Special guest, Steven Van Metre, joins me today to discuss the hidden truth about the Federal Reserve and to go into detail about Quantitative Easing. Steven has been taking the social media world by storm with his exceptional analyses. He is a macro fund manager, financial planner, self proclaimed Bond King, inventor of Portfolio Shield and President of Steven Van Metre Financial. He specializes in retirement income strategies and the direct management of client assets. Steven and I will discuss the Federal Reserve, quantitative easing, and common errors in the typical American’s financial education that enable so many investors to fall into the trap of an over-leveraged system. Watch the full episode to learn the hidden truth about the Federal Reserve, Quantitative Easing, and to learn how to take control of your investment future.
The Hidden Truth About the Federal Reserve and Quantitative Easing with Steven Van Metre | Solomon Investor
Many of you have had questions about how the Federal Reserve truly works in the financial climate that America is in right now, and others have had questions about the structure of quantitative easing- if you are in either of those categories, then today’s episode is perfect for you.
Special guest, Steven Van Metre, joins me today to discuss the hidden truth about the Federal Reserve and to go into detail about Quantitative Easing.
Steven has been taking the social media world by storm with his exceptional analyses. He is a macro fund manager, financial planner, self proclaimed Bond King, inventor of Portfolio Shield and President of Steven Van Metre Financial. He specializes in retirement income strategies and the direct management of client assets.
Steven and I will discuss the Federal Reserve, quantitative easing, and common errors in the typical American’s financial education that enable so many investors to fall into the trap of an over-leveraged system.
Watch the full episode to learn the hidden truth about the Federal Reserve, Quantitative Easing, and to learn how to take control of your investment future.
Key Takeaways:
Introduction to Steven Van Metre (2:29)
Why does the central bank not know what makes a healthy economy? (4:38)
What are the consequences of the central bank not knowing the basics of a monetary system? (7:15)
What are the risks of the majority of the american people putting so much faith in the Federal Reserve and quantitative easing? (8:53)
Common errors in the typical american’s financial education (14:27)
Consequences of our economy being “pumped up with fake money” (17:41)
What does Steve see happening in the next 12 months? (20:58)
What power does the Federal Reserve actually have? (26:32)
What exactly is Quantitative Easing? (29:10)
Key points about understanding the mental framework on Quantitative Easing (40:29)
Why are people staying in an over-leveraged system? (43:56)
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People right now believe that the Fed has bizarre power through quantitative easing that can cause stock prices to go up. I mean, that's the belief is you take as much risk as you can worried because if they ever go down, the Fed can magically raise them up, you're trying to say if you're a okay. And when you start getting into the mechanics of what the Fed can do, they actually don't have that power.
So people are like seeing just a few feet in front of them. And they forget that past. And they forget that every decade there's been a crash or a correction, and it's continued to happen over and over, you know, last March, the stock market went down 30%. Well, if the Fed has some omnipotent power to keep stock prices up, why did they fall in the first place? In fact? Yeah, it doesn't. It doesn't make any sense. Yeah, the music will stop, the lights will turn off the game will be over if anyone thinks the Fed worked for them. No, the Fed works for the large commercial banks, the Fed works for the politicians, they've worked for the rich people who who have benefited from the system and want to keep the system going. Now there there are other monetary systems that we could have chosen to go on. But the reason the world is on this one is because it makes a very few people very rich and very powerful. And if you're on the top, why would you want to change it? Why would why would you want to be equal with everyone else when you cannot be when you can be better than them. And that's the whole idea is I have all the money, I have all the power, and I can control you and that's what this monetary system does. And the feds job is to keep it going at all costs. Right now, market looks like it's okay, that appears like they can make and magically go up forever. The problem is that there will be a day of reckoning. It will all stop it will come crumbling down. Will it be tomorrow? I don't know next week, I don't know. But at some point, this will stop.
You've heard this many times in the past, those bubbles have already burst you solve the big crashes. Hey, this is another Solomon Investor show. I am your host, Blake Templeton. And this is where we focus on the wealth strategy of the world's wisest man King Solomon, and translate it for you, the 21st century investor, covering everything you need to know for wealth, faith and excellence. In this episode, we'll discuss the Federal Reserve's secret weakness and the big if and when there will be a coming crash in the stock market. And then you will learn how to take control of your financial reality and write your own narrative of your future. Before we do this, I'll remind you what a Solomon Investor is a Solomon Investor is not a puppet. It's the ones we take control. It's the one that actually says, You know what, I've had enough. I've had enough of being a puppet I've had enough of being told how to invest my money, and then I lose my money. It's the one who says, You know what, I want to be directed by God, I want to actually change the trajectory of my financial future, I want to take control, I want to have exponential wealth, and I want to have it sustainably. So it's control it's exponential wealth, and it's being God directed, you'll be able to have peace in the middle of the chaos, confidence in the middle of the storm, and most importantly, to be able to truly build wealth, which is really something that's not talked about right now, in today's economy. If you like what you're hearing, do yourself a favor and take action right now smash the like button, hit the red icon and subscribe to this channel. I spent a lot of time really preparing information, it's going to be like right now information stuff that's going to help you to right now be a better investor and have more wisdom. And last hit the bell icon in the top right hand corner so you'll be notified every single time a new video comes out. Alright, so no further ado, I've got a special guest here today with me going to help me unpack the pillar of wealth. He's a macro economic expert and produces exceptional analysis on the stock market, the bond market and how the Fed what the Fed does, actually affects your investments. My guest is Steven Van Meter. He's at macro fund manager financial planner, self proclaimed bond King and inventor of portfolio shield and president of the Steven Van Meter financial. Steve, welcome to the show my friend.
Like it's a real pleasure to be here. Thanks for having me on. Hey, I'm excited. It's gonna be fun. We'll spend a lot of time just really diving into the nuts and bolts I love your your ability to not only in your width and depth, but your ability to actually go against the grain and stand. You know, there's a there's a myriad of voices. And so, at The Solomon Investor, we're looking for wisdom. What Right now to get good steward. And so I want to set the stage for why this episode is so important, Steve. You know, for those listening, as most of you are aware, the political system is unraveling, our media outlets are being censoring, what's true, the stock market's been completely manipulated. And we're headed toward what we could call a socialist communist Rand structure as a country. And so it's time more than ever, for us to be good stewards and rise up and gain conviction and our actual faith, not just our faith in what we're living for, and for a purpose, but our faith that you actually have something to stand for. And so this show, this episode is about not being a puppet anymore. It's time to take control. So Steve, I'm excited. I'm excited to pick your brain and help my listeners with their mental frameworks on financial wisdom. Are you ready?
Let's do it.
All right. So my question comes in the Federal Reserve department. So when we start talking about finances, as a country, again, we've been puppets, we've been led by the Federal Reserve, and we've given them full control to direct our economy. You had a interesting interview with Jeff Snyder, where you were interviewing Jeff, and it came out that you know, the Fed is ignorant, in what would actually make a healthy economy, matter of fact that even really know what a healthy economy is. And you guys made a point that, you know, if the central bank had to be under a lie detector, they would have to admit to you that we don't do money. I mean, we don't actually even know how to define money. We don't even know what the monetary system actually is. And so when I heard this, I mean, I'm rolling over on the ground, just like the implications, Jeff, of this truth changes everything. And it should be for those people listening. Like if you know, the people at the top, it's always a top down society. And so if the people the top don't even know what they're doing. My question is this. First of all, why does a central bank not know? And then what are the consequences of this in the public market?
Well, I think the challenge Blake is the Fed is a banking regulator, I mean, that that's their first and foremost job is to regulate the banking system, Congress put him in charge of things like full employment and stabilization of prices, which is hilarious in itself, as I'm sure you'll agree. And the Fed really doesn't have those tools, why Congress, bless them with them in the first place, I have no clue. But nevertheless, the Fed has been given these powers of the monetary system. And from the early days of the Fed, they had this notion that we could we can use our monetary powers to create full employment to to stabilize prices, and right all these things. And the problem is, they don't actually have the tools to do it. It's just all theoretical, from Keynesian economics, that they believe that, you know, certain dial switches or whatever a certain way, and you can make this thing work. And unfortunately, like I said, they've been charged with this duty, and they don't have the ability to do it. It would be like calling, you know, the police department I put out, you put your firearm on your house. I mean, you've called the wrong place. There are there are things you can do, but they're not the right ones.
Yeah, it's a really good point. I love the analogy. And it's, it's something really focused on right now. So then, what are the consequences? What are the implications of this? Because, you know, for someone who has their money in the stock market, and they're expecting whatever, you know, Jerome Powell says, of what he's going to do and how he's going to operate, what are the consequences, the implications, if, if the central bank doesn't even know the basics of what a plus b equals c?
Yeah, and that's a good point. Because from an investment standpoint, people right now believe that the Fed has this bizarre power through quantitative easing that can cause stock prices to go up. I mean, that's the belief is to take as much risk as you can. I'm worried because if they ever go down, the Fed can magically raise them up, you're trying to say if you're a okay. And when you start getting into the mechanics of what the Fed can do, they actually don't have that power. And to make it worse, this is the same belief people believe in prior cycles where Oh, the Fed can lower interest rates now make stocks go up. But yet, when you really understand what the feds doing with quantitative easing, and having the federal funds rate is 0%, they're actually tightening the economy and attempt to loosen it. And it's that persistent tightening that happens. That leads to a crash. That's all that's why we always have a crash and then Investors never see a company because they have full faith in the Fed. And, you know, their, if I made they're worshipping a false god, yeah, it's a great point. It's a really great point. So let's let's break that down because you just like, open the can of worms of really good stuff. So 10,000 foot up big picture, is what no one's saying they're looking in this very dim, narrow tunnel of what the Fed says they're gonna do, and they're believing it. And so you're saying, they're saying, hey, if, if, if they say they're gonna give stimulus checks, or they say they're gonna do quantitative easing, they're say, this is what's going to happen to the economy, or we have enough, we have unlimited funds, essentially, saying that we can control the stock market, we have full control. So people are like, seeing just a few feet in front of them. And they forget that past. And they forget that every decade there's been a crash or a correction, and it's continued to happen over and over. So what then? What do you see then as the consequences right now coming before us? Because clearly, what you're saying is, is what's happening right now?
Yeah, it's even worse than that, like the the Fed has actually never said that in power of the stock market. Investors believe they do. They've created belief. And so you have to, you know, when you have faith in something, right, and it's not correct. Well, the more risk you take, the more of your life or money or your family time you put into that thing. You're all in, you're committed, you have to believe the problem is a fit is never one said that we have any authority over the stock market is just the belief put out by wall street analysts and other people who want other investors to buy stocks. And it works. It works very, very well. The problem is, you know, last March, the stock market went down 30%. Well, if the Fed has some omnipotent power to keep stock prices up, why don't they fall in the first place? In fact, why would they ever? Yeah, it doesn't, it doesn't make any sense. Because when you get into the mechanics of what quantitative easing is, it's just a reserve asset swap. And then when you when you really get, you know, zoom out a little bit, what you find out was, we're in something called a liquidity trap. And a liquidity trap is what ends up crashing the economy every time in order to save it as, as I like to say the whole purpose of quantitative easing is to lower interest rates, and tighten financial conditions until you get lending back. Well, the the adverse consequence of that is you end up usually crashing the economy and bringing asset prices down to spur lending. So it actually it has a negative impact before has a positive impact.
And the negative impact can be devastating. I mean, some people don't see the positive impact because the devastation like they don't have the time they don't have the seasoning of time to let that positive impact even take place.
Right and then they don't understand enough about the system there aren't enough people out there that really understand it and talk about it but then there are far more people who just promote the false truth about it. And a lot of people want to believe it. I mean, look, I wouldn't it be great if every real estate investment that you did with your clients that you could guarantee like Don't worry, because the feds gonna do something it will go up you just have to buy and don't worry about the price today because it will just go up tomorrow. I mean, who wouldn't want that? I mean, in their stocks, their property, everything, I mean, how great would that be? Well, it's easy to get suckered into that and then once you're fully committed, then you adopt that view, and not many people are willing to say, Okay, well wait a minute. Like I've looked at the past and this doesn't seem to be true. I've looked at other countries where this has happened doesn't seem to be true. Maybe I should actually take this machine apart and figure out what it really does because of it does this is a great that I want to be all in if it doesn't do it well then I don't want to be and now I want to play the opposite of this because I know at some point music is off the system is going to break and asset prices are going to crash again.
Yeah, I think you hit the nail on the head that the music will stop the lights will turn off the game will be over and and I think the majority of people know that that like that out here. But it's like it's on the back burner inside of them because there's the dopamine hit, you know comes from the news and so you're like a king. as King Solomon walked in wisdom, we went a walk in wisdom. And we need to be approaching some of these like central bank infuse mainstream ideas from a, you know, protective skepticism. You know, Steve, you're a front runner in the financial service industry, to not listen to the Fed to not listen to, if it doesn't quite make sense in your logical corner if it actually doesn't have the The actual theory to be proven over and over again, it's not time tested, and you have to stop and, you know, cut the emotions from this scenario. And I find out most investors, when they come to us, they'll be, you know, 30 years invested in something, they started with a 401k. And mutual fund, they had no clue what they were even doing. But they had it in the market, they, they've never actually ever gone back ever gone back and looked at the last 30 years, what actually really happened, they just know, you know, they have this much whatever that amount is at the end of that timeframe. And so I love your idea of, you know, call timeout, we get to actually, let's figure out how it actually works, which what we're saying is the Fed hadn't even done that the Fed is just rolling the dice. They haven't even done that. And so, you know, from the financial news on QE and a stimulus and raising and lowering interest rates, and I mean, it's time to be a good steward and have a coherent picture of what's happening in the market and why so share some more of those. In our financial education, we have been trained wrong, we've just been trained wrong. So what are some of the more those points that we've been trained wrong again?
Yeah, well, that's a good question. But for me, this whole process started with if you want to, if you're going to invest enough money into something, you better know everything about it. And the problem in my industry, and I know you're in real estate, so I'm not picking on you, but just what I'm going to save applies to real estate, there's a lot of sales people, and not a lot of experts. So it's easy to sell something to someone who wants to believe it. But it's hard to actually go through and be like, Hey, you know what, I understand this investment, I understand everything about it, I understand the downside risks, the upside risks, where we could go, right, where we could grow, I understand the mechanics of it. A lot of people say, hey, look, it's a great time to buy, because it's going up, and don't you want to buy because I can make a commission? Yes. Okay, let's go. And that's the first place you have to stop is not buy into the hype. I mean, it's like going to a casino. You know, the casinos were built on winners, they're built on losers, because people get excited when they're making money, and they keep putting more and more in, and we and they are the casino knows them. If you play long enough, we will beat you. Because you will forget that we have the odds in our favor. And the smart way, if you're going to go to a casino, which is fine. A lot of people love that is when you're up as you can take some money in your pocket and say I will, if the other stack on the table goes away, I will get up and walk I will keep the money in my pocket, you got to take a little off and take a little off. But people get they go all in. They don't understand they take too much risk. And then they get wiped out. And it's just a mistake is repeated over and over again is really unfortunate, because we've had, you know, the three recession here were two major market crashes, we had 2000 2008. And what do we have today, people over leveraged in stocks again, and it's like nobody bothered to learn because the belief is, Oh, those two events can happening. It's like, Alright, well, even Janet Yellen former venture says we'll never have another financial crisis in my life, I'll take that bet every day of the week, I will take it because the odds are we're going to have it and the system is prone to them. I mean, if you understand what a debt based economy is, they are prone to failures. And by design, if you study the history of debt based economies, you will never find one that's had perpetual access without recessions or big economic crisis, they are designed to fail.
See, that's a really good point. And so clearly, a crash is imminent. At some point, it's coming. Listen, guys, if you want to get out of the public market, and get into the private market, before we continue this episode, pull out your cell phone, I want you to text the word Solomon, the 31 996 we have brand new investment offerings, that will actually show you in a webinar form. So if you'll text Solomon to 31 996 we'll get you the information so that you can be informed for your financial future. And you speak a lot about the central bankers actually believing that they can influence the economy and have this massive problem however, that they can't do that sustainably. Right. And so outside of creating this speculation of momentum, and hoping that you know people can buy into it, it reminds me of like the, the, the stock market being like leveraged with like steroids, I think like about a guy working out and he's got too much muscle built by steroids in his his physical frame, his structure doesn't actually hold it up and his body wants to cleanse like it wants to get rid of the steroids. It wants to actually get rid of the actual poison, and he's got to keep pumping it full of steroids if he wants to keep that that muscle on unfortunately, his physical structure doesn't hold it and then it can actually collapse in and so you have work right? Like you said, it's poison. So at some point, you actually have to stop it or you kill yourself. And then if you've ever seen a former pro bodybuilder who uses steroids and their older years, they look really weak, right, you can just walk over and push them over. It's so true, this the damage that's done, and that's you. And I think your analogy is really great, you know, pump this thing up, right. And all of a sudden, you find out, there's only you can only get so big, and then you have to stop, and then calm. Yep, makes perfect.
And so what we see right now is, is that we're our economy. And that analogy is really, really big. I mean, it's pump full, the steroids, it's fake, it's manipulated. And so the feds got, you know, maybe a bullet left in the gun. And that's, that's, you know, to lower interest rates. And because of, because of this, that they're forced, they're forced to actually keep putting more steroids into the body, because it's the only way. And it would be fine if it was just a bodybuilding competition for one day. But this is a bodybuilding financial competition for a lifetime. And the truth is, you can never ever have enough money to keep pumping it full. And so it pops. So let's cut to the heart of the discussion.
I've got some thought on that real quick, if you don't mind. Yeah, because you made a really great point and what so what is the feds choice, right, so they can either lower continually suppress or lower interest rates, either directly through the federal funds rate, which is now zero, so it can't go any lower, or through quantitative easing, which is, despite popular view that it's designed to raise rates, it's actually designed to lower and suppress interest rates. So they can choose to do that and try and hope that in our example, your example, the bodybuilder, right, still a strong still can pump iron, and it looks and feels good and somehow is great. Or they can do the opposite and say, well, we're going to raise rates to try to create inflation, and crash the economy. But the problem is both outcomes lead to crashing the economy. One is just a direct route that says, look, asset prices are overvalued, we need to create inflation. So we have to raise rates, and there's going to, it's going to hurt the other option as well. We're gonna try to sustain this as long as we can, and then we'll get to the point where we can't. And then boom, it crashes. Either way, the Fed loses every every time. I mean, that's where you can always bet against them. Because you know, at some point, you're going to be right.
Well, it's a really good point. So like getting to the heart of the matter. I've got investors who have half the retirement still in the stock market, they've forgotten all the times they lost a big chunk. And so if you were to have a crystal ball, what do you see happening in the next 12 months? I mean, it's it can't the lights got to turn off at some point and whatever that means. What's your What's your thoughts next 12 months?
Yeah, and you're right, it does turn off at some point. And that that's the that's that come back to that Vegas example. Why do people lose all their money when they go to Vegas and gamble? Because when they're winning? They don't take the money off the table? I mean, I've never met an investor that says, hey, the stock you got or investment has gone way up. Why don't you sell? So why would I sell it? That's the one that's doing better. Let's get rid of the ones that are terrible. And you know, for real estate's like, Look, if you've got someone's gone up a lot, you probably want to sell that and go buy the stuff that's doing bad because it's cheap. But investors make that mistake, they fall in love with it, they think it's can only golf forever. And then when the bubble pops, the answer is, well, I'll be able to get out fast enough. But when the system fails, as we saw in the great financial crisis, it can fail fast and hard. And what we've learned since the.com, bubble to the great financial crisis is and now these bigger and bigger, bigger central bank bubbles crash faster and faster. And there's so much leverage out of this market. Now that stocks are just being propped up by leverage cannot persist. It can't, at some point, there isn't enough money. And that I think this is a real key point here that people don't understand is they think the Fed is printing money, which they aren't. And so what happens is, we get caught in what's called a liquidity trap, where there isn't enough money supply growth, which it's a great, really great if anyone here has looked at the money supply. And I'm sure that you have a few listeners that do their go, Wait a minute is going up a lot. It's not going up enough. So what happens is you get what I like to use the example of a game of musical chairs, you've got 10 players, you have nine chairs, when the music stuff, we can guarantee one person's out. Well, that is what happens with the system, there isn't enough money to support everything. So you can have higher stock prices, but you might have lower jobs. Or you can have higher consumer prices on one end of the economy, but you have lower on the health, you can have higher oil, but you will have something else is negative. And at some point, the system tries to balance itself out and there just isn't enough money and then the whole thing just kaboom. You find out the music shops and there's there's two chairs instead of 10 for everybody and then that's when the whole system breaks. So yeah, that happened in the next few months. Guys, you know, I thought it was gonna happen a couple years ago to be honest with you play Yeah, I've been wrong about that for a long time, but what I do know is a longer This goes on, the worse it gets. Because quantitative easing is actually has a negative impact on the money supply, which a lot of people can't see visibly, but it does. And so there's a certain point where the where I like to say the Fed will win in the end. The problem is what they're winning is a big crash in the economy. It's unintended. They don't know they're going to do it. But it's how the music end to every time.
Yeah, I appreciate the distinction. Because, you know, at this point, the only reason an investor would still be in we've talked about, it's their belief, they're just that that very narrow, very narrow minded belief. But they've become numb. So like Michael Gerber says the natural condition of man is to fall asleep and become a machine. And it become machine, they become numb to the actual consequences. I mean, it doesn't matter where anyone is and their level of astuteness. There is some kind of financial literacy, there is some kind of wisdom. And when someone goes into a brand new investment with monies, they would never go into this investment. Because it's I mean, it's completely held up on speculation. If the if the right now, the only thing keeping it from crashing, I think is a speculation on a futures contracts and options contracts. And I mean, this, you mentioned in an interview recently, it's like the US stock market being a derivative of the option market, like, how do we get this far off from the truth, in a, sadly is actually true, which is hard to believe. But we've got so there's so much speculation in this market, that when this bubble pops, people are going to be shocked at how far I can come down. I mean, if you ask every person Oh, yeah, I mean, 10 20%, maybe it'd be maybe another 30, like March, but no big deal, we'll come right back. They don't understand because they can't see it. You know, if you just look at the s&p 500, you don't understand that how much of it is derived from speculation isn't and is a huge amount. And again, at some point, like you said, we can pump that bodybuilder full, right, you know, put the needle in, chewed him up. But at some point, the needle has no effect. And that's when it gets scary, because all that speculation gets flushed out. And when it happens, it'll happen immediately. And it's scary. I mean, it'll be bittersweet. I know it's going to happen. I know, there'll be a few winners and a lot of losers. But the problem is, it's going to hurt a lot of people and they're not going to understand why that they will say well, why didn't the Fed stop it? Well, the Fed doesn't tell you doesn't, you know, doesn't let the ball tell the bodybuilder not to do steroids. They put rules out there, it says you can't do it. But hey, if you can get through the you know, the system and what did India and you can win the competition, great. But there will be a point when they figure it out. And when they did somehow.
So let's talk about that. So the the idea of a normal investor is that the Fed the central bank, they're an Avenger, they have a hero power or power words plural. And they literally can move mountains, they have the ability to stop the world and you know, in its spin an orbit, they have the ability to control all things. So let's talk about that. What power does I mean, we're in a very unhealthy economy. What does the Fed actually have power to do?
Yeah, not not very much. Well, that they have the power to regulate the banks because they are banking regulators. So that's their primary job. And they can raise and lower the federal funds rate and interest rates through the uses directly through raising low the federal funds rate or through quantitative easing. They really have no other powers. Now, their biggest power is their ability, go out there and talk when things go wrong. And let people may give people to believe that hey, it's okay. I'm, I'm at the wheel here. Don't worry, yeah, we'll fix the problem. And then people will Okay, well, pals gonna do something. So I'll go back and buy stocks, that's the power of the Fed really has is the foul power to convince people that have a power. And their ultimate job is to keep the system going keep this debt based system going. Because again, there you know, if anyone thinks the Fed works for them, no, the Fed works for the large commercial banks, the Fed works for the politicians, they work for the rich people who who have benefited from the system and want to keep the system going. Now there there are other monetary systems that we could have chosen to go on. But the reason the world is on this one is because it makes a very few people very rich and very powerful. And if you're on the top, why would you want to change it? Why would why would you want to be equal with everyone else when you cannot be you know, when you can be better than them and that's the whole idea is I have all the money, I have all the power and I can control you and that's what this monetary system does. And the feds job is to keep it going at all costs. And in a sales. His job is to convince everyone it wasn't their fault, right? About the.com bubble, was it the feds fault that people drove tech stock prices up? No. When the housing crisis wasn't the feds fault that people bought multiple homes on a margin effectively, and speculate on how the market no was? Do we know Blake that the Fed had something to do with that due to low interest rate policies? Of course we do. The feds job is never to be the one to take the blame. So they can restart the system with some new fancy term or new lingo or game and get everyone to believe in it again, that is the real truth.
Yeah, let's dive into quantitative easing. Because people really, really have the mindset that they're actually creating, like real money, they're actually producing real money. And now we know it's not in a physical printing press anymore. But they would really say like, Oh, no, we just, we just literally created more. Explain why that's not so.
Yeah. So So what let's let's establish what the belief is first, right. And you nailed it right on the head is the Fed is printing digital money. Let me according to Powell on sick, we have 60 minutes, which was a blatant lie. And he's not the first central banker to lie about that. And then later on, recanted you're many years later. But the belief is that the US Treasury is issuing debt, and the Fed is just directly buying it and putting money in the system. That is absolutely the first furthest thing from the truth. So what quantitative easing is actually doing is what's called a reserve swap. So let's figure out how that even how that process even happens to begin with. So when people deposit money in the banking system, so let's start with that side, right, so I get it, let's say we get a stimulus check, and it gets deposited in the bank. Now, the bank's gonna pay interest on that money, right? So what they don't have any money to pay that interest because there's no interest generating asset. So how does a bank get interest to pay the clients deposit? Well, they either have to lend against those deposits, what they're legally allowed to lend nine times against deposits, although they're barely lending one time now. Or they can take that money that's on deposit in buying interest rendering an asset, which is a treasury security. Now before everyone's like, oh, wait a minute, my money is you getting used to buy government debt? Oh, absolutely, it is. But the reason the base get away with it is because a very small portion of money deposit banks is actually moving at any given time. So even though there's you can see a lot of money in your bank account, if you realize it looked at how much of that is actually going in and out. It's very small compared to the big picture. So the banks actually go out and buy Treasury securities. Now, how do they get them? Well, let's let's now let's go to the other end of the system, the US Treasury issues debt, there are three people that bid on that debt at every auction, and there's not the Fed. There are foreign bidders, which is largely foreign governments, central banks and foreign large foreign investors. There are domestic bidders, which would be you know, like pension funds, institutional money managers. And then the third one is we're called primary dealer base, and they are just a resellers of debt. So their job is to show up at the auction. And, you know, because like, for example, there's 110 year Treasury auction a month. So rather than having like two or three week or whatever week, the Fed or the Treasury says, look, let's just have one a month, we know there's people are going to buy it, you know, the following day, weeks, or whatever, and the primary dealers job is to come in and buy up debt and then resell it and make a profit off of it. And one of the people they sell that debt to are the commercial banks, and the commercial banks love to buy 12 months in under what are called t bills and short term notes, two and three year notes. That's what they pride, mostly, you know, then buy some fives and sevens, but mostly short term stuff, because department is on deposit for about three to five years usually. So banks are buying a buy. So banks are taking deposited money and buying Treasury securities who they're buying from the primary dealer banks, which conveniently most of them are owned by commercial banks. So now said a commercial bank has a treasury security, we'll say a two year Treasury note is tied to money on deposit. Are we good so far? Got it. Okay. So now the Fed comes along and says, Hey, we got to do this thing called quantitative easing. We're going to swap bank your two year Treasury security with what we call a reserve asset. And it's just an over think of it as an overnight treasury bill, literally, that matures, literally nightly pays 0.1% interest. So the Fed comes in and says, look, we're gonna swap these and right now they're swapping 80 billion of Treasury securities and 40 billion of mortgage backed securities per month. So what they're doing is they're taking from the bank's balance sheet, a two year note that has a two year maturity and turn it into an overnight maturity. And they're doing this over and over and said they're doing it with 235-710-2030 year maturity debt, and they're swapping this every month. Now, what that does is something very interesting. So by name, that reserve asset is an asset to the bank. So from the bank's balance sheet perspective, nothing actually changed. That to your note was an asset, the reserve asset is an asset, nothing changed. Now, the Fed has a liability now. So when they do this QE swap, or this reserve swap, the Fed's balance sheet now shows a liability, which is a US Treasury security or mortgage backed security, who is a liability as well, one's a liability to the government, the others liability of the homeowner, whoever the mortgage is tied to. So now that but what gets interesting about this? Are we okay, so far? Yeah. Okay, so that reserve asset is in property of the bank, there is they get a counted on their balance sheet, but but it's actually held at a Federal Reserve member bank, so the Fed is completely in charge of it. And here's what's important about this process is, when a bank is sitting on say that to your treasure, note that it bought, it can sell it at any time, it can sell it and replace it with a bill or if there's a demand for cash from the depositors, it can sell. But it has no authority to sell the reserve asset because it doesn't own it.
So think of it like you're going to borrow my car, right, but like, I'm letting you borrow it, but you cannot sell it right, you can try to sell it. But when it comes time to sign the title over your name is not my name, you cannot sell it. So you can use it, but you can't do anything else with it. Now, there's there's two important things that happen here, when this swap occurs. One, it locks out money on deposit inside the US banking system, it can move around in it. So right you can go from, say Wells Fargo to be of a to chase, but it can't leave because who controls is its departure, the Fed is tied to that reserve asset, it cannot leave. And so one of the one of the intended effects is by reducing the movement of that money, it's what it does is it takes a velocity or number of times money is used as a transaction if say, in a period of time, for example, a year, and it reduces it because it could only move inside the banking system, and there's not a lot of banks. So it takes a velocity of these dollars down. And when you do that, the whole purpose is is you try to reduce the effects of inflation when you when you slow $1 down. It's not it becomes less inflationary. And as a result, it almost makes it as it doesn't really exist on paper, right you can see it you can touch is there but it's not moving around left. So it's the dollars that can move around that are not tied to the reserve assets should then become worth more. And that's the that's one of the first things that QE attempts to do is strengthen the value of the dollar. The second thing it does is attempts to reduce interest rates. Now how does it do that Bo takes those Treasury securities off the market. Now you can say, well, Steve, I can see them on the Fed's balance sheet. Yeah, you can go try to buy one, you can go try to short one, you can't there. They're there. Because they do back. They are a real, real liability that government does pay interest on but you can't touch them. And so by taking something off the market, right, so we're talking about real estate before the show, if we went into a city right and bulldoze a bunch of property, then the rest of them there would be worth more. Right. So that's our whole point, man, right supply and demand. So if I can reduce this effect can reduce the supply of treasuries, and then at the same time reduce the dollar, the amount of dollars moving around, then the outcome of quantitative easing means the dollar will get stronger, interest rates will get lower, as you'll notice, there's no money printing involved. Now, why would the Fed want to do this? If you don't mind? I'll just continue on. So what's the purpose of the doing that? Well, how do you create new dollars in the system, you don't create it by the by the Treasury lending money that no new dollars are created, as we described before. They're borrowed from people who already have them. The only one way to create dollars in our financial system, and that's when a new loan is originated. So how do you get people to borrow money? Less? I'll ask you, like, if I was one of your clients, if interest rates were high or low, which 1am I going to be more inclined to borrow with? In theory low? Right? Makes perfect sense. Why would I want to borrow a 10? I can borrow it to mean seems very logical, although you might tell me Hey, when their rates or attend property values are too cheap, you probably really want to borrow at 10 and accept payments. But well, we'll leave logic out of this for a second. So the whole idea is the Fed is trying to suppress interest rates. Now, the reason you get a financial crisis or a market crash or recession, is because there's one thing people do not understand about interest rates, and that is high interest rates indicate the looser or easier financial conditions, and low interest rates lead to tighter financial conditions. And now we'll we're going to change roles, like you're going to be the bank and I'm going to be a borrower. Do you want to lend me a 10% or two? Obviously, only 10 Why is that?
Because I gotta make money on make a lot more money than then than 2%.
But what's your other risk. Yeah.
So if you actually default, then I'm not, I don't have much to work with to actually go recapture my loss.
Perfect. So if you have, if you, if you were getting 10%, then you could lend out to a smaller number of people, because then you would know that you have enough interest generated at 2% usage that you have to lend out to a lot of people and really pray that none of them are going to default, because your margin for error becomes so super thin. And now all of a sudden, right, this is pretty topical right now is, is it? Is it easy to get a loan right now or hard?
It's a good question. So it's, it's, one would think it's really, you know, easy to get a loan or not, because the interest rates are low. But, you know, if I found a cheat on you, one of your interviews is really, really fascinating, because you, you talked about how the banks then themselves actually start getting more strict.
Right? Because it comes back to why would I want to lend money to when I know I have to get every penny of that back. And my risk of default has to be so darn small. So what banks do, then, when the Fed suppresses rates, again, this is really brilliant. When you see how this plays out, the banks say, well wait a second, I couldn't find any money here. And I'm taking all the risk. So I'm going to tighten lending standards so bad that I'm going to make this process for you to borrow money so miserable, that I'm going to flesh out only the best and most likely people who will pay on that, and I'm going to turn everyone away, or force them to pay a higher rate, which then they'll walk away. And so by constricting credit, right? What does that do to the creation of new money? It drops it down, right? And so this whole notion that I need to lower rates to get more people to borrow actually leads to less lending, because the banks don't want to let go.
Yeah, it's so fascinating and the, the takeaways to our investors. So let's, let's, let's like tie some bows around that. What are some of the takeaways from understanding that mental framework about quantitative easing?
Well, the simple thing to understand is at some point, the system is going to pray. Now a lot of people believe the fiscal stimulus toward fiscal stimulus is very, very transitory, it has a very short lifespan. And the only way fiscal can work with visits continuous and is bigger than the last time is in perpetuity, which has never happened. So the only way out of this trap was called liquidity travels, there has to be lending, there isn't lending growth, which there isn't, because one of the again, we come back to this, you know, impact of destroying money. In a great example, like us, like, if you don't mind, let's just pretend you are going to go out, buy a car together, right? And we go down to dealership, and we'll do simple math, we're gonna buy a $60,000 car is 0% interest for five years, $1,000 month payment. Now when that loan is originated, $60,000 enters the economy, this is a good thing. And a debt based economy, more people can do it, the more the economy will grow. But what's the negative immediate negative effects? Well, the first one, we make a payment, right? 200% of principal zero interest loan $1,000 is destroyed at the end of the first year $12,000 is destroyed. By the end of the fifth year, the whole $60,000 has been destroyed. And that and now it's been removed from the economy. Whereas when you have high interest rates, say back in 70s and early 80s, interest is in the economy. And that's when you can't get it the problem there was it couldn't get rid of it. Now the problem is we can't keep it because we keep lowering rates. So the challenge is you have all these people at low rates. And then as they make their payments, or you know, they pay things off, money is destroyed. And you can't create enough new loans to offset that at some point, it becomes more difficult to do. And so the solution is always lower interest rates more. And the problem is that it actually just in the short term can create some money, but in the long term, it exacerbates the problem. So for investors, yes, right now market looks like it's okay. The Fed appears like they can make it magically go up forever. The problem is that that there will be a day of reckoning, it will all stop it will come crumbling down. Will it be tomorrow? I don't know next week, I don't know. But at some point, this will stop because we can see how you might understand what QE does. What we now need to do as investors is look at what's being created in the banking system. And luckily, there's a report each week called the H dot eight put out by the Fed, you can see that lending growth is contracting in some parts and dramatically slowing and others it tells you the system is going to break at some point. And that giving people check while it is great and help some families out. You know, if you're unemployed, just because you got 1400 bucks, a bank is not going to lend you because you don't have a job and folly. You don't want to lead you want to pay things off. And so all of that leads to further contraction or deceleration in credit, which eventually leads to contraction. And by that point, usually things have blown up by now historically, but it just tells you that at some point this thing's gonna go and everyone's gonna find out how much real leverage is under this. And all I can hope is to help there on the sidelines. before that happens, but sadly, a lot of people won't be.
Yeah, that's the truth, you know. And the truth truly is, the Fed is not on your team, you actually are against the Fed, and it's a zero sum games, it was only going to be one winner, and there's going to be a loser. And you've got to make sure you're on the wrong. You're on the right side. You've mentioned so many times, that in all your expertise, Steve, you haven't seen anything like this in history? I mean, we're so upside down, we're so manipulated, there's so much speculation in the market. Now more than ever, obviously, you believe a crash is imminent? Why is it that people right now are what we call maybe a blind leading the blind ducks or, you know, it's the system that we've just talked about the numbness, the, you know, why is it though, that, that they stay in the lukewarm water? until it boils like that frog in the water? Why is that?
Yes, it's pretty simple. I mean, if you believe that the Fed is printing money with people do, and the government's going to give that money to other people, right? So if I print money and give it to you, and I'm created out of thin air, well, what is that going to lead to inflation. So what what I want to do well, I want to buy as many homes and cars, I want to, I want to get as many stocks and I want to take as much leverage as I can across the board. Because they're going to keep doing this. And that means everything's going to go up the problem is they're not actually doing it. The QE is not money printing stimulus of borrow money. And when you when it all comes down to the end, we're gonna find out that the system cannot support. So yeah, in the meantime, Could someone get their check and go buy more call options on the market? Sure. But there is a point where there isn't enough money to sustain these higher prices. Again, back to your bodybuilder example. I mean, we can make this just perfect looking your body and it's gonna win all kinds of awards, but we're gonna have to keep pumping more and more steroid into it, you can't just do it once. I mean, there's gonna be a point where it's like, Man, it's been five minutes, here's the mark, in two minutes, here you go. And that's the problem is the higher prices go, you need more and more money to support it? Well, we're stuck in a liquidity trap when there's not enough money to support. So it's a zero sum game, as you said, wherever whenever there's going to be a loser and tell them there isn't enough money. And then those who are winning are so over leveraged that they can't support what they're leveraged. And that's exactly what happened, the great financial crisis when the housing bubble burst, and exactly what happened when the tech stock bubble burst in 2000. And it will, unfortunately, happen again, but it will happen at a time for baby boomers, which is going to be a terrible time because most of them are loaded up in stocks, they are not going to be able to go back to work, the economy is not going to be able to allow them to go back to work if they could, and they're gonna find out that losing a lot of money is going to happen at the worst possible time is going to be absolutely devastating. Now, hopefully, it may not happen for a couple of years. But it may happen next week, but the day it comes, it will, we will not be able to stop it.
And that's the point is that the day it comes, and everyone thinks there will always be another day. But when the lights turn out, they're out there. And so as a steward is one actually wanting to actually build wealth, wanting to have sustainable wealth, wanting to actually have confidence in the middle of the chaos, not actually being numb in the middle of the chaos, we've got to actually see the light at the end of the tunnel. And it's not actually staying in the market, the light at the end of the tunnel is realizing that the public market is actually fully propped up. It's actually fully manipulated that QE is like that dopamine drug in the arm. And as you've said, at best is you got to keep putting more drugs and more drug. And as soon as you get the drug has a stronger and stronger, and the stronger drug now has less effect. And that quantitative easing now has a less effect, they gotta do more of it. But you made a great point, you're borrowing the money, it's not printing new money. So the money doesn't have a clean slate. It has a tainted slate, because it's borrowed. So there's weight, and the more you do it, the heavier it gets. And that's why the lights have to turn out. And so for those of you listening, this is so important for you to understand the edge the financial literacy, that Steve is sharing, because everything that you're hearing on the news, everything's you're hearing about the economics about what quantitative easing will do, where we're going. You've got to realize the writing's on the wall. You've heard this many times in the past, those bubbles have already burst. You already were if you were a part of the last 30 4050 years, you you saw the big crashes. So it's time to actually get out of the public market. It's time to actually step out and become one who actually has a three dimensional investment, what we call God directed full of control and exponential wealth. Man, Steve's so good. I love the financial literacy, the stories, I love the diving into the history. I love getting into just truth. It's a it's a rare thing for us to actually have truth in the financial world. And so I appreciate your expertise. Man, for my listeners, if they want to hear more about you, where can they go to hear more of your stuff?
Yeah, they can go to my website at Steven van meter.com. I'm active on Twitter, Facebook. And as you mentioned, I'm a lead in on the show, I have a three day a week macro investing show and Sunday Chart Show You can find me on YouTube. Totally free. And you know, if you if you really want to open your eyes, well today, because I will teach you how the system really works. Fantastic.
So now I get a lot of questions on you've told me to leave the public market. But where do I go? You've mentioned the private market. But where do I go. And for those of you who are interested in establishing control of your financial future, who are interested in investing in commodities, that have a great store hold of wealth, and build wealth over time, we're doing a webinar very soon with our new opportunities. So pull out your cell phone. And I want you to text the word Solomon to the phone number 31 996. Again, you're going to text Solomon to 30 196 will have new offerings in a webinar form that you'll have the opportunity to invest into. At moron capital, we hold your hand turnkey through the entire process. So for those of you who are like, but my money is still in the public market, this is perfect. Come watch the educational webinar, then you'll do a one on one call after that with us. And we'll hold your hand through the entire process of removing your money out of the market, putting your money in the private market so that you can have control and build wealth. So again, you're going to take Solomon to 31 996. Steve, thank you so much for your time, my friend. We'll have to do it again soon. Look forward to it.
Like it's been a pleasure. I appreciate you having me on and I look forward to the next time for sure. Okay, guys.
This is Solomon Investor Podcast, signing out your success. Bye