The regulator told the pension funds and the life funds, you need to match your assets and your liabilities. And they bought it and the guys don't even know they've lost the money. >> So they regulated them to buy the bonds because the government needed the money. >> When I talk about financial repression, it is kind of esoteric. So I had to think up a better phrase for it. So I call it stealing money from old people. You you dened property of its ability to protect you from inflation. Ultimately was about making one asset class less attractive so you would buy more government bonds. If you bought a French government bond, the 50-year bond with a half% coupon, as of yesterday, you'd lost 78% of the capital value of buying the risk-free asset from the French government. So, you've effectively had your capital wiped out buying the risk-free asset. It could be quite scary for people listening to this who think, look, I've worked my whole life. I'm looking at my retirement. I've saved. I plan for it. Uh, and because our governments have run up such high debts, uh, and they can't afford to pay their bills, they're going to come after what I've worked hard for. Right, Russell? Uh, sometimes I need notes. Today's one of those days I just don't need any notes. I'm trying to understand what is a bigger problem. Is it is that there's part of the voting public that would rather vote themselves poor than have a a party run the country that they are ideologically against? Or is it that most people just don't understand enough about basic economics? >> So, we're going to begin by disagreeing. I mean, there's there are polls of the voters of the United Kingdom. I think we're we're starting with this country, the United Kingdom, where we're sitting today. And one of the questions is, do you pref do you prefer t higher more tax or spend or cutting taxes and lower spending? And there's now a significant majority in former of the latter amongst the population of the United Kingdom. Now that may not show up at the polling booth and there's lots of reasons for that because people usually vote against something rather than for something. >> But for the first time in a really long time, most people in this country would now prefer lower taxes and less spending. >> Is that because we've hit the middle class so hard? >> I so I I think this is we're way beyond my pay grade here. We're getting into sociology way from financial history. But I've got a very simple reason for that. The so-called working class who when I was a boy worked in factories for a big company for a boss don't they are what I think pjoratively is called white van man yeah >> and they take the risk in society they are take they are the risk takers in society the middle class are not necessarily the risktakers ai might change that but if you're a risk taker if you're a guy who's a plumber or or a joiner and go out every day you're the guys paying the taxes you're the guys paying for everything else and fundamentally we'll just call them blue collar I don't you know I don't really care what term we of it's those people who actually are voting for or who are sorry not voting for but now expressing an opinion that they want lower taxes less regulation so we've got this vault fast then you have the public sector workers who are in favor of more taxation and more spending surprise surprise >> so I think the the traditional narrative here is that it's the less welloff in society who vote for more stuff is not really that true of course we can't call plumbers the less well off in society anymore can we because they're doing very well for themselves so there's there's a there's bigger shift underway here that that we're not really focused on. >> Okay. So, how bad would you say the financial situation is of the country >> of the United Kingdom? Not that bad. So, I'm a completely non- consensus on this. So, of our public sector, very bad. You know, extremely bad. Of our private sector, extremely good. And that's the bit that we don't talk about. You know, I wrote a book uh on uh looking uh at the four great bottoms for for the American stock market. I read all the Wall Street Journals at the bottom of bare markets. And of course all the bad news is on the front of the paper and there is good news but it's in the middle of the paper and where we are in the UK today is all the bad news is on the front of the newspaper but our banking system is rock solid and these could be famous last words of course but is rock solid. Our household sector is is is completely degeared since 2007 and our corporate sector is completely degeared from 2007. So when we look at the macro data our balance sheet is really quite similar to Germany now on the private sector. So for all the bad news you read on the government, which I can completely concur with, we have this coiled spring in the form of a private sector that should the government decide to get out of the way, and I'm sure we're going to discuss that, >> is really going to go through a profound largecale investment boom. And let me say that that is not a UK phenomenon. That's a global phenomenon. Every developed world country has a program now for massive investment. and I'm on the campus says it will get done. How it gets done and whether it produces any profits is a different question. But it will produce jobs. Uh and uh I think in a world like this you know debtors get relief. So I am much more optimistic. There are lots of countries that do not have a vast vastly undergeeared private sector who are in deep deep trouble and I put France right at the top of the list. So uh yeah. So I've learned from history that you've got to look deeper into the newspaper. So we had some pretty good growth numbers out today. >> Uh Gordon Brown. Not everybody will trust what Gordon Brown writes, but he write wrote a nice little letter in the FT recently, a couple of days ago, pointing out that I think it's Wolverampton is one of the fastest growing regions of the United Kingdom. So, it's happening. Uh, but as a financial historian, I can tell you that nobody will recognize it until it comes and then we can talk about the catastrophe that is the British government finances. Well, let's talk about that because certainly when I talk to people, people don't feel richer. People feel poor. People are having less holidays. People are buying less. People are worried about their mortgages. Uh, and you know, part of this might be that we get a lot of our news from online and the online algorithms. Like, we've learned this with the podcast. Bad news sells better than good news. But even with that, people are feeling poorer. >> Sure. So, the government has to do something about it. There was a brief period, I'm going to say it was two and a half years where where wages real wages went up >> and then it stopped again. But there was a brief glimmer there where real wages went up. So, uh I think we're going to talk about financial repression and it's worth remembering that in this system it's all about getting nominal growing faster than debt. So, nominal has to be nominal household cash flow and nominal uh corporate profits. Nominal. So, everybody who's listening to this knows the difference between nominal and real. >> Not everybody. >> Not everybody. So nominal is if you got a 10% pay rise that's 10% nominal pay rise. But if inflation is 10% you've got a zero real pay rise. >> So we're definitely going to get higher nominal. I think we for for many people in and so they don't feel it as you just pointed out. Nobody feels it. You get paid 10% more and inflation is 10%. You really don't feel it. And if you're not particularly wealthy you it's even worse because if all of in inflation's in food and energy it's worse because inflation is not 10% significantly higher than that. So we have to engineer a system where real wages are growing. We have done that historically. We can do it again. It is very bad news for savers, but is not necessarily bad news for the people in receipt of the higher nominal income. So, let's take a little microcosm. We're sitting in London. Uh the real value of property in London and some bits of it has collapsed. >> Now, I don't think you and I are going to be buying in St. James, but anyway, you know, if you are one of those people, you've just got considerably better off. Your salary is going much, much further than it ever did. So that's just a little microcosm of how in this world actually people can get better off in real terms. Not just normal terms, but in but in real terms. But to be clear, we haven't done that yet. I mean, that hasn't been achieved yet. That's not where the country currently is. But a grand investment boom can take the country and the people who get paid less can't take them into into that world. >> Every person I have sit opposite me who is an economist, a professor, somebody who understands how the system works. I mentioned to you had Richard Verner in here the other day said it is really easy for the government to deliver high growth. >> I think so. I think it's never been easier for our government because we've got a private sector balance sheet coiled like a spring. We have massive investment we need to do because we are distrustful of China and it's worth just pausing on that a little bit >> because that is where this investment comes from. Let me tell you the things that we not currently not doing with China. The National Health, this is about two months ago. National Health Service will not buy fridges from China anymore. They don't trust them. The government just banned the Chinese from building wind turbines in this country because they don't trust them. I think it's public knowledge, relatively public knowledge, that members of the armed forces in this country are not allowed to drive Chinese cars because the government doesn't trust them. The Dan's canceled a huge order for Chinese buses because they don't trust them. You remember the internet of the things? Remember that? >> Well, we've got it. >> So, what is the most important attribute of the internet of the things? is it's trust because you can turn anything off at any time. We don't trust the Chinese. Now, that might change, but we don't trust the Chinese. So, we've got to build this stuff. Now, I'm not suggesting that we're going to build all of that stuff in the United Kingdom. We, the developed world, are going to build all of that stuff. We now have to replicate most of the productive capacity of China if we don't trust China. And that is one of the biggest booms in history. So, I agree with Richard. You have a balance sheet, private sector balance sheet, capable of funding it. We have a strategic need to build it. And it's not just that. We've got the um let's call that friend shoring. It's a nice little phrase that Janet Yellen used for it. We need to uh we do need to green the economy. People will disagree on that, but we need to do that. We need money for defense. So, the answer to all of the problems that you and I are probably just about to discuss all come down to one word, investment, and we've got a balance sheet that can do it. So, let's get on with it. But what what what's getting in the way of it then? Why is it not happening? If it because I you know, you look at you look at this Labor government. You look at Andy Bernham. He's coming. I I assume most people come into power, they they want to be remembered as a great leader, as being successful, as doing good things for the country. If every economist that I meet and and I know there are different uh economists who've got different uh ideas, but if everyone says it's easy, why will they not unleash the power of the private sector? There is an ideology lingering in the party. I mean, the Labor Party is not one party, neither is the Conservative Party. There are bits within it. Uh and this prime minister has said he loves the 1970s. I mean 1976, not far from here, Browns Hotel, the delegation from the IMF arrived because the country was bankrupt. Yeah. >> Two former leaders of the Labor Party. Well, one leader and the chancellor, Kalahhan and Healey, uh had to go cap in hand to the IMF and then had a ditimatic return. I mean, it's kind of nuts to heart. The only way you could have a liking for the 70s is if you were only a child in the 70s. You know, if you're bouncing up and down on a space hopper driving your chopper around in circles, it was wonderful. >> Is this because ideologically they cannot admit that turned the country around? Well, I think ideologically they can't ad there's a huge section of the party. I'm not saying he's actually one of them. I don't think he necessarily is one of them. That has to be panded to that that is the enemy has to be. That's how you get that part of the party on board. You have to say that's the enemy. Now saying it's the enemy, but actually you know the the PR around Andy Burnham has he worked with the private sector of Manchester. I don't know. I wasn't I have no idea whether he did or not. But you have to pander to that part of the party. Remember, this is the Greens taking all of the votes from the ideal from the the ideological bit of the party that these are the bad guys. Uh most people listening to this will not have heard the debate prior to the Scottish elections. Uh there's a reform candidate there. He's a very wealthy man called Malcolm Offford. >> He was here right after he's with the green guy. He said, "Do you want more people like me or less?" >> That's exactly right. That's what I was going to say. He asked the Green Party, "Do you want more people?" And they said, "Less." Now, who do the Green Party think is going to pay for everything? So I uh okay I'll declare my ideological bias here. I think the people of Britain are ultimately pragmatists >> and they vote ultimately sometimes it takes a while for a pragmatist who delivers pragmatic outcomes and I think we're not as prone to ideology as I mean you can see the bias inherent in all of this because I am because I am British but uh >> I think ultimately we vote for pragmatists not ideologues and we'll get there in the end and it could be Andy Burham >> and if he is disciplined by the bond market big if >> big question this week >> big if big question this week if He's disciplined by the Momb. We'll get there quicker. So, we're less prone to ideology. Uh I can see how you're going to get lots of annoyed emails about all of this. >> Well, no, it depends. Look, you know, one of the things I've always said to people is like I actually I I'm I'm not I haven't voted in the last three elections cuz there's no one to vote for, but I don't care. I If the Green Party came out, which they would never do, and said we want to have a productive economy, we want to unleash the private sector. We want to get kids to work. you know want to deregul I would vote for the I don't I will vote for anyone I think the most important thing to fix in this country is the economic situation even the people who are you know very upset about the immigration situation in the country I'll always say look you can have zero immigration if you do not fix the economy you're going to get materially poorer and your living standards are going to drop the most important thing is to fix the economy I just cannot see and I haven't seen in government for a while anyone who seems to be able to get control of power who seems to be able to do this Liz Truss made an attempt. I know she made some mistakes, but she seemed to upset the Bank of England. >> Sure. Yeah. Well, we're getting into I mean, you know, I'm a financial historian. We're now talking about the blob, so we're well away from my um >> Well, we don't have to expertise, but but the >> this is this is the fundamental bullishness that if ultimately the people prevail. >> Yes. >> The people don't want the Green Party. They don't want neocomunis. This is not what they're voting for. Now, obviously, North London's very different. You know, the the the Communists, sorry, the Green Party. Uh >> I think it's fair to call them communists. >> They're supported by the middle class. They're supported because they want to shore up the status quo effectively. I mean, they might say, "Well, we're radical. We're going to change everything." You don't find many blue collar people voting for that. What they want is more jobs and more money. They don't. They can't afford ideology. This show is brought to you by my lead sponsor, Iron, the AI cloud for the next big thing. Iron builds and operates next generation data centers and delivers cuttingedge GPU infrastructure, all powered by renewable energy. Now, if you need access to scalable GPU clusters or are simply curious about who is powering the future of AI, check out iron.com to learn more, which is iren.com. So, is is the thing really getting in our way? the wings of the parties where they're having to pander for certain, you know, ideological bent that stops them actually just going out and doing what is right. Like does Andy Bernham really we should be talking about economists, but does it seem to you like he knows what needs to be done, but that he has to pander the part of the party? >> I think that's I think that is where he was. Now, if you think back to the Labor Party of the 1970s, that's exactly where it was. It had its ideological fire brands, let's call them the Benites, and it had its pragmatists. And what forced the pragmatist to win was the bond market. We couldn't borrow any more money. There's a famous speech by Callahan Callahan on the I have to tell you uh conference that this is no longer an option. So is the bond market going to force Burdham to do something like that and have and pander to that other part of the party but actually get on with growing the economy? So my answer would probably be yes, but of course I don't know. I'm a forecast. It's a shame though because it seems to me therefore there are a very low number of people we're probably talking tens maybe 100 or so people who are ideologically holding the country back. >> I I I do think that it's not the people holding the company back. >> Well, I'm saying within the within the within government. >> I think it's so I keep using the word ideology because I'm a pragmatist >> and I think there are ideologues that are holding the country back. But it I mean but it's ideology. I think they probably know themselves it doesn't work, but they don't want to go to a dinner party in North London and admit that. You know, if you're going to I don't go to dinner parties in North London, as you probably guessed, but these are the things you have to say there. This is where your own your whole self-esteem is based upon the fact that you say those things. And I'll blame the whole problems of the country on the North London Labor Party, which is not the whole Labor Party, which is why when Burnham comes from the north, one hopes that he doesn't start having dinner in North London. Stay away from Islington please Andy. Okay. So you talk a lot about financial repression. >> Even if we unleash the private sector, is financial repression coming for >> very probably. So let's begin with why I'm making the forecast with >> probably a high degree of certainty. I don't always make forecasts with a high degree of certainty by the way. >> So it's because of the debt to GDP in aggregate. So I've told you why the private's good and public's bad, but in aggregate it's bad. In aggregate that's a bad number. Where are we? So the United Kingdom's total debt to GDP is about 234%. So public plus household plus corporations. Now 234% if I could draw a little graph would be not quite where we were at the end of World War II but pretty close. So pretty horrific. So it's not a good number. >> Unpayable >> uh unpayable in hard money. Maybe we'll come back to that. >> Payable in in inflation. >> Yeah. So that's that's where we're going to to next. But I I just want to point out that 234% of GDP, although it's really bad, is actually very good relative to everybody else, not everybody else. Let's pick some numbers. So, America is now 254% of GDP. China is 300% of GDP. France is 324% of GDP. Japan is 350% of GDP. Uh, and now let's talk about the good ones. Well, the Germans are 200, but we're 234. Not too bad. India is about 190% of GDP. So, you've got a really big big big range here. But fundamentally any number in way up into the 200s and we are at 234 ultimately you've got to do something about it. We have to do something. So here are the five things and this is where we come to paying back in real money. So the number one the beautiful way of doing this is really high real growth. Do I think we can elevate real growth to that level? Probably not. >> What kind of grow are we talking 10% growth? >> No. No. Real growth peranom. I think four would do it. But four but four is very high. we you know I'm looking back into the 19th century now to see if we get numbers like that in huge investment boom so obviously the great wide hope is uh AI that that can elevate the growth rate I don't have I can we can talk about that as a separate issue so there are five ways to do this really high real growth austerity well there is absolutely no political >> uh mandate for austerity at the minute anyway default uh well Lehman Brothers defaulted and it didn't really take us to a land flowing with milk and honey the government of Greece defaulted and it's taken at least 10 years for the nation to recover from that. And then there's finally financial repression. So I pick financial repression because it is the least if you're a politician and you're choosing it's the least bad option unless we get some sort of miraculous real GDP growth. But clearly you have to try for the high real GDP growth. You have to do everything you can to achieve it. But I think it's going to be a challenge to get it to the right level. If like Britain you start with a with a more moderate debt to GDP ratio, then maybe you need to do a little bit less financial repression. But 4% is that achievable with the right leadership and the right will and the support of the public? >> Probably not. I mean that's probably too high. I mean you have to put that into a historical context. We you we just very very rarely ever got to that level. That's a very very high number. >> Can you work towards it year on year? >> Yeah. Look, I'm saying we can get much much higher than we are today. So if we were to get elevated real GDP growth say you know two and a half isn't that long ago where we could achieve stuff like that helps a lot and reduces the nature the level of uh of of repression that you might need >> but when they get 2 and a half% growth do they spend more >> spend more spend more >> well there will be more spending on defense for sure that's just inevitable given what's happening in China not Russia uh so yeah there is a temptation that they spend more >> so financial Social repression is the easiest one to slip into the public. >> It is because you're attacking only one section of society at least for the first decade and that is savers and you can see the rhetoric on that changing. So if I want to attack you I have to give you a bad nasty name. So I'll call you a rontier. Uh for those listening who don't know what a rontier is you can google it but is basically somebody lives their life on unearned income. And what could be more horrible than somebody learning their right leading their life on unearned income. So, we have to demonize you as one of these people who lives on unearned income. Everybody else is out tolling hard, but you're 65 and living off your pension. That's unearned income. And we say that this is a legitimate person who has to lose. There's a grand reordering and has to come. The country's a mess. Who do we think has to pay for that? Well, the saver because they've never had it so good. So, that's how you do it. But it is worth pointing out in that environment that debtors do well and young people probably do well in a great investment b. So this is where we were after World War II. So I'm not making this up. We've done it all before. >> This is a redistribution of income. >> Correct. Financial repression is that it's not necessarily done for that reason, but is done to reduce debt to GDP ratios, but it has that effect. There will be some there'll be a lot of people listening to this who've read who've sort of bought a copy of Thomas Piketty Capital the great Marxist economist an oxymoron if there ever was one uh not many people have made it past page 20 but anyway I think in the first 20 pages you see a chart of wealth wealth distribution and you see despite what says what you see is effectively uh the mean reversion of wealth distribution but if you look at the period after World War II which is the period we're talking about here financial repression you get a collapse in financial inequality but that's not because necessarily uh you know working people are doing better although they are it's known as the tr glor and France the 30 glorious years is but the savers are doing so incredibly badly so when I was a boy in the 70s the worst section of society the society that was really on its knees were the pensioners well that's not where we are today is it >> no >> so we're just going to have to go through reversing that and my I sp I've spoken to pensioners about this and I when I talk about financial repression it is kind of esoteric so I had to think up a better phrase for it. So I call it stealing money from old people slowly. And the slowly bit's important because you mustn't frighten the horses. You know, they mustn't stampede for the exits. So that is a world where the politicians will say, you know what, somebody has to pay for it. Why why not those guys? Now the triple lock obviously is evidence that they haven't got there yet. But the triple lock will have to go as well. So that's the word >> wants to go for the triple lock. >> Yeah, it's incredible. I mean all those problem with all those old people and I'm obviously now one of them is they all vote. So if young people really want to change something, they got to got to get out and vote. So we haven't been really that precise about what financial repression is, isn't it? So to the extent that you and I as savers are within regulated financial entities, we force those entities to own government bonds at yields that do not compensate us for inflation. Now there's a hundred other things to it, but at the core of it, that is what a financial uh repression is. So bond yields are held below the rate of inflation by forcing us to buy them. I don't want to buy bonds. >> Uh, no, I don't want to buy them either. I mean, I wrote a huge piece for my clients, uh, >> you said, don't buy bonds. >> Yeah. 2021. I said, look, it was called the train to the Finland station and Lenon arrives in on on a train to the Finland station. And I said, look, this is a regime change. What's happening here in 2021 which was the bankers commercial bankers expanding their balance sheets into a recession with government guarantees to create masses amounts of money is a going to create lots of inflation tick but b it's a sign of a regime change that the government has realized how to make money and you don't want to be anywhere near a government bond now obviously it's been right but I want to show you how right it's been if you bought a French government bond issued in the first quarter of 2021 so that was a 50-year bond with a half% coupon as of Yesterday you'd lost 78% of the capital value of buying the risk-free asset from the French government. Now that's a nominal number. French CPI basket, not annual but since then is up 18%. So you've effectively had your capital wiped out buying the risk-free asset from the from the fourth biggest issuer in the world. >> Riskree. >> Risk-free. >> So uh I I'll see if I can get this right in a way that George Bush didn't. Fool me once, shame on me. Fool me twice, shame on you. Now are investors going to be fooled on the second time and owning the risk-free asset given. That's an extreme example. A 50-year piece of debt is an extreme example. >> But and no one knows they've lost this money. This is what I mean about stealing money from all the people slowly. They don't know who who owned that. I'll tell you who owned it. >> Pension funds. >> Yeah. The regulator told the pension funds and the life funds, you need to match your assets and your liabilities. You need to buy every piece of long-term paper there is to match those two things up. And they bought it. And the guys don't even know they've lost the money. >> So they regulated them to buy the bonds because the government needed the money and they lost. That's the trans that is the subtle tr No one's ever explained it to me. >> Well, that is so that's not the rationale then. The rationale then was if you have long-term liabilities, you need long-term assets. >> But but you can easily just change that to we need the money and here's and then give it another name. You know, stealing money from old people slowly. It it's not declaring the government needs the money, you're going to lend it to us. It's finding reasons of safety and security and prudence as to why you need to buy government bonds. Now, in a risky, dangerous world, of course, you need more government bonds. So, it's not dressed up in the language of we need the money, governor. Uh, you know, it's not a revolver in the in the back in a dark alley in Soho. It's uh for your own good and safety, you need to have more government debt. >> So, so is the triple lock really a subtle way of hiding this the belief you're, you know, outperforming? >> Yeah. Yeah. Well, that's in the that's the public sector, isn't it? So, the public sector pension is what it is. It's the private sector pension. So, it depends on where you as a pensioner sit. If you have a private sector pension, >> I'm more likely and my family's more likely to be the private sector. >> Yeah. So, that's where you're going to lose out. I mean, fortunately, you know, maybe not losing out as much as people think at the minute because for for all that you've lost on that that asset, you know, equities have done pretty well. So, it's it's pretty well hidden down in the weeds at the minute. But, I that's my kind of point. We're getting to the stage where you can't really hide it anymore. We fooled the people once, difficult to do it again. It might have to be more overt the second time. So the public sector pension triple lock will have to go eventually but but the attack is on the private sector. Now to be clear, it's not just private sector pension funds because you got the the sort of life life insurance as well. There all sorts of pots of capital savings institutions in a society and all of them can be put in there. So if we go back not that long ago, one of the legacies of the last financial repression is that at the age of 75, your pension had to go into an annuity. And guess what the assets of an annuity are? Government bonds. That's the legacy of the old. So we can bring that back. You know, so many ways of of doing this. We had at one stage I think that the peak rate of uh transaction tax on equities in this country was 4%. There was never a transaction tax on government bonds, you know, to make government bonds more attractive. If you put on rent controls, then you you you denude property of its ability to protect you from inflation via higher rent, making government bonds more attractive. You give me any sort of piece of legislation. We ran from 39 to 79. They'll show you how ultimately it was about making one asset class less attractive so you would buy more government bonds. And uh British investors from 45 to 79 in real terms lost uh nearly 90% of all their money in British government debt. So, so really are you saying these people aren't idiots? They know exactly. But >> No, no, I'm not yet. But not yet. I think so, uh, I mean, I've been writing about financial repression for a long time. And the question always was, is there an evil hand behind the scenes moving the chess pieces? And I think the answer was no. I paused there because there was a man who was in high policy circles in this country who did write a book about it and did suggest it. And his name was Lord Turner. Now he published that about 201213. So there was a blueprint there. But no I think the government as governments do are reactive and so far have stumbled into all of this. It's been accidental. But I think in the last year and a half there is evidence that someone is is working it out. So I for the United Kingdom the best example I can give you is the power of mandation. So the British government, last one, Conservatives, this one have a thing called the Mansion House Accord where they're trying to steer the capital of the pensions industry into the certain assets that they think they should invest in in this country. So we'll just leave that there. But there was a problem with that. A lot of the guys who ran that money said, "I'm a fiduciary. I have a legal obligation to my people, and if you make me do that, they'll sue me." So last October, it's nearly a year ago now, the British government passed a piece of legislation called mandation, which sits up there now and says a government minister can force a pension fund to buy whatever they wanted to buy because that gave you a legal backs stop. So if you get sued by your client, you say, "But wait a minute, we haven't done it. They forced us to do it." So the moving to that piece of legislation tells me that there's somebody and this came after the Liz Trust budget where we had a spike in bonds. >> I don't remember anyone talking about this. This sounds like one of those things that just goes under the car. >> Well, it yeah, I would say it wasn't a high profile, but it wasn't done in secret either. I mean, a lot of a lot of people in the pensions industry obviously were not happy about it. So, there's not a back stop. Now, is the backs stop random? No, I think the back stop's deliberate. Liz Trust thing helped that. So, I think in the last 18 months, there's a little bit of sign of the moving hand. I mean, if Madam Smith believes in the invisible hand, this is the clunking fist. So the the clunking the clunking fist is becoming more visible >> than it you know there is more order in this than there used to be. >> Right. So can you explain to me cuz look I'm just a I'm just a guy who goes to work just who tries to save some money and help my kids and have a holiday each year. And I think a lot of people are probably in a similar position to me. I watched what happened with Liz Truss. I quite like Liz. Um I I believe she wanted the country to go. believe she wanted to unleash the private sector. Uh unfortunately, she didn't last Unfortunately, she didn't last too long. I would like to have seen her as a prime minister for longer and I've read all the arguments either side, but I've got a feeling you fully understand exactly what happened there with every player. Can you explain to me how you saw it? >> Well, I think the problem with the plan is that it it it initially would have entailed a much bigger fiscal deficit. Now, if there'd been something to perhaps contain the size of the fiscal deficit while this was going on, I don't think the bond market would have reacted as badly. There are, and there were then backs stops on the bond market that were not deployed. I do not have an opinion on whether that was a political choice by the institutions that can deploy the backs stop or not. She obviously has an opinion on that and she's very viciferous about it that the Bank of England could have deployed the back stop and things would have been okay. I, you know, I'm not taking an opinion on that. The point has been I have a back stop and it's not with the Bank of England. It's with the British government minister. That's the change. That's what's brought in. That's what tells you the clunking fist is moving. It's realizing we can't be dependent upon a decision of the Bank of England anymore. We need executive power to force people to buy these bonds. Had Liz Trust been in power at a time when mandation was already in place, she would have been able to say you need to buy these bonds. She would have argued there's a temporary extension in the fiscal deficit coming until we get the elevated growth. And in in that hiatus, you're going to own more government bonds. So the world this world changed. Now I'm not sure to what extent other parts of the world changed the the mandate of the clunking fist, but it's been changed. So that tells you that somebody somewhere is working this out. I don't know where Lord Turner is these days. I don't know if he's a consultant to the government or not, but he he understood it, wrote it all up. And there are people like him, and not just him, others who say, "Look, the Brit post World War II period was the golden era era for Britain." No, in many ways it was if you're the average Joe. Uh it just wasn't if you were a saver and they think we can replicate this and on the whole I'm saying yeah we probably can replicate this but the saver pays the price and then who sacrifices the saver. Well I think so we had a little uh discussion before we began recording and I don't think it matters whether they're leftwing or rightwing. They all sacrifice the saver because what else are you going to do? >> So so what what should a saver do in this time? Start spending. Well uh so yeah so that is one thing you can do absolutely uh but so the good thing is we have a history of this and we know well we know what worked the last time which even as a financial historian I'm going to tell you is not you know foolproof guide to what happens the next time but here are the things that would do well in a financial repression obviously you don't want to own bonds you know if I tell you we're going to inflate away our debts why the hell would you want to lend anybody any money okay uh but there are equities that do benefit from all of this we've talked about what I think and which may or may not be true this great capital expenditure boom that's coming across the developed world while there are equities that are well plugged into that I believe we're suspending or will suspend very aggressively uh trade with China because we simply can't live with the China that is that competitive for whatever reason it doesn't really matter people argue why it's competitive it's kind of irrelevant so politically we can't cope with it and therefore we won't so there are lots of companies that make a huge amount of money because they're not uh subject to Chinese competition anymore uh Gold is actually a good investment in a financial repression and uh there are uh surprisingly maybe we go into more detail later banks are a good investment in this. So you so the problem here is is as follows. When you reach a great big structural change in the world the professionals and the amateurs are all looking back to guide their asset allocation and doing that they're on 6040. Now 6040 has been a nightmare which is 60% equities 40% bonds and they still haven't really changed. And what you need to do at a time of great structural change is have a radically different portfolio. And that is a radically different portfolio. Those stocks I've mentioned are usually classified as value stocks. Not very good definition of them. Value stocks, gold, banks and invest in countries that aren't going to run a financial repression. And actually most of the emerging markets who've got very low debt to GDP ratios exchina don't have to do it. Now the problem with that is it's an incredibly idiosyncratic portfolio. And everybody will tell you it's incredibly risky. Why is it incredibly risky? Because it doesn't look like anybody else's portfolio. >> But sometimes that's a good thing. >> Absolutely. That's my point. A great I mean in a business cycle when you're playing business cycles and maybe being like everybody else is kind of useful, but when you come to a great structural change, you need to be radically different. The professional community can't be radically different. They have internal risk control officers who'll tell them that this is far too risky. You as an individual can do that and then you have to live with the volatility. Uh so that's the problem we have. If we've built an industry that is benchmarking, benchmark hugging and is not capable of making a grand leap. >> Why would you as a professional? Because you get it wrong, you lose your job. You get it wrong in the herd, maybe you keep your job. >> So, in my world, we mentioned it before uh before we started recording. Uh, you mentioned gold and I didn't think I' I don't always bring it up for the sake of it because the show used to be about Bitcoin, but a lot of my friends and people I know are investing in Bitcoin for the same reason that people are investing in gold. But you're not a believer. >> No, I'm not. Uh, so a little bit of So there obviously three different types of crypto. We're just going to talk about Bitcoin because that's the only one I care. >> Yeah. Because I think stable coin will be very successful. >> I think the central bank uh digital currency will be very limited. It's too dangerous. I don't think they'll go there. So, we're just just to be clear, I'm not negative on all crypto. It's just >> the And I'm not it's not I'm not picking on Bitcoin either. We're just picking on private sector >> uh crypto. Yeah. Private sector crypto. Whether it's called Biden or whether it's called Trump or whether it's called uh Bitcoin. >> So, a currency as it used to be. So, I mean, it doesn't have any of the it used to be five, six years ago, we'd have it's got to be, you know, coin. It's got to be a currency, but it's not a store of value. It's credit. Well, let's just say it's very volatile to be classified as a store of value. >> I'm used to the volatility. >> Okay. It's uh it's not a means of transaction yet, though stable coin, I think, really could be a means of transaction. Uh and it's not a method of account. So, it doesn't have any of the functions of a of a of a currency. Certainly doesn't have all three functions, and it's clinging on to the store of value one, but is exceptionally volatile. So, when I speak to I don't speak to a lot of Bitcoin people, but I do and and they say to me, well, what it is now is a way to avoid the government. That's what it is. It's not really a coin. It doesn't have those three values, but as a way of avoiding the government, that's really why Bitcoin is going to do very well. you want to avoid a financial repression, you buy Bitcoin. Well, let's go to China. You can go to jail for buying Bitcoin in China. So, you know, if it's really going to be this gaping hole to escape a financial repression, they're going to be after it. So, that's why I don't You might say the same for gold, but it's actually much easier to to mo to hide maybe not move gold. Well, actually even moving gold. It fits in the glove compartment. >> Actually, it's fair it's fairly easy to hide and move Bitcoin. Um, and you know, we we know in the US they came after the gold. >> In China, they put people in jail for doing that. >> Yeah, that's China. But the rest of the world, they're not putting in jail for it. >> No, not yet. I mean I mean we used to have capital controls. We had them. And people did go to jail. There's a famous uh corporation back in the 60s early 70s called uh Bernie Corfield uh inter international overseas investors and it looked like uh a mutual fund company but it was an illegal capital flow company and lots of them went to jail. >> I mean the point in having capital controls or exchange controls is you go to you break them you go to jail >> but they could do that for gold as much as they could do for >> they they they absolutely could if you're going to move across border. >> Yeah. >> So that but that's the same risk on the on both. >> No it's it's not. I think it's much less on gold because gold is is so much easier to have somewhere and and it's not a big asset class. It's getting bigger by the day, but it's not a big asset class. Gold is not a I mean, the way I look at the financial repression, if you're a government, what you do is you look at a tree full of fruit, and the fruit is savings. And you start with a low hanging fruit, of course. You do pension funds, life funds, you regulate them anyway. You bring in the mansion house accords, you bring in mandation. Easy, easy picking. But as it goes further, you've got to go higher up the tree. So the first thing I'd say is clearly Bitcoin is higher up the tree. It's going to be much more difficult to get your hands on and then you work your way up. I put gold maybe at the top of the tree. >> Is that because the government has a gold themselves and they like it? >> No. No, it's not that. It's just it's just not a big asset class. It's just not worth getting to when they're stuck further down the tree. I mean just I mean obviously everybody talks about Roosevelt 33 and his his uh hand in all your gold but in those days gold was quite a big chunk of a personal portfolio. Gold gold was money and money was gold in a in a gold standard >> and now it's just a tiny bit. Now if we're here in 10 years maybe it'll be a big bit and the governments will come after it. But at the minute if you and I were going to run a financial repression we couldn't care less about the holdings of gold because they're so small. I saw um recently Chris Christian Lagard Christine Lagard talking about savings >> the power of savings there's a trillion euros or whatever locked up in savings >> I think it was uh Usha Vanderlayion certain just done a big speech about all of the savings lying around Europe and the same speech the Macron does which is uh I don't know if the number is still right that roughly 300 billion a year of European savings goes to fund America free choice free choice by the people by the savers that's what they choose to do it and it'll not surprise you to know that errand and macron are not very keen on that idea so they would like more control over those savings so they can be invested where they want them to be invested that's financial repression >> so so in the context of uh vandelion uh lagard macron they all want control over people's savings so it is buying their bonds >> want or need >> need >> they need it >> need uh but there's also a secondary point which is the uh the druggie plan so Draggy has a plan for massive investment across Europe to save it. And uh so they want it for that as well. But that but they're no different from the government of Britain from the government of Canada. I mean it's possible that the biggest investment boom in the world is now in Canada because if Canada is really going to ostracize itself from America given how intertwined those two are. That might be where the biggest investment boom has to be. To finance that, Canada will be bringing tens if not hundreds of billions of dollars of capital back from America every year to fund it. That's the world we're looking at. You know, we we are, as we sit here today, bond markets are breaking. There are many reasons for that. We can talk about all of them, but the one that the press doesn't talk about is repatriation of capital. Everybody needs their savings home. And where are their savings? They're in America. 70% of the world's stock market, you know, the land of the free, American exceptionalism, that's where the savings have been going. And if Von Lion wants them back, the British government wants them back, Mark Carney wants them back, and financial repression is is forcing them back. And at first instance, if you want to bring liquid capital back, the first thing you sell is your most liquid asset, which is government bonds. So, >> which we're seeing a lot of people selling their US bonds. >> Yep. But not just US, you know, any bonds. >> Well, France, any bonds, but France is the worst, much worse than the US. So uh yeah, so that's the world that we're living in. And that speech by Vonda Lion is could have been could have been really made by uh Andy Burnham. The thing is Andy Bernham doesn't need to make that speech because he already controls the savings of the British people through the powers of regulation. Vonda Lion needs to make that speech because she has no control over the over the uh savings of Europe. I mean the the chancellor of Germany controls German savings. The president of France controls French savings. Her desperate gambit is for the European Commission to get control of these savings so that she has a role to play in the future. And she'll fail. She'll absolutely fail. But that's why she's getting so viciferous about this because she knows that if the Germans run financial repression independently and the French run independently, there'll be nothing for her to do all day. And there's nothing a politician likes less than realizing that she's completely part of. So hence the great big public announcement that we absolutely need to have this uh capital union cuz I need to control the allocation of savings. So I think the allocation of savings will be done in Europe but it'll be done by the the member states individually and not by uh the commission and and Vond. >> Now I know that running a business means you're always reachable until you're not. And the second you miss that call, that text, that follow-up, someone else picks it up. That's the bit people don't think about. You don't just lose that customer because you were worse than the other guy. You lost them because you didn't answer. That's why today's episode is brought to you by Quo, spelled Quo, the business phone system built so you never miss a call. Everything lives in one place. Calls, texts, voicemails, and your whole team can see it. So anyone can pick up a conversation, see the full history, and reply properly instead of just that. Sorry, who am I speaking to? It sets up in minutes on any device. You keep your existing number and you can add people as you grow. There's no it and no hassle. And there's a built-in AI agent that takes the after hours calls. It answers questions, books appointments, so the phone still working when your team's gone home. Money is on the line here, but you can always say hello with Quo. You can try Quo for free. Plus, get 20% off your first 6 months when you go to quo.com/pete. That's quo.com/eet p. So, in my world, Bitcoin and gold has been quite the debate over the last few years. But why not both? Well, our boys over at Leen have now got them side by side on just one platform because they now support Tether Gold alongside their expanded support for USDT and UST. So, you can now trade across 10 integrated pairs with transparent 0.5% spreads. You can also now borrow and repay in the stable coin that works for you. Now, every asset is protected by the same custody discipline that has safeguarded over $11 billion in client value since 2018. Your transaction account and loan collateral assets are never lent out for interest, never used to generate yield, and never put at risk to fund the business. That's the world's hardest assets with the flexibility to move between them. So, you can explore this and what else is new at leen.io. That's led.io, io which is led dn.io. Just note that availability does depend on your jurisdiction. It can be quite scary for people listening to this who think look I've worked my whole life. I'm looking at my retirement. I've saved. I plan for it. Uh and because our governments have run up such high debts and they can't afford to pay their bills. They're going to come after what I've worked hard for. Yeah. >> What's my retirement going to be like? >> That's just where we are. You you're now part of the enemy. You've got the money. You know, I know the speeches are always against the billionaires. >> Billionaires have got the money. Let's get the money from the billionaires. Well, that proves to be quite tricky. >> Yeah. >> And guess what? The billionaires don't have life funds and pension funds. So, in terms of this tree of taking money away from people, the easy thing is just a regulated savings industry. Uh it's quite difficult to go after the guys at the top. I mean, eventually probably make an effort, but we're already making the effort. >> They're trying to in California, aren't they? >> Yeah. Yeah. It doesn't, you know, we can, as we sit here today, there's lots of stories about Greece and what Greece is doing to lure people away. Uh, but this is a is a problem for the European Union. Greece is hitting the headlines, but actually Milan's much bigger threat to Europe than many, many very wealthy French people are moving to Milan. There's a flat tax rate on your overseas, sorry, non-Italian income. This is attracting a lot of people. Why is this a problem for Europe? to make a single currency work, you need to move towards a single fiscal system. And this competition for tax and of course the Irish have been doing it for a generation very successfully. I mean, well done them. But uh >> the Irish have been doing it for a generation. The Greeks are in the business. The Italians I mean who are they taking all this tax money from? France and Germany and their public finances, particularly the French already in a mess. So in terms of attacking the wealthy people, to the extent that they go to Greece, you got a problem. So maybe you should stop that. So you just go back to your pension and life funds. You know, most people don't even know what's happening. Do how many people who have a French pension know they've lost 76% of their money lending it to the French government? None of them. >> They'll protest when they realize. >> Yeah. So yeah. Well, >> they love a protest. >> They protest every Sunday anyway. It's just a just a new reason for a good protest on a Sunday. >> Sunday now. >> Is it Saturday? Well, Sundays, I remember, you know, being Paris on a Sunday. You can you can dip into three or four different demonstrations depending on one's political opinions. I just it it is really sad. Uh and maybe I just romanticize too much, but I just wish I just wish we would have some political will to do this in a more honest way. I I look I am 10 maybe years away from retirement. I'd like mid to late 50s to be able to retire. And you know what, Russell, I look I don't mind taking a small haircut for the future for the kids. Like I feel like in some ways it's kind of like a a war footing. you know, post world war got to re rebuild this country. I want to I want my kids to be able to have kids and buy a home and in doing that I want their peers to be able to have the same. >> I'm suggesting you can do that. I'm suggesting you can do that. One, try not to have your money in regulated financial institutions. Number two, own value stocks. >> I mean, buy gold and you can profit from this. >> But that's for me personally. But what I mean, I want it for their generation. >> Sure. And it appears to be that their generation will benefit from this financial repression. They will be the beneficiaries. But I don't think it's happening because the the powers of be that control these want to control our money are thinking about the future because they think about saving themselves. >> Well, well, there's two things they're thinking about. So, one is just what you said, but the second one is China. >> Yeah. >> And we must not underestimate what this country has to do now in a cold war or or France or Germany or Canada or America. And that's where the jobs come from. >> We have to build. >> We have to build like never like really like never before. This country lost a a significant stock of its capital assets due to enemy bombing after World War II. We've lost even more due to the hyperco competitiveness of China. And that all has to be rebuilt. I don't think all of it is rebuilt here, but some of it is rebuilt here. And that's what the politicians are now thinking about. You know, this great thing. Are we really really rebuilding the defenses of this nation? The defenders from Russia? >> No. >> It's not possible. But, you know, we we can see where Russia is in in Ukraine. We're building it for something bigger than that, and that's China. And nobody will talk about that. Nobody will say anything about it. But this is not about going to war. It's about about realigning the supply chains of the entire developed world to be less reliant on China, whether it's solar panels, automobiles, fridges, buses, the whole thing. Now, if trust is instantly regained in the Chinese leadership or there's a new leader and we instantly regain trust, then I'll have to come back here and have a different opinion. So that's what they're trying to do and that's what that creates the jobs for your children and your grandchildren uh and creates uh for them a better a better future than it currently would appear to to be. You probably don't need a university degree for quite a lot of that by the way. So >> well it's a big conversation in our household at the moment you know with a 16y old I mean what I mean how do you even choose what to to learn because you know in five years time I think the world's going to look very >> I think they should learn from their father. I think they learn communication. I mean this is one thing I think uh that will always be there the ability to communicate which is the ability to lead. Now maybe one day it's only AI and there's no human beings to lead but the ability to communicate would appear to me and this is what the older generation always say would appear to be a dying art amongst the younger generation. >> That is a problem. Well interesting we had this conversation yesterday because my daughter's she's an artist. She loves art but you know part of her A level she has to do other subjects. She she took economics cuz you know she wanted to make her dad proud. >> I was going to say she wanted to make you happy. >> Yeah. But she she's not enjoying it. She wants to be an artist. And interesting the conversation I said to her yesterday. I said I don't mind you being an artist but I also want you to get a job because the creativity is beautiful but you got to be able to learn to communicate with people to be able to deal with people. So we've we've had that conversation and I it's a really funny time because when my son went uh got disabled he was selecting A levels. Yeah. This was what I mean he's 22 now. So you're talking six seven years ago. were thinking about there was no chat GPT we were talking about we we considered his career with my daughter now I've got no idea what the world would look like in 5 years so it's the conversation now is pursue your curiosity pursue your curiosity just pursue that and in 5 years time we will figure out the world that's the world that that there's here we'll figure out what's right for you and it's a very different >> I so I I understand that completely but there will be a lot of bluecollar jobs and in terms of your daughter I think if she in the in the way along the way learns to communicate with people and lead people. Personally, based on my own experience, I think a lot of that comes from the sports field, team teams, sports. It may not come from university at all. But I can't foresee a world with AI 10, 15, 20 years from now where there isn't the role for somebody who can communicate and lead a team. >> I completely agree. Yeah. >> And and that's a skill set which you know tons of people have. They never gone anywhere near university. They're brilliant at it. Ju just back to the point I was making previously though look again I don't mind elements of financial repression where we're talking about rebuilding the country not saving the government I think there's a distinct difference between rebuilding the country and saving the government >> they they don't see the distinction >> they don't but we do and and saving the government means saving face which means you know shoring up power which means you know all the things that come with that and to me the problem we have with that is is like even if we get to that high growth they'll just spend more again stupid they needed to maintain power but If there was a genuine plan to rebuild the country, if somebody came out and said, "Okay, look, Pete, you're going to have to pay a bit more tax. You're going to have, you know, you're going to you're going to have a lower pension, but we're doing this to rebuild the country for the children. Here's the plan." I think I could be on board. >> Don't rule it out. That's all I would say. Don't rule it out. I know we're both skeptical about that. I think it is because there's this block in the Labor Party which is ideological and and probably doesn't represent >> the base of the party. The base of the party is working class. That's theoretically what Labor is about. But there is now obviously a large public sector middle class part of the Labor Party. So that battle has to go on. I may be slightly more optimistic than you that one bit of that wins than the other. But that battle as it has gone on throughout the history of the Labor Party has to be won by somebody. The question is I hope we don't have to wait another four, five, six, seven, eight years before one of them wins it. >> So in the 70s they they still have this middle class Labor wing. >> Well, they did but I mean remember what happened? They >> I don't 78 I was born. >> Who voted Margaret Thatcher into power? the working class. >> Yeah, >> that's what happened. So they just so they just stuck with that and said these are the people we represent and the whole working class who was supposed to rep not all of them. >> The guys in Liverpool didn't. Uh but a large percentage of them just said what the hell if you not if you're not going to represent us then we'll go and vote for somebody else. That is the fear he currently faces from reform and he better do something about it. I mean the reform party is we'll not run through all the policies of the reform party but one of the part one of the things is we'll get the government off your back. I mean that's it and it's very popular with blue collar voters. >> If Andy Bernham can't see that and I know he sees it and he'll have lots of advisers telling telling him it as well but he has this other bit the ideologues who are saying oh that's not what Labor really stands for. So if he doesn't do something he loses the vote the way uh Callahan lost it to uh to Thatcher. >> You you are still very optimistic though. >> I I'm so I look I'm I'm getting old now. Uh I've lived in the country a long time. You know that great thing about that quote from Churchill about Americans, they always do the right thing after they've exhausted every other I think the British people get to the right thing much more quickly that Americans do or other countries do. I think there's a pragmatism here that'll get us there. It could be in this government. That's probably where I'm you would call me widely unduly and stupidly optimistic. But I think we can get to the right answer quicker than other nations. But I don't know that if it's this year or next year or the year after. >> Yeah. Yeah, I mean I look at the I mean this only this week uh Donald Trump offering to pay $5,000 to every citizen if they win the midterms. I mean it just seems so lunatic. >> Well, see I mean I get it, but yeah, I know it's it is lunatic, but there's a there's a there's a pervasive view in the in across the developed world by some people that that most people in the country are stupid and fall for that stuff and they're not >> and they're not. >> Well, I mean, you know, what's his name? um because I've lost his name. Um the the Labour guy a few years ago um >> well Jeremy Corbin >> Corbyn he pre-election started offering everything for free. Sure. >> Everything for and nobody bought it. Nobody bought it. >> Absolutely. And and as I said once upon a time these people voted for Thatcher. That's the pragmatism. It's to say that inherent within the country there is no ideology. There's just pragmatism. >> And we'll get there but it's just it's just taken a long time. >> Okay. Okay. Well, we should finish talking about AI because it's come up a few times. Uh, so are you optimist optimistic that AI can bring a productivity boom and therefore growth or how much are you looking at at the other side of this where there may be a lot of jobs lost and we have to consider that maybe this is a world that can't really support that much debt. >> That's brilliant question. I think a lot of people don't think about that second bit and that's the bit we need to think about. >> We're a debt based world. >> Yeah. So let's talk about the upside first and there's no doubt it will produce higher levels of productivity growth which is not necessarily the same as high levels of real growth. We have to remember that because of the dislocative effects that you say. So there now a little bit on that we have lots and lots of history of technology booms and and lots of sort of parallels and analoges that we can look at. So what will they tell us about this? What they will tell is that at certain points in time financial capital will fall over itself to fund a technology and then it will stop and it will stop because it doesn't see the returns and we maybe not there yet but and then after a couple of years it'll see the returns and it'll come back. In other words, any technology boom should be feast and famine. And we kind of saw this with the dot bubble. So we're absolutely in feast. But at some stage, the people who provide the financial capital will reconsider the returns that the physical capital will get and it'll stop for a bit. Doesn't change the long-term projection for AI. So the best example of an equity for that would be Amazon falls 90%. >> I remember >> uh but had you bought it in 2000 and held it to 2026, you didn't care about the 90% decline because you made so much money. The point is that for a while we couldn't work out where the cash flows would align. You know, Amazon was building lots of eyeballs, but would it get the cash flows? We didn't know. That's what'll happen. I think that'll happen with AI. It seems more clear where where those cash flows will line, but it's not that clear. So, in terms of AI, you can't say it's going to give you a permanent lift in productivity growth. It's likely to be up, it's likely to be down, but in aggregate over 10 years, it'll be a positive number. The bigger problem, the one you've just mentioned, is the reassignment of cash flow in a world of high debt. And there are three three people we have to worry about there. The the household sector, the corporate sector, and the government. Well, look, if you reassign cash flows to the household sector and the corporate sector, that is the government because, you know, tax that's that's us. So, that's the challenge. And I think there are significant challenges in that uh that that one of the reasons we might have to slow this down is if AI starts taking all the cash flow from heavily indebted companies, those companies default on banks, those banks are in trouble, etc., etc. So, the problem with AI is we're looking at so many moving pieces here. So, what is the net from all of that? I think the net from all of that is we do get higher real growth. Clearly I think it's supplemented and actually bigger driver will be in will be investment. But there has to be something to slow down this reallocation of cash flows. If it really accelerates the way it could accelerate, we're going to have a credit problem. Now the good news for the United Kingdom is we've got low debt to low private sector debt to GDP. France has got high private. So you can then sort of go around the countries and say who's going to have the biggest problems from a reallocation of cash flows. And you don't you know the UK is going to have a wrong but you don't point to the United Kingdom as the biggest loser in that there there are other places. I think people will say that's a very unclear answer because I try not to be the two-handed economist on the one hand on the other hand but a great periods of great uh technological breakthrough. There are pluses under our minuses. Uh Andrew Carnegi by the way the famous steelman left Scotland as a young boy with his father. He left because his father was a weaver and he was, you know, completely run out of town by a technological breakthrough. Went to America and became possibly the richest man in the world, if not one of the three richest men in the world. So the technological mess that comes along historically, it reassigned people all over the planet. It reassigned cash flow. It wiped people out. That's not the world we live in. That's not going to it's not going to be allowed to happen. It can't happen. The socopolitical system can't handle the scale of technological revolution that AI brings. Most people will say if they're Peter the move to Argentina and say it's coming anyway. I think you're a political economist which I would style myself as because I'm certainly not an economist. You would say that just means the state has to manage this in some way to slow it. Not stop it but to slow it. and financial capital can slow it for two or three years by just pulling the plug and financing, but ultimately something bigger. We can't we can't have another Andrew Carnegie. We can't have well Ireland Ireland for other reasons to do with the potato lost a third of its population to America or America and Britain. We can't that's not you know we can't deal with the dislocation that's necessary of a technological revolution of this scale. So we'll have to slow it down. So really the the primary difference with AI is the pace of change. It's unprecedented. >> Yes, I think that's true. I mean the real ways or I mean one I like is the um the Strath Kona was the world's first refrigerated ship. I think it's 1870 leaves Argentina and if you're in the beef cattle farming business in the United Kingdom problem >> but not when the Strath Kona arrived but you know two years after that three years after that four year it takes a while cumulative effect. I think the difference with this one is just how quickly it could happen if unregulated. And I think that is that look I think that is genuinely different from all the technology booms we've had before. This one can happen much more quickly. >> But but that's not the key question. The key question is can society deal with it? And if it can't, what does it do about it? >> Well, is it we had an interesting conversation here the other day with um a guy who's a CEO in the AI industry and he made me think about something with it. I had not even thought about. I I use AI. Okay, I pay for my tokens. It's expensive, but you know, it's it's manageable. But I assumed the long-term business model of these frontier uh AI labs was people buying tokens. And he said, "No, the the future of these businesses is they've spent the last four years sucking up the entire history of human knowledge >> and >> including your podcast." >> Including my podcast. Yeah, it's out there. Um but although I feel this is a defendable job for now but they've um where the real power is is where they've got uh models ahead of us. You know they've got the we're what on GPT6 now Astra they all have models far and more advanced. they're going to be able to uh build new businesses or they're going to be able to attack businesses that currently exist and they're going to create business models which aren't the tokens which is you know I don't I mean we've seen these big breakthroughs in mathematics and physics and there probably be drug development that's where they're going to make the real money and that could have the catastrophic effect for traditional businesses >> that's right so I mean I just always come back to debt so if it reassigns cash flows it gives you a debt crisis >> therefore it'll have to be slowed down in some way >> you mean by that is companies that currently have debt who suddenly lose their ability cash flow. That's a problem. >> It is is a problem for the global credit system. >> Yeah. >> And we don't like problems for global credit systems as Leman Brothers proved. So that means the society has to slow things down. >> Can't tell you how they slow it down, but they have to slow it down. >> Well, it's going to be a wild world, man. >> Uh yeah, it certain it certainly is. uh if you think of railways it was a wild world but you know transformed the whole world but not on not in this pace this is this is only wild because of its speed but in terms of the scale of transformation you know we have seen all this before but never never probably at this pace >> we've had time to kind of absorb it >> yeah you know you read the novels of George Elliot for instance it's about the coming of the railway and the changing of rural Britain but it takes place over 20 20 years >> not two >> wow Russell a lot to think about I really do appreciate you coming in and talking. Is there anything I didn't ask you about you wish I had? >> Let me think. Financial what do we what else do we need to know about financial repression? I think it's important that you try and so I once did a presentation of financial repression with Theresa May and we were both on the same stage at the same time. It was a very long time ago and I did my presentation on financial repression and I concluded with uh just to be provocative I said so in conclusion get your money out of the country. Now when I said it that wasn't a bad idea but anyway the first question for the prime minister the future prime minister was what do you think of Mr. Napier's presentation and she said or would you like to comment on Mr. Napier? She said no. So uh think when you're reading the newspapers every day look at that little bit of news and say is this building the wall is it the wall of finan is that another brick in the wall if we can quote from Pink Floyd and try to see the world through the prism of financial repression because something that looks completely in in the regulatory world actually is important. So economists tend to see the word as monetary authority which we now on the whole separate from the government. Fiscal authority and then they stop. The regulatory authority is what will determine the next 20 years. It's what determined the situation post World War II. >> So uh you there'll be lots of people listening don't don't agree with me don't think there's financial repression. I would say whenever you're looking at use see it through the prism of the regulatory state because that is where it's coming from. and all of the noise and you know obviously monetary and fiscal are important but that's where all the focus is and you got to start looking at where this regulatory state is beginning to this edge of the radar screen is beginning to move in and then think of what the consequences are are for you and where you should allocate your money and the number one way to do it is put it in a country that isn't going to have financial repression >> but Holden so if if you're looking through the regulatory prism is is it wider than just looking at regulation of the financial markets when you see for example digital IDs attacks on free speech is that all part of the same think >> uh I'm not so sure about free speech, but I think the ability to know where your wealth is is is anything that sort of is about where your wealth might be is to do with building the a building block of financial repression. H when Richard was here the other day, one of the things he talked about was if we want to unleash the private sector, if we want to have uh a growing successful middle class, he said we we really need a decentralization of the banking sector because at the moment we are consolidating five large banks. He said we need lots of regional bank spending. >> Absolutely brilliant comment. And you know someone who's doing something about that? Scott Bessant. >> Bessant is spending a lot of time with so America's blessed with a lot of regional banks. tiny compared to the big guys, but it's been shrinking. It's been shrinking from a very high number, but they're still there. >> And I can point you to speeches by Besson where he talks about the importance of these banks for getting money to small medium enterprises and households. Uh, and geopolitically, they're important for re-industrialization. And absolutely, Britain needs that. And if the big, you know, they got to find a way to getting the big guy, it's very difficult to set up a bank. Uh yeah, I run a thing called the library of mistakes and we we on Monday night this week we had Alexander of Seahor and company the bank which was founded by his family in 1672 and you won't find any bigger proponent for small banking than Alexander that that is obviously obviously what we need but uh the last bank I still think the last bank to get a license in this country was Ham Bank of of Edinburgh and I I mean it was I think um six, seven years it took them to get a license. Decentralization of the provision of finance by banks is really really really important. It is working. >> But is this controlled by the big banks? They don't want this. Are they the lobbyists that stop this? >> Of course. >> I mean, look, we're on a different subject now, but the world to an extent that I thought was impossible in the world that we live in is controlled by igopies. I mean, how can you have a global beer igopoly? I would have thought that was impossible, but we actually have got a global beer oligopoly. We've got >> beer oligopoly. There are like three big beer companies that control not all of the world's market, but a large chunk of the world's market. >> Make horrible beer. >> Yeah. >> Uh but still have this igopoly. Well, the banks are igopies as well. So, uh when we talk about the future, I think we your questions to me and my answers usually sort of look at this future where there's more state involvement. But if Adam Smith was here, the great Adam Smith, he was saying, he would say, "What we need is to break up these men, these oligopies. >> These oligopies are not good, are not capitalist, not good for society, and we need to break them up. And if we could get lots of small banks in this country lending to people that they knew, then that would be a huge leap forward for the country. So maybe going forward, one of the other things that will happen is an attack on the oligopolis. I think what is really interesting is you don't you don't have to be on the left. I went to an academic symposium recently. Quite a lot of them are overt Marxists and say they're Marxists and they were talking about breaking up big companies. I said, you know, you don't have to be a Marxist to want to break up big companies. >> You could be Adam Smith and want to break up. You can be a libertarian. You you you should be talking to the libertarians. Oh, we couldn't talk to libertarians. We're Marxists. But uh, you know, this is this is something that they have in common. So maybe we're getting to a world and that's where I wanted to sort of to to finish. Actually the the Americans have a body for this called the I think it's called the Federal Trade Commission where they take actions to break up opies monopolies. The president who took the most actions in history was a Republican and his name was Eisenhower. >> And Eisenhower's final speech before leaving office was to warn us about the military-industrial complex which is the concentration of power beyond outside democracy. And we and this is a very opportune moment to discuss that because last week the National Bureau of Economic Research released data that shows corporate profits as a percentage of GDP in the United States of America are at an all-time high. Now, this used to be the most mean-reverting series in economic history, and it seems to have stopped mean reverting. So, I I I just want to finish on that because it would sound like the tenor of our conversation is all the evils of the world are are the evils of the government. The oligopies are a problem. They're a problem for society. They're a problem for liberty. They're a problem for the distribution of wealth. They're not a good thing. And if Adam Smith was here, he'd say all of that. So, I'm not a Marxist. Well, so interestingly, a lot of the conversations we've had on this podcast recently with people who sound like conspiracy theorists, but you know, seem to be getting their facts straight, is that yes, look, I'm not a fan of the government. I think the government's mainly incompetent, but there is a layer now above the the government, which really controls uh what's happening, which is the asset manager, the money people, the people who move the money. They they own large percentages of these companies. They want to they want to have it in this way. And that uh even Trum I don't know if you know Tamath he's on the all in podcast talked about it he said there's basically sounds conspira there's basically 150 people who control where the money goes in the world where the vast sums of capital are and they want the centralization >> so we library mistakes we run lectures and you'll find a lecture if you go to our website recording of Fiona Scott Morton who's a professor of economics at Yale and she's written this up and what she points out is that if you are a large wealth manager I think we can mention one because it's just a statement of fact black rockck for instance, >> it's one we all go to. >> Okay. And it runs lots of index funds as well. And there are three large beer companies in the world. They will own shares at all three of them. >> When they go to a meeting with those companies, do they suggest to them that they should compete more more viciously? You know, this is this is a point she makes. It's a very obvious point. So the success of big asset gatherers and particularly the success of index funds concentrates ownership that may align ownership with oligopoly. Whereas if you and I own a small brewery, I do own a small brewery, by the way. We want to we want to beat the socks. Yeah. We want to beat the socks off the big brewers. We want to compete and we want to win. Uh but if if the index funds all hold the same three brewers, they don't want them to compete. So there and this this uh oligopolistic behavior comes in many different places, but you're right to point out that one of the places it comes from is the success of some particularly big asset gatherers. uh you know Vanguard, Black Rockck and State Street are the three index funds. Uh and index funds uh are clearly a good thing for the consumer but are they there's lots of things that can be good for the consumer that can be bad for society >> and I think that's where we are with these funds. Now we're not anywhere near to breaking these things up but the time will come when you know we'll we'll have another Eisenhower who will say look the power is not within the elected representatives of the people and we need to get it back. >> Yeah. Well, it's because there's alignment between the asset managers and the politicians. And whilst they're aligned, it's going to be very hard to break it up. >> Sure. So, maybe we need a general to break it up. General Eisenhower. Uh, but he wasn't the only one. Teddy Roosevelt tried to do it. Uh, Woodro Wilson tried to do it. Even John F. Kennedy tried to break up the steel monopoly. >> Uh, yeah. When when Kennedy tried to break up the steel monopoly, the steel companies came in and sort of started beating him up. And I think you know who John Kennedy's father was, Joseph P. Kennedy, great speculator, first head of the SEC. And apparently as they were leaving the room, Kennedy shouted after them, "My father always told me that businessmen were sons of bitches." >> Thank you so much. Uh, tell people about your newsletter. >> Well, my newsletter is mainly aimed at institutions, but there is now a version which is aimed at high netw worth individuals. So, you have to take a little box to say that you fall into that box. It has a unique name. It's called the solid ground. So, it's not difficult to find if you put my name and the solid ground. Given my accent, I should spell that, shouldn't I? Because people >> the solid ground. I think we get that. We'll put it in the show notes as well. >> Yeah. Yeah. People get it. So, it's uh Yeah. And then it's all pretty self-explanatory how it is and what it works >> now. More importantly, tell me about your beer. >> So, my beer, so uh I often get described as a Scottish economist. The only problem being I'm not Scottish and I'm not an economist. But anyway, I'm actually from Northern Ireland. So, my brewery, the brewery that I co-und with others is in Northern Ireland is in Balahe. Balahi. Yeah, that's right. >> Yeah. practices at home. Uh and that is an if you think of Northern Ireland has a great big hole in the middle which is called lock down the top lefthand corner and it's called Heene Farmhouse Brewing and it's a uh a venture with the nieces and family of Sheamus Heene and Sheamus Heene won the Nobel Prize for poetry and this is the other side of the family is brother Hugh's side of the family and we built that on the family farm and it's tough. If you try competing with a global igopoly, you know, it's it's tough. >> And it is beer, right? Not whiskey. >> No, no, it's beer. >> How how many beers do you make? >> Five standards and then and then the specials. It's kind of I think what most micro breweries do, but it's a very very tough market. I mean, we look there's there's some really good beers in this country that you can buy in the supermarkets for like two pound a bottle. You that's a that's a pretty competitive price. >> I'll be going on the penines real trail soon and I believe that in battle you can still buy a one pound pint. So uh you know this is a tough market to to >> hey so if I if I because sometime when I get when I go to Donny Gore sometimes I fly to knock >> but I don't like the drive sometimes I go to Derry quite like the drive sometimes if I don't mind a long drive I do go to Belfast because it's a lovely drive over to Donnie Gaul does that mean I will go past the brewery >> is that the journey >> Yeah it is. You're going really very close to it. >> You got a pub on the brewery. >> So uh there is a tasting room there now. This is a fairly new thing and of course the pubs of Balaki will sell it and Castle Dawson and yeah, you'll be going right past it. >> I'll probably need a night. >> Just as you cross the riverban, just as you look to your left and you see the eel fishery to the left, >> you're within drinking range of the brewery. >> I'm not in but then I won't be in driving range of Donny G. I probably need to find a hotel for the night. >> You might have to to shack up in Balaki for the for the evening. You can go to the Shimashini Visitor Center in Balaki. Have a couple of beers. Eat some Eat some fresh eel. Uh >> I've never had a eel. No, I had it once. It sounds gross. Tells you everything you need to know. >> Yeah. >> Uh but yeah, so that's your option. Next time you're driving, >> I'll tell my dad. I'll tell my dad to meet me there and we'll do it. This is brilliant. Look, thank you so much. I really appreciate this. You You genuinely helped me understand some things I didn't understand. Hopefully the listeners too. Um I hope at some point we would do it again, but okay, >> we will see. >> We will have to see. >> Good luck, Russell. Thank you for everything. Thank you to everyone for listening. Stay safe out there.