Someone I genuinely deeply respect and
absolutely love talking to Naomi Prince is here.
Naomi Prince is a former partner with Goldman Sachs, who actually quit her
career on Wall Street to become a journalist and a bit of a whistleblower.
She's the author of several incredible books,
including all the Presidents Bankers and Collusion, how the central bankers or
how the central banks rigged the World.
She also has an upcoming book that I'm looking forward to reading permanent
distortion, how financial markets abandoned the real economy forever.
Naomi, thank you so much for joining us.
>> Thank you so much, Anna it's great to see you again.
>> It's so good to see you.
I know you've been busy working on your latest book, very excited.
It's coming out October 11th of 2022.
So I'm very excited to read that.
And you recently testified before the Senate Budget Committee.
And I want to hear more about that because you were specifically talking
about something that's been catching everyone's attention.
Which is private equity firms, the amount of power they have, and
more importantly, the impact they've had on the housing market.
So talk to me a little bit about what you've been noticing with these private
equity firms and the type of impact they've had on both the economy and
the day to day lives of ordinary Americans.
>> Yeah, so the testimony I gave connected what private activities we're doing
with companies like Blackrock, which basically, own so many assets.
So much of people's money and also work with private equity firms to basically
buy up all sorts of things that components of companies of course through stock,
as well as components of the housing market.
As we've seen, housing prices have gone crazy high in the last couple of years,
and often a lot of these houses are not bought by actual real people applying for
actual real mortgages.
They're bought up by sort of consortium of private equity companies
that are components and
funded by some of the assets of management companies like Blackrock.
To effectively bid up and buy up with leveraged money,
because money is so cheap and so easily available to these companies.
Housing, projects,
homes without even going into them without even potentially living in them.
And that's increased the price for real people and
actually kept them out of markets and and basically being able to buy homes for
themselves and their families.
It's also made rents go sky high because they're basically cornering
a portion of the housing market without actually using it.
In which case they can go about and raise rent sky high,
which then increase the rents around those particular buys.
So, it's an incredibly knock on and circular effect.
It's, fed by cheap money, it's leveraged and
it's a really partnership between the private equity firms doing it and
the large asset management companies that can work with them.
>> So we've talked about this on the show before, but
I want to back up a little bit for anyone who might not be familiar with this story.
I think it's really important to understand how the system works.
So when you mention cheap money, talk to me a little bit about what that means,
where do they get the cheap money from?
And also what does it mean to be leveraged?
What does leveraged money mean?
>> So leverage is like borrowing way more times than you need in
order to make basically bets.
It's the equivalent of like, you go into say a casino and
you've got $10 in your pocket and you asked 10 other people for $100 in total.
But you promised each of them you can pay them back with 10 in case you lose all
that money, but you only have 10.
So that's the leverage of basically 10 to 1.
The reason I talk about cheap money.
And how these firms and particularly big banks and
big asset managers can basically borrow money and leverage it in this way multiple
times against whatever they are buying is because rates have been so very low.
Now, of course in the news,
there's all this talk about how the Fed is gonna raise rates to fight inflation even
though it didn't even notice inflation was a thing until everybody else did.
And they did raise rates by 25 basis points a quarter of 1% in March.
But the point being that we are still in an environment where the cost of money,
particularly to the financial industry and Wall Street is very, very cheap.
They don't pay what real people pay for
mortgages, they don't pay what real people pay for interest rates on credit cards,
they have access to money very, very cheaply.
And they sort of dole it out to each other and in that way they can create a lot of
money out of nothing based on it being cheaply available.
And real ordinary people cannot.
And what that does is it inflates the price of everything more than it would
otherwise be inflated, which again hurts ordinary people on a one to one basis
because real people don't leverage their lives in that way.
>> Exactly.
And I mean, when inflation started, and you're absolutely right,
the Federal Reserve kept repeating that, it was just transitory, its temporary.
Don't worry, it's because of supply chain disruptions,
didn't wanna take responsibility for its role in inflation.
But talk a little bit about how, you've been writing and
speaking quite a bit about quantitative easing.
And so that has played a role in the inflation that we're experiencing,
certainly in the housing market and
now all of a sudden we're hearing about rising interest rates.
Can you talk a little bit about why the Federal Reserve felt the need to provide,
as they say, liquidity to big banks, into financial markets.
What was the reasoning or excuse that they gave to the American people?
Yeah, that's an excellent question, quantitative easing.
Just to break the words down is just a wonky way of saying,
making money cheap for the big players in the markets.
But basically it was done in two main chunks.
One was after the financial crisis of 2008 where the Fed came in and
basically cut interest rates to zero again, mostly,
that 0% availability was to the big banks and Wall Street.
What they also did was bought about $4.5 trillion worth of bonds,
of treasury bonds and mortgage bonds from the market through the fabrication of
effectively cheap or just created money.
It wasn't money that was produced,
it wasn't money that was connected to the real economy.
So that was one way of, of inflating the type of money
that was available at a cheap level to the system, right?
And then the second time they went and did this, the excuse was, well,
we just had a pandemic.
It was in the beginning of 2020, let's just like blow up our balance sheet.
I create another $4.5 trillion.
So double in a much shorter period of time.
What it had created in the wake of the financial crisis in order to quote
extensively, helped the economy.
Now the reality is that the money was not all available to the real
economy did not go into building the real economy.
A teeny teeny bit of it around the edges did go into some of the programs that did
help people in small businesses survive during the worst parts of
the pandemic enclosures.
But it was very, very tiny compared to this, this leverage and
this backing to debt and to the types of money that went to Wall Street and
ultimately went into the stock markets.
And so this was all under the guise of quantitative easing or
basically not just reducing interest rates.
But creating money in order to buy debt and
take it out of the market and let market players use that
money to basically leverage themselves and speculate.
>> The thing that kinda confuses me about this is, as you mentioned after 2008,
after that economic collapse,
you really see the Federal Reserve engage in this behavior with quantitative easing.
And up until now there hadn't really been much inflation.
What triggered the inflation that we're experiencing at this moment?
Like why did it all just kind of hit us at once?
>> Yeah, it's a really good question and it's important just to step back and
look at this whole distortion or what I call permanent distortion.
Now between the markets and that availability of this excess abundance of
cheap money relative to the real economy.
What happened was two things.
When the Fed created money effectively cheaply and
that money went into a lot of the financial markets.
It inflated something called the money supply, basically money supply is
what people buy and sell the money, they use bank accounts etcetera.
But it's also the reserves that are at the Federal Reserve that banks
effectively give the Fed their debt their assets and
the Fed gives them money no strings attached.
And they can use that money to do other things with.
That creates an inflation of money.
This bubble of money now separately to that, we had real problems in right
now what we're seeing in oil and commodities and food and supply chains.
And that was another side of inflation that was happening in the real economy.
So what you had was two things going on and this is why the numbers have gotten so
bad and why CPI was at 8.5% in the last reading.
Because the real economy is dealing with two things.
It's dealing with supply chain, like real economic problems,
real transportation problems, real excess costs of everything from putting gas in
your car to getting products from one country to another to your supermarket.
So there's a lot of things going on in terms of supply chains and and
that's a whole other detailed topic but that's the generality of it.
But in addition what's happening is this excess money is finding these
types of assets.
It's finding oil, it's finding some of the food and it's basically going in and
betting on it in a way that exacerbates the inflation that's real.
>> Mhm.
>> That is created because of supply chains and because of the demand for
certain products that came out of the awakening of the economy after
the pandemic.
So there's two levels of this inflation, and both of them have been inflated
to use inflation twice by this excess money won by speculation.
And one by the fact that it's been so cheap and
that's been exacerbated by by the supply chains and now it's a bigger thing.
And the Fed, as you mentioned before,
has just literally not recognized its role in inflating this
abundance of money that's available to the biggest market players.
While real inflation, the real economy is trying to scrounge to find products and
get products from A to B and pay for it.
And so both of those two things are going on at the same time,
which is why we're hearing and talking about it so much more now.
>> So the Federal Reserve is now slowly increasing interest rates.
But, I heard a prediction of yours recently during an interview that you had,
and I think that your prediction is accurate.
You claim that, listen, I mean,
they're gonna maybe raise interest rates to maybe three times.
But as soon as they notice the impact that it's having on the stock market for
instance, they're probably gonna go back to the same old same old.
Why do you think that's the case?
And what kind of impact do you think that's gonna have in the long term?
So I think it's the case that the Fed talks kind of about,
a hawkish kinda stance and and there's been a lot of predictions in
the general market that take that at face value.
Which is that we're gonna have six or
seven increases that the Fed is gonna really reduce its book,
this this almost $9 trillion dollars of money it's created quite quickly.
And that this is gonna be some way of stabilizing what is a combination of all
this money that's really gone into inflating the markets as well as the real
inflation that's happening in the overall economy.
The reality is the Fed watches markets and it has a dual mandate and and
I say this a lot and
it just continues to just be obvious from the events that ultimately take place.
Which is that it's supposed to mandate price stability and
that's why it talks about inflation and
has a 2% band that it tries to target obviously, or way above that.
So, not did that really well.
And then also it's supposed to have a full employment target, right?
And we're a bit closer to that with some of the jobs coming back, but
of course, a lot of people not choosing to work in this particular
economy because of a host of other reasons.
So anyway, that's the actual official mandate, that dual mandate.
The third thing that I think they focus on are the markets.
Now, if you look at just one little example,
which is Federal Reserve chairman, Jerome Powell, he has a lot of his own money.
It depends the estimates put it anywhere between 25 an 60 million dollars depending
on what's going on with the markets where it is,
etcetera with companies like Blackrock.
Who also was given basically a no bid opportunity to manage the Feds book, which
is effectively this quantitative easing money that was fabricated out of nowhere.
So, because there's a lot of synergy between the people that run
the Fed Congress that owns a lot of the stock market.
That the companies that they choose to basically manage some of this money
on behalf of themselves.
And the market itself and Wall Street throw all that together.
And the Fed doesn't really have a strong impetus to just mess all that up by
making the cost of money really, really high.
And this has been what we've seen since the financial crisis of 2008.
They will raise rates a little bit.
They'll usually say they're gonna raise rates are forecast,
they're gonna raise rates by more than they actually do.
So they've got some room to kinda step back and look at quote the data.
What's the data?
Well, the economy is gonna slow down because inflation so
high and people don't have all this excess money that some of the Wall Street players
having like their real life.
Because we have a war going on in the Ukraine because we have incredible
inflation around the world because we have more disruptions in supply chains now
in China.
With another bout of closures because all these reasons that effectively are going
to create a situation where it's gonna be obvious that the economy is not
growing as fast as some of those inflation numbers saying.
The Fed is going to be able to say, look,
we've got all these other reasons not to do as much as we were going to do.
We're just gonna keep things as close to what they are as possible.
We'll raise rates a bit.
I mean, it's not like they're gonna stop they're still gonna raise rates,
I think in in May and maybe another time throughout the year, but
they're gonna pedal back a lot from this sort of forecast that, that they promoted.
>> Yeah, I mean,
you touched on, I think the most important element to this entire system.
Which is the conflict of interest where you have the head of the Federal Reserve,
personally invested in the market to the tune of tens of millions of dollars.
And so if increasing interest rates is gonna have an impact on his stock
portfolio, is that going to inform his decision making?
I would venture to say yes.