George Gammon: What's Coming Is WORSE Than A Recession...

several of the world's largest economies are now in recession so we have to start asking the question could this Global recession be worse than 2008 I'm going to explain this to you in three simple fast Steps step number one let's take a look at how the global economy works now I know a lot of you write about Nar St George what are you talking about the stock market it's at all-time highs the unemployment rate here in the United States is almost at alltime lows okay fair point we're going to get to that in just a

moment but before we do I want to point out initially that the global economy is very interconnected all right we've got the United States right here we have the UK Germany China Japan okay well right now Germany is in recession in fact the whole Euro zone is most likely headed for recession we've got China that is reporting outright deflation the worst deflation they have had in decades now officially they're not in recession yet but tell me how a modern-day economy can have quarter after quarter of deflation and not eventually go into an economic contraction Japan

they're in recession the UK they're in recession but the United States our economy is booming well how does that work first of all we have to recognize that the four main economies for manufacturing would be China at 28% United States at 16% Japan 7 Germany 5 the percentages might change slightly but the four major players are still going to be the same so let's think through how this works China exporting Goods to Japan Japan exporting Goods to China China exporting Goods to Germany and Germany doing the exact same thing and even with the United States

we produce way way way less than we consume we still export a lot so it's a similar type of relationship we're China exporting a lot of goods to the United States but we're exporting Goods to China UK it's all interconnected so what happens is if Germany China Japan UK go into a recession well that's going to impact the demand for all of the people that we're exporting to that means our exports go down so what likely happens to our GDP 70% of our economy is consumption so if we don't have demand outside of the United

States then we'll just consume all of that extra stuff right here in the good old us OFA okay well that really doesn't make a lot of sense because what we have to realize is that all the stuff that we are exporting is a surplus in other words there's not enough demand for that stuff in the United States of America let me give you a specific example we export a lot of food let's just say corn and poultry and chicken I don't know that anyone would argue that Americans can eat more than they already do I

think they eat plenty as it is so if we didn't have these customers let's say in China buying our chicken and buying our corn could we just sell that right into the United States at the exact same price no we might be able to get rid of it we'd have to reduce the price decrease margins if we decrease the price does that do to nominal GDP brings it down but that's not all let's look at it from the flip side of the coin like we said earlier the United States does export a lot but we

import way way way more which is why we have these massive trade deficits okay well if Germany is going into recession China depression all of this economic activity is decreasing what that means is there's probably going to be a lot of entities that will go bust a lot of those entities are providing Goods the goods that we consume here in the US obviously New York is an extreme example and I'm not saying that if the economies of Germany China and Japan continue to go downhill more their businesses go bust that we have some sort of

Mad Max situation here in the United States it'll happen to a much lesser degree but the cona Still Remains if we have less stuff for us to buy in the United States it is true prices may go a lot higher but economic activity will definitely slow down all you have to do is just look at the S&P 5 00 for heaven's sakes look at the unemployment rate here in the US it's impossible for us to go into a recession right now the economy is booming for heaven's sakes okay fine valid point let's go ahead and

throw up a chart of the Nik in Japan the stock market it's at all-time highs and let's look at the unemployment rate under 3% but they are in fact in a recession and that's not all let's look at the stock market in Germany all-time highs let's look at the stock market in the UK all-time highs let's look at the German unemployment rate creeped up lately but it's very very low relatively speaking and the UK unemployment rate also very very low so all of these economies have stock markets at all-time highs they all have extremely low

unemployment and they are all officially in recession so I don't think that's a valid argument for the United States avoiding an economic slowdown let alone our econom running on all eight cylinders so the bottom line put it in very simple terms is if we look at what's happening outside of the United States it's a global recession let's just call a spade a spade and the probability of the United States avoiding that is extremely low step number two so we know the global economy is very interconnected but what about the banks in the global economy remember

we got Chinese Banks German Japanese United States UK they all have banks that are also connected to one another just like the economies in fact I would argue they're probably even more connected let's remember that back in 2008 we had the GFC but what did the G stand for you all know this Global financial crisis it wasn't a financial crisis it was a global financial crisis but why because I left the boom there not to represent an economic boom but our financial system going boom basically blowing up why because of the real estate market crashing

so the real estate market crashing impacts the United States Banks which impacted the banks in the UK Germany China Japan in other words the banks in the euro dollar system that turned a real estate crash into a global financial crisis and I would argue today the Dynamics that were at play Within the monetary system are even more extreme than they were in 2008 step number three to determine if it could be worse than 2008 we have to ask ourselves what is different about today than 2008 or maybe we should go back even a little further

and say 2007 here's what I'm referring to I think you now realize how important crucial treasuries are to the global monetary system in fact I think we could go so far as to say that they're not just crucial they're absolutely Ely mandatory they're basically the oil in an engine if you take out that oil the engine is going to seize up it's going to freeze it's not going to work so we've got Bank a bank B Bank C and we have to remember that these Banks could be geographically located anywhere it doesn't really matter they

all just make up this very interconnected Network so Bank a could be in China Bank B could be in Singapore Bank C the Bahamas or the Cayman Island or even in the United States but they all run on the same oil because it's all the same system it's all the same network so let's assume for a moment that we do have a global recession that's your base case all right what's going to happen to the risk within the banking system that's going to go up well in that case what's going to happen for demand for

the collateral in other words demand for the treasuries that's going to go up as well but prior to the GFC what was the typical response mechanism for the central banks I mean go back to the recession that we had in the early '90s the recession that we had during the.com bust what did the FED do pretty much nothing other than drop rates in terms of going out in the marketplace and buying treasuries by creating Bank Reserves in other words QE they hadn't yet put that tool in their toolbx but now obviously that is their default

so whenever we have a little hicup they go straight to the QE that's why we've seen QE 1 2 3 4 for much infinity even though they're doing QT now the fed's balance sheet or at least the level of Bank Reserves is around 3.5 trillion where in 2007 it was 40 billion with a b no one here would argue that if we go into another crisis that looks like 2008 that the FED won't do QE I think we can all agree that that's going to be the very first thing they do all right well let's

think that through If the Fed does quantitative easing what they're doing is they're taking all of these treasuries out of the monetary system which actually needs more treasuries because the amount of risk is increasing and they Park them on their balance sheet one of the foremost experts on this system is a gentleman by the name of manm moan Singh with the IMF and he calls this siloing of collateral now you could be saying to yourself okay George but yeah they're creating these Bank Reserves well that doesn't really help the banks out here why because they

don't have access to the fed's balance sheet they don't have access to those Bank Reserves so there's a very strong argument that while the banks that do have access to these reserves or the fed's balance sheets do have some sort of benefits this system as a whole has a net negative because these treasuries were useful or more useful not just to the banks that don't have access to the fed's balance sheet but even for the banks that do have access to the fed's balance sheet why because they are connected to the entire network now let

me be very clear I am not saying that the Fed coming out and bailing out a bank in the United States system by creating more Bank Reserves and taking assets off their balance sheet doesn't help that bank it absolutely does and it might be able to prevent a complete collapse of the system but we have to look at the tradeoffs like Thomas Soul says there are no Solutions there are only tradeoffs so by taking collateral or oil out of the system you're just replacing it with something that over the long term is going to be

less eff effective and if it's less effective for the banking system the global monetary system that's going to increase risk which is going to make the recession a lot worse why because of that circular relationship that we discussed earlier between the real economy and the monetary system you cannot have a collapse of the monetary system without a collapse in global economic output and you can't have a collapse in global economic output without having a collapse in the global mon monary system so is the next Crisis regardless of what year it falls in going to be

worse than 2008 well there are no certainties they're only probabilities I can't tell you what's going to happen in the future none of us know but what this video should make very clear is the amount of risks we have in the system the amount of potential problems we have is definitely greater today this time it is not different from the standpoint of how the cycle usually plays out meaning inversion first un inversion fed drops rates stuff hits the fan now how long that takes to play out I don't know my base case is that that's

what we'll see play out again if we're going to use the thought experiment of the government not doing anything if the government doesn't do anything and I think even if the FED wants to come out and buy you know do QE I don't think that's really going to do anything either and when they drop rates again they don't drop rates to fix something they drop rates in response to something that's already happened now maybe if they came out and started buying stocks like the boj that may change my mind but let's just assume for a

moment that the FED just comes out with their standard okay we're going to start doing QE again and the government doesn't do anything in the form of fiscal or bailouts then I completely agree with Jim Rogers no certainties here only probabilities why what we're seeing play out right now with all the markets is maybe not exactly but it definitely rhymes with the dot bust where we just had kind of like a garden variety recession so that's definitely on the table but it probably wouldn't be my base case my base case would be we see probably

like a GFC type of thing but maybe even more deflationary if the central planners Ste back and didn't do anything but when the central planners do respond to it because I fully expect that they will you would probably see I'd probably just assume it's more of the same meaning that when we get theom bust okay they respond to that with just interest rate drops okay fine then we get the GFC and they respond to that by dropping interest rates and doing QE and doing all these bailouts so my point there is you'll notice each time

we have a crisis they do more and more more they take more and more of the medicine and they get diminishing returns and then we fast forward to covid it made the GFC or the response to the GFC look like Child's Play trillions and trillions I don't know what the cares Act was like four or five trillion something like that I would expect that they'd probably do the same that instead of a car's act we do like a car's act 2.0 and instead of four trillion it's like 8 trillion or something like that and so

assuming they do that I would expect I don't want to call it a v-shaped recovery because that implies that growth goes back to Trend and I don't think it will I think that growth will kind of Notch down and that will be a new trend line but I do think we will see a repeat of the wealth Gap getting much bigger it's going to benefit people with assets because Central planners realize that to keep this game of D Jenga going they've got to prop up asset prices even if it creates all the homeless that we've

seen even it creates the drug problem even it lowers the standard of living even if it decreases the purchasing power for the average Joe and Jane they realize that if the stock market goes down by 50% this time it's going to be a much much different story than even 2008 2009 because the US economy is so much more dependent now on asset prices than it was even back then and I always use this as a thought experiment to take it to an extreme I live in medine Colombia if the stock market went down here by

50% no one would even know I literally don't even think it would make like the Daily News because no one owns stocks no one even cares about it it's not even really a thing but the stock market goes down by 50% One Day in the United States and you're going to have a not just a US meltdown but you probably a global meltdown and that just shows you the fragility I think and the central planners know that so I think that'll be their focus and unfortunately you know look at the difference that we have seen

in society and the standard of living just since 2019 nowadays I only go back to the United States when I have to speak at a conference or something like that so it might be let's just say four times a year and even in those four times a year I notice huge huge changes every single time I go back and when you compare it to 2019 I think it's night and day difference it's just people are walking around like zombies and you have the homeless problem and the all these drugs and it's obvious that especially for

the average Joe and Jane their purchasing power has gone down significantly even though their nominal wages have gone up because they haven't kept up with the rate of consumer price inflation and when they finally get a break on that inflation well what happens the unemployment goes up the unemployment rate and agregate demand goes down because the only reason prices are going down is because the economy is in control raction so you get this cycle where the price is always paid unfortunately by the poor in middle class so I would expect that to continue but we

have to realize that what you're seeing there is not just random it's not just a result of oh people are idiots so they're doing drugs now this is a result of government creating economic distortions that's how this plays out so the response or the quote unquote solution to any problem we ever have is more government intervention more government bigger government and what that does is that increases the amount of government spending as a percentage of GDP and if government spending goes from 50 to 60 to 70 all the way up to as's it take to

an extreme 100% well you would expect the economy to be far far less efficient if the economy is far less efficient then we're producing fewer goods and and services and that is going to decrease the standard of living it's just there's no way to get around it unfortunately other than to do the opposite which is government and and get the government out of the equation and bring back uh free market capitalism but in doing so you also have to bring back bankruptcy you have to let people fail and that's just what we're well we as

a society or the politicians and authoritarians refuse to do going back to kind of the mechanics behind how the the dollar system is created and why the probability of the the dollar crashing is very low and therefore it decreases also the probability of the dollar losing Reserve currency status anytime soon it also brings you to the sobering conclusion that there is no Panacea there's no Panacea uh the only way that we can improve things is if we get people if we convince people that it is in their best interest to try to promote smaller government

and like we said earlier that involves taking a little bit of pain other than just a complete and outright collapse that could be you know I hate to go there but that if you look at the fourth turning as an example I remember I interview intered Neil how this was maybe a couple years ago and I was really trying to press him on what the probability is how the fourth turnings usually play out and you know as you know he's been saying that we're right at the tail end of this fourth turning we likely see

it conclude at the end of the 2020s going into the 2030s and I kept trying to find like the glass half full or the light at the end of the tunnel he kind of got Snappy with me and he's like George look you don't understand every single time in the past this has ended in war that's the bottom line and have a plan B because there are some bright spots in the world today that's I look at Argentina they're kind of been down in the dumps for quite a while and obviously the standard of living

in Argentina is not what the United States is but they're on the right trajectory they're going in the right direction who knows how long it'll last I don't know but uh I was just there a couple months ago and it's it's a fantastic country beautiful people speak English I think from a cultural standpoint and just the way it looks many Americans would not have an issue being there for a long period of time because it just kind of fits right in with what they're used to seeing especially the middle of Argentina looks just like the

Midwest it's almost identical and a lot of people speak English but my point there is yeah see what you can do don't bury your head in the sand like an ostrich I always say it's a very poor investment strategy you know this is nothing to lose sleep over nothing to lose sleepover it's just something to be aware of and to prepare for so if in case things get a little worse then you've got that plan and and you might even be able to take advantage of opportunities that are created by a recession and when we

talk about things sliding down with the with the exception of War when we talk about things going into a recession it doesn't mean that we're just like Rickard says it doesn't mean that we're living in caves eating canned goods it just means that we have a difficult period of time ahead just like the GFC was very difficult you know although we had a rebound in the stock market I remember the housing market didn't bought them out until 2012 I remember that vividly because that's when I retired and started buying houses and I remember back then

I would put up an ad in Craigslist for just basic workers you know Tile Guys electricians uh plumbers and whatnot handymen to help me remodel all of these houses that I was buying back then I remember the very first ad I placed it was like for 12 bucks an hour something like that this was 2012 and within an hour I had probably 150 reses 150 rums now I went back I didn't start selling my rental properties until 2018 so I went back in 2016 and I had to you know do some touch-up work on some

of the properties So I placed the exact same ad word for word the only thing I did is I just ratchet it up you know it was maybe 15 bucks an hour or something that was appropriate back in 2016 and I sat there I ran the ad and I waited and I waited and I waited and after about 3 days I might have had one or two resumés so that that's what I'm talking about I'm not talking about living in caves eating canned goods I'm talking about 2012 which sucks which sucks for a lot of

people but it's uh not the end of the world and just like real estate was an opportunity back then we will see probably just as good if not better opportunities moving into 2025 or 2026 assuming that yield curve is correct again so so the main model portfolio what I've done is I set this up about call it 6 months ago something like that and I always start with gold always so regardless of what my strategy is for the specific portfolio I start with gold just that's my insurance policy and so I do 10% gold and

then my second priority is just make sure I don't lose money and that that should be priority number one two and three for some people that might not work they might want to take a little more risk it's just my my personal preference so what I did is I went out and I bought uh t- bills oneyear t- bills and then what I did is I took the interest that I was going to be paid when these t- bills mature and I bought call options and that's what gives the portfolio a bit of juice while

I'm waiting for things to get cheap such as commodity prices I know we haven't talked about that but I'm a firm believer that we are in the process or in the beginning Innings of a long-term commodity super cycle and these commodity super Cycles like everything else the prices never go up in a straight line it's always kind of a roller coaster ride just like inflation is as well always a roller coaster ride so we could be in a downturn here for the next 6 months it probably likely see lower prices if we have a recession

but I think that's really going to be your opportunity to hold on to maybe some of these producers that are paying a great dividend over the long term so I want to have all this liquidity that's going back to the the t- bills there but I want to have some upside above and beyond just your 5% interest rate in the interim while you're waiting for this curve to play out I had a conversation with one of my good good buddies that crushed it in Japan and the do com bus and the GFC I mean he's

one of the most famous hedge fund managers that we've had in the last 40 years he said you know what every 10 years or so you get a generational opportunity and then every two or maybe 3 years you get a good opportunity and then in between those you're kind of doing nothing he says but what I found is that with those generational opportunities that I have had whether it's Japan whether it's whether it's GFC whether it's 2020 those have always been the best investments of my life as far as return but those have always been

the hardest to buy those have always been the hardest to pull the trigger