Grant Williams: A Reset Of The System Is Inevitable

While at the New Orleans Investment Conference this past weekend, Chris and I had the great pleasure of sitting down with Grant Williams, publisher of the economic blog Things That Make You Go Hmmm and principal of Real Vision TV.

There will be no smooth transition back to sustained economic growth, he warns

Instead, the distortion of today’s excessive asset prices will require a systemic reset to fix. Either by a deflationary event that destroys the malinvestment, or by an inflationary event that destroys the currency.

Either way, a shock to the system awaits us:

When the 2008 crisis hit, we were “at the brink”. Guys like Jamie Dimon will tell you that we were *this* close to the banking system not functioning, people being unable to get cash out of the ATMs.

If you live in Cyprus, if you live in Greece, you’ve seen this movie play out in real-time over the last few years. You’ve had your savings confiscated by the government or a bail-in.

It may not happen here in the US until the very end, but to say “it couldn’t happen here” is clearly wrong. There’s nothing that says the United States is exempt from the laws of finance and thousands of years of historical precedent. Even though it happens to be in the ascendancy globally at the moment, those things change.

Ask Portugal who used to be the holders of the world’s reserve currency centuries ago. Today they’re just one part of the euro. These things ebb and flow. They rise and fall.

A true systemic crisis is what we saw in 1929 -1933. It is to a large extent what we saw in 1971 when Nixon closed the gold window although didn’t have the same outcome and it didn’t look the same. But we had the punishing massive period of inflation afterwards, so it was a systemic crisis.

2008 was a systemic crisis, too. In 1929 and 1971, the answer was dealt with through the gold standard and through the pressure valve of the gold price. In 2008 they tried a different route. They tried printing money and throwing as much fake money at the whole thing as they possibly could. The worst thing that I think happened, was it did stop it. It was enough to arrest the slide. Did it fix it? No. And that’s the problem. Nixon’s move in ‘71 fixed the system for a while. It was a massive one-off reset that allowed the world to rebuild from a much more solid base.

The same thing in 1929. We went through tremendous unemployment and all the problems that came with The Great Depression, but that gave markets a clearing price. It allowed society to reset.

That’s what we didn’t get in 2008. We had an investment bank go down. We had a lot of people lose their homes. But in many cases, they were homes that they simply couldn’t afford anyway. So being told that you’ve lost your third condo that you’ve bought with leverage, that’s not a great depression-type event. That’s the financial gods coming back and saying, “this is not how it’s supposed to work”. If you’re a dancer in Florida and you own 13 condos all with leverage, don’t start crying when it doesn’t work out.

So what’s likely to happen is another reset of the system. They’re fighting tooth and nail against it and that’s their job. Frankly, if you say to them, what are you trying to do? They’re trying to avoid these outcomes, which is fine.

But these outcomes unfortunately are only truly avoided by not letting them build up in the first place. That’s the problem. Because man has unquenchable thirst for leverage, once the system resets and leverage is cheap again and we’re no longer overindebted, we will do the same thing again. Because that’s how society has become conditioned to grow, through the use of credit. Credit is a fantastic thing in the right circumstances; but it always ends up to be the thing that brings these cycles to an end. And we’re there again unfortunately.

Click the play button below to listen to Chris’ interview with Grant Williams (56m:13s).

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This is a companion discussion topic for the original entry at

But look, if you look at the campaigning for 2020, you will see that the policies that all gaining traction are all redistributed. It’s taking money from the rich whether it’s in taxes or wealth taxes.
Unfortunately I don't envision the 5 people who own as much as the bottom 3.8 billion people paying for any of that. They will have their tax attorneys find the loopholes. Or rather, their tax attorneys will write the loopholes into the laws for them. Instead, I expect the "wealthy" scapegoats to be the upper 10%, the upper middle class, who own a house outright and some cars, maybe a second home. But they aren't really wealthy. It will be the same old strategy as always: divide and conquer the middle class, while the elites sit back, watch and laugh. Ultimately MMT won't work because the "wealthy" upper middle class paying for it aren't actually wealthy.

Agreed. The scapegoats are the “wealthy” upper middle-class.
Take a look at the US Debt Clock here: It has lots of interesting data such as who has the wealth. From that we can determine where it is likely to flow.
There are 17.7 million millionaires in the USA. The top 1% have $55.8 trillion. The bottom 50% have $1.7 trillion. The wealth of the bottom is already “tapped-out.” The wealth target for the 1% to “grow” is from the 17.7 million millionaires, not the bottom 50%! The wealth of the “wealthy” upper middle-class is the target of the top 1%.
The trend for the transfer of wealth had been toward the top tier (1% or even less). If the trend continues, the wealth will come from those who still have it, the millionaires and above. A stock market shift is the perfect vehicle for transferring that wealth.


Interest rates are the tell tale for the economy. Thats why every fed meeting begins and ends with a discussion of interest rate manipulation. They can manipulate alot of data; CPI, GDP, unemployment, etc… But they can’t hide the fact that interest rates reflect the total health of the economy, ESPECIALLY since it is the number 1 tool of the fed and governments. It is the first thing to be sacrificed to the gods of infinite growth.
An interest rate that is too high reveals an economy with high risk of failure. Lack of trust is compensated for with the promise of high return. A rate that is too low suggests an economy that isnt growing.
They can cloak some of the reality by manipulating the other data. For instance, if the inflation rate is under reported and bonds are purchased by central banks and their underlings, the rate can be kept artificially low to mask risk and inflationary loss.
Either way, it doesnt matter because they are forced to keep rates artificially low FOR A REASON. Usually because the economy and government could not withstand a true market rate. So the interest rate is the true signal, whether manipulated or not. The lower the rate, the more fragile the economy
When our country [ and most of the developed world ] was growing and thriving, the average interest rate was around 7%. If you look at the data, you will see that GDP growth for that time was in the same ballpark or slightly less, yearly. Of course, that rate existed without so much of the manipulation [ monetizing, QE, etc ] that we see today. So that suggested a true market rate, a return slightly above the inflationary growth rate.
Today, with all the manipulative powers of the cooperative central banks and governments in the developed world [ and then some ] we cannot maintain even a fictional rate of 3%. Even 2% is questionable. In fact, in much of the world rates are NEGATIVE which reflects plunging real growth.
In a system designed, developed and dependent on continual growth…how long can a negative interest environment be sustained?..And Epstein didnt kill himself

What business do central banks have in setting interest rates anyways? Why should it be up to a few ivory tower elitists who have no idea how the real world works outside of their imaginary textbook charts built on multiple invalid assumptions, each one easily debunked. It’s a scam put in place since 1913 that has destroyed the world.

I am probably quibbling when I say a monetary transformation is more accurate than a reset. Reset suggests a hard decision with new implications while transformation suggests a retention of many characteristics of the old system to retain the purchasing power of those most invested in it. A reset nullifies the old and proposes the new. A reset would take place under emergency or crisis conditions but the elites would prefer a more gradual change with new opportunities. The three totemic dates of 1913, 1933, and 1971 were all transformations. We retained the old currency just not the old meaning. Some of us may want the dollar “to fail” (as if it hasn’t already) but that ACT is going to be obviously revolutionary. We will all be able to calculate what we will lose and what we might gain. I therefore see e-money and selective debt forgiveness (or in the government’s case-debt disappearance) as the future. Now that we have a towering debt structure–selective forgiveness retains the power of determining the usefulness of the currency. And of course there will be no lack of even greater debt creation…
I agree with comments #1 and #2, the upper middle class is most at risk. Those with nothing can bear an order of magnitude re-evaluation of their non-existent assets and those with prodigious quantities such as the $50 millionaires can also still be rich with one or two orders of magnitude reduction of their assets. The comfortable with “only” $1-$2 million dollars would become “uncomfortable”.

With the current rate of interest, the $1-$2 millionaires are already uncomfortable! Just can’t retire on a million or two anymore. No rest for the weary.

RD: Those with nothing can bear [losing $] but [those with only] $1-$2 million dollars would become “uncomfortable”.
This is an important truth. And even more important than the "level" of UMC NW is how difficult income loss is to the UMC. They are out on a limb, stressed out, working long hours, and not used to cutting back/living lean. CHS talks about this quite a bit. Kiyosaki also often notes how a person with income generating assets is in a position to organize their life to respond to economic changes, while a person relying on job/earned income will have the opposite experience. The government is eyeing the easy targets first; since capital is mobile UMC income is the next prime target.

I remember when I first read the 4th turning. I thought Howe and Strauss nailed it. I remember being very optimistic when I finished the book. Because for the 1st time I had a frame work that suggested even though things have seemed to be getting bad for a while (practically my whole life) there’s a good chance they’ll get better again. Maybe I can experience similar to my parents and grand parents in the 50s/60s.
Very few people (if any) discuss how if the 4th turning is correct then there will be a first turning again in the not too distant future (2030s). A new American high where great things can be accomplished again.
People who regularly reference the 4th turning seem to skip that part of book. They make it seem like the 4th turning is going to continue forever. It will only ever get worse.
Maybe a suggestion for the site. Once in a while feature an article or guest who talk about all the possibilities of the next 1st turning.
I’ll leave a link to an interview I saw this week that left me with a little optimism about the future. Cognitive scientist Don Hoffman takes us deep into his research suggesting we’re attacking the problem backwards. The implications of his theories just may change everything you think you know about reality…

You seem to be somewhat confused about Modern Monetary Theory (MMT). MMT is a description of our current monetary system not a description of an alternative system or a prescription for a specific course of action. Therefore, whether or not you think it is an accurate description, it doesn’t really make sense to ask “if MMT has ever been tried historically”. It’s already being “used” around the world.
Also, your description of MMT is completely inaccurate. “Governments can issue as much money as they like and it’s not inflationary, because reasons“ is not at all consistent with MMT. In fact, it’s hard to understand how you could think that is correct unless you’ve never investigated what MMT is.
MMT says that it is the availability of real resources that limits the size of the deficit not some arbitrary financial threshold. If inflation occurs it is sign that too much money is chasing too few resources. Therefore government spending should be reduced and/or taxation should be increased to control the inflation. That’s quite different to your statement.
The following blog is a good place to start if anyone wants to learn more on MMT.

Chris this seems to be as big a problem as the Fed, maybe even bigger. Comments, anyone?

> Therefore government spending should be reduced and/or taxation should be increased to control the inflation.
I’m no economist, but I think this point from MMT adherents is what a lot of people are concerned about.
It’s presented as all so easy, yet we know that it’s incredibly difficult to get government to curb its spending, especially when curbing that spending means reigning in social programs that the voters have become used to and now expect as a basic right. Politicians will often prefer continued high inflation, rather than to cut spending.
How well is “using” MMT helping Argentina for example? The USA gets away with a lot of things that other countries (like Argentina) don’t get away with because of the dollar’s reserve currency status.
Also, my understanding is that once inflation really rears its head, a lot of damage has been done, and it takes time to get it back down (if you’re successful), making everybody poorer in the meantime. Now you could say, that’s not true if economic growth is higher than the rate of inflation. Well, we seem to be entering a prolonged period of structurally low growth in the West, due to resource scarcity, demographics etc
That said, I’m actually very sympathetic to the idea of a “green new deal” (which I understand to be somewhat related to MMT in the sense that this could be considered a good reason for government to increase its deficit) and to let society mobilize on a massive scale to try and fight ecological destruction.