Is The U.S. Going Bankrupt? Will Your Assets Be Confiscated? Economist Steve Hanke Answers

David Lin
4 Apr 202454:14

Summary

TLDRIn this thought-provoking discussion, Professor Steve Hanke of Johns Hopkins University shares his insights on the state of the economy, inflation, and the labor market. He critiques the Fed's data-dependent approach, emphasizing the importance of considering the money supply. As the conversation delves into demographic shifts and their impact on social security systems, Hanke argues for a transition towards private social security. The discussion also touches on the implications of population decline, the role of sanctions in shaping international relations, and the potential consequences of a TikTok ban in the US, highlighting the broader commercial and political tensions with China.

Takeaways

  • 📈 The dependency ratio is increasing, potentially leading to the bankruptcy of government retirement systems due to fewer young workers supporting a growing retired population.
  • 💡 Professor Hank suggests that the current social security system, which relies on a growing younger workforce, may need to transition towards a private system where individuals save and invest for their own retirement.
  • 📉 Inflation is expected to move down towards 2%, influenced by factors such as the contraction of the money supply, despite temporary stalls.
  • 💰 The Federal Reserve's policy is data-dependent, reacting to daily economic data which may not always reflect underlying trends or the consequences of past monetary decisions.
  • 📊 The velocity of money, despite common perceptions of instability, has been found to be relatively stable over time, supporting the quantity theory of money which links changes in the money supply to inflation.
  • 🌐 The discussion highlights the impact of declining birth rates and aging populations on global economies, with implications for social security systems and labor markets.
  • 🔽 The money supply contraction, which has been significant in recent years, is expected to lead to a continued downward trajectory of inflation and potentially an economic slowdown or recession.
  • 🛣️ The script discusses the potential for central banks to lower interest rates in response to economic conditions, contrary to some expectations of rate cuts.
  • 🏦 The rising interest payments on government debt pose a challenge, with the possibility of increased taxes or inflation as means to finance these expenditures.
  • 🌍 The BRICS group and China's economic strategies are highlighted as responses to Western financial sanctions and commercial pressures, suggesting a shift in global economic alliances.

Q & A

  • What is the current status of the dependency ratio and its impact on the government?

    -The dependency ratio is increasing, which poses a significant challenge for government finances, particularly for social security systems. As the retired population grows relative to the working population, there are concerns about the sustainability of current systems that rely on younger workers to support retirees financially. This could potentially lead to the bankruptcy of the retirement system if not addressed.

  • What are the implications of the declining fertility rates mentioned in the transcript?

    -Declining fertility rates, as highlighted in the transcript, suggest a potential future with smaller populations, especially in developed countries. This demographic shift can impact economic growth, labor markets, and government policies, particularly those related to social security and healthcare. It also raises concerns about the sustainability of current social security systems that depend on a steady or increasing influx of young workers to support the aging population.

  • What is the significance of the Lancet study mentioned in the transcript?

    -The Lancet study mentioned in the transcript forecasts that by 2050, three-fourths of countries are expected to fall below the population replacement birth rate of 2.1 babies per female. This indicates a global trend towards lower birth rates, which can have profound implications for population structures, economic development, and social systems, especially those related to retirement and healthcare.

  • How does the discussion on inflation and monetary policy relate to the overall economic outlook?

    -The discussion on inflation and monetary policy is central to understanding the economic outlook. The Federal Reserve's approach to managing interest rates and the money supply directly affects inflation, economic growth, and the overall health of the labor market. The transcript suggests that the Fed's data-dependent policy may lead to a roller coaster effect on monetary policy, which in turn can contribute to business cycles and economic instability.

  • What is the importance of the money supply in relation to inflation?

    -The money supply plays a critical role in influencing inflation rates. As discussed in the transcript, changes in the money supply have a direct impact on inflation. An increase in the money supply can lead to inflation if it outpaces economic growth, while a decrease can lead to deflation. The velocity of money, or how quickly money circulates in the economy, also affects inflation but tends to be more stable over time, suggesting that changes in the money supply are a key factor in managing inflation.

  • What is the 'quantity theory of money' referred to in the transcript?

    -The quantity theory of money is an economic concept that suggests that the total supply of money in an economy has a direct and proportional relationship with the price level. In other words, MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the volume of transactions. The theory posits that changes in the money supply are the primary driver of inflation or deflation, and that a stable money supply growth rate is necessary to maintain price stability.

  • What are the potential consequences of the U.S. government's ban on TikTok?

    -The potential consequences of the U.S. government's ban on TikTok include a loss of a popular social media platform for millions of users, potential retaliation from China, and a broader impact on U.S.-China relations. It also raises questions about data privacy, national security, and the role of government in regulating technology companies. The ban could also have economic repercussions, as it may affect the value of related companies and industries.

  • What is the argument for and against the ban on TikTok as discussed in the transcript?

    -The argument for the ban on TikTok, as mentioned in the transcript, is based on national security concerns, with the belief that the data collected by the app could be accessed by the Chinese government. The argument against the ban is that it represents a form of property confiscation and that it may be more related to a commercial war between the U.S. and China than actual national security risks. It is also suggested that such actions can lead to retaliatory measures from China, potentially harming U.S. interests.

  • What is the significance of the BRICS group in the context of global economics and geopolitics?

    -The BRICS group, consisting of Brazil, Russia, India, China, and South Africa, represents a significant bloc of emerging economies that have been growing in influence on the global stage. The group aims to promote cooperation and coordination on economic, political, and cultural issues. The transcript suggests that the BRICS group has been strengthened as a reaction to sanctions and protectionist measures by the U.S. and its allies, potentially serving as an 'anti-US allies block' and influencing global economic and geopolitical dynamics.

  • What is the argument for dollarizing the Argentinian economy as advised by Professor Hank?

    -Professor Hank advised dollarizing the Argentinian economy as a way to stabilize its financial system and prevent hyperinflation. The argument is that by adopting the U.S. dollar as the official currency, Argentina would eliminate the risks associated with its own currency and central bank policies, which have historically been prone to instability. This would also bypass the need for a currency board, which, given Argentina's history of not adhering to monetary rules, might not be effective in maintaining currency stability.

  • What are the potential economic and social impacts of an aging population?

    -An aging population can have significant economic and social impacts. Economically, it can lead to a smaller labor force, reduced consumer spending, and increased healthcare and pension costs. This can strain government budgets and potentially lead to higher taxes or reduced services. Socially, it can result in a greater need for elderly care services and potentially alter societal structures and intergenerational relationships.

Outlines

00:00

📈 Economic Trends and Government Policies

The paragraph discusses the dependency ratio and its impact on the government's financial stability, particularly the retirement system. It highlights the importance of a sustainable economic model and suggests a potential shift towards private Social Security. The conversation includes an analysis of the recent speech by Jerome Powell, focusing on the Fed's policy on inflation and economic growth. The discussion also touches on viewer questions and the role of the younger population in supporting social security systems.

05:01

💡 Inflation and Monetary Policy

This section delves into the topic of inflation, with a focus on the Fed's approach to managing it. It questions the rationale behind maintaining high interest rates when inflation is expected to decrease. The analysis includes a review of recent economic data and forecasts, suggesting that inflation will eventually reach the target rate of 2%. The conversation also explores the relationship between money supply, inflation, and economic activity, emphasizing the importance of the quantity theory of money.

10:03

🌐 Global Economic Challenges and Demographics

The paragraph addresses global economic challenges, particularly the issue of declining birth rates and their potential impact on economic growth. It critiques the notion that a larger population is necessary for economic prosperity, pointing out that many developing countries with high birth rates are poor. The discussion also touches on the implications of demographic shifts for social security systems, suggesting that they may need to be reformed to adapt to changing population dynamics.

15:06

💸 Fiscal Policies and Debt Management

This section focuses on fiscal policies and the management of government debt. It discusses the increasing interest payments on government debt and the implications of this trend for future generations. The conversation explores different methods of financing government spending, including taxes and inflation. The discussion also raises concerns about the sustainability of current fiscal policies and the potential need for new approaches to managing government liabilities.

20:07

🌍 International Relations and Economic Systems

The paragraph discusses the geopolitical and economic implications of international relations, particularly in the context of the US-China commercial war. It examines the impact of sanctions and protectionist policies on international cooperation and the potential for these measures to backfire. The conversation also touches on the role of social media platforms like TikTok in the broader context of global economic and political dynamics.

25:07

🇦🇷 Economic Policy and Currency Management in Argentina

This section focuses on the economic policy advice given to the President of Argentina, with a specific recommendation to dollarize the Argentinian economy. The discussion highlights the challenges of implementing a currency board in a country with a history of not adhering to monetary rules. The conversation emphasizes the need for a stable and reliable currency system to support economic growth and stability.

Mindmap

Keywords

💡Dependency Ratio

The dependency ratio refers to the number of non-working individuals (like children and retirees) compared to the working-age population. In the context of the video, a higher dependency ratio could strain government resources, particularly social security and retirement systems, as there are fewer working individuals to support the dependent population.

💡Inflation

Inflation is the rate at which the general price level of goods and services in an economy is increasing over time. In the video, the discussion around inflation focuses on the Federal Reserve's policy and its impact on economic growth, with an aim for a stable inflation rate around 2%.

💡Monetary Policy

Monetary policy refers to the actions taken by a central bank, like the Federal Reserve, to influence the economy by adjusting interest rates and the money supply. In the video, the impact of monetary policy on inflation, economic growth, and the labor market is a key topic of discussion.

💡Labor Market

The labor market refers to the collection of all labor services available for work, including the people who are employed, those who are unemployed but seeking work, and those who are not currently looking for work. In the video, the state of the labor market is discussed in relation to economic growth and inflation.

💡Fiscal Policy

Fiscal policy involves government spending and taxation decisions to influence the economy. It is discussed in the video in the context of how the government manages its debt and expenditure, particularly interest payments, which have exceeded $1 trillion.

💡Social Security

Social Security is a government program that provides financial support to retirees, the unemployed, and people with disabilities. In the video, concerns are raised about the sustainability of Social Security systems worldwide due to demographic changes and the dependency ratio.

💡Demographic Trends

Demographic trends refer to patterns in population changes, including birth rates, death rates, and migration. The video highlights a report from The Lancet indicating a global decline in birth rates and its potential impact on economic growth and social systems.

💡Interest Payments

Interest payments are the cost of borrowing, paid by the borrower to the lender. In the context of the video, it refers to the government's expenditure on interest payments for its debt, which has surpassed $1 trillion and is a significant portion of government spending.

💡Population Collapse

Population collapse refers to a significant decline in the population of a country or region. In the video, the concern is raised that declining birth rates could lead to long-term economic stagnation and challenges for social systems like retirement funds that rely on a growing working-age population.

💡BRICS

BRICS is an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. In the video, BRICS is discussed as a growing economic bloc that could potentially serve as an alternative to Western-dominated financial institutions.

💡TikTok Ban

The TikTok ban refers to legislative efforts to prohibit the use of the Chinese-owned social media platform in the United States due to national security concerns. The video discusses the potential implications of such a ban on the commercial and political landscape.

Highlights

Dependency ratio is increasing, potentially leading to the bankruptcy of government retirement systems.

The government's data dependency in monetary policy can lead to a roller coaster effect with business cycles and inflation.

Jerome Powell's speech at Stanford emphasized the Fed's cautious approach to lowering policy rates until inflation sustainably moves down towards 2%.

Recent data shows inflation moving down towards 2% on a sometimes bumpy path, with a strong but rebalancing labor market.

The discussion with Professor Hank focuses on inflation, economic growth, and the labor market, including the analysis of Jerome Powell's Fed speech.

The quantity theory of money and its implications on inflation forecasts are discussed, suggesting a downward trend in inflation.

Money supply contractions have historically led to recessions, and the current contraction could预示着 an economic slowdown and recession later in the year.

The velocity of money is examined as a factor in the economy, with a trend of decrease in developed countries and increase in emerging markets.

The relationship between money velocity and inflation is explored, challenging the notion that an increasing velocity leads to higher inflation.

Fiscal issues are discussed, including the impact of rising interest payments on government expenditures and the implications for taxpayers.

The debt-to-GDP ratio and its potential impact on future generations are examined, highlighting the importance of current fiscal policies.

Demographic trends, including declining birth rates and their potential impact on social security systems, are discussed in relation to economic stagnation.

The potential for a shift from government-dependent social security systems to private models is explored as a response to demographic changes.

Elon Musk's tweet on population collapse and its implications for government retirement systems is analyzed.

The BRICS group and its potential role as an 'iceberg' against the US are discussed, including the impact of sanctions on international relations.

The potential consequences of a TikTok ban in the US are examined, including the implications for property rights and commercial wars.

Advice for TikTok users on how to respond to potential bans and the importance of political engagement is provided.

The discussion concludes with Professor Hank's advice to the President of Argentina on economic policy, including the recommendation to dollarize the Argentinian economy.

Transcripts

play00:00

so the dependency ratio is going to be

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much higher um is that ultimately going

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to bankrupt the government you think

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well it it'll bankrupt the retirement

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system it'll bankr so all these things

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all these Trends you know they they

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basically if if something can't go on

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forever it it will

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stop and and and it will stop because of

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of why they're G they'll they'll they'll

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ultimately have to change the kind of

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system that we're in

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and and and and transition into I I

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think ultimately private Social Security

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because the government is depending on

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an increased pool of younger and younger

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people all the time and and what this

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Lancet thing is suggesting as well that

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pool might not be increasing Steve hanky

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professor of Applied economics at John's

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Hopkins University returns to the show

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Once More to discuss with us his updated

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views on inflation economic growth and

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the labor market in particular we'll be

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breaking down Jerome Powell's fed share

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Powell speech this week uh he gave a

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speech at Stanford on Wednesday and

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we'll be answering a few viewer

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questions so thank you for submitting

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questions this episode is sponsored by

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Kudos so stay tuned for a word from our

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sponsor later on as well Professor hanky

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welcome back to the show good to see you

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as always great to be with you David as

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usual we will be discussing um not just

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current macroeconomic data but also

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what's been going on in the news and

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answer some viewer submitted questions

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so thank you again to the viewers who

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have submitted questions to us we'll go

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through as much as we can and to uh to

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the new viewers watching this program uh

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Professor hanky and I will be doing this

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every two weeks or so so please submit

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to us some questions for the next

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appearance either to my own email or

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Professor Hank's email and I'll put both

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in the description down below uh

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Professor let's start with what happened

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today so we're speaking on the 3rd of

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April Jerome pow made a speech at

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Stanford this morning and I'll just uh

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read you a few quotes uh he said that we

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do not expect that it will be

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appropriate to lower our policy rate

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until we have greater confidence that

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inflation is moving sustainably down

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toward

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2% he said regarding recent data he said

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recent readings on both job gains and

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inflation have come in higher than

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expected the recent data do not however

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materially change the overall picture

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which continues to be one of solid

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growth a strong but rebalancing labor

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market and inflation moving down toward

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2% on a sometimes bumpy path so let's I

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like you to address all three things so

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solid growth rebalancing labor market

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and an inflation that's moving down

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towards 2% do you agree with all three

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fronts all right number one it's very

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important that people realize that the

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FED is what they call data dependent

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they're they're looking at the data that

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are coming up on the screen today and

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and and and they're reacting to that

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daily data they're they're not really

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paying attention to what they should be

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paying attention to and that that is

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what what has caused those data that

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they're looking at today to actually

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move around and and that's what's

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occurred the changes in the money supply

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that happened you know a year ago year

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and a half two years maybe even three

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years ago so so they they get faked out

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a lot and that's why we have kind of a

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roller coaster right with monetary

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policy going up and down up and down and

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that's why we have business cycles and

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that's why we have inflation that goes

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up as as the money supplies goose with a

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lag of a year or two maybe a little

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longer the inflation will go up and so

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forth so so that's that's a main thing

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that you should take away from what Paul

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is saying they're they're not looking at

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the right data they're not looking at

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what causes things to move around

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they're looking at things moving

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around that's that's a pretty good way

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to summarize it David so so what he's

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saying is that the economy right

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now is is moving around pretty well it

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looks pretty strong if you look at the

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data

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today and as a result as a result of

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that what what they've gradually moved

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into is a deferral of reducing and

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loosening up monetary policy it looks

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like now the Market's pricing in a

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loosening up and lowering of those fed

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funds rates into the you know into way

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into the summer into June

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July

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here's my and and May and maybe by the

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way they they keep echoing that well we

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we're going to do three rate cuts of 25

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basis Points each well maybe they maybe

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now the thinking is well maybe they'll

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they'll do two and they'll be later Well

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here here's what I'm wondering Professor

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poell used the words inflation moving

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down toward 2% which implies a

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trajectory or at least some sort of

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forecast on his or the other F governor

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part that inflation is moving down in

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the future if they're expecting

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inflation to continue to move down in

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the foreseeable future why not lower

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rates now I mean why not take action now

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I mean we know there's a leg right right

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so the the the the key thing there is

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that the the phrase that you repeated

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earlier he said that inflation's coming

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down but on a bumpy path okay and and

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and right now we're it's kind of in a

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bump they're looking at the current data

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and and it and it's kind of stalled out

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I mean if you look at the at the the

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inflation let's see here we've got to go

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back to September it was 37 then it

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drops down to

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3.2 then

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3.1 then it pops up a little bit to 3.4

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and then down again to 3.1 and then down

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right now at 3.2 so it's kind

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of the inflation pack it it it is a

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little bit Ziggy and zaggy but but it's

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the trend is going down and and re the

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reason John Greenwood and I think they

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will end up at the Target or below the

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target is 2% or below for the CPI at the

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end of this year we think we think

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they'll be there and the reason for that

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the the reason for that is the money

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supply is is clearly been going down so

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you go way back uh you know we're

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talking about you know over a year now

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it's been it's been declining we're

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going to continue our discussion on

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monetary policy and then answer a few

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viewers questions in just a bit but

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uh yeah you forecast yeah we talked

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about your forecast before so according

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to the quantity theory of money and your

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work done with John Greenwood inflation

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should come down much lower later on the

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year um I don't know if the FED has done

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similar work certainly they're looking

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at present data which suggests that

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inflation is sort of stalling The Wall

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Street Journal is reporting that

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inflation in the US and a Europe stopped

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falling um and etched higher in certain

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cases even fed Governor Christopher

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Waller has said that there is no rush he

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used the words no rush to lower rates

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the broader question is Professor do you

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think central banks around the world

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will forgo rate Cuts altoe this year no

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I think the I think they they they they

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will pivot and start lowering rates

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because what's going to happen is that

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the inflation will will will start

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moving down again I we it's temporarily

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kind of stalled out but given the

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past monetary contractions that we've

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had that have been significant I mean

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you're talking you know you go back to

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March of last year and the money supply

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is actually contracted by 4 and a half%

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in total and and we haven't seen a

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contraction like that since 1929

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1933 and and we've only seen four since

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the Fed was set up in 1913 now all of

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those

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four episodes where you had contractions

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in the money supply resed in actually

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recessions or in the case of the

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2933 contraction was very severe we had

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a great depression and and and inflation

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comes

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down in those in those recessions so

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that's why not only Greenwood and I

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think we will have a continued downward

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trajectory on inflation that's baked in

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the cake and we also think that we'll

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have an economic slowdown and recession

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late this year so that's the that's

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that's where we analyze the thing using

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the quantity theory of money the the FED

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is not analyzing things using the

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quantity theory of money they're not

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even paying attention to the quantity

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Theory they've said over and over and

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over again that there there's no

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reliable linkage between the Quant

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quantity of money being produced and

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economic activity and inflation so I I

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think they're they're just wrong on this

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I mean the fuel for the economy is money

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and they're not looking at it they're

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they're looking by the way very and

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paying attention to interest rates and

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what they

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call Credit market conditions monetary

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conditions in the market and again

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that's a data dependent thing they're

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they're watching what's going on with

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interest rates in the market

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today and and and and and determining

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whether they're being loose or whe

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whether they're being tight given what's

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going on with the interest rates in the

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market now yesterday yesterday the

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interest rates went up a little bit on

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the second and and the fed's

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interpretation of that would be that

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well the Market's tightening

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up no my my my my my view is no you you

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look at the money supply to figure out

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where where the Tanner of monetary Poli

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policy is not the interest rates

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monetary policy is all about the money

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supply it's not about interest rates uh

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speaking of money and the money supply

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here's a question about money velocity

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which is defined as um the ratio of

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quarterly nominal GDP to the average

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quarterly M2 money stock um now here's a

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question from Oswaldo carciente uh it's

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a rather long so I just pick out the key

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Parts here he says since velocity play a

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plays a role of equalizer the notion of

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monetary lag is blurred it is even more

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confusing as most economists postulate

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that velocity of money tends to be

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relatively constant in time by the way I

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don't hear you comment much if at all

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about

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velocity um in any event which are the

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factors that may point out to a change

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in the velocity of money and I'm going

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to add to his question Professor um just

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to my own question on top of that the

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money velocity is defined by uh GDP over

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M2 has been rising constantly since 2021

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why hasn't that caed uh or where don't

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you think that's going to cause further

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inflation because the velocity of money

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is is still on its upward trajectory

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well no I I I don't now here again uh

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this this is a topic the the amateurs

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get their little feet Tangled Up on the

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velocity and and get confused a great

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deal Greenwood and I have actually

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looked at

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velocity uh in a number of countries

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since 1960 and and if you look at the 24

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developed countries that we looked at

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the main ones the velocity of money

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again GDP over

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M2 is at

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1.74% for those 24 countries so and and

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it's it's a little higher for the 60

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before Emerging Markets the countries

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that we looked at it's about minus the

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velocity is going down minus 3% perom

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again the developed countries it goes

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down about you know one and three4

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percent per year negative and about 3%

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per year for the Emerging Market

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countries now what what does that mean

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now one one it goes down on a trend and

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and and they're deviations from that

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Trend if you look at the quarterly data

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it it Wiggles around and wiggles around

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but but it reverts back to the trend and

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that's what's been happening right now

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we're we we've reverted you you said

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well it's going up yeah it is but it it

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is reverting back to the trend line and

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the trend line in the United States does

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go down by the way almost exactly at

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that average rate of one and of minus 1

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and 34 per. just as a rough rule of

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thumb you can say it's it's about minus

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two in the United States so so it does

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go down on a trend and there are

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deviations from it and the deviations

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always end up reverting back to the

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trend the trend and and the actual

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quarterly numbers come together that's

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what reverting back means

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and and that's that's basically where

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we're at right now so uh if you the

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easiest way to think about the velocity

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really isn't to think about it in terms

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of GDP over M2 which is a definition of

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velocity but but to but to invert that

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and and and divide GDP into M2 and and

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what you get then is the the cash

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balance the the desired cash balance and

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and that that goes up you see for de the

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developed countries about 1 and 3/4 perc

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per year and it goes up about 3% a year

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in developing countries now you say well

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why why why are they different and and

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again the intuition is pretty clear the

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cash balances people want in developing

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countries are rising at a faster rate

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because the economies are becoming what

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they more financialized more banking

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more more more stock market activity

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more money market activity the the the

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financial sector in short is is growing

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and expanding at a at a more rapid rate

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than it is in in a develop more mature

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country so so the velocity story of

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course the the the critics of the

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quantity theory of money they put their

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finger on always velocity because MV m

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equals a money

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supply times V the velocity equals P the

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price level times y the rate of growth

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real rate of growth in the economy and

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they they say well velocity is very

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unstable so if velocity is very unstable

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hanky you you and Greenwood can't

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predict what's going to happen to

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nominal GDP which is which is what it's

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a price level plus the real rate of

play18:01

growth in the economy so they they poo

play18:04

poo it because they they claim they

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assert that velocity is very unstable

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well it turns out velocity is not

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unstable very stable a lot of us and by

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the way just to jump ahead yeah I've

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talked about this before but you know I

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looked

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at a number of countries and and

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published an article

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called monetary facts and inflation in

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the Journal

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of the international Journal of

play18:36

economics and and

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U and I that was at last September I

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looked at 147 countries and I looked at

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the change in the money supply and the

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change of in in inflation and the

play18:51

correlation was almost perfect it was

play18:53

about

play18:56

0.94 so if velocity was going all over

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the place and negating the quantity

play19:02

theory of money the MV equals py you you

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would never get that qu kind of

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correlation th this this suggested the

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the big study that I did suggested you

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had very

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stable the implication is that the

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velocity must be stable it must not be

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jumping around because if it was jumping

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all over the place you'd never get a

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correlation that was almost one to one

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yeah I think many of us who studied

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economics in school um econ 101 taught

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us very basic claim in terms that um the

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money velocity uh roughly equals the

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economic activity of a particular

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jurisdiction so higher the velocity the

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more times the money uh money is being

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circulated more bustling the economy you

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know a very simplistic definition and so

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I think it's understandable that people

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will look at an increasing money

play19:56

velocity and say well clear there's you

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know higher more higher volume of

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transactions being made in the economy

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clearly there's a higher propensity to

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spend in our economy therefore we will

play20:09

have higher inflation can you evaluate

play20:11

that logic another yeah what what yeah

play20:14

what you're saying is that

play20:17

uh

play20:19

actually with with the velocity going

play20:23

down it it it does what it implies

play20:26

actually that you have to be increased

play20:28

ing the amount of money in the economy

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to keep it going and and at the same

play20:33

rate and and that's why if you look at

play20:36

the quantity theory of money and and and

play20:40

and you

play20:43

know if technically you do the following

play20:45

things you take MV equals py that's the

play20:48

identity that's that's the equation of

play20:51

exchange and if you take that and and

play20:54

transform it into logarithms and then

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differentiate it with relative to time

play21:00

you end up with m + v = p + y and that's

play21:05

easy easier to deal with

play21:08

M plus b equal p + y and then we we if

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we want to solve for M the the golden

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growth rate hanky's golden growth rate

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how fast should the money supply be

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growing to keep

play21:26

the the price Lev at a constant rate P

play21:30

at the Target P at the Target you end up

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with the following thing in the United

play21:35

States m

play21:38

equals p is 2% so you plug in 2% that's

play21:42

the target okay so the money the supply

play21:46

has to grow by

play21:48

2% to to to to satisfy the two%

play21:52

inflation Target then we have to add

play21:54

something to it we have to add why is is

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also something you have to add that's

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about

play22:02

2% okay and then and then the velocity

play22:06

remember I said that's going down at 2%

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but you take that from the left hand

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side of the equation and put it on the

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right with m

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equal p + y

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minus What minus a minus is a plus and

play22:25

that's a plus v equals what two

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so 2 plus 2 plus two equals what six

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that's the rate of growth you want to be

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increasing the money supply at roughly

play22:37

in the United States if you want to hit

play22:39

the inflation Target right now the money

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supply this is back to our earlier

play22:45

conversation about inflation David it's

play22:48

it's Contracting at at 2% it's not grow

play22:51

it's not growing at 6% it's Contracting

play22:55

at 2% so that's that's that right now

play22:59

looking at just the what's happening in

play23:01

February we've got this continued

play23:04

contraction of the money supply and

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we're coming in with a money supply

play23:09

growing Contracting

play23:12

actually at at a at a rate that's eight

play23:15

percentage points off the Golden growth

play23:18

rate of 6%

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plus okay we have to move on to another

play23:23

uh viewer question this one's pretty

play23:25

good has Professor hanky calculated a

play23:27

range he Leeves the 10-year treasury

play23:30

will trade between with high confidence

play23:33

over the next 2 years for example I have

play23:35

heard estimates as low as 2% and as high

play23:37

as 6% over the next two years which in

play23:40

my opinion is an extremely wide

play23:43

range okay that that follows onto the

play23:45

conversation we've just had and I I

play23:47

could tell I I I your a your eyes were

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kind of glazing over in that last

play23:52

explanation I think we had too many too

play23:55

many numbers in that all you have to

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remember is the back to the last thing

play24:01

with the quantity theory of money

play24:03

equation of exchange MV equals py in

play24:07

velocity the key thing is it the

play24:09

velocity is pretty constant and that's

play24:13

why when I looked at 147 countries I had

play24:16

almost a perfect correlation between

play24:18

changes in the money supply and changes

play24:21

in inflation so that's the end of the

play24:23

story just to keep it simple the changes

play24:26

in the money supply cause changes in

play24:29

inflation and they cause changes in

play24:31

economic activity so so now now we're at

play24:35

the 10year and and and and we we

play24:39

Greenwood and I think given the quantity

play24:41

theory of money that what's going to

play24:44

happen is inflation is going to keep

play24:46

coming down and it'll go down by the end

play24:49

of the year to 2% or below now what what

play24:52

that means in terms of of the viewer's

play24:55

question about the 10year is that the

play24:57

10year year Y is going to go down

play24:59

because yields on Long bonds follow

play25:03

changes in the inflation rate so if the

play25:06

inflation rate's going down from where

play25:09

it is right

play25:10

now right right now you know we're we're

play25:13

talking about the following we we've got

play25:17

the inflation rate at

play25:19

3.2% and we've got the 10year bond up at

play25:22

about it's a little over

play25:25

4.3 so the yield on the 10e is going to

play25:28

go down as inflation goes down and and

play25:31

that's a good trade by the way to be on

play25:33

the long side of a trade not necessarily

play25:36

an investment but a trade because as the

play25:39

yield goes down following the inflation

play25:43

that's going down we will have a price

play25:47

increase in the 10year and a capital

play25:50

gain so you you'll make good money on

play25:53

that you'll make you'll make not you'll

play25:55

make a capital gain if you want to hold

play25:57

that for uh a trade a short-term trade

play26:00

it'll be a good I think it'll be a good

play26:03

pretty safe bet uh let's move on to some

play26:05

fiscal issues we we haven't talked much

play26:08

about um fiscal

play26:10

policies uh you and I uh recently so uh

play26:13

first question I have for you interest

play26:15

payments as you know have been going up

play26:17

uh federal government expenditures um on

play26:19

interest payments alone currently um

play26:21

exceeded $1

play26:23

trillion uh yes one yeah $1 trillion Rec

play26:28

L um this is a significant portion of of

play26:31

government revenues as you know how is

play26:34

the government paying for this we're

play26:35

going to pay for this if this is

play26:37

projected I mean debt is projected to

play26:39

increase right um and interest rates

play26:42

aren't going down anytime soon and so

play26:44

it's reasonable to assume interest

play26:46

payments will continue to balloon how is

play26:48

the government going to pay for

play26:50

this well they they they'll pay for the

play26:53

way they pay for everything with taxes

play26:56

and there are two kinds of taxes one one

play26:58

is the

play26:59

kind in the United States on April 15th

play27:02

of course you make your quarterly uh

play27:05

estimates in the United States but April

play27:08

15th is a tax day this month so it's

play27:11

it's we're moving in on it and you pay

play27:14

your taxes so that's that's one form of

play27:16

Finance the other is the inflation

play27:19

tax they're two there're two kinds of

play27:22

taxes there's an inflation tax and and

play27:27

and in a normal tax

play27:28

tax so so that that's that's ultimately

play27:31

how how they're going to pay now you can

play27:34

defer and move those taxes around a

play27:36

little bit because of

play27:39

borrowing but ult

play27:41

ultimately taxes are how you finance

play27:45

government

play27:46

spending and and and they either take it

play27:49

out of your pocket directly or they take

play27:52

it out indirectly through an inflation

play27:55

tax one of the two do you do do you

play27:57

think the Govern will resort to

play28:00

confiscating assets by any means to fund

play28:03

their liabilities or debt or

play28:08

deficits well now what do you mean by

play28:10

confiscating assets because they they

play28:14

they they do they do they do in in short

play28:17

confiscate your assets when they make

play28:19

you pay

play28:22

taxes okay that's that's an indirect

play28:25

well I don't know seizures of property

play28:29

um Financial assets any of that sort is

play28:33

there any sort of precedent of this

play28:35

happening in the US and I think we I

play28:37

asked this because there's been some

play28:38

concern yeah there there there there

play28:41

there was with Franklin Roosevelt during

play28:43

the Great Depression because gold was

play28:47

confiscated but that wasn't because they

play28:48

had to pay back their debt

play28:51

right

play28:54

well it it it wasn't that they paid back

play28:57

their debt but it it it was a means to

play29:00

finance the government okay during the

play29:03

Depression okay but so there was there

play29:05

was actually a confiscation once in the

play29:07

United States that that through a mumbo

play29:10

jumbo le le various Le

play29:14

legal stretches in my view it was deemed

play29:18

to be illegal not not illegal but normal

play29:21

normally the the the government in the

play29:23

United States is is pretty constrained

play29:26

in terms of just are are they going to

play29:28

come and take my house

play29:30

away well not

play29:33

now they they would if I if I didn't pay

play29:36

my property taxes if you if you don't

play29:39

pay your taxes they can come after your

play29:43

property but but I think you're thinking

play29:45

of of some new tax like a wealth tax or

play29:49

something like that yeah could that

play29:51

happen I I I well yeah they they have

play29:55

they have wealth taxes in Europe they're

play29:59

they're basically they've turned out to

play30:00

be a disaster but they they do have them

play30:04

so the tax base what what you're talking

play30:07

about I think here

play30:11

is

play30:13

again it's all about taxes governments

play30:17

Finance government spending by taxes

play30:20

various kinds of taxes and the two

play30:22

general ones I've given you already is

play30:26

cash out of your pocket or and or

play30:30

indirectly more indirectly an inflation

play30:32

tax ultimately why why does the average

play30:35

American need to concern himself with

play30:39

the debt to GDP ratio in other words

play30:42

what can we feel the repercussions of

play30:44

that oh yeah that because yeah the the

play30:48

the debt

play30:50

will if that that if we continue to have

play30:55

deficits and they aren't financed with

play30:57

inflation

play30:58

and they

play30:59

aren't with current taxes they they they

play31:03

have to issue bonds and and and they're

play31:06

issuing bonds at a very rapid rate and

play31:10

eventually those get paid by somebody so

play31:13

what what the problem is you're you're

play31:15

just deferring payment

play31:18

on the

play31:21

deficiency and government deficit that

play31:23

arises today and and and they'll come

play31:27

after you later you'll have people later

play31:30

will have to

play31:32

pay you you ultimately have to pay if

play31:35

Government expenditures are to today and

play31:39

there's a deficit today that deficit

play31:42

will ultimately be paid tomorrow by

play31:44

somebody so that's why people should

play31:46

worry about it especially older people I

play31:49

mean older people in

play31:51

retirement are are are going to be are

play31:55

going to are going to have to pay for

play31:57

the debt that's being racked up today

play32:00

speaking of older people here's a report

play32:02

i' like to talk about demographics now

play32:05

uh a longer term theme here's a report

play32:07

um that was uh released or uh or covered

play32:11

by

play32:11

CNBC last week by 2050 the report says

play32:15

three4 of countries are forecast to fall

play32:18

below the population replacement birth

play32:21

rate of 2.1 babies per female by

play32:25

2100 just six countries are expected to

play32:28

have population replacing birth rates uh

play32:31

this was published by uh the Lancet

play32:33

medical

play32:35

journal so what do you make of this

play32:37

trend what's gonna are we gonna are we

play32:39

is it just long-term economic

play32:42

stagnation no what what's it have to do

play32:45

with stagnation all the countries where

play32:47

you have high birth rates and a high

play32:49

replacement are very poor countries in

play32:53

Africa so so they they they fan the

play32:56

Flames this is this is all what what

play32:59

would be so bad about having smaller

play33:04

populations this is this is all all

play33:07

about what they're trying to throw

play33:09

everybody into a frenzy about the fact

play33:12

that the the populations are are going

play33:15

to be increasing most countries if you

play33:18

believe the forecast that they're coming

play33:20

up with with the exception of a of of a

play33:23

few in Africa that that's that's where

play33:26

you've got the right so 49 countries uh

play33:30

primarily lowincome regions will be

play33:32

responsible for the majority of new

play33:34

births primarily in subsanar and Africa

play33:36

and Asia you're right so I mean most of

play33:38

the new birst in the future will come

play33:40

from developing regions not from right

play33:43

right so let's let's let's talk a little

play33:44

bit about the implications the

play33:46

implication is and the the scare that

play33:49

was put out with this all these all this

play33:52

talk about low replacement rates and

play33:56

falling populations and everything that

play33:59

somehow economic life is going to become

play34:03

worse the the only way to become better

play34:05

is to have more people that that's kind

play34:08

of the

play34:09

theme and and the reason for this

play34:12

politically comes back to this thing we

play34:14

were talking about

play34:17

with how do you finance a

play34:20

debt

play34:22

deficits how do you finance Social

play34:24

Security well the social security

play34:26

systems that have been set up since

play34:29

particularly since World War II all over

play34:30

the world or pay as you go systems so

play34:34

the retired people when when people

play34:37

retire who who actually pays for the

play34:41

cash that they receive well it it isn't

play34:44

it it isn't the income being generated

play34:47

by the Social Security Investments those

play34:49

are too small and in fact most of the

play34:52

systems the public systems are basically

play34:55

insolvent and what makes them solvent

play35:00

and and what allows for the positive

play35:03

cash flow going out of those things it's

play35:06

young people

play35:08

working so that that's that's why the

play35:11

population thing comes in and all the

play35:13

scar stories get fanned with this

play35:16

population issue and demographic issue

play35:19

it's because the the structure of

play35:22

government Finance is is totally screwed

play35:25

up it it's dependent on having

play35:29

increasing labor pools of young people

play35:33

that are going to be contributing to the

play35:35

Social Security government systems that

play35:39

that end up

play35:40

paying the benefits to beneficiaries the

play35:43

retired people who who by the way are

play35:47

are causing a problem because the old

play35:50

people are living longer all the time so

play35:55

so you get the the picture of what's

play35:57

going on

play35:58

too we got too many old people not

play36:00

enough young people that's the the

play36:03

retire the retirement age may need to be

play36:05

raised right

play36:07

no well I mean one one one way one way

play36:12

to make

play36:13

the pay as you go government system

play36:16

solvent is to just make the retirement

play36:19

age longer and longer yeah that well

play36:22

that that that yeah that that is one

play36:24

issue because us as um you know uh

play36:28

health and and Technology progresses I

play36:31

think the

play36:33

general longevity of the population in

play36:36

developing developed countries will

play36:37

increase and so we we have we have a

play36:40

whole pool of people that are going to

play36:42

be working so the dependency ratio is

play36:44

going to be much higher um is that

play36:46

ultimately going to bankrupt the

play36:48

government you think well it it'll

play36:50

bankrupt the retirement

play36:53

system it'll

play36:55

bankr all these things all these Trends

play36:58

you know they they basically if if

play37:01

something can't go on forever it will

play37:04

stop and and and it will stop because of

play37:08

of why they're G they'll they'll they'll

play37:10

ultimately have to change the kind of

play37:12

system that we're in and and and and

play37:15

transition into I I think ultimately

play37:18

private Social Security of one form or

play37:21

another where people do what they used

play37:23

to do in the old days you you work you

play37:26

earned income when you save part of it

play37:28

you invested part of it for what your

play37:31

nest egg your your retirement you didn't

play37:33

depend on the government because the

play37:36

government basically is turning out to

play37:38

be very unreliable because the

play37:40

government is depending on an increased

play37:43

pool of younger and younger people all

play37:45

the time and and what this Lancet thing

play37:48

is suggesting as well that pool might

play37:50

not be

play37:52

increasing and and and you might have a

play37:54

problem because the the shrinking

play37:57

younger pool will have to pay more and

play38:00

more and more taxes for Social Security

play38:03

contributions and and that's that's a

play38:05

that's a loser you can't you know you

play38:08

can only squeeze the lemon so hard and

play38:11

and pretty soon you run out of juice

play38:13

David okay uh I want to go back to the

play38:16

fertility rate Thing One More Time Elon

play38:17

Musk tweeted this and please just

play38:19

evaluate this statement uh broadly he

play38:21

tweeted this last year last January

play38:24

population collapse is a major risk to

play38:27

the future of civilization and all he

play38:30

did was link um or post a link to a

play38:33

world Bank fertility rate chart which is

play38:35

more or less what we just discussed if

play38:37

you look at this chart Professor it

play38:39

shows the long-term trend of fertility

play38:41

rates around the world on an aggregate

play38:43

declining from near 5.5% to now

play38:46

currently only at 2.3% and of course

play38:49

it's projected to continue going down um

play38:52

you know are we is Humanity basically

play38:54

headed

play38:55

towards I don't want to use the word

play38:57

Extinction but you know much much lower

play39:01

population is that he's he's he's used

play39:04

the World Bank data he could have used

play39:07

even more sophisticated this new Lan

play39:10

work that is is more detailed but the

play39:12

story is the same and and and the reason

play39:16

the disaster is has has nothing to do

play39:20

with

play39:21

with wealth happiness and so forth it

play39:25

it's these government retirements

play39:27

systems they they are all dependent on

play39:30

an

play39:33

increasing population of younger cohorts

play39:37

that are working that can be taxed to

play39:40

finance the systems that are structured

play39:44

by the government and mandated by the

play39:46

government that pay older people in

play39:48

their retirement that's the that so

play39:53

again it can't continue forever now what

play39:57

what

play39:57

what what people like musk are

play40:00

advocating is that we should increase

play40:01

the fertility we should have more

play40:03

children he he want he basically wants

play40:06

to save the systems by having more young

play40:10

people and and I'm saying well why not

play40:13

why not just change the

play40:15

system

play40:17

right and and and by the way for people

play40:20

like environmentalist why why would

play40:22

environmentalist want more

play40:25

people well why wouldn't why wouldn't

play40:28

you want

play40:30

fewer is hold on is there is there a

play40:33

correlation between population growth

play40:36

and standard of living has that ever

play40:38

been observed I mean I'm I'm just I'm

play40:39

just look yeah the the standard of

play40:42

living most places has has gone up as

play40:45

populations have gone up so this this

play40:48

old malthusian line that that you know

play40:51

you you will you'll the populations

play40:54

essentially will bury your you and you

play40:57

you'll be at a subsistence level that

play41:00

that that doesn't work that that the as

play41:03

populations have gone up actually the

play41:06

standard of living has gone up in most

play41:08

places and and the rate of growth in the

play41:12

populations has gone down okay uh let's

play41:15

move to uh to uh two more questions so

play41:19

uh this one came from Bruce Posh 20

play41:21

years ago you explained the consequences

play41:23

of FDR forcing China from the silver

play41:25

standard it was a great history lesson a

play41:27

younger audience should hear once again

play41:30

uh would you consider the bricks part of

play41:32

China's 90-year revenge for that the

play41:34

bricks being an iceberg and the us being

play41:36

a Titanic also included in the iceberg

play41:39

analogy is the huge amount of gold being

play41:41

purchased by China from the West is

play41:43

China's Revenge eventually going to

play41:45

force us austerity and wouldn't it be

play41:48

ironic if China forced America to use a

play41:50

quasi bricks gold standard One Day More

play41:52

of a amusing than a question but please

play41:54

comment well I mean b

play41:57

B basically what you've had in

play41:59

particular since

play42:01

the the war broke out between Russia and

play42:05

in Ukraine

play42:07

and is that that bricks

play42:12

is and I should add a a lot of

play42:15

sanctioning by the United States and the

play42:17

West on any anything or anybody any

play42:21

country they don't like what they're

play42:22

doing or any any individual they don't

play42:25

like what they're doing the US

play42:27

imposes Financial sanctions on them so

play42:31

in a way that's that's a weapon of War

play42:34

so you've had the U led by the US and

play42:37

its allies you've had lots of

play42:41

sanctions and and as a res as a result

play42:44

of that you you you have a lot of

play42:47

resentment by various countries

play42:49

including China including members of the

play42:52

bricks and that bricks group is growing

play42:55

and and it's basically turned into kind

play42:58

of an

play43:01

anti-us us allies block so that that

play43:06

thanks to the stupidity of sanctions

play43:10

that the US and its allies have put on a

play43:12

lot of these countries and so forth

play43:15

which by the way sanctions never work

play43:17

and they always have huge negative

play43:19

unintended consequences I would argue

play43:22

that the sanctions are the reason that

play43:24

bricks is is being strengthened

play43:28

and and and

play43:30

basically it's it's it's turned the

play43:34

whole thing around it's we we've just

play43:37

gathered a lot of

play43:38

enemies sanctions are are are one of the

play43:41

negative consequences of sanctions is to

play43:44

gather a lot of enemies and a lot of

play43:46

people res resent you don't like you now

play43:51

as as a free Trader I I don't like that

play43:54

I I think I think peace and commerce is

play43:57

the best way to proceed you don't want

play44:01

enemies you want people you can do

play44:03

business

play44:04

with and and we're not going in that

play44:07

direction by the way talking about

play44:10

Commerce protectionism is coming so so

play44:14

that's another that's another blowback

play44:17

you get this tick for Tat thing you get

play44:19

the sanctions and protectionism being

play44:21

put on by the west and what happens well

play44:25

you you you you get a reaction by

play44:27

somebody in China like

play44:30

how their their profits have soared and

play44:33

apples take apples taken the brunt of

play44:36

the of the cost associated with that so

play44:39

sanctions on China have done what

play44:42

they've helped huawe and they've heard

play44:45

Apple well apple is Apple's based in the

play44:48

United

play44:50

States so you're you're you're basically

play44:52

shooting yourself in the foot by the way

play44:55

what do you think of the uh what do you

play44:56

think of the ban on Tik Tok so you may

play44:59

be aware of this developing Story the

play45:01

house voted uh with overwhelming

play45:03

majority to ban quote unquote Tik Tok

play45:06

back in March couple weeks ago Tik Tok

play45:09

is a chinese-owned social media company

play45:11

but it's the fifth largest globally

play45:14

right now by users I believe and the ban

play45:16

goes like this if o if it passes um if

play45:20

the Senate passes this and Biden

play45:22

approves of this then the bill goes into

play45:24

effect and Tik Tok will have six months

play45:26

to sell its assets it's us assets to a

play45:29

US company uh basically the US portion

play45:34

will have to be owned by a us company or

play45:36

the US will ban access to Tik Tok um by

play45:40

Americans on American soil what what do

play45:42

you make of this yeah okay this goes

play45:44

back this is actually interesting it

play45:47

goes back to your first question about

play45:49

confiscation of property

play45:52

okay that that's what that's what the US

play45:55

government the politicians are trying to

play45:56

do so that that's my first point my

play45:59

second point is you said well what do I

play46:01

think about Tik Tock I think everybody

play46:03

using Tik Tock that's a voting age

play46:07

should be voting against any politician

play46:10

who votes in favor of this confiscation

play46:14

and and ban on Tik Tock that that's how

play46:18

that's how you can settle this thing in

play46:19

a hurry so they they have they have

play46:22

millions of these young people they are

play46:23

a voting age and and they should be

play46:26

paying attention attention to how how

play46:28

the Congressional representatives and

play46:30

Senators as well as the administration

play46:33

are voting on this Tik Tock thing that

play46:36

that's that would be my advice well uh

play46:39

the argument from the Congress is that I

play46:41

I take I take it with that David you get

play46:43

the implication of where I am on Tik Tok

play46:47

the well the argument from Congress is

play46:49

that Tik Tok represents a national

play46:51

security risk because the data is

play46:54

supposedly um you know it's stored

play46:58

somewhere uh where the Chinese

play47:00

government can access and so private

play47:02

yeah yeah it stored in the United States

play47:05

by a us

play47:07

company right okay so you don't you

play47:09

don't buy that argument well why do you

play47:10

think they're doing it is it is it is it

play47:12

is there an actual National Security

play47:14

risk this

play47:15

is this is this gets into the whole

play47:19

national security thing and once you get

play47:21

the leather necks and Bon heads in the

play47:23

defense department involved in something

play47:25

or the CIA you you have problems the

play47:28

National Security things so they put the

play47:31

National Security blanket around

play47:33

something but what is what is it really

play47:35

about it's really about our commercial

play47:38

War we're at with

play47:40

China

play47:42

right it's people don't realize the the

play47:47

general public doesn't understand what's

play47:48

going on the the US is engaged in a

play47:52

commercial war with

play47:55

China it's all about China and the

play47:59

commercial War the US is engaged with

play48:02

with China now they wrap National

play48:05

Security rapper around tick tock of all

play48:08

things and and and make a big deal out

play48:11

of it but uh that that's that's the

play48:15

that's that's what's that's what's going

play48:17

on so any anytime you get the American

play48:20

flag wrapped around something like Tick

play48:23

Tock you you you better be skeptical

play48:26

about what really is going on and what

play48:29

what really is going on is is a

play48:31

commercial war and

play48:33

protectionism being imposed and it's

play48:35

being imposed against China China is the

play48:39

enemy right uh okay least I don't think

play48:44

China's the enemy I understand I

play48:46

understand you you as you asked me what

play48:49

the political rationale was behind it

play48:52

they're hiding behind National Security

play48:56

let me let me ask

play48:57

what what do you think the Chinese will

play48:58

do in retaliation I mean we no no one

play49:01

knows but we can

play49:03

speculate they'll do something and it'll

play49:05

hurt the United States and it it'll

play49:07

probably hurt China too

play49:10

okay all right well look at look look

play49:13

look at the sanctions on all you have to

play49:14

do is look at

play49:16

huawe yes look look look at that you you

play49:19

even had you know the daughter of the

play49:22

the leader of hway she she was in jail

play49:25

up there in Vancouver where you're

play49:26

sitting right now that's right yeah she

play49:29

was cooling her heels in jail they

play49:31

finally broke her out of jail and I she

play49:34

got her back to China but but the the

play49:36

bottom line on that is what the US

play49:39

imposed a bunch of sanctions on on a

play49:42

Chinese company the Chinese company

play49:45

figured out a way to get around that and

play49:47

their profits are they're doing very

play49:49

well by the way and there was collateral

play49:53

damage associated with that the

play49:54

collateral damage hert who it hurt an

play49:57

American company called Apple true um

play50:01

okay final we'll talk more about this

play50:02

this is a very interesting topic we'll

play50:04

talk more about this next time but a

play50:05

final question from our producer

play50:07

Professor you've advised president

play50:09

Javier mle who's currently the president

play50:11

of Argentina on his economic policy and

play50:14

when you advised him you advised him to

play50:17

dollarize the Argentinian economy that

play50:19

is to go on the US dollar why didn't you

play50:21

advise something like a currency board

play50:23

in which Argentina could have kept the

play50:25

peso but tied it to the US dollar at of

play50:28

fixed exchange rate the the main reason

play50:30

for that is because in Argentina they

play50:34

they practice what they call anemy they

play50:36

they don't follow the law that if they

play50:39

have a law or a rule they just ignore it

play50:42

and and we saw that by the way in 1991

play50:47

when they put in the convertibility

play50:50

system which which I had something to do

play50:52

with and that that was had many

play50:55

characteristics like currency board it

play50:58

it linked the the peso to the dollar one

play51:01

one to one and and supposedly backed it

play51:05

fully with US dollar reserves so the

play51:08

peso was supposed to be a clone of the

play51:10

US dollar well it turns out there were

play51:12

loopholes in that convertibility law but

play51:15

but they didn't even follow the the law

play51:17

itself and and eventually the thing

play51:20

collapsed in 2001 it it did a good job

play51:23

for a Whole Decade but eventually it

play51:26

collapsed why did it collapse among

play51:29

other things it collapsed because the

play51:31

argentines couldn't even follow their

play51:33

own rules and even though the the rules

play51:36

had a lot of loopholes in them which I

play51:38

disagreed with but they they didn't

play51:40

follow the rules so if you

play51:43

have a monetary

play51:46

institution and and and you even had a

play51:49

currency board law that was perfect like

play51:52

the one one I designed and put in in

play51:55

Bulgaria for examp example in

play51:58

1997 my guess is that the argentines

play52:01

wouldn't follow the law and in that case

play52:05

what you want to do is just replace the

play52:07

peso completely with the US dollar don't

play52:10

try to do a clone of the US dollar with

play52:12

the currency board because eventually

play52:15

they'll probably break the

play52:17

rules you just just get rid of the peso

play52:20

and get rid of the Central Bank you've

play52:22

got to get rid of the central bank

play52:23

because if you don't that Central Bank

play52:26

will be sitting on the

play52:28

table like a like a bottle of whiskey

play52:31

next to a recovering alcoholic and the

play52:34

argentines will grab for the thing

play52:37

perfect um that's all the time we have

play52:39

today why it was quite a long discussion

play52:41

so thank you once again Professor hanky

play52:43

um where can we follow your work where

play52:45

can we go to learn more from you for the

play52:47

viewers who well I aren already follow I

play52:50

think DAV the easiest thing is follow me

play52:53

on

play52:54

Twitter it's just

play52:57

at hanky excuse me let's start that over

play53:02

again okay

play53:05

store Hank let me and you'll get me on

play53:09

Twitter and uh things are going well

play53:13

there I'm just double checking yeah 724

play53:17

th000 followers very good yeah

play53:20

74.6 as as we speak on the 3D of April

play53:25

so that's that's third most influential

play53:29

Economist on Twitter right now in the

play53:31

world congratulations that's

play53:33

one also you can just send me an email

play53:36

hanky jhu.edu and say you want to be on

play53:40

my distribution list I'll put you on the

play53:42

list yes yes please do okay we'll put

play53:45

both in the link down well put both in

play53:47

the description down below thank you

play53:48

very much professor and we'll speak to

play53:51

you in a couple weeks take care okay

play53:53

keep those questions coming from the

play53:55

viewers yeah yes yes please do submit

play53:57

questions once again I'll remind the

play53:59

viewers um they've been very helpful and

play54:02

uh it's great for engagement so thank

play54:04

you once again see you

play54:13

soon

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