Will There be Hyperinflation or Deflation?

Kiril Sokoloff interviews Dr. Lacy Hunt of Hoisington Investment Management, the world’s greatest monetary economist and expert on bonds, on the most important issues of the day. Dr. Hunt explains in very lucid language why many of today’s beliefs about the global economy are incorrect: The Fed is not printing money now. QE1, QE2 and QE3 were also not printing money. The current massive U.S. fiscal programs will not stimulate the economy, only accelerate its long-term downward-growth trajectory. The productivity of debt has fallen sharply, and with it, the velocity of money. The best that can be expected from global growth post-COVID is 1% in real per-capita terms. Having reached the zero bound, current monetary policy may be counterproductive. The U.S. has no net national savings and is dissaving for the first time since the 1930s. This means there will not be capital to invest. Based on an examination of 24 over-indebted economies between 1900 and 2008, the over-indebtedness was solved through austerity. The Fed has the power to lend. It does not have the power to spend. However, if the Federal Reserve Act is changed to give the Fed the power to spend, it would result in hyperinflation. The early warning signs are there. The Bank of England may have crossed the Rubicon by giving £500 billion to the UK government to pay its bills. Filmed May 18, 2020.

KIRIL SOKOLOFF: Well, coming back to David Hume’s famous paper, and you’ve referred to me number of times. His conclusion was that governments should essentially run surpluses because there’s always crisis or problematic. If you look at corporations coming into this with the worst balance sheets in history, with profits having been flat since 2012, 40% of Americans barely able to get $500 in an emergency, it seems to me that as we come out of this, one of the implications is going to be we need to be better prepared for the future. Do you think that that’s the way we’re going to go, that we will be, look, we got real wakeup call here, we need to have money for rainy day?

LACY HUNT: think that’s the case for the private sector, but don’t feel that that’s the case for the government sector. Remember, net national saving has the private sector and the private sector saving was fine. 8.50%, not bad. The problem was that we had 6.50% government dissaving and so we only ended up with two. The real problem is that you have to have net saving from the private, the government, the net foreign sector, and if the government, even though maybe well-intended, maybe the actions are very popular.

All of these measures that were taken to deal with the pandemic, they were very popular. The measures– and they were essential. They were humane, they had to be done. It would have been far better if we’ve been following Hume’s advice, which is you run surpluses so when you have an emergency, you have– and by the way, Adam Smith in the Wealth of Nations followed Hume, made the same recommendation. Of course, no one remembers that anymore. No one reads Hume and Smith.

KIRIL SOKOLOFF: To get to positive net national savings, presumably that’s– I’m not saying it’s governmental objective, but it should be national objective in some form based on your point that in order to have money to invest, you’ve got to be able to save out of income. If government is going to keep on running deficits, at pick the number, 15 plus percent GDP, in order to have positive net savings rate, that implies very significant private savings rate.

LACY HUNT: Unachievable, and let’s say that we bring back lot of our operations, in other words. If that happens, then the current account deficit will start to shrink, but the current account deficit is always the opposite of the capital account. When you have current account deficit, you have capital account surplus, but the capital account surplus is net foreign saving. This is one of the problems. If you repatriate businesses, and you shrink the current account deficit, then you’re going to shrink net foreign saving. It’s quite possible that we will have two of saving movements. One for the increased level of government dissaving and also less positive foreign saving. We import lot of saving from the rest of the world.

KIRIL SOKOLOFF: Given the output cap, not having the savings to invest, is that better than it might otherwise have been? Because we got five, six, seven years to fill that output gap, or is the transformative event that is the easiest way out, if that’s the right word. Is that dependent on having the capital and savings to invest? Does that mean that in order to have that transformative, new economy, we’re going to have to have net national savings? Am taking that–

LACY HUNT: The thing about those transformative events is that they often create surge in income, and thus in saving that they finance themselves, but that’s why use the term transformative. It cannot be evolutionary. Let’s think about the situation that we were in the late 1920s, early 1930s. We take on great deal of debt in the ’20s and ’30s. We struggle throughout the 1930s. When Germany invades Poland, we still have an unemployment rate of 17% or 18%. We’ve come off the peak levels, but we still have very high unemployment rate and we have substantial number of people underemployed.

In other words, we really made very little progress to turning the economy. We stabilized things, and we ended the worst aspects of the Great Depression. Then World War II comes along. lot of folks including the great JM Keynes believe that it was the deficit spending of World War II that shored the problems of the Great Depression. That’s not my reading. It is true that on national income accounts basis, we ran deficits of 14%, 15% which is what we’re now running again by my calculation, national product account basis.

However, we had two other events that occurred simultaneouslyNumber one, 

  1. we had surge in our exports, and 
  2. we had mandatory rationing. 

If you wanted to buy 10 pounds of sugar, you couldn’t. You could buy one maybe, you had ration, and so people were paid to produce exports and to produce military goods. The private saving rate went up to 25% of net national incomeWe were able to cover the federal budget dissaving and we paid off the debts of the 1920s and 1930s. When World War II ended, Keynes suggested if we didn’t continue running the budget deficits of World War II, we would go back into the Great Depression, but that didn’t happen.

The budget was basically balanced all the way through and to the early 1960s. We ran small deficits, but we ran small surpluses on balance. It was close to balance. We opened up our export market, we opened up markets to the US, we financed the reconstruction in Europe and Japan, we had tremendous resurgence. If you look at McKinsey’s 24 cases of overindebted economies and how they got out of it by austerity, one of their cases is the US during World War II. They labeled it fortuitous circumstance. We didn’t go into World War II to get rid of the debt problem of the 1920s and ’30s.

It was something that happened as result of the policy mixes but the folks in America were okay with the austerity because it was great national endeavordon’t think that they would be willing to do that today. Everyone is relying on more government activity to solve the problem, not realizing that that’s the source of our deteriorating rate of economic performance.

KIRIL SOKOLOFF: Well, on that note, it’s been really instructive ending [?].

Gods And Monsters (Great Military Blunders Documentary) | Timeline

Episode 1 tell us how the egos of Maj. Gen. Charles V.F. Townshend, Field Marshal Bernard L. Montgomery and Gen. Douglas MacArthur led to disaster for their troops.

We have long saluted military genius and bravery. But the other side of the coin is military incompetence – a largely preventable, tragically expensive, yet totally absorbing aspect of human behaviour.

From the Crusades to Vietnam, history is littered with examples of stupidity, obduracy, brutality and sheer breath-taking incompetence. Lack of communication, technological failure and a misplaced sense of superiority have led to the deaths of thousands of ordinary soldiers, let down by their masters and betrayed by arrogance. Using a combination of history, human interest and archive footage underpinned by powerful story-telling, Great Military Blunders charts man’s folly and cruelty in a series of stunning debacles, spanning almost a thousand years of conflict.

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Produced by Darlow Smithson Productions.

The Secret Plot to Bring the U.S. into WWII

At the outset of the Second World War, the Allies were desperate to have Americans fight alongside them. So, they enlisted Canadian M16 officer William Stephenson to help sway them, kicking off a large-scale, state-sponsored influence campaign. Author Henry Hemming joins The Agenda to discuss his book, “Agents of Influence: A British Campaign, a Canadian Spy, and the Secret Plot to Bring American into World War II.”

FBI Enforces Anti-Debt Peonage Statutes After Pearl Harbor

Peonage, also called debt slavery or debt servitude, is a system where an employer compels a worker to pay off a debt with work. Legally, peonage was outlawed by Congress in 1867. However, after Reconstruction, many Southern black men were swept into peonage though different methods, and the system was not completely eradicated until the 1940s.

In some cases, employers advanced workers some pay or initial transportation costs, and workers willingly agreed to work without pay in order to pay it off. Sometimes those debts were quickly paid off, and a fair wage worker/employer relationship established.

In many more cases, however, workers became indebted to planters (through sharecropping loans), merchants (through credit), or company stores (through living expenses). Workers were often unable to re-pay the debt, and found themselves in a continuous work-without-pay cycle.

But the most corrupt and abusive peonage occurred in concert with southern state and county government. In the south, many black men were picked up for minor crimes or on trumped-up charges, and, when faced with staggering fines and court fees, forced to work for a local employer would who pay their fines for them. Southern states also leased their convicts en mass to local industrialists. The paperwork and debt record of individual prisoners was often lost, and these men found themselves trapped in inescapable situations.