually work oneone says the fed's printing money the fed's money well what's your definition of money I mean the FED has four definitions of money so to start there they have m0 M1 M2 M3 some people think Bitcoin is money you get to a point pretty quickly where no one really knows what money is so how does QE actually work how does the FED print money if that's what they do well the way they do it they buy bonds from Wall Street they call up the primary dealers and they say offer me 10 year NS or offer me 5year NS so it's your golden Sachs or City Bank whatever you quot an offer and the FED says done and then the dealer delivers the bonds to the fed and the FED pays for it with money that comes out of thin air so the FED gives the money to the dealer to buy the bonds and that money comes out of thin air that's m0 based money printed money the question is what does the bank do with the money the bank just sold the bond to the FED they got paid what do they do with the money they give it back to the FED as a deposit something called excess reserves and the FED pays them interest same way you get interest on your bank account the FED pays interest it's called interest on excess reserves ieer all the FED is doing is building up the balance sheet the asset side is being built up with bonds they're buying bonds buying bonds and the liability side is being built up with deposits from the banks which are liabilities from the fed's point of view so you're expanding the balance sheet but the money is not going anywhere all the QE money 10 trillion never went anywhere they paid the dealers and the dealers gave it back to the pet it was sterilized and never did anything so most the money printing yeah if you're using mzero to measure but didn't do anything for the economy it doesn't stimulate growth Ben beraki was full of it J Pal's a little more honest Janet Yen she's kind of a affirmative action duns they didn't understand any of it and it definitely did not work so why is the economy growing I kind of painted a gloomy picture from the supply side and you know real incomes a lot of else but the economy is growing that shows up in GDP why is it growing the answer is fiscal policy deficit spending that's completely different than monetary policy that works because well it works in the short run it can be inflationary but it works because when the government spends money they're giving it to somebody the money that the FED created they give it to the banks the banks give it back and destroy the money that Congress spends the deficit spending it's going somewhere it's buying weapons it's going to food stamps or welfare or Medicare or Social Security checks or you know the green news scam or you know a lot of it's kind of wasted but it's going out into the economy people are getting paid corporations are getting paid they're paying their workers that money actually does create growth but there's another problem associated with that so the short answer is monetary policy doesn't work it's a joke we follow it we report on it but I'll tell you as an analyst it's a joke fiscal policy does work but at a very high cost and here it is US economy it looks like it's growing about 2. 4% 2. 5% which you know it's low compared to potential but it's decent growth but how much is the debt going up at the same time the debts going up faster the debts going up like 3 3 and a half% on an annualized basis so are you running deficits yes are you getting some growth yes but the debt is going up faster than the growth and so this shows up in a measurement called debt to GDP people throw around big numbers and they are big numbers $37 trillion of national debt that's about right but you can't really make sense of that number unless you put it in the context of the size of the economy simple example if you owe $20,000 on your MasterCard is that a lot or not well if you make 20,000 a year it's a lot you're probably going bankrupt if you make $500,000 a year you can just write a check and so you can't really learn much from the number from the size of the debt you have to compare it to the size of the economy so what's that number well that number is over 130% right now which by the way is the highest in US history that goes back to late 1960s so it's a good time frame by the way the number we have today is the highest in US history the last time it was even closed was the end of World War II it was about 120% today it's about 132% so it's the highest in history highest at the end of World War II but even in World War II I like to say well we won the war we spent a lot of money we ran up a lot of debt but we won the war with our allies and the US was a global hedge bot our percentage of Global Production Global capacity automobiles whatever it was off the charts and we had a long run as the superpower today we've got a higher Deb GDP ratio but we haven't won any wars lately we're losing on you know Ukraine losing in the Middle East you know no one really respects the United States we got bring leadership Etc so we're not getting anything for money we're wasting the money but it does have that effect I describ but the problem is at lower levels of debt so let's say the debt to GDP ratio look at 1980 for example it's about 30% so that's when Ronald Reagan was sworn in that was the lowest since World War II I said it was 120% at the end of World War II yeah but it was 30% in 1981 so how did you get from 120% to 30% cuz we had a lot of deficits there were some surpluses but mostly deficits during that time period Well the answer is we grew the economy yeah the debt went up it's not that the debt went down the ratio went down even as the debt was going up the economy was going up faster it's seventh grade math if you have a numerator and denominator if the denominator is growing faster the denominator is GDP if the denominator is going faster than the debt then the ratio is going down what we have now is the opposite where the numerator is growing faster than the denominator the debt is growing faster than the economy which means the ratio is going up at a certain level by the way the level is around 90% that's a GDP we hit 90% 2010 and welcome Obama So Below 90% here's what happens you borrow a dollar you spend a dollar and you get more than a dollar of growth so you borrow a dollar you spend a dollar and you get a125 of growth that's actually good assuming you don't waste the money that's a separate issue but as long as the growth is greater than the debt then your ratio is going down and your economy is solid but as you get closer to 90% that P off called the kingian multiplier gets smaller it starts to shrink so you start out when you're down we were in the ' 80s even the mid 90s you borrow a dollar you spend a dollar you get maybe a125 but then it's like a$ doll2 and it's a doll10 and then as you get higher and higher as you get close and close to 90% it shrinks until you get to a point where you borrow a dollar you spend a dollar and you get 90 cents of growth you don't get your dollar back you don't get the dollar of growth you get maybe 90 cents that it's still growth it's still growth somebody got paid somebody got a job Etc but your debts going up faster and as it goes up even higher that multiplier once it goes below one you're digging yourself into a hole but it shrinks very rapidly that multiplier was 68 you not that long ago meaning you borrow a dollar you spent a dollar you only got 68 cents of growth not even close to a dollar I've seen other studies that show it's could be as low as 40% okay so now the debt GDP ratio is at an alltime high we're not getting a dollars worth of growth we dollar spend but you're still getting growth this is the part people don't understand this is the part the politicians don't bother to explain they point to the growth figure say look we got some growth and we did but they ignor the debt figure and that's going faster than the growth so how does that end it ends in one of several ways for most countries it ends in default Argentina is a good example you can set your watch by argentini and defaults they happen like every 10 years like clockwork but that's because Argentina but a lot of other countries as well we say why can't they just print the money well the problem is they print pesos but they borrow in dollars so if you owe dollars you can't print the money cuz you don't have a dollar printing press you have a peso printing press or any other currency that you want to name you can't print the money to pay back the debt because you owe it in a different currency you owe the debt in dollars but you print peso so that doesn't do you any good so what do you do well he just default sorry not paying you to bad banks have a nice day so that's usually what happens the US doesn't have that problem because we can print the money so I don't expect a US default because we owe $37 trillion it's like fine up $37 trillion ship it over but you know good luck buying bread because what you do get in that situation is hyperinflation there's no reason for the US to defa there's no reason for the US to restructure we actually can print the money to pay off the debt but that has consequences and there are two one is what I just described which is really slow growth the other one is hyperinflation so right now who's at our lunch table Lebanon Greece Italy Japan the super debtors of the world that's where we are in the end it's hyperinflation but not right away I'm not saying hyperinflation tomorrow or next month or next year what you really get a slow growth it's just a slow grind down the rich get richer the middle class gets demolished younger people can't afford can't save they're stuck in their parents' homes can't get their own homes investment drives out productivity declines and you get the slow growth occasional recession stage that lasts for a long time and again Japan is the example Japan is the model ofice we are Japan this is why I say we've been in a depression since 2007 we're in the slow growth phase it's getting worse but if somebody says hey Jim we had 2.

6% growth and what in the fourth quarter of 2024 where's the recession and I say well it's coming but the problem is you got that growth by borrowing more than you grew but the reason Japan the US is the best model the best way to understand the US Japan is a country that borrows in a currency at prints Japan's debt is in Japanese Yen and they print Yen the US debt is in dollars and we print dollars so if your debts in the currency you print you're not going to default but you are going to walk into hyperinflation the old jokes there's 100 guys in the bar and Bill Gates walks in and on average everyone's a billionaire but there's actually only one billionaire in the room his name is Bill Gates everyone else is just you know having a beer the point being almost all the government statistics not all of them but almost all of them are averages but averages hide as much as they tell you they tell you something but they hide a lot what they hide is called the degree distribution meaning what is any average well it's a bunch of numbers add them up divide by the number of numbers and that's the average okay so when you see unemployment or you see CPI or you see real wage increases etc those are averages what's in the average let just take CPI for example well in that CPI calculation there are 100 or so subcomponents you know big ones like gasoline but you know eggs bread butter clothing automobiles furniture and even broken down finally than that and some of them are going up some of them are going down that's normal but you have to look at that but so when it comes to income people say real wages went up by whatever 1% nominal wage increased minus inflation real wages went up 1% sounds good but when you discover is that some people the real wages are soaring and everyone else is falling behind so the average may be up 1% but when you look at the degree distribution you say okay what are the top 10% making how's the bottom 10% doing what about the middle 60% how are they doing you can even break it down like you say 10% brackets or whatever look at each bracket separately and then Brak it out further but what's happening in urban areas rural areas Etc but my point is while the average may be kind of okay the degree distribution is awful all that money is going to love it to stockholders CEOs government officials Tech entrepreneurs Etc but that's a relatively small slice whereas everyday Americans blue coll workers small business owners healthcare workers nurses Etc they're just struggling I mean they might be getting a raise here and there but it's not much and then when you subtract inflation it might be negative so the only caution I would drop is that the numbers aren't great they're like okay but the reality is worse because when you go behind the average to look at how it's distributed between the rich and everybody else you'll find that so much much of that is going to the rich again CEOs stockholders money managers defense contractors government officials Nancy Pelosi you know small slice everyone else is being left behind and that's why there's so much discontent what can someone in the middle class that's like uhoh I'm about to get erased there's tons of money being printed and it's going to politician and wall Street's best friends and not me what can they do what's like the number one investment they could do or number one way of thinking about it what could someone do right now this is going to sound obvious but people actually say it then people all I know that but they actually kind of don't it's diversification I'm not going to go through the economic theory of diversification it actually works to get higher returns with less risk or the same risk but people don't understand what diversification is they say oh I'm Diversified I own 50 different stocks in 10 different sectors semiconductors minerals and Mining retail consumer discretionary spending 50 stocks in 10 sectors I'm fully Diversified and I say no you're not you may have 50 stocks in 10 sectors but you have one asset class it's called equities or stocks or you know whatever you want to call it you one asset clut you're not Diversified at all you're all in the stock market and in normal times when you don't need protection they do behave syncratic but in stressful times in a financial Panic or monetary Panic they all correlate they all go down together and you lose a lot you lose 40% of your uh net worth or whatever is in your investable assets real diversification you can have stocks there's a place for stocks but have some cash have some real estate have some gold or silver precious metals have some Alternatives if you have a slice of each one of those that's real divers ification those asset classes do not correlate to a high degree in financial stress so that's the answer so let's just take stocks I'm not saying get out of the stock market I'm saying I would dial down My Equity exposure and then maybe if you're 80% stocks might be smart to go to 40% and then within the stocks you pick what's going to perform well it's pretty clear defense stocks are going to do well because the US is behind the eight ball in a couple different Wars and we're going to have to bring up our game a lot and they're going to have to spend more money on Def fense us might as well just fold up its tent and go home healthcare driven by demographics to a great extent uh natural resources oil you know oil's been beaten down by this scen news scam I'm sorry you're not getting away from oil natural gas if you're an Insider you're like Nancy py or husband Paul if you know that's coming because you're the one writing the legislation you go out and buy the stock that's one way to be worth you know 2530 million on a government salary and you know all the Congress are in on that it's all waste of money it's all very damaging to the economy people can make an awful lot of money out of it oil and gas are not going away they've been beaten down because of the green scam propaganda that's a very attractive sector so oil Natural Gas defense stocks Healthcare are areas that will do well but I would dial down my overall Equity exposure 40% seems a lot more comfortable than 80% given what's coming this is going to sound really boring but you know what if you go to a good bank in your neighborhood and get a CD they're paying 5% people go back to the 10 years we talked about 2009 to 2019 the banks were paying practically zero maybe a quarter 1% you're like you got to be an idiot to put your money in the bank because they're not paying anything you go get some stocks or whatever well their Recons to have cash anyway for protection divers ation liquidity and requestes Etc but the critics were right they weren't paying you anything today they are now you have to get a CD CD you might lock your money up for a year so it's sound like a checking account don't put any money into a CD unless you can wait a year six months or a year whatever it is because you're not going to be able to get it back without paying a penalty but assuming you have the cash and you want the cash and you don't plan to spend it in the near term go get a one-year CD they're paying close to 5% stocks are yielding about 3% in terms of dividends so cash is outperforming dividends today you know you put $100,000 you come back a year later you got $105,000 you didn't have to lift a finger that's attractive gold what can I say it's up 30% the last 3 months I expect that to continue we've done a lot on gold in the past for geopolitical reasons it's obviously a good inflation hedge but gold is more than that we're calling in our Publications the everything hedge does it protect you against inflation yes it does but it also protects you against War your political risk financial meltdowns and a lot else and then some real estate not commercial real estate I think commercial real estate has not hit bottom but you know Farms income produced from Real Estate just buy a bigger house put an addition on your house you know don't over leverage it but that's something you can sit on and that will pay off over the year so treasury notes first of all 10 year treasury notes are yielding close to 5% not quite I think about 4.