Sam, give us a sense of the economy overall domestically and globally, where
are we where we're headed? Well, I first of all, if I knew I'd be
rich. But my sense is that
we're headed toward a recession. You know, the I mean, if you think about
the fact that in the last four years we've added seven or eight trillion
dollars to our debt. Think about the fact that, you know,
until just recently, Congress
appropriated money in billions. When the word trillions didn't exist,
but people got crazy. And in May, in effect, over infected the
world with way too much liquidity. And that and the Fed was asleep at the
switch. And the result is that we've got a price
to pay. Are those days gone, at least for the
time being? I mean, it was one thing to borrow all
that money when their interest rates were essentially zero or close to zero.
They're not there anymore. They're probably going upside.
But the debt didn't go away. I mean, the debt that was created at
zero is now at three. And probably by the end of the year,
it's going to be four and a half. So the idea that this was some short
term's phenomena, I mean, we've created, you know,
in my opinion, a huge burden that I don't know how the United States
is going to deal with going forward, because when we were paying, you know,
under 2 percent for money, you could borrow a lot of money.
Now you're paying over 4 percent for the same amount of money.
That doesn't go away. Is that going to constrain?
Do you think, Congress in its ability to borrow that money?
For sure. I mean, take a look at what happened.
The UK. Yeah, I mean, where they sort of borrow
a lot of money. It didn't work out so well.
We going gonna have some of those constraints on fiscal spending here.
I don't see how we can avoid it. Anna Edwards mean, each you know, it's
you we're dealing with a crisis in the fiat currency world.
I mean, ever since Bretton Woods, the whole idea was create stability in the
currency markets. And to a large extent, we've done that.
And then Covid came and we lost all of our discipline and the net effect of
which is that we've created, you know, staggering new obligations that are
going to have to be paid for in the future.
Part of it is being paid for with very significant inflation.
I mean, you know, nobody really remembers Mr.
Volcker. I am old enough that I was here when
interest rates were twenty one and a half percent.
And Volcker said, we've got to do this till we kill it.
And now all of a sudden, for the first time since 1981, we're dealing with
double digit inflation. And it's extraordinarily deleterious.
My first mortgage was, I think, 15 or 16 percent.
So I was that age as well. I remember those days.
I mean, we did a conversion of a condominium conversion where the the the
buyers were getting the loans at 17 and a quarter.
Exactly. So so is the Fed policy working at
getting that inflation under control, in your opinion?
I hope so, but I'm not impressed. If anything, I think the Fed has been,
despite the fact that a lot of people think the Fed has been very aggressive.
I think the Fed has been not so aggressive.
If it had been my call beyond being asleep at the switch, once
they woke up, I would have been increasing depth requirements by one or
more. I mean, I mean, one of the things that I
think nobody really understood is when when debt goes from zero to.
Not a lot happens when it goes from two to zero.
Not a lot happens. And that and in effect, so.
So the first 200 basis points of increase over 0 has relatively little
impact on the overall economy. It's when interest rates start to go
from four to five, etc. that you really see an impact.
So what is the pain level that we're going to experience in order to get
inflation under control? The Fed has said there's going to be
pain. What's going to look like?
What's going to look like an unemployment?
What's it going to look like in business failings?
Well, it's not like a default. Well, I think it starts with the fact
that we've never really had a significant recession without a credit,
without a liquidity crisis. And, you know, the Fed's been buying 80
billion dollars worth of debt a month. And now the Fed is going to stop buying
80 billion a month, maybe not the first month, but in a couple of months.
That's that's changed the game. And it's a liquidity crisis that
ultimately forces a difference in behavior.
Again, go back to the UK. We saw it with the pensions and
derivatives they had for some launch or obligations.
It often comes up where you least expected Long-Term Capital Management,
for example. Where would you be looking right now if
you were the Fed to try to find the crack points in the financial system?
Well, I'm continuing to be worried about not just over.
You know, the fact that there is ultimately, you know, unlimited demand
for U.S. debt.
I don't believe that in the same manner. You know, when I when I look at what's
going on out there, I'm very worried about the reserve currency and the and
the privilege that gives the United States and the flexibility gives the
United States. And if we lose that stature and we've
seen stuff where, you know, Russia and China are trading in either rubles or
wine or Saudi Arabia is talking about selling oil for one, if we lose control
of the reserve currency status, you're talking about a significant hit to our
standard of living. I mean, to some extent, 10 percent
inflation is the first step toward deteriorating our standard of living.
But it's really the ability to issue debt stability, you know, to be able to
generate demand for our product because we are the reserve currency.
It gives us an enormous advantage over the rest of the world.
I touch every dollar recently and asked about the strength of the dollar.
So it's not the dollar so good as to sell all the other fiat currencies.
Terrible. That's right.
So how what kind of jeopardy is that? Put the dollar in if somebody actually
figures out a way to do it a little better.
Oh, I think that I think the dollar is and is in great jeopardy, and and that's
what I've been worried about, frankly, more than anything else, and that we
need to we need to we need discipline and that and it starts in Washington,
D.C., where there has been very little. So let's talk about what it is exactly.
Mean we're in for a rough patch. I think we all agree that.
The question is how long is the patch and how deep is the problem?
Right. What policies in Washington could they
do or stop doing that might make it better.
We have midterm elections coming up. Yeah, well, I think that I think that
midterm elections are going to end up looking a lot more like what everybody
expected. Initially, Anna Edwards, we've had this
scenario where, you know, six or eight months ago, everybody talked about a red
wave and then about four months ago, the
newspapers in their unbiased fashion. All of a sudden they started talking
about the fact that the red wave wasn't going to happen and there was going to
be the blue wave. And not none of the facts suggested that
the blue wave would happen. The only thing that suggested it was
what the newspapers wrote. And then the newspapers found themselves
in this conflict where the underlying reality said
if the people are very worried about inflation, they're very worried about
the economy. What did Bill Clinton say?
It's the economy, stupid. That hasn't changed.
A lot of people thought that Roe versus Wade was going to be the
significant crunch point. People are concerned about abortion.
They're concerned about a lot of social issues.
But that assumes that they could be concerned with a full belly.
And and I think what we know, what we're you know well, we're moving toward is a
challenge to that to that reality. So, Sam, as a significant and very
successful investor, do you sort of want the Hippocratic approach to Washington
that is is a first do no harm? I mean, there's a split government
actually benefit the investor. Anything they do that generates
discipline benefits the investor. To the extent that discipline
disappears, I mean, look look what they did with Joe Manchin.
You know, Manchin made a dumb, dumb move.
He agreed to something before he in the quid pro quo for something else, except
he gave them what they wanted before they gave him back what he wanted.
And he got hung out to dry. That's not discipline.
And that Bill is you know, they call it that, any inflation fighter.
All it did was add more, more wood to the fire.