2 MINS AGO! Jim Rickards: "Central Banks Are About To COLLAPSE The Economy and Here's How"

Added: 2026-05-23

[00:00:00]The debt's not going up at 2% or 3%. The debt's going up 8, 9, 10% or or more.

[00:00:07]The US had a $1 trillion baseline budget deficit that $1 trillion per year deficit for fiscal 2020 pre-pandemic.

[00:00:17]The Congress threw $3 trillion of emergency aid on top of that. And I'm not even criticizing all those programs.

[00:00:25]I mean, the the Payroll Protection Plan loans, the extended unemployment benefits, the increased unemployment benefits. Imagine where we'd be if we hadn't done that. But that aside, debt is debt. They piled $3 trillion on top.

[00:00:38]Now, this is going to take the US debt-to-GDP ratio up to 135%.

[00:00:45]>> [music] >> It was 106% when Donald Trump was sworn in. It's close to 130% today. Because remember, you got two things going on. The it's debt-to-GDP. So, debt's your numerator and GDP's your denominator, right? Well, what happened? Well, the the denominator shrank. It got smaller. And this got bigger. So, what happens to the ratio?

[00:01:06]It blows up. So, now it's 135%.

[00:01:10]If you get the laws of economics right, which is not easy cuz most economists don't, but if you get if you get them right, um it's really a reflection of of human nature. I mean, what is an economy other than all the people in the economy starting businesses, buying, selling, traveling, providing goods and services, etc. So, um human nature doesn't change, at least it hasn't changed much in the last 100,000 years. So, the fundamental laws of economics don't change, either.

[00:01:35]Uh but circumstances change, facts change, and that's important. Now, to answer your question, Carrie, um you're right. There is um a school of thought, uh growing one and influential one, that the debt doesn't matter. So, you're like, "Well, wait a second.

[00:01:48]Um so what? So, the debt-to-GDP ratio went to 135%. What should it do?

[00:01:53]Who cares? What's wrong with it? 180%?

[00:01:55]We got issues, we got problems. Print up the money and monetize the debt and spend it and keep going. What what is the problem? Uh this this comes under the banner of somebody called modern monetary theory.

[00:02:08]MMT Uh it's flawed, it's wrong, but it's it's got its followers and those followers are now in the White House because um one of the things Joe Biden had to do to get elected was to make peace with the Bernie Sanders wing of the Democratic Party. They take the view that if the Treasury didn't spend the money, how would anybody make any money?

[00:02:30]That's ridiculous, but that's what they say. They say when the Treasury spends money what do they do? Well, they they build aircraft, they have benefit programs, they have government contracts, they do whatever they do. But when the Treasury gives you the money, you take the money and you spend it on somebody else, goods and services, go out to dinner, have subcontractors, whatever it might be. That that's the real source of money. They also take the Treasury and the Fed [music] and they merge them. Now that's not legally the case. The Treasury and the Fed are separate institutions. [music] The Treasury is just part of the executive branch and the Fed is an independent agency >> [music] >> and the Federal Reserve banks are actually privately owned.

[00:03:13]A lot of people know some people know that, some people don't, but the the Federal Reserve banks are privately owned by banks in the [music] districts, so Citybank, Bank of America, etc. Uh so they're completely separate, but but the theorists ignore that and say no. Um [music] the Treasury needs to spend money because that's how the economy grows and the Fed can monetize the debt.

[00:03:33]So you spend the money you don't have, you borrow it to cover it, you issue bonds to cover the borrowing and if the market wants to buy the bonds, fine, but if not, the Fed can buy them and put them away on the balance sheet, wait 30 years and collect the money. What's the problem?

[00:03:50]Who cares about the debt to GDP ratio?

[00:03:52]It's kind of a statistical abstract, but why should that stand in the way of using money to solve our problems, which are free health care, free child care, free tuition, forgiveness of student loans. That's a 1.2 Oh, sorry, 1.6 trillion-dollar ticket, by the way. And like look, everyday readers and investors, there's no reason they should know all this stuff. This is This is total inside baseball.

[00:04:15]>> [music] >> You have to be a geek like me that kind of keep up with it, but but it's all coming. But what that means is we're going to test the Rogoff-Reinhart thesis. Now, let me just take a minute to explain my explain that.

[00:04:30]Up to a certain debt to GDP ratio, there is a Keynesian multiplier greater than one.

[00:04:37]So, the classic example is the UK was in a depression before the rest of the world. They had been hit pretty hard before the Wall Street crash. People aren't spending, they're saving. It's a liquidity trap. So, if you get money, you pay it on debt, but you don't have any debt. You put it in the bank.

[00:04:52][music] Whatever you do, you don't spend it. You You hoard cash. Or people were buying gold. They were accused of hoarding gold, etc. But what they weren't doing was spending. And there was a lack of aggregate demand, and the banks were not lending. So, so Keynes said, "Well, if the If people If If everyday people won't do it, the government must. The government can borrow. The government can spend." And what they discovered was that if you borrow a dollar and spend a dollar, you can get a dollar 50 of GDP.

[00:05:21]Uh Now, there's a separate debate as to whether that's actually incremental or whether you're just pulling growth forward.

[00:05:28]>> [music] >> But so what? Even if you are pulling growth forward, maybe that's what you need to do when you're in a liquidity trap. Um but there's a problem.

[00:05:36]He called it the general theory in our general theory of employment, interest, and money.

[00:05:43]But it was actually a special theory. I I I had a little Einstein envy me, because of the general theory of relativity, but um it's actually special theory, which means it's a theory that works >> [music] >> in a set of circumstances, set of conditions. The conditions where it works are you're either in a recession or just coming out of one.

[00:06:00]>> [music] >> You have excess capacity and uh uh uh the labor and um uh industrial capacity, and you have very little debt. In those [music] circumstances, you can borrow a dollar, spend a dollar, and get more than a dollar GDP. The problem is that extra GDP that extra GDP you get for the borrowing spend, it goes down as the debt to GDP ratio goes up. What Reinhart and Rogoff discovered is that at 90% you go through the looking glass.

[00:06:28]Your [music] payoff is now less than the dollar. You borrow a dollar, you spend a dollar, and you only get 90 cents of GDP or 95 cents, etc. So now, not only are you not getting your dollar's worth for the borrowed dollar or something more, which you did at lower levels, you're getting less than a dollar. So now what's happening? You're borrowing a dollar, you're spending a dollar you're not getting a dollar of GDP but you are getting a dollar of debt.

[00:06:55]Which means your debt to GDP ratio is going up, and the 90% is getting [music] worse. And I just mentioned we're the United States is at 135%.

[00:07:05]So here are your two competing schools.

[00:07:07]There's the the Keynesian multiplier and creating aggregate demand with government [music] debt and the Reinhart-Rogoff more than a thesis, I would say powerful evidence that beyond 90% it doesn't work. It goes under less than one. On [music] the one hand.

[00:07:23]And my friend Stephanie Kelton and Bernie Sanders and Kamala Harris and the modern monetary theorists who say, "No, it's all good.

[00:07:30]How could you get growth if you didn't spend money through the government?"

[00:07:34]These theories don't agree at all. We're going to find out which ones work. I I I I'll I'll give it I'll give away the answer, which is that Reinhart Rogoff had it right, Keynes had it right up to a point. Reinhart Rogoff discovered that critical threshold that what do you want to call it, tipping point or phase transition or which physicists call it or whatever. The modern monetary theorists think the opposite and we're going to find out.

[00:07:57]But what But what it means if Reinhart and Rogoff are right and I'm right and Keynes was right, the more you borrow, it's actually a headwind to growth. Now you get just as up to the threshold you got more and more and more. Oh, sorry. It At a low level you got more but then it went down.

[00:08:16]But it's like any diminishing marginal return. You know, that the curve starts very steeply, you get a lot of payoff, then it flattens out, then it goes down but it's still positive but at some point it goes below the zero line and your marginal return is negative. And that's where we are.