---
title: 'Tom Bilyeu & Jaspreet Singh: The Banking Crisis Is Deeper Than You Think'
source: 'https://youtube.com/watch?v=zQ4bknZiem8'
video_id: 'zQ4bknZiem8'
date: 2026-08-04
duration_sec: 1600
---

# Tom Bilyeu & Jaspreet Singh: The Banking Crisis Is Deeper Than You Think

> Source: [Tom Bilyeu & Jaspreet Singh: The Banking Crisis Is Deeper Than You Think](https://youtube.com/watch?v=zQ4bknZiem8)

## Summary

In this video, Tom Bilyeu and Jaspreet Singh discuss the deeper implications of the banking crisis, focusing on how rising interest rates, high inflation, and record debt levels are affecting the economy. They explain the mechanics of debt monetization, the impact on corporations and banks, and why the current economic situation may be more severe than commonly perceived.

### Key Points

- **Inflation and Income Shrinkage** [00:01] — Inflation remains extremely high, causing people's incomes to effectively shrink even as they rise, because the cost of living is increasing faster than wages.
- **Variable Interest Rate Debt** [00:29] — Most debt, including national, corporate, and non-household debt, is variable interest rate debt. When interest rates rise, the cost of servicing this debt increases, putting pressure on companies and banks.
- **Tech Layoffs and Interest Rates** [01:21] — Rising interest rates have increased debt servicing costs, leading to layoffs in the tech sector as companies cut expenses to manage higher debt payments.
- **Valuation Drops and Bank Balance Sheets** [02:04] — Companies have seen valuations drop by up to 80%, affecting banks' balance sheets. If a bank's portfolio companies lose value, the bank's assets shrink, potentially leading to solvency issues.
- **Meta's Strategy and Market Instability** [03:28] — Meta's strategy of aggressive spending might work in stable environments, but in volatile conditions, companies without massive revenue streams like Meta's can't absorb losses, leading to collapse.
- **Rising Interest Rates as Tide Going Out** [04:11] — Raising interest rates to cool inflation will cause economic pain, revealing who is 'swimming naked' – differentiating smart money from dumb money.
- **Lesson for Average Person** [04:36] — The key takeaway is that economic downturns often surprise people because authorities downplay risks. Historical examples include 2008 and 2020.
- **Debt Monetization Explained** [05:43] — Debt monetization is how the government funds operations by printing money. The Federal Reserve creates money out of thin air to buy government debt, which fuels inflation.
- **Scale of Money Printing** [06:22] — The US economy is about $25 trillion, but the Fed printed $5 trillion during the pandemic – equivalent to 20% of the economy's output, created with a push of a few buttons.
- **Book Promotion: ABB** [07:02] — Jaspreet promotes his book 'ABB: Always Be Buying' and offers a free digital copy, along with access to Market Briefs, a free newsletter.
- **Cost of Money Printing: Inflation** [07:54] — The cost of printing money is inflation. The government can print money, but it devalues the currency, leading to higher prices.
- **Quantitative Easing vs. Stimulus** [08:21] — Quantitative easing is when the Fed buys assets to inject money into the economy, while stimulus is direct government spending. Both increase the money supply.
- **Government Funding Sources** [09:01] — The government funds spending through taxes, borrowing (Treasury bonds), and ultimately the Fed printing money. In 2022, tax revenue was $5 trillion, spending $6.5 trillion, with the deficit covered by borrowing and money creation.
- **Mechanics of Money Creation** [10:12] — The Fed creates money by adding zeros and ones to a database, buying Treasury bonds and other assets, effectively loaning money to the government that didn't exist before.
- **Record Debt Levels** [11:42] — National debt is over $32 trillion, with record household and corporate debt. Combined with high inflation and rising interest rates, this creates a precarious situation.
- **Fed's Goal: Reduce Demand** [12:23] — The Fed raises interest rates to reduce demand, making borrowing more expensive, which cools spending and inflation.
- **Inflation Dynamics** [13:02] — When the economy is booming, high demand drives up prices, causing inflation. If wages don't keep up, people fund spending with debt, which has a breaking point.
- **Variable vs. Fixed Rate Debt** [14:10] — Most debts are variable-rate, not fixed like a 30-year mortgage. National debt, corporate debt, and household debt often have rates that readjust, increasing costs when rates rise.
- **Unemployment Projections** [15:04] — The Fed aims to bring unemployment from 3.6% to 4.6% by end of 2023, which could mean about 2 million Americans losing their jobs, as a byproduct of fighting inflation.
- **Fed's Track Record** [16:11] — The Fed has been wrong repeatedly about inflation, first calling it transitory, then predicting it would be gone by 2022, and now admitting the fight will be more painful.
- **Terminal Rate of 5%** [17:19] — The Fed's terminal rate is expected to be around 5%, but based on past trends, it may not be enough to bring inflation down to the 2% target, potentially requiring more rate hikes.
- **Economic Pain Ahead** [19:59] — Despite claims of a soft landing, the numbers show record debt, rising interest costs, and slowing economy, suggesting significant economic pain is coming.
- **Interest Payments Outpace Spending** [21:00] — In 2022, interest payments on the national debt exceeded combined spending on veterans, VA, and transportation. By 2025, interest payments could exceed the entire military budget.
- **Tax Revenue Decline** [21:42] — As the economy slows, tax revenue declines, making it harder for the government to afford ballooning interest payments, creating a vicious cycle.
- **Corporate Debt Bubble** [22:48] — Corporations face a major test due to the debt bubble. Despite record profits in 2020-2022, they are now laying off employees because they must service debt and return cash to shareholders.
- **Corporate Cash Allocation** [23:30] — Corporations have three options for cash: save, reinvest, or return to shareholders. The tax system penalizes saving, encouraging reinvestment or shareholder returns, leading to stock buybacks and dividends.
- **Shareholder Pressure** [25:15] — Shareholders pressure CEOs to return cash via dividends or buybacks, especially after years of investment. This reduces cash reserves, making companies vulnerable when interest rates rise.

### Conclusion

The banking crisis is a symptom of deeper economic imbalances: record debt, rising interest rates, and inflation. The Fed's actions to cool the economy will likely cause significant pain, and the average person should prepare for economic turbulence.

## Transcript

inflation because inflation is still even today extremely high. We're closer to a peak of inflation than than our lows, which means people's incomes are essentially shrinking. Even though like what we've been seeing
happen is people's incomes are rising, but they're not rising fast enough to effectively becoming poorer across the country because the cost of living is going down. But now interest rates are going up very
And so when interest rates go up, that means now the investment institutions, they need a bigger rate of return because most debt, I mean besides your
mortgage, is not a fixed rate debt. It's variable interest rate debt. Our most of our national debt, most of our corporate debt, and most of our well non-household debt is variable interest rate debt. So when interest rates go up, the cost of
servicing that debt goes up. So now you have something like SVB Financial, and general because I don't know too much about their particular financial about their particular financial situation yet. Uh but
what most companies do is now they have this boatload of debt, and the debt rate readjusts. And so now when you're investing in produce a return in order to continue making the payments on your debt.
board, the reason why we've been seeing so many layoffs in the tech sector, is now interest rates have gone up, meaning the gone up. And now you need to make more money to
service the cost of those debts. And if you have a high debt payment, now you have to figure out how am I going to have more money to pay down this debt. cut my expenses. Making more money's hard in a time where
ability to spend. So what's the alternative? I cut my expenses. I start laying off employees. I cut my expenses. And so now I have money to pay down my debt. Now, that works if you're Meta, Facebook, or
companies that are are still in the early stages? Now, your valuation, I mean, I was you you you've seen so many companies go from like a billion-dollar valuation to
200 million overnight. Like, you're talking about like 80% drop. And so now you have banks that show on their balance sheet. net worth statement. So, if a bank says, "I'm invested in 10 companies, each one
dollars." That means I have 10 billion dollars worth of assets. And so now if you take this 10 billion money, you might be able to get let's just say
80% loan-to-value, right? 8 billion dollars worth of loans that you can then But now, when you see interest rates go up, the valuations of these things go stocks crash. Well, now if
10 if your 10 portfolio companies are worth a billion dollars each and they now you go from a 10-billion-dollar billion. >> Your point about Meta, I think is really
important here. So, the strategy that they deployed. Now, it's it's too early for us to know if there was anything sinister going on. So, setting that aside for now, um assuming that there wasn't, the
strategy could potentially work in an environment where it's far more stable. Either interest rates are dropping or they're stable, but when you get into a either the companies that are volatile stage and can't absorb the losses like a
Meta, which just has an insane amount of revenue coming in the door, um then it falls apart. But if if they had longer runway, they might not have Buffett's old phrase of when the tide goes out, you see who's swimming naked.
on. Rising interest rates And that's where you start to differentiate the dumb money and the smart money. And as you raise interest rates to cool down inflation, it is
going to cause economic pain. And that is going to be the tide going out. >> So what can the average person take away from this? How How does the average person who probably isn't directly
caught up in anything related to SVB, um how do they learn the lesson of the triangle of doom, the rising interest rates, a cooling economy, inflation?
What What's this moment about for them? >> I I think the most important thing here You're going to hear me say that a lot. But the reason why is because anytime we go through this type of shakeup or change in the economy,
until it it slaps you in the face. Everybody will keep saying, "Oh, it's You don't got to worry about it. Everything is fine." And I can give you countless examples. In 2020, we saw it happen. In 2008, I mean, in 2008, first
there's a housing bubble, but it's contained to housing. And then, oh crap, the whole financial system's on the verge of, you know, collapsing. And doesn't matter which side of the political coin that you're on. We're all
on the same side of we're trying to become financially wealthy. But the reality is uh we have our president saying there's no chance of any economic slowdown, not just this year, but in the coming years. Our
saying we're going to see a soft landing. Now, let's just look at the numbers to really understand what's going on because the first issue is what I call this idea of debt monetization, which is probably one of
the most concerning issues. And what debt monetization is, it's how is our government funding its operations,
>> Mhm. Debt monetization as a term, if I understand it correctly, makes me very angry because it sounds cool. I can monetize my debt? That sounds amazing. Am I correct that debt monetization is
>> Yes. >> Yeah, it's one and the same, right? >> the a basic way to explain it. So, essentially, think of it this way. Uh our uh the size of our economy last year was
about $25 billion. And And over the last couple of years, especially in the pandemic era, we printed with the Federal Reserve Bank >> Jesus. >> So,
to put that in perspective, about 20% of our entire I mean, every single person had to go to work for a year. Every corporation had to work for a year in order to produce $25 trillion worth of money or wealth. The Federal Reserve
Bank was able to print 5 trillion with a push of a few buttons, essentially. >> The way you build wealth in the stock market is not by chasing hot stocks. It's through what I call ABB, always be buying. And I just wrote a brand new
book called ABB, always be buying, how you can build wealth in any market where I break down the exact strategy of how you can build wealth in the stock market and turn your extra money into income or more wealth that where you can now use
because you're watching my video, I'm going to give you a digital copy of my book completely free. I have that link for you if you want to download it down sign up for the book, you're also going to get access to Market Briefs, which is
free, where my team is breaking down what's happening in things like the economy, housing, stocks, crypto, and global markets. It's read by hundreds of morning. So, if you want to get my ebook and Market Briefs all for free, all you
link for you down in the description below. >> The question is, why do you and I have to pay taxes if the government and the Fed can just print this money? Well, it's because there's a cost to
this money printing. What is that cost? Well, that cost is inflation. And so, we're in a situation right now where the amount of money that has been printed is
amount of money. Like we know the stimulus was something around $5 trillion, but the Federal Reserve Bank also did a lot of unlimited quantitative easing. The definition of money changed during 2020. M1, I'm not going to get
>> Well, so just really fast, what's the difference between printing money and quantitative easing? >> So, quantitative easing is when the government does some sort of stimulus. When the government spends money in a
>> Got it. They give you money. >> So, that is stimulus. Quantitative kind of where the Federal Reserve Bank now is working to stimulate by printing. So, they're
>> So, wait. I'm not understanding the difference between quantitative easing and debt monetization. Are they both printing money? Are they the same thing? >> They're they're both printing money. The government has one source of income.
>> Taxes. And so, when they spend more money than what they bring in, this >> Mhm. >> So, in 2022, the government brought in about $5 trillion in taxes. They spent about 6 and 1/2 trillion. So, where does
that 1 and 1/2 trillion come from? Well, they can borrow money from you and I. These are treasury loans, treasury bonds. When you loan your money to the government has to pay back plus interest. But that's generally not
enough money. So, then they might go to foreign countries, China, Japan, and ask bonds? >> Essentially, yeah. They will loan Other States because they want a return and they'd like to store their their wealth
world's reserve currency. The government has to pay them back plus interest. But that has not been enough. Which brings us to number three, which is the Federal Reserve Bank, who if option one and option two are not
essentially print the money and give it to the government. >> When you say essentially, isn't it literally an obvious it's not actual printing like money machine go burr, but it's adding zeros and ones to a database
>> And if I remember this correctly, uh what they do is they actually go and buy things from people to get the They'll go buy it typically they're going to buy corporate bonds,
but they will They started buying private company equity, if I'm they get the money into the system. >> So, sort of. So, the Federal Reserve government by buying Treasury bonds, meaning by loaning money to the
>> Uh that they made up, just to be clear. >> That they made up, yeah. >> That they made up, yeah. >> They They have no actual money, but it in this new amount that they're going to go and purchase or loan this money. They
They make it up, comes out of thin air, and it goes into the system. Just make sure that people track this, cuz the more I learn about this, the more it's it's dizzying that it works at all, and the more I learn about it uh there's
that classic saying that as the island of my knowledge grows, so grows the the more I learn about this, the less sort of fiery I get about it, the more humble in the face of like, "Whoa, this is an incredibly complicated system."
Um I won't even take a stance they're being sinister, but that is what they're money because the government says it's okay for you, Federal Reserve, to do that. Anybody else, we'd put them in jail, but
don't even mean that in a cheeky way, but like just so people understand, it which is probably fine, but just so everybody understands what's happening.
>> Yeah, so this There's a lot more money out there, which is then causes economic system, people have the ability to spend, while not much is being and this has been going on for a little while. It's been going on since before
the pandemic, but it really just amplified during the pandemic. Now, the next issue is the amount of debt out there. So, the government national debt is breaking records. We're
32 trillion dollars. We have the highest amount of household debt ever and the highest amount of corporate debt ever. So, we have more debt than ever before. And now we have high inflation,
next thing that's happening? The Federal Reserve Bank is working to raise interest rates. Well, what does raising interest rates do? They are trying to reduce demand. This is what they're saying. They want to reduce people's
the ability to buy whatever home you want, whatever car you want, whatever vacation you want, people will spend. That then causes the price of things to these things. So, they want to reduce demand. How do
affordability. >> All right, really fast, I think we have to make it clear for people why that's problematic because it doesn't seem like it should be. So, here is how the Here's how
economists are looking at it, the Fed's being a part of that system. Hey everybody, you're acting like it's the 1920s, rip-roaring, spending money, everything's great. And because of that,
are spending a lot of money, they're going out, they're buying things, companies are investing, they're hiring new employees, and it's like a growth mode. Now, the The is it when the economy's on fire like that and people
are buying a lot of stuff, there's a lot of demand for those products, which causes the price to go up. That is inflation. As the prices rise for the same thing. Right. And so what they know is that can run away with
you and if wages aren't going up, so people aren't making more money, but the people fund that is through debt, but debt has a breaking point. Debt is fine until it's not because you have to service the debt.
you know, when most of us think of debt, we think of something like a 30-year fixed-rate mortgage, but most debts are not a fixed-rate debt. >> Because okay, sorry. >> is not generally fixed-rate. It
generally has some sort of variable rate to it, meaning either after 6 months, 12 months, or a few years, it is going to readjust. Our national debt is not a 30-year mortgage. Some of it is 10 years, some of it is 5 years, some of it
is 1 year, some of it is 6 months. Our household debt, we have, you know, variable interest rates. So now interest rates are shooting up and they're going Reserve Bank is saying that interest
than what they originally expected. No big surprise here. We've been talking >> Because we need to cool off the economy. You guys are buying too much. Companies, you're hiring too many people. Like I heard that they the Fed, in raising
looking at is they want to make sure that um that there's like an optimal jobless rate that you want. Is that true? >> So essentially, we have way
Federal Reserve Bank. And because there are so many people who we have a very low unemployment rate. Unemployment is around 3 and 1/2%. Which is historically extremely low. And this is where now the Federal Reserve Bank is
saying one of the consequences of cooling the economy and bringing inflation down is increasing unemployment. Is their goal to necessarily increase unemployment? No, it's a byproduct of bringing inflation
down according to the Federal Reserve Bank. Their goal Bank. Their goal is to bring unemployment from 3 and 1/2% is to bring unemployment from 3 and 1/2% It's 3.6% as of today to 4.6%
by the end of 2023. This is what they've stated in their annual report. about 2 million Americans lose their jobs. Now, this is where also understanding what is
the impact of that and is that going to be enough? be enough? Because what we've seen happen is that inflation? >> Is that
So, the Federal Reserve Bank has to raise interest rates to bring inflation down. And the consequence of raising interest rates is a slowing economy, aka less people have jobs. So, is their current projection of raising
interest rates, which is bringing interest rates to about 5%? Is that going to be enough with about 2 million lost jobs? Is that going to be enough to fix the inflation problem? No, it's not going to be.
The Federal Reserve Bank has been wrong many, many, many times. And if we just look at like the last few years, first they said that this stimulus, cause inflation. Then they said, "Oh, this inflation will
be gone by the end of the year." This is like 2021, 2022. They said it'll be gone by the end of 2022. Then they said the inflation is Then they said the inflation is not transitory. Then they said the inflation
will be gone like completely in the next couple of years. Now they're saying that the inflation fight is going to be much more painful and much more difficult more painful and much more difficult than originally expected. So, okay, now
they're saying that if we can bring interest rates to around 5% then the inflation problem will be gone. 5% is their terminal rate, that's what
they're calling it, meaning how high we expect interest rates to go. And when I mortgage rate, I mean the interest rate set by the Federal Reserve Bank. This is the wholesale rate that banks get to borrow money at.
So, banks borrow money at the wholesale rate, this is the federal and then they price like your mortgage rate or something like that. today, are saying that 5% is the terminal rate. As of today, it's at
around 4 and 1/2% Last year, they said the terminal rate was going to be around 4.6%. Uh before that, they said it would be raising how high they expect interest rates to go. They're saying that if 5%
interest rate would result in an unemployment rate of jobs. When I first started learning about money management, I avoided using a credit card because I thought that credit cards are bad and evil. And then
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free article that I have for you down in the description. Is that going to be enough? Well, based off of the past trends and based off of where inflation has gone, it doesn't look like it's enough because
the Federal Reserve Bank is realizing that bringing inflation down to their 2% goal is going to be more difficult than they thought. And if it's more difficult to cause more pain to the economy than they thought.
living in this world thinking everything is just fine. to be a soft landing. Everyone keeps saying that we might not even see a there's nothing to worry about. Yet, if you look at the numbers, we have
highest debt levels ever. We have interest rates that are rising, which rising. Even if you don't increase your debt levels, the cost payment is rising because interest rates are rising. We have our national debt cost, which is
rising. Even if the government didn't spend more money, their payments would still be rising. Household debt costs are rising. Why? Because our credit card debt is at a highest level ever. Now, it looks like interest rates are
four. Then, if you dig a little bit deeper, start to arise because now if you look at, for example, if we just look at the in 2022,
our interest payments on the debt outpaced our total veterans spending, Veterans Affairs spending, and transportation spending combined. That's 2022. Uh in 2021, we spent more than $100
billion less in interest payments than in 2022. And the prediction is that by around 2025, our interest payment spending, just on the interest on the debt, is going to exceed our entire military budget here
in the United States. And now you have to ask, okay, is that a problem? generating enough tax dollars, then maybe it's not a problem. How does the
government generate tax dollars? You have to go to work to get paid. Your company has to make a profit. People have to make money in their investments. Let's start tying this together now. If the economy's slowing,
people are losing their jobs, corporations are making smaller profits, Less income means less taxable income. Less taxable income means less tax dollars. So, if the government is generating less
tax dollars because the economy's slowing, people are losing their jobs, how are they going to afford a ballooning interest payment? Like it's our interest payments are growing so quickly, not because now the government
is spending like they were in 2020 and 2021, but because the cost of servicing ever. And on top of that, the Federal Reserve have to increase interest rates more aggressively
and potentially even longer than what they originally expected. side, you're saying, oh, there's some issues on the government side, but they should be able to figure it out. We're the world's reserve currency. Okay,
let's go to the corporate side. Corporations are going to face one of their biggest tests because of this ballooning debt bubble. And the reason why it's is because in 2020, 2021, and even in 2022,
corporations were making their biggest profits ever. The economy was booming, partially because of all the money that was now just entered our economy. economy. Corporations are making money hand over fist, meaning they're making
big profits, meaning they would have big piles of cash. Yet, you're seeing layoffs accelerate. Why are corporations having to do profits ever just, you know, a year or two ago?
Well, it's what does a corporation do with their cash? There's three things They can save it for an emergency. They can reinvest it back into the company, open more stores, or they can give this money away to
their owners. And what's interesting is our economic system makes it so that saving money as a corporation is the least attractive Now, you might say, "What do you mean?"
If you made, let's just say $100 million of profit, and you kept it because you said, "I want to keep this $100 million for a rainy day as a corporation." pay taxes on that money. And that means that you're going to have
to send a check of maybe $20 million, a little more than $20 million, to the government just in taxes. Now, you, if you're running a company, you can hire more employees, you can open your plant, you can invest in more
you can do with $20 million. So, you're going to say, "Do I really want to do that with my money?" Because as a CEO of a company, you want to use your money in the most productive way possible, and to you,
giving that money to the IRS is not very productive for the company. So, you might say, "Well, you know what? We're not going to give this money to taxes. We're going to invest it back into the company." So, now if you take
employees, you invest it in advertising, you open new stores, all that money is gone, you have $0 of taxable income, $0 of more valuable. The third option
the world wants. >> Exactly. Uh that that would have to be a product for the business to continue. Uh but then the third option is shareholders. And what what has been happening is
dividends or stock buybacks or both? >> Yes, both of them. this you know you I think this is where it's important to understand corporate governance because most people assume that if you're the CEO of a company,
like you run the company. Well, you still have a boss. Your boss is now the owners of the company, the shareholders. company, your shareholders are anybody who owns the stock. If you own one share
Amazon. And what happened was in between 2020 and 2022, the end of 2022, the shareholders said We've been invested in this company for a long time. It's time for us to see our
returns. Give us some of that money. You can give us that money in the form corporation is literally buying back their own stock to make the stock price or give us that money in the form of a dividend, which is literally a cash
payment, a distribution. And so for the shareholders, they put a lot of pressure on the CEO saying we want some of this uh we want this money given to us. Money isn't what it used to be. And it's about to change
again. For centuries, money wasn't this paper, it was actually physical gold. It was coins, it was bars that people would carry around. But carrying around physical metal wasn't very easy, and that was when this paper money got
created, but this paper money was backed by physical gold. So if you had a by physical gold. So if you had a hundred dollar