BREAKING: New Economic Indicators Give Dire Warning
Summary
Economic Indicators: The podcast discusses the recent decline in the Conference Board's Leading Economic Index (LEI) for the US, signaling increased recession risks and economic headwinds.
Government Strategy: There is speculation about the potential merging of the Federal Reserve and the Treasury, which could lead to the adoption of Modern Monetary Theory (MMT) as a solution to economic challenges.
Market Components: The stock market and leading credit index are currently the only positive components of the LEI, while other areas like manufacturing orders and consumer expectations are weak.
Tariffs Impact: Higher tariffs are identified as a significant factor slowing economic growth, with US importers bearing the cost, affecting their profit margins and consumer prices.
Investment Uncertainty: Uncertainty in government policies is causing businesses, especially small and midsize ones, to hesitate in making investments, impacting job growth and economic stability.
Potential Policy Changes: The podcast explores the implications of merging the Fed and Treasury, potentially eliminating the need to issue treasuries and directly impacting the money supply through the Fed's balance sheet.
Future Concerns: The discussion raises concerns about the long-term effects of such policy changes, including the risk of increased money supply without corresponding productivity growth, leading to inflation.
Transcript
Hello fellow robo capitalists. Hope you're well. So the leading economic indicators have come out and unfortunately it doesn't look good. Let's go over there and see what they're saying. And then they actually can quantify on their uh using their index, I guess you'd call it, what the recession risk is. And as you can imagine, it uh got a lot worse. So, let's go over and check that out. And then what I want to do is talk about how the the government's solution to this could be MMT. And this is where it gets dangerous, like properly properly dangerous. And what they're doing right now, and this just came out today, is they're talking about merging the Federal Reserve and the Treasury, at least in terms of the head of the Federal Reserve and the Treasury being Scott Bent. And what's crazy is I have been talking about this. Uh I haven't talked about it in the last month, but when the uh uh Trump was coming out and talked about firing Powell and replacing him with someone, I'm like, "Yeah, he's just why not just replace him with with Scott Bent? He's obviously a yes man." And then what you're doing is you're effectively combining the Fed and the Treasury. And I I was talking about this like a month ago. And sure enough, today we start seeing the headlines. All right, let's go over to the uh let's see, we got the screen share. Yes, we do. This is the conference board. And I know a lot of people don't like the University of Michigan survey because they say, "Oh, it's skewed Democrat and it's all political and blah blah blah." And I get that. I still like looking at the University of Michigan survey. And the reason is because you can see the trend with the Republicans. So, let's just assume for a moment the Democrats think that the unemployment rate is going to be 8%. Uh, and then the Republicans believe it's going to be 3% or 4% something like that. And you can say, "Oh, this we got to throw it out because this data is just too uh politically biased." Not really, because if the Republicans have gone from 2% to 4%, I think that is information that is absolutely relevant. And that's what we've seen in that survey. But let's focus on what we've got just uh more recently. And that's the Conference Board leading economic index, the LEI for the US declines in August. I'm sure you guys probably guessed that from the title of this video and what I said at the beginning. So, this was updated yesterday. Using the and I'm going to go ahead and read right off the page here. Using the composite indexes, the LEI provides an early early hence leading indicator uh of significant turning points in the business cycle and where the economy is heading in the near term. The coincident economic index provides an indication of the current state of the economy. Okay, so that's current versus what we're likely to see in the future. And now the one component here that I think it makes it a little fuzzy is they include the stock market. So you could have the economy just getting destroyed, but if the stock market's like at all-time highs, the leading uh the LEI won't be as bad as it as it really should be if it's just trying to determine what the state of the economy is or where the economy is heading. So, I mean, I get it. I I totally understand why they have the stock market in there, but I think it should somehow maybe be weighted. Maybe it is. I don't know. Let's keep reading. So, this is according to their I'm assuming they're economists. In August, the US LEI registered its largest monthly decline since April and that was remember retardation day. So, that would have been significant signaling more headwinds ahead. among its components, only stock prices and the leading credit index support the LEI. So, we're going to go through kind of their light line items that they used to come to this calculation, but you can see the only ones that were positive were the stock market and leading credit index. I I wonder what that is. H let's keep going here. Meanwhile, the contribution of the yield spread turned slightly negative and everything else was in the dumps. That's a technical term. Besides persistently weak manufacturing new orders and consumer expectations indicators, uh, labor market developments also weighed on the index. No surprise there looking at the non-farm payrolls and all the revisions that we have seen over the past month. Overall, the LEI suggests economic activity will continue to slow. Major driver of the slowdown has been higher tariffs, which already trimmed growth. Um, yeah, I mean, I don't think it's regarding the tariffs, we have to ask ourselves, who is paying for these things? Because the Donald Trump always likes to brag how they're making $30 billion a month or something like that bringing in to the Treasury's coffers. and they insinuate or they imply this is coming directly from China or the Malaysian manufacturers. It's not. It's not. And I'm I'm not just saying that just to be controversial. You just look at the import prices and it the proof's in the pudding. It's right there. Uh if the foreigners were eating these tariffs, then you would see the import prices go down because those import prices don't include the additional tax. So then you look at the CPI and you're like, "Yeah, I don't know. It's not really I don't think that 30 billion is coming from the American consumer. Maybe a little bit, but it doesn't explain the uh the degree to which or it it wouldn't explain the the increase in prices that are applicable to tariffs wouldn't explain the amount they're receiving in tariffs. I guess that's the best way to say it. So, who is eating the majority of those costs? That would be US importers. So, it's US companies who are importing those goods. And let's say they had a 20% margin. Well, now they got a 10% margin. And they're not able to pass that cost on to the consumer. Not because they don't want to. Obviously, they would love to pass the cost onto the consumer, but they can't because they know that the consumer right now is so weak and demand is so weak that if they bump their price by 10% or whatever would compensate them for the additional tax tariff that they're having to pay when that thing is imported, then they know that demand is going to really fall off a cliff. And then they got problems and they got to start laying people off. then this is going to be a huge huge hit to their business above and beyond the let's just say 10% increase in what they're having to pay to get that product from point A outside of the United States to point B inside of the United States. So that's that's one component of where I think the and it's not I think it it it is just look at the data where the tariffs are eating into the profit margins of these importers. Now you may say that's good or bad whatever we're not here to decide that or debate that but it's just that's what's happening. So that's a drag for those businesses and those corporations. But over here then you've got the uncertainty and I hate to use that word because the mainstream mean media uses it just kind of beats it to death but it is true that if you don't know what the policies are going to be tomorrow and you may say that's 6D chess and it might be 6D chess and that might be the only way that Trump can negotiate these deals. Fair. Fair. But the bottom line is it still creates this uncertainty where these businesses, they're not going to go out and make these huge massive investments other than trying to suck up to the president to get more political favors. So you look at Nvidia. I mean, what are they doing? And I'm not blaming them for it, but they're investing in Intel. Why do they think Do they think this is an amazing investment? No. or else they would have done it prior to Trump putting pressure on them. They just know this is going to score them political brownie points that's going to net them a lot more than the five billion or whatever that they invested in Intel. So outside of that, the political favors game, then you really have kind of the small and midsize businesses that are really the growth engine for employment in the United States. They're the ones that this hurts the most because a they're absorbing the cost when they import it and b they've got the uncertainty to where they don't know what to do. They freeze. They do nothing and therefore they don't hire. So when people quit, they don't fire them back. And that's I think one big reason why you're seeing the increase in the number of job losses. Although we haven't yet seen the increase in the unemployment rate, but that's just because we've got the labor force participation decreasing at the same rate. And that still means fewer jobs, fewer aggregate demand, and a big big big headwind for the overall economy. Okay, getting back to the conference board here. I mean, let's just look at the chart. That's really kind of sums it up for us. So, you don't want to see this blue line go straight down. that that's and all you have to do is look at when it's gone down in the past and oh yeah that would be.com oh yeah that would be the goc and oh yeah that would be the surveys sickness so this is never really a good sign and I think their line in the sand is 100 down there and then I want to bounce back up here and look at the inputs to this calculation yeah their line in the sand is minus5% % and we dipped down there when we had the big or just I wish they had 2020 2023 would be in there. So we dipped down just prior to Silicon Valley Bank and all those others going bust and that probably led to this bottoming out or at least going down and then we kind of came back up. I mean not really robust I would say especially when you look at this considering what it was in the 2010s. It's not like the 2010s was just a phenomenal decade for the United States economy. Now, is a phenomenal decade for the stock market? Absolutely. No one's going to argue that. Phenomenal decade for the bond market that no one's going to argue that phenomenal for, you know, Bitcoin and a lot of these other phenomenal for real estate, but that doesn't necessarily mean that it was phenomenal for the real economy. I don't think any of us would argue that regardless of how bullish or bearish or whatever your opinion is, whatever your political views are or your view of the economy, I don't think any of us would sit there and say, "Yeah, this uh the 2010s was just like the 1990s." I remember both decades. And if you don't remember them, I can assure you the 2010s sucked compared to the compared to the 1990s. Okay, so this red line is what we've really got to pay attention to. And I guess this black line, once you get down close to zero or below zero, that's when you've got a warning signal. And then once you get below this red line or once you see this red line, that's when you've got the outright recession signal, which I mean to be fair, um, well, I guess there's two ways to look at this, right? Because the last time it flashed a recession signal, did we have an official recession? No, we did not. But did we have two consecutive quarters of negative GDP? Yes, we did. So, I I I I guess there's something there for both views. either you have the view that this is a nothing burger and it didn't accurately project or predict what was happening in 2022 or you take the other side of that say well yeah it actually did because we did have two quarters of negative GDP two consecutive quarters of negative GDP now let's go back to this chart now I want to zoom in here. I'll zoom out a little. Okay, so the financial components, this is what they were talking about earlier. What led the way here, as you can imagine, just S&P 500. And in today's day and age, it it it would well I made the argument earlier and I think it's valid and worth restating that I I don't know ju that you could in a model that is supposed to represent the underlying economy and how well or how poorly it's doing. I don't know that you can include the S&P 500. I guess you could include it, but You've got to have some way to weight that to where it's appropriate because it's it's I mean what this is insinuating is the better the US economy does the better the stock market does because the stock market is just a reflection of the economy and the businesses in the economy. We know that is complete and total nonsense to the point where often there's an inverse relationship. So the worse the economy does, the better the stock market does because oh the Fed's going to drop rates. So I would just kind of take this component with a grain of salt. Then you got to ask yourself, okay, if this line item was excluded, okay, now where are we with the leading economic indicators? Answer, a lot worse. A lot worse. So there's the the credit yet a I'm not sure I don't know if they're doing that loans and leases. That would be just a guess. And then here you've got the curve which if you're looking at treasuries the the 10-year Treasury and you're looking at Fed funds. I don't know how you can peg that as zero impact. Zero. We we have a flat curve and that's with the Fed funds and the 10-year. I mean, you can look at almost everything, every point at the curve. In fact, we can I had that I I wanted to pull that up a little later, but we can go ahead and go to that right now. Oh, darn it. I had it up. Um Oh my gosh. There it is. There it is. I knew I had that was going to really bother me if I couldn't find that. I specifically put it there so I wouldn't lose it. Here you go, guys. This is what I was referring to. You got Fed funds right here. And actually, this I got to That's old. Why is this not refreshing? Okay. This is still not refreshing. Oh, come on. Here. Why? Why do I have to do this? Obviously, I want the most recent data. Like, what are we doing here? No, I want 918. Okay, there we go. So, this is the bottom of the Fed's range. Remember, there's a 25 basis point range between 4% and 4.25. So, the bottom of their range is 4%. I I don't know exactly where they are. They were at 4.33. Um I'm guessing they're maybe 4.1 something like that. So I have about 10 basis points between maybe RRP and uh and where interest on reserves is. So but let's just say it's right around 4.1. And we look where the 10-year Treasury is trading. Okay, 4.1. So you got all from the three month basically from the three month to the sevenyear it's inverted. It's inverted based on Fed funds. And then you go out to the 10 year and we're flat. Now, sure, you got to the 20 and 30 and but still you're only 60 70 basis points of steepening from from the overnight rate for heaven's sakes. This is this is a very very very bearish yield curve when you look at it in terms of the economy. I look at this that the the three years trading at 3.55. But even if you're just looking at the 10-year and Fed funds being almost completely flat, I don't know how that's not a negative. I mean, I guess it's a negative. 01. I don't know. I don't know. I I I if I was doing this, I would weight that in a in a much much different way. Okay, so now let's get on to the non financial components. So the worst was this the uh just the month over month here. The worst was consumer expectations for business conditions and that was a negative.19. And then we go down to ISM.08 08 building permits we talked about that yesterday.11 average weekly hours in manufacturing is 0.12 and you had a couple um positives here barely positive and that was the manufacturers new orders uh capital goods excluding aircraft and then new orders consumer goods and materials. Okay. and then average weekly initial claims unemployment sh service that clocked in at a negative.06 and I don't think that's the the nominal number but that's the the way they weighted it in their uh calculation in their model. So this is how they're getting to basically this chart and that's how they're getting to this N minus5 and all those things kind of lumped together and it spits out of the sausage machine and you get a number that's neg5 or historically very close to if not in recession territory. So now what's the government going to do? I mean that's the trillion dollar question. and if we go into a recession. So I I think the majority of the people on this live stream would peg it as a pretty strong probability that uh we at least even if we don't go into a recession we have a further economic slowdown let's say because again there are no certainties or only probabilities but I think that's probably most people's base case uh that would be watching this video. So then you have to ask yourself what does the government do? And there's so much talk about the debt, the deficits, the debt, the deficits, the debt, the deficits. In fact, even today uh or just non-stop on social media and in the mainstream media, you hear about yield curve control. Well, you know, when are they going to do yield curve control? Yield curve control. Yield curve control. I'm sure you guys have heard this at Nauseium. Yield curve control. YCC. What what's crazy to me is that they're talking about yield curve control at a time when the yield curve is flat. Like has anyone ever thought about that? That the reason you would need yield curve control is if the curve was too steep, but yet we're somehow talking about the curve being too steep or being too steep in the very near future when it's literally flat or, you know, looking at the 10-year or when you look at the the middle of the curve, it's it's massively inverted based on Fed funds. But anyway, anyway, that's a we'll save that for a topic of a completely separate video. But what is a quote unquote solution if if if you were really really worried about the debt because Bent I mean he's obviously that's using his framework. I don't agree with his framework but his using his framework. This is a big big problem. You hear Musk talk about all the time. You hear Trump talk about it all the time. It's all we got to get the debt down. The debt down the debt down. Well, what does the debt represent? It's simply, and why do they say that? It's not because they're opposed to government spending. Musk might be, but the others aren't. It's because they see this as the debt representing the supply of treasuries. And in their view, at a certain point, there's way too many treasuries for the amount of demand. And therefore, interest rates go up and that causes big big problems. So, it's really about the supply of treasuries. So, what would be one way to reduce the supply of treasuries? Don't issue them. Don't issue any more treasuries. So now, I'm sure a lot of you say, "Well, George, okay, h hardy har. Uh, how how does that make sense?" Because we're running these big deficits. By definition, we have to issue treasuries, right? Or we have to raise taxes. But if if we do have a deficit, you got to sell treasuries, create more supply, and you've got to roll over the treasuries that are maturing. You got to do all these things. Okay, but let's think about what happens if you merge the Fed with the Treasury. So, if you merge the Fed with the Treasury, you no longer have to issue treasuries themselves. you don't have to issue debt. Why? Because you can just go ahead and pay that directly from the Fed's balance sheet. So often when the Fed does QE, it really doesn't impact M2 money supply. You guys know that. You know that just from looking at uh the 2010s. If they're buying, let's say, an asset from a bank, it it is literally an asset swap. It doesn't impact M2 money supply or the amount of currency units chasing goods and services. Now, you can say, well, the banks are buying and then flipping the Treasury to the Fed or something like that. And and that gets that that's a good argument. That's very mechanical, but that implies that the banks aren't going to buy to begin with. And the only reason they're buying is the flip to the Fed. And I don't know that that's a sticky conversation, let's say, but one worth having. But just to keep it super simple right now, if the Fed if this is the only action that there's buying a treasury off the balance sheet of JP Morgan, that does not impact the number of currency units chasing goods and services. Does not impact M2 money supply. It's not money printing. It's it's just it's nothing. So then you have to say, all right, well, what uh happens if the Fed buys an asset from a non-bank entity? Now all of a sudden we're increasing the money supply. We are increasing M2 was my point. Okay. So if you merge the uh Treasury and the Fed, then what happens is the Treasury can just go ahead and pay the bills through the Fed's balance sheet. How do they do that? Well, it's actually quite simple. They just the Fed just deposits more bank reserves in the TGA, the Treasury general account, and then the Treasury general account sends out the check and then the offsetting asset is the bank reserve that goes from the TGA onto the balance sheet of let's just say Wells Fargo. And then the liability was the check that just went out to Stimmyi Bob. And Stimmyi Bob just got the STEMI check for whatever a million bucks, let's say. And then a million dollars went onto the balance sheet of Wells Fargo because that's where he's going to cash the check, right? So his bank account balance goes up by a million dollars, which is a deposit liability of Wells Fargo. But then Wells Fargo gets that million dollars of bank reserves. That's the offsetting asset, right? So in that transaction that there were no treasuries that were issued, none. So the debt, the United States debt did not go up, but Stimmyi Bob or whatever his name is, he now has a million bucks that he can go out and spend or social. I mean, just replace stemi Bob with uh a recipient of social security or, you know, some sort of military spending or whatever spending the government is doing. That that's that's how they could do it. The Fed just dumps bank reserves into and they don't have to buy an asset. You say, "Well, George, they'd have negative equity." Yeah, they have negative equity right now. That's not stopping them. They can have negative equity all day long. That doesn't matter because they have these accounting gimmicks called deferred was it deferred assets. I It's a total joke. It's a total joke. It's just it's it's beyond an accounting gimmick. It's an accounting scam is what it is. But they can do it. That's the bottom line. So in that world where if you're merging the B that is MMT that's the the premise of MMT. And then the only way the way that you're controlling the money supply is you're just either taxing it out of the economy and then you're spending it back in. And then the delta is how you're increasing or decreasing the money supply. So if you're spending in a million dollars and taxing out $100,000, well on net you've increased the money supply by $900,000. Or if you have inflation, then all you do is you spend into the economy 100,000 and you tax out a million and now you've reduced the money supply by 900,000. This is MMT. This is the core. This is the foundational approach. This is kind of the the building blocks for their uh their policy suggestions or their policy proposals, let's say. And you got to give them credit because mechanically does that work? Yes, absolutely does. Absolutely. They actually do get the mechanics right. They completely ignore the banking system. There's a whole other topic. But as far as just the mechanics of the Treasury's balance sheet and the Fed's balance sheet, yeah, I mean the smart guys like Mosler, uh, they get it right. Absolutely. I think Kelton gets that right. I I haven't heard a like a highlevel MMT tier person that doesn't understand the mechanics of the Fed's balance sheet and the Treasury's balance sheet. From there, they completely derail, but they get that right. So, anyway, now let's go over to the headline of the day here. And here you go, Josh. Did you see this? Yep. is just today. Steve Bannon floats the idea of Bent running both the Treasury and the Fed. Exactly what I was saying a month ago. Exactly. What's crazy, too, is whenever I assert something like that on a video, whiteboard, one of these, everyone in the chat's always like, "Oh, George, you don't know what you're talking about." Okay, another conspiracy theory. And then not all the time, but a but a good percentage of the time, let's say, it it comes true. The conspiracy theory comes turns into conspiracy fact. Anyway, so what was going on here? Basically, it was uh yeah, Steve Bannon. He floated the idea of and look, if you've got the same, you have to ask yourself if you've got the same guy running the Treasury and the Fed, what's the difference between why are why is there like you've got two balance sheets, right? The Treasury and the Federal Reserve's balance sheet. But if you've got the exact same entity running both balance sheets, are they different? I mean, not really. Not really. By having the same guy there making the exact same decisions, then you you effectively are just kind of merging those balance sheets because one's just going to work right off the other. It's going to be the exact same decision-making process. So Bannon was just saying that he's a big fan of Bent and this would be a great idea and then e even uh when Powell is out he would suggest that Bent is uh stays in charge of the Federal Reserve. Um but then you have to take it to the next step right because we can see how if you've got one guy running both entities how you've basically merged those balance sheets. it. You know what? It's like me running two businesses and I'm running Rebel Capitalist uh let's just say each one of these YouTube channels is a business. So, I'm running the George Gammon channel and I'm running the Rebel Capitals channel, but it's me running both. So, sure, I might have different bank accounts for each, but it it's really the same balance sheet. And by the way, when I'm when you're filing the taxes, it's a pass through entity, so it passes through to my tax return. So it it's one and the same here. But we can take it a step further and say, okay, let's just assume we do have two different guys. We have one we got Bent running the Fed and we have XYZ yes man who's basically going to do exactly what Bent tells him or what Trump tells him. Is that any different? Not really. Not really. And if and they are so hawkish on the debt, the debt, the debt, the debt, the debt, the debt, the debt, the debt. If you've got the same guy running or you basically merge those balance sheets, I don't know why they wouldn't float the idea of, hey, why why are we even issuing treasuries? Like, why are we doing this? We don't have to do this. Like, this is the way the system works. This is the way the balance sheets work. This is the way the mechanics work. So why don't we just have the Fed dump money into the TJ account? I think that's the the next the logical progression. Now, do I think they'll do it? No, I don't. Um why? Because then Scott Bent is a smart dude. um he might not play one on TV or the interviews in some of his policy positions in standing up for for Trump. Obviously, he's got to be a yes man, but he's a smart dude and he understands how important treasuries are to the global monetary system. He he he he knows that he has to know that they're collateral. And I think that's why he did such a 180 when he took the job. Remember when how critical he was of yelling? Oh, she's issuing everything at the front end. Oh, she's issuing everything at the front end. Oh, you dummy. And then as soon as he gets in, what does he do? The exact same thing. Why? Because he got in there. He's like, oh, whoa. Oh, yeah. I knew that these tea bills were important, but I didn't know they're that important. So, I'm going to go ahead and keep doing exactly what I criticized Janet Yellen for doing. So I I I don't know that we would but but there again that's if Bent is running things. If they do merge the balance sheet Bent let's say he gets sick and tired of dealing with Trump so he bounces and then Trump puts in someone like Lutnik or just you know some complete Now I think I I would peg that as far higher than a zero% probability. And I mean you guys can guess where you go. So once you get the merger of the balance sheet and you just get direct money printing, that is money. That is the definition of money printing. I'll even get on board with that one. uh then look, you're going to increase the money supply massively while at the same time you're going to be just crushing productivity because the loan growth that's normally going from the banking system to productive outlets is not going to be there. And that loan growth or that money supply and remember when you're growing loans, what are you doing with the money supply? You're increasing the money supply. So, if you're increasing the money supply in terms or in ways that are not productive in terms of uh uh or uh in producing more goods and services, then you're going to have consumer price inflation. But if the Fed is doing it or Scott Benton or the Treasury or Lutnik or whatever, then you're you're the the likelihood that the government who is now in control of the domestic money supply is going to be increasing it solely for productive purposes basically zero. Basically zero. And then that what you're going to have is money supply go up, productivity go down, goods and services go down. What's going to happen to the price of stuff? obviously it it goes up. So that's why I always say when I'm on this uh you know when I always say that the supply of treasuries hasn't impacted the prices of treasuries going back you know 75 years. That's spot on there. There's no way you can debate that because it's just it's happened in the past and it's just factual. But that but my argument is not that just because it's happened in the past means it'll happen indefinitely into the future. That is not my argument. My argument is the reason it's happened that way in the past is because the way the monetary system is structured. Now, if we change the monetary system, which MMT would absolutely be, or same thing with the CBDC, it's the the net results the same. And that is the central planners are now controlling the credit creation and the central planners have much more control if not 100% control on the actual money supply. and the the amount of goods and services that are chasing or excuse me the amount of currency units that are chasing goods and services. So if you get that shift that fundamental shift and change in the way the monetary system works going from a a quasi decentralized approach with the banking system to a approach with the federal government that has no incentive to create money supply for productive purposes. in fact an inverse incentive then it's it's all bets are off and I would go from I would go from I I would completely change my position on a a lot or my base case on a lot of views the dollar interest rates I I would I would do a complete 180 but so we got to watch this carefully guys we got to watch this carefully I know it's just a narrative right now it's just an idea but remember so are CBDC's For those of you who have watched the George Hammond channel for a long time, going back to 2019 when we started, you remember that I was talking about CBDC's back then. I was doing videos and I remember everybody in the comments was telling me that, "Oh, conspiracy theorist. Oh, this is never going to happen. Oh, conspiracy theory. Okay, Alex Jones. Okay, Tinfoil Hatter." That's what Go back and look at the comments from those videos. That's what you'll see. And then sure enough, 2022, 2023, oh yeah, yeah, all the central banks like, yeah, it's central bank digital currency sounds great. We're working on one ourselves. Possibly, possibly, possibly this this merging of the balance sheets or the merging of the people in charge of the balance sheets is going to be like that CBDC where it sounds crazy now, but in two years that's what everyone's talking about. Hopefully, I'm wrong. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism. We'll see you in the next video.
BREAKING: New Economic Indicators Give Dire Warning
Summary
Transcript
Hello fellow robo capitalists. Hope you're well. So the leading economic indicators have come out and unfortunately it doesn't look good. Let's go over there and see what they're saying. And then they actually can quantify on their uh using their index, I guess you'd call it, what the recession risk is. And as you can imagine, it uh got a lot worse. So, let's go over and check that out. And then what I want to do is talk about how the the government's solution to this could be MMT. And this is where it gets dangerous, like properly properly dangerous. And what they're doing right now, and this just came out today, is they're talking about merging the Federal Reserve and the Treasury, at least in terms of the head of the Federal Reserve and the Treasury being Scott Bent. And what's crazy is I have been talking about this. Uh I haven't talked about it in the last month, but when the uh uh Trump was coming out and talked about firing Powell and replacing him with someone, I'm like, "Yeah, he's just why not just replace him with with Scott Bent? He's obviously a yes man." And then what you're doing is you're effectively combining the Fed and the Treasury. And I I was talking about this like a month ago. And sure enough, today we start seeing the headlines. All right, let's go over to the uh let's see, we got the screen share. Yes, we do. This is the conference board. And I know a lot of people don't like the University of Michigan survey because they say, "Oh, it's skewed Democrat and it's all political and blah blah blah." And I get that. I still like looking at the University of Michigan survey. And the reason is because you can see the trend with the Republicans. So, let's just assume for a moment the Democrats think that the unemployment rate is going to be 8%. Uh, and then the Republicans believe it's going to be 3% or 4% something like that. And you can say, "Oh, this we got to throw it out because this data is just too uh politically biased." Not really, because if the Republicans have gone from 2% to 4%, I think that is information that is absolutely relevant. And that's what we've seen in that survey. But let's focus on what we've got just uh more recently. And that's the Conference Board leading economic index, the LEI for the US declines in August. I'm sure you guys probably guessed that from the title of this video and what I said at the beginning. So, this was updated yesterday. Using the and I'm going to go ahead and read right off the page here. Using the composite indexes, the LEI provides an early early hence leading indicator uh of significant turning points in the business cycle and where the economy is heading in the near term. The coincident economic index provides an indication of the current state of the economy. Okay, so that's current versus what we're likely to see in the future. And now the one component here that I think it makes it a little fuzzy is they include the stock market. So you could have the economy just getting destroyed, but if the stock market's like at all-time highs, the leading uh the LEI won't be as bad as it as it really should be if it's just trying to determine what the state of the economy is or where the economy is heading. So, I mean, I get it. I I totally understand why they have the stock market in there, but I think it should somehow maybe be weighted. Maybe it is. I don't know. Let's keep reading. So, this is according to their I'm assuming they're economists. In August, the US LEI registered its largest monthly decline since April and that was remember retardation day. So, that would have been significant signaling more headwinds ahead. among its components, only stock prices and the leading credit index support the LEI. So, we're going to go through kind of their light line items that they used to come to this calculation, but you can see the only ones that were positive were the stock market and leading credit index. I I wonder what that is. H let's keep going here. Meanwhile, the contribution of the yield spread turned slightly negative and everything else was in the dumps. That's a technical term. Besides persistently weak manufacturing new orders and consumer expectations indicators, uh, labor market developments also weighed on the index. No surprise there looking at the non-farm payrolls and all the revisions that we have seen over the past month. Overall, the LEI suggests economic activity will continue to slow. Major driver of the slowdown has been higher tariffs, which already trimmed growth. Um, yeah, I mean, I don't think it's regarding the tariffs, we have to ask ourselves, who is paying for these things? Because the Donald Trump always likes to brag how they're making $30 billion a month or something like that bringing in to the Treasury's coffers. and they insinuate or they imply this is coming directly from China or the Malaysian manufacturers. It's not. It's not. And I'm I'm not just saying that just to be controversial. You just look at the import prices and it the proof's in the pudding. It's right there. Uh if the foreigners were eating these tariffs, then you would see the import prices go down because those import prices don't include the additional tax. So then you look at the CPI and you're like, "Yeah, I don't know. It's not really I don't think that 30 billion is coming from the American consumer. Maybe a little bit, but it doesn't explain the uh the degree to which or it it wouldn't explain the the increase in prices that are applicable to tariffs wouldn't explain the amount they're receiving in tariffs. I guess that's the best way to say it. So, who is eating the majority of those costs? That would be US importers. So, it's US companies who are importing those goods. And let's say they had a 20% margin. Well, now they got a 10% margin. And they're not able to pass that cost on to the consumer. Not because they don't want to. Obviously, they would love to pass the cost onto the consumer, but they can't because they know that the consumer right now is so weak and demand is so weak that if they bump their price by 10% or whatever would compensate them for the additional tax tariff that they're having to pay when that thing is imported, then they know that demand is going to really fall off a cliff. And then they got problems and they got to start laying people off. then this is going to be a huge huge hit to their business above and beyond the let's just say 10% increase in what they're having to pay to get that product from point A outside of the United States to point B inside of the United States. So that's that's one component of where I think the and it's not I think it it it is just look at the data where the tariffs are eating into the profit margins of these importers. Now you may say that's good or bad whatever we're not here to decide that or debate that but it's just that's what's happening. So that's a drag for those businesses and those corporations. But over here then you've got the uncertainty and I hate to use that word because the mainstream mean media uses it just kind of beats it to death but it is true that if you don't know what the policies are going to be tomorrow and you may say that's 6D chess and it might be 6D chess and that might be the only way that Trump can negotiate these deals. Fair. Fair. But the bottom line is it still creates this uncertainty where these businesses, they're not going to go out and make these huge massive investments other than trying to suck up to the president to get more political favors. So you look at Nvidia. I mean, what are they doing? And I'm not blaming them for it, but they're investing in Intel. Why do they think Do they think this is an amazing investment? No. or else they would have done it prior to Trump putting pressure on them. They just know this is going to score them political brownie points that's going to net them a lot more than the five billion or whatever that they invested in Intel. So outside of that, the political favors game, then you really have kind of the small and midsize businesses that are really the growth engine for employment in the United States. They're the ones that this hurts the most because a they're absorbing the cost when they import it and b they've got the uncertainty to where they don't know what to do. They freeze. They do nothing and therefore they don't hire. So when people quit, they don't fire them back. And that's I think one big reason why you're seeing the increase in the number of job losses. Although we haven't yet seen the increase in the unemployment rate, but that's just because we've got the labor force participation decreasing at the same rate. And that still means fewer jobs, fewer aggregate demand, and a big big big headwind for the overall economy. Okay, getting back to the conference board here. I mean, let's just look at the chart. That's really kind of sums it up for us. So, you don't want to see this blue line go straight down. that that's and all you have to do is look at when it's gone down in the past and oh yeah that would be.com oh yeah that would be the goc and oh yeah that would be the surveys sickness so this is never really a good sign and I think their line in the sand is 100 down there and then I want to bounce back up here and look at the inputs to this calculation yeah their line in the sand is minus5% % and we dipped down there when we had the big or just I wish they had 2020 2023 would be in there. So we dipped down just prior to Silicon Valley Bank and all those others going bust and that probably led to this bottoming out or at least going down and then we kind of came back up. I mean not really robust I would say especially when you look at this considering what it was in the 2010s. It's not like the 2010s was just a phenomenal decade for the United States economy. Now, is a phenomenal decade for the stock market? Absolutely. No one's going to argue that. Phenomenal decade for the bond market that no one's going to argue that phenomenal for, you know, Bitcoin and a lot of these other phenomenal for real estate, but that doesn't necessarily mean that it was phenomenal for the real economy. I don't think any of us would argue that regardless of how bullish or bearish or whatever your opinion is, whatever your political views are or your view of the economy, I don't think any of us would sit there and say, "Yeah, this uh the 2010s was just like the 1990s." I remember both decades. And if you don't remember them, I can assure you the 2010s sucked compared to the compared to the 1990s. Okay, so this red line is what we've really got to pay attention to. And I guess this black line, once you get down close to zero or below zero, that's when you've got a warning signal. And then once you get below this red line or once you see this red line, that's when you've got the outright recession signal, which I mean to be fair, um, well, I guess there's two ways to look at this, right? Because the last time it flashed a recession signal, did we have an official recession? No, we did not. But did we have two consecutive quarters of negative GDP? Yes, we did. So, I I I I guess there's something there for both views. either you have the view that this is a nothing burger and it didn't accurately project or predict what was happening in 2022 or you take the other side of that say well yeah it actually did because we did have two quarters of negative GDP two consecutive quarters of negative GDP now let's go back to this chart now I want to zoom in here. I'll zoom out a little. Okay, so the financial components, this is what they were talking about earlier. What led the way here, as you can imagine, just S&P 500. And in today's day and age, it it it would well I made the argument earlier and I think it's valid and worth restating that I I don't know ju that you could in a model that is supposed to represent the underlying economy and how well or how poorly it's doing. I don't know that you can include the S&P 500. I guess you could include it, but You've got to have some way to weight that to where it's appropriate because it's it's I mean what this is insinuating is the better the US economy does the better the stock market does because the stock market is just a reflection of the economy and the businesses in the economy. We know that is complete and total nonsense to the point where often there's an inverse relationship. So the worse the economy does, the better the stock market does because oh the Fed's going to drop rates. So I would just kind of take this component with a grain of salt. Then you got to ask yourself, okay, if this line item was excluded, okay, now where are we with the leading economic indicators? Answer, a lot worse. A lot worse. So there's the the credit yet a I'm not sure I don't know if they're doing that loans and leases. That would be just a guess. And then here you've got the curve which if you're looking at treasuries the the 10-year Treasury and you're looking at Fed funds. I don't know how you can peg that as zero impact. Zero. We we have a flat curve and that's with the Fed funds and the 10-year. I mean, you can look at almost everything, every point at the curve. In fact, we can I had that I I wanted to pull that up a little later, but we can go ahead and go to that right now. Oh, darn it. I had it up. Um Oh my gosh. There it is. There it is. I knew I had that was going to really bother me if I couldn't find that. I specifically put it there so I wouldn't lose it. Here you go, guys. This is what I was referring to. You got Fed funds right here. And actually, this I got to That's old. Why is this not refreshing? Okay. This is still not refreshing. Oh, come on. Here. Why? Why do I have to do this? Obviously, I want the most recent data. Like, what are we doing here? No, I want 918. Okay, there we go. So, this is the bottom of the Fed's range. Remember, there's a 25 basis point range between 4% and 4.25. So, the bottom of their range is 4%. I I don't know exactly where they are. They were at 4.33. Um I'm guessing they're maybe 4.1 something like that. So I have about 10 basis points between maybe RRP and uh and where interest on reserves is. So but let's just say it's right around 4.1. And we look where the 10-year Treasury is trading. Okay, 4.1. So you got all from the three month basically from the three month to the sevenyear it's inverted. It's inverted based on Fed funds. And then you go out to the 10 year and we're flat. Now, sure, you got to the 20 and 30 and but still you're only 60 70 basis points of steepening from from the overnight rate for heaven's sakes. This is this is a very very very bearish yield curve when you look at it in terms of the economy. I look at this that the the three years trading at 3.55. But even if you're just looking at the 10-year and Fed funds being almost completely flat, I don't know how that's not a negative. I mean, I guess it's a negative. 01. I don't know. I don't know. I I I if I was doing this, I would weight that in a in a much much different way. Okay, so now let's get on to the non financial components. So the worst was this the uh just the month over month here. The worst was consumer expectations for business conditions and that was a negative.19. And then we go down to ISM.08 08 building permits we talked about that yesterday.11 average weekly hours in manufacturing is 0.12 and you had a couple um positives here barely positive and that was the manufacturers new orders uh capital goods excluding aircraft and then new orders consumer goods and materials. Okay. and then average weekly initial claims unemployment sh service that clocked in at a negative.06 and I don't think that's the the nominal number but that's the the way they weighted it in their uh calculation in their model. So this is how they're getting to basically this chart and that's how they're getting to this N minus5 and all those things kind of lumped together and it spits out of the sausage machine and you get a number that's neg5 or historically very close to if not in recession territory. So now what's the government going to do? I mean that's the trillion dollar question. and if we go into a recession. So I I think the majority of the people on this live stream would peg it as a pretty strong probability that uh we at least even if we don't go into a recession we have a further economic slowdown let's say because again there are no certainties or only probabilities but I think that's probably most people's base case uh that would be watching this video. So then you have to ask yourself what does the government do? And there's so much talk about the debt, the deficits, the debt, the deficits, the debt, the deficits. In fact, even today uh or just non-stop on social media and in the mainstream media, you hear about yield curve control. Well, you know, when are they going to do yield curve control? Yield curve control. Yield curve control. I'm sure you guys have heard this at Nauseium. Yield curve control. YCC. What what's crazy to me is that they're talking about yield curve control at a time when the yield curve is flat. Like has anyone ever thought about that? That the reason you would need yield curve control is if the curve was too steep, but yet we're somehow talking about the curve being too steep or being too steep in the very near future when it's literally flat or, you know, looking at the 10-year or when you look at the the middle of the curve, it's it's massively inverted based on Fed funds. But anyway, anyway, that's a we'll save that for a topic of a completely separate video. But what is a quote unquote solution if if if you were really really worried about the debt because Bent I mean he's obviously that's using his framework. I don't agree with his framework but his using his framework. This is a big big problem. You hear Musk talk about all the time. You hear Trump talk about it all the time. It's all we got to get the debt down. The debt down the debt down. Well, what does the debt represent? It's simply, and why do they say that? It's not because they're opposed to government spending. Musk might be, but the others aren't. It's because they see this as the debt representing the supply of treasuries. And in their view, at a certain point, there's way too many treasuries for the amount of demand. And therefore, interest rates go up and that causes big big problems. So, it's really about the supply of treasuries. So, what would be one way to reduce the supply of treasuries? Don't issue them. Don't issue any more treasuries. So now, I'm sure a lot of you say, "Well, George, okay, h hardy har. Uh, how how does that make sense?" Because we're running these big deficits. By definition, we have to issue treasuries, right? Or we have to raise taxes. But if if we do have a deficit, you got to sell treasuries, create more supply, and you've got to roll over the treasuries that are maturing. You got to do all these things. Okay, but let's think about what happens if you merge the Fed with the Treasury. So, if you merge the Fed with the Treasury, you no longer have to issue treasuries themselves. you don't have to issue debt. Why? Because you can just go ahead and pay that directly from the Fed's balance sheet. So often when the Fed does QE, it really doesn't impact M2 money supply. You guys know that. You know that just from looking at uh the 2010s. If they're buying, let's say, an asset from a bank, it it is literally an asset swap. It doesn't impact M2 money supply or the amount of currency units chasing goods and services. Now, you can say, well, the banks are buying and then flipping the Treasury to the Fed or something like that. And and that gets that that's a good argument. That's very mechanical, but that implies that the banks aren't going to buy to begin with. And the only reason they're buying is the flip to the Fed. And I don't know that that's a sticky conversation, let's say, but one worth having. But just to keep it super simple right now, if the Fed if this is the only action that there's buying a treasury off the balance sheet of JP Morgan, that does not impact the number of currency units chasing goods and services. Does not impact M2 money supply. It's not money printing. It's it's just it's nothing. So then you have to say, all right, well, what uh happens if the Fed buys an asset from a non-bank entity? Now all of a sudden we're increasing the money supply. We are increasing M2 was my point. Okay. So if you merge the uh Treasury and the Fed, then what happens is the Treasury can just go ahead and pay the bills through the Fed's balance sheet. How do they do that? Well, it's actually quite simple. They just the Fed just deposits more bank reserves in the TGA, the Treasury general account, and then the Treasury general account sends out the check and then the offsetting asset is the bank reserve that goes from the TGA onto the balance sheet of let's just say Wells Fargo. And then the liability was the check that just went out to Stimmyi Bob. And Stimmyi Bob just got the STEMI check for whatever a million bucks, let's say. And then a million dollars went onto the balance sheet of Wells Fargo because that's where he's going to cash the check, right? So his bank account balance goes up by a million dollars, which is a deposit liability of Wells Fargo. But then Wells Fargo gets that million dollars of bank reserves. That's the offsetting asset, right? So in that transaction that there were no treasuries that were issued, none. So the debt, the United States debt did not go up, but Stimmyi Bob or whatever his name is, he now has a million bucks that he can go out and spend or social. I mean, just replace stemi Bob with uh a recipient of social security or, you know, some sort of military spending or whatever spending the government is doing. That that's that's how they could do it. The Fed just dumps bank reserves into and they don't have to buy an asset. You say, "Well, George, they'd have negative equity." Yeah, they have negative equity right now. That's not stopping them. They can have negative equity all day long. That doesn't matter because they have these accounting gimmicks called deferred was it deferred assets. I It's a total joke. It's a total joke. It's just it's it's beyond an accounting gimmick. It's an accounting scam is what it is. But they can do it. That's the bottom line. So in that world where if you're merging the B that is MMT that's the the premise of MMT. And then the only way the way that you're controlling the money supply is you're just either taxing it out of the economy and then you're spending it back in. And then the delta is how you're increasing or decreasing the money supply. So if you're spending in a million dollars and taxing out $100,000, well on net you've increased the money supply by $900,000. Or if you have inflation, then all you do is you spend into the economy 100,000 and you tax out a million and now you've reduced the money supply by 900,000. This is MMT. This is the core. This is the foundational approach. This is kind of the the building blocks for their uh their policy suggestions or their policy proposals, let's say. And you got to give them credit because mechanically does that work? Yes, absolutely does. Absolutely. They actually do get the mechanics right. They completely ignore the banking system. There's a whole other topic. But as far as just the mechanics of the Treasury's balance sheet and the Fed's balance sheet, yeah, I mean the smart guys like Mosler, uh, they get it right. Absolutely. I think Kelton gets that right. I I haven't heard a like a highlevel MMT tier person that doesn't understand the mechanics of the Fed's balance sheet and the Treasury's balance sheet. From there, they completely derail, but they get that right. So, anyway, now let's go over to the headline of the day here. And here you go, Josh. Did you see this? Yep. is just today. Steve Bannon floats the idea of Bent running both the Treasury and the Fed. Exactly what I was saying a month ago. Exactly. What's crazy, too, is whenever I assert something like that on a video, whiteboard, one of these, everyone in the chat's always like, "Oh, George, you don't know what you're talking about." Okay, another conspiracy theory. And then not all the time, but a but a good percentage of the time, let's say, it it comes true. The conspiracy theory comes turns into conspiracy fact. Anyway, so what was going on here? Basically, it was uh yeah, Steve Bannon. He floated the idea of and look, if you've got the same, you have to ask yourself if you've got the same guy running the Treasury and the Fed, what's the difference between why are why is there like you've got two balance sheets, right? The Treasury and the Federal Reserve's balance sheet. But if you've got the exact same entity running both balance sheets, are they different? I mean, not really. Not really. By having the same guy there making the exact same decisions, then you you effectively are just kind of merging those balance sheets because one's just going to work right off the other. It's going to be the exact same decision-making process. So Bannon was just saying that he's a big fan of Bent and this would be a great idea and then e even uh when Powell is out he would suggest that Bent is uh stays in charge of the Federal Reserve. Um but then you have to take it to the next step right because we can see how if you've got one guy running both entities how you've basically merged those balance sheets. it. You know what? It's like me running two businesses and I'm running Rebel Capitalist uh let's just say each one of these YouTube channels is a business. So, I'm running the George Gammon channel and I'm running the Rebel Capitals channel, but it's me running both. So, sure, I might have different bank accounts for each, but it it's really the same balance sheet. And by the way, when I'm when you're filing the taxes, it's a pass through entity, so it passes through to my tax return. So it it's one and the same here. But we can take it a step further and say, okay, let's just assume we do have two different guys. We have one we got Bent running the Fed and we have XYZ yes man who's basically going to do exactly what Bent tells him or what Trump tells him. Is that any different? Not really. Not really. And if and they are so hawkish on the debt, the debt, the debt, the debt, the debt, the debt, the debt, the debt. If you've got the same guy running or you basically merge those balance sheets, I don't know why they wouldn't float the idea of, hey, why why are we even issuing treasuries? Like, why are we doing this? We don't have to do this. Like, this is the way the system works. This is the way the balance sheets work. This is the way the mechanics work. So why don't we just have the Fed dump money into the TJ account? I think that's the the next the logical progression. Now, do I think they'll do it? No, I don't. Um why? Because then Scott Bent is a smart dude. um he might not play one on TV or the interviews in some of his policy positions in standing up for for Trump. Obviously, he's got to be a yes man, but he's a smart dude and he understands how important treasuries are to the global monetary system. He he he he knows that he has to know that they're collateral. And I think that's why he did such a 180 when he took the job. Remember when how critical he was of yelling? Oh, she's issuing everything at the front end. Oh, she's issuing everything at the front end. Oh, you dummy. And then as soon as he gets in, what does he do? The exact same thing. Why? Because he got in there. He's like, oh, whoa. Oh, yeah. I knew that these tea bills were important, but I didn't know they're that important. So, I'm going to go ahead and keep doing exactly what I criticized Janet Yellen for doing. So I I I don't know that we would but but there again that's if Bent is running things. If they do merge the balance sheet Bent let's say he gets sick and tired of dealing with Trump so he bounces and then Trump puts in someone like Lutnik or just you know some complete Now I think I I would peg that as far higher than a zero% probability. And I mean you guys can guess where you go. So once you get the merger of the balance sheet and you just get direct money printing, that is money. That is the definition of money printing. I'll even get on board with that one. uh then look, you're going to increase the money supply massively while at the same time you're going to be just crushing productivity because the loan growth that's normally going from the banking system to productive outlets is not going to be there. And that loan growth or that money supply and remember when you're growing loans, what are you doing with the money supply? You're increasing the money supply. So, if you're increasing the money supply in terms or in ways that are not productive in terms of uh uh or uh in producing more goods and services, then you're going to have consumer price inflation. But if the Fed is doing it or Scott Benton or the Treasury or Lutnik or whatever, then you're you're the the likelihood that the government who is now in control of the domestic money supply is going to be increasing it solely for productive purposes basically zero. Basically zero. And then that what you're going to have is money supply go up, productivity go down, goods and services go down. What's going to happen to the price of stuff? obviously it it goes up. So that's why I always say when I'm on this uh you know when I always say that the supply of treasuries hasn't impacted the prices of treasuries going back you know 75 years. That's spot on there. There's no way you can debate that because it's just it's happened in the past and it's just factual. But that but my argument is not that just because it's happened in the past means it'll happen indefinitely into the future. That is not my argument. My argument is the reason it's happened that way in the past is because the way the monetary system is structured. Now, if we change the monetary system, which MMT would absolutely be, or same thing with the CBDC, it's the the net results the same. And that is the central planners are now controlling the credit creation and the central planners have much more control if not 100% control on the actual money supply. and the the amount of goods and services that are chasing or excuse me the amount of currency units that are chasing goods and services. So if you get that shift that fundamental shift and change in the way the monetary system works going from a a quasi decentralized approach with the banking system to a approach with the federal government that has no incentive to create money supply for productive purposes. in fact an inverse incentive then it's it's all bets are off and I would go from I would go from I I would completely change my position on a a lot or my base case on a lot of views the dollar interest rates I I would I would do a complete 180 but so we got to watch this carefully guys we got to watch this carefully I know it's just a narrative right now it's just an idea but remember so are CBDC's For those of you who have watched the George Hammond channel for a long time, going back to 2019 when we started, you remember that I was talking about CBDC's back then. I was doing videos and I remember everybody in the comments was telling me that, "Oh, conspiracy theorist. Oh, this is never going to happen. Oh, conspiracy theory. Okay, Alex Jones. Okay, Tinfoil Hatter." That's what Go back and look at the comments from those videos. That's what you'll see. And then sure enough, 2022, 2023, oh yeah, yeah, all the central banks like, yeah, it's central bank digital currency sounds great. We're working on one ourselves. Possibly, possibly, possibly this this merging of the balance sheets or the merging of the people in charge of the balance sheets is going to be like that CBDC where it sounds crazy now, but in two years that's what everyone's talking about. Hopefully, I'm wrong. All right, guys. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism. We'll see you in the next video.