James Bianco: “Is The Fed’s ‘Cure’ Worse Than the Disease?” (Hedgeye Investing Summit)

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[Music]
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alright thanks for staying with us here
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this is the third one in a row again
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it’s my pleasure actually it’s the first
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time that I’ll have Jim Bianco on edge
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ITV so it’s a real pleasure to have you
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here Jim thanks for thanks for making
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the time to do it yeah thank you for
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having me looking forward to it you have
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a you have a lot of fans on both Wall
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Street and on Twitter and I think you’re
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one of the guys that can can merge the
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gap you know if you will between the
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real world and the economy and and what
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Wall Street would maybe like to see
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sometimes so I certainly appreciate that
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there’s been a lot of comments back and
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forth on free market capitalism a lot of
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people are kind of concerned that that’s
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been last year but I know that you have
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a lot of different thoughts on that and
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that’s really the first topic that I
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want to start with was you know the
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legality of what the Fed has done or
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purports to be to be doing and just
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generally how you think about that it is
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legal what the Fed is doing the 13-3
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provisions that the Fed has that were
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revised in the dodd-frank bill give them
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the ability to do this and here’s an
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important caveat provided that the
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Treasury secretary approves of it and
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that’s been what I’ve been trying to
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hammer along was that what effectively
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has happened is we’ve merged the Federal
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Reserve with the Department of Treasury
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and that what’s effectively happened is
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is that the Fed is not buying corporate
bonds or ETFs or commercial paper or now
municipal securities as of last Thursday
it is the Treasury it is the government
that’s buying it the Fed is just
providing the financing and when I hear
Fed officials say to me well we’ll get
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out of this when the time is appropriate
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no you have to get the Treasury
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secretary to approve of you getting out
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of it and that means you need Donald
Trump to say I think you guys are done
money printing I think you guys are done
ramping markets up higher and I have a
hard time believing especially in an
election year that that’s going to
happen anytime soon so getting into
these programs is easy getting out is
going to be the real tough part I think
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and that’s to come and the problems
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associated with that yep oh and we’ll
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get into like you have an explicit
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opinion on whether
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not that this creates a new version of
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economic gravity or not but just you
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know is the beginning of that I mean
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that that isn’t that essentially what at
least phase one its Trump we probably
call it of mmt looks like when you merge
the Treasury fiscal spending with money
printing I think that’s exactly right
I’ve been actually causing calling this
mmt version 1.0 is what we’re doing look
all in all the stimulus is something
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along the lines of four or five years of
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tax receipts and I think a lot of people
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have asked a question of if the Fed and
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the Treasury believes that this works
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that they can print five years worth of
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tax receipts and not have any
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consequence then why do we have a tax
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why do we have a dir S can we just give
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it the IRS then at that point and just
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have them print all the money that they
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need of course not I think that there’s
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going to probably be somewhere down the
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line some kind of consequence to all of
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this money printing what and how we can
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debate but I have a hard time believing
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that we could print several trillion
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dollars for up to a trillion dollars
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right now and it will have only pleasure
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and no pain because if it did then we’ll
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print another a trillion and then we’ll
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print another a trillion until we go to
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the point that it becomes too much well
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isn’t it doesn’t that just mean that
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your and thanks for simplifying it that
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by the way not not many people can do
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that in 30 seconds or less
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but again you isn’t that just at the
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pleasure of the people deciding to pay
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their taxes uh yeah I think that there’s
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a lot of that right now although tax
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payment is not at the pleasure of people
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you know as the great economist Walter
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Williams says you know if you don’t pay
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your taxes they’ll kill you what he said
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go ahead try and barricade yourself in
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your house and not pay your pay taxes
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and see how long that works eventually
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guys what guns will come through the
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front door looking for their taxes so it
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isn’t not quite at the pleasure of the
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people but there will be an argument to
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be made at some point that if it’s not
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let’s do away with taxes it would be why
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do we have to end the money printing why
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do we have to end this stimulus or the
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bailouts or whatever we’re calling it
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this week if there is no consequence to
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it why is it only in a crisis we can
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print
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and borrow a trillion dollars to try and
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get us over the hump but not in a crisis
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why can’t we keep doing it then – that
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will be a debate and a discussion we’ll
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have to have at that point well I mean
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there’s there are plenty of academics
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obviously you and I that’s not that’s
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that’s not where we live day to day it’s
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certainly not where I want to go I think
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I’d be pretty bored but I mean people
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always say hey look can you give me a
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white paper on why use the base effects
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– to predict their use your now Cass I’m
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like here’s the white paper the back
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test it’s like one piece of white paper
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have at it go for it but no stephanie
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kelton for example I mean what do you
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think about that I mean she obviously
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feels like she’s got one step in the
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door on this and maybe Trump or whoever
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beats Trump or if Trump wins and both
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would quite like that yeah I think so I
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think you know to put the Calton in the
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MMT argument you know – a simple task
they believe that you can print money or
borrow and you know increase government
spending pay for college pay for health
care pay for whatever you want to pay
for without inflation until you hit the
end point of inflation their argument is
we can borrow a lot more before we hit
inflation I think my argument would be I
don’t think we’re gonna be borrowed
nearly as much as you think we can
before we get to the inflation point the
emmab tiers do have a point they say
when you get to inflation then you
you’ve gone too far and they they’re
their remedy for that by the way is to
raise taxes and that’s the way you
remove money out of the system good luck
with that
you know it’s trying to turn over turn
over – they want to have tax rates be
like the Fed Funds rate where it goes up
and down with the right level of
inflation set by a bureaucrat like the
Federal Reserve I’m not so sure that
society is quite ready for tax rates to
kind of go along those lines but to the
larger point I don’t think they’re gonna
they’re gonna find we’re gonna find
they’re printing and borrowing to the
extent that we are is going to have a
consequence a lot sooner than we think
it’s going to be the mmm tears thinks
it’s like 10 20 30 trillion dollars we
could do before we hit that level I
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don’t think it’s gonna be nearly that
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much before we start seeing problems
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well what if the consequence is the one
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that we’ve already seen in o8 and again
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it’s not a wait I just don’t
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want to make sure that everybody knows
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that I don’t think it so late I think
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it’s 2020 and it’s quite different it
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could be worse but again you know what
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if the consequence is that people don’t
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believe the bullshit and asset prices
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just go straight back down that is if
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that is a big consequence I think right
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now because it’s a flip side of this
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story is we are going to take you know
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what the Fed is doing in supporting
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markets let me go back to my first
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argument what the Treasury is doing
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through the Fed is nationalizing the
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markets right they are basically taking
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them over and by the way and I’ll give
you the names to Wall Street is cheering
this as loud as they can Bob Michael
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this chief CIO fixed-income of JPMorgan
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Investment Management he’s thinks they
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haven’t gone far enough he wants them to
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set the price of every bond in the
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country
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Rick reader at Black’s Black Rock has
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been cheering this program as well Mike
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Wilson at Morgan Stanley
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David constant at Goldman Sachs has
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abandoned his 2000s a peak all because
money printing is good and what the Fed
and the Treasury are doing is good well
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we’re going to put that to a test right
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now and here’s the simple question you
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have to ask yourself is the market near
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fair value is the market somewhere where
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it would naturally be and I like to say
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if if a red headline came across my
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Bloomberg and it said Jay Powell
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changed his mind cancelled all the
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programs with the market go down a lot
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yeah what because we supported it an
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artificial level I think the Fed can do
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that for a while support a market at an
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artificial level but not forever
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eventually the weight of where the
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market should be will come to bear on it
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and it will fall and it will fall down
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so we’re gonna put this money printing
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thing to a test the difference in o.9
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was they started it after the market was
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down 50 percent and two years later so
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they got if you will lucky or maybe they
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got smart they started it when the
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market was somewhere near a fair value
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level anyway this time around they
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started it two weeks after the all-time
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high and then kept ramping it up all the
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way to last week and continue to ramp it
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up and the question is if the markets
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near
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would have been anyway then this will
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appear to work if it’s if the market
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should be severely lower and that’s what
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my fear is is then it won’t work over
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the long term and work for a while it’s
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it’s a it’s amazing thing I mean I was
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back and forth with Danielle DiMartino
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booth on this there’s this and and you
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you probably could empathize with this I
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think I’m probably barking up the right
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tree if I’m not then too bad but you
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know this this whole discussion you and
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I have discussions with the same types
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of people don’t forget the JP Morgan
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gentleman that you that you named he
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doesn’t quite want to talk to me and I’m
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not completely surprised why JP Morgan’s
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a client to be clear in terms of
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independent research they pay for a lot
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in independent research but again the
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whole haha you didn’t get it you didn’t
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know that you shouldn’t fight the Fed
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like that discussion tell you Jim that
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tries to mean bananas like that that
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tries to be bananas like all you great
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fundamental investors who only talk to
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me about how good the cycle is and how
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it’s different this time as soon as it
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turns fundamentally you turn tail to
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that and you tell me I’m the idiot III
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have a hard time with it you know let me
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let me jump in and say I agree because
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what you’re saying is and let’s let’s
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not mince words here what we’re saying
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is all this analysis we do is bullshit
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right because he works it enough where
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it works in the op but then in the down
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you can forget everything you’ve learned
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about how finance works don’t worry
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the printing press will just bail you
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out well why don’t we even need analysts
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why do we even need anything if that’s
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the way the markets going to work that
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it always is going to be supported by
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some artificial force on the way down
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you know if you believe in free markets
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free markets is remember what free
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markets are supposed to be let’s not
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forget what we were talking about here
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we have an a finite source of capital we
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don’t have is all the money in the world
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you think we did with the Fed and we’re
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trying to efficiently allocate it we’re
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trying to give it to good ideas and take
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it away from bad ideas if we continue to
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go down this road where I’m going to use
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an Austrian term we’re gonna create
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malinvestment we’re gonna just give
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everybody you know Bob Michael JPMorgan
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he wants to fix the price of every
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corporate bond at 2% he said that last
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week on Bloomberg TV
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okay if you fix the price of every
11:14
single corporate bond at 2% there’s no
11:16
point in doing credit analysis everybody
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gets the same price whether it’s
11:20
Carnival Cruise or it’s Amazon whether
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it’s a disastrous business model or a
11:25
great business model everybody’s going
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to get funded and you’re going to create
11:29
an all kind of dislocations and problems
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in the economy because you’re not being
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efficient with getting rid of bad ideas
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and rewarding good ideas well you’re
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being you’re being you know completely
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conflicted and compromised for your own
11:43
interests I mean you know that Bob
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Michael I don’t know who that it now I
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know but his son if he has a son named
11:49
Billy Bob Michael isn’t gonna work on
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Wall Street because like he said there’s
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no job to do right exactly and I think
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you know you know this is what this is
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what the the idea is supposed to be I
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mean in in theory if you believe that
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the market was overreacting in March
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because the what’s happening with the
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virus is not nearly as bad as the market
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was saying then bring it on give me
12:15
great opportunities to make money but if
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you’re going to arrest it before we get
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to some kind of a settling out in the
12:24
market you’re just gonna create more
12:25
problems in the long run I think at that
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point but you know what if you look at
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Wall Street and if you look at policy
12:31
makers no one’s thinking about the long
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run one of the things I’ve really been
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railing against is everybody talks about
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well what’s the second quarter gonna be
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like and what’s the third quarter gonna
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be like when’s the restart gonna start
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and I’ll use some some technical terms
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for you here the second quarter is gonna
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be a shit show the third quarter is
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gonna be less so of a shit show that’s
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all the analysis you need to know what
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we really need to discuss is when this
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is over the virus and it will end what’s
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the long-term consequences of it are
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there going to be changes in social
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behavior are there going to be changes
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in the way we conduct business is there
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going to be some kind of de
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globalization as well and those 17
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million Americans that have been
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unemployed in the last three weeks if
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you believe tomorrow’s numbers supposed
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to be another five million added to that
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role 22 million how many millions of
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those people
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don’t get their job back or have lost
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their businesses because of that what
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kind of anger resentment does that bring
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up to boy these are questions everybody
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looks at their shoes and says point
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let’s just not go there let’s just talk
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about how bad the second quarter is
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going to be so we could talk about how
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much less bad the third quarter is going
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to be and that seems to be the extent as
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far as they want to take it right now
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well I and Wall Street just voted on
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that I think like if you even if I look
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at my own client base which is you know
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hedge funds mutual funds I think we have
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actually the same client base so you
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probably had the same feedback there’s
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this like super super short-term panic
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obviously the pressure on people to
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perform on a very short-term basis at
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the hedge fund level in a quote-unquote
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neutral environments never been higher
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so people are just flat-out you know
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running in fear of their own job but
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yesterday JP Morgan was quote-unquote up
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on the bad news and I’m like just chill
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out I mean let let gravity play out I
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don’t think that people are gonna
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actually believe Jamie diamonds loan
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loss reserves here I don’t think that
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they’re gonna believe his outlook and by
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the way I do believe in economic gravity
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so the credit cycle exists gravity
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exists and we’re gonna go through it so
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I agree you’re gonna have to go through
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the shit show and look at what the
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financials have done in the last 24
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hours
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I mean they’ve led the market lower and
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they’re the first ones to report their
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version of reality which I don’t know if
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you agree or disagree whether you call
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it a shit show or not they have no idea
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yeah I know not only that they have no
14:49
idea but if you look at what they’ve
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done is they just made a guess as to
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what their loan loss reserves are gonna
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be exact yes it’s on those long lost
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reserves are much larger than the
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analysts to cover these companies
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thought that they were going to be as
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well so there is just a guess so far cuz
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for the moment no one has really
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defaulted on a loan if you stop paying
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at three weeks ago it’s not in default
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yet it will be soon but it isn’t there
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just yet and so we have no idea you know
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where this ultimately is going to go and
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that’s what we’re what we’re trying to
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guess and stuff but I ultimately think
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it really comes down to that long-term
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question that no one wants to touch
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right what happens on the back side when
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this is over do we want to have a more
15:36
conservative attitude do we want to
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de-risk
15:39
we wanted to globalize away from China
15:41
do we want to reward to use a Mohamed
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el-erian term do we want to reward
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resiliency in a company’s business plan
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/ efficiency in a company’s business
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plan right now it’s closed everything
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and send it to China cuz it’s cheaper
15:56
but now we’re might say in the bet and
15:58
on the other side we might say how is
16:01
your company going to respond when we
16:03
have to close again for three months are
16:05
you gonna be able to survive and are we
16:06
going to reward companies that set
16:08
themselves up like that well that means
16:10
that we’re going to have a slower growth
16:13
less aggressive attitude than we did
16:16
have say in January of this year now
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Wall Street wants to believe there’s
16:20
going to be none of that that it were
16:23
just it’s gonna be right back to January
16:24
2020 as soon as we’re done with the mass
16:26
graves on Hart island it’s right back to
16:28
2020 and everything’s going to be okay I
16:31
tend to think that that’s not going to
16:33
be the case there is gonna be changes in
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how we do things I may be wrong on what
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the changes are but what would shocked
16:39
me is if the answer is nothing changed
16:42
by the end of the year now we’re just
16:45
back to the way it used to be less
16:48
25,000 dead people yeah that’s I say
16:51
that sarcastically it kind of men you
16:53
know emphasize my point no it’s it’s
16:57
it’s classic actually and predictable
16:59
proactively predictable indeed you know
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that’s how Wall Street thinks they think
17:03
linear and on a linear basis they think
17:05
you go down to one side of the Vienna
17:08
linear basis you could go right back the
17:09
other side of the vena Bob can mark all
17:11
the prices at the top end of the V you
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never have to worry about having any
17:14
double use in between so it’s like it’s
17:16
a that is a shitshow in my mind I mean I
17:19
wonder what you think about this
17:20
framework because you know on the fly
17:22
I’m trying to go from depression to
17:24
what’s the recovery into some version of
17:26
a recession to an actual recovery
17:28
there’s a the work out period you know
17:30
of unemployment what that means and the
17:33
credit cycle which is one in the same
17:34
thing you lose your job if the company
17:36
loses their cash flows liquidity is not
17:38
solvency you know so again that’s one
17:40
two is behaviorally like to your point I
17:43
don’t know point number three is
17:45
actually the one we start talking on a
17:47
research call about a little bit more in
17:48
the last couple days which which is the
17:50
regulatory environment like you know
17:52
what is the new America in terms of how
17:54
you’re allowed to operate how you’re
17:56
allowed to have your liberties or civil
17:58
liberties and your consumption versus
18:00
the prior like this a whole new world so
18:03
those three things to me like and that’s
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that’s starting with a lot you know have
18:08
I left anything big out that I need to
18:10
think about from a from a intermediate
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to longer term cycle perspective no I
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think that that’s exactly right I mean
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those are going to be the things and
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you’re right about the third one which
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doesn’t get which gets talked least of
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all is going to be the regulatory
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environment look what a lot of these
18:26
states have done has been nothing more
18:28
than turn their state into a police
18:30
state now I get it
18:31
there’s a virus out there and we need
18:34
the social distance in hand wash and
18:36
what are we hearing from the White House
18:38
right now hey it’s not gonna be a
18:40
hundred to two hundred thousand dead or
18:41
two million if we did nothing but it
18:44
might be far less than that because
18:46
everybody understood and I was like you
18:49
know you don’t trust people why don’t
18:51
you just lay out the case here’s a virus
18:53
this what you need to do stand six feet
18:54
apart wash your hands wear a mask and
18:56
McDonald’s you can stay open but figure
18:59
out how to work within that framework
19:01
instead of just some merrily closing
19:03
everything right and then deciding when
19:05
we’re gonna open or doing like the the
19:07
governor of Michigan has decided big-box
19:10
retailers have to close their garden
19:12
department but can keep their grocery
19:13
Department open so if you so if you go
19:15
to Target and you buy groceries it’s
19:17
okay but if you go to Target and buy a
19:19
garden hose you’re gonna be arrested I
19:20
mean they’re coming down to that level
19:22
of detail right now in terms of what
19:25
they’re doing with a lot of these
19:27
companies I don’t think they’re going to
19:28
give that back so easily and I do think
19:31
that there’s going to be some anger and
19:32
resentment as they are very very slow to
19:35
give that back and they’ll use the
19:37
argument of reinfection way and when
19:40
months come one week’s come in two
19:42
months which come in two quarters of
19:44
having these restrictions it’s going to
19:47
weigh not only on the economy but on
19:49
society in general
19:50
well that work out period I mean if you
19:53
only use economic never mind
19:55
shallow recessions which we had a very
19:58
long work up
19:59
of corporate leverage come you know in
20:00
as you guys could throw up the history
20:02
of it all guys if you can on slide 33
20:05
we’re just showing Jim what you know
20:06
obviously on the back side of your hand
20:09
what’s happened economically across
20:11
cycles but you know you can look at some
20:13
of the the most actually slide 34 the
20:16
shallowest recession which was again a
20:18
corporate credit bubble in 2001 you know
20:21
the work out period was nine months the
20:23
similarity was that you had an economic
20:24
shock at precisely the wrong time in the
20:26
cycle I think a lot of people screw that
20:28
up too
20:28
they’re like nobody could see this
20:29
coming that’s total bullshit just like
20:32
you know one the economy was slowing in
20:33
2019 and then it just made the virus and
20:36
in that case 9/11 made it slow faster
20:38
but again the work out period was at
20:40
least nine months for the corporate
20:41
credit cycle you know and in terms of
20:44
the economy actually bottom Dazz you
20:46
know in oh one before
20:48
actually the stock market did and and
20:50
that’s that was back that took them till
20:52
Oh – so I don’t even know like where
20:54
people are going when they think like if
20:56
they only studied economic history I
20:57
know it’s never the same but even if you
20:59
took the 44 months of the depression in
21:01
the nine months of oh one you know it’s
21:02
not two months no exactly if you could
21:05
put that slide back up I’d also point
21:07
out something else too if you look at
21:09
the Oh 8 December December December oh
21:13
seven oh nine period peak to trough
21:15
decline was five percent right we’re
21:18
expected in the second quarter to have a
21:21
decline and a total decline in the US
21:24
economy is six percent just in the
21:26
second quarter the second quarter alone
21:28
will be worse than the entire Great
21:32
Recession will be and you know I’ve
21:35
heard people say this without
21:36
understanding some of these numbers
21:38
they’ll talk to me about China and
21:40
they’ll say well China’s 80% of the way
21:42
back to where it was as if that’s a
21:43
bullish argument you mean they’re 20%
21:45
off the top
21:46
you mean that the Great Recession was
21:48
five percent off the top dates four
21:50
times worse that’s it that’s a
21:51
depression it’s what you’re in if you’re
21:53
20 percent in the way the time you have
21:55
to get back to 98 99 percent of what we
21:59
were in January in order to say that
22:02
there’s really no impact if we get back
22:05
to 90 percent of where we were in
22:07
January it would be devastating for I
22:11
think a lot of people keep him
22:12
– at the bottom of the Great Depression
22:14
in 1934
22:16
we still had 75% of the economic
22:19
activity we had at the top and we had
22:22
78% of people still had their jobs that
22:25
means moving 25 percent off the top we
22:27
had 22 percent unemployment so I think
22:29
what you need to understand is it
22:32
doesn’t take much for this to upset the
22:35
applecart as well as where we’re gonna
22:37
go and people are not ready to go there
22:40
they’re all mean reverting thinkers they
22:42
all have their model that’s pre virus
22:45
and they think that the virus is just a
22:47
temporary interruption so we can go back
22:49
to that model and we revert back to that
22:52
mean but what I’m worried is they’re not
22:55
really understanding that this is a new
22:57
era and that we need a new model of
23:00
where we’re gonna go it doesn’t have to
23:01
be a disaster
23:04
Madonn handle it right we’re gonna make
23:07
it a lot worse than it needs to be god
23:09
I’m a amazing disconnects between what
23:12
you just said and where our friend Bob
23:14
wants to mark the price or the valuation
23:17
ever you want to you know contend it
23:19
should be there of markets it it’s just
23:22
that is the disconnect and I guess to me
23:24
if that’s what you’re saying is if the
23:26
if there’s a widening disconnect between
23:28
where the officialdom wants the market
23:30
to be priced you know again centrally
23:32
planned in price versus where the actual
23:34
economic gravity is everything in
23:36
between last price to where that washes
23:40
out is the risk I mean that right so
23:42
like have at it I mean it’s a I don’t I
23:46
don’t I don’t I don’t know how else to
23:48
think about that and the answer isn’t
23:49
buy stocks right you know I’ll give you
23:52
an giving an example of what we’re
23:54
talking about with the disconnect if
23:57
something interesting has been happening
23:59
in the bond market which has not been
24:01
appreciated so on march 13th the Fed
24:04
ended this not QE QE argument by saying
24:07
okay we’re going to do a QE we’re gonna
24:09
buy out two 30-year bond and they ramp
24:12
that up to two weeks ago they were
24:14
buying six hundred billion dollars a
24:16
week a week in bonds that since March
24:19
13th they fought over one and a half
24:22
trillion dollars worth of bonds now
24:24
these numbers are hard to understand
24:26
that you bought a trillion and a half
24:28
dollars worth of bonds you know if you
24:31
watch mutual fund flows if you had like
24:32
a two hundred billion dollar year that
24:35
would be a big you know this is a
24:36
trillion and a half in a week so now if
24:39
you look at yields you go okay
24:41
but they haven’t moved much in the last
24:43
two weeks and I’ve argued if this market
24:45
was anywhere near normal with that kind
24:47
of borrowing the 10-year yield would
24:49
have opened at zero and it would have
24:50
been on its way to negative why hasn’t
24:53
it moved because if you look at bun
24:55
flows from ETF’s for mutual funds from
24:58
households from central banks you can
25:00
measure six hundred billion plus of
25:03
selling that has been going on and
25:06
that’s just from the finite set of
25:08
measures we have there’s four other
25:09
metrics that we haven’t seen so when you
25:12
add it up what is happening is official
25:15
term has been buying bonds at the rate
25:17
of trillion plus a month and everybody
25:20
else has been saying you’re holding it
25:22
this at the wrong price and if you’re
25:24
gonna do that I’m selling it to you and
25:27
they’re selling it to their their
25:28
massively liquidating to the central
25:31
banks in a big way they’re making a
25:33
powerful statement that when all of this
25:35
is done I think interest rates are going
25:37
to be a lot higher than they are right
25:39
now either it’s a combination of
25:41
inflation is returning or it’s finally
25:45
that supply is going to crowd out the
25:48
market I started in the bond market in
25:49
1987 and for 33 years I’ve heard people
25:53
say to me that we’re gonna have these
25:55
massive budget deficits that are gonna
25:57
crowd out and drive up interest rates
25:58
and for 33 years that wasn’t the thing
26:01
because we were playing child’s games
26:04
between a 1 or 2 or 3 percent deficit
26:06
maybe 4 or 5 in the middle of a
26:09
recession now we’re talking 15 to 20 is
26:11
what we’re talking now you’re gonna
26:13
finally start to see that crowding out
26:16
so the bond market is trying to tell you
26:18
that the that the fair value is probably
26:22
a far lower price or a much higher yield
26:26
and the only reason you’re not seeing
26:28
that is you’re getting astronomical
26:30
types of buying out of the Federal
26:32
Reserve through their quantitative
26:34
easing program that’s all holding it up
26:36
but eventually like I said they can’t do
26:39
that
26:39
forever and I think that that will
26:41
eventually give away to higher interest
26:43
rates as we move forward from here well
26:46
if you look at them and when you come on
26:47
and people like to talk about the other
26:49
side the other side could also be
26:50
stagflation a recessionary stagflation
26:53
and to get that in the way that my model
26:56
works my 4 quadrant model is that the
26:58
the faster and deeper you go and what I
27:00
call call quad for both inflation and
27:03
growth slowing at the same time quite
27:05
clearly that’s happening despite
27:07
president pump on oil you know to the
27:10
point that you get deep enough you can
27:12
only reflect from there so it doesn’t
27:14
take much you know for that switch to
27:16
turn for you to go from deflation to
27:19
reflation and you know given the
27:21
economic conditions I mean that to me
27:23
every single time I make a call on
27:24
reflation it’s not like german-style
27:26
reflate it’s reflation or inflation and
27:28
i don’t know who knows it could be
27:30
anything to me I don’t I care but I do
27:33
more what the markets doing that’s the
27:35
point
27:35
and it isn’t it amazing that you know I
27:38
call net I think just because it’s got
27:40
some good alliteration and he’s a good
27:41
marketer so I mean I think that wheat
27:43
you and I can do some good marketing to
27:44
president pump did everything that he
27:46
could he made up quite literally the
27:47
barrels per day on one day of tweets
27:49
because he saw that you know he saw he
27:51
was having some impact in the equity
27:52
market and look what our oil does today
27:54
I mean oil the feds not buying oil the
27:56
feds not buying Jamie Dimon stock you
27:58
know so they’re free to fall you know
28:00
and and at some point they’re gonna stop
28:03
falling I guess right you know oil oil
28:06
what’s happened when oil by the way I’ll
28:09
tweet this out for anybody’s watching
28:11
after I get off this call with you is
28:13
the DIA the energy and information is
28:16
association put out there implied
28:18
gasoline demand numbers lowest ever yeah
28:21
down 50% in a down 50% in three weeks in
28:26
other words think a gasoline demand as a
28:29
metric for economic demand and it’s half
28:32
it’s half in three weeks yes man that it
28:36
means it if there is a world of hurt out
28:38
there but to the inflation argument yes
28:41
for the next couple of quarters the big
28:43
story is going to be deflation as we
28:45
deflate the economy but if you’re gonna
28:48
print and borrow trillions of dollars in
28:50
hand 22 million people unemployed
28:53
an extra 600 bucks a week and maybe
28:55
paycheck protection loans and try and
28:58
support these markets you’re gonna
28:59
support demand as best you can but
29:03
supply company’s not working going out
29:06
of business they’re gonna produce less
29:07
stuff higher demand less supply on your
29:10
prices more inflation that seems to be
29:13
where we’re gonna go after we go down
29:16
because I think what we’re doing when
29:18
people ask me what letter we’re gonna
29:19
have I used to say we’re gonna both avi
29:21
in and out we’re gonna have a V which
29:23
means we’re gonna have a big sharp to
29:24
contraction we’re gonna recover some
29:26
after the ricotta after the virus passes
29:29
but we’re not gonna go all the way back
29:31
to the high so that’s your L and if
29:33
you’re going to artificially support
29:35
demand even though you don’t have that
29:37
supply going on you know that we’re
29:39
making things you’re going to have
29:42
higher prices at the end of the day
29:44
you’re going to have some lower prices
29:47
in the form of commodity prices gasoline
29:49
and other things are going to be
29:51
demanded less but people are gonna be
29:53
out there going well I got some money
29:55
here I might as well go buy a
29:57
Playstation or I might as well go buy an
29:59
iPhone because the government’s been
30:01
giving me money they’re not gonna be
30:02
making as many of them because the
30:04
D’Amico’s the supply constraints are
30:06
going to be on them as well – you’re
30:08
gonna have all kind of distortions in
30:09
the economy of course so yeah you can
30:11
have both deflation and then inflation
30:13
be coming out of this both at the same
30:16
time I think I mean that that’s classic
30:18
what the market the market stocks and
30:21
credit which have had you know basically
30:23
a hundred different w’s in terms of
30:25
expectations into it since the market
30:27
crash you know the bond markets got that
30:30
they had that right deflation that’s
30:31
when bond yields go down obviously it’s
30:33
where the Fed panics it’s what the
30:34
commodities markets told you it’s what
30:36
the foreign currency markets have told
30:37
you it’s just this this this this
30:39
incessant debate about the stock market
30:41
that can drive can drive human beings
30:43
mad okay I’m gonna start – if you don’t
30:47
mind gonna start to knock out some of
30:48
these questions here in the queue
30:49
because sure you have a lot of like I
30:51
said wide following and some there’s
30:54
some really good questions here on on
30:57
the first one you know why why why there
31:00
seems to be no movement or revolution
31:02
away from the Fed I think that this is
31:05
like you know why are in bay
31:06
who the question is why are Americans
31:07
fine with this I don’t know if they are
31:10
they’re fun they’re fine with it because
31:13
they think it’s gonna work
31:14
they’re like wall street at the end of
31:16
the day you know Wall Street can say
31:19
this is how the world works this is what
31:21
I believe but all they want is they want
31:24
prices to go up
31:25
and if they think this is gonna work
31:27
there’s going to be no pushback on it
31:30
right now and their argument is going to
31:32
be has it worked the last time they
31:34
tried it which was in o8 and so I think
31:38
the pushback comes at the failure of it
31:41
to work at the failure of it who to come
31:46
to pass and I’ll give you if you want a
31:48
statistic to look at in fact I was just
31:50
writing this a few minutes ago I think
31:53
right now the most important economic
31:55
statistic everybody watches his initial
31:57
claims how many people lost their jobs
31:58
this week
31:59
remember that’s initial how many people
32:01
filed this week for unemployment
32:04
insurance there’s another statistic
32:05
called continuing claims how many people
32:07
are staying on unemployment next week in
32:10
the week after the week after that
32:12
number is expected in the next two weeks
32:15
to go above 20 million well if the
32:17
Paycheck protection plan loans and the
32:20
Fed is going to work that 20 million 25
32:24
million of people on unemployment claims
32:27
should start to follow fast because not
32:30
because the economy is recovering but
32:32
because the assistance programs are
32:34
getting them back in their jobs even
32:36
though they’re getting paid to do
32:37
nothing I’m a fear it’s not gonna happen
32:40
that they’re gonna stay unemployed and
32:43
then at the end of the day all this talk
32:46
about this program and that program and
32:49
the Fed did this and the Fed did that
32:50
I’m gonna look at continuing claims
32:52
you’re gonna look at continuing claims
32:54
I’m going to go there’s tens of millions
32:56
of people that have lost their jobs yeah
32:58
it nurse that is going to then feed that
33:01
resentment that we’ll see look we could
33:04
be wrong and maybe that 20 million of
33:06
Continuing claims will quickly become 8
33:10
million or 7 million of Continuing
33:13
claims because remember if a company
33:15
takes out a personal a paycheck
33:17
protection a ppthey alone they have to
33:19
hire bad
33:20
everybody and then they have to apply at
33:22
the end of the summer to show that they
33:24
still are they still have everybody
33:26
didn’t lay off of anybody and then that
33:28
loan is forgiven and they get to keep
33:30
the money so if we see that continuing
33:35
claims dwindle away to very little
33:37
numbers then these programs work if we
33:40
don’t they didn’t work and if they
33:42
didn’t work then you’re going to see the
33:44
resentment right now no one’s mad
33:46
because they think that these things may
33:50
work they’re waiting to see whether or
33:52
not they work or not but if they don’t I
33:55
don’t think you’ll see that resentment
33:56
well that’s that’s another way to talk
33:58
about like the short-term panic by both
34:00
the Fed and the fiscal is that it’s
34:02
trying to get it all done now in the
34:04
absence of having the time for it to
34:06
actually play out and the way that I’ve
34:08
looked at that is that it finds its way
34:10
into market volatility so the market
34:12
volatility shows you that markets are I
34:14
think there are equity markets and parts
34:16
of high-yield are uninvested but again
34:19
until the volatility goes away the
34:20
volatility goes away when the economic
34:21
circumstances become clear that
34:23
generally is a function of cash flows
34:25
coming back people getting their jobs
34:26
back but on slide 78 guys just so that
34:29
people can see what Jim means because
34:31
III think I said this every meeting that
34:33
I had for the last year because US
34:35
economy as you know peaked at the end of
34:37
q3 of 2018 you know initial claims in a
34:40
recession is weekly number the number
34:42
one causal factor to be watching in
34:45
terms of the pace of the economy this
34:46
thing is way off the chart like there’s
34:49
no like if you and I like bean counters
34:52
like we can’t analyze it I can’t believe
34:55
that all these people are so certain in
34:57
their grand central plans that you can
34:58
knock out essentially don’t forget to do
35:00
not you’re gonna knock out depending on
35:02
what this number is on the right side
35:03
there the cumulative employment gains
35:06
you’re gonna knock up 90 percent of the
35:08
cycle that’s a hundred and twenty nine
35:09
month economic cycle and then
35:11
everybody’s just gonna magically come
35:13
back I mean our our you know we’re
35:15
saying that at least two-thirds of the
35:17
jobless claims are permanent right and I
35:20
think that that’s going to be the real
35:22
fear is that the officialdom is hoping
35:25
that these plans are going to get
35:26
everybody back to their job and that
35:29
their you’re going to get paid to do
35:30
nothing but you’re going to be there for
35:32
the restart is what they’re going to
35:33
want
35:34
to do right um but if you’re right
35:37
two-thirds of it is permanent there’s
35:40
gonna be a big backlash that’s going to
35:41
be considered a gigantic failure on the
35:45
part of official demand if that happens
35:48
and at the same time those markets are
35:52
perceived to have not fallen apart which
35:55
is for the moment where the authorial is
35:58
on this 50% retracement of the decline
36:00
you’re right back to the anger that you
36:02
had in late oh nine with the Tea Party
36:06
movement in Occupy Wall Street that the
36:08
rich and connected got bailed out
36:09
through artificially supporting in their
36:12
their asset prices at high levels but
36:14
everybody else didn’t get bailed out as
36:17
well too so that’s going to be a real
36:19
problem I think you’re right that
36:21
ultimately the thing that’s going to
36:24
matter the most is going to be that
36:26
initial claims which becomes continuing
36:28
claims yeah how many of those people get
36:30
their jobs back because if not enough of
36:33
them get their jobs back then this
36:35
didn’t work this being these bailout
36:37
plans and everything else to try and
36:39
support the economy didn’t work and if
36:42
the stock market decides to have you
36:44
know bubble fever again and make a run
36:46
at 3,000 on the S&P and you’ve got CNBC
36:50
and Bloomberg and Fox Business telling
36:51
you the markets are okay but you lost
36:54
your job you lost your life savings in
36:56
your restaurant yeah that’s not gonna
36:58
sit well those two things are not gonna
37:00
that’s oil and water trying to put those
37:02
two things together at the same time
37:04
yeah that’s that’s correct that’s
37:06
Batsuit crazy I mean to think that
37:07
that’s all gonna work on a linear basis
37:09
right the another question here and this
37:12
is this is an important one as well and
37:14
and you know Trump being as
37:16
chameleon-like as he always is as most
37:18
likely and already has moved towards the
37:19
new narrative like calling it the Wuhan
37:21
crisis one of our clients the other day
37:23
called it the China 19 you could see how
37:26
people go there on the blame game but as
37:28
US companies reassess their reliance on
37:31
China or wanting to do with them at all
37:33
is there a possibility of another China
37:35
trade deal follow up before the election
37:37
oh I think that there’s very little
37:40
chance of a China trade deal before the
37:42
election at this point I do think
37:46
the thing about whether or not you think
37:48
China was at fault or not the fact of
37:51
the matter is it started there and it
37:52
came out of there and so we know that
37:54
when you start hearing rick scott
37:57
senator from florida last week on TV
38:01
getting very emotional and angry and
38:03
saying something along the lines of
38:05
anybody that buys a product made in
38:07
china is immoral now 60 days ago he
38:10
would have been mocked and laughed at as
38:12
a kook for saying that today who’s gonna
38:15
support china who is McCrone gonna
38:18
support china he’s got 17,000 dead
38:20
people in his country is italy gonna
38:22
support China is Boris Johnson go to
38:24
support China he nearly died himself
38:26
from this as well so anybody that’s
38:29
gonna want to push on China and say
38:32
they’re at fault remember it came out of
38:34
there and it’s your fault and we need to
38:36
punish you there’s gonna be no natural
38:39
constituency that’s gonna push back
38:40
again is Biden gonna push back against
38:43
it does he think that that’s going to be
38:44
a winning strategy to defend China after
38:47
what everybody has gone through so there
38:50
is going to be the scapegoating from
38:53
China now maybe it’s not skipper maybe
38:54
it is appropriately assigning blame
38:56
because of the way that they’ve
38:58
mishandled it as well too and I think
39:00
Trump opened the door for that yesterday
39:03
with his I’m not gonna fund who anymore
39:06
the World Health Organization that is
39:09
almost by definition saying that who got
39:12
it wrong because China told them to get
39:15
it wrong and that’s what we’re gonna go
39:17
so there’s gonna be a lot of anxiety
39:19
let’s put it that way with China I don’t
39:21
know if I I’d be shocked if we’re gonna
39:23
be looking at more trade deals look over
39:26
the weekend Larry Kudlow who signed off
39:29
his shelf for 10 years I believe free
39:31
market capitalism is the best way to
39:33
prosperity said the government should
39:36
pay the moving costs of American
39:38
companies to relocate back to China
39:40
that’s not very free-market capitalist
39:42
but it might be something that will get
39:45
a lot of play and a lot of understanding
39:48
in the country as well too so in that
39:51
environment no there’s gonna be no trade
39:53
deal Trump I think is you know he keeps
39:57
saying the Chinese are gonna buy all
39:59
these soy bean
39:59
from us and we’ll see whether they do it
40:01
I think he’s waiting for them to not do
40:03
it and then he’s gonna unleash on them
40:05
as well – funny – do it
40:09
the cuddler thing just cracked me up but
40:11
I mean I remember going on Kudlow and
40:15
company for probably as long and not as
40:17
long as you did you’ve been doing it for
40:18
longer than I have but I’m 45 years old
40:20
I was he would start every show with you
40:23
know like you said free market
40:24
capitalism King dollar Jim King dog you
40:28
know right and cash flows are the
40:31
Mother’s Milk of the stock market now
40:35
you have cash flows pre virus that it’s
40:37
loads of 0% growth in the US he doesn’t
40:39
say jack shit about the dollar at all it
40:43
got this part which is just like I mean
40:46
I yeah yeah some of these questions – in
40:48
the queue and maybe you know I don’t
40:50
know if you want to address it just
40:51
generally but people are apoplectic
40:54
watching like these discussions saying
40:57
how can these the kinds of discussions
41:00
that that you and I are having right now
41:01
how can this not be had in America you
41:04
know as in the face of the establishment
41:07
like you have any ideas on that because
41:09
I’m certainly a game for it if there’s a
41:11
way to do it right I mean these
41:13
discussions again I think they really
41:15
come down to this giant hope that that
41:19
official term whether it’s the Treasury
41:22
it’s Washington it’s the Federal Reserve
41:24
it’s the foreign entities that are the
41:27
equivalent of them all together can fix
41:30
this problem and that’s what they’re
41:32
really hoping for is that they can fix
41:35
this problem this problem really being
41:38
that my portfolio has lost a lot of
41:41
money and that’s really what’s untenable
41:43
and I need that to go back up they don’t
41:46
believe in the Schumpeter creative
41:48
destruction for every decline in every
41:51
change there’s an opportunity and if you
41:53
let the if you let the organism of free
41:57
market capitalism exist it will bend and
42:00
fold and change itself into something
42:02
else that’s better we don’t want to
42:04
change anything right now we want the
42:07
status quo and that’s what they’re
42:09
really pushing on is the status quo to
42:12
hold
42:13
print all this money hold the market up
42:15
at these levels as well too if you want
42:19
to look at a good example is you know
42:22
the the auto bailouts of ten years ago
42:24
we couldn’t allow because everybody’s
42:27
got this perception that when a company
42:29
goes out of business it goes away it
42:32
doesn’t go away it restructures is what
42:35
it does it changes in what it is and
42:38
that we didn’t allow the auto companies
42:40
to restructure and change to the point
42:44
that we allowed a Tesla to become the
42:47
bubble that it became because everybody
42:48
looked at Tesla and said they’re leading
42:51
the way to where autos can go now maybe
42:54
the evaluations became insane and
42:57
ridiculous but what we also are saying
42:59
at the same time is for GM Chrysler and
43:01
the rest of you you can’t you are
43:03
incapable of leading us to where we need
43:06
to go so we look to these messiahs like
43:09
the Tesla’s of the world and say they’re
43:11
going to show us where we need to go
43:13
with these industries because we don’t
43:15
allow them to change because change
43:17
means somebody might lose a job but
43:20
another job might be created along the
43:22
way so we are really trying to really
43:26
recreate January 2020 that’s what we’re
43:29
really what we don’t want anything to
43:31
change from that but it’s going to
43:33
change from that and that doesn’t
43:35
necessarily again that doesn’t mean it
43:38
has to be a disaster it can just be
43:41
different but we don’t even want
43:43
different we want January 2020 and
43:46
that’s why we’re printing all this money
43:48
and doing all this stuff to try and go
43:50
right back to there and you know the
43:52
political establishment Trump he wants
43:54
twenty twenty more January twenty twenty
43:57
more than anybody else
43:58
remember he famously tweeted in January
44:00
twenty twenty the stock market’s up
44:02
ninety percent since I got elected
44:04
you’re not up for ninety percent what
44:05
did you do wrong that’s what he wants he
44:08
based his whole election strategy on the
44:10
Dow going higher and higher and higher
44:13
and and so we’ll see right now there’s a
44:17
big hope especially among the JP
44:20
Morgan’s of the world and the Goldman
44:23
Sachs’s of the world that this will work
44:25
in
44:25
them back to where they were in January
44:28
but when the reality comes in that they
44:30
can’t get us back to January then we
44:33
have to start asking a hard question
44:34
okay we don’t have no economy we have a
44:38
different economy and how is it
44:39
different and who are the winners and
44:41
losers in the new economy we’re not
44:44
ready to go there just yet yeah that’s a
44:46
that’s a good wind up here man that’s
44:49
that’s that’s a lot and it’s and it’s
44:51
the truth and and maybe my last question
44:53
on that is you go back to January and I
44:55
mean not withstanding when it was
44:58
shortly thereafter that Robin hoodie
44:59
accounts for driving Tesla to 925 bucks
45:02
I mean there’s you know people couldn’t
45:03
see any of this coming of course we had
45:05
we work we had plenty of imbalances the
45:06
biggest corporate credit credit bubble
45:08
in US history but I remember and I’ll
45:11
never forget I live in the great state
45:13
of Connecticut which sure certainly is
45:15
in a Republican state I’m not a
45:16
Republican or a Democrat I’m a Canadian
45:17
guy I just don’t like politicians
45:20
generally but my most raging Democrat
45:25
clients let’s just say in you know
45:27
institutional money managers they were
45:29
kind of okay with Trump you know they
45:31
they’re okay because it was working
45:33
right they’re getting paid markets going
45:35
up they’re levered long they say yeah
45:37
you know he’s clever he’s gonna keep it
45:39
going you know I don’t know how much of
45:40
that you’ve got in your neck of the
45:43
woods but man they’re gonna be quick to
45:45
turn if that if if what was getting em
45:47
paid through the lens of dig they were
45:49
willing to ignore it but now they’re
45:52
certain ask the questions was he telling
45:53
the truth it’s just like the words
45:56
turning pretty quickly here you know
45:59
everybody that’s listening to this
46:00
podcast isn’t is interested in the
46:02
investment markets in one way or another
46:04
has their in the history of the world
46:06
ever been anybody to bitch and complain
46:08
that they made money whether or not it
46:11
was they made it by luck or they made it
46:13
by smart or they fell into it or they
46:16
saw it coming if they bought something
46:18
and it won up they’re good with it and
46:20
you know don’t don’t start telling me
46:22
that I got lucky or I maybe I did and
46:24
I’m I’m good with the president good
46:27
with every if this guy keeps tweeting
46:29
every three days that he’s causing the
46:31
stock market to go off even though I
46:33
might believe he didn’t it’s going up
46:36
and I’m making money and there’s no
46:38
complaints here
46:39
and then the minute thought stops going
46:41
up this one everybody then starts asking
46:43
the real hard questions yeah that’s a
46:45
real hard questions it’s getting harder
46:47
I mean he had a tough trade their
46:48
president pump on that oil trade right
46:53
you know it’s it’s it’s an amazing thing
46:56
that what’s happening with the with the
46:58
oil trade is Trump has you know he might
47:01
not be wrong on it but he’s he’s decided
47:04
that the energy sector is as important
47:08
as the consumer sector now from an
47:10
economic standpoint that’s actually
47:12
right if you look at the amount of GD
47:14
the energy sector puts out and the
47:17
amount of GDP would that would be
47:19
enhanced by an oil price cut it’s about
47:22
50/50 and so he’s not entirely wrong on
47:25
that but boy he does really come off as
47:28
is trying to say that he doesn’t want
47:30
anybody to have a cut of gasoline prices
47:32
they should if the economy is gonna go
47:34
down this hard then that should be the
47:36
natural consequence of it is one dollar
47:38
gasoline is what it would be um gasoline
47:41
is supposed to represent some measure of
47:44
economic prosperity in the country too
47:46
because it’s its demand will move up and
47:49
down with it and if we are unemployed
47:52
remember the biggest reason you drive is
47:54
to go to work and if you are unemployed
47:57
then you get the gasoline demand numbers
47:59
we got today the lowest ever cuz
48:01
everybody’s sitting around talking to
48:03
people on skype like we are right now
48:06
and we’re not in our car yeah and that’s
48:08
going to continue to be the case as we
48:10
move forward yeah if you haven’t looked
48:11
at it which I’m sure you have maybe
48:13
others haven’t the mannheim index you
48:15
know used cars just complete collapse
48:18
and that that index used cars has been a
48:20
pretty good leading indicator for a long
48:22
time but it’s it’s episodic and
48:24
generally not trending but when it
48:25
crashes it crashes for for a reason and
48:28
adjust it again so that’s kind of sad
48:30
there’s a lot if there’s a lot of about
48:31
this Jim that’s that’s just set and you
48:33
know I appreciate that you’ve been open
48:37
and honest about it I think there’s a
48:38
there’s an analytical weaponry to that
48:40
but there’s also a courage
48:42
you know not everybody to your point on
48:44
Wall Street’s willing to again we’re not
48:47
making shit up here this is the truth
48:48
and you’ve been illuminating suffice to
48:51
say and
48:51
educational in terms of laying it out
48:53
there so thanks for thanks for taking
48:55
the time to do that with me
48:56
thank you I appreciate it he’s Jim
48:59
Bianco you can actually find him on
49:01
Twitter he’s a great contributor to the
49:03
debate out there and I think he’ll be on
49:04
the front lines of it I think you’ve met
49:06
three people in particular today that
49:08
that will be I think courage is a big
49:10
part of leadership and I’m gonna you
49:12
know it depends on what people wanted to
49:13
find Americas but that’s how I’m gonna
49:15
define mine thanks for joining us today
49:17
we will be right back at it tomorrow for
49:19
the final day of the investing summit
49:21
[Music]
49:28
you

MMT vs. Austrian School Debate

A public debate on macroeconomic theory and policy with leading thinkers from Modern Monetary Theory (MMT) and the Austrian School. Warren Mosler represents MMT, Robert Murphy, Ph.D, represents the Austrian School, and John Carney moderates.

 

WARREN MOSLER is an early developer of Modern Monetary Theory (MMT), the President of Valance Co, Inc., and Senior Financial Advisor to Senator Ronald E. Russell, President of the 29th Legislature of the U.S. Virgin Islands. He is the founder and current manager of the III Funds, which peaked at over $5 billion AUM in 2007 and currently manages about $1.5 billion, as well as the Founder and President of Mosler Automotive, which manufactures the MT900 sports car in Riviera Beach, Florida. Mr. Mosler has written a number of academic papers on issues relating to macroeconomics and monetary policy, and is the author of Seven Deadly Innocent Frauds of Economic Policy (2010). He maintains a personal blog, The Center of the Universe (http://moslereconomics.com), and can be followed on Twitter at http://moslereconomics.com.
ROBERT MURPHY, Ph.D, is a Senior Economist with the Institute for Energy Research and an Associated Scholar at the Ludwig von Mises Institute, where he teaches at the Mises Academy. He is also an adjunct scholar at the Mackinac Center for Public Policy. From 2003 until 2006, Murphy was Visiting Assistant Professor of Economics at Hillsdale College in Michigan, U.S. From 2006 until early 2007, he was employed as a research and portfolio analyst with Laffer Associates, an economic and investment consultancy in New York. He runs the blog Free Advice (http://consultingbyrpm.com/blog) and writes a column for Townhall.com and has also written for LewRockwell.com. He is the author of a number of books including The Politically Incorrect Guide to Capitalism and Lessons for the Young Economist. MODERATOR JOHN CARNEY is a senior editor at CNBC.com, covering Wall Street, hedge funds, financial regulation and other business news. Prior to joining CNBC.com, Carney was the editor of Business Insider’s Clusterstock.com and DealBreaker.com. He has also written for The Wall Street Journal, The New York Times, The New York Sun, Page Six Magazine, Gawker, TheAtlantic.com, The Daily Beast, Time Out New York, Fortune and New York magazine. Carney practiced corporate law at firms such as Skadden, Arps, Slate, Meagher & Flom and Latham & Watkins, primarily representing banks, hedge funds and private equity firms. He received his law degree from the University of Pennsylvania.

 

Radical Imagination: Imagining How the World of Finance Really Works

Yves here. Get a cup of coffee. Another meaty chat with Michael Hudson, who focuses here on the role of finance in rent extraction.

An important theme here that Hudson has stressed before is the mistaken perception of home “ownership”.  Only about 1/3 of homes in America are owned free and clear. For the rest, the banks, or mortgage trusts, hold a senior position as mortgage lenders. And over the decades, they have become far less accommodating when homeowners are late even on a single payment. Even worse, insiders have reported that mortgage servicers will even hold payments to assure that they are late, which typically leads to compounding charges that virtually assure a foreclosure. Borrowers also face Kafkaesque obstacles to clearing up errors when they unquestionably paid on time.

To put it another way, as Josh Rosner put it in the early 2000s. “A home with no equity is a rental with debt.” That can be generalized to homes with little equity.

Radical Imagination host Jim Vrettos interviews Professor Michael Hudson, Economist, Wall St. Analyst, Political Consultant, Commentator and Journalist; who offers his views in the way finance works

Welcome, welcome once again to the Radical imagination. I’m your host, Jim Vrettos. I’m a sociologist who’s talked at John Jay College of Criminal justice and Yeshiva University here in New York. Our guest today, on the Radical Imagination, is one of only eight economists named by the Financial Times who foresaw the credit crisis and ensuing great recession erupting in 2008. It was conventional wisdom at the time to say that no one saw the gravity of the crisis coming, including almost every leading economist and financier in the world.

In fact, many had seen it coming. It was seen by everyone except economists from Wall Street; as our guest put it. They were ignored by an establishment according to then, the Federal Reserve chairman Alan Greenspan that watched with innocent quote-unquote shock disbelief as its whole intellectual edifice collapsed in the summer of 2007.

Official models missed the crisis not because the conditions were so shockingly unusual, they missed it by design because the world they lived in was not a world of how finance really works. They missed it because their mathematical models made it impossible to warn against a debt-deflation recession.

Their innocent model worlds were worlds where debt simply did not exist. It’s a world that most of our economic policymakers still live in, and it’s no wonder that everyday people see most economists far removed from their practical economic concerns and interests their everyday concrete reality. Our guest today is an internationally renowned economist who’s followed a much different path of interest and concern.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute at Bard College, a former Wall Street analyst; political consultant to governments on finance and tax policy, a popular commentator sought after speaker and journalist.

He identifies himself as a Marxist economist. But his interpretation of Karl Marx that differs in most other major Marxists. He believes parasitical forms of finance have warped the political economy of modern capitalism. History has regressed back to a neo- feudal system. He’s also a contributor to the Hudson report, a weekly economic and financial news podcast produced by Left Out.

His many books include Killing the HostJ is for Junk Economics,The Bubble and BeyondSuper Imperialism, and “… and Forgive Them Their Debts.” Michael has devoted his entire scientific career to the study of debt —both domestic and foreign, loans and mortgages, and interest payments.

In 2006 he argued that debt deflation would shrink the real economy, drive down real wages and push our debt-ridden economy into a Japan-style stagnation or worse. And just for reference, the typical American household now carries an average debt of over $137,000 up from $50,000 or so in 2000. The average American has about $38,000 in personal debt, excluding home mortgages.

The average credit card debt per U.S. household is $8,500, and outstanding student loans are at an all-time high, in 2019, of $1.41 trillion, a 33 percent spike since 2014, and a 6 percent increase from 2018. Only 23 percent of the population say they carry no debt. As Hudson presciently puts it, debts grow and grow, and the more they grow, the more they shrink the economy.

When you shrink the economy, you shrink the ability to pay the debts. So, it’s an illusion that the system can be saved. The question is, how long are people going to be willing to live in this illusion? Every day people have to face reality. Our economic policymakers urgently need to get it too.

So welcome Michael to The Radical Imagination. Thank you very, very much for coming here and being with us. Your work is so interesting; it’s so new and different. You’re a Marxist economist and yet…

[Michael] I’m a classical economist…

[Jim] You are classical, ok.

[Michael] Marx was the last great classical economist. Classical economics basically runs from the French Physiocrats through Adam Smith via John Stuart Mill to Marx.

[Jim] Along with Ricardo.

[Michael] Yes, they were all talking about the rentiers. In their time the landed aristocracy were the main rent recipients. But Adam Smith also talked about monopoly rent. And finance was the major monopoly. And today, the role of the landlords played in the 19th century of stifling industrial capitalism is being played by the banks and the rest of the financial sector. Right now the collectors of land rent, which was the main focus of the labor theory of value to isolate what was unnecessary, is being paid to the banks as mortgage interest.

[Jim] Right

[Michael] So, we no longer have a small privileged private landlord class when you have 80 percent of the European population and two thirds of the American population being homeowners. However, they have to pay the equivalent of the rental value of their housing to the bank, in the form of mortgage interest.

[Jim] To the banks, right!

[Michael] My analysis follows from classical economics, as did Marx’s analysis. So Marx is simply the last great classical economist. They were all talking about how industrial capitalism sought to free itself from unnecessary costs of production, and hence how its political fight was against the landlord class and other rent extractors. Where Marx went beyond his predecessors was in looking at the laws of motion of industrial capitalism. He saw these as leading toward socialism. Later, Rosa Luxemburg said that if it’s not towards socialism, it will be toward barbarism.

[Jim] So capitalism would evolve into the possibility of socialism.

[Michael] Yes.

[Jim] Did he foresee the sort of predatory financial system that you worked out?

[Michael] No one described it better in his time than Marx, in Volume III of Capital.

[Jim] Volume III. Ok!

[Michael] Marx analyzed the “real” economy’s circular flow between employers and wage labor buying the products they produced. But then, in Volume III, he said that rentier debt claims by the financial sector was a separate dynamic, independent from the economy of production and consumption. This industrial capitalist economy is wrapped in a financial sector composed of debt and property claims. These are external to the economy. They slow it and ultimately cause a crash. Marx was one of the first to talk about business cycles of about 11 years and the internal contradictions that led to a market collapse. He pointed out that the financial sector had different mathematics of growth – the mathematics of compound interest. These are exponential and inherently unsustainable. In Volume III of Capital and also of his Theories of Surplus Value– which was Marx’s history of economic thought and the theories leading up to him – he collected everything from Martin Luther to other analyses pointing out that debts grew so rapidly at compound interest that it is impossible to pay them.

[Jim] You have a great chart where you talk about compound interest, a penny that was invested at 5% interest from Christ’s time to 1776.

[Michael] Richard Price was an actuarial accountant. He calculated that a penny saved that at the time of Jesus’s birth at 5% interest would become a solid sphere of gold extending from the sun out to the planet of Jupiter.

[Jim] Amazing.

[Michael] Obviously, many people did save pennies at the time of Christ, and the annual interest rate then in Rome was 8 1/3%, one twelfth per year. But of course nobody has a sphere of gold extending out to Jupiter. That’s because debts that can’t be paid, won’t be.

That’s basically my motto: Debts, that can’t be paid, won’t be paid, because there’s no way of paying out of current income that grows much more slowly, tapering off.

[Jim] Right!

[Michael] So debts have to be written down. It usually takes the form of a financial crash. Nobody before Marx explained crashes in terms of the financial claims growing and causing a break in the chain of payments. The actual break could be a result of fraud or embezzlement, or a bad crop, because crashes happened in the autumn when the crops were moved and there was a drain of money from the banks to pay for moving the crop and paying the harvesters. But at least a crash wiped out debts, and then the debt buildup could begin all over again.

[Jim] But in pre-industrial civilizations that didn’t occur did it? We want to play a short little clip from your book, “… and Forgive Them Their Debts,” in which you talk about the debt phenomenon in primitive or pre-industrial civilizations, very different than what we’ve experiencing today, correct?

[Michael] That’s right. You mentioned the Financial Times report of the economists who did see the crash coming. I was the only one who actually made a chart showing why the break had to come. The Financial Time review was by Dirk Bezemer, who showed the chart that I published in a Harper’s magazine, based on an earlier paper I’d given at the University of Missouri at Kansas City for one of our Minsky Conferences.

[Jim] Let’s play this. It’s a two-minute clip on what you talking about, and debt within pre-industrial societies.

[Clip]

[Michael] Economists don’t talk much about religion or society, or how these concerns shape markets. Theologians for their part act as if religion is all about heaven and sex, so debt is left out. Yet it used to be at the core of Judaism, Christianity, and earlier Near Eastern religion.

[Host] Why is that? If religious leaders are interested in social justice, as Jesus was, it you have to talk about economics.

[Michael] I think part of the reason is that when they translated the Bible into English, German and the vernacular, they didn’t know what many of the words originally meant, like deror  (for the Jubilee Year), or how to distinguish between “sin” and “debt” as originally a reparations payment for sin. They didn’t understand that most of the Bible was redacted by the returnees from the Babylonian captivity, who brought back this concept of debt cancellation, “andurarum” – Clean Slate. The Hebrew word was “deror.” In the Bible, you’ll have other words or terms for the Clean Slate, the Jubilee year of Leviticus 25, such as “Year of the Lord” in Jesus’s first sermon.

They didn’t realize that the word “gospel” was the “good news.” That good news was that there was going to be a debt cancellation. They didn’t realize that the Ten Commandments were very largely about debt; that “one shall not covet the neighbor’s wife,” that means you don’t make a loan to the guy so he has to pledge his wife as a debt slave to her so that you can have your way with her.

[Jim] But ordinarily that just gets translated as adultery.

[Michael] Yes, but they didn’t realize that the vehicle for this immorality was largely debt bondage. “Thou shalt not take the Lord’s name in vain” meant that a creditor couldn’t swear that so-and-so owes you money if he didn’t. All of this had to do with fact that the great destabilizing factor in society in the first millennium BC was debt beyond the ability to be paid, leading to bondage of the debtor, and ultimately forfeiture of land to wealthy creditors eager to grab it and do as Isaiah accused, join plot to plot and house to house until there were no more people left in the land.

[Jim] “No more people left in the land.” This is an incredible narrative. Please flesh out the narrative so that we can understand what was going on at that time.

[Michael] In order to explain the dynamics of debt in early times, you have to explain how the overall economic system worked as part of the social system. Most people ran into debt not by borrowing, but simply by not being able to pay the taxes or other payment obligations that accrued. These debts weren’t the result of loans. Most personal debts in Sumer and Babylonia were owed to the palace, so when the crops failed or there was a military fighting they couldn’t pay what they owed to the bureaucracy of tax collectors or for public services.

[Jim] Who were working for the palace.

[Michael] Yes. The rulers had a choice at this point: Either they could let the debtor fall into bondage when he couldn’t pay the tax collectors or the palace. If that happened, he’d owe the crop surplus to the creditor, not the palace.

He owed his payment in labor. That was the scarce resource in antiquity. He’d owe his labor to the creditor, so he couldn’t serve in the army, or do corvee work to build infrastructure or palace walls.

So rulers canceled these personal debts to regain control over agrarian labor and its crop surplus. Every new ruler who took the throne in Sumer and Babylonia started the reign with an amnesty, a Clean Slate to start from a position of balance in Year One. During their subsequent reign, if the crops failed or if there was a military conflict, the ruler would cancel consumer debts (but not commercial debts among businessmen for foreign trade or similar enterprise). That’s in the laws of Hammurabi, cancelled Babylonian debts four times. It’s obvious that if you’re at war or if the crops are hurt, cultivators can’t pay the loans.

What early modern scholars could not believe, until our Harvard group began to compile the economic history of antiquity, that canceling such debts actually was what maintained stability. We began our Harvard group in the 1990’s , and we’ve published five colloquia volumes of the origins of economic enterprise in the ancient Near East, on land tenure, urbanization, debt, and debt cancellation.

Our researches showed that as soon as you had interest-bearing debts (mainly in the commercial sphere), you had debt cancellation for the personal agrarian debts. Business debts were not canceled because the merchants were also citizens, so no matter what, all citizens had their designated self-support land. So only the barley debts were canceled; not the personal debts. We showed that rulers canceled the debts because number one, they were canceling debts owed to themselves. It’s politically easy to forgive a debt if it’s owed to you. But it’s more difficult if there is an oligarchy and debts are owed to private creditors.

Canceling crop debts was what maintained economic stability without mass bankruptcy, which would have meant that a lot of debtors would have ended up as bond servants to their creditors. It also maintained demographic staility, because otherwise, debtors would have run away and joined another community. Many did run away after Babylonia fell in 1600 BC. Four centuries later we find them joining the hapiru, which many people connected to the Hebrews. They were sort of gangs of laborers who also would do a little bit of piracy or serve as mercenaries. Their own groups were very egalitarian, just as pirates were egalitarian in their own ranks in the 18thcentury West.

With the hapiru  you find for the first time an ideology saying that they were not going to let themselves fall into debt to the rich or to landlords. Their ranks were joined by fugitives walking out. Of course, that’s how Rome came to be settled under its “kings,” and what the Roman commoners did 594 BC after the kings were overthrown. The oligarchy took over, and tried to reduce the Roman population to bondage. You had numerous Secessions of the Plebs, for instance, again when the oligarchy broke its word by 449 BC.

[Jim] the aim was to forgive all the debts, just as in the Bible, right?

[Michael] When the Bible really was edited and put together by the Jews who were coming back from Babylonia, they brought back with them many Babylonian practices.

[Jim] So, they had learned from that experience . . .

[Michael] At that time all the Near Eastern kingdoms, even the Neo-Assyrian and Neo-Babylonian empires had rulers who continued to proclaim Clean Slates.

[Jim] The Persians and so on. But that tradition didn’t survive into modern times, although it became a tradition within the old Judaism.

[Michael] And also the original preachings of Jesus. Leviticus 25 projected the practice all the way back to the commandments of Moses. But there’s not very much documentation of Judaism after the compilation of the Jewish Bible, because the Judeans didn’t write on clay tablets, they wrote on perishable materials that haven’t survived. The little that did survive was the sacred library of Jerusalem, which became the Dead Sea Scrolls. When the Romans came, they took the library and they put it in pots. We now have many of these scrolls. One was a midrash, a collection of all of the biblical passages about debt cancellation, including those of the prophets.

[Jim] Interesting!

[Michael] So we know that by the time of Jesus, there was an active popular demand for another Jubilee. But meanwhile, within Judaism itself, the wealthiest families became the rabbinical school. Luke’s description of Jesus in the New Testament said that the Pharisees loved money. They became the rabbinical school of Hillel. Luke said that Jesus went back to the temple in his hometown to give a sermon, and unrolled the scroll of Isaiah to read the passage about the Year of the Lord – meaning the Jubilee Year – and said, that he had come to proclaim this year. That was his destiny.

Early translators of the Bible just read “the Year of the Lord” without realizing that this meant the Jubilee Yearderor, a debt cancellation. Luke immediately says a lot of families got very angry and chased Jesus out of town. They didn’t like his message. The Pharisees in particular got upset, and complained to the Roman that Jesus wanted to be King. Well, the reason they said was that they knew that Rome hated kingship. Roman tradition as written by Livy and by Dionysius and Halicarnassus described Servius as cancelling the debts, and most other kings of trying to keep the oligarchy in its place. Rome grew by making itself a haven for immigrants, whom they attracted precisely by keeping the oligarchy in its place.

[Jim] But they also had an empire. . .

[Michael] We are talking before the eighth to sixth centuries BC. But then the oligarchs took over and throughout the rest of Roman history down to the empire, the great fear was that somebody would do what the kings did: cancel the debts and redistribute the land to the poor. Julius Caesar was killed for “seeking kingship,” meaning that the Senate worried that he was going to cancel the debts after decades of civil warfare over this issue and the assassination of Catiline and other advocates of debt cancellation.

[Jim] And people will be free from their economic bondage

[Michael] Yes. Even many rich people were behind Catiline, who led the revolt a generation before Caesar, who actually seems to have been an early sponsor of Catiline. We’re talking about 62 to 64 BC; Caesar was killed in 44 BC.

So to make a long story short, what made the West “Western” was that it was the first society notto cancel the debts. It was to prevent this that oligarchies opposed a central authority. We don’t find any sign of debt in Greece and Rome until about 750 B.C. It was brought by near Eastern traders, along with standardized calendrically based weights and measures, ritual and religious practices. They set up temples as trading vehicles. For thousands of years, traders had set up local temples to act as a sort of Chamber of Commerce, to negotiate trade. In Greece, and Rome at that time there were chieftainships, which began to adopt the patronage practices of extending loans to the population, and then taking the payment and labor.

These dependency relationships are what made Western civilization different from what went before. There was no palatial economy, no state authority to override the oligarchy, cancel debts, redistribute land or liberate citizens who had been reduced to bondage as a result of their debt.

[Jim] You’re talking about the Middle Ages as well, feudalism?

[Michael] No, I’m talking about Greece and Rome in contrast to the Near Eastern mixed economies that were palatial as well as private. There was much private mercantile enterprise in Sumer. Its foreign trade was largely left to private enterprise (with the palace being a major customer, to be sure), so, these were mixed economies, as the five volumes that our Harvard group published have shown.

[Jim] This is all contained in your book “… and Forgive Their Debts.”

[Michael] Yes.

[Jim] So this is what is crucial to understanding lending, foreclosure and redemption from the Bronze Age finance to the Jubilee.

[Michael] Yes.

[Jim] This is a fascinating history. Can we bring it up to date, including issues of militarization and empire and imperialism in the 20thcentury, World Wars I and II? What are some of the things that occurred, the inception of the World Bank and the IMF? How did America control and attempt to defend its empire by using debt leverage?

[Michael] Already in Greece and Rome there was a linkage between debt and militarization. A Greek general, Tacticus in the third century BC, wrote a book of military tactics. He said that if you want to conquer a town, the way to take it over is to promise to cancel the debts. The population will come over to your side. And conversely, he said, if you’re defending a town, cancel the debts and they’ll support you against the attacker. So that was one of the reasons that debts tended to be canceled by one group or another. It’s what Coriolanus did, and then he went back on his word in Rome. That’s what Zedekiah did in Judea. Well, today it’s different. Here you have the imposition of a military force – really NATO – to enforce debt collection, not only from individuals but on debt entire countries. The job of the World Bank and IMF is to impose such heavy debt service on countries, and indeed to impose it in dollars, that countries have to earn these dollars to pay their debts. They can’t simply print the money to pay these debts like America can do. They have to obtain dollars by steadily lowering the price of their labor. But as yet there is no debt revolt.

[Jim] Because, when we went off the gold standard the American dollar became all powerful.

[Michael]Right.

[Jim] And we control 75% of the gold reserves?

[Michael] By the end of World War II, we controlled 75%, right.

[Jim] These are tremendous transformations in the world economy. The IMF and World Bank have supposedly developed through the UN for development, but as you argue, it’s more to create dependency.

[Michael] The World Bank is effectively part of the Defense Department. Their heads are usually former Secretaries of Defense, from John J McCloy, the first president, to McNamara and subsequent heads. What the United States discovered is that you don’t need to go to war to control other countries. If you can have them accept the assumption that all debts should be paid, they will voluntarily submit to austerity, which is class warfare against their own labor force. They will continue to devalue their currency

[Jim] And create puppet governments that will support that as surrogates.

[Michael] Yes. What the free market boys at the University of Chicago discovered is that you can’t have a pro-financial free market – free of government regulation and its own public infrastructure and credit system – unless you’re prepared to assassinate everyone who wants a strong government. When they went to Chile and supported Pinochet, U.S. officials provided a list of who had to be killed

  • land reformers,
  • labor leaders,
  • socialists, and
  • especially economics professors.

They closed down every Economics Department in the country, except for the one at Catholic University, the right wing economics department teaching Chicago School neoliberalism. So, you have to be totalitarian in order to impose a free market pro-financial style – which, under today’s circumstances, means pro-US.

[Jim]  It’s occurring across Latin America, right?

[Michael] Yes. A free market means libertarianism and totalitarian government. What the Chicago boys and the so-called New Institutional Economics school calls the rule of contracts. You have the history of Western civilization now being taught almost everywhere as if what created civilization was the rule of contracts, not canceling the debts. So, you’ve created an inside-out view of history. Its aim is to deny the fact that the only way that you can prevent the kind of economic slowdown that we’re having in America now is to write down the debts. If you don’t write down the debts, you’re internal market will shrink and you’re going to end up looking like Greece, or like France with all the riots that they are having there, or like the other countries that are rioting because they don’t want to be turned into a Neo-feudal society.

[Jim] This seems to be occurring in Puerto Rico as well. So what becomes more profitable for American economy is the military and the armaments that we ship and use in all these adventurers wars that we have in the 800 hundred US military bases around the world.

[Michael] The difference is that in the past when you had militarism, you actually had to fight a war. Soldiers had to go in. You know the old joke about wine that’s being sold in an auction. It’s a hundred-year-old bottle and is very, very expensive. A rich guy buys it and pours it out to impress his friends, but it tastes like vinegar. He complains to the auction house, but is told, “Oh, that’s not wine for drinking! That’s for trading!” That’s what most U.S. arms are for: not really to use. You’re never again going to get Americans to be drafted and go into the army to actually, use them. These arms are not for fighting; they’re for making profits. Seymour Melman explained that in Pentagon Capitalism.

[Jim] The permanent war economy.

[Michael] That’s right. Meaning more profits for the military industrial complex. You don’t actually use the arms. You just pay to produce them and throw them away. It’s like what Keynes talked about, building pyramids in order to create domestic purchasing power.

[Jim] And you can’t, as Melman tried to do, use economic conversion to more civilian uses. That never happened.

[Michael] Seymour Melman explained that the U.S. government decided to make a different kind of a contract with the arms manufacturers. It’s called cost-plus. As he summarized it, the government guarantees them a profit, but to prevent monopoly rents, they determined the prices to be paid at, say, ten percent over the actual cost of production. This led the arms-makers to see that if their profits were going to rise in keeping with the cost of production, they wanted as high of a cost of production as possible.

So, the engineers working on the American military industrial complex aimed at maximizing costs. That’s how we got toilet seats that cost $650.

Countries that don’t have Pentagon capitalism, like Russia or China, are able to produce weaponry that outshines America. Even broke Iran, can make missiles that apparently get right through the U.S. defenses in Syria and Iraq, because they don’t have cost-plus. They’re trying to be efficient, not just to have an excuse for making money via a cost-plus contract.

[Jim] How do we turn this around? You’ve made the connections to show that everyday people and their lives are profoundly impacted by the unreal world that the financial predators are creating.

[Michael] Reality isn’t the aim of their economic models. For instance, just today I saw Paul Krugman on Democracy Now. He said that the reason we’re in a depression is because President Obama did not run a large enough budget deficit! He’s a Keynesian, but goes so far as to insist that debt has no role to play in deflating the economy. That’s largely because Krugman serves in effect as a bank lobbyist – not only here, but in Iceland and other countries. To me, the current economic squeeze is that Obama didn’t let the banks collapse. He kept the bad he debts on the books instead of treating them as bad loans to be absorbed by the banks that wrote the junk mortgages and lost in their speculative gambles.

[Jim] And ate the homeowners!

[Michael] Yes. He kept their bad, outrageously priced loans on the books and evicted 10 million families. He called them “the mob with pitchforks,” and Hillary called them “deplorables.” That shows you where the Democratic Party is at, and why it was so easy for Donald Trump to make a left wing  run around the Democratic Party. That is how right wing Obama was. His legacy was Donald Trump, via Hillary Clinton.

[Jim] Krugman is the most well-known so-called Keynesian economist in the country, right?

[Michael] The reason he’s so well-popularized by the pro-financial class is precisely because he doesn’t understand money. So bank lobbyists love him and he’s popularized by the right-wing New York Times. He had a wonderful debate with Steve Keen that anybody can see on Google, where he says that it’s impossible for banks to create money and credit. He thinks that banks are savings banks, and they’re just relending deposits. Steve Keen explained what endogenous money is. That’s what we talk about in Modern Monetary Theory.

[Jim] And the Wall Street Journal.

[Michael] And the Washington Post. They go together. They don’t want economists to be popular who talk about debt and why the debts can’t be paid or the need for a debt write down. Krugman attacks Bernie Sanders as if he is an unbelievable radical for backing public medical care.

[Jim]  On February 17, Krugman wrote a column “Have Zombies eaten Bloomberg’s and Buttigieg Brains?” He said “My book is arguing with zombies.” And one of the zombies is his obsession with public debt and the belief that we should be terribly scared of government debt, can’t do anything because of deficits. Eeek! And that’s the way Buttigieg talks. The very moment when mainstream economics, if you like centrist economics, has concluded that these debt worries, were way overblown. The president of American Economic Association gave this presidential address saying that debt is not nearly the problem people think it is. It’s not a constraint, and of course, Republicans have pulled off one of the greatest acts of policy hypocrisy in history – you know, the existential deficit threat. I don’t want to see a democratic centrist bring us into this deficit scaremongering. That would be a really bad thing that would block any kind of initiative.

So, what does the everyday person make of this debate? And what’s the attraction of Trump his message to people who feel that their real-world needs are being addressed?

[Michael] I think the reason people voted for Trump’s was mainly Hillary. She said that voters should vote for the lesser evil. There was no question who the “lesser evil” was. It was Donald Trump. Did you want World War III, or Donald Trump? It’s not a very nice choice, but Hillary’s viciously right-wing, especially where Russia is concerned. The Democratic National Committee and deep state are all about Russia, Russia, Russia! And calling Trump Putin’s puppet.

Then finally the Mueller report came out and found nothing there! So you can view the Democratic Party as the political arm of the military industrial complex and the banking complex.

[Jim] And Obama totally propped them up. But now, Bernie! What about him? The Democratic establishment is against him, and so is the Republican establishment.

[Michael] If the enemy of my enemy is my friend, then Bernie’s enemies are the Democratic Party establishment and the Democratic National Committee. So of course a lot of people are going to love him.

[Jim] Yup. He wants to cancel student debt! He is talking your language!

[Michael] If the student debt is not canceled, you’re going to have a generation of graduates unable to get the mortgage loans to buy homes, because they’re already paying their income to the banks.

[Jim] They’re living at home!

[Michael] That means that you’re going to have a shrinking economy. So of course you have to write down student debt, and also other forms of debt – credit card debt and other debt. The economy cannot recover if you don’t write down the debt overhead.

The good thing about writing down the debts is that you wipe out the savings on the other side of the balance sheet. Some 90 percent of the debts in America are owed to the wealthiest 10 Percent. So the problem is not only the debt; it’s all these savings of the One Percent! The world is awash in their wealth. If you don’t wipe out their financial claims – which are the basis of their wealth – they’re going to take you over and become the new financial Lords, just like the feudal landlords. The banks are the equivalent of the Norman invasion. and the conquering landlords that reduce the economy to a peonage!

[Jim] But the moral argument is made that they’re the best. They’ve survived, right? I’m playing devil’s advocate here. So they serve a purpose, don’’ they? Their wealth is a sign that the system is working.

[Michael] That’s not what Adam Smith and John Stuart Mill said, or Ricardo and the entire 19th century classical economic school. They said that economic rent is unearned income. So the aristocracy (“the best”) doesn’t earn it. It is a result of privilege, which almost always is inherited wealth or monopoly privilege, that is, the right to appropriate something that really should be public. Land ownership and mining should be public wealth, as are mineral resources in much of the world. Education should be public. People shouldn’t have to pay for it. The idea initially in the United States was that education should be free as a human right. Medical care is also, as Bernie says, a human right, as it is in a lot of the world. So America, which people used to think was the most progressive capitalist country, suddenly becoming the most neo-feudal economy.

[Jim] How about Max Weber and the Protestant ethic as the spirit of capitalism? The argument is made that those who are productive are rewarded by heaven, while those who are poor deserve it. Wealth was a sign that God had bestowed his grace on its owner.

[Michael] That sort of the patter talk a century ago hasn’t stood up very well. The wealthy claim to be wealthy because God loves them. If they can convince other people that God loves them and hates the rest of the people, they make God into the devil. They make him hate the working class, and make them dependent on this unnecessary class of parasites. That’s crazy! But that’s what happens if you let the wealthy take over religion. Of course, they’re going to say that religion justifies their wealth.

That’s what makes modern religion the opposite of the religion that I described in the Bronze Age. Upon taking the throne, rulers took a pledge to the gods to restore equity and cancel the debts. That included restoring lands that had been forfeited, giving it back to the defaulting debtors to re-establish order. That was the idea of religion back then. But today’s religion has become a handmaiden of wealth and privilege, and of “personal responsibility” to make people pay for education, health care, access to housing and other basic things that should be a public right.

[Jim] Which is what preoccupies the average American, when seventy percent of their earnings are going to these sorts of things, and for taxes and rent. I have a brief quote here from Martin Luther King, who I think represents the sort of religious tradition you’re advocating. He had been deeply influenced by the theologian, Walter Rauschenbusch and his 1907 book, Christianity and the Social Crisis.

[Michael] Read it, so that so they can hear it.

[Jim] Here’s the main quote: “The gospel at its best deals with the whole man; not only his soul, but his body; not only the spiritual well-being, but his material well-being.” King wrote in an inspired passage, “any religion that professes to be concerned about the souls of men and is not concerned about the slums that damned them, the economic conditions that strangled them and the social conditions that crippled them is a spiritually moribund religion awaiting burial.”

[Michael] That’s right. Religion was about the whole economy. Not just a part of the economy. Today they’ve separated religion, as if only spiritual and has nothing to do with the economic organization of society. Religion used to be all about the economic organization of society. So, you’ve had a decontextualization of religion, taking away from analyzing society to justify the status quo by teaching that if things are the way they are, it’s because God wants it this way. That’s saying that God wants the wealthy and privileged to exploit you, especially by getting you into debt. And that’s just crap!

[Jim] And that gets us away from the classical tradition, which does try to see this as social.

[Michael] And that’s why Christian evangelicals hate Jesus so much.

[Jim] There you go! But we love Bernie! Can he win? We’ve only got about a minute to go …

[Michael] Of course he can.

[Jim] You think he will be able to withstand the onslaught that he’s going to get?

[Michael] A year ago I was pretty sure that the Democratic National Committee was going to put the super delegates in to sabotage any attempt that he was going to make to get the nomination. Now it’s clear that the Democratic Party will be torn apart, and this means the end of it if he’s not the nominee.

[Jim] All right! Well, from your mouth to God’s ears! Thank you, Michael. This has been so enlightening.

[Michael] Thank you.

[Jim] I’m so blessed that we are in the audience here too on the Radical Imagination. So happy to have had you here. I hope you’ll come back again. This is your most recent book, “… and Forgive Them Their Debts.” Thank you very much! This is Jim Vrettos for the Radical Imagination. See you next week. Thank you, Michael!

Stephanie Kelton: ‘They’re going to have massive deficits. And it’s fine’

Kelton is to modern monetary theory what Milton Friedman was to American conservatives for a half century — conversational, fierce, relentless. She belongs to a group of academics who emphasise the role of banking and finance in the economy. In 2008, when the Queen asked at the London School of Economics why no economists had seen a global financial crisis coming, Kelton thought, “Wait a minute, you know, not all of us.”

.. Minsky, her academic grandfather, died in 1996, but his work enjoyed a renaissance after the global financial crisis. He had ways to explain why investments naturally get riskier when times are good. And he was unafraid to pick at what economists call, with some trepidation, “the money question”.

.. Kelton and her clan, with considerable support from historians and anthropologists, believe that money started out not as barter, but as debts. People tracked debts on sticks or tablets, and then began to trade the sticks. Empires, too, decided that their subjects owed them the obligation of taxes, and paid their own subjects in credits — the same ones they accepted to pay off the taxes.

The history of money matters, she argues, because if you see money as inherently a credit, one that states have always created at will, you have licence to think about what a state might do with the money it creates now. When a government spends without taxing, it doesn’t have to be committing a sin. It could be filling a void.

I have always wondered why Kelton ties modern monetary theory explicitly to the policy of a federal jobs guarantee — a minimum pay cheque, for anyone who wants one. “It’s all in Minsky,” she says. A job guarantee is an “automatic stabiliser”, she explains. It stabilises growth by pushing money into the economy during a downturn in the most straightforward way: as firms cut staff, people still have a salary to spend.

“Even now, in this environment where you don’t have actual work for many people to do because you want them sheltering in place, you could define their job as ‘stay home and help us flatten the curve’,” she says. “‘We’re going to pay you to help us save lives by staying home.’ So that job guarantee, even if we had it in place today, could absorb people, restore income with no time limit.”

.. She has taken from this work some measure of empathy for what members of Congress have to do. “I don’t think politicians spend a lot of time thinking, ‘Gee, I wonder if I understand money,’” she says. Instead, they reach for clear words that voters understand: the language of personal finance.

Get your fiscal house in order,” she says. “Belt-tightening. Tough choices. Living within your means.” When politicians use these phrases, even if they don’t know it, they are choosing a theory of money: the Robinson and Crusoe story. Governments become just another household, borrowing shells like Robinson, and face what economists call an “intertemporal budget constraint”: money borrowed now must be paid back later.

“I think that the Democratic party is not as comfortable with the idea of utilising the budget to deliver on their goals as the Republicans are,” she says. “Why not kind of play Santa Claus? Right? I mean, the Republicans did.”

.. When she still travelled to give talks, Kelton would try to use the language of money circling around an economy, rather than in and out of a house. “I always say capitalism runs on sales,” she says. “One person’s spending is another person’s income, right? And every dollar that’s taxed away from me is a dollar that I don’t have, I can’t spend and some business here in the US can’t capture.”  Anyone who saves, in this language, is draining money out of circulation. Paying down government debt, she argues, isn’t a virtue. It’s a leak. It’s how money leaves the economy. “It’s a lost sale,” she says. Who could want that?

 

Modern Monetary Inevitabilities

ALEXANDRIA, VIRGINIA – In a recent Project Syndicate commentary, James K. Galbraith of the University of Texas at Austin Modern Monetary Theory and corrects some misunderstandings about the relationships among MMT, federal deficits, and central-bank independence. But Galbraith does not explore what is perhaps the most important issue of all: the political conditions needed to implement MMT effectively.

MMT owes its newfound relevance to the fact that deflation, rather than inflation, is becoming central banks’ main concern. For a high-debt, high-deficit economy like the United States, deflation is an especially serious threat, because it delays consumption and increases debtor anxiety. Consumers forego major purchases on the assumption that future prices will be lower. Homeowners with mortgages cut back their spending when they see home prices falling and the equity in their homes declining. These cutbacks worry the Federal Reserve, because they add to deflationary pressures and could trigger deeper spending cuts, stock-market declines, and widespread deleveraging.

The Fed’s inability so far to reach its 2% target for annual inflation suggests that it lacks the means to overcome persistent disinflationary forces in the economy. These forces include increased US , which diminishes aggregate demand by weakening employee bargaining power and increasing income inequality; population aging; inadequate investment in infrastructure and climate-change abatement; and technology-driven labor displacement. Making matters worse, US political gridlock assures continued commitment to economically exhausted strategies such as tax cuts for the rich, at the expense of investment in education and other sources of long-term growth. These conditions cry out for significant changes in US government spending and tax policies.

MMT is seen as a way to accomplish the needed changes. It holds that a government can spend as much as it wants if it borrows in its own currency and its central bank can buy as much of the government’s debt as necessary – as long as doing so doesn’t generate unacceptably high inflation. Both tax-cut advocates and supporters of public investment find little not to like.

MMT has been roundly criticized by economists across the political spectrum, from Kenneth Rogoff and Lawrence H. Summers of Harvard University to Paul Krugman of the City University of New York. All contend that it is a political argument masquerading as economic theory. But Galbraith and Ray Dalio of Bridgewater Associates see MMT differently. Dalio argues that MMT is real and, more to the point, it is an inevitable policy step in historically recurring debt-cycle downturns.

In his book Principles for Navigating Big Debt Crises, Dalio documents the steps that central banks have historically taken when faced with a booming economy that suddenly crumples under the weight of debt. The first step (Monetary Policy 1, or MP1) is

  1. to cut overnight official rates to stimulate credit and investment expansion. The second (MP2)
  2. is to buy government debt (quantitative easing) to support asset prices and prevent uncontrollable waves of deleveraging. If MP1 and MP2 are insufficient to halt a downturn, central banks take step three (MMT, which Dalio calls MP3) and
  3. proceed to finance the spending priorities that political leaders deem most essential. The priorities can range from financing major national projects to “helicopter money” transfers directly to consumers.

Achieving political agreement on what to finance and how is essential for implementing MP3 effectively. In a financial meltdown or other national emergency, political unity and prompt action are essential. Unity requires a strong consensus on what should be financed. Speed requires the existence of a trusted institution to direct the spending.

In the early 1940s, when the US entered World War II and winning the war became the government’s top priority, the Fed entered full MP3 mode. It not only set short- and long-term rates for Treasury bonds, but also bought as much government debt as necessary to finance the war effort. MP3 was possible because the war united the country politically and gave the Roosevelt administration near-authoritarian rule over the economy.

The core weakness of MP3/MMT advocacy is the absence of an explanation of how to achieve political unity on what to finance and how. This absence is inexcusable. Total US debt (as a share of GDP) is approaching levels associated with past financial meltdowns, and that doesn’t even account for the  associated with infrastructure maintenance, rising sea levels, and unfunded pensions. For the reasons Dalio lays out, a US debt crisis requiring some form of MP3 is all but inevitable.

The crucial question that any effort to achieve political unity must answer is what constitutes justifiable spending. Alexander Hamilton, America’s first Secretary of the Treasury, offered an answer in 1781: “A national debt,” he wrote, “if it is not excessive will be to us a national blessing.” A government’s debt is “excessive” if it cannot be repaid because its proceeds were spent in ways that did not increase national wealth enough to do so. Debt resulting from tax cuts that are spent on mega-yachts would almost certainly be excessive; debt incurred to improve educational outcomes, maintain essential infrastructure, or address climate change would probably not be. Accordingly, it will be easier to achieve political unity if MP3 proceeds are spent on priorities such as education, infrastructure, or climate.

The political test for justifying MP3-financed government spending, is clear: Will future generations judge that the borrowing was not “excessive”? Most Americans born well after WWII would say that the debt incurred to win that war was justified, as was the debt that financed the construction of the Interstate Highway System, which literally paved the way for stronger growth.

As the 1930s and 1940s show, MP3 is a natural component of government responses to major debt downturns and the political crises they trigger. We know much more about what contributes to economic growth and sustainability than we did in the first half of the twentieth century. To speed recovery from the next downturn, we need to identify now the types of spending that will contribute most to sustainable recovery and that in hindsight will be viewed as most justified by future Americans. We need also to design the institutions that will direct the spending. These are the keys to building the political unity that MMT requires. To know what to finance and how, future Americans can show us the way; we need only put ourselves in their shoes.

Worry About Debt? Not So Fast, Some Economists Say

U.S. deficits may not matter so much after all—and it might not hurt to expand them for the right reasons

Now, some prominent economists say U.S. deficits don’t matter so much after all, and it might not hurt to expand them in return for beneficial programs such as an infrastructure project.

“The levels of debt we have in the U.S. are not catastrophic,” said Olivier Blanchard, an economist at the Peterson Institute for International Economics. “We clearly can afford more debt if there is a good reason to do it. There’s no reason to panic.”

Mr. Blanchard, also a former IMF chief economist, delivered a lecture at last month’s meeting of the American Economic Association where he called on economists and policymakers to reconsider their views on debt.

The crux of Mr. Blanchard’s argument is that when the interest rate on government borrowing is below the growth rate of the economy, financing the debt should be sustainable.

.. Interest rates will likely remain low in the coming years as the population ages. An aging population borrows and spends less and limits how much firms invest, holding down borrowing costs. That suggests the government will not be faced with an urgent need to shrink the debt.

Mr. Blanchard stops short of arguing that the government should run up its debt indiscriminately. The need to finance higher government debt loads could soak up capital from investors that might otherwise be invested in promising private ventures.

Mr. Rogoff himself is sympathetic. “The U.S. position is very strong at the moment,” he said. “There’s room.”

.. Some left-wing economists go even further by arguing for a new way of thinking about fiscal policy, known as Modern Monetary Theory.

MMT argues that fiscal policy makers are not constrained by their ability to find investors to buy bonds that finance deficits—because the U.S. government can, if necessary, print its own currency to finance deficits or repay bondholders—but by the economy’s ability to support all the additional spending and jobs without shortages and inflation cropping up.

Rather than looking at whether a new policy will add to the deficit, lawmakers should instead consider whether new spending could lead to higher inflation or create dislocation in the economy, said economist Stephanie Kelton, a Stony Brook University professor and former chief economist for Democrats on the Senate Budget Committee.

If the economy has the ability to absorb that spending without boosting price pressures, there’s no need for policy makers to “offset” that spending elsewhere, she said. If price pressures do crop up, policy makers can raise taxes or the Federal Reserve can raise interest rates.

“All we’re saying, the MMT approach, is just to point out that there’s more space,” she said. “We could be richer as a nation if we weren’t so timid in the use of fiscal policy.”

 .. By continuing to run large deficits, says Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, the U.S. is slowing wage growth by crowding out private investment, increasing the amount of the budget dedicated to financing the past and putting the country at a small but increased risk of a future fiscal crisis.

Market interest rate signals can be misleading and dangerous. By blessing the U.S. with such low rates now, he says, financial markets just might be “giving us the rope with which to hang ourselves.”

Seven Fixes for American Capitalism

Ideas from the Right, the Left, and across the Atlantic to mend what’s broken in our economy.

Antitrust Pivot

Many of the U.S.’s biggest economic ills—rising inequality, stagnant wages, low productivity growth—stem in large measure from corporate consolidation and monopoly power run amok. That’s the message from a new breed of policy wonk urging a return to the trustbusting days of the early 20th century.

The movement—labeled the New Brandeis School by its proponents and derided as Hipster Antitrust by its critics—is looking to ditch the Chicago School approach that’s dominated antitrust enforcement since the late 1970s. The Chicago School hews to what’s known as the consumer-welfare standard, which finds mergers anticompetitive only if they raise prices.

The new model takes its inspiration from Supreme Court Justice Louis Brandeis, who emphasized the need to restrain big companies and the concentration of economic power. Lina Khan helped galvanize the movement with a 2017 paper she wrote as a law student at Yale that made the case that Amazon.com Inc. is a threat to competition, even though it’s lowered some prices for consumers.

Any ambitious government-led project to reshape the U.S. economy usually runs into the same objection: We can’t afford it. One school of economic thought says that’s all wrong.

Modern Monetary Theory, a once-fringe set of ideas now getting some mainstream attention, says governments borrowing in their own currency have more room to spend than they think. The U.S., for example, can run deficits without having to worry about going bust, because it creates the dollars in the first place. The real constraint only kicks in when there’s too much spending relative to a limited supply of goods and services—in other words, when inflation spikes. And there’s been little sign of that in America for decades.

MMTers argue that their system isn’t so radical; it’s the way things already work, at least some of the time. Presidents, including the current one, haven’t balked at measures to boost the military or cut taxes, even when the resulting deficits run into the hundreds of billions. And emergencies, such as the 2008 financial meltdown, typically push concerns about balanced budgets deep into the background.

Now there’s a different sort of emergency on the horizon: climate change. Since the threat is arguably greater than economic depression or even war, it requires action on a suitably vast scale, argue Democrats who’ve picked up on the issue.

And MMT offers a key to unlock the financing. That’s why freshman Representative Alexandria Ocasio-Cortez, one of the first U.S. politicians to talk publicly about MMT, is also at the forefront of the drive for a Green New Deal. The maximal version of that program includes shifting the U.S. to 100 percent renewable energy within 10 years. If that wasn’t ambitious enough, the plan also calls for the government to guarantee a job for everyone who wants one—an MMT favorite that’s also a throwback to Franklin D. Roosevelt’s New Deal.

“Clearly, the environment matters more than entries on balance sheets,” says Randall Wray, a senior scholar at the Levy Economics Institute of Bard College and one of MMT’s most prominent proponents. “The environmental thing is real. It’s not financial.”

MMT’s detractors say government spending on that scale could trigger the kind of inflation that would wreck the whole economy. America’s national debt has already ballooned since the Great Recession, they warn, and adding more will erode the country’s creditworthiness and undermine the dollar’s role in global finance.

While those warnings are still frequently heard, there are signs that they’re losing their impact as the debate leans left. Several renowned economists who aren’t MMTers have recently tried to downplay the risks attached to deficits and debt. They include Olivier Blanchard, former chief economist at the International Monetary Fund, and Obama administration heavyweights Larry Summers and Jason Furman. Bank of England chief Mark Carney has made the case that action on climate change represents an economic opportunity, not a burden.

Ocasio-Cortez didn’t manage to garner enough Democratic support for her first attempt at actual legislation, a proposal to set up a Green New Deal committee. But there’s broad sympathy for the idea in principle, including among several of the party’s presidential candidates, and many of them have also endorsed a jobs guarantee. —Katia Dmitrieva

Tech to the Rescue

Amazon.com Inc. Chairman and Chief Executive Officer Jeff Bezos wishes there were a trillion human beings in the solar system. With room for that many people, there would be “a thousand Einsteins and a thousand Mozarts,” he told the Economic Club of Washington, D.C., in September. The world’s richest man is funneling $1 billion or more a year into a company, Blue Origin, that he hopes will help make extraterrestrial settlement a reality, creating places to live for all those Einsteins and Mozarts.

Bezos and others argue that innovation is the essential ingredient in human betterment. They have a point. Life would be pretty awful without the advances made by past generations, such as indoor plumbing, vaccines, refrigeration, and telephones. Bezos even asserts that freedom itself, not just material well-being, depends on technological progress: “I don’t even think stasis is compatible with liberty,” he told the Washington audience.

In the view of the tech-to-the-rescue crowd, innovation can solve just about every problem humanity faces. Global warming can be fixed with better electric cars, solar cells, wind turbines, and batteries. Income inequality can be solved by educating or retraining workers for the high-tech jobs of the future.

The Information Technology & Innovation Foundation, a Washington think tank founded in 2006 to propagate this philosophy, argues that using antitrust law to break up or discipline the big technology companies can backfire, discouraging innovation and harming consumers. Robert Atkinson, president and founder of the ITIF, co-wrote a 2018 book with Michael Lind called Big Is Beautiful: Debunking the Myth of Small Business.

The techies welcome a prominent role for government in paying for education and conducting or supporting research and development. But the movement is split on trade. The nationalists want to keep the U.S. in the tech vanguard and are willing to resort to tariffs and subsidies to preserve its dominance. The globalists, including some heads of multinational companies that earn lots of their profits abroad, are happy to see other countries advance technologically, figuring that the benefits of breakthroughs—say, a cure for cancer—will be shared by all of humanity regardless of their origin.

The common theme is that prosperity depends on a robust tech sector. “We’re in a 10-year productivity depression” that’s hurting living standards, says Atkinson. “Tech is really the only way we’re going to raise productivity growth.” —Peter Coy

Tariff Truthers

If there’s one thing most economists around the world today can agree on, it’s that tariffs are bad. Protect one domestic industry with an import tax, and you hurt a swath of others. Tariffs reduce choices for consumers and push up prices for goods. They stifle competition and deter innovation. And they invite other countries to retaliate, leading to the sort of tit-for-tat behavior that’s left U.S. soybean farmers watching crops once destined for China rot in their fields.

Libertarianism

Devotees of small government were stirred by candidate Trump’s vow to “drain the swamp” and pull U.S. troops out of foreign quagmires. But President Trump, with his tariffs and deficits, has proved to be “the opposite of a libertarian,” the Libertarian Party declared in March.

Still, the free-market purists aren’t giving up the fight. One of their bugbears is the Federal Reserve and its cheap money—a distortion of the market’s natural efficiency, according to Austrian economist and libertarian idol Friedrich Hayek. When Ron Paul, America’s highest-profile libertarian, ran for president in 2012, he pushed for the Fed’s abolition and a return to the gold standard. “If you want to restrain government, you restrain the power to create money,” he said. “That’s what gold does.”

The Fed can probably rest easy. Americans aren’t exactly clamoring for a return to gold, while hyperinflation and other disasters predicted by libertarians in the easy-money decade since 2008 haven’t come to pass.

Some libertarian ideas are finding a larger audience. Among them are the call for stripping back zoning rules, because they limit the construction of affordable housing, and their criticism of patents that lock in profits for Big Tech or Pharma and licensing requirements that insulate professionals like doctors from competition. A common theme of such critiques—that the economy is rigged in favor of big and established actors—commands growing support among mainstream economists.

And beyond the realms of U.S. policy, the world is evolving in ways that give libertarians hope. Those who deplore the “tyranny” of central banks are rejoicing at the explosion of cryptocurrencies. (The Libertarian Party accepts donations in Bitcoin.) Recreational marijuana use is already legal in 10 states and backed by more than 6 in 10 Americans, according to a poll by the Pew Research Center.

Paul, who outperformed most expectations during his own tilt at the presidency, says a popular Libertarian candidate could well emerge in 2020. It’s a stretch to say he’s cheerful about the wider outlook, though. “It’s a bubble economy in many, many different ways, and it’s going to come unglued,” he told the Washington Examiner. —Andrew Mayeda