Money market funds have $7.4 TRILLION in assets under mgmt. What happens when interest rates drop?

00:01 Hey everyone, I just did a video. This 00:03 is part two, which is that $7.4 trillion 00:07 of money is in money market funds. And I 00:10 just did a video of why I believe the 00:12 price of Bitcoin will be substantially 00:13 higher than 00:15 $95,000. Because it solves a real 00:17 problem real people have, which is that 00:19 their US dollars that they own are like 00:21 melting ice cubes. They are losing 00:23 between 4% and 9% of their value every 00:26 year. And that is not what money is 00:29 supposed to do. Money is supposed to 00:30 preserve its value so that your time and 00:32 energy buys you more in the future than 00:35 it does now. That's what money is 00:36 supposed to do. Um, and the US dollar 00:38 doesn't do that. It loses between 4% and 00:40 9% per year. And on years with high 00:44 inflation, it loses double digits per 00:46 year. So, I ended the last video by 00:48 saying you may be thinking that doesn't 00:50 apply to you because you are storing 00:52 your wealth in other places like your 00:54 house or stocks or bonds or real estate 00:57 or something like that. But each of 00:59 those has a serious problem which is 01:01 that more of them can be made. Every 01:04 company that has stock can issue more of 01:07 its own stock out of thin air and sell 01:09 it to the marketplace. Every country uh 01:12 sorry, every company or country that 01:13 issues debt can issue more bonds. Uh 01:17 real estate, anybody can build more real 01:19 estate. And uh the stock market of 01:23 course represents all of those stocks 01:25 and bonds and all of the other things 01:26 you can trade. So the prices of a lot of 01:30 those assets are very high right now, 01:32 but I don't believe that's sustainable. 01:33 So anybody who has their money in stocks 01:36 and bonds and real estates and thinks, 01:38 well, the great thing about stocks, 01:39 bonds, and real estate is they always go 01:41 up. That is the kind of thinking that 01:44 preceded the 2008 recession. The reason 01:47 the recession was as sort of bad as it 01:50 was was the government had printed a ton 01:52 of money that had found its way into 01:56 stocks, bonds, and real estate. That had 01:58 pushed the prices of stocks, bonds, and 02:00 real estate way up, which had led people 02:03 for a significant period of time to to 02:06 believe that stocks, bonds, and real 02:08 estate did not go down. Well, of course, 02:11 they do go down because they can't go up 02:12 any faster than companies get good at 02:15 making money. 02:16 So when you buy a stock or a bond or 02:18 real estate, what you're paying for is 02:20 the future value of that thing today. 02:23 But if the if a company gets 1% better 02:26 at making stuff every year, but the 02:29 stock price goes up 5% every year, then 02:32 at some point you've got 4% of the stock 02:34 price every single year compounded on 02:36 itself. That represents value that's not 02:39 really there. It's value that uh has 02:42 essentially been baked into the stock 02:44 but is not reflected by the company's 02:46 actual ability to make products or 02:48 service services. And what will 02:51 eventually happen in each of those cases 02:53 is each of those things will return 02:55 eventually to its underlying fundamental 02:58 value. Which means regardless of how 03:00 divorced Apple or Facebook or Google or 03:03 Microsoft or Amazon or Tesla or any 03:05 other company gets, if their stock price 03:08 gets completely divorced from the 03:10 underlying value of the company, which 03:12 is based on its ability to make money, 03:14 eventually there will be a massive reset 03:17 when all of those assets get repriced 03:20 back down to what they're actually 03:22 worth. And that happens in a recession. 03:26 And we have not had a big recession in 03:27 the United States since 2008 and 2009, 03:31 which has led a lot of people to believe 03:32 since it's been so long that we just 03:34 don't have recessions anymore. And of 03:36 course, that is the kind of thinking 03:38 that typically happens right before a 03:40 massive recession. Now, I don't know 03:42 when a massive recession is happening. 03:44 Could be could start well technically we 03:48 just had a negative uh quarter of GDP 03:50 growth, which is gross domestic product 03:52 growth. So sec technically we're halfway 03:54 to a recession already because a 03:56 recession is defined as two backto-back 03:58 quarters of negative GDP growth. When 04:01 your GDP growth is negative that means 04:03 rather than grow your economy shrank. A 04:06 negative number means you shrank. A 04:07 positive number means you grew. And we 04:10 already had one quarter of negative GDP 04:12 growth. Uh meaning the the economy 04:14 already shrank for one quarter. So if it 04:16 shrinks for a second quarter it means 04:18 we're in a recession. Although of course 04:20 they will just redefine what a recession 04:22 means and claim that we're not in one. 04:24 But regardless, at some point the stock 04:26 market and real estate and everything 04:28 will go through an epic crash and then 04:30 everything will sort of return to its 04:32 underlying value and everybody will be 04:35 standing there scratching their head 04:36 thinking, "Wait, I spent all that time 04:38 and energy putting my wealth and savings 04:41 into stocks or bonds or real estate and 04:44 now they crashed and what am I supposed 04:46 to do now?" Um, so another place, which 04:50 is the title of this video, that people 04:52 are storing their wealth while they wait 04:54 to buy something in the future is in 04:56 money market funds. Money market funds 04:58 are essentially uh like storing your 05:02 money in cash, but you're really they're 05:04 really backed by government debt, and 05:07 the government pays an interest rate for 05:09 people to buy its debt. And so the banks 05:12 uh pass some of that money on to you. So 05:15 if the government is paying 4.5% 05:18 interest for people to uh buy its debt 05:21 and keep their dollars out of the 05:23 economy, the banks will turn around and 05:25 pay interest of let's say 4%. So if the 05:28 government's giving them 4.5% and the 05:31 banks are giving you 4%, that means 05:33 every dollar uh the banks get half a 05:36 percent in order for facilitating that 05:38 interaction. Uh and when you do that for 05:41 a large amount of money, you can make a 05:42 lot of money doing that. Well, right now 05:44 money market funds have $7.4 trillion 05:47 dollar in them. That is a vast insanely 05:51 large number. So what does that mean? 05:54 What that means is of the entire money 05:57 supply of all the dollars that are in 05:59 existence people have decided to put I 06:03 think I think money market funds are 06:05 counted in M2 and I think M2 is like you 06:09 know 20 let's call it $22 trillion. So 06:12 of if you've got $22 trillion and seven 06:15 of that 22 two let's round down to 21 to 06:18 make the numbers even. That means 06:20 roughly a 1/3 of the M2 money supply is 06:24 in money market funds. Again I'm not 06:27 sure that the math works exactly like 06:28 that. Maybe there's other calculations 06:30 and considerations. If so that's fine. 06:33 It's still a massive number and it's 06:35 still a very large percent regardless of 06:36 how you measure it. But anyway, $7.4 06:39 trillion are in money market funds. That 06:41 means the government is paying people to 06:44 keep $7.4 trillion uh not in stocks, 06:49 bonds, and real estates uh directly 06:52 because all of the people who are have 06:54 that money in that $7.4 trillion are 06:57 making a conscious decision to park 06:59 their money in a money market fund 07:01 rather than to park it in stocks or 07:03 bonds or real estate or Bitcoin. And 07:06 they're doing that because they in my 07:09 opinion wisely understand that stocks 07:11 and bonds and real estate have a lot of 07:13 risk right now and that the prices of a 07:15 lot of those assets is really higher 07:18 than is justified by the underlying 07:20 fundamental value of those assets. So 07:23 what's going to happen? Well, people are 07:25 only parking their money in money market 07:29 funds because they can make more than 4% 07:31 interest. And a lot of people when you 07:33 tell them that they can either risk 07:36 investing in the stock market with 07:38 stocks or bonds or they can invest in 07:40 real estate or they can just sit on the 07:43 sidelines twiddling their thumbs and the 07:45 government will pay them 4% interest. A 07:47 lot of people to the tune of $7.4 07:50 trillion have decided to sit on the 07:53 sidelines, twiddle their thumbs, make 4% 07:56 interest from the government and wait. 07:58 Now that is not sustainable. Why is that 08:01 not sustainable? because the economy is 08:03 under such a mountain I mean a mountain 08:07 of debt right now that the government 08:10 can't cannot afford to keep interest 08:12 rates high because if they keep interest 08:15 rates high that means the interest they 08:16 have to pay on the uh $36 trillion of 08:19 debt that the US government owns uh owes 08:23 that means that the interest rate is 08:24 completely unaffordable on that and it 08:26 means all of the companies uh and 08:29 individuals that have debt are getting 08:31 charged charged much higher interest 08:32 rates as well because the government 08:34 right now sets interest rates for 08:36 everybody. It should not. Interest rates 08:38 should be set by the free market with uh 08:40 just the laws of supply and demand. That 08:42 would work much better, but that's not 08:43 the way the US system works. So interest 08:46 rates in the United States are set by 08:48 the Federal Reserve. They set the 08:50 federal funds rate and some other key 08:52 interest rates and all the other 08:53 interest rates sort of flow from that. 08:56 So by h high interest rates right now 08:58 they're making all of the debt in the 08:60 United States unaffordable. And you can 09:02 only do that so long before the system 09:04 starts cracking. And what happens is as 09:06 soon as the system starts cracking then 09:08 all of the people as they watch their 4% 09:11 interest drop to 3 and 1/2 and then 09:13 three and then two and a half and then 09:15 two and then one and a half and then one 09:17 and then.5 and eventually like we had 09:20 for quite a few years after the '08 09:22 recession. I remember every time I 09:24 stared at my trust mark or my Wells 09:27 Fargo bank account, it told me I was 09:29 getting like 09:31 0.15% interest. Like, you know, onetenth 09:34 of 1% or 1 and a half ten of 1%. I mean, 09:38 some ridiculously I think at one point 09:40 it started with a zero. Like your 09:42 interest rate is like 09:44 0.015%. It was something ridiculously 09:47 small. Like literally regardless of what 09:49 the balance was, my interest at the end 09:51 of a quarter was like 4 cents. I mean it 09:55 was ridiculously low. So what happens 09:58 when the government inevitably has to 09:60 lower interest rates because all of the 10:02 debt in the system starts cracking? And 10:05 the answer is all of the people who have 10:07 that $7.4 trillion in money market 10:10 funds, they start to get antsy because 10:13 they were happy at 4%. And the reason 10:16 there is record high numbers in money 10:18 market funds right now is because you 10:22 can get 4%. Or even I think 4.16% is the 10:26 the latest number. You can get a little 10:28 more than 4% interest. Well, at a little 10:30 more than 4% interest, a ton of people 10:32 are willing to just park their money 10:33 there and forget about it. Well, what 10:35 happens when they're not willing to do 10:37 that anymore? The answer is they have to 10:39 find an asset. they have to do something 10:41 with that money because they are now 10:43 unhappy that they're getting 1% or 0.5% 10:46 or even zero on that money when the 10:49 government decides to stop just printing 10:51 free money uh or sorry when it starts to 10:54 stops offering that um sort of free 10:57 interest rate high interest rate for 10:59 them. Uh so what happens is that 7.4 4 11:01 trillion gets antsy and it comes 11:03 flooding back into the rest of the 11:05 economy with those people looking for 11:07 something that causes that uh has yield, 11:11 meaning something that goes up, 11:12 something that will give them the kind 11:14 of reser return they were hoping to get 11:16 by doing nothing. And so that money 11:18 ultimately flows back into other assets. 11:21 And so at at a time like that is 11:24 typically when Bitcoin performs the best 11:26 because people are looking for some way 11:29 to store their time and energy in a way 11:31 that offsets at least some of inflation. 11:34 And if inflation is between 4 and 7% 11:37 let's call it 7% that the uh government 11:39 prints money out of thin air. If the 11:41 interest rate is uh sorry if the 11:43 inflation is 7% and you're getting 4% at 11:46 least a little more than half of 11:48 inflation you're getting back in the 11:50 form of interest. Now you have to pay 11:52 taxes on that. So it chops it back down 11:54 a good ways, but still you're at least 11:56 getting something. Your inflation is 11:58 being partially offset by your interest 12:01 rate. Uh but as soon as the Federal 12:04 Reserve starts lowering interest rates, 12:06 that goes away and people start looking 12:08 for things to park their money in that 12:10 perform better than just the money 12:13 losing US dollar. And times like that is 12:15 when you uh you see gold, which is 12:19 already setting record highs, and 12:21 Bitcoin typically shoot for the moon 12:24 because people are looking for a place 12:25 to store their time and energy. Now, 12:28 does that mean that the only good time 12:30 to invest in something like Bitcoin is 12:33 when the Fed's about to print a bunch of 12:35 money and people are about to get 12:37 unhappy in money market funds? The 12:38 answer is no, because a miniature 12:41 version of that is happening all the 12:42 time. All the time the government is 12:46 going through periods of bribing people 12:48 into keeping their money on the 12:50 sidelines with money market funds or 12:53 repo or reverse repo facilities and all 12:55 this complicated stuff that the Federal 12:56 Reserve does and the Treasury does and 12:59 eventually they can't keep interest 13:01 rates high because of the debt burden 13:02 that they've encouraged everyone to 13:04 incur and so they have to print more 13:07 money. So, uh, I believe Bitcoin is 13:11 always the best way to preserve your 13:14 time and energy. Always the best way to 13:16 preserve your purchasing power. And as I 13:18 always say, it goes up and down on its 13:20 way up. I said the word up twice and the 13:22 word down only once. So, it's sort of 13:24 two steps forward, one step back. It 13:26 goes up and down on its way up. But in 13:28 the long term, because Bitcoin is 13:30 finite, because it is scarce, because 13:32 there's only 21 mill million Bitcoin 13:34 that will ever exist, it does not have 13:37 the problem of inflation that the US 13:39 dollar has. And it does not have the 13:42 problem of stocks and bonds and and real 13:44 estate, which is all of those can be 13:46 made more. Whoever controls each of 13:48 those things can make more of them. And 13:51 in each case, when you go a long period 13:54 of time without a market correction, the 13:56 the the market value of each of those 13:59 things tends to get way out of whack, 14:01 which is what I think is happening with 14:03 stocks and bonds and real estate right 14:05 now. I think the the values of those 14:07 that are assigned in US dollar terms are 14:10 out of whack with their underlying 14:12 value. If I did not think that was the 14:14 case, if I thought stocks or bonds or 14:18 real estate was a better investment than 14:19 Bitcoin, then I would not be 100% 14:22 Bitcoin right now. I would have an 14:24 allocation to other assets. The reason I 14:27 don't have an allocation to any other 14:28 assets uh for uh I should say liquid 14:31 assets, things you can actually buy and 14:33 sell on a daily basis. The reason I have 14:35 zero allocation to stocks and bonds and 14:38 real estate other than of course I own 14:40 my house, but that's not an investment. 14:42 that's just so I can live in it. Um, the 14:44 reason I have no allocation to those 14:46 things is because I think all of the 14:48 stocks and bonds and real estate that I 14:50 could invest in right now is massively 14:53 overvalued. And there's nothing when I 14:55 look around that I want to invest in. 14:58 And I'm not alone. For example, uh 15:00 Warren Buffett has a record 300 and more 15:04 than 350 billion dollars of cash that 15:07 he's sitting on right now. he has 15:09 consistently been selling off assets in 15:11 his portfolio and just stockpiling cash. 15:15 Uh and he probably has a big chunk of 15:17 that sitting in money market funds or 15:18 something that's earning 4% interest or 15:20 something like that. Uh but the reason 15:22 he's done done that, you know, he is 15:24 arguably the best investor in the world 15:27 for traditional assets certainly not 15:29 things like not alternative assets like 15:32 Bitcoin or gold or things like that, but 15:34 for stocks and bonds and real estate and 15:36 that sort of thing. Uh Warren Buffett 15:38 has a better track record than anyone 15:41 else right now. Um give me one second. 15:44 Good 15:46 evening. So even with his incredible 15:49 track record of success for many decades 15:52 now, he has decided there's nothing 15:54 worth investing in for him right now. 15:56 Not nothing but the vast majority of 15:58 things in that he could invest in he has 16:00 decided are overvalued and he does not 16:02 want to invest in them. So he's sitting 16:04 on a record amounts of cash right now 16:07 just waiting waiting for everything to 16:08 crash so he can buy back in when 16:10 everything's cheaper. And so the smart 16:13 people in my opinion are doing what 16:15 Warren Buffett's doing which is they're 16:17 pulling cash out of stocks and bonds and 16:19 real estate and putting it in things 16:23 that will perform well when the 16:24 government prints a ton of money. And in 16:26 my opinion that is Bitcoin by a long 16:28 shot. Now gold is also performing very 16:31 well but I think long-term Bitcoin out 16:34 competes gold and demonetizes gold 16:37 meaning I think Bitcoin sucks the value 16:40 out of gold and ultimately bitcoins 16:42 becomes the neutral reserve asset 16:45 monetary so because that's my prediction 16:47 as far as what happens with gold versus 16:49 bitcoin I certainly think bitcoin is a 16:52 far better investment which is why I 16:54 have 100% of my liquid assets that I own 16:58 or control are in Bitcoin as opposed to 17:01 any other asset. So 7.4 trillion money 17:04 market 7.4 trillion dollar. So 7.4 17:08 trillion is sitting in money market 17:10 funds. I think a huge amount of that's 17:11 going to flood back into the market when 17:12 interest rates come down. A bunch of 17:14 that is going to be looking for a home 17:16 and we'll find a home in Bitcoin. And I 17:18 think long-term Bitcoin will outperform 17:20 every other asset over the next 10 17:23 years. And that's all you can ask of any 17:25 asset is that it outperforms everything 17:27 else. So, I continue to think Bitcoin is 17:29 a fantastic investment for all of those 17:31 reasons and all the others I've covered 17:33 in the past. Have a great evening, 17:34 everyone. Thanks.