07:08good evening good evening everybody and
07:12welcome to the Brant lecture I'm Mark
07:15Bannister dean of the College of
07:16Business and economics here at Boise
07:18State University and we're very pleased
07:20to have you in attendance tonight for a
07:22very special evening
07:24please take a moment and pull out your
07:29cell phone and silence it or turn it off
07:31I turn mine off to make sure that I'm
07:34not the guy in the front row whose phone
07:40I like to express our deep gratitude to
07:44the John and Aura Brandt Foundation
07:47were not for them this lecture would not
07:49happen their financial support and the
07:52leadership that they have provided allow
07:54us to put on this presentation and we
07:56know they do much more
07:58John Orr Brandt's extraordinary lives
08:01and commitment to their Community
08:02described in tonight's program continue
08:04to make a significant contribution to
08:10I'd like to express appreciation to
08:14members of the Brant board
08:16Don Brandt was unable to be here tonight
08:19he's president of the Brandt agency and
08:22chairman of the foundation
08:24uh in attendance tonight is Bob Rathbone
08:28businessman here that we greatly
08:31appreciate his support and interactions
08:33with the College of Business and
08:39is up here at the front uh Don Anderson
08:42former CFO of Lyle Pearson Motor Company
08:46and John Barnes local real estate
08:48developer and philanthropist
08:53I would like to introduce
08:56uh the chair person of the economics
08:59Department here at Boise State
09:01University and also the Brant fellow of
09:03free enterprise capitalism Ann Walker
09:16thank you Dean Bannister and thank you
09:19everyone for being here tonight for the
09:2215th annual Brent Foundation lecture
09:25one more friendly reminder to silence
09:28your cell phones if you didn't do it the
09:31before I introduce tonight's speaker he
09:34asked that I give you his email address
09:38uh for anyone who wants to be on his
09:41mailing list we should have put it up on
09:44the screen but we didn't think about it
09:45beforehand but for anybody who's
09:47interested in joining Dr hanky's uh
09:53you can let him know at Henke
09:57h-a-n-k-e at j h u dot edu that was
10:07jhu.edu he sends out some very
10:10interesting materials so
10:12feel free to join that list
10:15at the end of tonight's talk there will
10:17be a question and answer period when
10:19that begins if you'd like to ask a
10:21question you can proceed to the aisles
10:24and the microphone stands where
10:26undergraduate and graduate students from
10:29the Department of Economics at Boise
10:31State will assist you we do ask that you
10:34try to make your questions as brief as
10:36possible so that other people have time
10:38to ask questions and that they also be
10:42genuine questions with a question mark
10:44and that they be respectful of course
10:47also to minimize disruption we ask that
10:51you stay seated until after the Q a
10:54session is completed and at that time
10:57students will be available to clear to
11:00collect extra credit slips from the
11:03students who are in attendance here
11:05there are feedback forms in your program
11:08and we would welcome your feedback so if
11:11you would like to fill out a feedback
11:13form you can hand it to student helpers
11:16outside the event on your way out
11:19and we could we will also include you on
11:23the Boise State uh email list to notify
11:26you of College of Business and economic
11:28speakers in the future
11:30biographical information for tonight's
11:32speaker is available in your program
11:37as well as at the Boise State website
11:40for the Brandt Foundation which is
11:42Brandt Foundation at Boise state.edu
11:46the purpose of the brap foundation
11:48lecture series is to bring to Idaho
11:52those who are making important
11:54contributions to the public
11:56understanding of the foundations of a
11:58free and prosperous Society
12:01one of those foundations is a stable and
12:04dependable monetary system
12:06we live in a world today where
12:09governments and central banks have
12:11complete authority over our monetary
12:13systems and there is no shortage history
12:16has no shortage of examples of
12:18governments that have chosen to
12:20sacrifice the value and stability of
12:23their nation's currency for the sake of
12:27for for many of us here tonight we are
12:31experiencing the highest level of
12:33inflation in our lifetime or at least
12:35for me within my memory
12:38and has as inflation has resurfaced as
12:41an economic problem facing the United
12:43States a myriad of explanations have
12:47been offered ranging from corporate
12:49greed to supply chain snarls
12:52but the primary cause of inflation is
12:55explained by one of the oldest theories
12:56in economics and it has nothing to do
12:59with corporate greed
13:01tonight's speaker isn't just a scholar
13:04of monetary Theory and policy he is an
13:07active practitioner and the person that
13:09many governments around the world have
13:10called upon to help reform their broken
13:15he has served as an advisor to heads of
13:17state and countries throughout South
13:19America Asia Europe and help to reform
13:22currency regimes in many countries
13:24including Estonia Bulgaria Argentina
13:28Ecuador Bosnia Herz Covina and that
13:32included two official cabinet level
13:35appointments in Lithuania and Montenegro
13:38he has co-authored more than 20 books
13:41and monographs and hundreds of articles
13:47he served as senior Economist on
13:49President Reagan's Council of economic
13:51advisors from 1981 to 1982. he writes
13:54regularly for Forbes Magazine and whilst
13:58and the Wall Street Journal
14:00he is senior fellow and director of the
14:02troubled currencies project at the Cato
14:04Institute in Washington D.C he is a
14:07senior fellow at the independent
14:08Institute in Oakland California
14:11he is currently a professor of Applied
14:13economics and founder and co-director of
14:16the institute for Applied economics
14:18Global health and the study of business
14:21Enterprise at Johns Hopkins University
14:23and he was recently named the third most
14:27influential Economist in the world by
14:30Focus economics and last but not least
14:32he has the distinction of being one of
14:35the only economists who act accurately
14:38predicted the Resurgence of inflation in
14:42the Brandt Foundation lecture series is
14:44honored to present tonight's speaker Dr
14:46Steve Henke in his topic looking for
14:49inflation in all the wrong places
15:04well thank you very much for that
15:06introduction it's a pleasure to be back
15:09in Idaho it's been 40 years
15:12well the last time I I gave a talk in
15:17Idaho it was over in Caldwell
15:20and uh I've kept in touch with Idaho
15:24because Senator Steve Sims and I are
15:27very good friends and we're colleagues
15:30uh I was I was not a senator I was I was
15:35what they call a staffer but uh
15:40who is here in the audience was a
15:43staffer for Sims 2. and at that time I
15:48was a chief advisor to the Joint
15:50economic committee and Sims was an
15:53active member and we became very good
15:55friends and rebir was chief of staff and
15:58you know people always would say what's
16:00what's rebarger doing anyway and what's
16:04his job was to keep sins and I on the
16:08straight and narrow and out of trouble
16:12so I always I always knew something was
16:15up when Sims and I would come back into
16:18the office and re-burger and be cringing
16:20oh at any rate enough of that I I've
16:25kept in pretty good contact with Idaho
16:30via Sims I get I do get reports we stand
16:33in good contact of course he lives in
16:35Leesburg Virginia but
16:37isn't Idaho man through and through
16:42tonight we're going to talk about
16:44current finding inflation in all the
16:47wrong places that's a title and needless
16:51to say it's a topical topic uh you don't
16:55you don't get this kind of timing most
16:58times when you're giving a speech about
17:00finance and economics but let me start
17:03by with just a little background
17:08and the measurements of inflation what
17:11are we actually measuring well it it is
17:138.2 percent right now that's a consumer
17:16price index a headline number and and
17:20that's an aggregate index that includes
17:23about 300 items and when they look at
17:26those 300 items they they get a sample
17:29of about 70 000 different prices for
17:32those 300 items and and that goes into
17:35the index the Consumer Price Index this
17:38aggregate thing that we're familiar with
17:41there are also other kinds of aggregate
17:44indexes you sometimes see them talking
17:47about core inflation and and that's
17:50simply the Consumer Price Index with
17:52volatile food and energy prices cut out
17:56cut out and eliminated from the index
17:59uh there's a producer price index that's
18:02another Aggregate and so on and so on
18:04there there are hundreds of indices that
18:07are these big Aggregates that have a lot
18:10of things included in them
18:12we also have different kinds of
18:14inflation uh the the kind we're
18:17suffering might be a 40-year record but
18:20it's nothing compared to hyperinflation
18:22which I actually know quite a bit about
18:24there have been 62 hyperinflations in
18:27world history and a hyperinflation is
18:31when the inflation rate is running at 50
18:33percent per month or more so it's it's
18:39for the record and as a reminder Hungary
18:45the inflation rate hit 207 percent a day
18:49207 percent a day in Hungary
18:552008 that's a hyperinflation actually
18:57that I measured are the only one that
19:00actually ever was able to measure it 98
19:03a day so you can see it's a it's a long
19:06way down there from Hungary but it was
19:09still big and number two number three I
19:13measured that too and that was in
19:19night 64 per day and and now we can get
19:24out into into kind of a monthly number
19:26the monthly number was 313 million
19:29percent that's equivalent to 64 a day so
19:33I was there I measured it I I I I have
19:37some sense of of what what goes on in
19:40these hyperinflations you try to get rid
19:42of your local money like a hot potato uh
19:45I mean you literally the minute you get
19:47a local bill you run down to the black
19:49market and and and get either in those
19:52days a Deutsche Mark or a U.S dollar in
19:56Yugoslavia so we're down to Germany
19:58because all of you have heard about the
20:00hyperinflation in Germany 1923
20:03but that was number 13. it's way down on
20:07the list actually and that one was only
20:1129 500 percent per month
20:14but compare that to Yugoslavia 313
20:18million percent a month so so that's
20:21what inflation kind of we're getting
20:24around these these big aggregate numbers
20:26the things you normally see
20:30item that's very important
20:34and that's relative prices versus these
20:40because within the index there are
20:42prices of for example a consumer price
20:45index you've got 300 things in the
20:47basket moving all around some some move
20:50up some move down now virtually all of
20:53them in the United States have are
20:57but at the start of the pandemic in
21:00early 2020 what was going on when when
21:03the inflation just was starting coming
21:08we had commodity prices going up good
21:12price Goods prices going up and and
21:15asset prices starting to go up houses
21:18equities the stock market that kind of
21:20thing but actually the service prices
21:23remember we were locked down so you
21:25couldn't go any play any
21:28service prices are they your your
21:30haircut that's a service so what
21:33happened you stayed home you had your
21:35wife or girlfriend cut your hair maybe
21:37you cut it yourself or or maybe even you
21:40know went went native uh who knows but
21:45that was a start now where are we now
21:48the commodity prices are going down in
21:51the basket asset prices look at the
21:54stock market they're going down in the
21:57uh service prices are surging we're
22:00reaching new highs now in service prices
22:03and wages are are going up so you get
22:07these relative price changes that are
22:09going on inside the basket and this is
22:11an important concept to keep in mind
22:14because these relative price changes
22:16they are real but they're due to changes
22:19in supply and demand
22:22the aggregate what lifts it and pushes
22:27changes in the money supply
22:29so separating these two things is
22:33extremely important kind of conceptually
22:36so what have we been told about
22:40first of all remember it was transitory
22:42well we we all know that's a lot of bull
22:44that didn't last very long that was a
22:47great Washington D.C line so so that
22:52that that was not true
22:55the second thing the causes uh which
22:58Anne alluded to we first it was coved
23:02then it was Supply chains they're still
23:04writing about Supply chains then it was
23:07the Putin price hikes
23:09then then it was oil prices and and then
23:12fertilizer prices and you know you name
23:15it it's just a new excuse every single
23:19day but those are all things that while
23:22factually true oil prices did go up
23:27that's a relative price change oil was
23:29going up relative to other things that
23:32were either going down or staying more
23:34or less stable so there's the aggregate
23:37thing and the relative price change
23:47inflation is global that's the latest
23:49pitch out of Washington it's Global no
23:53inflations are always local they are not
23:56Global if if you see them throughout the
24:00world it simply means it's the central
24:01banks are all copying each other and
24:04they do that a lot they copy the Federal
24:06Reserve the Federal Reserve usually
24:09takes the lead and the bank of England
24:11followed and the European Central Bank
24:13followed and the inflation rates in
24:16England and the United States and on the
24:20continent or more more or less the same
24:25think about Japan what's the inflation
24:30Switzerland inflation rates three
24:35huge country 2.8 percent is the
24:37inflation rate so inflations are not
24:40Global they are local and and this those
24:45three countries remember
24:47Switzerland three percent Japan three
24:50percent China 2.8 percent when you're
24:52talking to your your neighbor and
24:55they're going on about Supply chains or
24:57some other BS cause for inflation that
25:00they've read by the way
25:02wall-to-wall and all the media in the
25:05United States because the media is a
25:07captive of Washington they they repeat
25:09what they're told in Washington because
25:12the reporters need access to get into
25:15the FED into the White House into the
25:19Congress and how do you get access you
25:21don't get access by dumping on the
25:24narrative that's being put out
25:28in the white house or over at the Fed
25:31and this gets to my 95 percent rule
25:34every every class I start I always tell
25:37the students and this I'm talking about
25:40really peer-reviewed journals and
25:41economics and finance my 95 rule is 95
25:46of what students are going to be reading
25:49is either wrong or irrelevant now if the
25:54the media is is up over that 95 percent
25:58range we're we're getting over towards a
26:03wrong or irrelevant whatever you're
26:06reading in the in the newspaper so we're
26:09getting to the not not to where the
26:11rubber meets the road
26:13what what does cause inflation
26:16inflation is always and everywhere a
26:20monetary phenomena is caused by changes
26:26I've looked historically
26:28at inflation throughout the world and I
26:32have never found what I call a sustained
26:35significant inflation of over four
26:38percent a year that's half of where we
26:40are now of over four percent that's
26:43lasted more than two years that hasn't
26:46been preceded by a huge increase in the
26:49never so so so that's
26:53kind of exhibit number one as the
26:57I've just completed a study looking at
27:00157 countries from 1990 to 2021 and what
27:05I did I took the annual rate of growth
27:08in the money supply and the annual rate
27:10of growth and inflation and and the
27:13correlation between those two things the
27:15correlation coefficient is 0.9 that
27:18means it's it's about a one-to-one lock
27:21increase the money supply by 10 percent
27:24you're going to get a 10 increase in
27:26inflation reduce it by 10 and you get a
27:28reduction of about 10.
27:35what economists look at and and and what
27:39I look at in particular is the quantity
27:41theory of money and something called the
27:44equation of exchange and the equation of
27:47exchange this is mainly for the students
27:48I know they're getting extra credit so
27:50we've got to you know gotta do got to do
27:53your thing uh and uh and and it's clear
27:56they've been incentivized I like that
27:58you know they they have a free market
28:02chairman of the department she
28:04incentivizes things I mean you know you
28:06show up you punch your ticket and
28:11get extra credit that's that's the way
28:14so what is the equation of exchange it's
28:17MV that's money times velocity of money
28:22and and velocity of money is just the
28:26the quantity of money divided by real
28:31so money times velocity equals p
28:34times y and p is the price level that's
28:37this aggregate basket kind of thing one
28:40of these indices times Y and Y is the
28:43real rate of growth in the economy
28:48that study that I did
28:51157 countries with looking only at money
28:55and inflation and coming out with a
28:58correlation coefficient of one that
29:01means and implies that the velocity
29:04and the real rate of growth why in that
29:09equation of exchange are pretty pretty
29:10much constant they're not fluctuating
29:12around very much so that's that's why
29:15the whole thing collapses to this
29:17M and P because V in the MV is pretty
29:22constant and Y is pretty constant and
29:26you end up with something that's valid
29:29and something that can be useful
29:32and John Greenwood and I did use it now
29:36is uh not only a close friend a
29:40colleague at Johns Hopkins he actually
29:42lives in London he was a chief Economist
29:44at invesca for many years until he
29:46retired last December and he's a
29:49quantity Theory man a monitorist like I
29:52am he was the one who by the way
29:54designed the Hong Kong currency board
29:57that was installed in 1983.
30:01uh he was the architect of that so we're
30:06Camp shall we say and working together
30:12July of 2021 we used the equation of
30:15exchange and when we wrote it out we had
30:18if you look at our article it has MV
30:20equals p y even even the Wall Street
30:22Journal he had allowed us to put an
30:25identity in the thing uh and we did and
30:29we had a we had a forecast and we were
30:33the first and only people to actually
30:37put numbers on where we were going with
30:39inflation we said that inflation would
30:42end up at six percent would go as high
30:45as six percent and maybe as high as nine
30:48percent well in June at Peak dot at 9.1
30:51we weren't quite On Target we're at 8.2
30:54now so we hit the bullseye with using
30:57the quantity theory of money and the
31:00equation of Exchange
31:05go with a metaphor that I think will
31:08allow everybody to understand what's
31:09going on with this quantity theory for
31:11getting the MV equals py that's for the
31:14Boise State students to get under their
31:16belts but go to the hanky's bathtub
31:20hanky's monetary bathtub works like this
31:22the the money goes into the bathtub
31:27and the bar the bathtub has two drains
31:31and one overflow valve and the the drain
31:35one drain is that that money that comes
31:37in that money supply growth comes into
31:40the tub and one drain is used to
31:45accommodate the money is used to
31:47accommodate real economic activity so
31:49that that drains some out you need money
31:52to run the machine so that drains out
31:55one drain the next drain is the economy
31:58is growing the demand for money in
32:01increases people want more more money in
32:05in their uh retirement accounts and
32:07their money market accounts and their
32:09savings accounts and so forth so that
32:11drains some out too that's some of that
32:13new money coming in drains out and your
32:16left maybe with a residual and that
32:20residual goes out the Overflow into
32:25so money comes in it revs up the real
32:30really economic activity without any
32:34inflation and the demand for money and
32:38here's what we have roughly since
32:40February of 2020 this is kind of back of
32:43the envelope but it's always good in
32:45economics to if you can't get it on the
32:48back of an envelope you got a problem
32:51and and most modern economists can't get
32:53anything on the back of an envelope so
32:55so there are a lot of problems out there
33:00about what's gone in through the faucet
33:03about of cumulative 40 increase so we've
33:06had about a 40 increase and and about 2
33:10percent each year goes out the real
33:15economic activity drains so over the
33:17last three years that's that's takes six
33:20minus 40 minus six because we've had
33:24and the demand for money it turns out
33:27that's also about two percent roughly
33:30that that grows at about two percent as
33:32the economy is growing so that's another
33:35three years minus six
33:38you end up with what
33:4028 is left in the tub and and that is a
33:47pretty good estimate between 25 and 30
33:49percent the aggregate price index the
33:52Consumer Price Index that we started
33:54with that I that I was talking about
34:01pre-covet versus post-coved by about 25
34:05to 30 percent the index will have to go
34:09up because the excess money in the tub
34:12it's got to go out it's not going
34:14through those two drains for real
34:16economic activity and and the demand for
34:18money it's not satisfying them so it's
34:21going out in inflation inflation shows
34:24up in the index and that means that the
34:26index has to be up by about 25 or 30
34:33let's say in 2023 going into 2024 than
34:37it was in 2020 when covet started and
34:40when they started pumping up the money
34:44so using this equation of exchange where
34:47did Green wouldn't I think that
34:50inflation is going to be going in the
34:54I've got to move along I I wanted to
34:57finish this thing in 25 minutes so we
34:59can have plenty of questions on time
35:00I'll I'll wind it up don't worry so so
35:03where do we think it's going the end of
35:06this year that's this December the
35:08year-over-year inflation will be between
35:10six and eight percent
35:12and next year that's the end of 2023 the
35:17end of the year in December the
35:19year-over-year inflation will be about
35:21five percent and since we hit the
35:23bullseye with that first forecast you
35:26can be assured we're going to hit it
35:28with the one that I just gave you
35:34I will turn on and put one
35:40here here's the process and and this is
35:44this is how the money supply actually
35:47so so you got the fact that there's a
35:50connection inflation comes from the
35:52money supply changes okay we're there
35:54now the question is well how what's a
35:57transmission mechanism on the money
35:59supply is goosed over here on stage one
36:03you have growth in the money supply
36:05within about one to nine months there's
36:07a lag and asset prices go up now
36:11what happened we started goosing the
36:14money supply in February of 2020 and if
36:17you weren't heavy in the stock market
36:19and buying real estate and and and and
36:22sensitive commodity prices you you were
36:25a loser if you were if you understood
36:28this you were winning big time I mean it
36:30was just a Chip Shot then six to eight
36:34there's another lag and and and we have
36:36the real economic activity starts
36:39revving up and and that remember we had
36:41a little spur where economic activity
36:44really started shooting up real economic
36:46activity and then the big lag is
36:49inflation 12 to 24 months
36:53now the reason I'm giving you this is
36:56that if you think about this and you're
36:58investing and and really trying to
37:00figure out what's going on this is the
37:03transmission mechanism it is it doesn't
37:05just automatically go from changes in
37:07the money supply today to changes in the
37:10inflation rate today or tomorrow there's
37:13a there's a big lag and these lags are
37:15very tricky and and that is the trick
37:19for an analyst if you're
37:24using the quantity theory of money and
37:27don't understand the lags you got a big
37:30problem we think we understand them
37:32pretty well and that's why we got the
37:33inflation forecast right and
37:36July of 2021 and that's why I think
37:39we're going to be right this time
37:43where are we where are we now actually a
37:47picture of you've you've got the bathtub
37:51but let's here here's actually what
37:58first of all we have
38:00that blue line now that that's a growth
38:03rate in the money supply
38:07measured by what they call M2 that's the
38:09broadest measure of money that the FED
38:11has so that's a that's a Fed kind of
38:14so the money supply you can you can see
38:16the thing zooms up and and Peaks out in
38:19February of of 2021 and then and then
38:23it's come down and now it's a year this
38:27is year over year uh it's a little what
38:30do we have two percent 2.1 I can't and
38:33my angle isn't so good I know it's
38:36point six 2.6 okay Alan thanks 2.6 that
38:43so so that you you can see we we've had
38:46a huge increase in ballooning in the
38:49money supply now anyone talking about
38:52Supply chains Putin prices all this
38:56other nonsense I mean look at this thing
38:58you don't think you're going to get
39:00inflation when you do this now that
39:04orange line is an important line
39:07and and that's called what I call and
39:10Define as a U.S golden growth rate
39:13and that's 5.5 percent now how you get
39:17that you use the equation of exchange MV
39:19equals py and and you solve you first
39:22you do a first derivative of that and
39:27plus v equals P plus y after you do the
39:33this is this is not going to be a quiz
39:36question don't yeah I relax a few people
39:38kind of tensed up on me there for a
39:40minute but but if you do that
39:43and and you rearrange the the identity
39:46and solve for M M is the golden growth
39:49rate that's the growth rate in the money
39:51supply that you want to be aiming at if
39:56you want to hit the inflation Target at
39:59two percent and the two percent is is
40:02the P that you put in the equation
40:05in other words two percent is the
40:07inflation Target so that's P why it for
40:11the U.S economy the potential growth in
40:13the US economy is 2.2 percent so just
40:16plug two in and and the velocity is a
40:20negative 0.2 and you're taking velocity
40:23around to the other side and and
40:26subtracting and a negative and a
40:28negative is a plus so 2 plus 2 plus 2 is
40:316. so that's that's the go with the
40:34numbers I gave you that's the golden
40:35growth rate in fact if you fine tune it
40:40we were growing the money supply on
40:43average since covet at about 15 percent
40:47so we were growing at about three times
40:49faster than the golden growth rate so we
40:52had to be way over the target with
41:06if you'll recall I fortunately there are
41:09people in the audience that are I think
41:16if I can quote Paul Harvey and and now
41:20you've heard the rest of the story folks
41:25let us let us go to why the fed and this
41:29is the last point I'm I'm I know I'm
41:33maxed out on my time myself imposed
41:36deadline by the way the the organizers
41:39were free you know very libertarian kind
41:43of people you know do whatever you want
41:45to hanky you know don't worry about it
41:47but I I put a constraint on myself and I
41:50I've gone a little bit over my
41:52constraint but not too badly uh so so
41:56why have we been told to look for
41:59inflation in all the wrong places
42:01well Congress and the White House
42:04started this and and remember Trump was
42:08the president then so this this is a
42:10bipartisan thing everything in
42:13Washington is much more bipartisan than
42:15you think I mean they're they're all bad
42:23that's what that's one reason I I knew I
42:26could come here and be safe but
42:29so so uh that's actually the best line
42:33I've had tonight but
42:36so it all started with Congress and the
42:40White House with covet doing what
42:43spending a lot of money
42:46and the deficit increased
42:49so that was step one now step two is the
42:53critical thing for inflation
42:55and and and it was critical because the
42:58FED came in and they monetized they
43:00bought about 90 percent of the treasury
43:03bonds that were being issued to finance
43:06a deficit were monetized by the FED now
43:09when they do that they they just create
43:11money out of thin air
43:14they they just credit the the the the
43:16the the the the government account at
43:19the fed and that's it the money supply
43:23and that's why that blue line shot up
43:30why again have we been told
43:35to look for inflation in all our own
43:36places the the other you know
43:40I didn't do it the guy behind the tree
43:43did it you know that you know that old
43:47they don't they don't want the Noose
43:48around their neck the the FED does not
43:51want to be blamed and fingered for
43:55causing the inflation that we have so
43:57you have some other cause it just came
43:59from another plan Christian Lagarde the
44:02the chair the the chairman of the
44:05European Central Bank said it just came
44:08from nowhere she said she so such a
44:11stupid comment but she doesn't even have
44:13Supply chains or anything it just came
44:16we don't know where it came from so
44:21that that is the reason for this
44:31now if you look at the FED specifically
44:35it's it's really one of the biggest
44:37mistakes they've ever made the Great
44:40Depression was the biggest one by far
44:42but this is pretty big
44:45and and you've had Paul chairman Paul
44:47chairman of the Federal Reserve
44:51under oath that the money supply doesn't
44:54have any connection to economic activity
44:57or inflation and that the FED doesn't
44:59really watch the money supply
45:07Paul canceling the quantity theory of
45:10money Washington in general canceling it
45:12blaming somebody else and and we have
45:15them constructing kind of a bridge to
45:22they're they're really Flying Blind
45:25and and one reason for this besides
45:29away from them and off to the sidelines
45:33there there actually is is another
45:35reason that I think is significant and
45:39that is because the staff at the Fed
45:42is they have over 400 economists not no
45:47no none of them got the inflation
45:48forecast right we all know that they all
45:50said it was going to be temporary so
45:51that that was the end of that
45:53uh the Democrats outnumber and Philo
45:57appreciate this the Democrats outnumber
46:00the Republicans 48.5-1
46:04now why is that significant that's
46:07significant because the punch line here
46:10is the the dean of the quantity theory
46:13of money is Milton Friedman
46:16the biggest expert the biggest
46:17practitioner and so forth and as you
46:20know he had Tendencies uh Republican in
46:23nature and anything Freedom any any was
46:27effective and and a deadly debater in in
46:31a clear uh person and argument and and
46:36you naturally have the Democratic staff
46:39anything that Friedman was for they're
46:41going to be against so I think the
46:43politics of the thing besides this
46:46getting out from under the problem they
46:48created is a big Pro is a big thing
46:51because remember they're trying to get
46:54out from under the problem they created
46:56but before when they deep six the
47:00quantity theory of money and ignored it
47:02and and let this thing go out of style
47:04that that was more the Friedman kind of
47:07thing we're not going to bother and look
47:10so with that ladies and gentlemen I
47:13think I should wind it up and open the
47:15floor for questions and answers thank
47:18you very much for your attention
47:20looking forward to your questions
47:45I I should actually I should add one
47:47footnote before the questions I because
47:50I I and and going so fast I I skipped
47:55and and I I I told you where I think
47:59inflation is going to be the end of this
48:01year in 2023. the question is where is
48:04the economy going to be it's going to be
48:06in a tank in 2023 because if you look at
48:10that right hand uh where that we're at
48:152.6 a year-over-year growth below the
48:18golden growth rate if you look at it
48:20more in a more granular way the last
48:25of data not not the year over year but
48:28the last seven months the money supply
48:30has actually been contracting in the
48:33United States and the only three times
48:35we've had sustained contractions were
48:381929 1937 of course he had Great
48:42Depression you had a huge recession in
48:4437 in 1968. we've only had three times
48:48so so we're in really unchartered
48:51territory we're going to have a big
48:54you the the engine won't run when the
48:58money supply is in reverse
49:01so we're going to have what they call
49:05stagflation we're going to have
49:08inflation but we're going to have also a
49:10recession so welcome to the 1970s I mean
49:13there are enough gray hairs that you
49:16remember all that Jimmy Carter and you
49:19know we we had we we went through that
49:22drill so we have a question
49:25um yes thanks for your uh presentation
49:27is it safe to assume that your money
49:31supply theory is responsible for the
49:34rising cost of college tuition or
49:37college education or is it just simply
49:40professors get paid too much well
49:43no it no I well that actually is a good
49:47question that that that deals more with
49:49the fiscal side of thing because the gov
49:52the government subsidies
49:54in in education have been one of the
49:57biggest drivers for increased cost and
50:01and in particular administrative costs
50:03you just have now layers and layers of
50:12I I know they run a lean and mean
50:15machine here so we don't we don't have
50:18that problem I mean you know somebody
50:22being a Dean in Idaho I mean that's
50:24pretty safe hands there's not not going
50:27to be much fat in that budget but but at
50:30any rate that's the that's the big the
50:32fuel comes from Washington
50:34and and and and then think about it it's
50:36it's you're subsidizing the tuition and
50:40and you're gold plating the universities
50:42and it's mainly it's not the professors
50:44by the way the the they've slimmed down
50:47now they they hire adjunct professors
50:50teaching Associates when I when I first
50:53went to Johns Hopkins no one but a
50:56professor was ever allowed in a
50:58the to forget the teaching assistant
51:00thing you know or or adjuncts there were
51:03there were no adjuncts whatsoever now
51:06they hire these people because they're
51:08cheap kind of day labor type thing and
51:11and and the administrators you of course
51:14for an adjunct you need a Dean for to
51:17handle that and and then if it's if it's
51:19the if if it's The Graduate students
51:22well you need another Dean to handle
51:23that and administer that so you're
51:25getting kind of the picture of sure but
51:28by the way I I might add one thing that
51:31might be of interest to you
51:34um is that John most people don't know
51:37so we're breaking news and every any
51:40reporters in here Johns Hopkins for the
51:4442nd year in a row is the number one
51:48research University in America
51:51vis-a-vis the budget and in the budget
51:54the research budget at Hopkins is 3.1
51:59so it's a it's a huge operation it's
52:01it's double number two number two is
52:04actually the University of Michigan and
52:08from there so I need a lot of
52:11Administrators you got you got the
52:13federal money pouring in you
52:16as long as the bulk of that research
52:18money isn't studying the mating habits
52:20of titsy flies or something well there's
52:23a little bit of that going on but the uh
52:28rocket they used to shoot down the
52:32meteorite or whatever it was I can't
52:36that that came from Hopkins so this
52:40stuff's expensive that's that's why the
52:42research budgets are huge
52:45thank you yeah you're welcome
52:48I was wondering where the the two
52:51percent inflation target comes from and
52:53is there any uh particularly economic uh
52:58it's completely arbitrary it's a
53:05see that that's that's one thing I like
53:07about getting out in places like this
53:09you have people with some common sense
53:12ask intelligent questions can do back of
53:14the envelope you know all of this stuff
53:16but it's it's an arbitrary number they
53:19just pulled it out of there there is no
53:21economic theory and and now by the way
53:24the latest thing they're debating
53:27changing the number because we've got
53:30Global inflation we've got it came from
53:32some place from outer space maybe we've
53:34got to change the target so that that's
53:37a that's an actual debate now
53:40but two percents just are arbitrary it's
53:44it's it is an even number
53:46and it and it it's the
53:54so I actually have two questions the
53:56first what is your forecast for the U.S
53:59dollar in euro exchange rate and the
54:02second once inflation is already
54:06and a recession is probable what advice
54:08do you give to investors
54:10okay the first one the dollar since the
54:15is there are two things going on with
54:17the dollar so one is that
54:21the kind of advertised thing and that is
54:23the the FED is increasing the interest
54:25rates a little more rapidly than than
54:28other central banks uh the rate of
54:30return on investing in dollars is is
54:33more attractive relative again it's a
54:36relative price thing relative to other
54:39places so so so that's that's one thing
54:42giving the dollar a lot of strength
54:44because it's it's very strong now
54:47uh the second thing is something that's
54:51not advertised because it's verboten in
54:54the United States and that is the war
54:56the war that I think the the the U.S was
55:02quite responsible for in Ukraine uh I
55:06I'm of the U.S provoked uh Camp uh the
55:11Russians Drew an absolute Red Line in
55:132014 and and this is again a republican
55:18W uh just went over the line I mean it
55:21they they basically the red line was
55:25Ukraine cannot be a member of NATO that
55:28was 2014 and Bucharest and the U.S
55:32signed an invitation inviting them into
55:36and and then there are many other things
55:38going on so so we have the war going on
55:42and that's always good for the dollar
55:45because the there's a there's a gradient
55:48that goes from the field of battle
55:52uh moving moving away from the field of
55:55battle currencies get stronger and
55:57stronger closer in they're weak but you
56:01get further away and the dollar is the
56:02international currency and we're a long
56:04way from Ukraine so those two things are
56:08making it very strong right now
56:10I think with the recession
56:13uh and and the stagflation coming that
56:16we will eventually and I'm not
56:19predicting when see a very sharp fall in
56:22but for now it's golden I mean it's it's
56:25really strong and and will remain so
56:32this gets back to this
56:35you see to figure this out you've got to
56:38get these lags in there and and and and
56:41when when will the money contraction we
56:45have actually hit the real economy and
56:49and maybe even mainly the real economy
56:52we do we don't know for certain and and
56:54that will determine to some extent when
56:57the dollar starts coming off but I think
56:59that all are for now very strong and
57:02eventually we'll we'll take a big dive
57:05uh I I think it's basically very
57:08overvalued now the second question I got
57:12so carried away with the first one that
57:13I liked and I got off on the Ukraine
57:15thing which I right now do you recommend
57:17investing in like physical heart assets
57:20or what's your investment Council and
57:23when there's a lot of rising inflation
57:34so it's it it's you know now that we're
57:38into you know even even today Alan takes
57:50so there there's a there's a big demand
57:53and a lot of people are have been
57:56raising money and raising lots of money
57:59because they are they have the next uh
58:02Magic lithium uh production facility
58:07going in but all of that's basically
58:09smoke and mirrors so I think lithium
58:11prices will stay very strong for quite
58:14some time so if you can if you can find
58:17a vehicle for that and the rest I would
58:22stocks will go down by the way the the
58:25this this sequence by the way your
58:28brings up an interesting point because
58:31interest rates have started going up in
58:33the United States because interest rates
58:35always follow the inflation rate they
58:37don't they don't come before inflation
58:39inflation comes and then interest rates
58:41go up next interest rates are going up
58:44and and that takes the price earnings
58:47ratios down and and so we've seen stocks
58:51come off badly because of adjustments in
58:54in the p e ratio just because interest
58:57rates have gone up but earnings we have
59:00not talked about and if you look at the
59:03earnings forecast they're ridiculous I
59:05mean the consensus is like earnings
59:08is like six six and a half percent for
59:11next year it's never going to happen and
59:13the reason why is the recession but that
59:16that hasn't been factored in because all
59:19a 26 year old analyst on Wall Street
59:23and I quite got it together yet uh
59:26they're they're having a learning
59:32and and that will bring earnings they
59:35won't make consensus earnings will come
59:37in next year below the consensus and
59:40that will take the overall index down
59:45so don't be in an index that's because
59:48it's going down further that that's my
59:50yeah so so yeah so yeah cash is golden
59:55or good companies you got to pick and
59:58choose there are good companies out
01:00:00there everyone's not going down I said
01:00:02the index it's kind of like the the
01:00:05price index remember the brightness
01:00:07index goes up and down because the money
01:00:09supply moves up and down but inside the
01:00:12basket of the index relative prices are
01:00:15moving all over the place same with the
01:00:17stock market I mean some things are
01:00:18going up some things are going down more
01:00:21are going to be going down than up so
01:00:23the index is going to be coming down
01:00:25because earnings will come in definitely
01:00:28below the consensus
01:00:31so thanks for the question
01:00:37yeah thank you sir for your ideas
01:00:40I in my thinking about pandemic
01:00:43hindsight is 2020 and my understanding
01:00:46is that MV equals py Philosophy from
01:00:49what I know from the early pandemic went
01:00:54that necessitated perhaps m going up in
01:00:58thinking about this going back to March
01:01:00of 2020 again hindsight's 2020 but what
01:01:04would you have prescribed if not the FED
01:01:06doing something that they did even
01:01:09statistics that okay just a couple
01:01:11things one one thing on velocity
01:01:15um Greenwood and I have a big study it
01:01:17isn't published yet but it's a highly
01:01:19technical thing and most economists just
01:01:22don't understand velocity but we've
01:01:24looked at 89 countries and it turns out
01:01:28that in developed countries the
01:01:33velocity number is minus on average this
01:01:38is the median now the kind of midpoint
01:01:40it's for the the oecd developed
01:01:43countries the the the the median is
01:01:481.7 and it's very stable and and it's
01:01:52minus 3.1 for the developing countries
01:01:56that are they're growing very fast now
01:01:59and it's very stable
01:02:01and and what you find out is that if you
01:02:03move away from those stable numbers they
01:02:07revert back to the trend whatever the
01:02:09trend was they revert back pretty fast
01:02:12so so that's why in that 157 country
01:02:18study that I mentioned you find that
01:02:23the money supply change and the
01:02:26inflation change are almost perfectly
01:02:28correlated because v v in fact is pretty
01:02:31constant and by the way we always know Y
01:02:34is pretty constant you have business
01:02:36Cycles but the potential in the economy
01:02:41very fast so it's pretty constant now uh
01:02:46you you asked something else that was
01:02:48actually more important oh what would I
01:02:50do oh yeah what what would I do okay so
01:02:54so here's the so here's here's what
01:02:57happened the pandemic they decided they
01:02:59were going to lock us down
01:03:01so the government tells us we can't go
01:03:03to work we have to put chains around the
01:03:05factory Gates all this stuff so my view
01:03:09is is you know libertarian kind of free
01:03:15the the government's liable to us for
01:03:18the damage they imposed on us by locking
01:03:22and therefore the government should Fork
01:03:25over damages so so the idea of the
01:03:28government paying and expanding
01:03:33the way the way they did it the
01:03:35modalities you can argue about that but
01:03:37in principle if they lock you down
01:03:40they're reliable and and they could pay
01:03:43so the question is how should they pay
01:03:45and and they should have paid
01:03:48by doing the following
01:03:51the deficit would have increased because
01:03:54government expenditures would have
01:03:56increased but they should have sold
01:03:58those bonds the treasury bonds to the to
01:04:01the non-bank public to to you and me
01:04:04and if they would have the deficit
01:04:06wouldn't have been monetized the money
01:04:08supply wouldn't have grown and we
01:04:10wouldn't have inflation
01:04:12and the reason why if the government
01:04:14sells you a bond what happens you give
01:04:17them cash and they give you a bond so
01:04:19they're they're actually sucking
01:04:21liquidity out of the system and and no
01:04:24money is created in the in that
01:04:29you give them dollars they give you a
01:04:31bond and that's that's the end of it and
01:04:33the money the money supply doesn't
01:04:34change so the idea here's the main point
01:04:37the idea that you've probably all got in
01:04:40your head is that if you have a
01:04:42government deficit you have you have
01:04:45inflation no government deficits do not
01:04:48necessarily cause inflation it depends
01:04:50on how they're financed if the Central
01:04:52Bank finances them you've got inflation
01:04:55and that's what you have like in all
01:04:58Latin American countries endemic because
01:05:03extends credit to the fiscal authorities
01:05:06who are irresponsible and spending too
01:05:09much and creating deficits and and they
01:05:12can't go into the international market
01:05:14with bonds they they got the local banks
01:05:17up to here with with local bonds so they
01:05:19go to the governor of the central bank
01:05:21with a deal that he can't refuse we got
01:05:24some great bonds for you
01:05:28and and he creates what they call pen
01:05:30money he he signs and
01:05:33the credit goes to the government so so
01:05:35that's that's a that's the way inflation
01:05:37works so so it is very connected to the
01:05:40fiscal side of things but you have to
01:05:43kind of think it through and and and
01:05:45sometimes knee-jerk reactions aren't the
01:05:48right ones government deficits don't
01:05:51necessarily cause inflation they often
01:05:54do because the central banks come in and
01:05:57monetize the death deficits yeah so it's
01:06:01it's nice to see that you have a
01:06:02pictorial of the cancion effect
01:06:05um if you were uh the FED chairman for a
01:06:08couple years how would you undo this
01:06:10damage in a least painful way okay
01:06:13that's that's a good question too
01:06:16all equip I I I told Anne the questions
01:06:19are always better than the The Talk
01:06:22uh so how would I do it you go back to
01:06:25the golden growth rate they should be
01:06:27growing the money supply at about you
01:06:31know around five percent something like
01:06:33that and and let the inflation come out
01:06:36of the tub the excess overflow and by
01:06:40early 2024 will be done you know
01:06:44three percent maybe coming down pretty
01:06:47close to to two if if they would do that
01:06:50but the problem is remember they're not
01:06:54looking at the money supply they're
01:06:56flying blind they're flying in an
01:06:58airplane with an altimeter that doesn't
01:07:00have anything on it
01:07:02now you know very well out in Idaho that
01:07:04can get you killed in a hurry
01:07:06and and it can in Washington too because
01:07:09they they are not looking at the money
01:07:10supply by the way they they have not
01:07:13made any noise about what's happened
01:07:16with the contraction and the money
01:07:20supply over the last seven months and
01:07:23and I think by the way our one only hope
01:07:26they they did the same thing they had
01:07:28quantitative tightening in 2019 and and
01:07:32it it caused a huge liquidity problem
01:07:37in on Wall Street and and they pivoted
01:07:40immediately and and loosened up they
01:07:42changed so I in a way I think our only
01:07:47hope is what might happen is not only a
01:07:50recession but I didn't mention we could
01:07:52have a big liquidity crisis on Wall
01:07:54Street because of this contraction in
01:07:57the money supply and and if that happens
01:07:59they do watch Wall Street and they do
01:08:02watch liquidity and and they will pivot
01:08:07but the the right way to go is
01:08:12keep it at about now five percent four
01:08:16and a half percent something like that
01:08:18and and just light this excess naturally
01:08:21drain out of the system and if you did
01:08:24that you see you you'd avoid the
01:08:27and you'd avoid maybe a huge liquidity
01:08:31problem that I that that I think is a
01:08:33big risk actually
01:08:37this may not be in your area but if you
01:08:41are involved in it you've alluded to how
01:08:44in education if they expand there's more
01:08:47Deans there's more departments there's
01:08:50more activity there's more costs
01:08:52associated with that
01:08:54that happened exactly in medicine too is
01:08:56the hospital systems grow they get more
01:08:59assistance vice presidents and my
01:09:02question is this actually I'd like to
01:09:04get in the bathtub with you in just a
01:09:06minute okay yeah well there's it's a
01:09:09great place to be there's a lot of
01:09:11excess money in there I mean you know so
01:09:13one of the drains was economic activity
01:09:17yes so that's perceived as positive
01:09:23isn't necessarily positive for instance
01:09:26if the money goes to expand
01:09:29the Personnel of the educational system
01:09:33beyond the need is that a positive
01:09:38or and as a consequence if then the
01:09:40tuition rate goes up then the government
01:09:43comes in and says we're going to give
01:09:45you student loans but they don't give
01:09:47you the student loan just for the
01:09:48tuition they give it for your housing
01:09:51and your books and all those things and
01:09:54so that consequently result says it has
01:09:58exactly here in Boise and an abundant
01:10:00supply of new apartments targeted to the
01:10:03students at prices which the average
01:10:05person can't afford
01:10:08so we have a consequence of
01:10:10the growth which we want that has an
01:10:14inflationary effect on it and so part of
01:10:18that drain has to come back to your
01:10:19overall okay well the drain thing the
01:10:22the let's stay in the bathtub because
01:10:24that that's that's a good point you can
01:10:26explain this with the drain the two
01:10:30is is is good because that that is real
01:10:33economic activity now uh and and we
01:10:37don't we don't want a depression or a
01:10:39recession we want that drain positive at
01:10:42the at the potential the potential is
01:10:44about two percent now about 2.2 actually
01:10:46but back to your point due to the
01:10:50misallocation of capital and and mainly
01:10:53the intervention of Washington with
01:10:55regulations and so forth the potential
01:10:59has gone down it used to be about four
01:11:02percent so the drain has gotten smaller
01:11:05the the good it was a better drain when
01:11:08it was four percent when we had less
01:11:10regulation less less of less subsidies
01:11:13less misallocation of capital more
01:11:16efficient tax system whatever whatever
01:11:19that interfered with the market and that
01:11:22interference with the market has
01:11:23actually Shrunk the drain from potential
01:11:26of like four percent down to about two
01:11:28percent so you can use a bathtub to
01:11:30explain your point and and your point is
01:11:34and the intuition is correct but the the
01:11:37drain ideas what you want to think of
01:11:40over time the drain's been constricted
01:11:43Washington constricts a drain basically
01:11:48so how do you get the infrastructure
01:11:52so you don't have so many Deans so many
01:12:01well skip the university but in the
01:12:05hospital system no the hospital I know
01:12:06the hospital very well because you you
01:12:08come from our hospital and I told you my
01:12:10daughter is a professor at Johns Hopkins
01:12:12at the medical school so I I know it
01:12:15very well because I get first-hand
01:12:17reports from her and it's worse than you
01:12:22and how you fix it uh is uh is really
01:12:27the sixth I was going to say the sixty
01:12:30four thousand dollar question remember
01:12:31that I mean that's peanuts now but the
01:12:3464 billion dollar question
01:12:45bro whoop I get I'm supposed to be
01:12:51uh-uh during the Trump Administration
01:12:54we were the largest oil and gas producer
01:12:59it was in my opinion I don't know what
01:13:02what you thought of that time but since
01:13:06the administration ended it seemed like
01:13:08if we were able to produce more oil and
01:13:12gas based on what's happened in the
01:13:14world what's happened in Europe
01:13:16that that would have been a good thing
01:13:19to produce even more oil and gas and I
01:13:23wondered does that relate any way to
01:13:29yeah it does relate to the relative
01:13:31price thing the the relative price
01:13:34increase of energy when zooming up uh
01:13:38and that wouldn't have zoomed as much if
01:13:43put in an Administration is you know
01:13:47Anna anti anti-energy in short or I
01:13:52anti-oil and I guess and I I actually
01:13:57did a tweet today that precisely on this
01:14:02I I have a whole series of tweets that
01:14:05they're called hankies believe it or not
01:14:07and the Yankees believe it or not the
01:14:09one today was President Biden said a
01:14:13couple of days ago no more Drilling
01:14:18as far as I can remember you've got a
01:14:20drill before you can find the oil and
01:14:24so I think that kind of gets at your
01:14:34I'm going to ask you yeah remember that
01:14:36expression drill baby drill I I don't
01:14:41I'm going to ask you to do something
01:14:42that might go against your fabric as
01:14:45kind of a free market libertarian guy
01:14:48but you mentioned that a large part of
01:14:51that kind of spike in the money supply
01:14:53was caused more by a political problem
01:14:58is there a chance for maybe a political
01:15:02solution and what is it is it just more
01:15:05kind of partisan balance in the fed or
01:15:09where do we go to make sure that this
01:15:10doesn't happen again
01:15:12okay so no I I actually I'm a classical
01:15:15liberal which is a much broader
01:15:20Libertarians can get off the reservation
01:15:28llness Phil knows all about that
01:15:34the the the the problem is a technical
01:15:37problem you say it was political
01:15:40obviously it was at a certain sense but
01:15:44it's it's a technical problem because
01:15:46you had the fed and the FED staff who
01:15:49deep-sixed and canceled the quantity
01:15:52theory of money MV equals py and and and
01:15:55we're Flying Blind I mean they didn't
01:15:57know what they they're incompetent I
01:15:59mean they're they're they are
01:16:01incompetent I I I must say and I I have
01:16:03former students who are actually on the
01:16:05research staff down there but but
01:16:08they are incompetent because anyone
01:16:11ignoring the quantity theory of money
01:16:13is is just uh or or flying without an
01:16:17altimeter as I put it is is just out of
01:16:20it so they made a technical problem air
01:16:24a huge technical error by the way I
01:16:27think this will be the second worst
01:16:29performance of the FED since a great
01:16:31depression and and they wouldn't have
01:16:35had to do that they could have spent
01:16:37money like drunken Sailors like they did
01:16:39which in in principle I think they
01:16:41should have for the reasons that I gave
01:16:44but they could have financed all of that
01:16:46by selling bonds to the general public
01:16:49and they wouldn't have increased the
01:16:50money supply okay it would have increa
01:16:52in interest rates would have increased
01:16:54because people are going to be buying
01:16:57bonds if they're getting paid zero
01:17:02so I I think it's I I think it's more of
01:17:05a technical problem it does have
01:17:07politics in it I mentioned one thing the
01:17:10ratio of Democrats to Republicans on the
01:17:13FED staff of Economist of over actually
01:17:16over I think I think there are 416 as I
01:17:19recall I can't remember the exact number
01:17:21but but at any rate uh this this is a
01:17:25problem because they they they do
01:17:27dismiss anything associated with
01:17:30Friedman and anytime they can do a job
01:17:34in Friedman They do it so
01:17:37but that leads them into a technical
01:17:40incompetence because
01:17:43what's what goes on in the economy just
01:17:46doesn't comport with with their uh
01:17:53Dynamic stochastic General equilibria
01:17:57models you know that don't even include
01:17:59money in the models I mean this this has
01:18:02been going on for 30 years by the way in
01:18:04macroeconomics I mean if you're a
01:18:07student in a Paul Romer has a great
01:18:11article about how how economists
01:18:14destroyed macroeconomics in the last 30
01:18:17years and it's with these Dynamic
01:18:20stochastic General equilibria models
01:18:25they're bad for your health
01:18:30yeah go ahead uh yes uh given what you
01:18:33just said and I think earlier you said
01:18:35you were you consider yourself a
01:18:36monitorist yes that's correct uh do you
01:18:39believe that uh fed policy should follow
01:18:41a regimen where there's sort of a a an
01:18:45expected increase in the rate of the
01:18:47money supply over time in other words
01:18:49not reacting and increasing a lot in
01:18:51Dirt Creek sounds yeah that's the golden
01:18:53growth rate that is the golden growth
01:18:55rate and yeah do you have an idea what
01:18:57that uh increase in the money rate
01:18:59should be over time is there a concept
01:19:01yeah well right now it's 5.5
01:19:10that's the orange line
01:19:13and that so so that's the increase in
01:19:15the money supply of the FED should just
01:19:17stick to that I guess I'm also
01:19:18suggesting that then maybe there should
01:19:20be controls in the FED that doesn't
01:19:22allow them to increase the money supply
01:19:25uh well you want to want a Great
01:19:30no I mean you got you got the monetary
01:19:33bathtub you you have you have the two
01:19:35drains that have to be fed other
01:19:38otherwise the whole thing collapses so
01:19:40so if if you don't put anything in the
01:19:43tub and and and the
01:19:45amount needed to accommodate
01:19:49real economic activity is two percent a
01:19:52drain per year and two percent for
01:19:55increases in the money supply and you're
01:19:57not and and you're putting in three
01:20:01you got a deficiency you've got a
01:20:03problem you're you're going to have a
01:20:05big recession okay so that should have
01:20:07flexibility in increasing the money
01:20:08supply to some amount well they could
01:20:11have flexibility in the sense that you
01:20:13re you know that this is not like an
01:20:16exact science and when I say I'm a
01:20:18monitorist I I I'm a quantity theory of
01:20:21money but I I don't like to get I'm
01:20:24applied so I I don't I like to use you
01:20:30paper pencil change change things around
01:20:33you you gotta you gotta go with the flow
01:20:35but but you've got to have principles
01:20:38and and the quantity theory of money is
01:20:41a principle and it works so you know
01:20:45people the fellow asked me for about
01:20:47velocity a little bit earlier and
01:20:51they'll come up with all kinds of
01:20:53historical studies evidence
01:20:55peer-reviewed articles well velocity was
01:20:58fluctuating too much we couldn't do this
01:21:00that or the other thing and and my only
01:21:02kind of rhetorical comeback for that is
01:21:05maybe it didn't work in that study that
01:21:08worked for Greenwood and Hanky
01:21:11there there was no one who put a number
01:21:14on where we were going with inflation
01:21:17except Greenwood and Hanky that's the
01:21:19only place you'll find a number
01:21:22and and that's early I mean you know
01:21:24after the fact a lot of things happened
01:21:27uh and and we were pretty close
01:21:32thank you yeah you're welcome
01:21:35one last question
01:21:38going going gone thank you very much
01:21:59oh just last week oh okay so they yeah
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