It’s Stagflation Dude Feat Ed Elson

Well, if you look at the stock market, the stock market would tell you no, things are pretty good. S&P is at record highs. NASDAQ is at record highs. We saw the White House talking about that and bragging about that. Fair enough. You look at some of the economic data, we saw some pretty strong retail sales data which basically showed us that consumer spending is going up. So that makes you think, okay, things are pretty good. We're seeing a little bit of weakness in the labor market. So that's a little bit of an iffy, iffy question. And then we're seeing inflation maybe begin to tick up a little bit. So when you look at it on the surface level, it's sort of okay, things aren't, things aren't too bad. Stock market's doing well. People are spending money. But then you have to dig into it a little bit more. And then there are the numbers where you suddenly start to realize this is not at all what I thought it was. Now the first thing that I would bring up, we talked about that retail sales data, the fact that consumers are spending more, and again government's very happy about that, until you realize this was some recent data that we found that the top 10% of earners in America are making up half of that spending.

That's the most we've ever seen ever. The top 3.3% are making up 25% of that spending. So essentially what is happening is yes, consumers are spending, you know, Americans are doing well supposedly, but then when you dig into the data and you look at it by income, no, that's not what's happening. Rich Americans are doing well. The top 10% are driving all of that activity in the economy. And so that's why it looks, when you get these headlines, it looks like everything's going great, but then you realize, no, it's actually not what's happening. Same thing is happening in the stock market, and I think people are beginning to understand this a little bit more. But the stock market again is not a good indicator of our financial health. It's a great indicator of rich people's financial health because the top 1% in America controls half of the market cap of the entire S&P 500. Basically, they own half of the stock market, $25 trillion in equities. The top 19 households, 19 of them, control 2% of all US household wealth. In 1982, it was 0.1%.

So massive explosion in the wealth of the very, very top, and you've got the bottom 50% of Americans who own 3% of the total household wealth. So essentially what is happening is it's this kind of terrible cocktail where not only is the economy actually not doing well when you look at the majority of Americans, we also think that we're doing well. We think because of all of this data that does not account for the massive inequality that is rising in America, we think things are going fine, and even our government thinks things are going fine. They look at the data and say, 'Look, we're doing well. Stock market's at record highs. Everything's going great.' Which of course means that we're not doing anything to solve the problem and to fix the fact that the entire consumer economy is being driven by people who make more than a quarter of a million dollars a year. Not great is what I would say.

It's 100% got to give. And this is the thing that I don't understand about the people who run our country is they know that this is a problem. Everyone's beginning to know about this. Everyone knows that inequality is a thing. If you don't know that this is a growing issue in America, then either you're completely out of it or you're intentionally trying to not see what's happening. But the problem is for some reason there's no sense of urgency about this issue. There's only maybe a handful of people in our government who believe that this is really a problem and it is going to be a problem and it is going to break because we can just look through history. Every single moment of revolt or revolution comes as a direct consequence of this. You have growing inequality. You have the decimation of the middle and the lower classes and then you have upset and dissatisfaction from usually young people. And that is exactly what we're seeing in America today where, you know, I'm 26, I'm Gen Z, a third of my generation still lives with their parents. So we're the people to be looking at. We're the ones who are going to be deciding the future. And essentially what you have is a bunch of angry, disenfranchised people who can't get access to wealth, who are struggling to build a regular life. And of course that's going to lead to some sort of break. I think the other thing about this that I think we're beginning to see, I mean, the numbers are striking, and the numbers only when you really paint a picture of what's going on does it sort of strike a chord with people and people go, 'Okay, this isn't very good.' But I think that we also need to see some visuals. We need to see just what this will actually look like. And I think one thing that I'm pretty concerned about myself is, you know, you've got all of these mega, mega rich people who are generally speaking in their 60s. I mean, it's generally the boomers.

What we're about to see is a huge transfer of wealth from those people onto their children. So people in rich economies this year are going to inherit $6 trillion. That's the most ever. There were a little over 200 new billionaires minted last year in 2024. More than half of them became billionaires because they inherited from their parents. So essentially what we have growing in America is this what we call the inheritocracy, where the country is about to be ruled by a handful of not just billionaires but the children of billionaires. And we see this, for example, in the media right now where Paramount has just been bought by the son of last week's richest man in the world, Larry Ellison. I think he's down to number two after Elon bought a billion dollars worth of Tesla and it skyrocketed the stock. But David Ellison, the son of Larry Ellison, now owns Paramount. And he also wants to buy a Warner Brothers Discovery, which basically means that a rich kid, and this isn't to say anything against David Ellison, I'm sure he's a nice guy, but the reality is he's got the money because of his dad, and that guy is now about to own basically all of Hollywood. If he gets his hands on Warner Brothers Discovery, he's got Paramount. So he's got CBS, he's got Paramount Studios, he's going to have CNN, he's going to have HBO, he's going to have HBO Max. I mean, this is what it's going to start to look like. And I think that eventually once you start to see this, once you start to see the amount of power, not just the amount of money, but the amount of actual influence in our lives, media is a great example of that. As soon as people start to see that, then you're going to start to see genuine, genuine upset, genuine revolt, and I'm sure that many could make the case that it's already happening. And we could look at what happened with Charlie Kirk just a few weeks ago.

Yeah, so the point that I was making is exactly that. We're very active with our opinions. Actually, more than half of us have participated in some sort of rally or some sort of protest, and yet go look at the voter turnout numbers. How many of us showed up in the presidential election? 42% of us. So we love to say stuff and we love to get out there and participate in sort of the fun of social justice. Maybe I'm being a little harsh on our generation, but I'm being that way because I'm annoyed about this. And yet, when it comes to actually taking the action of making the change, we barely show up at all. We have the lowest voter turnout of any generation by far. And by the way, this isn't just true in politics. It's even true in business, for example, where, you know, we talk a big game about how corporations need to be more socially minded. They need to get their acts together. And yet, when it comes to participating in shareholder votes, out of those of us who actually own stocks, we have the lowest participation rate in shareholder votes of any generation, again, by a long shot. So this is my complaint with my generation: active with our opinions, lazy with our actions. Now why is that? Hard to tell, but my best guess is that we are the online generation and we're basically so addicted and so glued to our phones and so digitally minded that the idea of showing up to a ballot box is just a bit too complicated and boring. I mean, I wish I had a more interesting explanation for why this is happening, but I genuinely think that that's what it is. I think that it's a lot easier to post a story on your Instagram about, you know, 10 things you can do to support social justice in America. It's a lot easier to, you know, donate a few dollars to some GoFundMe than it is to figure out the paperwork that is required to register to vote and then go to the ballot box and cast your vote. That is my view on what the issue is. So I think that's the problem. Having said that, there was one really bright spot in terms of our participation and that was the mayoral primary in New York where for the first time ever young people showed up in huge, huge numbers and that's why Zohran Mamdani won that primary is because of young people. So he did something different here. And I think a lot of it has to do with how online the campaign was, how active he was on TikTok. He was posting on TikTok and YouTube relentlessly. Cuomo posted zero times on YouTube or TikTok. And so I think that's a big piece of it. And I think that he was speaking to some of the issues that I described earlier about our economic situation. So that's a little bit of a bright spot on maybe we're going to get our act together on this point. But historically speaking, yeah, we're very lazy when it comes to actually showing up.

Yeah. So just to describe what stagflation is, basically it's a combination of you're looking at the actual growth of the economy going stagnant, so growth slowing and then screeching to a halt, combined with prices rising. So that's inflation. So put them together, you've got stagflation. So we are seeing stagflation. And I want to qualify that. Not in a way that is really, really concerning yet. But essentially what we heard from Jerome Powell, who's the chair of the Federal Reserve, in the Fed meeting last week was that we're seeing a slowing down in the job market. So we are seeing a lack of growth there and at the same time we are seeing a rise in prices, in consumer prices, and not only are they rising, in his words, he expects them to stay elevated. So we're at 2.9% inflation at the moment. So that means the prices from the previous year have risen almost 3%. And we were almost down to 2% at the beginning of the year and then we did this thing where we decided we're going to charge every nation in the world about 15 to 20% to send their goods to America and what do you know, it took a little bit of time but now things are more expensive. So that is what we are beginning to see here is this stagflationary effect where we're having these issues in the labor market. And by the way, that isn't necessarily the fault of the administration. Actually, what has happened is that this labor market weakness has been growing for quite a long time. We had this recent data come out that revised some of the numbers from the final few months of Biden's administration. And what I found is that the job market was actually a lot weaker than we thought. And so this job market issue has been growing over time. But what we didn't have a problem with was prices. And that is we were intentionally raising rates and keeping rates high such that prices would come down. And that is exactly what started to happen. You saw that prices were beginning to, the growth in the increase in prices, so inflation was coming down, coming down, coming down, and then we put tariffs on in April and in April prices stayed the same and then the administration says, 'Look, prices are the same,' not recognizing the fact that it's going to take three to six months for all of this to actually funnel through. And then just as you would expect from reading a textbook or just thinking it through logically in your brain, six months later prices are now rising. And the trouble is prices are almost definitely going to continue to rise over the next few months because the funny thing about these tariffs is we don't know if they're off, if they're on, we don't know what they're going to be tomorrow, what they're going to be the next week. And therefore, if you are selling goods, if you're selling cars, for example, and you have to import them in, and yes, you're paying 15%, 20% more for them right now, are you really going to raise your prices today? If you know that maybe in the next month it's going to come down to 10% or it's going to just be called off entirely. If there's all of this uncertainty, then you're going to be very cautious about raising your prices. And you're going to do it very, very slowly and very kind of quietly. And that's exactly what's happening here. Walmart is raising their prices, but they're not making a big deal out of it. They're just quietly raising prices here and here and here. All of these items that we're importing from abroad. And so this is going to continue. And this is the trouble. Now we have essentially dug ourselves into this hole for no reason whatsoever. We could have just been dealing with this labor market problem alone and, you know, we have the tools to deal with that. That's why we have a central bank that can set our monetary policy. But we basically decided, no, no, we want to deal with another issue now. We also want to deal with prices again.

Yeah, you could easily undo it. You just call the tariffs off then.

That is the question, is will the consumers develop an appetite for these high prices? And that's what business is, it's basically testing the limits of how much can I charge you really, and you know, if I put your back against the wall, are you still down to pay for these products? That's the question. So, look, if he called the tariffs off tomorrow, we would get this inflation thing certainly way more under control. I mean, it really is the dumbest thing that you could do to gut our economy and to make the cost of living worse in America. By the way, I grew up in the UK. We did the exact same thing in 2016 where we decided, you know, this whole thing where we bring in all of these goods from abroad, which by the way, we can't actually produce in our own country. I mean, Brexit was even dumber than what we're doing with the tariffs because we basically said we love Britain. We love our apple farms and we love our fishermen and we don't want to rely on Belgium and France for their products. So we're just going to cut ties with them. We're going to cut it off and then make it more expensive to bring in goods from abroad. So we did that and then what do you know? Oh, we don't know how to build many of these products that we love. You know, we're not very good at French fries or whichever items we're importing from abroad. And then eventually what happened is the economy went into a state of paralysis and now the UK is dealing with, I mean, and these are the ripple effects 10 years later, dealing with the worst inflation of any Western economy in the world. They're at nearly 4% right now and they've been trying to get this thing under control for a while. And it was one of the dumbest, most, I mean, just shoot yourself in the foot moves of all time where because this idea of independence and patriotism sounded so fun, we decided we're just going to shut off the borders and it completely decimated the UK economy. US is in a slightly stronger position because the US produces more of its products in the US. So they're slightly more insulated from this dumb idea of shutting down your trade borders, but we still import a lot of stuff. And that is why we're seeing the impact on the consumer. But to be very clear, if you want to fix the problem or at least lessen the problem, yeah, you can just call the tariffs off tomorrow and then we'll be good.

Well, the US has this beautiful, exceptional advantage and that is that the dollar is the global reserve currency. So one of the things that we've been able to do as a nation is whenever we're in a rut and whenever things are slowing down and growth is slowing, we can basically just print money and it kind of works. It massively stimulates growth. Basically, the government says, you know, we want to purchase this amount in debt and we want to finance these projects and we can just kind of do it and it's a lot easier for us. The UK is in a different position where they really have to be exceptionally strict about balancing their budget and balancing their books. And this is something that the UK didn't really think about in its political leadership. And they basically decided, you know, we're going to borrow. We're going to borrow. We're going to borrow just like the US likes to borrow because we're Brits. We're exceptional. We're the British Empire. And then now what you have is this massive political crisis where everyone's trying to figure out how do we pay for all of this? We don't have the money to do it and we don't have that borrowing capability that the US does and this has become a huge issue for parliament. It's a huge issue for the leading party in charge there, the Labour Party. They're trying to stimulate growth but they don't have the tools that the US does. Okay, having said that, you can take it too far and that is where we're headed as a nation in the US where we have become drunk on our ability to borrow to the point where it is becoming totally nonsensical and this is where you've seen the credit rating of the US drop. I mean, first you had a downgrade in our credit rating back in I think 2011. You had it again a couple years ago. You had it again this year from S&P, from Fitch, from Moody's, all of the ratings agencies because essentially what we're doing is we're drunk on this power that we can just keep borrowing, keep borrowing. And for me, when I think about the biggest threat to America on a sort of global systemic level, biggest threat and the worst thing that we've seen to America's position as number one in the global order, it's the big beautiful bill which was passed this year, which is going to, and remember the Trump campaign, part of the message, part of the idea was fiscal conservatism. We're going to balance the budget. That is what he said. That is what Trump said in his address to Congress. We're going to balance the budget. And what happened? All of Congress stands up and they start clapping. It was the loudest applause on the entire night. He said, 'We're going to balance the budget.' And I remember hearing that. I was like, 'This guy's, you know, awful in a lot of ways in my view, but you know, that is good. We should balance the budget. That's a good idea.' Then the big beautiful bill comes out which is going to add $4 trillion to our national debt. Our net interest, the amount that we pay just to service our debt right now, it's currently $900 billion per year. That's our second largest federal expenditure. We spend more on just servicing the debt than we do on national defense. With this bill, we're going to increase that number over the next 10 years to $1.8 trillion. And here's where it's going to get really bad. We can keep borrowing and borrowing and borrowing. But the interest costs, the amount that we pay just to service all of that borrowing is going to keep going up, keep going up. And eventually what's going to happen is it's going to crowd out our ability to spend money on all the other things that we need. National defense is one of them. I'm not against spending money on national defense. I think it's good to have a secure nation. Social security is another one. We're not going to have as much money to spend on that. And eventually what will happen is us young people are going to realize, hold on, all of those years where they talked about fiscal conservatism and balancing the budget. All of those years they were saying that message and then quietly swiping our credit card over and over and over again and saying, 'We'll pay it later. We'll pay it later. Yeah, don't worry about it. It's coming later.' And all of it's going to come due right when we are of age essentially. You know, when I'm trying to buy a house and build a family and pay off a mortgage, you know, these are going to be the structural issues and we're not going to have enough space left in our budget to pay for all the things that we need to pay for roads, to pay for social security, all the things that made America great in the first place.

I say just look at the, I mean, I understand where they're coming from because all of this stuff is complicated and it's debated, this idea of can you just keep printing money, printing money. Just think of it very logically in terms of net interest payments. Just think of it. Just try to focus on the fact that we have to pay interest to other nations. Okay? We're currently paying for this. We have to pay, as I said, $900 billion in interest to people we've borrowed from, the same way that you pay interest on your credit card. We have to do that today. The question being, if you just look at that number and you see how it has expanded in terms of the amount of its share in the pie in terms of what we can spend in America, what we can spend with government money, if that just keeps getting bigger and bigger and bigger and bigger and bigger, then you're just going to crowd out the space to invest in all these other things. So if you're someone, again, if you're someone who likes that we can use our money to pay for the military, if you're someone who likes the idea that we can, if you feel strongly about immigration, if you want to defend our borders, as an example, the reality is if you have to spend more and more money on your interest payments, you have less money to spend on the border, you have less money to spend on Medicare, less money to spend on social security. So that is my response. I think it's going to be a slow and painful process. And that's why it's so dangerous. It reminds me in a lot of ways of climate change where you don't really see the consequences like this and so you don't really get too worried about it because it's so slow and in a lot of ways it's very boring. It's very complicated, this idea that the world is heating up by 0.001 degrees. I mean gradually, gradually, gradually, but then of course all of this compounds and over time you slowly realize this is the frog in the boiling water problem. You suddenly realize, oh my gosh, look what we've been doing. So that's the way that I think this is going to play out. And I just think if you're like, this is kind of confusing and boring, all I would do is just go look at the net interest payment number. Look at how it's grown and look at how it has increased and taken up all of the space that we have in our ability to pay for things. That's only going to continue. And because of this big beautiful bill, it's been turbocharged because they decided we're going to basically cut taxes on rich people. They decided rich people need another break. I mean, this is part of the total insanity of that bill. They decided rich people needed another break. By the way, one of the other things they did, they decided that rich people's children need another break, which is why they increased the estate tax exemption to now $27 million tax-free to your children. Because they said, you know what they said the reason that they need to do that? They said we need to increase the amount that rich people can pass on to their children without having to pay taxes because inflation has been really hard. But at the same time, we're going to gut Medicare and Medicaid. So we're going to forget about how inflation has obviously affected poor people most, but we're going to be very attentive and very caring to how inflation has really impacted rich people who, by the way, have increased their spending over the past four years by 60%.

I think so.

Yeah, I'm not a doomer in that way. But, you know, I think if the dollar loses its position as the world's reserve currency, it's going to be in a really, really long time. I think the story of the dollar being supplanted by another currency is, I think, a fun and exciting story. I mean, because it sort of demonstrates and illustrates how the US was this global superpower and how it could eventually collapse. And to be clear, I think that's totally in the cards for America. But if you actually look at the replacement options for the dollar, you've got the next biggest competitor, people always talk about Bitcoin. It's not Bitcoin. Actually, it's the euro in terms of just global currency reserves. And the euro is barely competing with the US. In fact, if you look at, you know, the last 60, 70 years, people like to say how the dollar has been declining as the global reserve currency as a percentage of global currency reserves. They always say that, but they're only looking at like the past 20, 30 years. If you look at the past 60 years, the story of the dollar is basically just unwavering resilience. I mean, it's always been the most dominant currency. That could obviously change, but if it is going to change, it's not as soon as I think a lot of people suggest. I don't think it's going to happen tomorrow. And I don't think Bitcoin is going to replace the dollar in the next 10 years. Certainly not in any of our lifetimes is what I would say. And I know the crypto bros are going to come after me and say, 'This guy's...'

Just in terms of the actual currency reserves in the world, it isn't China. It's the euro just by the numbers. But does that mean that China is less powerful than Europe as a global superpower? Certainly not. I mean, China is the second largest economy in the world. I mean, China is an absolute powerhouse. And I think the real, if we're going down this road of what happens to the strength of the dollar, the real danger would be that China teams up with all of these other nations, with Brazil and Russia and India, the BRICS nations, and they form their own currency. And that's something that they have been talking about. By the way, the BRICS nations have been getting together and they say, 'Oh, what if we create a BRICS currency and that way it could compete with the dollar and that could be a real problem.' I don't think it's ever going to actually happen. I think they just like talking about it. But if that were to happen, that to me is the...

the most realistic situation where the dollar is totally supplanted. But again, these things take decades and decades of time to actually play out. I mean, this is something that will happen way, way, way down the line. And that's not to say it isn't important. It's certainly important. But the more immediate things that we can control, as an example, is a massive spending habit and our massive borrowing habit, our addiction that we have to debt. That's something that we can control in the short term. And if we do that, then yeah, we can figure out this potential issue down the line of the dollar losing its position. And if that's a motivation for us to be more cautious about our spending and more cautious about our borrowing, then you know, I'm all for it.