Fed’s $2T Bailout is Prepped (Uncut) 04-22-2025

Fed’s $2T Bailout is Prepped – Banks Will Echo WW2 Era

Hi, this is Daniela Cambone. Welcome back to the Daniela Cambone show. Joining me today, Christopher Whelan is the chairman of Whelan Global Advisors.

He’s also a very well-known, respected author, and he’s coming out with a revised edition of his bestseller, Inflated, Money, Debt, and the American Dream. In the book, he provides a concise history of the US’s monetary system, putting contemporary financial phenomena like inflation and high housing costs into context. Chris, thank you so much for joining us.

Nice to meet you. Welcome to the show. Yes, likewise.

Thank you. Listen, I can’t wait to really take a deep dive into your book. But first, since I know you spent a great deal of time covering the Fed, dissecting what they’re doing, I want to get your thoughts on the ECB’s move here to lower rates and President Donald Trump just growing more and more frustrated with Jerome Powell, saying he can’t wait for him to be out the door.

Your thoughts here? I think it was inevitable that President Trump and Powell were going to cross swords. The folks at the Fed are in a bit of a mess right now because depending on what indicator you pick, you can make an argument to ease or not. We had Christopher Waller out the other day saying we have to cut rates now.

Obviously, that’s how the folks in Europe feel. I think there is still an underlying concern about deflation, because there is so much debt out there. And there’s still a huge amount of debt in the commercial, real estate, commercial space, generally private equity that was financed during COVID at very low rates, and now they can’t roll it.

That’s the whole private equity sector is becoming a train wreck. But this is not about consumers. So everybody’s been waiting for this consumer recession to materialize, really, for more than a year.

Remember, last summer, we were talking about lower rates, we were talking about a couple of rate cuts and a recession. It didn’t happen. There’s absolutely no indication in the credit metrics from banks that consumers are yet rolling over.

So, you know, it’s a muddled situation at best. And, you know, Powell, last press conference, he was symmetrical in his views. He said, I can go either way.

And I think that’s fascinating. What do you think we’re going to get? What I’m told by readers, you know, we have a premium service that covers a lot of banks and non-bank names. And I said to them, look, do your homework and go shopping.

I think ultimately, Trump is going to have to fold on a lot of his ask in terms of trade. He’s going to be mostly focused on China and problematic nations. He’ll cut deals with the rest of them.

He’ll cut deals with the Canadians and the Mexicans. He’s just trying to see what he can get. This is classic Trump, right? If you’ve read the book, if you’ve watched the movies, you’ve seen this before.

And by the way, I’m from Queens, so I have a certain affinity with Donald. He reminds me of family members. So, you know, what I’m trying to say to you is I don’t think the world’s going to end.

And I think this could be one of the bigger buying opportunities in the market. But let’s talk about the future. If we get a couple of rate cuts, if the Fed decides they have to act because the economy starts to slump, you’re going to see a lot of stuff going on on Wall Street.

You’re going to see banks probably benefit. You’re going to see non-banks watching their assets evaporate as people prepay their mortgages and refinance. So it’ll kind of look like 2020 again, which was a little bit scary for a while because rates fell dramatically.

And you can see a scenario like that in the future because the context in the background, Daniella, is we still have a huge mess going on in areas like commercial real estate, multi-family real estate, places where people live are problematic. And I think the Trump people are going back to the old ways pre-COVID. And those are tough rules.

So, for example, the government loan market, Fannie Mae, Freddie Mac, they’re all going to go back to the old ways of dealing with delinquency. That means we’ll see a lot more people selling their homes. In fact, a grim statistic you’ll appreciate, 60 percent of home sales today are people leaving the market.

They’re not buying another house. They’re being forced out of their homes because they can’t afford to stay. That metric used to be like 10, 15 percent historically.

So that gives you a sense of what’s going on. Yeah, and absolutely. And I’ll have a question for you on that.

But just to your point, if we do get the lower rates, Chris, what happens to the dollar then? Well, the dollar has been on a tear largely because of the actions of the Fed. The world always runs here because, let’s face it, 80 plus percent of all foreign exchange transactions are in dollars. What Donald Trump is essentially trying to do is tear up Bretton Woods and take us back to something closer to World War I, when the U.S. was important, but it was really still a minor component of the global economy.

We’ve been running the dollar as a utility for the rest of the world for 75 years, and it has a cost. The cost is inflation for consumers and for business. So you can’t just fix this overnight.

His ask is probably a little ambitious in terms of time, right? And the other countries can’t respond quickly either. They weren’t quite ready for this. But Donald loves to fight.

He loves to fight with countries. You can’t get any better than that, right? But ultimately, there’s a lot of politics here is what I’m saying, too. The end.

But the world might not end, but things are about to get tougher, as you say. And I just want to go into your book here, where you say you just you kind of alluded to it, saying that the president has taken us back to the 19th century, reviving this era. That’s right.

He’s Andrew Jackson. He wants to be Andrew Jackson. But how does that tale end? Well, look, if you go back to a more conservative and more righteous view of the world, and you are tougher on things like credit and delinquency on regulation, you know, I think you’ll actually see the Trump people spend more time regulating banks and much less time regulating non-banks.

They’re going to leave that to the states. So different focus. But overall, I think, you know, it’s a different world.

Because Biden, you know, the four years of Joe Biden were basically throwing money into the street. They left a complete disaster in the housing space. They left the disaster at the FDIC, where they still own most of the assets of Signature Bank.

They didn’t sell them, because they were worried about those apartment buildings in New York City. This is a big problem. You know, multifamily real estate is the subprime today, Danielle.

It has replaced and it’s all government covered. Two thirds of that market has government cover. So, you know, this is a political problem as well as an economic problem.

And, you know, I think one of the things you’re going to see is we’re going to see the term structure of interest rates come back. You’re going to see risk premiums on the long end of the Treasury curve for 10-year securities, 30s. They’re going to go higher.

You know, since last summer, in fact, spreads have been widening well before Donald Trump’s election. So I think there’s a lot going on here in the background. I wouldn’t be surprised to see the dollar trade off.

In fact, I think Donald Trump would like that. I said on Twitter yesterday, you know, Scott Bessett, our Treasury Secretary, who seems to be a very smart guy, is kind of like John Connally with better manners. You know, John Connally was Nixon’s Secretary of the Treasury.

And when the dollar got weak, he said, well, that’s your problem, you know, to the Europeans. Because the folks at home are probably asking, OK, we get that weaker dollar. Why does the president want the weaker dollar? How does the U.S. win with a weaker dollar? It wins in a sense that it makes American industries more competitive.

You know, we’re going back to some old-fashioned concepts here, because for a long time, the dollar was just assumed to be strong, and we had to live with it. So no matter how those terms of trade disadvantaged American companies and forced them to move their operations offshore to venues with cheaper currencies, now it’s going the other way. I also think the fiscal situation certainly justifies a weaker dollar.

Congress has to start feeling the cost of their refusal to do their jobs. That’s the bottom line. And you know, the notion that Trump and the rest of these guys on Capitol Hill are looking to cut taxes more, we should just leave things as they are and freeze spending.

But they were unwilling to do that. I talk about this in the book. You know, Americans going back to our inception have had a really hard time paying their bills.

They love borrowing money, but they don’t like taxes. And I’m talking about back to the 1700s. So, you know, this is consistent.

And I think it continues, by the way. I don’t see any way out of this without crashing the ship. And I don’t think the ship is going to crash necessarily.

You don’t think the ship is going to crash? How do they save it from crashing? Who steps in? They hyperinflate. The Fed basically monetizes the federal debt until they can’t anymore. It’s almost like Argentina.

If you look at Millet in Argentina and the progress he’s made turning that country around, we face the same problems in the U.S. Our society just refuses to accept limitations on their actions, on their consumption. And the net net is that we end up with a federal government that is pretty deep underwater. Is the Fed already preparing that bailout? Oh, yeah, very much so.

One of the things we talk about in the book is some recent research that was done, particularly a paper by a fellow named Josh Younger and Lev Manand for Columbia University Law School, where they talk about the legal basis of the Treasury market. Where did this come from? Did it just erupt out of the ground? Did people just decide, hey, let’s go buy some Treasury bills today? No, they had to be sold. That market was constructed very carefully by the folks at the Fed in the 1950s.

They created what we call primary dealers. Now, the only trouble is, in 2008, we annihilated half of the primary dealers. They ended up getting bought by banks.

So today, the Treasury market is basically a carry trade with a lot of hedge funds, using 100 to 1 leverage. That’s the market for Treasury debt. And that’s the big vulnerability that the Fed worries about more than employment, more than inflation.

The single biggest mandate is keeping the Treasury bond market open. Wow. That is such an important point you made right there, Chris.

The vulnerability of it. Do you think that’s the most fragile link in the entire system? If I had to ask you, where does it break? Well, it doesn’t break so much, but it forces the cost of funding up for the government. It forces a change in the composition of people who are willing to hold Treasury debt.

I think you’ll see banks forced to buy more of it. This will be additional financial repression on the banks, right? And how does this end? It ends with the banks looking like they did at the end of World War II. If you looked at most of the big banks in the U.S., half of their book was government bonds, because everything had been about government during the depression, during the war.

That whole 25-30 year period was about big corporations, big banks, and the U.S. government as the financial source to make the whole thing work. And that continues on into the late 70s. That was when you saw non-bank finance come back.

What does that do to the health of the banking system then, Chris? It continues the trends we see now. I cover most of the industry. We publish an index on the top 100 banks.

And what you see is that the Fed’s actions, inflation, other factors have slowly been pushing down asset returns. And it has been shifting more and more of that dollar of interest income that the bank generates to equity as opposed to debt. So the debt holders, the depositors are not getting paid, but the equity holders still are.

That’s a long-term trend. It goes back 50 years. You said something really key before, and I want to circle back to that, that it seems the president almost wants to tear up Bretton Woods.

Multiple conversations I’ve had, the feeling people have is that they feel that the president wants to do some sort of a, and I’m going to use the word reset. I know it’s a term that’s often overused, but that’s what it feels like right now. That almost a new system needs to emerge or be created, maybe crash the current one.

We don’t know. Does it involve gold? That’s a question I’ll have for you. But your thoughts on that.

Do you feel that if Bretton Woods is being ripped up, what’s after that? I don’t know if ripped up is the right word. It has slowly atrophied and decayed. It was a result of war.

The nations of the world, after they came out of World War II, said, well, we’re going to use the dollar as money, and we’re not going to talk about gold anymore. The whole construct was about enshrining the dollar as the benchmark and all the other currencies, which had all gone off the gold standard right before the war, essentially accepted that status quo. We had balance of payments financing and long-term lending with the International Monetary Fund and World Bank.

It went on for 50, 60 years, but now it’s essentially run its course. I thought it was interesting. The finance minister of Spain was in the FT a couple of weekends ago, long interview, and he said, if it wasn’t Donald Trump, it would be somebody else.

The Americans are tired. I think this dollar imperium has run its course. I think we’re going to go back to more of a multilateral compartmentalized world where currencies are going to become competitive again.

This is why the Russians and the Chinese buy so much gold. They feel like that’s their backstop if they have to act for themselves. Now, do they want to grow their currencies big enough to accommodate all of their needs? No.

That’s not something you do voluntarily. That usually happens after a war. You had Great Britain as the hegemon.

Then you had the US take the baton after World War I when Britain was broke, all the European states were broke. By World War II, we were the dominant provider of capital and everybody else was broke. It was easy to be a free trader in the 50s and the 60s, right? We had destroyed the world.

FDR, during the depression of World War II, he was quite protectionist. He was not talking about free trade at all. He makes Donald Trump look like the best free trader you could have.

Chris, what role does gold play for you in the monetary system? Gold is money. There’s been so much talk surrounding gold. Would it play a major role with this new administration? I think it should play a symbolic and also an educational role.

In other words, I’ve talked to Judy Shelton about this at some length. She’s got her concept of a gold-linked bond. But at the end of the book, we quote our friend Jim Rickards.

He says, look, treasury ought to be buying gold regularly. That is to say, exchanging paper for gold. Hello? Yes, that’s a really good idea.

It would say to the world that we still acknowledge that there are real benchmarks of value, gold being one of them, but other physical commodities as well, right? Even silver, for God’s sake, has been outperforming gold, which is a remarkable thing. But to me, can we go back to gold convertibility? No. The fiat system is not going to work.

And that’s not the attribute that people care about. They like using the dollar as a means of exchange. Are they going to use it as a long-term currency, as a store of value? Maybe, maybe not.

Maybe they’ll invest in a higher growth economy somewhere else. And I think that’s the future. I’d like to see the dollar go from 50, 60 percent of turnover globally down to 30.

And then we would have to live within our means. That would be a different world, wouldn’t it? And I think that’s the vision of Donald Trump. He wants to kind of take us back to a time where the U.S. was not the center of attention in terms of the global economy.

Well, explain, because these are two concepts, right? Having a lower dollar, but still being the reserve currency of the world, right? No, you can’t do it. You become a reserve currency and countries are going to say, well, who do I trade with the most? Like Latin America. My wife is from Uruguay, so I spent a lot of time thinking about South America.

All of those nations within Mercosur are going to face one another. And yes, they’re going to have dollars, they’re going to have euro, maybe yen in their reserves for their central bank. But I think they’ll also hold gold.

The Fed should be holding gold. In fact, I think later this year, finally, I hope, the BIS is going to recognize gold as a high-quality liquid asset. And then also it would become eligible to be collateral in swaps.

There’s no reason why we shouldn’t do that. You know, you couldn’t even borrow against gold if you have the right relationship with your bank. And they’ll lend you a fairly high percentage against the asset if it’s in the vault, right? So there are a lot of ways you can use gold as a very active, important asset for a financial institution.

What is the likelihood the BIS does that, Chris, in your opinion? Well, Donald Trump has probably made it more likely. But, you know, look, gold is a limited utility for investors looking to flee dollars because there’s not much of it that’s deliverable. You know, even today, the U.S. is straining because, you know, we may get to the point we don’t have enough deliverable supply in the U.S. to support certain financial contracts.

So the Russians and the Chinese aren’t selling, if anything, their bars. You know, you mentioned Jim Rickards, our good friend, mutual good friend, has always said the rise in gold speaks more to what’s happening in the dollar than what’s happening in gold. So, you know, as we’re speaking now, gold just made another all-time high.

Your thoughts on this run up in gold, Chris? I think it will continue. The limited supply and the fear that I sense among a number of investors, people just look at what they see coming from Donald Trump and some of his cabinet members and they don’t like it. And so they’re going to run.

But there are limited alternatives for people. For example, do you go into real estate here in the U.S.? I would say no. You know, we’re getting pretty close to the end of the cycle in real estate.

We’re probably going to see a reset in U.S. real estate prices by 27, 28. You know, the maxi reset is not something anybody wants to talk about, but it’s, you know, it’s a part of the U.S. economy. We have an ebb and flow.

As my friend Stan Middleman, the founder of Freedom Mortgage, likes to say, the tides come in, the tides go out. We don’t know why, but they definitely do. So, you know, he’s seen enough cycles to have a view on this and also runs one of the biggest servicing books in the industry.

So, you know, what happens to a firm like that if rates fall? People prepay their mortgages. You’ll see a lot of volatility in the credit markets. And that’ll be a repeat, really, of 2020.

I have a lot of couples in their 40s and their 50s watch the show, Chris, still are not first time home owners waiting. They haven’t been able to buy the house. When does that time come? Does it? Well, after we reset prices, we could go back down to 2021 levels of home prices in the next reset.

I think you’re probably going to see rates fall. Here’s a scenario I published recently. Rates fall, we see a little boom in mortgages.

It’ll look a lot like the third quarter last year, but it could go on for a year or so, higher volumes, but prices will go up. You see, we’ve got limited supply in the bottom half of the market, say below $400,000. Above $400,000, you’re seeing fatigue.

You’re already seeing markets cool off. You’re seeing prices coming down. A lot of spec homes down south, by the way, a lot of new construction that’s just sitting there and going to rentals.

When you see a purchase house going to rentals, you know that’s a bad sign. And so in the Carolinas, the Washington area, all the way down into Texas, you got oversupply now in some more pricey homes. But in the bottom half, there’s not enough supply.

You’re going to see that change though. So I think you’ll see a small boom in housing in 27, 28, and then we have a correction. A correction or a crash? Well, it’ll take us down 20%.

I’ve been trying to argue with the guys who run my village that they shouldn’t push up the assessments anymore because I said, look, you want to be where we’re be in the next downturn. That’s where you want assessments to be. If you go too far, then you have to lower them.

I want to talk national debt now. You spent a big portion of your work focused on this. It’s tripled in the last 15 years.

You explained what brought us into this mess. The question is, it’s already a serious problem, but it’s kind of brushed to the side a little bit, Chris, or dismissed. When is it a problem that we can no longer turn away from? Well, look, treasury bills and dollars, those green pieces of paper in your pocket are the same thing in our system.

When Lincoln introduced paper money to pay for the Civil War, it bore interest. It was considered debt. They didn’t consider it money probably till the end of the century, even though they used it as money.

But that fiat that he created and then FDR enshrined essentially is the same thing as government debt. So what happens if we have too much of it? They’re just going to monetize it. The Fed will buy it.

They won’t ask Congress for permission. They’ll just do it. This is the way the folks at the Fed operate.

Unfortunately, the Congress is comprised of so many people who are just incapable of dealing with financial issues. You can’t even talk to them about it. Compare our Congress today with the Congress we had in the 1930s, when you had people like Carter Glass and Harry Stegall and many others who were very sharp human beings running the country.

So unfortunately, we may need a constitutional amendment where we hire a manager. But if Congress can’t even pass budgets, we have a problem. That’s really the issue.

They just increase spending every year and pass a continuing resolution. That’s unfortunately not acceptable. So I think eventually you’re going to have a very stringent fiscal regime where they’ll have to just limit spending, and then you’ll see cutbacks in entitlements.

Unfortunately, that’s the only way to fix it. Defense spending will have to come down. And I think in a way Trump already sees this.

He knows that the country can’t keep doing this because we fund it with debt. That’s the way it works. But that’s the way the system has been set up since World War II.

It’s interesting. At the end of the book in the first edition, we talked about Triffin, who had been the great theorist about what are the costs of running a global reserve currency, right? And he said, well, you have to run big external deficits. And we did.

But it was the bigness of the dollar, not our fiscal righteousness and discipline that makes people use it. It’s the fact that it’s so big. You can trade oil, you can trade big commodities, all sorts of stuff easily.

There’s ample liquidity, right? So does the world care about our fiscal situation? No, they just want us to continue the way things are. So for them to change is a radical thing. It turns over the whole card table and we start again.

So what Trump is trying to do is quite ambitious. And I think ultimately, like I say, unless you see some remarkable development that makes members of Congress suddenly want to sacrifice themselves in the name of fiscal rectitude, I don’t see that changing. These people need the job.

I think it’s interesting. He wants, all signs point to the fact that it seems he wants the lower dollar. But at the same time, there are two different conversations.

At the same time, there’s this want to keep the US as the reserve currency, threats that if you were to de-dollarize or move away from the dollar, we’d do 100% tariffs. We saw the threats echo to the BRICS. I think they pay homage to that concept, Daniela.

They say, well, we want the dollar to remain a reserve currency. And it will. The reason the dollar is so attractive is because of our marketplace, because we still have reasonable confidentiality for investments.

We have the rule of law here, with some exceptions, right? Those are the reasons people want to be here and want to be in dollars. In different countries, they could back the currency tomorrow in China with gold. But are you going to trust the Communist Party in China? No.

No. As I like to tell my readers, there are no banks in China because the loans never get paid back. The state just has to bail them out continuously.

So it is the ultimate fiat system. In fact, I would argue the Chinese have more of a debt problem than the US does. Do you think we see the rise of the BRICS? Oh, sure.

The world is going to normalize over time. Other societies are going to become more affluent. But the question is, will they have the attributes that makes the United States so attractive as a magnet for investment? I don’t know.

There are still so many anti-liberal societies out there led by Vladimir Putin. And in a way, Donald Trump, being a guy from Queens, is also anti-liberal. He certainly rejects 20th century liberalism as it has evolved, this kind of mushy socialism that Joe Biden and Kamala Harris represented.

But it’s very different around the world. If you’ve had the opportunity to travel, I’ve lived in the UK twice. These are not the same societies.

They don’t have the dynamism. They don’t have the capital markets. They don’t have the free movement of capital within the country, free trade, etc.

So the US has still got a lot of advantages, despite our financial excesses. Just bringing it home now, I guess, Chris, to the audience watching that is concerned and can’t keep up with all the headlines and all the changes and what we’re going to wake up to. Shock and awe.

Shock and awe, yeah. I mean, what’s your- But that’s what they’ve been doing. They’re very well prepared this time around.

Susie Wiles has run a tight ship. The media is going crazy now. There’s no data.

There’s no leaks. Every time somebody leaks, they get fired. So this is a different time, and they have an agenda.

The Trump folks have a very detailed agenda for what they want to do. What’s your advice then? What do we do to navigate this or to stay on top of it? I think what I would say is this. We are going to see markets normalize a bit.

Last year was abnormal. Most of my banks were running 50-60% annualized returns last year. That was not normal, so we have given most of it back.

I am telling my clients to do your homework, think about things you wanted to own but were too expensive last year, and we’ll wait for a little of the kerfuffle to settle. They’re going to have to cut trade deals with most of our closest allies. That’s going to happen.

It will take time because the other countries weren’t ready to put aside everything else they were doing and engage with Donald Trump to the exclusion of all else. But that’s what’s going to happen. I think it’s interesting that Scott Besson is leading these conversations instead of our Commerce Secretary.

Ultimately, they’ll get it done. China and half a dozen other states that we don’t have good relations with are going to be left, and they’re going to be the ultimate focus. Does that give you some sort of confidence that Besson is leading it? Here’s an extremely well-trained Wall Street expert who’s worked with Drunken Miller, the best, the tops of the top.

Yes. He’s the adult in the room, just the same way Steve Mnuchin was. For that reason, and Treasury, let’s face it, what is the most important agency in the U.S. government? Treasury, and then the Office of Management and Budget.

Those are the two agencies that run the whole show. I think he will be a source of stability. Ultimately, he knows that we need to have stable, functioning relationships with these countries.

If we want the Europeans to take the lead in Ukraine, pay for their own defense, great. I think those are reasonable asks. The Europeans weren’t ready for that.

They have had to discard their own fiscal rules to even start thinking about it, in Germany particularly. But ultimately, I think you’re going to see deals with our friends, and you’re going to see more contentious relations with China and some of the other countries in the world. I don’t think that ends well because China is kind of like Great Britain on steroids.

They are a predatory mercantilist state. They have no interest in fair dealing with other nations. You can see this with their Belt and Road Initiative in Africa.

It’s been a disaster. Every country that’s done a deal with them regrets it. Uncertain times indeed.

Chris, the revised edition of your book comes out in May. Where can folks get it? Yes, May 16th. Amazon.

We’ve got everybody listed on my website, rcwhalen.com. We appreciate your support. Those pre-orders are actually going very well, but they’re important in the book world. Awesome.

Fantastic. I wish you continued success with it. Come back soon.

Yes, we’ll do it again, Daniela. Thank you. Thank you all for watching.

We’ll have more content coming your way. Be sure to sign up at danielakomboney.com and subscribe to our YouTube channel. We’ll see you soon.

In my recent interviews with Tim Wood and David Stockman, both warned that we’re nearing a major reset, something much bigger than a simple correction. If you’ve been watching the markets, this week especially, the volatility, the headlines, the chaos, you’ve seen and you’ve felt it. If that leaves you feeling uneasy or unsure of what to do next, you’re not alone.

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