'Permanent Distortions' Created: These Are Economy's Biggest 'Red Flags' | Nomi Prins
What this covers
Dr. Nomi Prins, best-selling author and geo-economist, discusses the biggest "red flags" that the economy is flashing right now.
Watch Nomi's last interview with me: https://youtu.be/qyE85nnwfxM?si=CNdjn6SUPb7-5qua
This video was distributed on behalf of West Red Lake Gold Mines (TSXV: WRLG | OTCQB: WRLGF). Learn more about WRLG: https://westredlakegold.com/
*This video was recorded on August 1, 2024
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0:00 - Intro 1:14 - Central bank policy divergences 5:47 - Unemployment rate 7:00 - Asset allocation 12:15 - Permanent distortions 15:55 - Outlook on stocks 17:00 - Red flags of the economy 20:15 - Personal savings 21:18 - Inflation 25:16 - Wages 30:28 - Geopolitics
#investing #banking #economy
Source description (no synthesized summary yet).
Central banks are diverging from coordinated policy toward independent domestic focus; persistent financial asset inflation divorced from real economic growth creates structural risks for consumers facing wage stagnation, rising debt costs, and job insecurity despite nominal equity market gains.
- Post-2008/COVID era of coordinated central bank stimulus is ending; each bank now prioritizing domestic inflation, labor markets, and supply chains rather than global liquidity coordination
- Permanent distortion exists between financial markets and real economic growth: equities have risen despite flat GDP growth, sustained by prior QE money and expectations of future rate cuts, not fundamentals
- Average American consumers face simultaneous pressures: savings declining while debt and debt servicing costs rise, wages decelerating relative to persistent price increases, and manufacturing/AI-driven job insecurity in smaller communities
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Central banks have shifted from coordinated lockstep monetary policy (post-2008 and post-COVID) to divergent policies focused on their individual domestic economies, labor markets, supply chains, and inflation pressures rather than global liquidity coordination.
“they've DEC decided to really focus on their own economies and by that I mean what's going on with their own labor markets what's going on with their supply chains and needs and and looking at the evolution of those”
Labor unions are raising significant concerns about worker displacement by artificial intelligence, creating job insecurity for American workers beyond traditional macroeconomic factors.
“I know this is because I've been talking with a number of labor unions are very concerned about this issue um and there's there's significant concerns coming in about being uh rep placed by by AI it's a separate conversation AI is is good in a lot of ways but in this way it um it is creating more insecurity in the job for so um so I I do see for the for the American the average American worker um a lot of stress from the standpoint of paying for things um lingering inflation and and job security”
Superpowers and global loci of power are developing between the United States and China, with middle-power economies like Brazil positioned between them trying to balance trade relationships with both to extract best deals from each.
“and that's what it Lees doing a country like Brazil for example and I I I I spent a lot of time in Brazil I study a lot of those Dynamics between the US and China that's a major economy that's in the middle of of China and the us and it has a lot of natural resources and China wants to manufacture there because their energy is cheap um they want to sell natural resources to China they also want to sell them to United States so therefore it becomes incumbant the United States to say all right well how will we readdress these trade realignments so this is this is the start of a major um trend of realignments from a trade basis not new but revisiting um as as as is this one um to see where the better uh for lack of a better term deal is”
Uranium has outperformed gold, silver, and copper year-to-date and over the year-to-date period due to bipartisan political support for domestic nuclear energy expansion, including three major bipartisan legislative acts passed: National Defense Authorization Act, Russian uranium ban, ADVANCE Act for nuclear technology, and Nuclear Fuel Security Act.
“um in terms of uranium um it's one of the things I talk about a lot that outperformed gold and silver and copper um over this year and over this year- to-day period why um because it has support both globally and across political spectrums globally and particularly in the United States um for domestic supply of uranium and Allied supply of uranium to continue to grow to um get to those 2050 tripling of nuclear energy um Trends but also the technology of nuclear has gotten a lot of bump from three um bipartisan acts that have passed this year uh one before this year in the NDA the National Defense authorization act we've had the the Russian ban or ban Russian uranium act that is passed we've had something called the advance act that's passed that focuses on the technology aspects of making nuclear more efficiency safer and less wasteful um and we've had the nuclear fuel Security Act so we've had with the dysfunction that Congress is at any any point in time and and the and the partisanship we have had a significant number of bipartisan acts pass which support the policy the pivot the Investments um in uranium and uranium technology and nuclear energy um not just the United States but around the world”
Global energy policy across political spectrums is embracing nuclear energy expansion targeting a tripling of nuclear energy by 2050, supported by technology improvements making nuclear safer, more efficient, and less wasteful.
“it has support both globally and across political spectrums globally and particularly in the United States um for domestic supply of uranium and Allied supply of uranium to continue to grow to um get to those 2050 tripling of nuclear energy um Trends but also the technology of nuclear has gotten a lot of bump from three um bipartisan acts that have passed this year”
There is a permanent distortion between financial markets and real assets or real economic growth caused by years of quantitative easing and cheap rates that has not been fully unwound despite rates being at their highest level in 24 years for the longest sustained period, leaving leveraged money in the system that continues flowing into equities.
“there is a permanent Distortion between financial markets and and real assets or real growth and what that indicates is that there's been so many years of quantitative easing and so many years of cheap rates that even though we had this period and is the longest period in the last 24 years of rates being this high for this long it didn't it wasn't enough um to really shake out the money that was on the side”
China operates multiple development banks that finance and initiate large-scale development projects (energy transformation, technologies, platforms, communications, security) globally, positioning itself as a development superpower alternative to the United States.
“from a trade perspective these are nations um that are looking at China as a major superpower which it is as a major um initiator of projects and just talking about development projects uh China has several development banks that are used within the country and in conjunction with other countries to develop um you sort of energy transformation Technologies platforms communications security and so forth”
US trade policy toward China will remain restrictive regardless of which administration takes office in 2024, with similar degree of tariff pressure, supply chain diversification, and domestic capacity development, though specific tactics will differ.
“I I think whoever um is is in office next is um going to have a very similar policy towards China just the degrees will be different which is that we already saw the um Trump Administration obviously take last one take um a lot of um tariffs higher with respect to China nip type conversations more stringent so forth the Biden Administration um increased those they they brought EV um tariffs from 25% to 100% 200% in some cases they're looking at um they brought permanent magnets which are intrinsic to our our defense um our satellites and and and those sorts of systems from 0% to 25% they're looking at more domestic supply chain concerns outside of China um that's all going to continue regardless of who is um in office”
The Federal Reserve's rate hikes had structural constraints in effectiveness because banks and larger institutions had tiered access to credit where some could borrow cheaply while consumers faced expensive borrowing, meaning rate increases didn't suppress speculation evenly across the economy.
“the money that could be leveraged the larger institutions or banks that had the ability to get money at lower levels and consumers and so forth and they did and it went into the market”
The current environment is structurally locked into QE cycles where if major liquidity crises occur (banking or systemic), the Fed and central banks will resume QE and cut rates more aggressively, ensuring that monetary accommodation remains the default policy regime.
“it we have a banking crisis or a major situation of liquidity that that QE will will rise again those rates will go down more significantly more quickly again that's the environment that we are in”
Supply chain, transportation, logistics, and geopolitical factors will keep inflation at relatively higher levels going forward compared to the pre-pandemic period, preventing rapid disinflationary trends despite recent headline inflation moderation.
“in the wake of inflation being L lingering even though it has come down domestically and throughout the world the reality is things Supply chains Transportation Logistics geopolitical factors are all going to keep inflation on a relatively higher footing than it was um before any of that period”
Italian Prime Minister Giorgia Meloni reversed her decision to withdraw from China's Belt and Road initiative by pledging to relaunch Italy-China bilateral cooperation during an official visit, signaling countries are pursuing geopolitical diversification and hedging between US and Chinese spheres.
“the Italian Prime Minister Georgia Maloney has pledged to relaunch Italy's relations with China at the start of an official visit to the country that follows her dramatic decision last year to pull out of beijing's belt and Road initiative that's a 180 in one year Maloney met Chinese um the China's Premier Lee xang on Sunday at the start of a five-day trip that she said was a demonstration of the will to begin a new phase to relaunch our bilateral coop operation”
Biden administration increased EV tariffs from 25% to 100-200% and raised permanent magnet tariffs from 0% to 25% as part of broader US supply chain decoupling from China focused on domestic and allied supply development.
“the Biden Administration um increased those they they brought EV um tariffs from 25% to 100% 200% in some cases they're looking at um they brought permanent magnets which are intrinsic to our our defense um our satellites and and and those sorts of systems from 0% to 25%”
US unemployment has risen from 3.9% to 4.1% in a recent period, the first time since before COVID, indicating momentum in upward unemployment trend particularly in manufacturing-heavy and smaller communities rather than government sectors.
“we've gone from 3.9 to 4 to 4.1% unemployment pretty quickly um that that shows a momentum in in the rate which is what it is um indicator of unemployment um which is trending in in in that sort of upward Direction”
China has successfully built real estate property through two decades of immense growth, but now faces a real estate crisis, stock market stagnation, and low interest rates, creating structural headwinds that have seismic implications for the Chinese economy.
“Chinese citizens are buying gold Handover fist to protect their wealth amidst a real estate crisis a stock market going nowhere and low interest rates all seismic shifts for a country that enjoyed immense growth for 20 years”
The question of potential EU breakup arises from the possibility that individual member states' monetary and fiscal policy needs could become so dramatically different that maintaining a union becomes structurally untenable.
“do you think the FED funds rate coming down slightly later this year uh would help alleviate some of the pressure on the treasury you ever see a scenario in which the European Union would have to break up um perhaps your monetary policies within um individual member states would be so dramatically different in their needs that it would no longer make sense to have a union it's a possibility”
Average American consumer purchasing power has declined both due to the weakening value of the dollar and due to lingering inflation that has outpaced wage growth, with prices rising faster than average wages have kept up.
“purchasing power has has declined um it has declined because the value of the dollar so for the United States um citizens in particular and it has also declined because of this lingering inflation um we have seen prices rise less quickly more recently but they are still rising and they are still Rising more quickly than average wages have kept up”
Powell's analysis that wage increases had accelerated and therefore wages needed to be suppressed to control inflation was 'totally misdirected' because the real issue is that wages never outpaced price increases overall.
“that was where Powell was really sort of sticking his analysis into see wages have gone up and inflation have gone up so we need to like suppress wages to suppress inflation which was totally you know misdirected”
When people express concern about inflation in surveys, they conflate inflation (the rate of price change) with the absolute level of prices, meaning they are actually expressing concern about the persistent high cost of living rather than the inflation rate itself.
“I think with inflation this is my new thought on inflation that people believe inflation and the economy to be somewhat conflated when they're asked the question so inflation to people in surveys most of them means are things more expensive it they don't think well is the rate of inflation slowing are things getting more expensive more slowly what they feel is this just like dull constant burn of higher prices and trying to make ends meet trying to make ends meet on mortgages that are double the cost of what they were on rents that have continued to escalate on house prices that have continued to escalate even though they've come down a little bit they're still on an upward pattern um on you know we're looking at a summer where gas prices are now starting to escalate again as happens every summer um but these are all things that PIN individuals grocery prices all of these things combined um and then you throw on top of that credit card debt um which has been used to finance some of it and which is more expensive now than it has been in in effectively two decades and so for a lot of uh Generations at this point they're comingled these These are what I think people all attach to um when they say yes inflation is a concern what they mean is things are really expensive and I am really struggling”
The US government is spending $880 billion annually on interest payments on the national debt, with interest payments projected to accumulate to $12.7 trillion over the next decade, meaning interest costs exceed the capacity to fund other priorities.
“I mean you can't even open the lights of the United States right now without paying $880 billion a year and that figure over the next decade is supposed to accumulate to 12.7 trillion of interest rate payments on the debt”
US personal savings declined from 3.8% to 3.5% (from $773 billion to $720 billion), a material decline when taken in trend context alongside rising debt accumulation and rising debt servicing costs.
“according to the baa the total us personal savings fell to $720 billion from $773 billion or 3.5% % from the 3.8% personal savings rate”
US GDP growth adjusted for inflation is flat to declining despite headline 2.8% growth in Q2, with prior quarter revised down to 1.3% from 1.6%, indicating the economy is sluggish in real terms.
“we did see a 2.8% GDP print but before that we saw 1.6 revise down to 1.3% GDP print our economy actually is sluggish and adjusted for inflation is actually flat to declining um so the US has to really take care of its own”
The US debt-to-GDP ratio of $35+ trillion has reached levels never before surpassed except during World War II when there was an actual world war justifying deficit spending.
“it's it's insane I mean right we we are trading at a debt to GDP ratio that is basically never been surpassed except you know sort of in the in the in the World War II area era where where we had a specific world war going on”
Japan's rate increase from negative to slightly less negative rates does not materially change monetary conditions but signals Japan's confidence in its inflation picture after maintaining negative rates for decades.
“Japan after years decades um and it's still has negative rates so the fact that it's raising its rates from negative to slightly less negative um doesn't do that much except kind of indicates that they feel more secure with their inflation picture”
Fed rate cuts would only marginally ease debt burdens by reducing future debt interest costs, not retroactively lowering rates on existing debt that has already accumulated at higher rates since March 2022.
“I mean yeah it's going to make some of it cheaper it's it's not you know we've had a tremendous amount of debt that accumulated um in in the sort of postco we had a lot of debt to begin with but but but a substantive bump in debt happened since since covid so all of that debt and especially since since March of 2022 has been increasingly more expensive so yeah if you decrease some of the expense of the new debt because the interest rates would go into effect for the new debt so we would go above the 35 trillion um but the incremental added debt would yes be um connected to lower interest rate payments but I mean it's a mess”
Stock markets have continued to rise to record highs despite monetary tightening from March 2022 to July 2023 because the market is pricing in expectations that rates will eventually be cut and money will become cheap again, supporting continued equity speculation.
“and then you add on to that the expectation um that rates will be cut at some point and money will be even cheaper at some point and and why not use it now and and that is what we are seeing”
After elections, the US is expected to pursue critical and rare earth elements supply chain localization similar to uranium, with focus on allied supplies and domestic extraction/processing capacity through plants opening and being built in the United States.
“and then the new place of cesing and I think this will happen after the election but is starting in Washington um is to do the same with with critical and Rare Earth elements um is to look at Allied um elements and to look at domestic Supply there and uh support the technology of unearthing that Supply processing that Supply there are plants that are opening up um and being built right now in the United States to do that to just rebalance um the world in terms of that supply chain”
European Union member countries will likely remain in the EU and comply with its regulations and trade pacts but will increasingly seek bilateral relationships outside the EU for specific sectors, products, services, and supply chains rather than remaining fully within a unified EU bloc.
“I do I do think we are in a very kind of fascinating and evolving period right now where that's going to happen um more and more globally you ever see a scenario in which the European Union would have to break up um perhaps your monetary policies within um individual member states would be so dramatically different in their needs that it would no longer make sense to have a union it's a possibility I think they spent so much time time trying to be become a union um and it's more of an economic Trade union really than a political union anyway um or even a monetary Union because there's still imbalances amongst those countries um I I don't really see them fragmenting but you will see scenarios like this where countries can still remain in the EU abide by all the regulations of the EU have the comfort of the EU um trade pact and and and monetary policy pcts and also look for relationships um for certain sectors or products or services or Supply chains outside”
Q2 2024 US GDP growth of 2.8% that beat the 2% consensus estimate was primarily driven by personal consumption, but this consumption growth is unsustainable because it is fueled by declining savings, rising debt levels, and increased debt servicing costs.
“most of that growth was attributed to um by the ba was attributed to personal consumption and if you look at personal consumption deeper the savings rate has continued to decline and the amount of savings that that the average family has has continued to I'm so yeah has the savings rate has declined in the amount that they actually have in savings um has also declined whereas the debt and the cost of debt and the interest rates for that debt has increased so what you have is a shrinkage of of available money a shrinkage of the available of the availability of saving money and then you have an increase in people buying on debt and an increase in the cost of that debt and an increase in the total amount of debt so you have two diametrically opposed um factors that underly personal consumption and they add up to people don't have enough money to continue to buy what they buy”
A national infrastructure bank could repurpose existing debt (not create new debt or require new taxes or budgetary squabbles) into infrastructure development in power lines, communications, ports, bridges, roads, creating non-inflationary finance for real development and real growth.
“I've been involved in um a a coalition for a national infrastructure bank and what would that do it's long story we can go into another time but effectively that would repurpose some of our current debt so not issue new debt no new taxes no no budgetary squabbles in Washington on either side of the aisle um into um areas that require infrastructure development um throughout the country that that's in power lines that's communication lines that's ports that's Bridges that's Road and effectively create a non-inflationary finance mechanism which would allow for real development and real growth um in our supply chain in our manufact facturing um and for people um that get involved in in the jobs and and retraining for those jobs as well as cyber security so the technological side of those jobs and everything else”
Silver has outperformed gold during the year-to-date period by almost double, and despite underperformance of silver mining stocks relative to the metal, silver has practical use value in conductivity and energy transformation that will drive sustained demand.
“silver is um the sort of next cousin of gold now silver actually outperformed gold during this year period and also year-to dat period um almost by double um of course its miners have underperformed the metal as they have in Gold but from the standpoint of of of the the physical precious metal itself um and silver has a use value um and that use value in terms of conductivity in terms of energy transformation is not going away because we are seeing growth in these areas throughout the world”
Deflation across most goods is highly unlikely because companies facing the same input costs and supply chain pressures pass expenses on to consumers, and only real depression-level economic collapse would produce broad deflation.
“I don't see deflation across most Goods I mean will there be competition in in certain like big sales items um you know by by the larger companies in order to get more aggressive uh with consumers that are tapping out yeah maybe and you could see sort of periodic slow downs or you know Cuts in in in prices of goods but in general um companies are are facing you know the same situation which they're trying to make money they are passing some of those expenses on there our supply chain and transportation Logistics um expenses that they have that they do pass on um it's it's a cycle where to really see deflation um we would have to back to you know real depression times and we just that's just not a thing”
Gold has reached approximately $2,500 per ounce and Prins previously predicted it would reach the $2,400-$2,500 range, with further potential to reach $3,000 through the election period driven by central bank buying, retail buying, Chinese ETF inflows, geopolitical uncertainty, and dollar diversification.
“I mean there's there's the obvious one um which is gold we we've hit about 2500 on gold I mean you know I've talked about it getting to this level um a number of months ago um or actually last year that it would get to uh the mid 20 25 2400 range at has I think it's going to go towards the 3,000 range as we get through the election period um because it it typically when we have a ton of factors sort of impacting gold which include Central Bank buying which include retail buying which include um retail throughout the the world buying actually the Chinese for example ETFs and gold have had their record after record months of inflows um that doesn't even really get reported as much as the um the Central Bank buying of gold so you just have a lot of of momentum around um that metal relative to Dollar diversification um wealth diversification and just a general uncertainty factor in terms of geopolitical events and financial events”
The Federal Reserve will reduce interest rates in September due to labor market cooling despite inflation still being above target, balancing between inflation-fighting rhetoric and economic slowdown.
“there are people in particularly the rural sectors and some of the manufacturing areas and some of the sing swing States as we look uh toward the election that are actually not doing quite as well as even the uh figures for additional jobs might indicate um so there's defin defitely cooling there um and that's one of the reasons why I think the FED will actually reduce rates in September he's still trying to get actually inflation down um but also the economy is slowing”
The Dow could reach 160,000 by 2050 if structural factors (quantitative easing, low rates, and continued monetary policy support during crises) remain in place, though this is a very long-term and large number.
“by that token the Dow could actually get to 160,000 um by 2050 which is a long time out in a big number but but the these factors all override um these interim moments right now um by the way if the doubt goes to 126,000 what's going to happen to Gold yeah 160 yeah I mean and and yeah so if you look at the Dow if we look at the fact that the Dow just even over this period has has basically appreciated by so much since Co and and even again since since the fed's been raising rates and Gold's appreciated by about 30%”
The UK's decision to cut rates while also cutting parts of the budget is atypical because budget cuts are usually associated with conservative policy, but the incoming Labour government is balancing rate cuts with fiscal austerity due to historically high debt-to-GDP ratios.
“in the case of the UK it was interesting because um yes they did cut rates and they also had quite a shift um in their last election with with the labor party um winning substantively over over um the conservative party and then coming in and saying they were actually going to cut um parts of the budget which you typically see as something that that's occurring with um with the conservatives and that's because the debt is so high um so it's interesting that they're basically looking at an approach of um reduce rates also try to reduce debt and try to actually balance the economy where the debt to GDP is very high”
Nomi Prins has recently launched a Substack publication called 'Prin Sites Pulse' with a premium tier offering on-the-ground research, real asset analysis, exclusive interviews, and coverage of infrastructure and real growth initiatives.
“I um yes I I just launched um a month ago a a substack fully independent um great analysis um in terms of um some team that I have involved across the world and um it covers everything we cover everything on real assets one-on-one interviews boots on the ground uh research”