Welcome to Moving Iron with Casey Seymour and Greg Peterson. The podcast for anyone and everyone involved and interested in the business of ag equipment. If you want to understand what trends and market forces are impacting the price of your iron, you've come to the right place. Buckle up, it's time to move some iron. Hello and welcome to Moving Iron Podcast. This edition of Moving Iron Podcast is brought to you by John Deere. I got Greg Machinery Pete Peterson on to talk about what's happening in the world of equipment. Greg, how you doing today?
I'm doing well, Casey. How are you doing?
Good, man. Doing real good. It's a... um... we were talking about a few things before we got started here, and you know, we've talked about this back and forth for a while now, but you know, there's some gaps in inventory and there's some slugs in inventory too, right? And if you look how things are going, you're starting to see some of these gaps get to be a little bit wider than they were a while back. So, for example, let's take a look at three to five-year-old equipment, that's been a hot button. You talked about in the auction space what that's looked like, and even if you go from six to ten-year-old stuff, again, even a hotter spot. That one to two-year-old stuff, you're starting to see some movement there, but not a ton. You're not seeing it just fly off the shelf by any means, but you are seeing some movement there. I guess as you...
Yeah, I think it's... so I posted a note on social media this weekend, Casey, you know, just facts, what we're seeing. And I was looking at the late-model John Deere high-horse tractors, and so for example, 8370s. The average auction price this year is up 12.3%. Which surprises people if you're not following this every day. It's like, what? Why would that be up 12.3%? And by the way, that average is 3473, just about 3474. Um, but a big part of that is how bad the last two years were, you know. So, yes, it's up 12.3%. But I mean, it took a whack, a huge drop in '24, the same drop we saw just over a decade ago in that big downturn. Um, so the supply of good used is tightening. It just is. You and I, we can look at the back end of machinerypete.com and we see the numbers. Um, this morning I had a text from a very large Deere dealer in the central US and he just came right out and said it. He said, 'We're shopping for used.' And that's the second large Deere dealer I've had tell me that in the last month. Now, is every dealer tight on used? No. But compared to 18 to 24 months ago, this is way tighter. And now you start looking at the markets. Last week, you and I have been talking about rising auction prices since June 15th is about when I saw them go up. And now with corn and beans, you know, who knows if it'll sustain the rally. I don't know. I mean, I hope so.
But it's 36 years doing this. It is unusual to see a jump in used values in June and July. It just... it is exceedingly rare, and to see it pretty sharply this year and now to have commodity prices... I mean, I don't know what stuff's going to sell for tomorrow. I'll report on it. But up to this point, when the 8370 is up 12.3%, R410s are up 1.2%, R340s are up 4.7%, R310s are up 1.7%. It is what it is. And again, I think the second half of '26 is going to be fascinating on the equipment front.
Yeah, it'll be interesting. I mean, here's what I'm paying attention to, Greg. I think as you look at the order writing period as they go through this last... basically now through the end of the year depending on the manufacturer where you're at. But if you're looking at the amount of new equipment that's going to be sold, it's going to be less than it was when you talked about that agnosis on here like we... that's not any big shot, but that's going to generate less one and two-year-old stuff to come in on trade and maybe one to three-year-old stuff come in on trade. Um, I think that's great. I think for my first time looking at this box, you know, like this is the first time the box is actually filled to its capacity and not just completely overflowing with the amount of inventory that we see.
[clears throat] As you continue to watch things move along and bounce along, what I think this does is that it opens the door to a more solid floor and a more solid fallback when something does happen, right? I think it falls back to a certain point because it comes back to supply. I don't think... by no means do I think... like you and I maybe have a little different opinion as to where we're... things like a big blow up in demand and what that might look like. I think right now we are at the perfect level of supply and perfect level of demand. Um, now some people are out there, I can already hear some dealerships out there saying like, 'Well, come take a look at my lot and tell me about supply and demand.' And my argument would be you have supply and demand in certain areas that are out of whack, right? And I think, and like I went to earlier, that one and two-year-old stuff, the high-dollar or expensive used equipment that's out there is a choke point in a lot of sales funnels. But once you get past that, that other stuff is selling quickly and it's a price point thing and all the things that are coming into play. I think the market has spoken as to what level they're willing to pay for things. And when it gets to be above...
600,000 bucks, like, you know, we talked about these Class 10, Class 11 combines out there, it's hard to find one that sold at auction that was above 625,000 or 650,000 bucks with a really low hour meter on that one, a two-year-old machine. We watched 150, 200, 300-hour machines sell for $650,000 or less. Um, whereas when you go out and look and see where the asset pricing are, those are still there. One thing that's happened with this, Greg, is that what we talked about, you and I talked about this several times. Go pick me a machine, bring it to me. Let's take a look at the auction values compared to retail value, and those numbers are down well under my 120% rule. And you're just... just the different math on the other side just to come around to the same number. But if you look at where those things are tightening up at, the combines that I've looked at on the marketplace are falling in between 113 to 115% of auction value. That's, you know, how far that is from the last time I ran those numbers a couple years ago. That's almost 35, 40% down as far as retail numbers have come down into play. I think to your point, why we're starting to see things heat up and move forward is that the retail space has caught up with the auction space and now there is parity, quote unquote, parity in those numbers. And so now if I'm looking at this, I have a... what's the benefit for me to go to auction and buy something, right? Is that juice worth the squeeze? Now those conversations start to come into play because you buy something from a dealership, there's a standard of expectations that's unwritten, right? That you see come across there. You don't see that same level of expectation in auction. Again, that's why the value is so much different. But as you're watching this parity take place, I am looking towards the end of the year as seeing a movement in some of these one and two-year-old machines that we haven't seen probably in the last two and a half, three years that are going to put those machines, I think, in a good position to be ready to move if we continue down the same path we're going as you look at where commodity prices are headed right now.
Yeah, agree. Agree. I think it's the new normal we've talked about here for months now, and I mean it is what it is. You can like or dislike these hard cash auctions. I mean, they're just what people are paying. Um, so I shared a note on Saturday. Now, this is a bit older machine, but it was a sale in Lakefield, Minnesota. Zimmerman Company Auction Realty had the sale. I think it was for Lockstep Farms was the name of the farm. And nothing spectacular on the sale, but just a nice combine, a 9670 STS. So, yeah, it's older. It's pre-DEF. It's whatever, a '09 or '10 model, something like that. 2546 engine hours, but it went for 99 and a quarter. Now, it's the third highest auction price ever on a 9670 with over 2500 engine hours. And like you said, the market is speaking. Whether it's in that older pre-DEF, it's like that's been running up, tractors and combines, skid steers, sprayers, one, two, three-year-old stuff. The market is speaking. Like you say, that $600,000 ceiling is what it is. There was an interesting comment on that post thread on social media, and I can't remember the guy's name, but he said, 'Well, welcome to Havana North, Cuba North.' And what he was talking about was...
You know, social media is what it is, but the new stuff is really expensive, a million bucks, 800,000 bucks, and that's the thing. This downturn, I mean, before corn and beans went up this last week, it had stretched on a long time, and that, like you said, the level of new equipment has been dropping, dropping, dropping, dropping, low, low, low. So, we don't have the one, two, three-year-old out there. People are just... they're voting used right now. And they're doing it at the same time when the overall supply is tightening. And yes, certain dealers have way too much, but no question the overall supply is... I mean, it's just way tighter. I look at the falling blue line across every equipment sector. And so now we're sailing into corn and beans going up.
Now again, we don't know if they're going to stick, but just like you said, the end of the year, I think you're right. I think it is that new normal. It's in more balance, right? And to me, a huge piece of it was there's fewer dealers and these dealers are huge now. And so, like we mentioned before, last year and two years ago, average auction prices stunk. Now, two years ago, that was because dealers put an avalanche of late-model stuff on the used market because they were tired of paying 8% sitting on their lot. Ain't going to do that. So all this stuff is swirled together. And again, if you're looking, whether you're on the dealer side or the farmer's side, your equipment needs, I think there's a real danger in just blindly assuming, you know, things are tough and dealers have way too much stuff. And it's like, like I say, I had two huge dealers in the last month say, 'We need more used.' Now, I can give you a zillion billion auction prices and we can talk about data points and trends and stuff, but that's pretty telling right there. Two huge dealers going, 'We don't have enough used.' So, yeah, I guess plan accordingly if you're looking to do something in the space coming in the next six months.
Yep. Yeah. I think as you look out towards the end of the year, Greg... um, I think we've hit... Go ahead. Well, I was just... because I just put it to you, Casey. So, again, we don't have a crystal ball. We don't know if corn and beans are going to stay up, but when used values, your correlation that you do with new list price to auction and the way I do it, auction to used, is showing the same thing. It's... the used values are rising. Uh, so do you think, given this situation, if corn and beans had a nice little run sustained here and we get to the end of the year, the new order... I mean, do you think... what's it going to take for farmers to go, 'I do need that new combine, I do need that new planter, I do need that new tractor,' because it's been... we've all been watching the numbers fall on the new sales side across the board. So, what changes that?
So, I think that's a good question. I think when you look at where does that... where's that fall in there, and if I get this right, Greg, you got to... and you go out and buy a bunch of corn and beans and you got to cut me in on it. But, you know, if I'm looking at this, you know, I've always said, you know, $5.50 cash corn is what you need to have, right? I think that's what you need to have to be a perfect equilibrium. You know, everybody's doing what they need to do. Um, you know, it's probably a little higher today. When I used to say that, you know, it was a different world. It's probably a little bit higher than that today. But, you know, I always go back to this, to a point in time, um, when coming out of COVID, you know, corn hit three bucks and everybody was like, 'Oh my god, the world's coming to an end.' And you kind of watch it bounce back and forth and it finally got to 375 one day and it just... like the markets went crazy. I mean, people were selling corn, selling corn, selling corn, selling corn, selling corn, and it didn't correct. It went to four and a quarter. It went to 450, so on and so forth. Kept going across the board. When I watched guys sell stuff for 375 at that time, it was whatever, 50 cents below cost. I mean, below their cost at that point. And I was like, man, why are they... you know, I mean, I know you need to sell some stuff to keep things squared away, but it wasn't just like people were selling a little bit. They were selling into that, and it moved things for us. What that taught me was the price of corn matters, but the way it moves matters more. And it's, you know, every quarter move does something crazy on the way. And so we kind of saw this a little bit ago, you know, when it went from, you know, where it was at and then kind of worked its way up to the 460s, it triggered some buying or some selling of corn and those kind of things. So, I think if things continue on the way they're at, there's a lot of stuff ahead of them that they got to get squared away first, right? There's a lot of stuff with banks and all those kind of things they got to get squared, you know, inputs, all that kind of stuff, they got to get squared away first before the equipment comes into play. And what scares me about those kind of things, that stuff settling up, how much money is left over to actually come into the equipment space and buy, right? I think there'll be, you know, equity positions and those kind of things. You can see that. I still believe... I still believe that we are going to have a good run at the end of the year, that last quarter of the year, as to what the market was going to look like and how things are going to play out. I think right now where we're at, I haven't looked at the crops today, but you know, it's like 458 or something like that. If you get that $4.75 to $5 range on the board, you know, you figure whatever basis is, and it puts you back down that 450, 475 range when you figure basis. I think that opens some doors to a lot of people saying, 'Hey, I'm going to update... maybe not my tractor, maybe not those, but I'm going to update those machines that have a lot of wear on them, like choppers, combines, you know, windrowers, those kind of things where there's a lot of moving parts, a lot of things that are ticking away that are going to give you some opportunity to see that move.' I think the tractor business and maybe the spray business a little bit maybe perks up, but some of those things like that I think are going to be pretty well baked in. You start looking at, 'I need to update my combine' or 'I'm going to spend some money on my combine this year,' those kind of things. I think that's what you see happening towards the end of the year.
I would agree. I would think that those other financial issues for farmers, maybe compared to past upturns, will be more prominent this time. So, you know, I think you're right about that. And I also think the fascinating thing psychologically for me right now is just, again, we've... I keep talking about it, but farmers... everywhere I go, I've been on the road a ton this summer and plus online every day talking to our audience. Thank you guys for following. But just the mindset, I mean, farmers are just squarely focused on used right now.
And we see the new sales have been dropping, dropping, and dropping, and we can... you know, too much or not too much, but this mindset is becoming cemented. And now we started to see this uptick in auction pricing before corn and beans went up.
Right. So I think that's every... and I've said this before, but every other time in my 36 and a half years tracking this market, when auction prices went up, sales of new went up.
Lock step. Lock step. I mean like boom, boom. Farmers had money. Some want used, some want new.
Now that was my question. It's like, what's it going to take to make new take off? And if you continue to crunch the used inventory, like you said at the top, you're not selling... there hasn't much been sold the last couple years. So, one and two-year-old stuff compared to past years, there just isn't as much of it. You know, will it take used prices going up enough where people go, 'You know what, I better buy new and get my warranty and the whole bit'? I don't know. But the rest of the year, like I say, it's just shaping up to be super, super interesting.
Yeah. You know, the new thing is always, again, kind of going back to the whole new normal thing. I mean, when I first started out doing this, it was not uncommon to have a guy buy a brand new combine, buy used tractors, or, you know, buy used combines and new tractors. Like, there was this kind of mix and match of how they went about doing that. And, you know, I mean, I don't see that right now. You're not going to see that right now. And I think as you look at where does a new buyer come into play, I have a hard time taking a look at some of these lower-end manufacturer discounts you see coming in where you can make that work comparatively to in the past. I'm going to sit here and say this. I really believe that as you look at the big market as a whole, you're going to have the very small amount of people that buy new equipment, and you're going to have a bigger chunk of people that buy some kind of a hybrid into that thing, right? Because am I going to buy one to two-year-old stuff, and I start looking at the upgrade kits and how those are going to play into my operation? Am I going to start extending out my trade cycles and those kind of things? I just look at this and I just think it's dynamically changing to where you're going to have just the supply coming back into the marketplace is going to continue to be small. I don't see, 'Hey, you know what? We're going to go out and we're going to triple the number of combines that get sold this year.' I just don't see that happening just because the cost of price and then the available buyers for those machines, right?
I agree. That's exactly what I see, and that's that new normal. And that to me is the dangerous part, especially on the farmer side, is if you weren't... I mean, if you're not paying attention to this the way you've been rolling. And so if you were a used buyer, you were that second or third buyer...
That whole funnel is changing.
And so that to me is being reflected here recently in these auction pricing. So that, for example, that 9670 Saturday, it was like two days ago, 2500 engine hours. Now, it wasn't long ago, no matter how nice it was, with 2500 engine hours, it ain't going to push 100...
It brought 99 and a quarter Saturday because that's smart. It wasn't one farmer, two bidding on it, it was a ton. Brings them in from all over the place, like all our great auction partners do, and it's harder to find them. Yeah.
And then like I say, it's just fascinating to see it play out in real time. But again, what we're talking about is a complete reordering of the new and used ecosystem and how they work together.
Yeah, you're right. Just based on the dollars, there's... we probably aren't looking at an onslaught, even if corn stays up, of farmers running out to buy a zillion billion combines.
Yep. And I think, like your point, a little bit to your point there too, that solidifies that five to, you know, your traditional auction age, that four to five to 10, 12-year-old piece of equipment, you're really driving in a super hard bottom into those things where even if it falls back, it's going to be kind of right there.
Well, again, that's why I find it interesting, you know, reporting on the space, you know, whatever, 3 million auction prices we've compiled. But again, I can sit here and tell you a bunch of 8370s. Okay, this '24 model X numbers brought X, da da da. It is interesting in aggregate to look at the average, and you know, you and I have both done this for decades now, but it's significant when you're sitting here over halfway through the year and the 8370 is up 12.3%, hard cash, write me a check today at auction. That's just again, that's the piece where, particularly on the farmer side... well, both. So the dealers, those two dealers now, they've told me, 'Hey, we're buying used inventory.' Okay, well, that's interesting to know.
And on the farmer's side, again, smart farmers are paying close attention to this because again, to sit back, you just... it's really dangerous to sit back and assume anything in a changing market, but we have rapidly changing forces at work here that are going to affect every side of this business.
For sure. And that's why you have to pay attention to data points. Those data points are all going to give you a significantly greater correction and, you know, a bigger window to look through as to what's going on around you. Because my opinion of this is, if you're still looking at equipment the same way that you're looking at it today that you were looking at it, you know, 5, 10 years ago, I think you're making a horrible mistake because it's just not the same. It's... you're just going to pay more money than you want to in a timeline when you don't want to act.
All right, Greg. Good place to stop there. Folks want to reach out to you and get you to come to their auction or do some speaking for them. Best way to do that, just hit you up in your socials. We'll go over to machinerypete.com.
Just on the website, there's a contact button there. And before we tap out, Casey, we should do a quick little shout-out for Howard Coons. Howard passed last Thursday, age 73, with Coons Equipment. Everyone knows Coons Equipment, Arthur, Illinois, Gibson City.
Tremendous dealership. So our condolences go to the Coons family, and really an amazing family there. Howard went to work for his dad when he was 15 years old. And I think you go way back, it was 1956, the story goes, Abec Coons sitting under a shade tree started making equipment for farmers, what they needed. Of course, running gears, um, then they got up and they make Easy Trail grain carts. Amazing company, but again, our thoughts and hearts are with the Coons family on Howard's passing last week.
Yeah. No, that's... sorry to hear that. I've done some work with the Coons family over the years on...
Back and forth. Yeah. Yeah, they are good people. Good people. So, well, thoughts and prayers go out to the Coons family, and we'll keep you in our thoughts, and we'll see where this goes. But Casey, I appreciate you having me on the podcast. We'll catch you again next week.
You bet. Have a good week, Casey. Thanks.
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All right, welcome back to Moving Iron Podcast. Got Rich Ponzio on here to talk about what's happening in the economy. Rich, how you doing this morning?
Good. Thank you for having me on again.
Yep. Glad to have you back, man. Rich has got a great podcast. Talks about everything that's going on in the economy, the drivers, interest rates, how the stock market's doing, those kind of things. And what Rich really does well is he matches everything to business cycles and he talks about that on his podcast. So, Rich, how do people find your podcast?
Yes. Go to criticalpoint.com. You'll find some free things unlocked and some locked things. There's a subscription, and some of these subscriptions are only $18 a month, 60-day free trial. And I put out a morning brief, a separate one that's just three grain markets and any other companies I happen to want to throw in. And then the other one is really on the stock market, interest rates, economy, but I can also get into dollar, Bitcoin, crude oil, all of that. Try to keep these as brief as possible. There's usually like a snapshot at first for five minutes, then I can talk about anything I want afterwards. And then for those who are interested in the bigger moves during a year and long-term stuff, or they just don't need to be updated every day, I have a weekly update. Now, those can be as large as 45 minutes sometimes, hopefully no longer than 30, 25. But that's where I'll get into those larger trends, long-term stuff, and then I put out alerts, warnings, signals. So they might be tied into the weekly update or morning brief, but they might be separate. So I tell people if they're not following every single day, just take a look every day. You see that word 'alert' in a title, it may mean something for you. You better get on board. Okay. But yeah, criticalpoint.com.
Okay. Right on. Check it out. It's great stuff. It's like Rich said, not too many things in life you get a 60-day free trial, so he's pretty confident you're going to like it. And check that out. Get a lot of good stuff there. All right, Rich. Let's jump over and talk about what's going on with oil right now. So, you got obviously the US-Iran war. The Strait of Hormuz is open one day, closed the next. You're seeing a big crimp on oil, but surprisingly enough, basically because of a few factors. What some countries have done when this first started and how much oil they bought, and the amount of time it takes oil to get from the Strait of Hormuz to the rest of the world, and the supply that's out there as well, we haven't really felt the crunch that we should be feeling based around this. So, as you look at the price of oil right now, Rich, you've seen some things happen here the last couple of days, but as you look at the price of oil, talk to me what you think's happening there and how you see it fitting into your economy structure.
Yeah, probably a couple weeks ago, I put out a free newsletter that you can find on the website. It's usually on the front page, but it's also under blog if you can't find it. It's called Notes from a Napkin, and I discuss all kinds of things going on there. And I mentioned that a lot of economists kind of messed up on the oil when the prices exploded. They thought it would just go higher and higher and higher. And they missed the fact that China has big inventories. They store a lot more of anything and everything. Whereas the US has given up on storing anything. You just order it when you need it, that kind of stuff. And so they're just trying to manage the risk better because of such a large population. But you also had Japan doing a pretty good job cutting back their oil usage. A few other countries, you had oil companies that today, or for that matter, it's even in the grain markets, you just see better logistics, better shipping around the world and storage that kind of helped out there as well. But also the alternative energy has made such a big impact that our old statistics, even just 10 years ago to 50 years ago, they're very difficult to use now to predict how high the price is because alternative energy's made a big, big impact. So I was writing on this saying this is why prices have already come down, they didn't go as high as everybody thought. I was feeling pretty good about that, but I didn't put it in the newsletter. I had to save it for my members what I was about that time saying, right in early July, we got to look for a bottom in oil prices. They're probably going higher in July and may go higher into August. And that has worked for me fantastic. The model was just nailing it. Even today, yesterday it said oil will be down tomorrow and it's down two bucks today. It's been nailing it every single day of whether it's an up day, down day. This has been a very orderly melt-up in oil prices. We've gone from $70 right back up to $100 oil. Just bam, put it right back up there. What's going on is that the oil tank for the world is the lowest it's been since the 1980s. But people and businesses were willing to not get too scared about that up until now. Okay. So this was a very delayed reaction and the futures market gave in, brought the price of oil down saying people are going to survive. They're going to make this work. Okay, Iran will be over. Well, now we know Iran is not over. Okay, if anything, it's worse, right? So we're back to shipping very few boatloads of oil out and, you know, it takes weeks to get them out to the next port and this and that. So the oil market's compensating, revisiting this, saying, 'Gee, maybe we put prices down too soon here and got carried away and that oil tank's just getting lower and lower all the time.' So, yeah, I was looking for $85 oil. Now I'm looking for $105 oil on the US market here. The targets have been working very well for me. And granted that, you know, they could fix this any day now and knock the price down for the next couple of months or something. But the problem is it could just continue higher into August and then come down. Meaning if we didn't have the Iran thing, I'd be bullish oil now anyway. So it'd just be normal business cycle supply demand. What we've done is piled the Iran thing on top of that. So yes, I could see 30 days from now, normally we would put oil down anyway. So if they'll fix the Iran thing, then it's really coming down. If they don't fix the Iran thing, it's not coming down as much, right? So you can see the standard supply demand's still working there. Okay. But right moment, yeah, and I don't think the stock market's going to like this. Nobody's going to like this. The price is going back up at the pump. So that's all there is to it.
Yep. So, you know, a couple weeks ago you had the CPI report come out and, you know, of course everyone's talking about how great... it had some deflationary moves in pricing because of the price, what you talked about there, the price of oil came down so much when that report had come out. So that kind of shed some positive light on the overall economy when you start looking at inflation. Talk to me about the CPI report you saw there and then, you know, the Fed and the interest rates and all that stuff and how all that's playing into this mix.
Yeah, that CPI, it was due for a normal inter-year fluctuation to the downside and we got it. Granted, it was driven by some of this idea that maybe we can get around this Iran thing a little sooner, a little faster, this and that, but now that the oil price is going back up, we should see another up move in CPI. I think it was just too soon to top this CPI out. We're going to have some inflation problems here yet lingering on. And last year I turned positive, bullish on inflation, saying it ought to be up this year into next year. It could top out later this year here. But I got a feeling, yeah, we've got more upside coming here. The Federal Reserve for the most part has been saying lately, you know, they probably got to raise rates and really work at this and be aggressive. The weird thing this morning though is, I got to go back and read it, there's an article on bluebook.com saying economists think there's actually going to be an interest rate cut later this year here, and I'm not too sure I want to bet on that. I've been positive on interest rates and I'm looking really smart on it in the last few weeks right along with this oil. So to me that was just a blip on the inflation. I think you better assume it's going to be back up in coming months. We also just got a blip up in the consumer sentiment, and I use that as a happy indicator. And the consumer sentiment has been declining since 2000 and it's the lowest it's ever been under Trump here. It's in the gutter. We're not happy. We are unhappy and getting worse. Well, the interesting thing is I forecast we'd get a blip up this summer on the consumer sentiment. And my friends were picking on me just 30 days ago saying, 'It's not going to work, Rich. Nobody's happy. How can it blip up?' We just got the consumer sentiment and it's blipped up for July. I think that's also a blip up, just as the inflation was a blip down. So we're going to put the inflation back up and the consumer is going to be upset by August. Okay. So...
No, we haven't fixed anything, Casey. We're all in the dumpster. Okay.
Okay. All right. Good news, Rich. All right. Sounds good. [laughter] All right. So, one thing you've talked a lot about is that you look at government debt and you're not as concerned as a lot of stuff that you hear people talk about on TV, right? You know, everyone talks about we're on a collapse and that another thing and how much more debt can we possibly handle, back and forth. And you've talked a lot about how you look at government debts by governments around the world and it's a little bit different feel. But what you have talked about concern-wise is this private debt that we have going on and some of these... I can't forget what they're called, but some of these unregulated lending institutions out there that are throwing around a lot of money and jumping in and out. As you look at that situation, so, Rich, give us some update on that.
Yeah, I still think that's a problem. It's called private credit. It's actually new to me and I'm kind of surprised I didn't pick up on this because I have relatives who actually own private credit businesses, very small ones, but I just never made the connection there. What is this really? What it is is unregulated banks. They're not called banks because banks should be regulated, but they're actually doing a banking service. What they're doing is bringing in mostly rich people's money and then loaning it back out with higher interest and some of the riskier stuff, but they're not regulated, at least very little. All right. So that's an issue in the sense that some people say, 'Well, this is a true $2 trillion industry,' but that's nothing compared to the overall debt banking industry. So don't worry about it. But it has worried some on Wall Street. And here's why. Some of these private credit institutions are borrowing money from regulated banks. If they can't get enough from private investors, they go to banks saying, 'Hey, loan us some. We'll loan it back out.' This is what even some of my relatives do as well, that they didn't realize just a year ago. They loan it back out and make a cut on that. All right. So I'm concerned the private credit industry will get worse before better. They're working at it, but they're not fixing it well enough. What's going on is some investors are calling them up saying, 'Oh, I'd like my money back.' And they're saying, 'Well, you may have to wait about three months for that.' Well, investors don't like to hear things like that. [laughter] Okay. So, to me, I'm nervous of a contagion that might upset the regulated banking industry that can then just maybe not cause that kind of problem by itself, but it could be another ingredient for this day of reckoning that I'm working on here where we're just piling on top of crisis after crisis here and complications and problems when we know we're going to come back to that business cycle recession that I've been saying isn't due till about 2029, 2030, making me nervous it may show up next year. And this private credit I do want to keep an eye on. And I have two funds of private credit businesses that are inside those funds. And they've been bearish going down for about a year. And my modeling just forecast they're probably going down into next year. And that just makes me nervous when I'm also looking at other things that might blow up next year. So yeah, that type of debt is a problem. Granted, Wall Street downplays it sometimes. They get scared, they'll start talking about it for about a week straight and then they back off saying, 'Well, it's not that big of an industry.' But we just don't know what else it can trigger there. When we look at overall debt though, global debt is record high. Governments and private business. And then you look in the US, it's also record high, but really the business kind of paid down debt a little bit, but still very, very high. The government debt, I don't worry about that. That's not real debt. That's printed money. My problem is I fear people, especially in the financial markets, don't really get that and so they're already scared of what's going on with all this private debt and all this AI business are borrowing way too much money and now banks are charging them more and more for those loans, are raising interest rates on AI loans, and yet these CEOs of these companies, they're just like drunken sailors, they just got to get more and more, you know... it's... you could just see... I'm scared of private debt in this country, even more scared of private global debt. I'm not so scared of the government type debt, especially if a government prints its own money. They really can't go broke. But the problem is a lot of people don't understand that. So, you know, I can say this, but the point is if you're betting on the downside of the economy, you're probably very scared about that government debt right along with that private debt. And so you're going to behave... you know, if I could calm people down on the government, then we could be a little more focused on how we're handling this next economic downturn. So I'm concerned it doesn't matter that they don't have it right there. It's going to make them even more negative here in the future anyways, that government debt. So...
Yeah. Okay. So, you're the only person I've ever heard say that, that they're not worried about the government debt thing, right? I turned on the TV and the United States is, you know, 30 seconds away from full-on financial collapse, right? You know, and so what... explain that. Why... explain the whole government debt thing.
We basically have been lied to since 1980 when they started that debt clock that's down in New York City. I think it's Times Square or something and it just goes up by the second, right? The problem is we print money and because money is an IOU kind of thing, accountants like to put it as debt on an accounting sheet. So when they started talking about the government, they just automatically did that. Whereas the government, I don't know if they really think about it that way. They probably do the same thing because they probably use the same accounting systems. But when you print money, it's just printed money. But we show it on the books as a debt. Well, even if it were a debt, it's a different kind of debt. We don't really have to pay it off. And the Bank of England started in the year 1694, basically printed money for the king so he could go to war. That's why he even set up the bank. He had to go to war. Nobody was giving him money. All right. They never paid off that debt. Casey, the year 1694, it's gone from like $2 million to like $2 trillion today. It would actually hurt England if they paid that debt off. All right. Well, if they haven't paid it off in 300 years, what makes us think they ever have to pay it off? Right? So it's another piece of proof that our money systems, if they're what they call MMT money systems, which is really most of the countries in the world these days, as long as the government does print its own currency, it doesn't have to pay that off really, and it'll never go broke. Okay? You and I will go broke because private debt is real debt. But...
To go back to that printed money, if it is a debt, you have to have an asset. Nobody borrows and doesn't do anything with it because they got to pay interest on it. It's not going to sit on a table. So, there has to be an asset to a debt. An asset does not have to have a debt. You can have it paid for. You don't need a debt. Well, if you have, what's the asset to a debt called US dollars? Well, it is the dollars. It's the money. So, the money is the asset that links to the debt. So, with that clock I just spoke of, they're only showing you one side of the counting sheet. We have a $39 trillion debt. We should put a minus sign in front of that for the true accounting, right? A column next to it should have a plus 39, right? And that's how it balances out on the accounting sheet. Well, where is that plus 39? That's the money you and I spend every day and work with. It's in our economy. It's our supply of money.
So the government printed 39 trillion, right? It shows up in the books as a debt with them. But what they were doing is pumping that money in to pay their people, to buy things, do things, whatever the government needs to do. That money went into the private sector because the private sector had to do those things for the government. And what the government does is tax back some to kind of control it so it doesn't get away from them. They don't want inflation going too high. They also want to respend those tax dollars on something else and redistribute money around and help the economy, but they never tax all of it back. The money that's left, you and I use every single day. And it used to be that you had government money and private money. Well, we did away with the private money. I thought in the 1840s, I got some friends telling me I need to restudy that history, that banks actually had private money all the way to 1910 or something like that. But why did they do away with private money? It was easier to use the government's money. Everybody could use the same money and it created better faith in that. Today, what is cryptocurrency doing? Bitcoin, that is actually a return to private money, okay? And unregulated money. This is why I say crypto is probably here to stay, but it's never going to be as big and never going to take over and be the only money we use. The US dollar is not going away because we find it easy that we all use the same money. And by taxing us, it creates the faith in the money. The government basically says, 'We're going to give you this money because you're going to do things for us, but you got to pay us taxes and you got to pay it in our money.' That immediately makes us use the money. And if you hear people talking, even people who don't believe this, they'll say, 'Well, you got to have faith in your government money.' Well, the beauty of this is we're artificially creating that faith because we're made to use the money. But the reality is we really want to use it. It's so big now. Even if we did away with taxes, I got a feeling we'd still use the money because it just makes it simpler. All that private money, you never knew when the bank might go broke and your money's no good. You know, today we can keep that money going.
Yep. It's a very, it's a beautiful, beautiful system, Casey. And really, this dates back to the castle days. And you hear the old rhymes and songs about the tally sticks. Those tally sticks, that was a way for them to keep track that the government says, 'I gave you money. Now you got to give me it back for taxes and then I'll burn that tally stick.' Do you know they actually were still using tally sticks into the early 1800s in England and they decided, 'We don't need them anymore. We've got all this printed money and we got all the accounting. Burn those sticks.' They burned so many sticks that they wound up burning down a government building. And the furnaces overheated, blew up, burnt down, burnt down. [laughter] It's a fascinating history and it actually goes back thousands of years. Goes all the way back to Mesopotamia. Figured out how to use instead gold as an MMT, but then have printed money instead of the gold. So, very fascinating history. And the point is we need to get on to this and have a better understanding because we're not using our MMT system the way we should. And China has figured this out. Years ago we told China, you got to be like us. We've got this figured out. Here's our textbook. You read this, you do this. China came back and said, 'Actually, we got one that's opposite of you and we'd like that one better. We're going to do that.' They're actually doing MMT and they have a better economy than we have right today, okay? Even though their economy's come down to 4.8 and everybody's picking on them. When's the last time the US had a 4.8% economy? We're at 2.3 right now. Maybe heading for 1.7. 4.8 would be fantastic. You know, we'd be jumping up and down the streets right now if we had a 4.8, and here we are picking on China for coming down to 4.8.
So, they're doing a better job with the MMT. I just hope at least the young people get on board this. It's coming. It used to be 90% of the economists were against MMT and they just couldn't explain it. And we would ask them, 'Hey, where did Bob get his money?' 'Oh, he got it from Bill.' 'Okay, well, where did Bill get his money?' 'Uh, he got it from Bob.' Well, that doesn't explain it. They couldn't understand. It's the government printing the money, and they wouldn't factor that in to how the money flows around. And now we are seeing that some of those 90% economists are starting to switch over now, saying, you know something, this MMT is for real. It's been here all along. We just haven't used it, right?
So like in that scenario, you're talking about, hey, they have a, you know, the government does a big road project, right? We're going to go out and redo a bunch of roads, build some bridges, that kind of stuff, which we desperately need to have happen, by the way. So, that would be the same thing. Hey, we're going to go out and print up a billion dollars, a trillion dollars. Well, I guess you can't say billion anymore. Everything's trillion, but a trillion dollars, right? And we're going to do this road project, that then contractors come in, bid the job. They get the job, the government pays them that money. The money then that they get from that pays their people. Those people go out and spend money buying houses, cars, whatever it is that they're buying. And then that money gets back into the circulation for somebody else to use. Because when they buy that car, that owner of the car lot now has, you know, whatever $80,000 bucks or whatever their profits, $10,000 or whatever it is, they get that $10,000. Now they take that $10,000 and go spend it. Gives somebody else that money, then spreads across the entire economy. Is that what you're saying?
