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

Summary

In 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.

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

so the dependency ratio is going to be

much higher um is that ultimately going

to bankrupt the government you think

well it it'll bankrupt the retirement

system it'll bankr so all these things

all these Trends you know they they

basically if if something can't go on

forever it it will

stop and and and it will stop because of

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

ultimately have to change the kind of

system that we're in

and and and and transition into I I

think ultimately private Social Security

because the government is depending on

an increased pool of younger and younger

people all the time and and what this

Lancet thing is suggesting as well that

pool might not be increasing Steve hanky

professor of Applied economics at John's

Hopkins University returns to the show

Once More to discuss with us his updated

views on inflation economic growth and

the labor market in particular we'll be

breaking down Jerome Powell's fed share

Powell speech this week uh he gave a

speech at Stanford on Wednesday and

we'll be answering a few viewer

questions so thank you for submitting

questions this episode is sponsored by

Kudos so stay tuned for a word from our

sponsor later on as well Professor hanky

welcome back to the show good to see you

as always great to be with you David as

usual we will be discussing um not just

current macroeconomic data but also

what's been going on in the news and

answer some viewer submitted questions

so thank you again to the viewers who

have submitted questions to us we'll go

through as much as we can and to uh to

the new viewers watching this program uh

Professor hanky and I will be doing this

every two weeks or so so please submit

to us some questions for the next

appearance either to my own email or

Professor Hank's email and I'll put both

in the description down below uh

Professor let's start with what happened

today so we're speaking on the 3rd of

April Jerome pow made a speech at

Stanford this morning and I'll just uh

read you a few quotes uh he said that we

do not expect that it will be

appropriate to lower our policy rate

until we have greater confidence that

inflation is moving sustainably down

toward

2% he said regarding recent data he said

recent readings on both job gains and

inflation have come in higher than

expected the recent data do not however

materially change the overall picture

which continues to be one of solid

growth a strong but rebalancing labor

market and inflation moving down toward

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

like you to address all three things so

solid growth rebalancing labor market

and an inflation that's moving down

towards 2% do you agree with all three

fronts all right number one it's very

important that people realize that the

FED is what they call data dependent

they're they're looking at the data that

are coming up on the screen today and

and and and they're reacting to that

daily data they're they're not really

paying attention to what they should be

paying attention to and that that is

what what has caused those data that

they're looking at today to actually

move around and and that's what's

occurred the changes in the money supply

that happened you know a year ago year

and a half two years maybe even three

years ago so so they they get faked out

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

roller coaster right with monetary

policy going up and down up and down and

that's why we have business cycles and

that's why we have inflation that goes

up as as the money supplies goose with a

lag of a year or two maybe a little

longer the inflation will go up and so

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

that you should take away from what Paul

is saying they're they're not looking at

the right data they're not looking at

what causes things to move around

they're looking at things moving

around that's that's a pretty good way

to summarize it David so so what he's

saying is that the economy right

now is is moving around pretty well it

looks pretty strong if you look at the

data

today and as a result as a result of

that what what they've gradually moved

into is a deferral of reducing and

loosening up monetary policy it looks

like now the Market's pricing in a

loosening up and lowering of those fed

funds rates into the you know into way

into the summer into June

July

here's my and and May and maybe by the

way they they keep echoing that well we

we're going to do three rate cuts of 25

basis Points each well maybe they maybe

now the thinking is well maybe they'll

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

here here's what I'm wondering Professor

poell used the words inflation moving

down toward 2% which implies a

trajectory or at least some sort of

forecast on his or the other F governor

part that inflation is moving down in

the future if they're expecting

inflation to continue to move down in

the foreseeable future why not lower

rates now I mean why not take action now

I mean we know there's a leg right right

so the the the the key thing there is

that the the phrase that you repeated

earlier he said that inflation's coming

down but on a bumpy path okay and and

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

bump they're looking at the current data

and and it and it's kind of stalled out

I mean if you look at the at the the

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

back to September it was 37 then it

drops down to

3.2 then

3.1 then it pops up a little bit to 3.4

and then down again to 3.1 and then down

right now at 3.2 so it's kind

of the inflation pack it it it is a

little bit Ziggy and zaggy but but it's

the trend is going down and and re the

reason John Greenwood and I think they

will end up at the Target or below the

target is 2% or below for the CPI at the

end of this year we think we think

they'll be there and the reason for that

the the reason for that is the money

supply is is clearly been going down so

you go way back uh you know we're

talking about you know over a year now

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

going to continue our discussion on

monetary policy and then answer a few

viewers questions in just a bit but

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your credit card rewards well certainly

uh yeah you forecast yeah we talked

about your forecast before so according

to the quantity theory of money and your

work done with John Greenwood inflation

should come down much lower later on the

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

similar work certainly they're looking

at present data which suggests that

inflation is sort of stalling The Wall

Street Journal is reporting that

inflation in the US and a Europe stopped

falling um and etched higher in certain

cases even fed Governor Christopher

Waller has said that there is no rush he

used the words no rush to lower rates

the broader question is Professor do you

think central banks around the world

will forgo rate Cuts altoe this year no

I think the I think they they they they

will pivot and start lowering rates

because what's going to happen is that

the inflation will will will start

moving down again I we it's temporarily

kind of stalled out but given the

past monetary contractions that we've

had that have been significant I mean

you're talking you know you go back to

March of last year and the money supply

is actually contracted by 4 and a half%

in total and and we haven't seen a

contraction like that since 1929

1933 and and we've only seen four since

the Fed was set up in 1913 now all of

those

four episodes where you had contractions

in the money supply resed in actually

recessions or in the case of the

2933 contraction was very severe we had

a great depression and and and inflation

comes

down in those in those recessions so

that's why not only Greenwood and I

think we will have a continued downward

trajectory on inflation that's baked in

the cake and we also think that we'll

have an economic slowdown and recession

late this year so that's the that's

that's where we analyze the thing using

the quantity theory of money the the FED

is not analyzing things using the

quantity theory of money they're not

even paying attention to the quantity

Theory they've said over and over and

over again that there there's no

reliable linkage between the Quant

quantity of money being produced and

economic activity and inflation so I I

think they're they're just wrong on this

I mean the fuel for the economy is money

and they're not looking at it they're

they're looking by the way very and

paying attention to interest rates and

what they

call Credit market conditions monetary

conditions in the market and again

that's a data dependent thing they're

they're watching what's going on with

interest rates in the market

today and and and and and determining

whether they're being loose or whe

whether they're being tight given what's

going on with the interest rates in the

market now yesterday yesterday the

interest rates went up a little bit on

the second and and the fed's

interpretation of that would be that

well the Market's tightening

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

look at the money supply to figure out

where where the Tanner of monetary Poli

policy is not the interest rates

monetary policy is all about the money

supply it's not about interest rates uh

speaking of money and the money supply

here's a question about money velocity

which is defined as um the ratio of

quarterly nominal GDP to the average

quarterly M2 money stock um now here's a

question from Oswaldo carciente uh it's

a rather long so I just pick out the key

Parts here he says since velocity play a

plays a role of equalizer the notion of

monetary lag is blurred it is even more

confusing as most economists postulate

that velocity of money tends to be

relatively constant in time by the way I

don't hear you comment much if at all

about

velocity um in any event which are the

factors that may point out to a change

in the velocity of money and I'm going

to add to his question Professor um just

to my own question on top of that the

money velocity is defined by uh GDP over

M2 has been rising constantly since 2021

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

you think that's going to cause further

inflation because the velocity of money

is is still on its upward trajectory

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

this this is a topic the the amateurs

get their little feet Tangled Up on the

velocity and and get confused a great

deal Greenwood and I have actually

looked at

velocity uh in a number of countries

since 1960 and and if you look at the 24

developed countries that we looked at

the main ones the velocity of money

again GDP over

M2 is at

1.74% for those 24 countries so and and

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

before Emerging Markets the countries

that we looked at it's about minus the

velocity is going down minus 3% perom

again the developed countries it goes

down about you know one and three4

percent per year negative and about 3%

per year for the Emerging Market

countries now what what does that mean

now one one it goes down on a trend and

and and they're deviations from that

Trend if you look at the quarterly data

it it Wiggles around and wiggles around

but but it reverts back to the trend and

that's what's been happening right now

we're we we've reverted you you said

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

is reverting back to the trend line and

the trend line in the United States does

go down by the way almost exactly at

that average rate of one and of minus 1

and 34 per. just as a rough rule of

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

two in the United States so so it does

go down on a trend and there are

deviations from it and the deviations

always end up reverting back to the

trend the trend and and the actual

quarterly numbers come together that's

what reverting back means

and and that's that's basically where

we're at right now so uh if you the

easiest way to think about the velocity

really isn't to think about it in terms

of GDP over M2 which is a definition of

velocity but but to but to invert that

and and and divide GDP into M2 and and

what you get then is the the cash

balance the the desired cash balance and

and that that goes up you see for de the

developed countries about 1 and 3/4 perc

per year and it goes up about 3% a year

in developing countries now you say well

why why why are they different and and

again the intuition is pretty clear the

cash balances people want in developing

countries are rising at a faster rate

because the economies are becoming what

they more financialized more banking

more more more stock market activity

more money market activity the the the

financial sector in short is is growing

and expanding at a at a more rapid rate

than it is in in a develop more mature

country so so the velocity story of

course the the the critics of the

quantity theory of money they put their

finger on always velocity because MV m

equals a money

supply times V the velocity equals P the

price level times y the rate of growth

real rate of growth in the economy and

they they say well velocity is very

unstable so if velocity is very unstable

hanky you you and Greenwood can't

predict what's going to happen to

nominal GDP which is which is what it's

a price level plus the real rate of

growth in the economy so they they poo

poo it because they they claim they

assert that velocity is very unstable

well it turns out velocity is not

unstable very stable a lot of us and by

the way just to jump ahead yeah I've

talked about this before but you know I

looked

at a number of countries and and

published an article

called monetary facts and inflation in

the Journal

of the international Journal of

economics and and

U and I that was at last September I

looked at 147 countries and I looked at

the change in the money supply and the

change of in in inflation and the

correlation was almost perfect it was

about

0.94 so if velocity was going all over

the place and negating the quantity

theory of money the MV equals py you you

would never get that qu kind of

correlation th this this suggested the

the big study that I did suggested you

had very

stable the implication is that the

velocity must be stable it must not be

jumping around because if it was jumping

all over the place you'd never get a

correlation that was almost one to one

yeah I think many of us who studied

economics in school um econ 101 taught

us very basic claim in terms that um the

money velocity uh roughly equals the

economic activity of a particular

jurisdiction so higher the velocity the

more times the money uh money is being

circulated more bustling the economy you

know a very simplistic definition and so

I think it's understandable that people

will look at an increasing money

velocity and say well clear there's you

know higher more higher volume of

transactions being made in the economy

clearly there's a higher propensity to

spend in our economy therefore we will

have higher inflation can you evaluate

that logic another yeah what what yeah

what you're saying is that

uh

actually with with the velocity going

down it it it does what it implies

actually that you have to be increased

ing the amount of money in the economy

to keep it going and and at the same

rate and and that's why if you look at

the quantity theory of money and and and

and you

know if technically you do the following

things you take MV equals py that's the

identity that's that's the equation of

exchange and if you take that and and

transform it into logarithms and then

differentiate it with relative to time

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

easy easier to deal with

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

we want to solve for M the the golden

growth rate hanky's golden growth rate

how fast should the money supply be

growing to keep

the the price Lev at a constant rate P

at the Target P at the Target you end up

with the following thing in the United

States m

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

the target okay so the money the supply

has to grow by

2% to to to to satisfy the two%

inflation Target then we have to add

something to it we have to add why is is

also something you have to add that's

about

2% okay and then and then the velocity

remember I said that's going down at 2%

but you take that from the left hand

side of the equation and put it on the

right with m

equal p + y

minus What minus a minus is a plus and

that's a plus v equals what two

so 2 plus 2 plus two equals what six

that's the rate of growth you want to be

increasing the money supply at roughly

in the United States if you want to hit

the inflation Target right now the money

supply this is back to our earlier

conversation about inflation David it's

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

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

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

looking at just the what's happening in

February we've got this continued

contraction of the money supply and

we're coming in with a money supply

growing Contracting

actually at at a at a rate that's eight

percentage points off the Golden growth

rate of 6%

plus okay we have to move on to another

uh viewer question this one's pretty

good has Professor hanky calculated a

range he Leeves the 10-year treasury

will trade between with high confidence

over the next 2 years for example I have

heard estimates as low as 2% and as high

as 6% over the next two years which in

my opinion is an extremely wide

range okay that that follows onto the

conversation we've just had and I I

could tell I I I your a your eyes were

kind of glazing over in that last

explanation I think we had too many too

many numbers in that all you have to

remember is the back to the last thing

with the quantity theory of money

equation of exchange MV equals py in

velocity the key thing is it the

velocity is pretty constant and that's

why when I looked at 147 countries I had

almost a perfect correlation between

changes in the money supply and changes

in inflation so that's the end of the

story just to keep it simple the changes

in the money supply cause changes in

inflation and they cause changes in

economic activity so so now now we're at

the 10year and and and and we we

Greenwood and I think given the quantity

theory of money that what's going to

happen is inflation is going to keep

coming down and it'll go down by the end

of the year to 2% or below now what what

that means in terms of of the viewer's

question about the 10year is that the

10year year Y is going to go down

because yields on Long bonds follow

changes in the inflation rate so if the

inflation rate's going down from where

it is right

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

talking about the following we we've got

the inflation rate at

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

about it's a little over

4.3 so the yield on the 10e is going to

go down as inflation goes down and and

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

the long side of a trade not necessarily

an investment but a trade because as the

yield goes down following the inflation

that's going down we will have a price

increase in the 10year and a capital

gain so you you'll make good money on

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

make a capital gain if you want to hold

that for uh a trade a short-term trade

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

pretty safe bet uh let's move on to some

fiscal issues we we haven't talked much

about um fiscal

policies uh you and I uh recently so uh

first question I have for you interest

payments as you know have been going up

uh federal government expenditures um on

interest payments alone currently um

exceeded $1

trillion uh yes one yeah $1 trillion Rec

L um this is a significant portion of of

government revenues as you know how is

the government paying for this we're

going to pay for this if this is

projected I mean debt is projected to

increase right um and interest rates

aren't going down anytime soon and so

it's reasonable to assume interest

payments will continue to balloon how is

the government going to pay for

this well they they they'll pay for the

way they pay for everything with taxes

and there are two kinds of taxes one one

is the

kind in the United States on April 15th

of course you make your quarterly uh

estimates in the United States but April

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

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

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

Finance the other is the inflation

tax they're two there're two kinds of

taxes there's an inflation tax and and

and in a normal tax

tax so so that that's that's ultimately

how how they're going to pay now you can

defer and move those taxes around a

little bit because of

borrowing but ult

ultimately taxes are how you finance

government

spending and and and they either take it

out of your pocket directly or they take

it out indirectly through an inflation

tax one of the two do you do do you

think the Govern will resort to

confiscating assets by any means to fund

their liabilities or debt or

deficits well now what do you mean by

confiscating assets because they they

they they do they do they do in in short

confiscate your assets when they make

you pay

taxes okay that's that's an indirect

well I don't know seizures of property

um Financial assets any of that sort is

there any sort of precedent of this

happening in the US and I think we I

asked this because there's been some

concern yeah there there there there

there was with Franklin Roosevelt during

the Great Depression because gold was

confiscated but that wasn't because they

had to pay back their debt

right

well it it it wasn't that they paid back

their debt but it it it was a means to

finance the government okay during the

Depression okay but so there was there

was actually a confiscation once in the

United States that that through a mumbo

jumbo le le various Le

legal stretches in my view it was deemed

to be illegal not not illegal but normal

normally the the the government in the

United States is is pretty constrained

in terms of just are are they going to

come and take my house

away well not

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

my property taxes if you if you don't

pay your taxes they can come after your

property but but I think you're thinking

of of some new tax like a wealth tax or

something like that yeah could that

happen I I I well yeah they they have

they have wealth taxes in Europe they're

they're basically they've turned out to

be a disaster but they they do have them

so the tax base what what you're talking

about I think here

is

again it's all about taxes governments

Finance government spending by taxes

various kinds of taxes and the two

general ones I've given you already is

cash out of your pocket or and or

indirectly more indirectly an inflation

tax ultimately why why does the average

American need to concern himself with

the debt to GDP ratio in other words

what can we feel the repercussions of

that oh yeah that because yeah the the

the debt

will if that that if we continue to have

deficits and they aren't financed with

inflation

and they

aren't with current taxes they they they

have to issue bonds and and and they're

issuing bonds at a very rapid rate and

eventually those get paid by somebody so

what what the problem is you're you're

just deferring payment

on the

deficiency and government deficit that

arises today and and and they'll come

after you later you'll have people later

will have to

pay you you ultimately have to pay if

Government expenditures are to today and

there's a deficit today that deficit

will ultimately be paid tomorrow by

somebody so that's why people should

worry about it especially older people I

mean older people in

retirement are are are going to be are

going to are going to have to pay for

the debt that's being racked up today

speaking of older people here's a report

i' like to talk about demographics now

uh a longer term theme here's a report

um that was uh released or uh or covered

by

CNBC last week by 2050 the report says

three4 of countries are forecast to fall

below the population replacement birth

rate of 2.1 babies per female by

2100 just six countries are expected to

have population replacing birth rates uh

this was published by uh the Lancet

medical

journal so what do you make of this

trend what's gonna are we gonna are we

is it just long-term economic

stagnation no what what's it have to do

with stagnation all the countries where

you have high birth rates and a high

replacement are very poor countries in

Africa so so they they they fan the

Flames this is this is all what what

would be so bad about having smaller

populations this is this is all all

about what they're trying to throw

everybody into a frenzy about the fact

that the the populations are are going

to be increasing most countries if you

believe the forecast that they're coming

up with with the exception of a of of a

few in Africa that that's that's where

you've got the right so 49 countries uh

primarily lowincome regions will be

responsible for the majority of new

births primarily in subsanar and Africa

and Asia you're right so I mean most of

the new birst in the future will come

from developing regions not from right

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

bit about the implications the

implication is and the the scare that

was put out with this all these all this

talk about low replacement rates and

falling populations and everything that

somehow economic life is going to become

worse the the only way to become better

is to have more people that that's kind

of the

theme and and the reason for this

politically comes back to this thing we

were talking about

with how do you finance a

debt

deficits how do you finance Social

Security well the social security

systems that have been set up since

particularly since World War II all over

the world or pay as you go systems so

the retired people when when people

retire who who actually pays for the

cash that they receive well it it isn't

it it isn't the income being generated

by the Social Security Investments those

are too small and in fact most of the

systems the public systems are basically

insolvent and what makes them solvent

and and what allows for the positive

cash flow going out of those things it's

young people

working so that that's that's why the

population thing comes in and all the

scar stories get fanned with this

population issue and demographic issue

it's because the the structure of

government Finance is is totally screwed

up it it's dependent on having

increasing labor pools of young people

that are going to be contributing to the

Social Security government systems that

that end up

paying the benefits to beneficiaries the

retired people who who by the way are

are causing a problem because the old

people are living longer all the time so

so you get the the picture of what's

going on

too we got too many old people not

enough young people that's the the

retire the retirement age may need to be

raised right

no well I mean one one one way one way

to make

the pay as you go government system

solvent is to just make the retirement

age longer and longer yeah that well

that that that yeah that that is one

issue because us as um you know uh

health and and Technology progresses I

think the

general longevity of the population in

developing developed countries will

increase and so we we have we have a

whole pool of people that are going to

be working so the dependency ratio is

going to be much higher um is that

ultimately going to bankrupt the

government you think well it it'll

bankrupt the retirement

system it'll

bankr all these things all these Trends

you know they they basically if if

something can't go on forever it will

stop and and and it will stop because of

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

ultimately have to change the kind of

system that we're in and and and and

transition into I I think ultimately

private Social Security of one form or

another where people do what they used

to do in the old days you you work you

earned income when you save part of it

you invested part of it for what your

nest egg your your retirement you didn't

depend on the government because the

government basically is turning out to

be very unreliable because the

government is depending on an increased

pool of younger and younger people all

the time and and what this Lancet thing

is suggesting as well that pool might

not be

increasing and and and you might have a

problem because the the shrinking

younger pool will have to pay more and

more and more taxes for Social Security

contributions and and that's that's a

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

can only squeeze the lemon so hard and

and pretty soon you run out of juice

David okay uh I want to go back to the

fertility rate Thing One More Time Elon

Musk tweeted this and please just

evaluate this statement uh broadly he

tweeted this last year last January

population collapse is a major risk to

the future of civilization and all he

did was link um or post a link to a

world Bank fertility rate chart which is

more or less what we just discussed if

you look at this chart Professor it

shows the long-term trend of fertility

rates around the world on an aggregate

declining from near 5.5% to now

currently only at 2.3% and of course

it's projected to continue going down um

you know are we is Humanity basically

headed

towards I don't want to use the word

Extinction but you know much much lower

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

the World Bank data he could have used

even more sophisticated this new Lan

work that is is more detailed but the

story is the same and and and the reason

the disaster is has has nothing to do

with

with wealth happiness and so forth it

it's these government retirements

systems they they are all dependent on

an

increasing population of younger cohorts

that are working that can be taxed to

finance the systems that are structured

by the government and mandated by the

government that pay older people in

their retirement that's the that so

again it can't continue forever now what

what

what what people like musk are

advocating is that we should increase

the fertility we should have more

children he he want he basically wants

to save the systems by having more young

people and and I'm saying well why not

why not just change the

system

right and and and by the way for people

like environmentalist why why would

environmentalist want more

people well why wouldn't why wouldn't

you want

fewer is hold on is there is there a

correlation between population growth

and standard of living has that ever

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

just look yeah the the standard of

living most places has has gone up as

populations have gone up so this this

old malthusian line that that you know

you you will you'll the populations

essentially will bury your you and you

you'll be at a subsistence level that

that that doesn't work that that the as

populations have gone up actually the

standard of living has gone up in most

places and and the rate of growth in the

populations has gone down okay uh let's

move to uh to uh two more questions so

uh this one came from Bruce Posh 20

years ago you explained the consequences

of FDR forcing China from the silver

standard it was a great history lesson a

younger audience should hear once again

uh would you consider the bricks part of

China's 90-year revenge for that the

bricks being an iceberg and the us being

a Titanic also included in the iceberg

analogy is the huge amount of gold being

purchased by China from the West is

China's Revenge eventually going to

force us austerity and wouldn't it be

ironic if China forced America to use a

quasi bricks gold standard One Day More

of a amusing than a question but please

comment well I mean b

B basically what you've had in

particular since

the the war broke out between Russia and

in Ukraine

and is that that bricks

is and I should add a a lot of

sanctioning by the United States and the

West on any anything or anybody any

country they don't like what they're

doing or any any individual they don't

like what they're doing the US

imposes Financial sanctions on them so

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

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

its allies you've had lots of

sanctions and and as a res as a result

of that you you you have a lot of

resentment by various countries

including China including members of the

bricks and that bricks group is growing

and and it's basically turned into kind

of an

anti-us us allies block so that that

thanks to the stupidity of sanctions

that the US and its allies have put on a

lot of these countries and so forth

which by the way sanctions never work

and they always have huge negative

unintended consequences I would argue

that the sanctions are the reason that

bricks is is being strengthened

and and and

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

whole thing around it's we we've just

gathered a lot of

enemies sanctions are are are one of the

negative consequences of sanctions is to

gather a lot of enemies and a lot of

people res resent you don't like you now

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

I I think I think peace and commerce is

the best way to proceed you don't want

enemies you want people you can do

business

with and and we're not going in that

direction by the way talking about

Commerce protectionism is coming so so

that's another that's another blowback

you get this tick for Tat thing you get

the sanctions and protectionism being

put on by the west and what happens well

you you you you get a reaction by

somebody in China like

how their their profits have soared and

apples take apples taken the brunt of

the of the cost associated with that so

sanctions on China have done what

they've helped huawe and they've heard

Apple well apple is Apple's based in the

United

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

shooting yourself in the foot by the way

what do you think of the uh what do you

think of the ban on Tik Tok so you may

be aware of this developing Story the

house voted uh with overwhelming

majority to ban quote unquote Tik Tok

back in March couple weeks ago Tik Tok

is a chinese-owned social media company

but it's the fifth largest globally

right now by users I believe and the ban

goes like this if o if it passes um if

the Senate passes this and Biden

approves of this then the bill goes into

effect and Tik Tok will have six months

to sell its assets it's us assets to a

US company uh basically the US portion

will have to be owned by a us company or

the US will ban access to Tik Tok um by

Americans on American soil what what do

you make of this yeah okay this goes

back this is actually interesting it

goes back to your first question about

confiscation of property

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

government the politicians are trying to

do so that that's my first point my

second point is you said well what do I

think about Tik Tock I think everybody

using Tik Tock that's a voting age

should be voting against any politician

who votes in favor of this confiscation

and and ban on Tik Tock that that's how

that's how you can settle this thing in

a hurry so they they have they have

millions of these young people they are

a voting age and and they should be

paying attention attention to how how

the Congressional representatives and

Senators as well as the administration

are voting on this Tik Tock thing that

that's that would be my advice well uh

the argument from the Congress is that I

I take I take it with that David you get

the implication of where I am on Tik Tok

the well the argument from Congress is

that Tik Tok represents a national

security risk because the data is

supposedly um you know it's stored

somewhere uh where the Chinese

government can access and so private

yeah yeah it stored in the United States

by a us

company right okay so you don't you

don't buy that argument well why do you

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

is there an actual National Security

risk this

is this is this gets into the whole

national security thing and once you get

the leather necks and Bon heads in the

defense department involved in something

or the CIA you you have problems the

National Security things so they put the

National Security blanket around

something but what is what is it really

about it's really about our commercial

War we're at with

China

right it's people don't realize the the

general public doesn't understand what's

going on the the US is engaged in a

commercial war with

China it's all about China and the

commercial War the US is engaged with

with China now they wrap National

Security rapper around tick tock of all

things and and and make a big deal out

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

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

on so any anytime you get the American

flag wrapped around something like Tick

Tock you you you better be skeptical

about what really is going on and what

what really is going on is is a

commercial war and

protectionism being imposed and it's

being imposed against China China is the

enemy right uh okay least I don't think

China's the enemy I understand I

understand you you as you asked me what

the political rationale was behind it

they're hiding behind National Security

let me let me ask

what what do you think the Chinese will

do in retaliation I mean we no no one

knows but we can

speculate they'll do something and it'll

hurt the United States and it it'll

probably hurt China too

okay all right well look at look look

look at the sanctions on all you have to

do is look at

huawe yes look look look at that you you

even had you know the daughter of the

the leader of hway she she was in jail

up there in Vancouver where you're

sitting right now that's right yeah she

was cooling her heels in jail they

finally broke her out of jail and I she

got her back to China but but the the

bottom line on that is what the US

imposed a bunch of sanctions on on a

Chinese company the Chinese company

figured out a way to get around that and

their profits are they're doing very

well by the way and there was collateral

damage associated with that the

collateral damage hert who it hurt an

American company called Apple true um

okay final we'll talk more about this

this is a very interesting topic we'll

talk more about this next time but a

final question from our producer

Professor you've advised president

Javier mle who's currently the president

of Argentina on his economic policy and

when you advised him you advised him to

dollarize the Argentinian economy that

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

advise something like a currency board

in which Argentina could have kept the

peso but tied it to the US dollar at of

fixed exchange rate the the main reason

for that is because in Argentina they

they practice what they call anemy they

they don't follow the law that if they

have a law or a rule they just ignore it

and and we saw that by the way in 1991

when they put in the convertibility

system which which I had something to do

with and that that was had many

characteristics like currency board it

it linked the the peso to the dollar one

one to one and and supposedly backed it

fully with US dollar reserves so the

peso was supposed to be a clone of the

US dollar well it turns out there were

loopholes in that convertibility law but

but they didn't even follow the the law

itself and and eventually the thing

collapsed in 2001 it it did a good job

for a Whole Decade but eventually it

collapsed why did it collapse among

other things it collapsed because the

argentines couldn't even follow their

own rules and even though the the rules

had a lot of loopholes in them which I

disagreed with but they they didn't

follow the rules so if you

have a monetary

institution and and and you even had a

currency board law that was perfect like

the one one I designed and put in in

Bulgaria for examp example in

1997 my guess is that the argentines

wouldn't follow the law and in that case

what you want to do is just replace the

peso completely with the US dollar don't

try to do a clone of the US dollar with

the currency board because eventually

they'll probably break the

rules you just just get rid of the peso

and get rid of the Central Bank you've

got to get rid of the central bank

because if you don't that Central Bank

will be sitting on the

table like a like a bottle of whiskey

next to a recovering alcoholic and the

argentines will grab for the thing

perfect um that's all the time we have

today why it was quite a long discussion

so thank you once again Professor hanky

um where can we follow your work where

can we go to learn more from you for the

viewers who well I aren already follow I

think DAV the easiest thing is follow me

on

Twitter it's just

at hanky excuse me let's start that over

again okay

store Hank let me and you'll get me on

Twitter and uh things are going well

there I'm just double checking yeah 724

th000 followers very good yeah

74.6 as as we speak on the 3D of April

so that's that's third most influential

Economist on Twitter right now in the

world congratulations that's

one also you can just send me an email

hanky jhu.edu and say you want to be on

my distribution list I'll put you on the

list yes yes please do okay we'll put

both in the link down well put both in

the description down below thank you

very much professor and we'll speak to

you in a couple weeks take care okay

keep those questions coming from the

viewers yeah yes yes please do submit

questions once again I'll remind the

viewers um they've been very helpful and

uh it's great for engagement so thank

you once again see you

soon