EPISODES / WEEKLY COMMENTARY

World History & The Cost Of Money

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Jul 19 2023
World History & The Cost Of Money
David McAlvany Posted on July 19, 2023
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  • Interest Rate Cycles Last Decades, Not Months
  • Reaganomics, Bidonomics, and Trumponomics All Run On Debt
  • Interest Costs Alone On Debt Will Be Close To $1 Trillion

World History & The Cost Of Money
July 19, 2023

“The idea of rising interest costs and the consequence that has, because of the mountain of debt that already exists, nearly a trillion-dollar tab for interest. On top of that, imagine our future with the scaling up of government obligations—Bidenomics, all with an existential appeal for planet saving initiatives—which is going to require trillions of dollars and will have to be financed. And it’s not going to be financed at lower costs. So keep in mind, if the math is bad today, it only gets worse tomorrow.” —David McAlvany.

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. 

World history could be probably summed up with the line that we see in Jerry McGuire: “Show me the money.” “Show me the money.” Remember that scene? Jerry McGuire was a sports agent and the guy he was representing said, “Show me the money. Repeat it, repeat it back. Show me the money.” But if you’ve got the money, you can do an awful lot of stuff.

David: Yeah.

Kevin: If you don’t have the money or if it’s too expensive, I guess, how expensive is—

David: That’s what I would say. Exactly. I would say show me the cost of money.

Kevin: There you go.

David: And there’s the history of the world.

Kevin: Yeah.

David: There was a period not long ago when small government, privatization, free markets, these were the things that were the rage. And so the poster boy for that era was spirited, he was well-spoken, he was the California governor. And he’d stepped in to play a part as he had previously done in Hollywood. In this role, he was casting a vision of victory for the Cold War, and he was looking through the morass of government regulation and red tape to something that he viewed would be more efficient, more effective, more productive and create more wealth. 

And I think ideas matter, but there is also proper attribution that’s necessary to factors that drove the economic successes of the Reagan era. If you don’t account for them, you’re going to miss something really critical. Show me the cost of money. Not all those factors are duplicable today, and in some cases, they’re moving in the opposite direction. 

So backing the success of that president’s economic agenda and sort of the geopolitical assault against the Soviets was the debt markets. Long-term trend in interest rates, by coincidence, was adding energy to his policy ambitions. And this is a long-term story. Interest rates began to fall in the same year he was elected, and of course he took office in ’81, was almost killed in March of ’81, if you remember that.

Kevin: Yeah, I do. Very much so. Yeah, in fact, it is interesting because we were able to run on an awful lot of debt, but we only had a trillion, from George Washington to Jimmy Carter, we had built up $1 trillion worth of debt. I think it was under the Reagan administration that we tripled that.

David: That’s right. But through this whole period of time, those two administrations, there’s this major reversal of trend, definitively marking a reversal in trend as he took office in ’81 and it continued to progress downward through his two terms. Interest costs decreased substantially there, and it provided greater latitude for a lot of things. It provided greater latitude for corporations to explore growth opportunities, and it provided a greater range of opportunities, ideas that wouldn’t have been economically feasible. And yet as the cost of capital debt came down, they were on the table, they would be profitable, could be profitable. What you see is that markets take risk when rewards are possible. Higher interest rates limit the scope of rewards for any risk that’s taken. And the opposite’s true too. As you lower interest rates, you’re increasing the probability of success, you’re increasing the rewards for the risk taking, all else being equal.

Kevin: And so from an interest rate cycle point of view, we went through 40 years. You bring Reagan up, I mean 1981, I was just getting out of high school. Interest rates have been falling, Dave, since I left high school. We had a 40-year run, and this is the first turn in my lifetime since I was a kid.

David: Yep.

Kevin: But Reagan, he did take office as the interest rate cycle had turned. The interest rates have been coming up all through the 1970s, but Biden, whether you like Biden or whether you don’t like Biden, is sort of bad timing, isn’t it? When you have a turn in the long-term interest rate cycle, everything’s going to cost more money.

David: He’s not the poster boy for free markets. He’s not particularly well spoken. He may be spirited, but more in the sense of being angry, and maybe tired—353 vacation days so far in his administration. That’s 39.2% of his presidency which he’s had to take off.

Kevin: Wow.

David: So angry more than spirited, bumbling more than well spoken, and I don’t think he’s particularly able to be, let alone act the part as, commander-in-chief. No vision for ending a new cold war. And there is a clear ambition—it’s the opposite of Reaganomics—to recreate an FDR super state replete with miles of red tape and mountains of regulations. So add to this unfortunate headwind— Again, there was tailwinds for the Reagan administration, but now you’ve got the unfortunate headwinds Biden faces from the rising cost of capital. When Jim Grant says that interest rate markets are long trending, he’s a hundred percent correct. 22 years is the shortest directional trend in US interest rate history, 40 years is the longest.

Kevin: And we just finished that 40-year period. I think of about ancient civilizations and the guys who were trying to discern the future truth, and they maybe cut a lamb open and read the liver, okay, or go outside at midnight and they’d look at the stars and see where the planets were in relation to the constellations. All of those things probably had virtually nothing to do with the clarity that they could have had if they would’ve actually just looked at the cost of money. You can see the future if you can see the cost of money going forward.

David: Well, I’m in debt to Jim Grant and the books that he’s written, and one in particular, the history of interest rates in the United States, he wrote this back in 1992, “Money of the Mind.” And I’m also in the debt of Sidney Homer and Richard Sylla for their 4,000-year History of Interest Rates. Richard, you might recall, was a remarkable Commentary guest back in July of 2019. Definitely worth a listen. And maybe I’m to a lesser degree in the debt of Michael Woodford for his book on the same subject, Interest and Prices. At least he gives this neo-Keynesian approach or understanding of the history of interest rates. 

But my first aha moment with interest rates, and I think the greatest debt is to a duo at Smith Barney, Alan Shaw and Louise Yamada. Technical analysts, they ran the team for Smith Barney through the ’90s and early 2000s. I think Alan actually went back 30 or 40 years with Smith Barney. So my best friend worked at Smith Barney, I was at Morgan Stanley, and the research flow went both ways between us. Like you said, a picture is worth a thousand words, and here is this picture of 200 years. And the line marked out a number of jagged peaks and serrated valleys, and they told a tale far more impactful than looking at interest rate changes in terms of its daily volatility or even if you’re looking at a short-term, one-year price trend. What does this mean? Where is it going? The overall trends in assets don’t change that often, but when they do, it’s consequential. When they do, it’s lasting.

Kevin: Well, for the person who’s ever purchased a house, you realize, just a couple of years ago, your mortgage that you would pay, let’s say you put 20% down on a house, your mortgage right now would be double what it was a couple of years ago. So that applies everywhere you go. I mean, government debt is just like that. If you look at how much interest rates have risen, and we’re not talking just a couple of years of rise, what you’re talking here, Dave, is possibly decades.

David: Yeah, yeah, exactly. The long trends are not months, they’re not quarters, they’re not years, but decades. And Yamada reflects on the context of the current rates market. She’s quoted in Grant’s Interest Rate Observer, she says, “From a technical perspective, the 40-year cycle of declining rates,” from 1980, ’81, “has ended, and has reversed into a new rising rate cycle which could last for years.” And again, the insights shared from Grant’s Interest Rate Observer—she runs her own service now, she’s not a part of Smith Barney. But for $50,000 a year, I appreciate the nod from Grant’s. So consider, as we have on the Commentary over the last five to 10 years on this podcast, the idea of rising interest costs and the consequence that has because of the mountain of debt that already exists.

Kevin: Haven’t we topped a trillion just in interest right now?

David: We’re on track for that, nearly a trillion dollar tab for interest this year alone on the US national debt.

Kevin: Just interest?

David: On top of that, imagine our future with the scaling up of government obligations. Bidenomics, all with an existential appeal for planet saving initiatives, which is going to require trillions of dollars and will have to be financed. And it’s not going to be financed at lower costs. So keep in mind, if the math is bad today, it only gets worse tomorrow.

Kevin: And that is really tough for any politician, whether they’re Democrat or Republican. Yeah, I was reading George McDonald, you remember the author from the 1850s through early 1900? Yesterday, this quote came up. It says, “It’s not in the nature of politics that the best men should be elected. The best men do not want to govern their fellow men.” And I thought you do need money to govern your fellow men. It may not be money that you have now, but it may be money that you’re taking from the future.

David: The polls currently have 70% of Americans, 70%, at least of those polled, who don’t like the idea of Biden competing against Trump again. That means there’s a lot of people who voted for one or the other of those two people—

Kevin: And they don’t like either of them.

David: No, absolutely not. So here we are moving towards a new era of big government solutions.

Kevin: Right.

David: Bigger checks to write, and the biggest deficits, which I do think the bond market will take note of at some point. And that’s being added to the already gargantuan pile of debt obligations. Reaganomics is out, Bidenomics is in.

Kevin: Well, what about Newsomomics? Are we going to have Newsom?

David: I think we’ll keep Bidenomics as a phrase, but it’s going to take a bit of energy to get it done, so to say. So Newsom may be the next governor from California with an agenda to be implemented on a grand scale. I don’t know how this happens exactly. Having learned nothing from the mismanagement of the fifth-largest economy in the world—that’s Newsom. 

Biden will be this guy who’s remembered for his shift, his shift from the market to the machine, bureaucracy and the state apparatus being put in place to care for all planetary life forms. Whatever you need from cradle to grave. The implementation, though, can’t be him. Implementation is going to require a more vigorous character. Somebody who doesn’t need 353 days of vacation in their first term. Connected to the moneyed elite, that’s Newsom. Biden’s out. And you see the handwriting on the wall. You’ve already had a turn in the press against Biden. Axios, the Hill, the New York Times, the Washington Post, they’ve all begun to be critical of Biden. Whereas before, again, you just didn’t say anything negative whatsoever. He was a team member, so you just didn’t go there.

Kevin: Yeah, there’s been a change in the wind, hasn’t there?

David: Yep. And if it’s not Newsom, it’s somebody else. But frankly, governors run as strong candidates. And we mentioned Reagan. California governors seemed to capture the turning of the tide quite well.

Kevin: Going back, we were talking about high school, and I remember the late 1970s and how Russia invaded Afghanistan. And just the thought of communism taking over the world, that was the main rallying cry of spending money back then. Reagan, when he came in, there was a trillion dollars in debt. And by the time he got out of office it was $3 trillion in debt. So out of 200 years of American history, we tripled our debt in one administration. But people will still look back and they’ll say, Well, the rallying cry was to defeat communism, the Soviet Union.” And some people would say, “Well, it was worth the money.”

David: And he ran as a fiscal conservative, which, there’s some irony in that. Fast-forward to today, I can imagine a world where fear of climate catastrophism, where an unsound extrapolation runs far beyond the science of climate change and finds a marriage, a marriage of commercial and industrial interests. That sort of being in bed with governmental bureaucracy, forming the new environmental industrial complex, replacing the outdated military industrial complex. And who’s there to save it? I don’t know who the person is, maybe it’s Newsom, maybe it’s somebody else. But the messianic role of controlling all the variables believed to bring relief to this perilous problem, the perilous problem of our day. A charismatic speaker, an actor, an entertainer, somebody who’s able to capture the angst, anger, and energy of the masses.

Kevin: So like the conservatives did back in the sixties and seventies?

David: Well, yeah, because conservatives were more than a little concerned by the state of the world coming out of the sixties and seventies.

Kevin: Right.

David: Certainly were disturbed by the kind of social change. That was upsetting to them. Just the nature of conservatism—you want to maintain the old ways, and here you’ve got all these new progressive ideas, the butter policies on the guns and butter equation. Social change was upsetting. The fear of world domination was sufficient to bring voters out en masse in support of a new solution. So you’ve got Reagan there to be the fighter of the good fight—Reaganomics, which is a way that everything’s going to be funded and all will be well. The agenda was funded by a massive increase in debt coinciding with a collapse in interest costs. Without the collapse in interest costs, you can’t stimulate risk—taking in the economy, that’s a factor—and you can’t afford to fund the fight against the generational boogeyman.

Kevin: Right.

David: So we outspent the Russians. They went broke while we doubled and then tripled the size of the national debt with little to no consequences given the collapse in interest rates.

Kevin: Well, when we talk about politics, because you can buy social calm if you can provide enough money to the masses. Bread and circuses do a number of things for people. They keep them very, very calm. But what if you can’t provide bread or circuses?

David: Everybody can dream, but it’s not realistic to see all dreams become reality. I would suggest that the gradual multi-year-leading-to-multi-decade ascent of interest rates is first like getting to a mountainous elevation. An elevation shift—the air gets thinner, and it’s harder to get anything done the higher you go. I spent the weekend at about 10,000 feet, and, boy, just walking across the campsite.

Kevin: And you’re a triathlete, but you do, you can feel it.

David: You can feel the difference in the thinness of air. But the second thing, also when you go to higher altitudes, I don’t know if you know this, but the boiling point of water the higher you go, it happens at a lower point. So this phase shift from calm to hard-boil, at sea level, it’s 212 degrees. At 7,500 feet, it’s 198 degrees, and it goes lower from there. And I’m thinking about this from sort of a social and political perspective, changing the point at which issues boil over into riot and revolution. I think that’s important. A long-term trend in higher rates raises the stakes and it lowers the probability of policy success just as it does for all financial commitments. And at the same time, it makes social and political commitments more tenuous and potentially turbulent. Again, lowering the point at which things boil over.

Kevin: Do you remember when gas was getting up to about five bucks? Now I’m not talking in California, but just around the country. Just a couple of years ago, gas was like five bucks. Now gas is not quite half that. I think people, when they’re looking at the energy markets or what it costs to actually go somewhere, it actually carries over to an awful lot of other things because I know we’re still seeing much higher inflation in just about everything else that we’re buying. But gas is cheaper, and it seems to have put a calm in this social boiling, what you’re talking about.

David: Already priced into the crude markets is this idea of a slowing global economy. And so we’ve been the beneficiaries of that. Of course, the Biden administration also sold a number of barrels of oil out of the strategic petroleum reserve. And now you’ve got the Energy Secretary vowing to refill the SPR by the next presidential term. So oil, could it go higher as we refill before the next election? Would the CPI go higher as oil goes higher? It’s likely. So Bidenomics means that the ebb and flow of inflation is early in its life cycle. We saw 9% inflation last year at this time, and then last week we’ve got a CPI print which is reason for good news. Last week, the news of inflation reprieve, and the markets are happy about that. Gleefully celebrating that if inflation’s not moving higher, then interest rates don’t have to either. And of course, there’s a little pep in the step in the stock market as a result.

Kevin: Not that they need an excuse, but they need an excuse.

David: They will. But I think we’re going to have pockets of inflation which will flare, and there’ll be the carve outs, other items, which will continue to rise unimpeded.

Kevin: But what if gas starts going back up?

David: I think you’ve got to watch the energy markets very closely. The June CPI, just to give you a sampling of some things, that report, year-over-year transportation costs up 8%, shelter up 7.8, electricity up 5.4.

Kevin: There’s your inflation. Yeah.

David: Food away from home higher by 7.7. Gas utilities lower by 18.6, gasoline lower by 26.5% year-over-year, fuel oil down a whopping 36.6%. So the next surprise higher in the inflation numbers will be with resurgent energy prices, I believe. So you look at the supply and demand dynamics over the next three to five years, and within the energy space you’ve got a very bullish case that can be made there. That’s good news for the energy investor. It’s bad news for the inflation fighters because monetary policy doesn’t necessarily dictate the full outcomes. There’s not this clear correlation between tight monetary policy and low oil prices. Those supply and demand dynamics within the energy infrastructure are quite different.

Kevin: So you remember Volcker, if we’re going back to the days when I was just getting out of high school, Volcker is remembered for raising interest rates, but most people forget that he actually thought that inflation was under control and he lowered them.

David: And that’s the mistake that this administration could make too. I’m speaking of Jay Powell and the folks of the Fed. We’ve said it before, Volcker made that rookie mistake. He assumed that the first downtick in inflation was justification for a victory lap. And the reduction in interest rates, which he first initiated, he lowered them. And then when the inflation beast surged again, shortly thereafter, rates had to go uncomfortably high as a countermeasure. Long bonds went to 16%, the prime rate went to 19%. So watch the energy markets.

Kevin: OK. So we were talking about Bidenomics versus Reaganomics. Let’s just take all the other differences out of the equation. If we just looked at interest rates, there’s not a chance that this is going to work. It’s costing too much money already. A trillion in interest?

David: I read a book early on, I was probably 12, 13 years old when my dad assigned this to me, Ideas Have Consequences. So I don’t remember who wrote the book Ideas Have Consequences, failing memory. Does this happen the closer you get to 50?

Kevin: Well, you know what? I do know that that phrase, all the years that I’ve known you, the phrase has come up. It’s like, “Kevin, ideas have consequences.”

David: So we could look at Reagan, we could look at Biden, and we could say, okay, different men? Yes. Different assumptions about how to achieve the common good? Certainly so. But different dynamics in the interest rate market? There is the critical issue that I think lowers the probability of Bidenomics getting airborne. A couple of weeks ago we talked about the Spruce Goose.

Kevin: Right.

David: This, again, like the Spruce Goose, so big and weighted down it never gets out of ground effect. And in turn—I think this is where it gets really interesting—it’s not as if anyone instituting a new policy admits defeat. Actually, it does happen in other forms of government. We saw this in the UK. Liz Truss says, “Here’s what I’m going to do with the economy.” The bond market revolts, and she gets thrown out. I think she was in office, what was it, 11 days or something. So policies can be turned on their head under different forms of government, but not in this one. So I think we see a government bureaucracy turn militant and double down their efforts, double taxation, double down on a project that has impossible odds of success in the context of rising rates. There’s a generosity even with bad ideas when you’ve got free money on offer. And when the free money gets expensive, then everybody and everything functions differently.

Kevin: Well, and to get everybody on board, often you have to have things that will raise the emotion of the country to be able to say, “Yeah, we’re going to tax you.” I think of World War II, Pearl Harbor was necessary for some. I mean, Churchill danced when he heard about Pearl Harbor because that was going to be what created the fear of the enemy in Americans. The Lusitania, going back, I mean, we can go back to historic events. You somehow have to have a catalyst that creates fear and resolve.

David: Yeah. And I think any mandate that is fear driven, this is just on a personal note, any mandate that’s fear driven is one that I’m naturally suspicious of. Whether it’s a conservative mandate with the rallying cry of immigration and we’re all going to be overrun and nobody’s going to have a job and kind of the move towards hyperbole or concerns of Cold War catastrophism, like Reagan in his day. Or liberal battle cry tied to the existential plight of the planet. Threats may be real, but to motivate the masses, they’re often overstated.

Kevin: Yeah. Or you may have an event that actually solidifies it.

David: Yeah. In this regard, I think voters are used, used like pawns in a game. Useful energy, they bring necessary dollars to accomplish the ends of policymakers. So means to an end. Political rhetoric is therefore naturally, it’s necessarily, divisive. And concerns are necessarily overstated regardless of your political party. And various polls have been done on this, fascinating, 60 to 70% of voters just want to live their lives and be left alone. It takes emotionalism to get them off the couch into the voting booth. Politicians in that respect are extremists and inventors of mass psychosis. At least that’s what’s necessary in a democracy.

Kevin: Yeah. But it still goes back to what’s the cost of money? Because none of these things can be pushed through without money.

David: Right. So why wonder at the outcomes of public policy, why linger on the Inflation Reduction Act, the CHIPS Act, the Infrastructure Investment and Jobs Act, a couple of these things that have come through. It’s just the beginning. It’s just the beginning for this new era of big government. We think of them and we linger on them because the balance sheet won’t take the strain because there’s already insufficient income to pay for them. And because the cost to borrow in order to deficit spend our way towards success is already on an upwards trajectory. So whatever brand of public policy you prefer, whether it’s Reagan’s or Biden’s, recall that rates matter. And we’re in a context where, again, long trends, think of this, the interest rate trend today is not your friend.

Kevin: Well, one of the ways that you can pay for things without necessarily borrowing the money, is you just print it. I had a conversation today with a client. Dave, I hadn’t talked to this lady for 25 years. We lost track of each other. But as we were talking, I started remembering her. She was in Washington DC. She was a client back in 1992. She bought $70,000 worth of gold from me at that time. But because of business expenses over the next couple of years, she had to sell it all back. She said, “Would you just, entertain me? Would you tell me what that would be worth today?” So we went back and calculated it. The $70,000 that she had at that time in gold, had she not have sold it, would be worth $370,000 today. And she’s buying more gold. Her business is very successful now, so she’s going to be buying more gold. But the point is this, and I pointed this out to her, a loaf of bread when she bought that was 85 cents a loaf, a loaf of bread today is $5 or $6 a loaf. So in reality that $370,000 worth of gold would still buy the same amount of bread. Now, that’s the nefarious destruction of the dollar. That’s another way that you pay for things without having to pay interest.

David: The long-term story here is you do see the rise and fall of nations with that chart of interest rates. You do see the strength or weakness in a currency also reflected therein. And as interest rates go higher, I don’t think this is a strong dollar story. I think this is the demise of the dollar story. I’m a long-term bear. That’s not to say that I think it’s eminent, what’s going to happen in the next five years or even 10 years, because you don’t have the necessary ingredients anywhere else in the world to sort of remove us from our incumbent position. But you’re doing things, we’re seeing things being put in place today, which I think might accelerate that trend. An energy transition, there’s merits to it. I think it’s constrained in some respects by the resources available. We can’t snap our fingers and get all the lithium and copper and other elements that we need instantaneously, or even over a 20 or 30 year period and you only have—

Kevin: Unless we’re convinced it’s survival alone that gets us to spend that.

David: Even if we’re convinced, there aren’t the necessary resources to make it happen. Everyone assumes that you do have sort of this supply elasticity with natural resources, and it’s just not the case. It’s just not the case. An energy transition will cost tens of trillions of dollars. If survival is on the line, then socially we will accept those costs. Any cost will be acceptable. But again, this is something that’s sort of on paper. That is rhetoric that an actor can mouth convincingly. To pay for the world of tomorrow as dreamed of today will entail nothing short of the death of the dollar and an upset to a way of life which has been improving exponentially, not only for the United States, but the entire planet for two to three centuries. I’m not saying that there’s not a disparity between rich and poor, but the poorest have a better lifestyle today, and have over the last two to three centuries, than they have at any other period in world history.

Kevin: The last thing that Eisenhower basically said before he left was, watch the military industrial complex. They are self-serving. And it was interesting as a politician because he had been in the military, obviously, and he had been in politics, and he warned America: don’t let it get out of hand.

David: Yeah, if your business is selling weapons, you always need an enemy.

Kevin: Right.

David: And you might even encourage poking one [unclear]. The complex that Eisenhower warned against can extract their trillions if the battle is eminent enough, if the drama is convincing enough, if the threat is real enough and the news cycle is supporting it, thus the conflict narrative. The conflict narrative is so vitally important. Conflict with whom? Conflict with what? Are we fighting against them? Are we fighting for our survival? Who will have sufficient potable water? Who will have oxygen to breathe? Will our crops survive of veritable inferno? Who’s going to be fed? 

There’s always some truth in a policy appeal. How much is debatable. That’s why contrast between climate catastrophism and climate change. My primary point, and I think this is best sketched, I mentioned the Richard Sylla interview back in 2019, and my primary point is sketched out in Homer and Sylla’s 700-page book on the history of interest rates. It’s worth quoting, to me, “In the charts and tables of interest rates over long periods, students of history may see mirrored the rise and fall of nations and civilizations, the exertions and tragedies of war, and the enjoyments and abuses of peace. They may be able to trace in the fluctuations the progress of knowledge and technology, the successes and failures of political forms, and long, hard, and never ending struggle of democracy with the rule of tyrants and elites.”

Kevin: So, as boring as it sounds to study decades or centuries or millennia of interest rates, you actually are studying history, and possibly—a lot better than reading, say, a lamb’s liver—you’re possibly able to predict somewhat the future event.

David: It was fascinating, I had a great conversation with my oldest son. One of his summer assigned readings was Confessions of an Economic Hit Man. And for him to see that public policy and interventions get you gifts with strings attached the way the IMF and the World Bank have done, the way China is doing now throughout the world.

Kevin: Here, little country, borrow from me. Here, little country.

David: All of sudden, economics was alive. There was more to it than a flat statistic. There was a story, there was a narrative, there was a tragedy. For a guy who likes drama, because he does like drama, as an actor, as someone who enjoys musical theater and things like that.

Kevin: He saw the drama of economics.

David: He saw the drama.

Kevin: And there is drama in the cost of money.

David: So whether we speak of modern democracy or the absolute monarchy of Babylon or the Roman Republic or the ancient Greek version of democracy, cultures are thriving in the context of declining interest rates and in some state of either decline or fall as interest rates are on the rise. So to go back to Homer and Sylla, they go on to say that, “long-term interest rates properly charted, provide a fever chart of the economic and political health of the nation. Wars and political and economic calamities are recognizable at sight on the charts.”

Kevin: Last week, I ordered myself a little three-minute hourglass so that I could just stop every once in a while. This is my three-minute do-nothing hourglass because a lot of times I move from one thing to the other, not thinking about the next thing. I think most of us do that. So what I’ve been trying to do, and we’ll see if it’s successful or not, Dave, but I’ve been flipping that thing over between major projects and just sitting and thinking about it. And I think what we ought to ask our listeners to do at this point is do the same thing. Stop, and imagine a world of rising rates. None of us, none of the adults, except for the people in their seventies, eighties, remember falling interest rates. I mean, let’s face it, I’m 60 and I only, in my adult life, remember falling interest rates. There is the other side of that cycle.

David: If you took that little hourglass, it just gives you a moment to remove yourself from the chaos of the present moment and reflect. And if you looked at two weeks ago, we had radical increases in interest rates. Last week, radical declines. Huge volatility in the interest rate markets.

Kevin: Right.

David: What does it mean? Where are we going next? If you can remove yourself from that chaos and see what is happening in a broader context, charts don’t predict or determine a future, they say a lot about the past. That if we ignore them, we ignore them to our detriment. We ignore them to our peril. So to Alan Shaw, to Louise Yamada, I’m grateful. I’m grateful for the insight from 20 years ago that suggested that the trend in rates is both long-term and of consequence. And in playing out a narrative which is not just a day, not just a week, but this is something that becomes very important to see at the transition points, narrative that goes through years and decades. If you can close your eyes and imagine a world of rising rates, the why and the who, what’s driving those rates higher, of course they’re important, there are ideas driving the trends. In this case, an era of rising rates is consistent with an era of bigger government and of diminishing returns of increased financial market risk. And I think quite literally a golden opportunity.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. You can find us at mcalvany.com, M-C-A-L-V-A-N-Y.com, or you can call us at 800-525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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