Is The U.S. Going Bankrupt? Will Your Assets Be Confiscated? Economist Steve Hanke Answers
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
- ๐ The dependency ratio is increasing, potentially leading to the bankruptcy of government retirement systems due to fewer young workers supporting a growing retired population.
- ๐ก 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.
- ๐ Inflation is expected to move down towards 2%, influenced by factors such as the contraction of the money supply, despite temporary stalls.
- ๐ฐ 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.
- ๐ 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.
- ๐ The discussion highlights the impact of declining birth rates and aging populations on global economies, with implications for social security systems and labor markets.
- ๐ฝ 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.
- ๐ฃ๏ธ The script discusses the potential for central banks to lower interest rates in response to economic conditions, contrary to some expectations of rate cuts.
- ๐ฆ The rising interest payments on government debt pose a challenge, with the possibility of increased taxes or inflation as means to finance these expenditures.
- ๐ 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
๐ 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.
๐ก 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.
๐ 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.
๐ธ 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.
๐ 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.
๐ฆ๐ท 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
๐กDependency Ratio
๐กInflation
๐กMonetary Policy
๐กLabor Market
๐กFiscal Policy
๐กSocial Security
๐กDemographic Trends
๐กInterest Payments
๐กPopulation Collapse
๐กBRICS
๐กTikTok Ban
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 could้ข็คบ็ 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
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