America Is Entering a DEFLATIONARY Boom, NOT Inflationary

0:00Hello, everyone. Deflationary forces are hitting the US economy. The Federal Reserve will cut interest rates. Technology trends are coming together to create an economic boom in America. In the gold versus Bitcoin debate, it was finally settled once and for all. We're live today from the desk of Anthony Popliano.

0:26Before we get into today's episode, I need your help. We currently have 40 ,398 different subscribers. I appreciate all of you being here, but we're trying to get to 1 million. That's my goal. So hit the subscribe button and let's get into today's show. All right, ladies and gentlemen, the United States economy is getting hit with multiple deflationary forces all at the same time. It's a really, really big deal. These converging trends are forcing the hand of the Federal Reserve. They have no choice. They have to lower interest rates and they're going to have to print money. Now, first, we know that artificial intelligence and robotics, the big themes of the day, AI and robotics are squeezing an insane amount of inefficiency out of every single corner of the system.

1:06Companies can now drive more profit with fewer employees. That's something that people refer to as good deflation. That's when supply expands faster than demand. And so where are we seeing this in today's economy? Well, we see example after example of productivity surges, companies becoming much more productive, cost compression, things getting less expensive, and quality enhancements. These foster a deflationary boom where goods and services become cheaper and it enhances consumer purchasing power and it supports GDP growth without overheating the economy. Now, AI is not only making companies more productive, but we're reaching a point where artificial intelligence can write its own software.

1:45And eventually, technologists promise us that humanoid robots, they are going to be doing many things in society, including manufacturing and assembling other humanoid robots. This type of exponential productivity is hard to understand today, but it's probably the most important deflationary trend though. Elon Musk, the founder of numerous multi-billion dollar companies that sit right at the intersection of AI and robotics. Well, Elon recently discussed how these technologies should create deflation. And he also talks about how they should address the national debt crisis. Take a listen to his recent podcast appearance.

2:18As long as civilization keeps advancing, we will have AI and robotics at very large scale.

2:30I think that's pretty much the only thing that's going to solve for the US debt crisis. Because currently, the US debt is insanely high, and the interest payments on the debt exceed the entire military budget of the United States, just the interest payments. And that's, at least in the short term, going to continue to increase. So I think actually the only thing that can solve for the debt situation is Xeon robotics. But it will more than – it might cause – I guess it probably would cause significant deflation because deflation or inflation is really the ratio of goods and services produced to the change in the money supply.

3:19So if goods and services output increases faster than the money supply, you will have deflation. If goods and services decreases, if real goods and services output increases slower than the money supply, you have inflation. It's that simple. People sometimes try to make it more complicated than that, but it just isn't. So if you have AI and robotics and a dramatic increase in the output of goods and services, probably you will have deflation. That seems likely. So it seems like deflation is the obvious end state when Elon explains his views on these technologies, especially in relation to the growth of America's money supply.

3:56But Elon understands that AI and robotics are still not making a big enough impact on the economy. We haven't yet reached a deflationary state. Part of that gap is because of the ridiculous amount of money that's being printed by the U.S. government. Republicans, Democrats, independents, they all do it. But another aspect is that AI and robotics remain in a relatively nascent stage. Now, Elon's estimation is that the U.S. economy will hit a deflationary period in three years. That's 36 months away. Take a listen to his thoughts. AI has not yet made enough of an impact on productivity to increase the goods and services faster than the increase in the money supply.

4:31So the U.S. is increasing money supply quite substantially with, you know, deficits that are on the order of$2 trillion. So you have to have goods and services output increase more than that in order to not have inflation. So we're not there yet. But if you say like, how long would it take us to get there? I think it's three years, probably three years before. In three years or less, my guess is goods and services output will exceed the rate of inflation. Like goods and services growth will exceed money supply growth in about three years. Maybe after those three years, you have deflation and then interest rates go to zero and then the debt is a smaller problem than it is.

5:22Yes. Right? That's most likely the case. Now, Elon Musk is known for aggressive timelines. And plenty of critics, they're going to argue that his estimation is off by a decade or more. I wouldn't be so sure, though. the pace of innovation that we're seeing, and the acceleration and adoption for AI and robotics, those things tell me that deflationary impact is much closer than most people realize. So these technology trends, they're not happening in a silo either. You gotta look at the big, big picture. The second big trend that we gotta pay attention to are demographics and proposed policy shifts.

5:52Both of these are curbing consumer demand and they are shrinking the labor supply. That is something that creates a potential deflationary shock. Now, how do we understand what a deflationary shock is? Well, economist David Rosenberg, he highlights three converging forces. First is an aging workforce. U.S. median age is 42 years old. That's up from 36 years old just in the year 2000. The second is immigration restrictions. Tighter policies limit population growth and low-wage labor inflows. And then third, tariffs. Broad tariffs could slash consumer spending by raising costs and leading to a demand cliff.

6:25Now, I don't believe that, but that's what Rosenberg claims. So these three factors, they could weaken aggregate demand. And that could cause prices to fall as businesses have way too many goods on their shelves. And so they got to cut prices to clear out that inventory. On the positive side, lower demand might stabilize housing and services inflation, but it risks a vicious cycle of delayed spending and job losses, especially in retail and construction. So here's what you got to do. You got to get this balance right. It's very important. You want deflation without recession. And this can only be done by creating positive supply side factors rather than a collapse in demand.

7:01This is often called good deflation or growth deflation. And that's where prices fall due to increased productivity, technological advancements, or efficiency improvements that boost output in real incomes. As one simple example right now, we're currently seeing good deflation happen in energy costs over the last year. The decline in energy costs are due to increased domestic production, milder global demand, and efficiency gains from renewables and AI-optimized grids. U.S. gas prices, they're projected to drop another 3%, or 11 cents a gallon, this year. Energy inflation is negative 1.6 % year over year as well.

7:38So these cheaper energy prices, they act as a broad disinflationary tailwind. It includes lower input costs for manufacturing and transportation. But this also boosts household disposable income. Think about if you save the average driver$150 a year on fuel, and it supports profit margins for energy-intensive industries. Lower energy, higher profit margins. However, prolonged declines could hurt oil and gas producers. For example, if we had to cut jobs and taxes. But it contributes to regional economic slowdowns if that happens. Nationally, if you zoom out, it reinforces the Fed's path to 2 % inflation.

8:10But it amplifies deflation risks if paired with weak demand elsewhere. So specific to energy costs, these drivers are predominantly supply-side, AI, increased energy production. Or they are demand constraining, things like demographics and policies. These are both good things. This combination promotes sustainable growth, but it raises risks of a sharper downturn if they intensify. Again, remember the balance of deflation without recession is really important to get right. Now, the United States, we've been able to accomplish this many times throughout history. We saw it in 1815 to 1860. We saw it again after the Civil War, 1865 to 1900.

8:47And then we've seen it one last time in the late 19th century where mild deflation occurred because of positive supply shocks. We've done it before. And that means that we can do it again. Technology, demographics, and policies, they can all bring prices down and it can create an economic boom. Elon Musk knows it's possible. He's quite literally trying to create that future with AI and robotics. But for all the talk of inflation, it seems like many investors, they're ill-prepared for a world where deflation dominates the economy. They may be off sides. As Stanley Druckenmiller once said, every serious deflation I've ever looked at is preceded by an asset bubble.

9:24and then the asset bubble burst. And there's plenty of people right now screeching about an asset bubble given the current price and valuation. So now the question becomes, is there an asset bubble? Will it burst? And will it bring deflation? Well, I don't know, but I'm gonna let each of you answer that question for yourself. I recently sat down with Jordy Visser. I talked to him every single Saturday morning and we talked about an idea that I've been thinking about for quite a while. This idea that multiple forces, technology and macroeconomics, they come together to create very unique situations.

9:55And that's where all of the asymmetry can be captured for an investor. Most recently, we see AI and robotics, we see money printing, and we see potential easy monetary policy coming in the form of Kevin Hassett taking over the Fed. These three things coming together, I'm getting pretty excited. Here's how Jordan and I are thinking about it right now. Let me take Kevin Hassett and directly connect him to Mom Donnie. Okay. Okay. Okay. So the Trump administration, Republicans and Besant believe that if they lower rates, that will help bring affordability back. That'll help the people that have been suffering the most.

10:31On the other side, you have voters voting for Mom Donnie, who's promising free stuff or something. You might disagree on the politics involved, but I think at the end of the day, they're kind of meeting in the same place, which is we have a lot of people that are fitting into the Michael Green article of where's that poverty line now? Do people at$100 ,000, are they at poverty? Clearly, they're not at poverty. But his argument on how difficult it is to live life at this point is directly related to the macro trend you're talking about in AI. It's something I fundamentally believe in, is that the concentration of the MAG-7 don't exist without the K-shaped economy.

11:14That group is causing the K-shaped economy. We talk often with people about the job market. ADP came out this week. We don't really have payroll numbers. You know, they're on some coming back to market, but ADP. They weren't counting when the government was shut down. Let me, I don't, I don't know if you saw the guts of the ADP number, but there's two things that to me are interesting. Number one, six of the last seven months, the ADP release has had negative jobs for small businesses. So go back to the K shape. There's a lot of businesses, small businesses that are not hiring and firing. But the number for November alone was minus 120 ,000.

11:53Now, to define a small business, that is zero to 49 employees. That's a lot of businesses that probably went out of business. And that's what AI is doing to the economy and will continue to do the same way that Amazon disrupted the retail mall names and put the pressure on this. Because rates are high and not coming down fast enough, Donald Trump is correct that this problem on the flip side, you have AI that's also disrupting and causing small businesses that can't compete with the behemoths who have AI and are kind of disrupting all of this. So you've reached a point that on your point, these macro forces, they're all coming together.

12:28And that is why when, and I mean, I'm getting into a lot of things that we could double click on, but the Genesis mission is so important because they don't have a choice. They have to accelerate AI because on the other macro force is this race against China for AI dominance. So when people listen to this podcast, and I've had a lot of people on the hedge fund side that have gradually migrated here because we talk about a lot of topics that are important. We approach them from a different perspective because you're coming from a different angle. We meet at Bitcoin. I think for people listening, one of the hallmarks of what you said on the one side, the financial digital digitization that's happening, the guardrails that are going up are directly related to all of the macro forces, whether it's the AI race with China, whether it's the job losses that are happening, the K-shaped economy, they're all linked together.

13:16The problem is for most people, and what I don't think they fully grasp, AI is the most important force now of those two. And I also believe it's the solution down the road. Now, again, nobody knows what's going to happen in the future, obviously. But the idea of these forces coming together, technology, efficiency, monetary policy, and a global economy that is trying to reimagine what it looks like to build things and to consume things in the 21st century. That is where investors should thrive. There's going to be mispricing and there's going to be asymmetry. And if you can navigate this world, you're likely to drive a lot of returns.

13:53All right, this is a fun one. Peter Schiff, the gold bug. He stepped into the lion's den and he went on stage at the recent Binance conference. He sat down for a fireside chat with Binance founder CZ. And CZ, he didn't hold back. My guy was ready to rumble. Watch this clip here where CZ shows Peter physical gold and he asks him whether it is real or not. I took it back from Kyrgyzstan. He has a certificate. I got this from a very important person from Kyrgyzstan. Uh-huh. Very recently. Just completely by luck. So we take it out. It's pretty heavy. Put this down. You can see it says, Turkestan, a thousand grams, fine gold, 99.9.9.

14:41And a serial number. Try it. Yes, yeah, it's heavy. Is it real gold or no? Well, I don't know. I mean, I have, you know, I mean... Is this what you're trying to say? I mean... Now, that was obviously hilarious, but that simple test wasn't enough. CZ kept swinging by forcing Shift to admit tokenized gold is better than physical gold. Take a listen. Bitcoin derives its value from confidence, from faith. If people think it has value, then they're willing to buy it. We can get to Bitcoin in a second. I think we actually agree on this point that the digitized gold might be actually better than gold in a lot of ways.

15:17Because the tokenized version on the blockchain is transferable, it's divisible. it's more useful, right? As long as the gold is there to back it up. Correct, yes. And so it improves on gold. It makes gold better. Just like paper made it better. Except, you know, once the government came in and corrupted it, right, then that was a problem. But it wasn't a problem for gold. It was just a problem with government. But the gold that's issued through a token, you don't need a government. You don't need any private entity that has a good reputation and is trustworthy can tokenize gold. It doesn't need to be a government that does it.

16:03And now people can use that as money. And even if there's a lot of different tokens, they're all fungible because gold is gold. Now, here's the thing. I think CZ did a fantastic job. I personally am not a gold hater. I actually think the asset's very important. I understand why people hold it. It deserves a place in many people's portfolio. No one's questioning that. But at the same time, I do believe that Bitcoin will do a better job of storing value over time. And so that's where I choose to store my personal economic value for the long term. Doesn't mean the gold people are wrong. Gold's up a ton in 2025.

16:35But it does mean that me as someone who's relatively younger, I like to think super long term and I think Bitcoin's going to outperform. But don't get it wrong. Peter Schiff, he's done a great job advocating for gold. There's many people who have done a great job of advocating for Bitcoin. But when you hold a bar of gold, as Peter just proved, you got no clue if it's real or not. No one has that problem with Bitcoin. That's it for today's show. Thank you guys so much for watching. Please remember to subscribe on YouTube. We have 40 ,398 of you. I need more of you. Go hit that subscribe button to help us get to our goal of 1 million.

17:07And I'll see you guys live tomorrow from the desk of Anthony Poppliano.