Wealth Formula Episode 375: Stalking Economists for Answers: Richard Duncan

Buck: Welcome back to the show, everyone today. My guest and Wealth from your podcast is Richard Duncan. He’s no stranger to the show, but on several times before, he is the editor of a great newsletter called Macro Watch. Richard, welcome back.

Richard: Thank you so much for having me back. It’s great to. Great to be with you.

Buck: And you’re in Bangkok again. Is that right?

Richard: That’s right.

Buck: Very good. So, yeah, So, you know, we talked, I guess, 15 months ago or so. I think we were kind of like in the middle of, well, you know, COVID, the thick of COVID or something like that. What have you been up to?

Richard: So, yes, a lot has changed in the last 15 months. It seems like every time we speak something new and dramatic is change the world. But what I’ve been up to is think thanking God that COVID is wound down and we can begin to return to normal kind of life. For two and a half years, I was staying at our house up in northern Thailand and in Chiang Rai, way out in the middle of the countryside to avoid to avoid COVID.

And over the last six or nine months now, I’ve been back in Bangkok most of the time and enjoying life once again in the big city mask free and have even begun to travel to other countries again. So that’s all very welcome.

Buck: Yeah. You were in the U.S. recently, I guess, talking to Congress. Yeah, that’s right. Talk a little bit about what you were doing there and the message you were delivering.

Richard: Right. So last time we spoke 15 months ago, my my latest book had just been released. It’s called The Money Revolution How to Finance the Next American Century. And the goal of that book was to really try to persuade the American public and US policymakers that we’re living in a new economic environment now. And this post Bretton Woods era that really does make it possible for the government to invest in a very large scale in new industries and technologies.

Richard: And so without going through the book again. That’s the theme. And I had hoped to, as I, as I said, persuade policymakers that this is, in fact, the case. So in in February, I was invited to make a speech at a policy dinner in Washington to 15 members of the House Ways and Means Committee to explain the ideas in the book and to explain my views on how the United States can finance the next American century to make sure that the first American century is not the last, but indeed that only the first of many.

And so I had that chance to do that at the end of February. So I was really thrilled about that. And am, I hope to perhaps influence them a little bit? Time will tell, I suppose.

Buck: Politics were you received? How were your ideas received?

Richard: I think the speech went very well. You can generally tell by looking at the people’s faces, no one got up and stormed out. So I think it was well received and I was invited to make the speech by Congressman John Larson from Connecticut, who is a Democrat. And this was in and it was with his colleagues, the Democrat colleagues on the House Ways and Means Committee. And this was not too long after the Democrats lost control of the House in November and the Republicans took over as chairman of the House Ways and Committee, Ways and Means Committee and all the other committees in January. And so they were still, of course, disappointed that they had lost to the Democrats, had lost control of the House.

And my recommendations to them were that the United States well, as you know, last year, in the middle of last year, August, perhaps the Chips in Science Act was passed, which allocates $380 billion of government financing for investments in new industries and technologies, which is exactly what my book calls for. But with $50 billion being allocated for building semiconductor manufacturing facilities within the United States and the rest being allocated to all the other industries and technologies of the future, that I discussed things like artificial intelligence, quantum computing, biotech, nanotech, neurosciences, robotics, clean energy and so forth.

And at the same time, over over the next decade, produce technological miracles and medical marvels and generally make everyone’s lives better. So rather than continuing on in this long period of stagnation that the United States has been in now for decades, that has resulted in the middle class being hollowed out and disappointed with their prospects in life and the prospects for their children.

I think a winning platform for Democrats would be to very aggressively run on a platform of we are going to invest aggressively and we are going to make this economy grow on a scale that hasn’t been seen for decades. Now, I would propose the same policy to the Republican Party, but the Republican Party has chosen instead to campaign.

Apparently for austerity, or at least that the House Republicans have, as demonstrated by them, holding the government hostage. A few weeks ago, in order to impose austerity on the country rather than new investment in growth. Typically, I try to avoid politics and don’t take sides. But on this issue, I’m pretty passionate. I believe that the way forward for the United States is for us to invest in new industries, new technologies.

And so, among other things, the economy will grow faster, but also so that we’re not overtaken by China, which is now investing more in research and development. And the United States is and therefore is posing a real and grave threat to U.S. national security and all of our futures. So investment is the way forward, and that’s what I believe in and that’s what the book is all about. And so I was thrilled to have an opportunity to discuss this with members of the House Ways and Means Committee.

Buck: I would say this much, though, in terms of the political aspect of this. Neither neither party is in the business of austerity when they’re actually in power. You know, I think that it’s all posturing. Right. It’s all posturing whether you’re a Democratic Party or a Republican Party. The idea of of austerity in terms of fiscal austerity is something of the past. I don’t think that’s real. I think it’s something that you just kind of, you know, use as a mantra to oppose the other party.

Richard: Well, sadly, I think you’re right. I would advise the Republicans to look back at their most successful policy of the last several decades, and that was under President Reagan. Under President Reagan had the US government invest very aggressively in the US military and that turbocharged the economy. We had very high economic growth during the 1980s and it resulted in bankrupting the Soviet Union at the end of the eighties.

And so that is something that had been passed during the previous Congress when the Democrats were in control, along with the Bipartisan Infrastructure Act and the Inflation Reduction Act. With the inflation reduction Act funneling, we now know what’s likely to be, you know, very large amounts of money into new industries and energy related energies and clean energy. So a lot happened in that previous Congress and they were disappointed. And I think that they had lost the of course. And my my suggestion to them was to not to run on a platform next time of now America can invest. We can grow by investment investing in new industries and technologies. We don’t have to settle for one or 2% GDP growth a year. We can invest on such a large scale that we could induce a new technological revolution that would turbo charge US economic growth. And at the same time, over over the next decade, produce technological miracles and medical marvels and generally make everyone’s lives better. So rather than continuing on in this long period of stagnation that the United States has been in now for decades, that has resulted in the middle class being hollowed out and disappointed with their prospects in life and the prospects for their children.

And so, among other things, the economy will grow faster, but also so that we’re not overtaken by China, which is now investing more in research and development. And the United States is and therefore is posing a real and grave threat to U.S. national security and all of our futures. So investment is the way forward, and that’s what I believe in and that’s what the book is all about.And so I was thrilled to have an opportunity to discuss this with members of the House Ways and Means Committee.

Richard: And so that was the most successful policy, and that’s the policy they should adopt now. But instead, they seemed to have adopted the opposite approach.

Buck: Well, at least for now. And if there’s, you know, at the end of the day, again, I will just reiterate, I think it’s all posturing because, I mean, the Trump administration was not short on spending. Right.

Richard: So this short on getting any bills passed that actually invested in anything like infrastructure or or chips and Science Act or. Well.

Buck: Listen, I don’t know. Again, I just think that, you know, not political either way here, but I just think that both parties are kind of have have not had the best of ideas ahead. I mean, you know, I mean, I think the Democratic Party’s also leaned in a very sort of socialist way that doesn’t necessarily, you know, promote growth in the economy. You know, I’m hopeful that that changes with regard to any any either party. I think investment is important. But I think, you know, you know, just giving away things is not particularly helpful.

Richard: As I mentioned, I’m more or less a one issue guy. My issue is I want to see the government invest aggressively in new industries and technologies in cooperation with the private sector, actually letting the private sector managing managers manage these businesses. But yes, so personally, I think we could. Well, that’s a noble goal to want to give everyone free health care. We can treat everyone with kidney disease for the next 1000 years, or we can invest and we can cure kidney disease within the next decade.

Buck: So let’s shift gears a little bit. What’s going on in this economy here, Richard? It is a very confusing economy for me, Very confusing. And I know, you know just what I’m looking at. And again, I’m not an economist, but I look at these, you know, obviously we had this crazy, you know, crazy but significant, you know, inflationary environment followed by the Fed initially kind of in denial, you know, saying that it was transitory, then turning around and, you know, increasing rates at this incredible rate. And then now inflation seems to be down a little bit, down a 4%, I believe, last month. And but in the meantime, you still have a huge job growth rate or at least new jobs. 339,000, I believe, was the the number last month. In the midst of that, I also understand we’re at 2009 levels of of corporate bankruptcies. So it’s it seems to me it’s a rather schizophrenic economy. What’s your take on on what’s actually happening here?

Richard: Right. It it is a schizophrenic economy and it’s difficult to to parse through all the various contradictory indicators that we’re receiving because things are really not playing out the way that would generally be expected. I think most economists had been expecting the US economy to go into recession for quite a long time now, and although it did flirt with recession during the first half of last year, it recovered.

And as you said since then the job growth has been strong and generally the economy has been much stronger than has been expected. And one of the main indicators, I think there are four or five points that would suggest the economy should go into recession and that asset prices would fall. But at the same time, I think there are another four or five points that point in the opposite direction.

So let’s start with the negative points first. I always focus on credit growth. I think credit growth is very is I think it’s been the main driver of economic growth for four decades. And typically, if credit. But what I mean by credit credit is this flipside of debt. So all the debt in the country, government debt, household sector debt, corporate debt, financial sector debt, all the debt, if it grows by less than 2% a year, adjusted for inflation, typically that causes the US economy to go into recession. So between 1950 and the 2008, just before the crisis of 2008 began, every time credit grew by less than 2%, adjusted for inflation, without fail, the US economy went into recession.

Buck: Now, for we’re illiquid and the lending market is illiquid right now, right? I mean, it’s certainly in real estate, even in small business, it’s not a particularly healthy lending market.

Richard: Well, that’s right. And so now for almost two years, credit growth has been well below 2%, adjusted for inflation. But we haven’t gone into recession. So that’s a big anomaly in my framework of looking at the world and that’s now looking ahead. It does look like credit is going to continue to slow, but of course, that’s nominal credit growth looks like it’s going to continue to slow. But at the same time, it also looks like inflation is going to become lower. So real credit growth is a bit less certain in terms of what it’s going to do. But just in the last quarter, if you look at the financial accounts of the United States, we’ve seen some pretty significant developments, particularly with the household sector. The government is the biggest debtor, but the household sector is the next biggest debtor.

And as of the first quarter, household sector borrowing slowed down very, very sharply, almost flattened out. More and more mortgage growth was very depressed. And also even consumer credit was very depressed. So given how high interest rates are and the likelihood that they’re going to move even higher over the coming months, at least a little at least another 25 basis points, it looks like then it does look like households spending, borrowing will be weak. And this does suggest that credit growth will remain weak and that should be enough to push the US into into recession. Now, I would say that’s the biggest negative. So let me flip to the biggest pause.

Buck: Let me ask you this, though, before you move on. How long generally does how long does it usually take you know, when you have these kinds of these sort of negative, negative things happening or, you know, these things that tend to drive recessions, these variables and like, how long do you how long does it usually take in economy to, you know, take it, have those problems with credit, you know, retracting credit, receding credit lines and things like that. And to turn into recession typically. Is this unusual that it’s been a couple of years and we’re not in a recession now?

Richard: Yes, it is. It is. It’s unusual. Normally, this is something that would happen within a quarter or two.

Buck: Okay. So so you would expect that now and then with rates continue to go up to what makes you think that? Well, what do you think it’s delayed? And I guess what would make you think that that it’s going to happen now.

Richard: So yes, so flipping to the to the positive side and answering your question is the biggest thing that has changed. The thing that is so different this time than ever before is as a result of all of the stimulus money that the government sent out, savings are very high. And if you look at total deposits, which is, I think a very one, at least one way of looking at savings, total deposits in commercial banks. But normally these trend up steadily, decade after decade after decade. But in 24 months from February 2000 to 22, February 2022, these spiked by 35%, almost a $5 trillion spike in deposits in just two years. This was completely off the charts in terms of how this compared to what normally happens. But savings, we’d never seen anything like that in the past.

Buck: Isn’t that really strange? With the inflation going up, though, you would think they’d be spending it well.

Richard: So the reason that this spikes so much is because when the government sent out three rounds of.

Buck: Helicopter money.

Richard: You know those checks, you get your check and what do you do with it? You deposit it and you deposited in commercial banks. And so suddenly there’s this very big surge in in bank deposits, which also therefore resulted in a spike in M2. Since M2 is one measure of the money supply, it contains not only the money that the Fed creates, but also deposits. And so but that’s a more of a technical matter. Just we can just focus on the jump in deposits. Right. And so this has created a whole lot of spending power, something you can almost think of this. The government spent so much money on stimulus, just this, I believe, $5 trillion on stimulus alone with the Fed creating practically $4 trillion to finance that government spending.

Thus such a large amount of spending. It’s practically spending on a war like level. And when the government spends money on a war like World War two, you tend to get an economic boom. And that’s the situation I think we surround ourselves, and I think that’s more than any other reason why the economy has remained so hot for so long while Why the job market is still strong, and why inflation has continued to be high for longer than most had expected it to be. Although, although there are other factors at play in terms of inflation as well.

Buck: What do you think happens next? I guess that’s the question. I mean, and you see I mean, you have factors on both sides of it. I mean, do you do you have a sense or a feeling that that, you know, one of these one of these things will prevail?

Richard: So let’s jump back to the negative side. One thing that is, I think worrying in the not too distant future is the resumption of student loan repayments. Student loans. The students who have a lot of I think they say 45 million Americans have student loans. They haven’t been required to pay anything on their student loans. Now, going back to, what, early 2020 and apparently beginning in October, they’re all going to have to begin repaying their loans again.

Now, there’s some uncertainty about whether President Biden’s proposal to cancel the significant amount of this debt is going to be constitutional or unconstitutional. So we don’t know if those students will have their debt canceled. Some of them may, but not all of them in any circumstance. Under even if Biden’s proposal is doesn’t make it through the courts, that’s not going to cancel all the student debt.

And the student loan resumption will begin in October. And if Biden’s plan doesn’t make it to the courts and everyone with student debt has to begin repaying it again, that’s probably going to be a significant blow to the economy and potentially to the stock market as well as and things like Bitcoin as the Bitcoin borrowers suddenly find that they have to stop speculating in crypto and start tying the government back again for their student loans. You could see that people forced to sell stocks just in order to begin repaying their student loans and also at the same time spending less on on consumption and dining out. So that could be a significant blow to the economy and to the financial markets.

Buck: So your thought is that, you know, I guess that the student debt issue could push things over the edge in terms of the recession. Is that where you’re going with that?

Richard: Yes, yes, yes. The severity, how big is and.

Buck: How big is that? You know, is the student debt issue And like how many what percentage of Americans are at effect? I’m just curious in terms of trying to understand like what the you know, the impact of something like that would be the severity.

Richard: The so they say 45 million Americans have student loan debt and the total amount of student loan debt is $1.6 trillion, but the pertinent amount is 1.3 trillion because that’s the amount that the government has extended to the students. And it would be part of the 1.3 trillion that would potentially or potentially not be canceled by the Biden plan. But all of these loans will have to be begin servicing their debt again starting in October. So how long.

Buck: Have they been forgiven? Like how long has it been since they were you know, they haven’t had to pay.

Richard: I believe President Trump suspended these student loan repayments. I believe it was March 2020 at the beginning of COVID.

Buck: Okay. So yeah, so that that’s a pretty significant that’s a pretty significant amount of money going back into, you know, either savings or spending.

Richard: Well, that’s right. And again, it’s going to the severity of this hit will depend on whether the Biden plan makes it through the courts or not. But either way, it should it should dent consumer spending and also the retail investors ability to invest.

Buck: You’re saying so So what what do you what do you think the Fed’s going to do now? You think they’re going to continue? You mentioned 25 basis points, but after that, you think they’re going to they’re going to put on the brakes for a bit and kind of see what happens, especially with I mean, I don’t know. I mean, are they paying attention to some of these issues that you’re talking about with student debt, that kind of thing?

Richard: I think they are. I think they are. And I you know, I think the Fed is very transparent, generally speaking. If you watch their press conferences after the FOMC meetings, I don’t think they’re lying when they say the things that they say, yes, they’re going to watch what’s happening. They’ve signaled things in advance. So it was no surprise that they didn’t hype it.

The most recent FOMC meeting, they say the next meeting is live, but there’s more or less suggesting at this point that it’s likely they will hike again. In fact, they’ve penciled in two more rate hikes for this year in their dot plot projections. But again, those are subject to revision depending on incoming data. And what the incoming data shows us is, yes, inflation has been coming down to 4.4% to 4%, as you mentioned, But the core level is actually higher and stickier.

And their favorite measure of inflation is the personal consumption expenditure price index and CORE. There is 4.7% and it’s been stuck above 4.5% for the last six months or so. And they’re not getting the progress they want. They’re in part, in large part because there’s still upward pressure on the the rental component of inflation, which is quite significant.

But they do expect that to come down significantly over the next 12 months.

You mean also since you’re talking about rents?

That’s right. Rent. Rent equivalents make up a big part of the personal consumption expenditure price index and year on year that’s still going up. But give it another six months and it’ll start going. It’ll be negative.

I mean, we’re already projecting, you know, two just over 2% to two, two, two and a half percent in some of our major markets. DFW, Phenix, Scottsdale, some of those. So markets that were growing significantly have slowed down a lot already. So so it’s interesting.

How things operate.

How do they interpret this, you know, those kinds of details. And then you dig bankruptcies and that I talked about before and the jobs. How how do you think they look at these things when they seem to be giving such mixed signals?

So on the other major component of the PC price index is is the non-housing services. And that is still been stubbornly strong and that’s driven largely by employment and the number of jobs that are created. And the average hourly earnings growth which also has remained above where it probably needs to be to get inflation back down to their 2% inflation target.

So they’re they’re actually they’re frankly, they don’t say so, but they’re hoping that the unemployment rate will go up and that wages will stop going up so much. In an ideal world, this can all happen without the US going into a recession, but in the real world, it’s not likely to normalize. It requires a recession. The recession ends up throwing millions of Americans out of work and wages stop rising and start falling and inflation comes down soon after that and goes below the Fed’s 2% inflation target.

But so far that hasn’t happened. And I think in part, going back to this enormous amount of savings that I was mentioning earlier has been supporting the economy despite all the Fed’s rate hikes.

Yeah, it’s such a strange thing to me again because, you know, I think of the money coming in, you know, this kind of helicopter money or whatever it is during COVID. You know, in my mind, that was the spending that was it was triggering was one of the major factors behind inflation.

But deposits don’t go away. Money is once it’s created until it’s destroyed through quantitative tightening. It doesn’t go away.

Buck: You know, that’s interesting. Okay. That makes a lot more sense. So. So where do we go from here? So what’s next?

Richard: Okay, so let’s hit a few more negative points and then come back to some positive points. Okay. First, the high interest rates, as you mentioned, is already causing property prices to weaken. So that’s likely to continue. The property prices are home prices are likely to fall. So one of the things that is reported in the what used to be called the flow of funds is household sector net worth or the wealth of the American public. All the assets that the real estate assets of the American public declined in the first quarter. So we’re seeing wealth destruction on the property level already. So that’s going to weigh on the economy. Another thing that I think is very significant is quantitative tightening. The Fed is destroying $95 billion a month through quantitative tightening, which is the opposite of quantitative easing. $95 billion adds up quickly. It’s more than $1.1 trillion a year. And so as the Fed drains $1.1 trillion a year, that is going to take money out of the financial markets that will remove these that will cause the savings to decline by that amount indirectly. And so that’s quantitative tightening. It’s like the Fed removing the oxygen from a ballroom full of investors.

At first, the investors don’t realize it, but eventually it becomes difficult to breathe. And at that point, they all run for the exits. So it takes some time, but and we haven’t gotten there yet. And in fact, since Q2 started in April last year or thereabouts, the Fed had destroyed about $600 billion, which was a significant amount. But then when the Silicon Valley bank crisis happened, just within a matter of weeks, they created $400 billion and pumped it back into the financial markets again through loans to banks and various channels that created money again.

So they undid about 60% of Q2 in just three weeks. And now they’re almost now they have been destroying money again steadily since March. And so they’re more or less back to where they were in March before the Silicon Valley Bank issue started. So we had a three or four-month reprieve where the Fed was not in net on net taking additional money to actually injecting more oxygen back into the ballroom. But now we’re once again getting to the point where we were back in March and they’re going to continue with Q2. So that’s going to drain financial liquidity out of the financial markets for, you know, for the foreseeable future. But there is a lot of liquidity to be drained. So we’ll have to see. This could go on for a year or longer before they have to change course.

So that’s a negative. And sooner or later that will catch up with us. Another thing to be very concerned about is asset prices really are still very inflated. Of course, home prices skyrocketed during the pandemic and stocks did as well. And so if you look at something that I keep an eye on, the wealth to income ratio is extremely high. By past standards, the wealth to income ratio is calculated, calculated like this. It takes the household sector net worth. In other words, wealth of all the Americans, their all their assets minus all their liabilities, net worth divided by our disposable personal income. So wealth to income. Now typically going back to 1950, the average for this wealth to income ratio has been about 550% during the Nasdaq bubble, it shot up to a new high of 620, and then that bubble popped and went back to its long-term average.

And during the property bubble, it went up to 670%. And then that bubble popped and it went back to its long-term average as asset prices crashed. But now its previous high was 670, now it’s 760. So it’s way above where it was in 2008 before that crisis started and suggesting that, you know, if this if anything goes wrong, it could go very wrong. So that’s another thing to worry about. A particular garden stocks and another it’s also another reason to expect home prices to keep falling significantly. So those are quite a few of the negatives, but there are some other positives as well. Again, the main one being all of the savings that I have already pointed to. But another is the AI revolution.

You know, this has suddenly generated a tremendous amount of animal spirits, if you will. And it is you know, I’m no expert on artificial intelligence. I know you’ve done some podcast on the subject and probably know much more about it than I do. But from where I’m standing, it seems to me that this is the most significant development since the development of the Internet with potentially even greater repercussions. And you could see within videos performance in terms of the impact on stocks, we may see this alone drive, you know, the Super seven, but to potentially significantly higher levels. I’m not sure who knows. You.

Buck: Just mean by like, you know, robots trading and that kind of thing or What do you mean.

Richard: Just in terms of investment.

Buck: Investment. Yeah, that’s the thing is I’m trying to understand like, you know, part of I don’t even know how you invest in AI, really, you know, that, that this is some companies that are using A.I., But do you think the idea of the technology will drive investment into companies that are utilizing A.I..

Richard: And companies utilizing A.I., of course, will have to spend a lot of money on chips. Yeah, and lots of engineers and even prompt engineers and engineer. Yeah, sure. We could just see a really rapid change in the way that work is conducted.

Richard:

Likely to involve a lot of investment and which would benefit the economy. And also it would probably fuel even more speculation than we’ve seen so far potentially driving these techs shares potentially significantly higher. I mean, they’ve gone up a lot, but we’re nowhere near the sort of crazy bubble levels that we were during the Nasdaq bubble. And it’s this has the potential of being at least as transformative as that.

So I view as a potential positive for the economy and then on a less dramatic scale, but it’s still very significant. I think all of the investment programs that were passed in the preceding two years, the Infrastructure Act, the Chips and Science Act and the Inflation Reduction Act, those things are going to result in probably hundreds of billions of dollars being invested in infrastructure and other projects that will be rolled out gradually.

This is not all going to hit this year or next year, but it is going to build up over the next several years and probably provide significant support to economic growth. So I view that as a positive. And then also another positive for particularly for stocks is the US current account deficit has hit a new all-time record high last year, with the US importing much more than it exported.

So the current account grew out to almost $950 billion last year. The previous peak down about 850 billion back in 2006.

So the reason this is significant is the current account balance has to be exactly offset by capital inflows into the United States. Every country’s balance of payments has to balance. So it’s like in this respect, it is like a family’s budget. If a family spends more than it earns, then it has a deficit that it has to borrow or sell something to someone outside the household, meaning that so applying this to a country, that means that if we have a current account deficit, that exactly the same amount of money has to come into the United States on the capital and financial account surplus.

So the larger the current account deficit becomes, the more foreign capital comes into the United States and the more foreign capital comes in the United States, the easier it is. It tends to push up asset prices.

Buck: Interesting. So what all this happening at once and it becomes a great big explosion, right.

Richard: So you have you know, there are clear things to worry about that inflated asset prices, quantitative tightening, credit slowing. But on the other hand, there are these things that are also supporting the economy that we haven’t seen either. We’ve never seen them or we haven’t seen them for a long time.

Buck: What do you make of the you know, we also have I mean, it’s still a ways or a little while away, but I would think that the the on you know, the presidential election 2024, that is probably likely. I mean, at least historically we’ve seen is is to affect the behavior of the Fed there. You know, they’re probably not going to be raising rates a whole lot in 2024, that kind of thing.

Richard: The yes, it will. I think by 2024, the economy will be in recession and they’ll be cutting rates for that reason, because it probably won’t be that much longer before.

Buck: Or do you think they’re going to cut rates? You think that You think they’re going to cut rates?

Richard: Yes. I mean, when the inflation when when there is a recession, if there is a recession, I believe there will be. When that happens, then unemployment will go up, wages will start falling, inflation rate will come down and when the inflation rate comes down below the Fed’s 2% inflation target, it may not be long before we’re flirting with deflation again, depending on the severity of the recession.

So, yes, the interest rates are high. Now, the Fed doesn’t want interest rates to be high, if that’s not necessary, to kill inflation. So as soon as inflation really begins to start to go below the Fed’s 2% inflation target, they’ll be very quick to cut. And of course, that’s another thing that will spur the speculators in. The prospect of lower interest rates is another reason that asset prices, or at least stock prices, will tend to be more supportive than they would be in a stable interest rate environment.

Buck: Sort of just doesn’t make sense. Like when you think about it, though, right? I mean, you’ve got that like a recession would ultimately spur the markets to rally because of rate cuts. It just doesn’t make any sense.

Richard: Yeah, they often say they always talk about bad being good news in those environments. Right.

Buck: Well, interesting stuff. Anything else you want to share before we we cut out here?

Richard: No, I think we’ve hit on the main points.

Buck: Yeah, absolutely. Well, it’s been, um. Yeah, I mean, a lot of information here and it’s always interesting to get your take. Richard, I appreciate your time.

Richard: Thank you.

Buck: Back Let’s talk a little bit about macro watch. So Macro Watch is the newsletter. I have been a subscriber before and it’s just I think it’s, you know, for people who really try to try to understand what’s going on in the world, I think it’s a very useful, um, it’s a very useful newsletter. And you also have some introductory type videos that help people understand your view of the economy. Do you want to talk a little bit about that?

Richard: Thank you. But yeah, so Macro Watch is a video newsletter that I started almost ten years ago and every couple of weeks I make a new essentially it’s the PowerPoint presentation with me discussing something important happening in the global economy, the theme of macro watch that runs through macro watch. The main themes are that credit growth drives economic growth, but liquidity determines the direction of asset prices and that the government attempts to control both credit growth and liquidity to make sure that the economy keeps growing and doesn’t implode. Frankly. So it’s very important to monitor these things. And so Macro Watch does focus on the Fed. What other central banks around the world are doing on government policy and generally all the major macroeconomic factors that in one way or the other influenced the direction of stocks, bonds, property, currencies and commodities. So every two weeks I upload a new video and if your videos tend to be about 20 minutes long and have 30 or 40 charts that can be downloaded. So I hope your listeners will will check out Macro Watch. They can find it on my website, which is Richard Duncan, Economics econ. That’s Richard Duncan Economics Econ. And if they would like to subscribe to subscribe button and use the discount coupon code formula. With that discount code formula, you can subscribe at a 50% subscription discount. I think they’ll all find it very affordable.

Buck: Yeah, absolutely. And again, I highly recommend it. I mean, I think it’s again, I think one of the the thing that’s really hard is, you know, you hear me asking these questions, it’s really hard to make sense

of what’s going on. So it’s useful to have somebody like Richard walk you through what’s going on and trying to make sense of it. So, again, Richard, thank you so much for being on wealth formula podcast again and let’s try not to make it another 15 months, which these days is equivalent to about 150 years.

Richard: I look forward to the next time. Thank you.

Buck: All right. Take care. We’ll be right back.