E.J. Antoni: 'They Are Tapped Out,' The American Consumer Is Officially Broke
Summary
Fed Policy Shift: Discussion centered on the end of QT and likely restart of QE, with a hawkish tone on rates but a need to support reserves and funding markets.
Gold: Strong bullish case made for gold as the premier unprintable asset with a high monetary premium, central bank demand, and protection against inflation and policy-driven dollar devaluation.
US Equities: Equities seen correlated to bank reserves, implying continued support for a bull market as QE resumes, despite stretched valuations and policy distortions.
Rare Earths: The US–China truce pauses export threats, buying time to reshore processing; guest outlines geology, processing intensity, and policy reforms that could rebuild domestic supply chains.
Consumer & Credit Risks: Rising auto and credit card delinquencies and CRE stress highlight Main Street fragility and moral hazard from repeated bailouts.
Key Companies Mentioned: Data reform discussion cited Walmart (WMT), Amazon (AMZN), ADP (ADP), and Paychex (PAYX) as potential private data partners for real-time transparency.
Market Outlook: Inflation pressures likely persist with potential yield curve control and implicit monetization, reinforcing hard-asset demand and liquidity-driven equity support.
Transcript
Welcome back. I'm Jeremy Saffron. [music] We're tracking a market wrestling with a trio of powerful crossurrens this morning. Now, stock futures are wavering. The dollar is showing strength [music] and the 10-year Treasury yield is holding at around 4.1%. Gold fighting to reclaim that psychologically important $4,000 level after being knocked down. Now, this market indecision is a direct reflection of a major events of the last 24 hours. First, the Federal Reserve cut its key interest rates by a quarter point. Yet, Chair Jerome Powell immediately threw cold water on the idea of more cuts to come. Take a listen. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. All right, a bit of a hawkish tone there. And second, of course, the US and China have declared a fragile one-year truce in their trade war. A deal with huge implications for everything from rare uh earth minerals to soybeans, which they continued to purchase just of yesterday. Now, all of this happening in what Powell calls himself in the fog, a government data blackout that's left policy makers flying blinds. And of course, inflation remains stocked at 3%. The federal deficit is near 1.8 8 trillion, leaving the Fed caught between price pressure and a mountain of debt. Now, to get the analysis you won't hear anywhere else, we're joined by Dr. EJ Anthony. He's a chief economist at the Heritage Foundation, was President Trump's nominee to lead that Bureau of Labor Statistics, the very agency at the center of the blackout here in terms of data. Great to see you, EJ. It's essential to have your voice here today. >> Well, thank you for having me. It's great to be back. >> Uh, we got to start with that that, you know, that hawkish warning. I mean, we had a rate cut paired with him sounding a little hawkish. I mean, the Fed also announced a hard stop to its balance sheet reduction, what we call quantitive tightening effective December 1st. I mean, what's the real story here? Is this a central bank in control or is it cornered, forced to kind of provide liquidity to a fragile banking system while protecting, you know, projecting this this tough stance on inflation? What are your thoughts? >> Well, this is a Fed chair hoisted on his own petard. So th those of us who have been following the the repo market for example, you know, following the secured overnight financing rate and a lot of different other indicators, it was painfully clear that the end of QT was coming and that PAL was was essentially they were going to it was the market was going to force his hand, right? because of this crazy ample reserve regime uh that the Fed insists on maintaining because of the way that they have shifted away from a model of of a reserve requirement and to a model of of paying banks interest not to lend the the result is that whether the Fed wants to or not in terms of reducing the balance sheet whether or not they want to use that to fight inflation they can't now uh because it's going to cause another blow up of the repo market like we saw back in September of 2019 19. And if they let that go too long, you'd have a full-blown financial crisis. The Fed is not going to let us get anywhere near that point. They made the mistake once. They're not going to do it again. Now, the big downside here, of course, is that this is going to add a tremendous amount of inflationary pressure back into the economy. And the fact that you are again, you continue to to keep trillions of dollars siloed in banks where it's not available to lend. Uh that's really starving the private market for credit and actually even the treasury as well. It's it's pushing up yields on everything from uh your mortgage interest rate to uh your credit cards uh and then also again treasury yields. This is a big reason why Treasury yields have not come down. It's the monetary malfeasance at the Fed. >> Yeah. you make a a strong case that they're reacting to weakness. I mean, let's look at the vote itself. It was fractured in a way we've only seen three times since 1990. Governor Mirren wanted a larger 50 basis point cut while Kansas City President Schmid wanted no cut at all. I mean, does that historic three-way descent really look like a coordinated plan to bail out Wall Street? I mean, does it does it paint a picture of a committee that's genuinely flying blind, as they call it? Well, to a certain extent, I I think a lot of the folks on the committee are indeed flying uh flying blind. I I I'm not sure it's really necessarily that it's painting a picture of of any kind of coordination, whether that's a coordinated bailout of Wall Street or not. Rather, it's it's the framework that Pal and his associates have built that is ultimately going to force them into these bailouts for Wall Street. And and let's make no mistake, they have been bailing out Wall Street for years now by paying literally hundreds of millions of dollars daily to these financial institutions for for doing nothing, for not lending. I mean, it's an it's a it's the definition of a risk-free rate of return. And so, the again, the consequence of this has been to starve the private market of credit. It it's been to push up private market interest rates and to push down real growth rates. And we're starting to see some of the fruit of that uh in gold prices. >> Yeah. Yeah. Gold. We're going to talk about gold because obviously we've seen them on the rise and it's just coming back to a little bit of what $4,000 today on the spot side. I you you talked a little bit about, you know, those repo uh repo bills in in the facilities which are soaking up trillions in excess cash that's drained over 20 billion. I mean, the lowest level since the facility was created. You know, the Fed's official line is that this is normalization, a kind of a planned move to maintain ample reserves because if if that plumbing starts to fail, the Fed doesn't just lose control of inflation, it loses control of the entire mechanism of monetary policy. Are you seeing a genuine liquidity crisis brewing in the funding markets right now, or is this an over interpretation of of technical adjustments that the Fed insists it has under control? it it's more so that this is the warning sign that we are heading towards one of those crises. But the let's make no mistake, this is a crisis of the Fed's own making and a crisis that the Fed could unwind if they so chose. But again, they they are just so stuck on maintaining this new framework and it is relatively new. I mean, it was basically instituted in 2020. The the Fed was created in 1913. It it existed for a hundred years with without these kinds of schemes. But they're so hellbent, frankly, on maintaining this new way of of conducting monetary policy that the market is going to is going to just keep forcing their hand because it will devolve into a financial crisis if if they don't pivot like they just did. And you know, make no mistake, the end of QT is just the first step. The second step is going to be a restart of QE and that probably comes next year. >> Oh my goodness, that'll be interesting. I want to bring up I mean we talked a little bit about Wall Street, but we you and I last time you were on the show, EJ talked about Main Street's reality. I mean when we spoke in August, you talked about the consumer being tapped out. I mean the latest data seems to confirm that. What we're seeing in auto loan delinquency is at the highest level since 2010 and it's happening across all income groups and according to the St. Louis Fed, credit card delinquencies for the lower income households are up over 60% since 2021. Is the American consumer the the canary in the coal mine that Washington and Wall Street are ignoring here? Oh, certainly. And and what's what's really scary is the number of canaries in the coal mine, so to speak. You can look at like commercial real estate. That that's another market that I I think is a really good example where it is flashing uh warning signs. the alarm bells are going off and and just so few people are paying attention. And maybe part of the reason for that is because with a lot of these things, we've just been able to keep kicking the can down the road, whether that was bad monetary policy or bad fiscal policy. Uh on the consumer end, you know, we're just now uh really getting to the point where the consumer is is tapped out and either is unwilling to take on additional debt or the financial system is unwilling to provide that additional debt. And so this is where you're you're seeing the brakes come on pretty hard in a lot of uh in a lot of areas of consumer spending. What's keeping it going though today is that you have uh roughly the top 10% of income earners are providing uh or accounting I should say for half of consumer spending. I mean that's incredibly lopsided. But the massive uh wealth gains, the massive increase in in asset prices, whether those are equities or uh real estate, that has created a a big wealth effect that has helped goose those consumer spending numbers for those upper income earners, which again is kind of keeping the whole thing going right now. >> You've warned for years about this whole everything bubble, right, that the Fed has created. And we're seeing those this immense stress in in regional banks. I have to ask you, I mean, it holds 44% of their loans in commercial real estate. You kind of brought this up. Delinquency rates on office properties are nearing 10 a.5% and the industry faces that trillion dollar maturity wall of loans coming due. I mean it's no longer a forecast. What is the correct policy response today if if you know if Fed intervention is just another bailout that creates moral hazard? Should policymakers stand aside and and let market discipline run its course even if it means some of these banks fail? I I mean, if there's any intervention on the part of Congress at this point, I think it should be to amend the Federal Reserve Act to limit how much the Fed can actually bail out these institutions because the point you just brought up is exactly correct. And we can look back probably most recently to uh the spring of 2023 when we had that regional banking crisis with the collapse of SVB and others and and what did the Fed do? They they stepped in and and made good on on all of this bad debt. And so it yet again reinforced this idea that if you get into trouble, the Fed and therefore the taxpayer is ultimately going to bail you out. And and that's not the kind of of system that that we want to uh that we want to promote. Or I should say it's not the kind of system we want to live under. It's not the kind of of moral hazard that we want to promote. >> Yeah, you brought up QE. Uh and if we kind of go into that, I mean, they just brought up QT, but if we if we get into QE, I mean, wouldn't it wouldn't be about stimulus. It would be more about survival, right? I mean, the Treasury needs to needs buyers for nearly two trillion in new issuance and the private market clearly isn't absorbing it at these yields. If the step if the Fed steps back in, aren't aren't we admitting that the US can no longer finance itself without monetary inflation? >> Well, I think that's been the case though for several years now. I mean, how on earth did we fund uh so much of of the the uh the debt that we issued the last four or five years? We just paid for it with inflation. We we stole 20% more than 20% of the value of everyone's dollars that existed in the entire world. That's how we paid for these trillions and trillions of dollars in spending that the government didn't have. And so it's just I think a continuation of that. Obviously, it's happening a lot slower today than it did in let's say the summer of 2022, but it is still ongoing, unfortunately. And it's one of the reasons why I think there's been such a um uh there's been such a movement into assets that the Federal Reserve or another central bank can't simply print. Whether that's gold, whether that's Bitcoin, whether that's real estate. Uh you know, I talked to some folks, they even do uh assets uh like cows, for example, and bulls. Those are their uh their hard assets that can't be printed and that have gone up tremendously in value that have seen that that price appreciation. So that I think is is going to continue. But one of the things that that we're going to now see I think moving forward out of the Fed um is this continued push to uh to engage in yield curve control uh to engage in in this shift away from private market lending and to government lending. None of these things are good unfortunately in the long term. But that's what it those are the directions that it looks like we're heading at the moment right now. And and again, it's not simply that QT is stopping. It's that they're going to have to restart QE pretty soon because they are Yes, they're trying to prop up the Treasury market. That's true. They're also trying to prop up bank reserves. And again, that means they're going to have to restart QE at some point if they're going to maintain the rest of the monetary framework that they've built since 2020. >> So, if that's where we're headed, I mean, isn't gold about to become the only truly independent asset left? Yeah, I mean again at the end of the day if it's something that the Fed can't print then it sounds like a good investment these days ultimately because that that is where you're you're seeing that devaluation. It it's the Fed it's going to be the Fed action of of growing the balance sheet. And whether you're talking about gold, which obviously has probably the biggest monetary premium, or even something like silver that has a lesser monetary premium, uh you're going to see the the same kind of appreciation there. And then again, if you start getting into the the digital assets like Bitcoin, which you know, personally, it's a little too volatile for me, so I don't own any of it, but I understand people's fascination with it and their optimism optimism in it and and why they attach that monetary premium to it as well. So again, the the traditional things that have that monetary premium attached to it, gold being number one, uh I think that's I I I think that's going to be very very bullish. >> It's been I mean gold's been reacting kind of conflicted. It's been interesting. It rallied on that rate cut, but but it was beaten back after Powell's, you know, hawkish talk and the China deal. What does that tell you? I mean, does it suggest that the market for now still has a degree of faith that the Fed can manage inflation and that, you know, geopolitical risk can be contained? Oh, sure. And look, at the end of the day with when it comes to gold, the only thing you get out of it is the inflation protection, right? Gold has such a high monetary premium attached to it that you're you know, let's say that the the the uses of gold in terms of industry increases pretty dramatically. It won't actually affect the price that much because gold is priced not just at its for its industry uses. it again has that monetary premium attached to it. So the price u the the equilibrium is already much higher. So increasing that floor that you would get from the the price of industrial use doesn't even really impact the price much if at all. Um the the consequence of that I is that there's there's a bit of a cushion there, right? So you don't necessarily immediately see those those moves uh unless you're looking at at uh at at dollar devaluation. Speaking of which, and it feels like a lot of this is trustbased. I mean, where is that trust in the system right now? It >> it's a really really good question and and and here's where gold doesn't always move with the news, right? That you know, sorry if I sound like a broken record here, but that monetary premium is purely speculative in nature because today you don't use gold for exchange, right? I mean, maybe in extremely limited circumstances, but the dollar is still the law of the land. Uh I mean literally you have to accept dollars you go to jail. That's that's what legal tender laws are. So the because there's so much speculation attached to that monetary premium it means that as people's opinions change as people's uh expectations on the future change it can have pretty dramatic it can cause rather pretty dramatic swings in the price of gold. You know, let's not forget, I think it was back in in autumn of 2022, the Wall Street Journal had a headline saying that gold as a safe haven is effectively dead. Right? At the time, gold was, I think, 17 or $1,800 an ounce. Look where we are today. It has more than doubled since that ignaminious headline in the Wall Street Journal. >> Certainly. And of course, we're not seeing any central banks pausing purchases at these levels either. Uh, I got to ask you about I mean, China, right? I mean, we just saw that major development with a temporary truce truce in the US China trade war. The US is lowering tariffs and in exchange, China is pausing its threatened restrictions on rare earth minerals and will resume some soybean purchases, making some farmers happy. Um, EJ, I mean, you've been critical in the past, not necessarily of of tariffs themselves, but of the strategy and and the the roll out. Looking at this deal, the US has made some concessions, right? Right. I mean, they cut they cut the fentanyl related tariff in half and uh bring in the overall average rate down to 10 percentage points. Uh what does that tell you about the strategy here and what are your thoughts about this whole meeting? >> Well, I think a lot of the strategies here are working. People sometimes make make the mistake when they look at how the Trump administration is using tariffs. They think that it's all the same, right? and and you can't have that kind of of of myopic vision because in some instances they're le they're levying tariffs uh in certain cases to raise revenue. In other cases they're basically trying to bully a nation like China into stopping the flow of fentanyl into the country that's killing hundreds of thousands of Americans every year. So it it depends, right? Sometimes they're they're trying to protect industry. Uh you know, other times they're trying to uh to to simply curb imports uh for for other reasons. Maybe it's national security. And and look, you can you can agree or or disagree with that rationale. I'm not even trying to address that for the moment. What what I'm simply saying here is that in the case of China, when it comes to something like fentanyl, the whole point of the tariffs was to get China to to stop the flow of fentanyl. And they are pledging to get that down. And the result of that is that the Trump administration is now saying, "Okay, well, if if you're going to fulfill your end of the bargain, so to speak, then we will as well. So, we'll drop the tariffs." And in that sense, you can say that that the tariffs or at least the threat of tariffs has been incredibly effective in getting China to play ball. >> How uh advanced is China in some of these talks? I mean, if we look at those winds and the soybeans, Treasury Secretary Bessin announced a commitment for 12 million metric tonses this year, 25 annually for the next three. But some people believe that the US is unlikely to ever regain its pre pre-war market share because it's China spent years successfully diversifying its supply chain to Brazil and Argentina. And then we got these rare earths. I mean, they still control over 90% of that processing uh capacity. So, are we de-risking supply chains or are we just deferring a next crisis? Where are we at? >> Well, it depends again if if you're looking at something uh like the case of rare earths where you you have that that one-year pause. Um which by the way is really good for China, too. I mean, they would have cut off their nose despite their face if they had actually gone through with that. But what it does is it buys the rest of the world time. That's one of the keys here. It's not that there are no rare earths here in the United States or in Russia or or in different parts of Africa and South America, but rather the issue is when it comes to rare earths is that you don't find them in concentrations. So if for example you're you're mining for coal and you find a coal bed, it could be hundreds of feet thick and miles long. With rare earths, they are scattered. So you have to process a tremendous amount of material and only a very small quantity of that is actually going to be the rare earths that you're after. Again, as opposed to coal where you find a coal bed and it's just solid coal the whole way through. So, you know, with with things like tax reform and regulatory reform, it makes it cost effective to to get rare earths here in the United States and you can very easily build up the infrastructure as well in a relatively short period of time to process that material. So, what I guess what I'm getting at here is the fact that if you buy the United States enough time, we can actually reshore a lot of those those critical supply chains relatively easily. Now, getting back to your your questions on on agriculture, you'll look the same things that that gave American farmers a competitive advantage over places like Brazil. Uh those those conditions still exist today. The only reason China went to other countries for things like like soybeans or or other agricultural products was essentially to try to punish the United States and gain leverage in the trade talks. So I I see no reason why a lot of that would not revert back to the US to help our export markets. >> I got to ask you on that. You know, we we heard Powell talk a little bit about that that data blackout, right? The BLS is offline, these key reports being delayed. I mean, you and I chatted last year about some of this data being not accurate. I mean, every single time I'd come to air, I'd have to talk about the real numbers a couple months later. Uh just just what does this mean for the markets? I mean, if the Fed investors in the White House are all making these decisions without this real- time data, are we in a kind of policy vacuum? What are your thoughts? >> Well, one of the things that happened before the government shutdown, which has prevented virtually any of these reports from going out has been just, as you pointed out, horrendously inaccurate data. I mean, look, things need to be reasonably accurate, right? No one expects you to be dead on all the time. But these things have been so unreasonably inaccurate uh that it has forced private market participants. It has forced the Federal Reserve to look for alternatives. I mean this is not just you know me complaining about the data. This is every major Wall Street commercial bank investment bank complaining about data in in the post-pandemic world because of how much the quality has deteriorated. And as a result, for several years now, people have been developing alternative sources for data. People have been looking at other indicators than the official government metrics. And even when the official government metrics came out, very often times people would check them against the alternatives to get a sense of h is this actually reliable or do we need to take this with a huge grain of salt. With the government shutdown being in place and those government data being unavailable, people seem to be doing just fine looking at a lot of the alternatives. And that was something that even Jerome Powell pointed out in in the recent press conference where he said, you know, look, we have we have the 12 district banks. Every single one of them is doing economic surveys uh typically of businesses and consumers, sometimes one or the other. And from all of that, we're also getting a sense of where the economy is right now and where it's headed. So, you know, maybe we're getting to a point where if the government statistics don't get better, no one's going to pay any attention to them at all. >> Yeah. Yeah. I was going to ask you, I mean, what would a reformed data regime look like that kind of restores that real transparency and credibility? I mean, if we get a new Fed leadership next year, what's the model you'd want to see? One that kind of prioritizes better data before policy because right now, I mean, it feels uh that the Fed's flying off stale or revised information. Absolutely. I mean, in terms of the Bureau of Labor Statistics, there's a whole lot you can do with with public private partnerships, they do it in a very limited sense already. If you look at where they get data, uh price data for gasoline, for new car prices, uh for uh medical care services and commodities, you know, a lot of that data actually comes from from private sources that the agency contracts with. But you can really expand that. You can contract with major brickandmortar and e retailers like Walmart, like Amazon who have the prices for just about everything. A and via those mechanisms, you can get real-time price data and you can greatly expand the number of observations you have of the data. It increases accuracy. Uh, you can do the exact same thing with with the payroll reports where you contract with major payroll processing companies like Gusto, like ADP, like paychecks. That's P A Y C X. And you can get all of that raw data in to get a sense of of which direction the economy is going, where things are today, right? Right now, the the BLS basically surveys less than 2% of of businesses each month. Fewer than half of those surveyed respond. So you get data on less than 1% and you're trying to figure out what the other 99% are doing. I mean that's that's just one example of why the numbers have been have been so inaccurate. And then as far as the Federal Reserve goes, once you get the d better data coming in, you sure as heck better be data dependent. One of the things that we've seen from from Powell and Company has has been kind of this refrain they keep saying on how they are politically independent and data dependent. Frankly, they are neither. We have seen plenty of times when the data clearly indicate they should move one way or another on the interest rate on their balance sheet uh on regulatory policy and they do exactly the opposite. >> Uh well I think what Jerome's Jerome Powell's term is over in May of 2026 I mean you made the case for for rebuilding trust in the data that raises the next question about leadership. I mean if transparency and credibility are at the new battlegrounds the Fed's next chair will have to be more than a rate setter. I mean, they're going to have to kind of be a reformer. No. Who do you think fits that role? Is there anyone on the horizon who understands both the plumbing in the system and also the public's loss and faith of it? >> It It's a really good question. I I mean, Kevin Worsh jumps out. I I think he would do a really really good job. uh you know when you hear him talk about uh about the Fed, he realizes that there has been this this hyperfocusing on the financial plumbing where again the Fed is trying to maintain this artificial framework that they've just built over the last few years which clearly isn't working but they refuse to unwind it. They refuse to let it go and they refuse to get back to normal. We're I mean we're talking basic things here like just simply having a reserve ratio where banks have to keep a a certain percentage in reserve at the Fed. Very basic. That's been part of monetary policy for hundreds of years. It was part of of uh the it was really the entirety of the Fed's existence until uh the spring of 2020. A and so we're you know we we've seen the last several years a lot of these monetary experiments that have failed. They haven't worked. They haven't delivered stable prices. they haven't delivered stable interest rates and they have not contributed uh to full employment. There's no reason to continue doing them. Ke Kevin Walsh, I think, understands a lot of that. Uh and he's also an inflation hawk and I think he would do a tremendous amount of good to to bring back not only price stability, uh but allow a lot of the loanable funds market to go back into private hands and not just be not just simply be under locking key at the Fed. >> Yeah. I mean, do we do we need more of a vulker style kind of disciplinarian again, you know, or somebody kind of re-engineers how the Fed measures and communicates reality itself? I mean, Wars, if he takes the helm, he's been arguing for data reform, tighter balances, sheet discipline, of course, restoring Fed's independence. Could he realistically get it done? And what would that mean for a gold investor? >> I I think it'd be it'd be a tremendous asset for for anybody, not not just gold investors. Look, again, going back to something we touched on earlier with gold, when it comes to inflation, you don't actually make money on gold, you don't lose anything, right? I if you if you put your money in into equities, and equities outperform inflation, uh yes, you have done better than inflation. Of course, you're going to have to pay tax in most instances on all of that, including the paper gains from inflation, not just the real gains. So, if you're looking to beat inflation, you need very very aggressive investments. Typically, you need to take on a whole lot of risk in order to to outrun that beast. What gold does is it it perfectly protects you, right? There's no doubt about that. But it's not something where you're going to see uh again that that significant price appreciation because of of that monetary premium being so far above the uh the industrial uses price floor. Again, we kind of mentioned this earlier. So for the gold investor, if you actually get back to stable prices, what that allows you to do is not have to solely rely on something like gold for so much inflationary protection. It allows you to diversify and actually get a higher real rate of return. Look, I love gold. Trust me, I'm I'm a big gold bug. I would even love us to get back to a point where we actually have our currency backed by gold. But all that to say whether our currency is backed by gold or backed by some other asset or just uh just it's just pure discretionary monetary policy I still want stable prices at the end of the day because that's going to be the best thing for everybody watching the markets before I let you go. I mean on the general markets I mean even at rates still above 4% equity valuations haven't cracked. I mean, the S&P 500 trading around 21 times forward earnings and the tech is a near dot industry as you kind of know. If the Fed's already easing and liquidity is creeping back in, is the bubble still very much alive or have markets just stopped caring about the fundamentals here? >> Well, one of the things that we've seen recently has been a a pretty tight correlation. Um there's been some deviation at at key points uh when when you have a unique outside influence, but there tends to be a pretty tight correlation between uh equities and bank reserves. And the whole reason that the Fed has stopped QT and is going to restart QE in the coming months probably is because they want to get bank reserves back up. They want to start increasing bank reserves, especially if we continue to see economic growth. uh especially if if other parts of banks balance sheets continue to grow because the key that the Fed is trying to the the key thing to understand here with the Fed is they want bank reserves to be maintained in a certain ratio relative to other things. So if you're looking at again uh bank reserves to GDP for example if GDP keeps growing what do you have to do to bank reserves? You have to keep pushing them up. And so as you increase those bank reserves you would expect to continue to see a bull market uh in equities as well. it that's a central bank caught in a loop. I mean, how do you ever restore the balance sheet discipline if every attempt to tighten ends up depleting reserves and forcing another easing event? >> You you don't that's and see that's the whole problem with with this artificial monetary framework that that they built starting in really I guess March of of 2020. Um and you know they were it it even technically precedes that because they were paying interest not on all reserves but at least on excess reserves going all the way back to to Bernani. And so when they were drawing down the balance sheet uh in you know 2017 1819 it it caused a crisis in uh in the repo market in the fall of 2019 and the Fed briefly lost control of interest rates actually for a couple of days in September of that year if I remember correctly and they had to reverse the QT and flip to QE and that was even uh you know before CO started but then they really blew everything up obviously in 2020 and so if they're going to be so hellbent on maintaining maintaining this new framework. You're right. There is no way that they can unwind this. There is no way that they can ever return the balance sheet to normal. And that's a big reason why getting back to your leadership question, it is so important that you get I think that you get somebody like a Kevin Borch in there who understands you do need to radically change this framework. It it's not sustainable. >> Yeah. So, I mean, is it really about stabilizing reserves or is it about keeping the financial markets artificially supported? I mean, these are the questions, right? At what point do we call this what it is? Permanent monetization dressed up as policy management. >> Well, I think the gold market has been calling it that all year. >> Yeah. >> Hence, hence the huge hence the huge runup that we've had, right? It's not just central banks buying gold. Yes. That's obviously a big part of it, right? That's been a huge part of it. when gold hit what is now the the low of the decade at that point uh central banks went on a total buying spree and and that was due in part to the uh the United States making the the very wrong-headed move of of confiscating those Russian uh dollar denominated assets that has that has told everyone it has broadcast a very clear signal your dollar assets are no longer safe even if you own them even if they're not owned by the United States they still might not be safe and so you're better off in something like gold. Yes, that has had a huge impact on the market. But I think a lot of what we've seen this year, not all, but a lot of it, has been people's increasing realization of where we've already been and where the dollar continues to be headed. >> Yeah, well said. All right, Dr. EJ Anthony, your perspective is always crucial check on the consensus here. I want to thank you for your time. Appreciate you making it today. >> Oh, my pleasure. Thank you for having me. >> Yeah, of course. And we hope to see you soon. Of course, we're going to keep keep tracking the Fed, gold, and the fallout from the US China trade truce [music] right here on Kiko News. It's all the time we have for today. I'm Jeremy Saffron. We'll see you next time. >> [music] >> Heat. Heat.
E.J. Antoni: 'They Are Tapped Out,' The American Consumer Is Officially Broke
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Welcome back. I'm Jeremy Saffron. [music] We're tracking a market wrestling with a trio of powerful crossurrens this morning. Now, stock futures are wavering. The dollar is showing strength [music] and the 10-year Treasury yield is holding at around 4.1%. Gold fighting to reclaim that psychologically important $4,000 level after being knocked down. Now, this market indecision is a direct reflection of a major events of the last 24 hours. First, the Federal Reserve cut its key interest rates by a quarter point. Yet, Chair Jerome Powell immediately threw cold water on the idea of more cuts to come. Take a listen. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. All right, a bit of a hawkish tone there. And second, of course, the US and China have declared a fragile one-year truce in their trade war. A deal with huge implications for everything from rare uh earth minerals to soybeans, which they continued to purchase just of yesterday. Now, all of this happening in what Powell calls himself in the fog, a government data blackout that's left policy makers flying blinds. And of course, inflation remains stocked at 3%. The federal deficit is near 1.8 8 trillion, leaving the Fed caught between price pressure and a mountain of debt. Now, to get the analysis you won't hear anywhere else, we're joined by Dr. EJ Anthony. He's a chief economist at the Heritage Foundation, was President Trump's nominee to lead that Bureau of Labor Statistics, the very agency at the center of the blackout here in terms of data. Great to see you, EJ. It's essential to have your voice here today. >> Well, thank you for having me. It's great to be back. >> Uh, we got to start with that that, you know, that hawkish warning. I mean, we had a rate cut paired with him sounding a little hawkish. I mean, the Fed also announced a hard stop to its balance sheet reduction, what we call quantitive tightening effective December 1st. I mean, what's the real story here? Is this a central bank in control or is it cornered, forced to kind of provide liquidity to a fragile banking system while protecting, you know, projecting this this tough stance on inflation? What are your thoughts? >> Well, this is a Fed chair hoisted on his own petard. So th those of us who have been following the the repo market for example, you know, following the secured overnight financing rate and a lot of different other indicators, it was painfully clear that the end of QT was coming and that PAL was was essentially they were going to it was the market was going to force his hand, right? because of this crazy ample reserve regime uh that the Fed insists on maintaining because of the way that they have shifted away from a model of of a reserve requirement and to a model of of paying banks interest not to lend the the result is that whether the Fed wants to or not in terms of reducing the balance sheet whether or not they want to use that to fight inflation they can't now uh because it's going to cause another blow up of the repo market like we saw back in September of 2019 19. And if they let that go too long, you'd have a full-blown financial crisis. The Fed is not going to let us get anywhere near that point. They made the mistake once. They're not going to do it again. Now, the big downside here, of course, is that this is going to add a tremendous amount of inflationary pressure back into the economy. And the fact that you are again, you continue to to keep trillions of dollars siloed in banks where it's not available to lend. Uh that's really starving the private market for credit and actually even the treasury as well. It's it's pushing up yields on everything from uh your mortgage interest rate to uh your credit cards uh and then also again treasury yields. This is a big reason why Treasury yields have not come down. It's the monetary malfeasance at the Fed. >> Yeah. you make a a strong case that they're reacting to weakness. I mean, let's look at the vote itself. It was fractured in a way we've only seen three times since 1990. Governor Mirren wanted a larger 50 basis point cut while Kansas City President Schmid wanted no cut at all. I mean, does that historic three-way descent really look like a coordinated plan to bail out Wall Street? I mean, does it does it paint a picture of a committee that's genuinely flying blind, as they call it? Well, to a certain extent, I I think a lot of the folks on the committee are indeed flying uh flying blind. I I I'm not sure it's really necessarily that it's painting a picture of of any kind of coordination, whether that's a coordinated bailout of Wall Street or not. Rather, it's it's the framework that Pal and his associates have built that is ultimately going to force them into these bailouts for Wall Street. And and let's make no mistake, they have been bailing out Wall Street for years now by paying literally hundreds of millions of dollars daily to these financial institutions for for doing nothing, for not lending. I mean, it's an it's a it's the definition of a risk-free rate of return. And so, the again, the consequence of this has been to starve the private market of credit. It it's been to push up private market interest rates and to push down real growth rates. And we're starting to see some of the fruit of that uh in gold prices. >> Yeah. Yeah. Gold. We're going to talk about gold because obviously we've seen them on the rise and it's just coming back to a little bit of what $4,000 today on the spot side. I you you talked a little bit about, you know, those repo uh repo bills in in the facilities which are soaking up trillions in excess cash that's drained over 20 billion. I mean, the lowest level since the facility was created. You know, the Fed's official line is that this is normalization, a kind of a planned move to maintain ample reserves because if if that plumbing starts to fail, the Fed doesn't just lose control of inflation, it loses control of the entire mechanism of monetary policy. Are you seeing a genuine liquidity crisis brewing in the funding markets right now, or is this an over interpretation of of technical adjustments that the Fed insists it has under control? it it's more so that this is the warning sign that we are heading towards one of those crises. But the let's make no mistake, this is a crisis of the Fed's own making and a crisis that the Fed could unwind if they so chose. But again, they they are just so stuck on maintaining this new framework and it is relatively new. I mean, it was basically instituted in 2020. The the Fed was created in 1913. It it existed for a hundred years with without these kinds of schemes. But they're so hellbent, frankly, on maintaining this new way of of conducting monetary policy that the market is going to is going to just keep forcing their hand because it will devolve into a financial crisis if if they don't pivot like they just did. And you know, make no mistake, the end of QT is just the first step. The second step is going to be a restart of QE and that probably comes next year. >> Oh my goodness, that'll be interesting. I want to bring up I mean we talked a little bit about Wall Street, but we you and I last time you were on the show, EJ talked about Main Street's reality. I mean when we spoke in August, you talked about the consumer being tapped out. I mean the latest data seems to confirm that. What we're seeing in auto loan delinquency is at the highest level since 2010 and it's happening across all income groups and according to the St. Louis Fed, credit card delinquencies for the lower income households are up over 60% since 2021. Is the American consumer the the canary in the coal mine that Washington and Wall Street are ignoring here? Oh, certainly. And and what's what's really scary is the number of canaries in the coal mine, so to speak. You can look at like commercial real estate. That that's another market that I I think is a really good example where it is flashing uh warning signs. the alarm bells are going off and and just so few people are paying attention. And maybe part of the reason for that is because with a lot of these things, we've just been able to keep kicking the can down the road, whether that was bad monetary policy or bad fiscal policy. Uh on the consumer end, you know, we're just now uh really getting to the point where the consumer is is tapped out and either is unwilling to take on additional debt or the financial system is unwilling to provide that additional debt. And so this is where you're you're seeing the brakes come on pretty hard in a lot of uh in a lot of areas of consumer spending. What's keeping it going though today is that you have uh roughly the top 10% of income earners are providing uh or accounting I should say for half of consumer spending. I mean that's incredibly lopsided. But the massive uh wealth gains, the massive increase in in asset prices, whether those are equities or uh real estate, that has created a a big wealth effect that has helped goose those consumer spending numbers for those upper income earners, which again is kind of keeping the whole thing going right now. >> You've warned for years about this whole everything bubble, right, that the Fed has created. And we're seeing those this immense stress in in regional banks. I have to ask you, I mean, it holds 44% of their loans in commercial real estate. You kind of brought this up. Delinquency rates on office properties are nearing 10 a.5% and the industry faces that trillion dollar maturity wall of loans coming due. I mean it's no longer a forecast. What is the correct policy response today if if you know if Fed intervention is just another bailout that creates moral hazard? Should policymakers stand aside and and let market discipline run its course even if it means some of these banks fail? I I mean, if there's any intervention on the part of Congress at this point, I think it should be to amend the Federal Reserve Act to limit how much the Fed can actually bail out these institutions because the point you just brought up is exactly correct. And we can look back probably most recently to uh the spring of 2023 when we had that regional banking crisis with the collapse of SVB and others and and what did the Fed do? They they stepped in and and made good on on all of this bad debt. And so it yet again reinforced this idea that if you get into trouble, the Fed and therefore the taxpayer is ultimately going to bail you out. And and that's not the kind of of system that that we want to uh that we want to promote. Or I should say it's not the kind of system we want to live under. It's not the kind of of moral hazard that we want to promote. >> Yeah, you brought up QE. Uh and if we kind of go into that, I mean, they just brought up QT, but if we if we get into QE, I mean, wouldn't it wouldn't be about stimulus. It would be more about survival, right? I mean, the Treasury needs to needs buyers for nearly two trillion in new issuance and the private market clearly isn't absorbing it at these yields. If the step if the Fed steps back in, aren't aren't we admitting that the US can no longer finance itself without monetary inflation? >> Well, I think that's been the case though for several years now. I mean, how on earth did we fund uh so much of of the the uh the debt that we issued the last four or five years? We just paid for it with inflation. We we stole 20% more than 20% of the value of everyone's dollars that existed in the entire world. That's how we paid for these trillions and trillions of dollars in spending that the government didn't have. And so it's just I think a continuation of that. Obviously, it's happening a lot slower today than it did in let's say the summer of 2022, but it is still ongoing, unfortunately. And it's one of the reasons why I think there's been such a um uh there's been such a movement into assets that the Federal Reserve or another central bank can't simply print. Whether that's gold, whether that's Bitcoin, whether that's real estate. Uh you know, I talked to some folks, they even do uh assets uh like cows, for example, and bulls. Those are their uh their hard assets that can't be printed and that have gone up tremendously in value that have seen that that price appreciation. So that I think is is going to continue. But one of the things that that we're going to now see I think moving forward out of the Fed um is this continued push to uh to engage in yield curve control uh to engage in in this shift away from private market lending and to government lending. None of these things are good unfortunately in the long term. But that's what it those are the directions that it looks like we're heading at the moment right now. And and again, it's not simply that QT is stopping. It's that they're going to have to restart QE pretty soon because they are Yes, they're trying to prop up the Treasury market. That's true. They're also trying to prop up bank reserves. And again, that means they're going to have to restart QE at some point if they're going to maintain the rest of the monetary framework that they've built since 2020. >> So, if that's where we're headed, I mean, isn't gold about to become the only truly independent asset left? Yeah, I mean again at the end of the day if it's something that the Fed can't print then it sounds like a good investment these days ultimately because that that is where you're you're seeing that devaluation. It it's the Fed it's going to be the Fed action of of growing the balance sheet. And whether you're talking about gold, which obviously has probably the biggest monetary premium, or even something like silver that has a lesser monetary premium, uh you're going to see the the same kind of appreciation there. And then again, if you start getting into the the digital assets like Bitcoin, which you know, personally, it's a little too volatile for me, so I don't own any of it, but I understand people's fascination with it and their optimism optimism in it and and why they attach that monetary premium to it as well. So again, the the traditional things that have that monetary premium attached to it, gold being number one, uh I think that's I I I think that's going to be very very bullish. >> It's been I mean gold's been reacting kind of conflicted. It's been interesting. It rallied on that rate cut, but but it was beaten back after Powell's, you know, hawkish talk and the China deal. What does that tell you? I mean, does it suggest that the market for now still has a degree of faith that the Fed can manage inflation and that, you know, geopolitical risk can be contained? Oh, sure. And look, at the end of the day with when it comes to gold, the only thing you get out of it is the inflation protection, right? Gold has such a high monetary premium attached to it that you're you know, let's say that the the the uses of gold in terms of industry increases pretty dramatically. It won't actually affect the price that much because gold is priced not just at its for its industry uses. it again has that monetary premium attached to it. So the price u the the equilibrium is already much higher. So increasing that floor that you would get from the the price of industrial use doesn't even really impact the price much if at all. Um the the consequence of that I is that there's there's a bit of a cushion there, right? So you don't necessarily immediately see those those moves uh unless you're looking at at uh at at dollar devaluation. Speaking of which, and it feels like a lot of this is trustbased. I mean, where is that trust in the system right now? It >> it's a really really good question and and and here's where gold doesn't always move with the news, right? That you know, sorry if I sound like a broken record here, but that monetary premium is purely speculative in nature because today you don't use gold for exchange, right? I mean, maybe in extremely limited circumstances, but the dollar is still the law of the land. Uh I mean literally you have to accept dollars you go to jail. That's that's what legal tender laws are. So the because there's so much speculation attached to that monetary premium it means that as people's opinions change as people's uh expectations on the future change it can have pretty dramatic it can cause rather pretty dramatic swings in the price of gold. You know, let's not forget, I think it was back in in autumn of 2022, the Wall Street Journal had a headline saying that gold as a safe haven is effectively dead. Right? At the time, gold was, I think, 17 or $1,800 an ounce. Look where we are today. It has more than doubled since that ignaminious headline in the Wall Street Journal. >> Certainly. And of course, we're not seeing any central banks pausing purchases at these levels either. Uh, I got to ask you about I mean, China, right? I mean, we just saw that major development with a temporary truce truce in the US China trade war. The US is lowering tariffs and in exchange, China is pausing its threatened restrictions on rare earth minerals and will resume some soybean purchases, making some farmers happy. Um, EJ, I mean, you've been critical in the past, not necessarily of of tariffs themselves, but of the strategy and and the the roll out. Looking at this deal, the US has made some concessions, right? Right. I mean, they cut they cut the fentanyl related tariff in half and uh bring in the overall average rate down to 10 percentage points. Uh what does that tell you about the strategy here and what are your thoughts about this whole meeting? >> Well, I think a lot of the strategies here are working. People sometimes make make the mistake when they look at how the Trump administration is using tariffs. They think that it's all the same, right? and and you can't have that kind of of of myopic vision because in some instances they're le they're levying tariffs uh in certain cases to raise revenue. In other cases they're basically trying to bully a nation like China into stopping the flow of fentanyl into the country that's killing hundreds of thousands of Americans every year. So it it depends, right? Sometimes they're they're trying to protect industry. Uh you know, other times they're trying to uh to to simply curb imports uh for for other reasons. Maybe it's national security. And and look, you can you can agree or or disagree with that rationale. I'm not even trying to address that for the moment. What what I'm simply saying here is that in the case of China, when it comes to something like fentanyl, the whole point of the tariffs was to get China to to stop the flow of fentanyl. And they are pledging to get that down. And the result of that is that the Trump administration is now saying, "Okay, well, if if you're going to fulfill your end of the bargain, so to speak, then we will as well. So, we'll drop the tariffs." And in that sense, you can say that that the tariffs or at least the threat of tariffs has been incredibly effective in getting China to play ball. >> How uh advanced is China in some of these talks? I mean, if we look at those winds and the soybeans, Treasury Secretary Bessin announced a commitment for 12 million metric tonses this year, 25 annually for the next three. But some people believe that the US is unlikely to ever regain its pre pre-war market share because it's China spent years successfully diversifying its supply chain to Brazil and Argentina. And then we got these rare earths. I mean, they still control over 90% of that processing uh capacity. So, are we de-risking supply chains or are we just deferring a next crisis? Where are we at? >> Well, it depends again if if you're looking at something uh like the case of rare earths where you you have that that one-year pause. Um which by the way is really good for China, too. I mean, they would have cut off their nose despite their face if they had actually gone through with that. But what it does is it buys the rest of the world time. That's one of the keys here. It's not that there are no rare earths here in the United States or in Russia or or in different parts of Africa and South America, but rather the issue is when it comes to rare earths is that you don't find them in concentrations. So if for example you're you're mining for coal and you find a coal bed, it could be hundreds of feet thick and miles long. With rare earths, they are scattered. So you have to process a tremendous amount of material and only a very small quantity of that is actually going to be the rare earths that you're after. Again, as opposed to coal where you find a coal bed and it's just solid coal the whole way through. So, you know, with with things like tax reform and regulatory reform, it makes it cost effective to to get rare earths here in the United States and you can very easily build up the infrastructure as well in a relatively short period of time to process that material. So, what I guess what I'm getting at here is the fact that if you buy the United States enough time, we can actually reshore a lot of those those critical supply chains relatively easily. Now, getting back to your your questions on on agriculture, you'll look the same things that that gave American farmers a competitive advantage over places like Brazil. Uh those those conditions still exist today. The only reason China went to other countries for things like like soybeans or or other agricultural products was essentially to try to punish the United States and gain leverage in the trade talks. So I I see no reason why a lot of that would not revert back to the US to help our export markets. >> I got to ask you on that. You know, we we heard Powell talk a little bit about that that data blackout, right? The BLS is offline, these key reports being delayed. I mean, you and I chatted last year about some of this data being not accurate. I mean, every single time I'd come to air, I'd have to talk about the real numbers a couple months later. Uh just just what does this mean for the markets? I mean, if the Fed investors in the White House are all making these decisions without this real- time data, are we in a kind of policy vacuum? What are your thoughts? >> Well, one of the things that happened before the government shutdown, which has prevented virtually any of these reports from going out has been just, as you pointed out, horrendously inaccurate data. I mean, look, things need to be reasonably accurate, right? No one expects you to be dead on all the time. But these things have been so unreasonably inaccurate uh that it has forced private market participants. It has forced the Federal Reserve to look for alternatives. I mean this is not just you know me complaining about the data. This is every major Wall Street commercial bank investment bank complaining about data in in the post-pandemic world because of how much the quality has deteriorated. And as a result, for several years now, people have been developing alternative sources for data. People have been looking at other indicators than the official government metrics. And even when the official government metrics came out, very often times people would check them against the alternatives to get a sense of h is this actually reliable or do we need to take this with a huge grain of salt. With the government shutdown being in place and those government data being unavailable, people seem to be doing just fine looking at a lot of the alternatives. And that was something that even Jerome Powell pointed out in in the recent press conference where he said, you know, look, we have we have the 12 district banks. Every single one of them is doing economic surveys uh typically of businesses and consumers, sometimes one or the other. And from all of that, we're also getting a sense of where the economy is right now and where it's headed. So, you know, maybe we're getting to a point where if the government statistics don't get better, no one's going to pay any attention to them at all. >> Yeah. Yeah. I was going to ask you, I mean, what would a reformed data regime look like that kind of restores that real transparency and credibility? I mean, if we get a new Fed leadership next year, what's the model you'd want to see? One that kind of prioritizes better data before policy because right now, I mean, it feels uh that the Fed's flying off stale or revised information. Absolutely. I mean, in terms of the Bureau of Labor Statistics, there's a whole lot you can do with with public private partnerships, they do it in a very limited sense already. If you look at where they get data, uh price data for gasoline, for new car prices, uh for uh medical care services and commodities, you know, a lot of that data actually comes from from private sources that the agency contracts with. But you can really expand that. You can contract with major brickandmortar and e retailers like Walmart, like Amazon who have the prices for just about everything. A and via those mechanisms, you can get real-time price data and you can greatly expand the number of observations you have of the data. It increases accuracy. Uh, you can do the exact same thing with with the payroll reports where you contract with major payroll processing companies like Gusto, like ADP, like paychecks. That's P A Y C X. And you can get all of that raw data in to get a sense of of which direction the economy is going, where things are today, right? Right now, the the BLS basically surveys less than 2% of of businesses each month. Fewer than half of those surveyed respond. So you get data on less than 1% and you're trying to figure out what the other 99% are doing. I mean that's that's just one example of why the numbers have been have been so inaccurate. And then as far as the Federal Reserve goes, once you get the d better data coming in, you sure as heck better be data dependent. One of the things that we've seen from from Powell and Company has has been kind of this refrain they keep saying on how they are politically independent and data dependent. Frankly, they are neither. We have seen plenty of times when the data clearly indicate they should move one way or another on the interest rate on their balance sheet uh on regulatory policy and they do exactly the opposite. >> Uh well I think what Jerome's Jerome Powell's term is over in May of 2026 I mean you made the case for for rebuilding trust in the data that raises the next question about leadership. I mean if transparency and credibility are at the new battlegrounds the Fed's next chair will have to be more than a rate setter. I mean, they're going to have to kind of be a reformer. No. Who do you think fits that role? Is there anyone on the horizon who understands both the plumbing in the system and also the public's loss and faith of it? >> It It's a really good question. I I mean, Kevin Worsh jumps out. I I think he would do a really really good job. uh you know when you hear him talk about uh about the Fed, he realizes that there has been this this hyperfocusing on the financial plumbing where again the Fed is trying to maintain this artificial framework that they've just built over the last few years which clearly isn't working but they refuse to unwind it. They refuse to let it go and they refuse to get back to normal. We're I mean we're talking basic things here like just simply having a reserve ratio where banks have to keep a a certain percentage in reserve at the Fed. Very basic. That's been part of monetary policy for hundreds of years. It was part of of uh the it was really the entirety of the Fed's existence until uh the spring of 2020. A and so we're you know we we've seen the last several years a lot of these monetary experiments that have failed. They haven't worked. They haven't delivered stable prices. they haven't delivered stable interest rates and they have not contributed uh to full employment. There's no reason to continue doing them. Ke Kevin Walsh, I think, understands a lot of that. Uh and he's also an inflation hawk and I think he would do a tremendous amount of good to to bring back not only price stability, uh but allow a lot of the loanable funds market to go back into private hands and not just be not just simply be under locking key at the Fed. >> Yeah. I mean, do we do we need more of a vulker style kind of disciplinarian again, you know, or somebody kind of re-engineers how the Fed measures and communicates reality itself? I mean, Wars, if he takes the helm, he's been arguing for data reform, tighter balances, sheet discipline, of course, restoring Fed's independence. Could he realistically get it done? And what would that mean for a gold investor? >> I I think it'd be it'd be a tremendous asset for for anybody, not not just gold investors. Look, again, going back to something we touched on earlier with gold, when it comes to inflation, you don't actually make money on gold, you don't lose anything, right? I if you if you put your money in into equities, and equities outperform inflation, uh yes, you have done better than inflation. Of course, you're going to have to pay tax in most instances on all of that, including the paper gains from inflation, not just the real gains. So, if you're looking to beat inflation, you need very very aggressive investments. Typically, you need to take on a whole lot of risk in order to to outrun that beast. What gold does is it it perfectly protects you, right? There's no doubt about that. But it's not something where you're going to see uh again that that significant price appreciation because of of that monetary premium being so far above the uh the industrial uses price floor. Again, we kind of mentioned this earlier. So for the gold investor, if you actually get back to stable prices, what that allows you to do is not have to solely rely on something like gold for so much inflationary protection. It allows you to diversify and actually get a higher real rate of return. Look, I love gold. Trust me, I'm I'm a big gold bug. I would even love us to get back to a point where we actually have our currency backed by gold. But all that to say whether our currency is backed by gold or backed by some other asset or just uh just it's just pure discretionary monetary policy I still want stable prices at the end of the day because that's going to be the best thing for everybody watching the markets before I let you go. I mean on the general markets I mean even at rates still above 4% equity valuations haven't cracked. I mean, the S&P 500 trading around 21 times forward earnings and the tech is a near dot industry as you kind of know. If the Fed's already easing and liquidity is creeping back in, is the bubble still very much alive or have markets just stopped caring about the fundamentals here? >> Well, one of the things that we've seen recently has been a a pretty tight correlation. Um there's been some deviation at at key points uh when when you have a unique outside influence, but there tends to be a pretty tight correlation between uh equities and bank reserves. And the whole reason that the Fed has stopped QT and is going to restart QE in the coming months probably is because they want to get bank reserves back up. They want to start increasing bank reserves, especially if we continue to see economic growth. uh especially if if other parts of banks balance sheets continue to grow because the key that the Fed is trying to the the key thing to understand here with the Fed is they want bank reserves to be maintained in a certain ratio relative to other things. So if you're looking at again uh bank reserves to GDP for example if GDP keeps growing what do you have to do to bank reserves? You have to keep pushing them up. And so as you increase those bank reserves you would expect to continue to see a bull market uh in equities as well. it that's a central bank caught in a loop. I mean, how do you ever restore the balance sheet discipline if every attempt to tighten ends up depleting reserves and forcing another easing event? >> You you don't that's and see that's the whole problem with with this artificial monetary framework that that they built starting in really I guess March of of 2020. Um and you know they were it it even technically precedes that because they were paying interest not on all reserves but at least on excess reserves going all the way back to to Bernani. And so when they were drawing down the balance sheet uh in you know 2017 1819 it it caused a crisis in uh in the repo market in the fall of 2019 and the Fed briefly lost control of interest rates actually for a couple of days in September of that year if I remember correctly and they had to reverse the QT and flip to QE and that was even uh you know before CO started but then they really blew everything up obviously in 2020 and so if they're going to be so hellbent on maintaining maintaining this new framework. You're right. There is no way that they can unwind this. There is no way that they can ever return the balance sheet to normal. And that's a big reason why getting back to your leadership question, it is so important that you get I think that you get somebody like a Kevin Borch in there who understands you do need to radically change this framework. It it's not sustainable. >> Yeah. So, I mean, is it really about stabilizing reserves or is it about keeping the financial markets artificially supported? I mean, these are the questions, right? At what point do we call this what it is? Permanent monetization dressed up as policy management. >> Well, I think the gold market has been calling it that all year. >> Yeah. >> Hence, hence the huge hence the huge runup that we've had, right? It's not just central banks buying gold. Yes. That's obviously a big part of it, right? That's been a huge part of it. when gold hit what is now the the low of the decade at that point uh central banks went on a total buying spree and and that was due in part to the uh the United States making the the very wrong-headed move of of confiscating those Russian uh dollar denominated assets that has that has told everyone it has broadcast a very clear signal your dollar assets are no longer safe even if you own them even if they're not owned by the United States they still might not be safe and so you're better off in something like gold. Yes, that has had a huge impact on the market. But I think a lot of what we've seen this year, not all, but a lot of it, has been people's increasing realization of where we've already been and where the dollar continues to be headed. >> Yeah, well said. All right, Dr. EJ Anthony, your perspective is always crucial check on the consensus here. I want to thank you for your time. Appreciate you making it today. >> Oh, my pleasure. Thank you for having me. >> Yeah, of course. And we hope to see you soon. Of course, we're going to keep keep tracking the Fed, gold, and the fallout from the US China trade truce [music] right here on Kiko News. It's all the time we have for today. I'm Jeremy Saffron. We'll see you next time. >> [music] >> Heat. Heat.