♪.
LARRY: ALL RIGHT, A COUPLE OF
BIG STORIES HERE.
ONE OF THEM IS THE CRYPTO CRASH.
WE’RE GOING TO TALK ABOUT THAT,
WAS IT SBF, SAM, WHAT IS HIS
NAME BANKMAN FRIED, SOMETHING
LIKE THAT, GIVING 40 MILLION
PLUS TO THE DEMOCRATIC PARTY.
HE MEET HIS MAKER ONE WAY OR THE
OTHER.
INFLATION REPORT, WHOLESALE
INFLATION, PRODUCER PRICES CAME
IN LIGHT TODAY.
LET’S TALK WITH JOHN CARNEY,
"BREITBART" ECONOMICS FINANCE
EDITOR, COAUTHOR OF "BREITBART"
BUSINESS DIGEST.
JOE LAVORGNA, FORMER WHITE HOUSE
CHIEF NATIONAL ECONOMIC COUNCIL
ECONOMIST AND NOW CHIEF
ECONOMIST AT SMBC.
AS A FORMER NEC ECONOMIST JUST
WANT TO SAY AFTER MY RIFF AND,
WHEN TRUMP TALKS POLICY CONTENT
PEOPLE LOVE IT.
WHEN HE TALKS TRASH PEOPLE HATE
IT.
I GET THAT BUT WHEN HE TALKS
POLICY PEOPLE LOVE IT.
YOU WERE THERE.
YOU HELP THE FORMULATE THAT.
>> HE DOES BUT I GUESS MY
RESPONSE, LARRY IS, IT IS HARD
TO DIVORCE THE POLICY FROM THE
PERSONALITY.
IT IS GOING TO TAKE A TOUGH,
AGGRESSIVE NO, NONSENSE LET’S
MAKE A DEAL PERSONALITY TO GET
SOME OF THOSE POLICIES DONE.
I HEAR YOUR POINT, THERE IS
ROUGHNESS AROUND THE EDGES, THAT
IS THE WAY IT IS.
LARRY: I DON’T WANT TO GO TOO
TEACH.
WE’LL COVER THE ANNOUNCEMENT
THING LATER ON IN THE SHOW SINCE
YOU WERE THERE.
JOHN, AM I WRONG THOUGH, ON THE
POLICY ACHIEVEMENTS?
YOU CAN’T TAKE THAT AWAY FROM
HIM.
YOU CANNOT TAKE THAT, EVEN HIS
BIGGEST DETRACTORS.
>> 2 WAS BRILLIANTED.
THE WAY THE ECONOMY LOOKED IN
2019 AFTER TWO 1/2 YEARS OF
TRUMP BEFORE WE FELL INTO THE
PANDEMIC, IT WAS THE STRONGEST
U.S. ECONOMY THAT I CAN REMEMBER
YOU KNOW, IN A GENERATION
BASICALLY.
SO WE, IF WE CAN GET BACK THERE,
THAT WOULD BE A REALLY,
REALLY --
LARRY: JOE BIDEN SAYS HE
INHERITED A ECONOMY IN RUINS,
TWO TRILLION DOLLAR SPENDING
PACKAGE WOULD TRIGGER INFLATION.
SERIOUS POINT, IN RUINS.
THAT IS ABSOLUTE FRAUDULENT LIE.
>> IT WAS A TERRIBLE LIE.
AS I, AS I MENTIONED BEFORE, IT
IS THE LIE THAT CAUSED
INFLATION.
IF THEY COULD HAVE ADMITTED
ECONOMY WAS ALREADY ON
RECOVERING, THEN WE WOULDN’T
HAVE HAD TO PASS $2 TRILLION OF
SPENDING AND WE WOULDN’T HAVE
HAD, WE WOULD HAVE HAD
INFLATION, DON’T GET ME WRONG.
WE WERE COMING OUT OF LOCKDOWNS,
WE WOULD HAVE SOME INFLATION BUT
WOULDN’T HAVE BEEN LOOKING AT
EIGHT, NINE, 10% INFLATION.
LARRY: JOHN CARNEY, SBF, IS THIS
GUY GOING TO JAIL?
WHAT IS GOING TO HAPPEN TO HIM?
BECAUSE THIS IS AN UGLY STORY.
EVERYONE IS TALKING, GOSSIPPING
ABOUT IT.
I DON’T WANT TO GET TOO DEEP
INTO IT BUT HIS EXCHANGE HAS
GONE DOWN.
HE LOST HIS FORTUNE.
IS HE GOING TO JAIL?
>> I DO BELIEVE HE IS.
WE STILL HAVE A LOT TO LEARN BUT
HE LOST A LOT OF MONEY AND HE
WAS APPARENTLY TRANSFERRING
CUSTOMERS FUNDS INTO A HEDGE
FUND THAT HE MANAGED.
WE DON’T KNOW WHAT HAPPENED, HOW
DID THEY LOSE ALL OF THAT MONEY?
THE EXCHANGE, FTX IS STUFFED
WITH ITS OWN CURRENCY, ITS OWN
COINS THAT IT CREATES OUT OF
THIN AIR.
SO WHERE DID THE CLIENT MONEY
GO?
WAS IT EVER REALLY THERE?
REMEMBER UNDER BERNIE MADOFF A
LOT OF PEOPLE THOUGHT THEY LOST
MORE THAN THEY REALLY DID
BECAUSE HE HAD LIED TO THEM WHAT
THE RETURNS WERE.
I SUSPECT WE MAY DISCOVER
SOMETHING LIKE THAT HERE, THAT
HE NEVER REALLY DID HAVE
$16 BILLION OF CUSTOMER MONEY.
THAT HE HAD HALF OF THAT, A
QUARTER OF THAT BUT IT GOT
INFLATED BY HIM EXAGGERATING THE
RETURNS OR STUFFING THEM.
AGAIN I DON’T KNOW THIS.
WE’RE STILL FINDING STUFF OUT.
I SUSPECT WE’LL BE TALKING ABOUT
THIS FOR SEVERAL MORE WEEKS,
MAYBE YEARS.
LARRY: JOE, WHAT’S INTERESTING
ABOUT THIS STORY OR ONE PART OF
THE INTERESTING STORY IS THE
U.S. BANKING SYSTEM IS DOING
JUST FINE.
PLENTY OF CAPITAL.
NO CRASH.
THIS IS NOT 2008, AT LEAST NOT
YET.
>> YEAH IT IS.
THE PROBLEM OF COURSE WITH ALL
OF THIS IS YOU HAVE FREE MONEY
FOR SUCH A LONG PERIOD OF TIME
AT ZERO RATES BASICALLY, PEOPLE
WILL DO REALLY DUMB THINGS AND
ALSO FRAUDULENT THINGS.
INTERESTING CRYPTOCURRENCIES
THEMSELVES, SOME SUCH AS
BITCOIN, ETHEREUM HAVE BEEN
PRETTY SOLID.
THE PROBLEM HAS BEEN THE
EXCHANGES.
UNFORTUNATELY CRYPTO IS GETTING
PAINTED WITH A BROAD BRUSH, AND
BEING NEGATIVELY PORTRAYED.
BUT ACTUALLY THE EXCHANGES.
THIS PERSON SET THIS ENTITY UP
WITH NO REGULATION AND NO
OVERSIGHT WHATSOEVER.
REALLY REMARKABLE.
LARRY: WE’LL NEED SOME KIND OF
GUARD RATES HERE.
>> HARD COIN BITCOIN PEOPLE SAY
THIS PROVES THAT YOU SHOULD USE
BITCOIN AND NOT THE EXCHANGES.
THEY SAY THE PROBLEM IS REALLY
THE ECOSYSTEM THAT WAS BUILT UP
AROUND CRYPTOCURRENCY AND NOT
THE CRYPTOCURRENCY.
IF YOU KEEP IT ON YOUR HARD
DRIVE, THEN IT’S SAFE.
THE PROBLEM WAS EVERYBODY PUT IT
INTO THE EXCHANGES BECAUSE THAT
WAS VERY CONVENIENT.
WE’RE NOW LEARNING THAT, WITHOUT
ANY REGULATION THAT’S A
DISASTER.
>> THAT IS A GREAT POINT, JOHN.
LARRY: COINBASE IS AN EXCHANGE.
IT IS STILL AFLOAT, RIGHT OR AM
I WRONG?
>> NO, IT IS.
LARRY: AND IS THERE A PROBLEM
THERE?
>> THAT I DON’T KNOW.
>> I WILL SAY THAT THEY HAVE
BECAUSE THEY’RE A
PUBLICLY-TRADED U.S. COMPANY
THEY HAVE, THERE IS A LOT MORE
SCRUTINY IN WHAT THEY’RE DOING.
THESE OFFSHORE EXCHANGES ARE
REALLY A BIG PROBLEM BECAUSE
THEY DON’T KNOW THE REGULAR
REGIME THEY OPERATE UNDER AT ALL
AND AS WE’RE SEEING, THE
PUBLISHED BALANCE SHEET THAT
SAM BANKMAN FRIED WAS GOING
AROUND SHOWING TO INVESTORS TO
TRY TO RAISE MORE MONEY LOOKED
LIKE IT COULD HAVE WRITTEN IN
CRAYON T MADE NO SENSE.
IT WAS NOT THE BALANCE SHEET
AFTER SOPHISTICATED FINANCIAL
INSTITUTION BY ANY MEANS.
LARRY: GARY GENSLER, WILL FORCE
THEM TO TAKE ALL THE MONEY FROM
THE EXCHANGE TO PUT IT INTO THE
GREEN NEW DEAL THAT IS THE SEC
DOES.
EVERYTHING THEY DO IS THE GREEN
NEW DEAL EVEN THOUGH THEY DON’T
WITH ONE GREEN EXPERT ON THEIR
STARVE.
JOE LAVORGNA IS INFLATION DEAD?
12 MONTHS UP 8%, LAST THREE
MONTHS ONLY 1.7% AT AN ANNUAL
RATE.
IF YOU TAKE OUT FOOD AND ENERGY,
NOT THAT YOU SHOULD, STILL UP
ONLY 2.6%.
IS INFLATION DEAD?
>> NO IT’S NOT DEAD LARRY, NOT
DEAD AND PARTY YET.
YOU KNOW I’M VERY NEGATIVE ON
THE ECONOMY FOR A VARIETY OF
REASONS.
THE YIELD CURVE IS IN PARTICULAR
SIGNALING FOR A WHILE THERE WILL
BE A RECESSION.
TYPICAL WHEN YOU HAVE RECESSIONS
PRICE TRENDS TEND TO WEAKEN SO I
BELIEVE THAT TO BE THE CASE.
THE QUESTION WHEN THE FED DOES
EASE WILL THEY OVEREASE, IF THEY
RESTART QE HOW MUCH WILL IT BE?
INFLATION IS GOING TO SLOW.
THAT IS WHY THE HE CAN COMMIT
MARKET WAS UP, BOND MARKET
RALLIED AND BOND MARKET TAKING
OUT FED TIGHTENING.
WE HAVE 50 BASIS POINTS OF
EASING PRICED INTO THE CURVE
LATE NEXT YEAR.
THE DOLLAR I KNOW YOU WATCH THE
DOLLAR CLOSELY, IT HAS BEEN
SOFT.
LARRY: IT HAS BEEN SOFT.
COMMODITY PRICES STARTING TO
PICK UP.
FED BETTER BE CAREFUL THEY MOVE
TOO FAST, 1970S REPLAY.
>> THEY’RE WORRIED ABOUT THAT
THAT IS WHY THEY HAVE BEEN SO
HAWKISH.
LARRY: I SAW CHRIS WALLER,
FEDERAL RESERVE GOVERNOR, SMART
GUY FROM THE ST. LOUIS FED, PAL
OF JIM BULLARD, WE HAVE TO SEE
MUCH MORE EVIDENCE OF INFLATION
WANING.
I THINK WALLER IS CORRECT.
>> THAT’S RIGHT.
THE MARKET GOT AHEAD OF ITSELF
LAST WEEK WHEN THEY THREW A HUGE
PARTY WHEN THEY LOOKED AT THE
CPI REPORT.
THEY DID THAT WITH THE PPI
REPORT TODAY BUT BACKED OFF.
THEY GOT THE FED PEOPLE SAYING
ONE MONTH ISN’T A TREND.
WE NEED TO SEE INFLATION COMING
DOWN.
THIS WAS A GOOD PPI NUMBER.
0.2% IS AROUND WHERE WE AVERAGED
IN THE YEARS BEFORE THE
PANDEMIC.
IF WE KEEP IT THERE THAT WOULD
BE GOOD BUT THERE, AGAIN WE’VE
HAD HEAD FAKE.
WE HAD A FEW OF THEM THIS YEAR
ALREADY WHERE INFLATION CAME
DOWN AND IT WENT RIGHT BACK UP.
WE NEED TO SEE WAS OCTOBER WEAK
OR IS THAT WEAKNESS GOING TO
CARRY THREW THROUGH INTO
NOVEMBER AND DECEMBER.
LARRY: I DIDN’T THINK, CRYPTO
CRASH HADN’T AFFECTED STOCK
MARKET OR HADN’T AFFECTED BOND
MARKET.
WHO DID IT AFFECT?
IT AFFECTED PEOPLE WHO WERE
INVESTORS BESIDES THIS GUY?
IT HASN’T AFFECTED ANYTHING.
>> MY UNDERSTANDING, JOHN COULD
CORRECT ME BUT I’M HEARING IN
THE CRYPTO SPACE BROADLY
SPEAKING INCLUDING THE
CURRENCIES WE LOST ABOUT TWO
TRILLION IN WEALTH.
OVERLAY THAT WITH THE FED FLOW
OF FUNDS DATA THROUGH THE
SECOND QUARTER, WE DON’T HAVE Q3
NUMBERS, IT IS ABOUT 6 TRILLION.
WE PROBABLY LOST THIS YEAR
SOMEWHERE AT LEAST 8 TO
10 TRILLION LET’S SAY ON
AVERAGE.
THAT IS A HUGE NUMBER, TOTAL
ASSETS, TOTAL HOUSEHOLD --
LARRY: CONSUMER NET WORTH.
>> CONSUMER NET WORTH, STOCKS,
BONDS EVERYTHING.
>> EVERYTHING.
LARRY: HOUSING.
>> THAT TO ME, LARRY, THAT GETS
ME CONCERNED THAT, THAT AGAIN
THE ECONOMY HAS GOT A LOT OF
HEADWIND THAT IS IT IS FACING.
REGULATORY BACKDROP MAY NOT BE
AS BAD BECAUSE OF DIVIDED
CONGRESS BUT IT IS NOT GOING
AWAY.
THAT MAKES ME NEGATIVE FOR 23.
LARRY: YOU NEED GROWTH POLICIES.
BUT JOHN, I DON’T WANT, WITH
GREAT TREPIDATION AND FEAR AND
LOATHING I RAISE THIS POINT,
SOMETIMES M2 IS AN INTERESTING
USEFUL INDICATOR, NOT ALWAYS.
IN THE HEYDAY OF MILTON FRIEDMAN
MONETARISM REALLY THE ’50s,
’60s, ’70s, A LITTLE BIT OF
THE0’S, PAUL VOLCKER USED IT FOR
A WHILE BUT YOU HAVE TO WEIGH IN
HERE, GROWTH OF M2 MONEY SUPPLY
GOT TO 30% YEAR ON YEAR IN EARLY
’21 AND NOW IT HAS FALLEN, I’M
SORRY WE DON’T HAVE A CHART.
WE’LL GET A CHART AND PUT IT UP
TOMORROW.
NOW IT HAS DROPPED, I THINK THE
YEAR TO YEAR CHANGE HAS ACTUALLY
GONE NEGATIVE.
YOU’VE GONE FROM PLUS 30 TO
MINUS SOMETHING, ONE OR 2%.
NOW, YOU KNOW, MILTON FRIEDMAN
WOULD ARGUE THAT IS NOT ONLY
GOING TO CONNER INFLATION PUT IT
WILL GIVE US A DEEP RECESSION.
NOBODY REALLY TALKS ABOUT IT.
A FEW PEOPLE TALK ABOUT IT.
ED HYMAN TALKS ABOUT M2 TO BE
SURE.
DOES IT MEAN ANYTHING?
SHOULD PEOPLE THINK ABOUT THIS?
BECAUSE IF IT WORKS THE WAY IT
USED TO WORK YOU HAVE A NASTY
RECESSION AND PROBABLY HAVE A
NASTY STOCK MARKET DECLINES
ALSO.
>> I THINK WE’RE RISKING A VERY
NASTY RECESSION NEXT YEAR.
I THINK THE FED VERY WELL COULD
BE BACKED OUT OF WHERE THEY
WANTED TO GO.
THEY WANTED TO KEEP RAISING AND
KEEP RATES AT WHATEVER THEIR
TERMINAL RATE WILL BE, NOBODY
KNOWS.
BUT THEY WANTED TO KEEP IT THERE
ALL THROUGH NEXT YEAR.
THEY’RE GOING TO FACE IMMENSE
PRESSURE BECAUSE I DO THINK THIS
MONETARY CONTRACTION IS GOING TO
WEIGH ON THE ECONOMY AND, WE’RE
ALSO GOING TO SEE MORE RIPPLE
EFFECTS.
YOU SAY WE HADN’T SEEN A LOT OF
RIPPLE EFFECTS FROM THE CRASH OF
FTX, MORE OF THESE EXCHANGES ARE
VERY LIKELY, IF NOT TO GO UNDER,
TO FACE IMMENSE PRESSURE BECAUSE
PEOPLE ARE WITHDRAWING FROM
THEM.
THEY DON’T, THEY DON’T KNOW WHAT
THE RISK IS.
AND WE’VE SEEN THIS BEFORE.
IT’S A CLASSIC FINANCIAL PANIC.
PEOPLE PULL THEIR MONEY OUT.
SO WE’RE GOING TO, FTX, ONE OF
THE BIGGEST COLLAPSES.
SOME OF THE SMALLER ONES ARE
PROBABLY ALSO IN TROUBLE.
LARRY: I CAN’T WAIT.
JOE, I KNOW YOU DON’T LIKE M2
BUT DO YOU THINK IT SHOULD BE
IGNORED?
>> I DON’T DISLIKE M2.
LARRY: IT IS NOT PERSONAL.
IT IS NOT PERSONAL.
I MEAN YOU LIKE M2.
>> I LIKE M2 NOW BECAUSE IT IS
CONSISTENT WITH MY STORY.
LARRY: [LAUGHTER].
ED HYMAN TALKS A LOT ABOUT THIS,
AND HE IS A VERY.
LARRY: VERY SMART GUIDE.
YOU LOOK AT THE CHART.
IT GOES WAY UP.
A YEAR OR TWO LATER, SO DOES
INFLATION.
NOW IT HAS BEEN CRASHING WAY
DOWN.
>> THE GROWTH RATE HAS SLOWED
TRAMATICALLY, LARRY THIS TIES
INTO THE NOTION THERE MAY NOT BE
AS MUCH AS EXCESS BANK SAVINGS
PEOPLE THINK.
THE GROWTH OF SAVINGS HAS
SLOWED.
WE SEE THE SAVINGS RATE, ONLY
3.1%.
AGAIN WHEN THE SAVINGS RATE IS
THAT LOW, YOU HAVE GOT THESE
NEGATIVE WEALTH EFFECTS COMING
FROM CRYPTO AND STOCKS AND BONDS
AND HOUSING, YOU HAVE TO ASSUME
AT SOME POINT OR AT LEAST I AM,
HOUSEHOLDS WILL HAVE TO REBUILD
THOSE SAVINGS.
THEY WILL EARN INTEREST ON IT
BECAUSE RATES ARE HIGHER AND
REBUILD THOSE SAVINGS.
TYPICALLY THAT IS BAD FOR
CONSUMPTION AND BY DEFAULT GDP.
LARRY: HYMAN REPORTS BANK
DEPOSITS ARE SHRINKING.
>> THERE WILL NOT BE FISCAL
RESCUE NEXT YEAR.
WHEN THE ECONOMY GOES UNDER.
WE HAVE DIVIDED GOVERNMENT.
REPUBLICANS WILL NOT COME IN.