:
Jeff Deist and the Debased guests express their concerns and criticisms regarding the state of the economy under Bidenomics. Warning signs such as an inverted yield curve, declining investment, and excessive government spending are hidden underneath GDP growth and lower inflation. Will Bidenomics steer the economy toward a recovery or into a recession?
Connect with Jeff and Monetary Metals on Twitter: @JeffDeist @Monetary_Metals
Additional Resources
The Dollar Cancer and Gold Cure
Podcast Chapters
[00:00:00]: Welcome
[00:00:10]: The current state of the economy
[00:03:02]: Examining Bidenomics and its definition
[00:07:04]: Inflation and the new normal
[00:14:05]: Importance of Deregulation for Economic Growth
[00:17:56]: Economic Stagnation and Declining Real Wages
[00:19:01]: The Need for Optimism in the Future Economy
[00:22:11]: Potential Problems with Ending Welfare Programs
[00:24:23]: Impact of Rising Gasoline Prices and Oil Policies
[00:25:40]: Student Loan Payment Shock and Economic Pain
[00:26:49]: The Green New Deal
[00:32:48]: The strategic petroleum reserve
[00:35:34]: High PE ratios and potential stock market crash
[00:39:24]: Fed’s balance sheet and debt concerns
[00:42:17]: Questioning Biden’s economic plans
[00:46:45]: Looking beyond Washington for solutions
[00:50:51]: Promoting entrepreneurship in a broken monetary system
[00:55:13]: Homeownership Challenges
[00:57:20]: Subscribe!
Transcript:
Jeff Deist:
Our topic today is, of course, the economy as always, but a little broader in the sense of Bidenomics. I wanted to start out and we’ll get to Vance and EJ and some others. But I saw pretty funny last night on MSNBC that I’m going to say the execrable, Nicole Wallace, who in my eyes is just a shill for everything bad, basically had a panel of sycophants who were talking about how Biden needs to run on his economy, that there’s a surge in the US economy, a boom in large scale infrastructure, a strong and resilient Bidenomics in action. His economic agenda is a real accomplishment. It really is morning in America right now. I saw this and I’m like, well, that absolutely does not comport with what most of us are seeing and feeling in the economy, which is a lot of unease. To the extent, there is still froth. It sure feels like it’s coming off the fiscal and monetary stimulus of the COVID period and that there’s a lot of danger signs, a lot of warning signs, everything from a deeply inverted yield curve, and we’ll get to that, to the number of jobs which are actually part-time being created to all kinds of other factors.
But to be fair, let me just be devil’s advocate here. We have the erudite, Nicole Wallace. You have Jerome Powell at his FOMC meeting earlier this week saying, Look, we don’t forecast a recession any longer. Obviously, the S&P and other market indices had an absolutely great first six months. The first half of the year, GDP is up an unexpected 2.4% for Q2. Inflation has come down, allegedly. It depends on how you measure it. Of course, the PCE is a little different number, but CPI has come down from all the way up the eights down into the threes. In part, I think, aided by oil, which has fallen, which fell for much of the year, but it’s starting to creep back up, and I think is now back at 80 after being down in the 60s. In 2020 during COVID, oil was all the way down at $24 a barrel or something. They couldn’t even sell the stuff. So you put all this in a blender. And Joe Biden, who I’m not sure is going to be the 2024 Democratic nominee, but he certainly is the most likely person to be that. E. J, I know you’ve been pretty critical of this, and on your Twitter, you run a lot of, I won’t say nasing charts, but charts that examine some of this data a little deeper and take some of the…
It’s not as rosy as projected. Let me ask you, what’s your definition of by dynamics? And are things worse than Nicole Wallisland?
EJ Antoni:
Defining by dynamics, that’s a good one. I would say taxing, spending, and printing of money by the government. That is probably the most succinct definition I think I can give. In terms of how rosy things look, I just don’t see it quite frankly. As soon as you start opening up these different data releases and you start looking under the hood, you realize that things are not actually that great. 2.4%, if I can borrow a phrase from the mini-series Chernobyl, it’s not great, not terrible during normal times at least. But when we have an environment like today where interest on the debt is going through the roof, we’re almost at a trillion dollars a month annualized in terms of what the treasury is having to shell out just to service existing debt, and that debt and that debt is growing, that’s not a good environment, especially when interest rates are rising. You need a lot of growth to overcome that so that you can eventually start winding down that deficit and therefore debt. We’re nowhere near there yet. We need to basically double growth to put us on the right path. We have that to look at.
Another question then would be why is it that growth is not that great? A lot of that has to do with the fact that investment has been declining. Now, we did see a bump this last quarter, but if you look at over the last year, we are way down. We’re down more than 3%, and that’s just gross investment, not net. When you throw depreciation in on top of that, you have a recipe for a declining capital stock. That’s really not a good thing because it’s that capital stock that allows us to fuel future economic growth. We don’t really see a lot of positives in this report. We see consumer spending being fueled by credit, for example. You were just talking about when did it become the norm that people would purchase a car, a depreciating asset that was more than their annual incomes. I don’t know. I suppose it became the norm when the Federal Reserve made zero interest rates the norm. But that’s, I suppose, another discussion. The point is that consumption right now is anemic, but it’s still being fueled almost entirely by credit. And as bad as it is, as bad as that growth in consumption is, it’s literally outpaced by government.
It’s outpaced by, in other words, what that essentially means is that the government is getting to spend more than you are, or I should say the growth in government spending is faster than the growth in your own spending. But then there are other components like net exports, for example, which is always very tricky how that adds to GDP because the export portion obviously increases GDP and the import portion reduces it. But as international trade slows down, which it has been for a while now, as it slows down, imports and exports have been slowing at different rates during different quarters. In this last quarter, largely because Americans are demonstrably poor, we’ve been buying fewer imports. As a result of that, it’s artificially causing that GDP number to go up. That’s just how the math works. For example, the contribution from imports actually exceeded the contribution from personal consumption expenditures. In other words, what you and I are spending. Again, the idea that somehow this was a blockbuster report, as some people in the media are claiming, I just don’t see that. I see exactly the opposite. Yes, inflation has come down, and yes, that’s wonderful, but it is still much hotter than the Fed’s 2% target, and even that target is silly, right?
The target should be zero. Again, that’s for another discussion. But inflation is still running way too hot and very troubling is that it has not been trending down towards 2%. It’s been trending towards 3%. And now that we’re there, there’s really no indication that it’s going lower.
Jeff Deist:
Do you think that three % is the new two %? Is that the new baseline?
EJ Antoni:
If I think so, absolutely. It seems like I don’t know if we have shorter memories these days or what, but it certainly seems like three % after living through nine %, this has become acceptable to the American people, unfortunately. Just as two % became acceptable after the spike in inflation that preceded that decision. I am very, very sad to say that yes, I think three % is the new normal. And it makes sense. When government is going to spend, borrow, and print roughly 50 % more today than it was before the pandemic, it makes sense that inflation would be 50 % worse.
Jeff Deist:
And when you say Americans are poor, you mean on a balance sheet basis, individuals, households relative to, let’s say, before COVID?
EJ Antoni:
Well, that’s a great question. There’s a couple of different ways we could measure it. You can talk about wages relative to purchasing power, real wages, that’s obviously way down. You can talk about the household balance sheet and we can look at how much debt people are in versus their disposable income, in other words, their after-tax income, and just about any way you want to measure it, people have become worse off. But I think it can get tricky to measure these things, and that’s where I think we see this huge discrepancy right now between hard and soft data, where the hard data, things like the GDP report we just got, look a lot better than the soft data, which is when you start asking people, How do you feel about your current economic condition? How do you feel about your prospects of getting a better job, getting a better raise, your ability to move? Things like that. And so because of that, I think you are seeing this huge divergence where, again, the headline number is not actually capturing how people are feeling right now. As anemic as the growth in consumer spending was, for example, as soon as you adjust that for population, you find out that it’s even worse because the population has literally been growing faster than that rate of personal consumption has.
You’re not even at two % personal consumption growth on a per capita basis, and that’s when it’s being fueled almost entirely by credit. In other words, I’m able to buy more stuff, but I’m having to go into debt to do it. I mean, that’s a path to insolvency.
Jeff Deist:
Yeah, well, consumption in America has been fueled by credit, arguably for a few decades now. But what’s different is it didn’t used to be at eight %. It was at one or two % and then put on a couple of points if you’re subprime or something. But this idea that prosperity is just achieved through spending, which I think is basically the left economic project. I think if we had to describe the left economic project in a nutshell, it’s that wealth is unlimited and government just needs to redistribute it better, and that means spend money. They don’t have any conception of say’s law that production, being productive is how you create demand because then people are producing, they have an income as a result of that producing a good or service for the economy. Then that’s how we get demand. The idea that when you raise interest rates and potentially that spikes unemployment a little bit, you’re killing supply. So reducing supply is not a way to quell inflation, quite the opposite. We have all these discrepancies in the narrative, so to speak. But again, when I look around relatively modest, college town of Auburn, Alabama, I see new Ford F-150 pickup trucks everywhere.
A lot of these are well north of that $50,000 I mentioned earlier. Yes, I can go out and get a credit card, even at some ungodly rate, and go buy big-screen TVs or something. That’s economic activity, that’s GDP, and that might give my neighbors the appearance of prosperity. But at some point, presumably, I have to make at least minimum payments on those credit cards. I feel like there’s a serious unease in America and that those of us who are interested in economics, those of us who are interested in free markets are doing a bad job of explaining the unseen to people. In other words, the seen is easy. Government spends money and builds some housing project or something like that, that’s seen. But the unseen is all of the, broadly speaking, economic opportunity cost and all of the savings for gone because of all the bad incentives in an inflationary environment. But I wanted to get to our speaker, Vance, again. He hasn’t been with us before, but he is an economist. He’s been in a few different think tanks, including Texas Public Policy Foundation, with which I’m very familiar. Ej spent some time there as well.
But also interestingly, and I hope he’ll touch on this, Vance, you were at OMB. That must have been quite an experience. I know way back when David Stockman was the director of OMB back in the ’80s, and he was saying, Holy smokes, look at these entitlements. We’re spending too much. And that all sounds pretty quaint today.
Vance Ginn:
Yeah, it does. And it’s a pleasure to be with you today and have E. J. On as well. And everybody, it’s good to be with you all. It was a great experience. I was there for about a year from June 2019 to May of 2020. So wrote to help write the President’s last budget, President Trump, and then COVID hit and everything else and found myself in a situation room having those types of discussions about what this is going to do to the economy and everything else and not good things, especially when everything started going downhill and shutdowns, unfortunately, happened. It was interesting, though, this talk about Bidenomics. I was just looking at this tweet that President Biden had yesterday. My predecessor presided over historic job losses. Thanks to Bidenomics, we’ve presided over historic job growth. And my quote tweet to him was, What would you have done differently during the COVID pandemic, which is when there were substantial job losses, which were coming back at a brisk pace before you took office? There was really the declines, I think. But it was an extraordinary time at OMB. Larry Kudlow and Art Lafer also had the position I had, which was Chief Economist of the Office of Management and Budget.
Art Lafer had it in 1971. He was the first person with that position in the Nixon administration. And then Larry Cudlow had it in ’81 in the Reagan administration. So some good company to be in. And it was extraordinary experience. But I think I would just echo a lot of what E. J. Said. I think the only other thing that I might add in there was, yes, you have the deficit spending under Bidenomics. You’ve got the high taxes. But the regulations, I think, have just been critical to the economic growth, the prosperity of our country. And that’s one thing. I think that you can give the Trump administration a lot of grief about deficit spending, even the tariffs and some of the international trade stuff, and I agree with that. But I think on the regulation side, the deregulation, removing those obstacles out of people’s way was really important of unleashing economic growth. And instead, as soon as the Biden administration came in, they closed down the Keystone XL pipeline. They’ve had one regulatory situation, new regulation after another to where the American Action Forum, they put together these costs of regulation over time and it’s over $300 billion.
Just in new regulation since the Biden administration came in, which was way more than what the Trump administration was. It was basically flat and even more than the Obama administration. This is a substantial cost in addition to the hiking of taxes, the higher interest rates because of the inflationary pressure that are out there. As you all were discussing, we’ve got some major problems on the fiscal side of things. Just to fund the net interest on the debt of about trillion dollars a year, more than national spending on national defense. We’ve got an expected two trillion dollars a year on deficits over the next decade. How do we pay for this? And if we’re going to have higher interest rates, which we have now with the Fed raising their overnight lending rate between banks, their federal funds rate to 5.5% this week, a lot of the debt is going to be rolling over and it’s going to be rolling over into these higher interest rates, which means these payments are going to go up at an even faster rate, which as EJ and you were talking about, we do need that faster growth. This growth that was purported for GDP in the first quarter of second quarter of 2023 of 2.4%. Ej laid it out there well about here are the different components.
But one of the other things that I look at is just private GDP. Subtract out government spending because government spending is crowding out the economy, right? We have to tax in order to get that money or deficits, which are just future taxes. If you try to try out that 0.45 % point contribution, you’re left with 1.95 %. And if you look at real average GDP and gross domestic income, we’ve been negative. We’ve been declining three out of the last five quarters. I think that this economic period of stagnation, or possibly recession, is what I’ve said it is, really got started early 2022, probably around March of 2022 is when you started to see a lot of these indicators really showing warning signs. Even the residential part of GDP, that contribution has been declining now for, I think it was what, nine quarters since early 2021. There are a lot of things that are shining to me saying, You know what? This is not a good economy. We’ve got a lot of warning signs on consumers as their real wages have been falling and declining for such a long period of time. I don’t see the bright light.
I’m an optimistic economist. Those things don’t often times go together. I talk a lot about this on my Let People prosper show, which is a podcast you can find on your major outlets, where I bring on a lot of guests. It’s interesting because more and more of the guests that I’m getting on, they’re having difficulty trying to determine what’s optimistic about the future. Michael Munger, for example, maybe some of you may know him. I asked him this question and he was basically like, I don’t know. I’m pretty pessimistic given what we’ve talked about today, given the supply side of the economy, there doesn’t look to be much relief coming. And in the Federal Reserve, when you look at the PCE, the Personal Consumption Expinatures report that came out today, if you exclude food and energy, which we all buy, but if you exclude it because that’s what the Fed likes to look at, it’s up 4.1 % year-over-year, which is more than double their average target rate of two %. So I think they’ve got a lot more work to do. It’s not just the interest rate. They’ve really got to start bringing down their balance sheet, which is down seven % year-over-year.
But it’s still more than two times what it was before the pandemic at about $8.2 trillion. And so we’ve got some major problems overall. And Binomics is not helping. It’s hurting.
Jeff Deist:
Well, when you mentioned that the private GDP is actually down, can you just reiterate what you said there? And that seems to me the thing that economists should be showing us, the unsee.
Vance Ginn:
Yeah. So it’s not down, it’s just growing slower than what that’s being reported. So the 2.4 % increase in real GDP for the second quarter was including everything, right? And if you exclude out the government portion, that contribution was 0.5 percentage points. So 2.4 minus 0.45, you get 1.95 % increase was just the private economy. And I think that’s what we need to be looking at.
Jeff Deist:
Well, so you had an article on Daily Caller a couple of days ago, and I’ll link to it on my Twitter after the show, people want to look at it. It’s called, it’s called, it’s called inflation is down, is by dynamics responsible? Not so fast. And you mentioned a poll from Monmouth University that only one in four Americans believe the country is heading in the right direction. Do you think that was largely e-con or was it broader than that?
Vance Ginn:
I think a lot of it’s econ. I know Mike Pallex over at ATR, he showed this nice poll that was done here recently saying, Hey, what are people concerned about? And as we would guess, it’s the economy. It’s the economy stupid, right? And inflation is up there. I think people are concerned about their jobs. And a lot of this over the last couple of years has been propped up not only from the government spending, but from a lot of the checks that were sent out to people early on during the pandemic and even later on during the Biden administration. The unemployment benefits that were plused up, where they were getting like $600 a week plus what the state was giving them. The savings increased to 33 %. And now that it’s coming back down as people are going through a lot more of their savings. But what happens now that Medicaid and a lot of these emergency declarations from COVID and everything else have now been repealed, and a lot of these states are going back to their normal eligibility criteria for welfare programs like Medicaid, SNAP, and TANF. And many people who’ve been on these programs who otherwise would not have been under normal eligibility criteria, which we should have went to normal a long time ago, they’re not going to get those anymore.
If that happens, hopefully people will go back into the labor force. But we’re going to have a big problem, Jeff. Many people have been without a job for three years now, and that is a huge gap on their resume, on their CV. And in economics, we know that if it’s just a couple of months off on your resume, that reduces productivity. What happens now with three years? Or what happens with the learning loss from all the schools? These are some major problems that are not being addressed. They’re just being addressed by more spending and deficit spending and everything else that are going to come home to roost.
Jeff Deist:
Well, I want to get into some specific questions. But just for everyone and get Ben and David in. But let me just ask David to come in on this. Where do you see the economy? Can Biden really win? He won the midterm elections when the economy was bad. Maybe Americans have just gotten so tribal, the Republicans are maga. I’m pro-life or pro-choice or whatever it might be that it isn’t just the economy stupid, that people are just dug in and they’re voting on culture war lines.
David Waugh:
Yeah, I’m not sure about how this will play into the election, although the economy is like… Allegedly, it is the issue, right? However, right now, if you look at polls, Biden is only beating where Trump was at the same time in Trump’s term, the June or July of the third year. He’s beating him by 1 %. And that’s with Biden maintaining his protective media apparatus. But when I think about this, I think that big picture, you go on Fred, you look at basically the purchasing power of the dollar, and you can use CPI. It might not be the best measure. But if you look at that over the past few years, it’s declined about 17 %. It’s a wicked robbery that’s basically taking place. And the stimulus that people were sent in checks and all of that, it doesn’t make up for that. And then on top of that, by dynamics, he introduces this trickle down strawman, and then he claims he’s restoring the American dream through industrial policy, but real earnings are down 3.16 %. And another thing, there are two major factors that I think that people haven’t been talking about enough that I think are really going to cause Biden some pain in terms of shilling his message.
And that’s that retail gasoline prices right now are reaching their highest levels since November. And basically, oil inventories are dropping in the US and worldwide. Demand is rising. And at the same time, the Biden administration is basically trying to kill fossil fuels in the US. They’ve been raising royalties on oil companies to pay production from public lands and all sorts of regulations that are really depressing oil production. Then at the same time, the price of oil is rising. Guess what? What? The Biden administration can’t drain the strategic petroleum reserves again. I think that that’s definitely an inflationary pressure that is going to cause people some pain. Then on top of that, the student loan, the payment shock of student loans that’s coming in the fall. I think that a lot of people… Yeah. So there are just so many things that I think are going to cause people economic pain. And it’s going to be even harder for Biden to shill this message. I really in June, the Wall Street Journal editorial board had this piece about Biden economics, and they closed it with, who are you going to believe mere your own eyes regarding Bidenomics?
Americans should believe their own eyes. I think that’s really where I stand on this.
Jeff Deist:
Well, let’s get back to oil real quick. My favorite Perma Bear, Peter Schiff was on, I can’t recall, I saw him the other night. And he was talking about how he thought a lot of the reduction in CPI was due to oil prices falling pretty rapidly over the past quarter. But now they’re bottomed out and they’re keeping back up. I think a crude barrel hit 80 in the last couple of days. Do Democrats understand that oil flows through every part of the economy? Would you go buy a toothbrush at the store, a truck brought it? Do they even get this?
David Waugh:
I don’t think so. I think that they’ve gotten around this to some extent with that super core measure. And I think that it’s a dubious way for them to sidestep reality, basically. But it affects real people. It’s like energy still matters.
Jeff Deist:
Yeah, that probably worries me more than any of the left cultural projects is the Green New Deal, the climate change stuff, because there you get into true religioniosity. We’re not talking about global boiling now, not just global warming. And there you get into that the energy is wealth. It’s literally a form of wealth. And the idea that we’re going to deny it to ourselves or to developing countries even worse in some ways, it’s not just grossly hypothetical, but it’s really scary. Because if you read Alex Epstein’s book, Fossil Future, you’ll know that some of these projections are just absolutely pie in the sky. I mean, the idea that we’re going to have enough renewables or alternative energy sources to replace coal, natural gas and oil in the near future in the near term, 20, 30, 40 years is just preposterously false and and worse of all, since Fukushima, of course, virtually no new nuclear plants have come online. One in Georgia and the US came online at an existing site, but it’s been bogged down in some regulatory issues. And Europe, with the exception of the French, has largely starting to shutter its nuclear power plants.
So I don’t know if the world has caught on to how truly insane and impoverishing that program would be. I’m long oil on my pathetic little E-Trade account.
Vance Ginn:
Hey, Jeff. Ej might want to talk about, he had a good chart showing the production of oil just flatlining for a while. I’ll let him take that. But I think that recently, just a couple of months ago, I testified before the House, Ways and Means Committee about the Inflation Reduction Act and all the green energy garbage that was in there. They sold that whole inflation reduction, which is just pretty laughable that they called it that. But they said that it was going to reduce the deficit and everything else because of these ridiculous estimates that they put on a lot of these variables. But now whenever new numbers or new information is coming in, some of the regulations that are put in place on the data by Treasury of what could be used and what can’t be used under the different types of money that was going out for EV subsidies and the batteries and everything else, instead of being about a $300 billion, it was closer to one trillion, if not $1.2 trillion. Almost four times as high as what they were initially expecting or estimating. That just goes to show that it’s all a scam.
They really are just trying to throw as much money as possible and expecting different results. For something that they’re not going to have much of an effect on, if at all. Anyway, to your point just a minute ago and yet it’s running up the deficit and it’s causing more harm for the overall economy. But I don’t know if E. J. Might have something to say about the oil price or oil production.
EJ Antoni:
Sure. Thanks, Vance. There’s a couple of things going on here, I think, with the oil markets, one of which is the crazy reporting from the US Energy Information Administration, which a lot of people have been very skeptical about for over a year now. And it turns out they were right. The numbers being reported were way off, and there have been some really crazy revisions that show that demand is actually way higher than we thought, supply is lower than we thought, and therefore we are seeing big drops in inventory. That is why all of a sudden we’re seeing oil and gas prices start to go up in recent days. In terms of production, though, which Vance was mentioning, production was just like a rocket ship during the Trump years. It was going up at a very dramatic pace. We cracked 13 million barrels before the pandemic. That’s barrels per day. What happened obviously during the pandemic was that plummeted. Unfortunately, we had the opportunity to refill the strategic petroleum reserve when the price of oil literally was negative. Speculators would have paid the government to take oil. Unfortunately, the Democrats in Congress blocked that. Whatever the case, though, under Biden, he has decided to, instead of replacing the reserve, he has decided to continue drawing it down, which has been very detrimental.
Now we risk getting caught with our pants down, essentially, where the price is going up past the point where Biden promised he would refill the reserve when it hit a certain dollar amount. Now what’s happening is we’re going to have to eventually refill it at an even higher price. Paper hands Joe Biden over there is buying high and selling low, as it were. But production essentially increased throughout most of ’21 under Biden, albeit at a slower rate than it was going up under Trump. But it has basically now flatlined last week’s number was literally the exact same as the first week of the year. We are perfectly flat for the year at this point. We’re somewhere about 800,000 barrels a day below our pre-pandemic production level. If you want to try to extrapolate out the pre-pandemic trend, then we are way below trend, let alone just the level. Unfortunately, that’s just an entirely self-inflicted wound from the Biden administration here, and we are really having to pay for it now. And all of the people who say, Oh, inflation is done and prices are going to continue coming down, I don’t think any of them have factored the energy markets into this at all.
Jeff Deist:
Well, I’m sure most people are familiar. If you know the Dallas Fort Worth area, if you know Southern California, all the way from Santa Barbara to San Diego to the inland empire. And you go back to those affirmation Ford F-150s. I mean, if gas becomes $4, $5, $6, $7, and of course it had become that high in California and some other places with taxes, what that means for the average family is just totally unsustainable. I’m not sure that the price of oil or the price of a lot of things have been baked in. I’d like to ask any of our panelists to just to chime in on this. I think equities and bonds currently are priced in with the idea that inflation is falling and that interest rates are going to fall as well. I’m not so sure that those two things are necessarily true. I’ll elicit comments No.
EJ Antoni:
I think that’s definitely right, Jeff. I think there’s way too many market participants right now pricing in not just pauses, but rate cuts. It definitely seems like the market believes that inflation and the rate hikes have run their course and that things are going to be reversing soon. But again, I just don’t see what in the data is making the case for that. And by no means am I… I know you mentioned Peter Schiff as a permable. I by no means am that, but I am very bullish right now.
Vance Ginn:
Yeah, I agree. And I think that if you look at PE ratios, they’re really high, historically high right now. The stock market, you saw that 13 days in a row, the highest in 1987. We also remember what else happened in 1987 with the big crash. If it would have went 14 days, it would have been the most days in a row going up for the Dow since 1897. It did go down yesterday, so I stopped that streak. But we’ll see how it goes. I agree, I don’t see how Chairman Powell is going to be able to not raise interest rates. I think even the Fed is anticipating that the interest rate is going to go up to six %, their overnight lending rate at target by the end of the year. We’re at 5.5%. That indicates to me maybe two 25 basis point increases by the end of the year and maybe that’s where it peaks. But one thing that I should just note and going back to Milton Friedmann and others is that we can’t just look at the interest rate. We’ve got to look at their balance sheet. Even though balance sheet is coming down 7% year over year, and some of that’s long-term treasuries.
If you go to the Cleveland Fed and look at their easing, the credit easing chart, you can see where it’s broken down. Some of that’s the long-term treasuries, some of that’s the mortgage-backed securities and agency debt. But it’s still highly bloated. There’s tons of liquidity that’s out there in the marketplace, and financial conditions are still pretty easy. They’re not really tightening. And so when you look at all those factors, I’ve got to think that inflationary pressures are going to be with us for a while and they’re going to have a hard time to get control over inflation and have a soft landing. I think this is going to be, unfortunately, a pretty hard landing. And even if you look at the household survey for the jobs reports, we’ve been essentially flat for several months now. I know that the non-farm, it looks good and there’s some things there, but that is an account for a lot of the hurt. I think, that the household survey is really showing for a lot of people. So that’s something else to keep an eye on.
Jeff Deist:
Ben, do you think the Fed understood this? Really, since the late ’70s, early ’80s, the Fed funds rate during that period went from something like 5 to nearly 18% under Volker in a few short years. During that same period, by the way, of rising interest rates, gold did quite well, I would just add. But there’s so much more treasury debt now versus that period. Do you think, Jerome Powell and his team fully understood how badly they would break all the banks that held all this treasury debt that was issued at two % or something?
Vance Ginn:
I don’t know that it was on the top of the radar. It seemed like they were trying to get in the business of wokeness versus doing their job, unfortunately, is one thing I would say. But I do think that there’s a different paradigm maybe now. I think some of us saw this early on, how this was going to be inflationary. Jay and and I were writing about this years ago, how at first there was no inflation, then it was transitory inflation and all this other nonsense. It’s like, no, you’ve got to look at what’s happening with the balance sheet, what’s happening to supply. Yes, there were supply shocks from the supply chain issues, but those were short term. But you had a lot of long-term factors that were going to drive inflation higher that they just seemed way behind the curve and getting control over. Unfortunately, we’re burying the brunt of those costly effects. I ascribe to a lot of the Austrian School of Economics. I’m thinking about the malinvestments, the keeping interest rates too low for too long, the amount of money that’s flooded the economy over that period of time. We’re seeing some of the boom and bust cycles not only across the economy more systematically, but in individual asset markets like the housing market, like the stock market now.
It’s pretty high right now. The bond market for a while. We’re seeing that in different areas, and I don’t think that’s going to stop until they get control of their balance sheet. To your point, though, Jeff, I think that is really where they’re missing the ball, in my view, is if you look back to what Volker did, yes, interest rates soared, but he was also cutting the balance sheet. He understood that that was learned the lessons from Friedmann and others that we’ve got to make sure we look at the balance sheet. I just don’t think that they’re willing to do that right now. Even after the ’08, ’09 financial crisis, it took them a while to really start drawing down their balance sheet, which I think that they should have done a lot more then. But then it was down to four trillion, it went up to nine trillion, and now we’re at 8.2 trillion. That’s a large amount when we’re at what, a $22 trillion economy? So this is all just inflationary, which is going to wreak havoc for many months and maybe even years to come.
Jeff Deist:
Yeah. And we should note that as recently as 2011 or 2012, just a bit over a decade ago, but the Fed was still maintaining the facade. James Bullard, for example, said publicly that, Well, we intend for the Fed’s balance sheet to go back to pre-crisis levels. And by pre-crisis, he meant pre-O8. So that would have been like the O7 level below a trillion dollars. And that was just… I’m not going to say it’s a lie. I mean, I think he may have thought that that was possible. But I mean, looking back now, the idea of a one trillion dollar Fed balance sheet is just preposterous, a decade later. Yeah. Because with COVID, for example. And so it’s scary just because everything feels more weaponized than, Oh, wait, the amount of household, personal, corporate, government debt? Much, much higher. The amount of social and political division, much, much higher. How do we get through, let’s say, a nasty recession, which I think 2008 certainly qualifies as, in today’s social and cultural milieu, is an interesting story in and of itself that I think economists should be touching on. But I wanted to check in with Ben, my colleague at Monetary Metals, and see if he’s got any particular questions or thoughts.
BVN:
Yeah, Jeff, thanks so much. So a lot of the points that the guests have been pointing out, which is that all else equal, the economy has some things going on, but you got to hold things all else equal, right? And the fact that our debt has gone up just incredible amounts. I mean, we are now nearing $32 trillion. We’ve now joined Japan and Venezuela in the exclusive club with our highest debt to GDP ratios and the top 12, which is obviously horrible, Jibouti in number 13 for anyone who cares. But the interest expense on the debt is nearing a trillion dollars, where we’re heading towards a zombie economy, where the interest expense on the debt is higher than the revenue the economy can be making in taxes, which is just clearly not okay. I mean, even if the stock market stayed in the exact position that it was, unemployment stayed in the exact position that it was, and real wages stayed the same as they were, which they obviously have not. There’s lots of turmoil, lots of risk, obviously, the yield curve and version showing that as well. But holding all of those things the same, the fact that our debt has just skyrocketed exponentially into the 32 trillion range is just unimaginable.
So maybe I’d ask the guests here, our expert panel, starting with David. Let’s say you have one minute you get to ask the President, Biden, or the Press Secretary a question about the economy that they have to answer. No sidestepping. No, I’ll get back to you later. David, what would you ask them? And what do you want to know about the economy and their plans?
David Waugh:
That’s a good question. I would ask, I think one thing, stepping back to energy, is I think that we saw basically, Obama basically tried to do what Biden is doing now with this green, air quotes investment into all sorts of solar, federal loan guarantees and all that stuff. And then after his term, it basically all went bust, and taxpayers were left on the hook for billions of dollars of basically failed programs. And now as part of Bidenomics, Biden is saying in the next 20 years, farmers are going to be providing 95 % of sustainable airline fuel and all sorts of questions. And I guess I would ask, how does the administration know what’s a good investment? And how is what they’re doing any different from what Obama did? Because we all saw that that didn’t really work.
BVN:
Vance, I want to take it your way. Let’s say you had a minute. You’ve got President Biden there. Maybe they’ve given him his drug cocktail to make sure that he’s all clear and awake. He’s incredibly mentally focused. And you get a minute to ask him? What are you asking him about the economy?
Vance Ginn:
Yeah. Well, first, good luck keeping him awake. But what I would ask is, what do you plan to do next? American people are suffering all across the country, regardless of what your Council of Economic Advisors and National Economic Council and yourself or reporting, there’s a lot of weaknesses across the economy and people are feeling that every day. How do you plan to address that? And a big part of that is your increase in government spending and high taxes and high regulations. And by economics has essentially failed. So what are you going to do next? That’s what I would want to ask him.
BVN:
EJ, you have the President in front of you. He’s got his mint chip ice cream. You get to ask him a question. What are you asking him?
EJ Antoni:
What do we need to do to get you to resign. No, genuinely, I don’t know if there’s any fixing things with these people in office, and it’s not because they’re a Democrat. We’ve had plenty of horrible Republicans, right? Actually, one of my favorite presidents was a Democrat, Grover Cleveland, because he saved the gold standard more than once. So I’m fearful that until we have a change in leadership, we’re not going to see any changes in what matters. We’re not going to see any changes in the policies that are actually not affecting, destroying so many Americans’ lives. The most important piece of information I could glean from anyone in the White House right now, I think, would be a playbook for how to get them out of office and replace them with someone better, which is probably a really long list.
Jeff Deist:
Well, I would add to that that democracy is a big part of the problem here. Democracy doesn’t work. We know it doesn’t work in a mass scale of 330 million people. And these politicians are reflections of us, not necessarily the folks on this call, but in the sense that democracy rewards high time preference. It rewards politicians who kick the can down the road, who don’t deal with structural problems like entitlement and debt and deficits. It encourages politicians to buy votes now at the expense of voters tomorrow. And sometimes that’s so far off. In the 1930s, when they passed the Social Security Act, well, maybe they knew, but they probably couldn’t have known then it would be 80, 90 years hence that Social Security would be inverted in terms of workers paying into retirees, and it would cause huge entitlement, the fiscal gap that we’re facing in the US today. But at the time, of course, they said, Well, we can’t have little… We can’t have widows dying in the streets. And so Social Security was a popular program when enacted. We have mechanical and structural issues with our economy, but we also have mechanical and structural issues with our politics.
I think the dollar is so far gone and that just the whole federal budget process, just the whole federal political process. I think Washington is so irretrievably broken that we really need to be thinking at the state and local level about how a state might protect itself by having gold reserves, by allowing Bitcoin to be used, by creating an alternative currency. States already have internal governments and processes. A lot of states have a huge amount of foreign trade. So the idea that we have to look to Washington for answers or elect the right guy or gal at this point, I think it’s just too late. I think we’re behind the curve fiscally and in terms of our monetary policy. I don’t want to say that to be Debbie Downer, but I think realism is required. I’d like to get comments on that.
Vance Ginn:
Yeah, I guess I’ll start there. One thing that I’ve been trying to get out there as much as possible is that free market capitalism is the best path to let people prosper. We could talk about all this other stuff, but we’ve got to get back to free market capitalism, none of this crony corporatism, none of the socialism. And get back to where… And this has been a long time ago now, but get back to where the government is the last resort, not the first resort. In too many cases now, the first place that people want to look is government. There’s a natural disaster. Okay, government. How much is the federal government going to send to Texas or to other states? There’s this poverty issue. How much money can we send to this group? Is it universal, basic income or whatever else that it may be? As long as we have this mentality and this discussion happening on so many areas of our lives, it’s going to be very difficult to cut spending the way we need to do or to even control the growth of spending. If we had just had government spending at the federal level grow by population plus inflation, which could be too much, but let’s just say that is a good metric.
Over the last 20 years, instead of adding $19 trillion to the national debt, we would have added just $500 billion to the national debt. That’s an $18.5 trillion swing from the positive direction for taxpayers that I think we should be looking at. We need more rules. We need rules from the Fed. If we’re going to keep the Fed and love to end the Fed, and I think we should, but it needs monetary rules. We also need fiscal rules of spending limits because these folks aren’t angels and they have incentives in place to get reelected by giving more handouts along the way and running up deficits. We need to put some framework in place that’s going to have institutional constraints on them. Otherwise, we’re on a path to disaster. I think that those are some of the key things that I would look for.
David Waugh:
Yeah, Vince, what you said reminded me in a way of a tweet that Perpyland had the other day where I think he nails it. And he said, To want to make a difference in society yet not in a way that can earn you profits really means you want to change things for others without asking for their approval. I think that that speaks a lot to this decline in entrepreneurship. Everybody wants to be an activist and an organizer or whatever, and to change things by screaming at people and posting it online. But there’s been a decline of entrepreneurs, and that’s the backbone of any productive society. And it’s harder to do that with a broken money. But I think that is going to be ultimately what if we can make it out of this at a more individual level, it’ll be through people becoming more entrepreneurial or are able to to become more entrepreneurial.
Jeff Deist:
Yeah, I think that’s a great point. I think that’s saving oneself, but also it is a lot harder with broken money. That’s unquestionably true. I saw our friend Peter St. Ojo also at Heritage with E. J. Had an interesting tweet the other day. I think he was retweeting someone, excuse me. But basically we can’t imagine a world where prices don’t rise all the time. None of us are old enough to even have lived in that. But Peter brought up that Campbell’s soup was the same price for 75 years, basically from 1895 until 1970. Campbell’s soup was 10 to 12 cents per can. And then I dug up an old story that I was familiar with from a few years ago. A Coca-Cola, a bottle of Coke, they used to have the sideways machines that had like a cloth thing and you put your money and it came out. I remember this from an old time barber shop when I was a kid. And so a bottle of Coke was a nickel for 50 years. I mean, people can’t even imagine this from the 1880s until 1953. And there’s this story, I don’t know if it’s embellished, but there’s this story that the Coca-Cola people went to the Treasury and ultimately even went to Eisenhower himself in the ’50s and begged them to make a seven and a half cent coin.
So that with one coin, they finally had to increase the price. And they didn’t want to go from a nickel to a dime. So they wanted to go to seven and a half cents. And they wanted a particular coin. So you only needed one coin to get a Coke. And I guess ultimately, or obviously in hindsight, they were turned down. But these are just incredible stories. Our grandparents, not so much our parents, but our grandparents and great grandparents, they could get ahead through simple thrift. I’m not saying easy. They worked very, very hard. But simply by saving more than they spent and having compounding interest on very simple savings vehicles at their local bank, a CD, a savings account, just through simple thrift, they could put away enough to be okay in retirement. And maybe our expectations have shifted. I can certainly speak to my grandparents. When they retired, they did not expect to be jet-setting through Europe and having a fancy car and living like a lot of baby boomers live now. I mean, the Stacey number of baby boomers still have six bedroom houses and all kinds of stuff in their retirement years.
And my grandparents were, they were like, well, let’s have some aforementioned Campbell soup and watch the ball game. So their expectations of their lifestyle were that it would be diminished when they didn’t have active income any longer. But nonetheless, I mean, we’ve created a situation here where not only a savings for chumps when the real rate of inflation, not what they admit to, but the real rate is probably well above what you can get in any simple savings vehicle, even a money market fund. And then on top of that, look at housing. I mean, I have a couple of teenagers. I certainly want them to launch in life. I want young people like my colleague Ben to have an opportunity to buy a house. And we have the the medium price is 25 % above pre-COVID. We have eight % mortgages on 30-year fixed mortgages. In my old hometown of Anaheim, California, there are dangerous parts of town which are gang infested now. They call it Anna crime in some parts. We’re a 1940s rambler, maybe 1,200, 1,400 square feet. A basic house in a not great area is seven, $800,000. But how are young people supposed to start life and build families in Anaheim, California, where a rambler in a gang neighborhood is seven or $800,000?
I’m not exactly sure how that works. But I want to give EJ the last word and then we’ll wrap it up.
EJ Antoni:
I think the issue on homeownership that you’re bringing up is a very real one. If you look at the monthly mortgage payment on a medium-priced home today, it has virtually doubled. It’s up about 98 % since Biden took office. That’s going to cost you an extra 12 grand a year for the same house, right? Over 360,000and dollars over the life of that mortgage, again, for the same house. I think a key thing that has made all of this government spending, borrowing, and printing of money, going back to what we originally said with by dynamics, what has made that all possible has been a movement in this country away from the Republic nature and towards a pure democracy, towards a Democrat nature. I don’t mean that in terms of the political party. I mean in terms of a pure democracy. Andrew Jackson did a lot of good for this country in killing the bank, the second bank in the United States. He did a lot of harm to the country, though, in fundamentally changing the character of the presidency towards something that was a popular appeal to the people. We went down the same wrong-headed route, for example, when we switched senators from being elected by the state legislature to having the same constituency that the House of Representatives has.
And the way this is all connected, in my opinion, is that things like inflation are wealth transfers. It’s not a generation of wealth, it’s a transfer of wealth. And when 51% of the people can vote to transfer wealth from the other 49, you are in trouble as a society. And unfortunately, I think that’s where we are at today. And I think that’s why ByteDomics is not economically successful, but thus far it has been pretty politically successful.
Jeff Deist:
Well, we try to wrap it up in an hour. I just want to thank everybody for joining. Be sure to follow Vance, E. J, and EJ and David and Ben on Twitter. Good to see my friends from the Rothbard Institute listening in. We’re always here at 2:00 Eastern on Fridays with another Twitter space, usually more focused on monetary policy, monetary issues. But today we just couldn’t help but take a few pokes at the Biden administration and their effective economic policy. So we thank everybody for joining us. Come back every Friday at 2:00 and have a great weekend.
