WEBVTT 00:00.000 --> 00:04.440 Well, welcome. I'm Bob Henderson, the Nomad Dad, and we're in Kuala Lumpur, Malaysia. 00:04.700 --> 00:09.520 And with me today, I'm very pleased to have Danielle D Martino Booth. 00:09.960 --> 00:13.820 Well, I am pleased to be here. What a fabulous event so far. 00:14.020 --> 00:18.280 It is a fabulous event that we've all attended. Is this your first time in KL? 00:18.700 --> 00:20.700 This is my first time in Asia, period. 00:20.900 --> 00:21.220 Wow. 00:21.420 --> 00:22.420 Yes. I'm delighted. 00:22.880 --> 00:24.900 It's a really fun place, don't you think? 00:25.320 --> 00:29.980 It is. I actually started my journey in Singapore. And you know what? I like 00:29.980 --> 00:30.620 organization. 00:31.020 --> 00:32.420 Well, then you'll love Singapore. 00:32.780 --> 00:33.480 Yes, indeed. 00:38.900 --> 00:44.060 So, your thoughts on Singapore versus KL. I know it may be a small sample size, but I 00:44.060 --> 00:46.700 see them quite different. What do you think? 00:47.020 --> 00:52.800 Being that I've been in so many U.S. industrial cities, big industrial cities, Kuala Lumpur 00:52.800 --> 00:58.440 has that. You feel that you're in a city that is a financial center of the world, 00:58.440 --> 01:02.260 but at the same time very much a productive center of the world as well. You feel that 01:02.260 --> 01:04.160 industrial edge about it. 01:04.360 --> 01:07.640 Yeah, definitely a financial center. No question about it. 01:07.660 --> 01:12.540 Well, Danielle runs her own economic forecasting firm. I guess it's Quill Intelligence. 01:12.860 --> 01:21.320 I do, yes. QI Research was founded. I published seven days after I left the Fed. I love 01:22.020 --> 01:27.840 writing. I love producing research. And we publish eight times a week. There was 01:27.840 --> 01:34.000 nothing in the world that keeps you more in touch with the economy, monetary policymaking, 01:35.320 --> 01:38.660 and your readers than writing all the time. 01:38.880 --> 01:43.660 So you referred to working for the Federal Reserve in Dallas, and that was part of your 01:43.660 --> 01:47.620 experience. And apparently you didn't like it because you wrote a book about it called 01:47.620 --> 01:53.560 Fed Up. So briefly before we get into today, what is it that concerned you with 01:53.560 --> 01:53.900 the Fed? 01:53.900 --> 02:02.280 Well, in a nutshell, inflation and mis-measurement of inflation. And if there was one big take 02:02.280 --> 02:08.640 away, I started the Fed in 2006, and I'm screaming from the rooftops, we have a problem with 02:08.640 --> 02:13.740 asset inflation, that this housing situation is not going to end well. And yet we're 02:13.740 --> 02:23.880 not capturing it in the inflation metrics that we use to make monetary policy. There's 02:23.880 --> 02:30.380 others that followed the Lehman bankruptcy and internal staff papers and debates and 02:30.380 --> 02:34.620 gnashing of the teeth. We certainly need a new mousetrap. We need a way to not repeat 02:34.620 --> 02:40.400 these sins of the past the next time. We potentially have a crisis at our doorstep, 02:40.580 --> 02:47.640 and we should do that by creating a more modern, sophisticated and comprehensive measure 02:47.640 --> 02:54.300 of inflation. And after all of, literally two years of this, they said, well, you know, 02:54.500 --> 02:59.320 if we do that, and they actually came up with a better mousetrap, but if we do that, we really 02:59.320 --> 03:06.280 won't be able to run unconventional monetary policy because the inflation will stop us 03:06.280 --> 03:11.540 in our tracks. So we're just going to hide behind lies. And that was the policy. So 03:11.540 --> 03:13.040 it got me irritated enough to write a book. 03:13.040 --> 03:23.220 I remember late 2007, I was retail investment business. Ben Bernanke said the crisis was 03:23.220 --> 03:30.860 contained. Now, I was always taught you don't fight the Fed. And I assume he had more data 03:30.860 --> 03:36.760 available to him than I did. And that proved to be a real problem for me in giving advice. 03:37.240 --> 03:41.740 From that point forward, I've lost total faith in anything I hear from them, not 03:41.740 --> 03:49.200 maybe slightly unfair. But, you know, when you talk about being fed up and I look at 03:49.200 --> 03:56.200 today, you know, I left my business eight years ago because I thought this just cannot continue. 03:56.380 --> 04:01.680 This doesn't end well. Well, I've been dead wrong so far. And we were never taught 04:01.680 --> 04:05.720 about these monetary tools that they have used. And again, going back to Bernanke, 04:05.940 --> 04:09.900 didn't he say, well, we're only going to use these for a while, and then we'll 04:09.900 --> 04:12.740 pull everything back. And I don't believe that's ever happened. 04:12.800 --> 04:17.080 Oh, yes, it's going to be a very quick exit. And that was always the game plan. And you 04:17.080 --> 04:23.220 mentioned, you know, having to hear Bernanke say that the subprime bubble would be contained, 04:23.380 --> 04:27.100 there would be no effect on the broader economy. Janet Yellen at the time was saying 04:27.100 --> 04:30.740 the same thing, by the way. You know, she was the president of the San Francisco 04:30.740 --> 04:36.060 Fed while the subprime crisis literally blew up in her backyard. I mean, we all remember 04:36.060 --> 04:40.160 the at length interviews with the CEO then of Countrywide, Angela Mozilla. 04:41.360 --> 04:46.800 And there really was a shared narrative. Of course, they were wrong. They were dead wrong. 04:47.160 --> 04:51.520 But try having been on the inside at the time and saying, you're dead wrong. 04:52.400 --> 04:59.320 The work that I did on subprime, even in the aftermath of the crisis blowing up 04:59.320 --> 05:06.040 in policymakers face was so unwelcome inside the institution. My original paper on 05:06.040 --> 05:09.940 the subprime crisis is now required reading and most college economics program. 05:10.080 --> 05:14.840 Even after everything had happened, they were still in denial. But to your point, 05:15.020 --> 05:21.640 though, the confidence bubble in central bankers is still intact. It really is. 05:22.060 --> 05:29.600 I think that we're about to finally see a turning point in that confidence for the very first time. 05:29.720 --> 05:33.400 We'll go back two years and so-called transitory inflation. There's another 05:35.000 --> 05:41.840 absolute mistake. It was. It was a mistake. Part of it had to do with a leadership vacuum, 05:42.440 --> 05:48.600 with the Biden administration holding J. Powell hostage, dividing the staff. There was a lot of 05:48.600 --> 05:55.160 Game of Thrones going about because Biden was strongly of the mind to appoint a progressive 05:55.160 --> 05:59.840 and somebody who would advocate immediately for a central bank digital currency and central 05:59.840 --> 06:04.460 banking addressing climate change. There's no tool in the toolbox for these things. 06:04.960 --> 06:11.520 And yet in the end, there was so much pushback that he ended up being forced to stay with J. 06:11.620 --> 06:15.860 Powell the minute the Senate confirmed him really after being again held hostage, 06:16.180 --> 06:20.000 left in a holding tank. First thing he did the day the Senate confirmed him 06:20.000 --> 06:24.500 was get rid of transitory and say, this is the 2% inflation target. And by the way, 06:24.500 --> 06:26.420 we're going there. Come hell or high water. 06:26.540 --> 06:29.740 Is it that they don't have real world experience? 06:30.400 --> 06:31.480 In large part. Yeah. 06:31.800 --> 06:36.100 It really is that simple. And that's why from somebody who used to be on the inside of the 06:36.100 --> 06:42.420 Fed to hear Jerome Hayden Powell, Esquire, an attorney who was undersecretary of the 06:42.420 --> 06:47.860 Treasury worked directly with Warren Buffet to resolve the Treasury scandal at Solomon 06:47.860 --> 06:54.400 Brothers to hear a pragmatist at the podium mention things like, gee, it sounds like jobs 06:54.400 --> 07:00.120 hard to get from the confidence from from the confidence board is really go indeed job postings 07:00.120 --> 07:06.160 seem to be declining at a precipitous rate. It looks like our own statisticians can't seem to 07:06.160 --> 07:12.560 hit a payroll report if they try. We know that they're artificially inflated to hear somebody 07:12.560 --> 07:19.060 say these is so unorthodox. You just you just know that the PhDs in economics at the Fed are 07:19.060 --> 07:27.080 it's like fingernails on a chalkboard to have somebody recognize practical inflation measures 07:27.080 --> 07:31.740 that he is making enemies day in and day out internally at the staff. 07:31.920 --> 07:36.140 Well, before we go to today, as I look at the cover of your book, 07:36.960 --> 07:43.380 says fed up and why the Fed is bad for America. So why is it bad for America? 07:43.960 --> 07:54.280 Well, if as the front page of the Federal Reserve's website says that monetary policy 07:54.280 --> 08:03.740 is required to be made in the interest of the public good, if that's the case, then they're 08:03.740 --> 08:12.040 failing. And time and again, they've gone back to the well of zero interest rate policy of blowing 08:12.040 --> 08:19.520 up the ballot sheet, quantitative easing, things that have approaches that have been proven to 08:20.220 --> 08:28.560 elongate business cycles, and thereby amplify the boom bust cycle, you know, that that von 08:28.560 --> 08:36.420 Mises warned against many moons ago, I'm certainly in his camp not Keynes, but ignoring failure. 08:37.220 --> 08:46.020 The world's greatest leaders, Sandy Weill, when he was looking back on his career as a banker, 08:46.680 --> 08:50.780 said the biggest mistake I ever made was letting Jamie Diamond walk out the door. 08:51.180 --> 08:57.280 That was hubris. And look what he went to do. If you cannot recognize your failures and learn 08:57.280 --> 09:07.300 from them and go forward on a better path, then you are by design agreeing to fail again and again. 09:07.660 --> 09:13.560 And that's what the Federal Reserve hasn't done really since August the 12th 1987, 09:13.700 --> 09:20.480 when Alan Greenspan took office. They've agreed to go down a proven path of failure time and again. 09:20.820 --> 09:26.440 So two months after that, we had a 22% drop in the stock market one Monday morning. 09:26.440 --> 09:30.460 And I believe he pledged to provide whatever liquidity is needed. 09:30.680 --> 09:37.600 The Federal Reserve stands prepared to back the financial and the banking and financial systems. 09:38.040 --> 09:45.520 This was a one line assurance released on October the 20th 1987. People get so confused. 09:45.920 --> 09:49.300 They say, well, 1998, the failure of long term capital management. That was the 09:49.300 --> 09:53.100 birth that the Fed put. No, you recognize that it goes to 87. 09:53.100 --> 09:56.460 And from that point forward, it's been a totally different animal 09:57.040 --> 10:03.180 from a layman's standpoint. Okay, so question. If we abolish the Federal Reserve in the U.S., 10:03.180 --> 10:08.280 seeing as how most of the other countries have a central bank, would we still be able to operate? 10:08.940 --> 10:15.020 Well, unfortunately, the answer is no, which you get to in the very last chapter of a Fed 10:15.020 --> 10:21.280 Up, which is my solution. And really what it does is it revisits the foundations of 10:21.280 --> 10:26.600 the Fed that there was a financial crisis at the time, riddled with gout. JP Morgan brought 10:26.600 --> 10:32.280 everybody into his parlor in New York and said, I'm not going to be here forever. We're no 10:32.280 --> 10:37.940 longer an emerging nation. We're a developed country like the Bank of England. It might be 10:37.940 --> 10:43.200 appropriate for us to have a central bank just in case upon my death, I can't save the 10:43.200 --> 10:48.740 financial system over and over again in my parlor. And that was the genesis of the 10:48.740 --> 10:55.520 Federal Reserve. Fast forward 100 years and we've seen how very vulnerable intellectual 10:55.520 --> 11:00.700 property can be to theft. And that's something that indeed has become a sovereign situation 11:00.700 --> 11:09.580 in the United States. Look at what technology has done to intellectual property and the 11:09.580 --> 11:14.660 robbing of intellectual property. And then suggest to me that we should let all the 11:14.660 --> 11:19.500 guardians of the biggest financial system in the world take the rest of their careers off 11:19.500 --> 11:25.900 and just leave the financial system unguarded completely. That doesn't work either, but 11:25.900 --> 11:31.460 tearing the Federal Reserve down to its foundations and rebuilding it with individuals 11:31.460 --> 11:40.340 who are not in ivory towers, ones who used to be in finance. And that was the beginnings 11:40.340 --> 11:43.920 of their career. Tension fund managers who've had to deal with a zero interest 11:43.920 --> 11:49.880 rate environment. It's pressed them to invest inappropriately to safeguard the assets of retirees. 11:50.240 --> 11:55.520 People who've run corporations, individuals who are on the receiving end of monetary policy, 11:55.620 --> 12:00.600 not people who've never had a payroll and had a headcount. Those are the kinds of individuals 12:00.600 --> 12:06.340 who need to be running a central bank. Pragmatists who understand not just how to make 12:06.340 --> 12:11.240 monetary policy using some pie in the sky model, but rather how it plays out in the 12:11.240 --> 12:16.180 real world. It's become politicized. It's become politicized and it's become highly 12:17.100 --> 12:24.320 malleable to political manipulation. And that is why you have individuals espousing 12:24.320 --> 12:29.280 modern monetary theory and the idea that you can grow the Fed's balance sheet to 12:29.280 --> 12:34.240 infinity and beyond and never have repercussions as somebody who's studied British history about 12:34.240 --> 12:41.640 how that ends. Okay. So you bring up MMT and I said you're thinking for the last few years 12:42.160 --> 12:48.400 it seems like a lot of times the news isn't so good. For example, this year we'll get a report 12:48.400 --> 12:54.120 on employment and then next month it'll be drastically revised lower. And that's happened 12:54.120 --> 12:59.640 what? Eight out of nine months or something like that this year and a lot of these indicators 12:59.640 --> 13:04.420 come out. Everything is wonderful. Wall Street applauds it and next month it's revised lower 13:04.420 --> 13:09.080 and nobody looks at it. You mentioned the blowing up of the balance sheet. We got a lot of zombie 13:09.080 --> 13:15.140 companies. A lot. Yet everything seems to be in pretty good shape at least from an official 13:15.140 --> 13:19.720 standpoint. I talk to people to think the economy is just wonderful sometimes. 13:20.180 --> 13:24.760 And it depends who you are. It really depends on the eye of the beholder, but we have 13:24.760 --> 13:32.120 indeed seen certain thresholds breached. We have seen a rise in Americans on Main Street. 13:32.600 --> 13:38.640 Their perceptions of the job market have definitively turned to the negative. Now 13:38.640 --> 13:43.900 they're being gaslit to kingdom come and they're being told that everything is hunky dory. 13:44.180 --> 13:50.720 And if you ask a lot of individuals who were in the stock market I mean in 1995 when the Fed 13:51.280 --> 13:56.520 successfully engineered the only soft landing it was because the unemployment rate was dropping 13:57.280 --> 14:04.240 and there was a 24% run up in stocks to the Fed's first rate cut. We saw 29% run up 14:04.240 --> 14:11.800 in the stock market in the S&P 500 up until that first rate cut in September 2024. That means that 14:11.800 --> 14:17.340 the faith is that the Fed is going to engineer a bigger soft landing. And yet I've just told you 14:17.340 --> 14:23.720 and you recognize that from the first time private payrolls were announced at 2.4 million 14:24.300 --> 14:31.540 in the year end at March 31st 2024 that that 2.4 million is now 1.4 million. You don't hear about 14:31.540 --> 14:35.400 that. They're not screaming about that on the White House lawn are they? They're not singing that. 14:35.680 --> 14:41.900 And yet the revisions are there and now the public's aware. You think they are? Oh well 14:41.900 --> 14:46.040 that's what that's what the surveys tell us. I mean I guess if you lost your job you know. 14:46.040 --> 14:51.040 And that's exactly the threshold that we've breached. There is a gauge called jobs hard 14:51.040 --> 14:56.640 to get. It's kind of self-explanatory. Jobs are hard to get. Once that crosses a certain 14:57.320 --> 15:02.960 milestone if you will that means the cat's out of the bag. So your average working American is 15:02.960 --> 15:10.060 more than aware that job losses are what they are. We've lost a million full-time jobs in 15:10.060 --> 15:16.880 the last year. In the same time we've created 1.3 million part-time jobs. The gig working economy 15:16.880 --> 15:23.660 there are more part-time working Americans today than there were at the height of the financial 15:23.660 --> 15:27.600 crisis. And maybe they have two or three jobs. That's the point. And that gets counted three 15:27.600 --> 15:33.100 times? It does. Yeah so it's really not legit. No you're not. If you've just lost your full-time 15:33.100 --> 15:38.840 job and you're driving Uber to make ends meet it is time to consider moving in with mom and 15:38.840 --> 15:47.080 dad. Or moving to Malaysia. I have friends who've moved to Italy. And the only thing they tell me 15:47.080 --> 15:52.000 about we used to have discussions about economics and the markets. Now all they tell me about is 15:52.000 --> 15:57.340 what the dinner tab was because it's so low. My gosh I fed the whole family. It was I didn't 15:57.340 --> 16:02.540 even spend a hundred euros and I walked away stinking drunk. Why wasn't I in Italy a long 16:02.540 --> 16:11.400 time ago? It's really incredible to see again one more case in time. August of 2024 369,000 16:12.600 --> 16:16.760 retirees rejoined the workforce in the United States. Why is that? Why they need the money 16:16.760 --> 16:23.160 inflation. Maybe their kids need the money deflation. Much different dynamic. If you're 16:23.160 --> 16:27.120 going back to work to help your kids make ends meet. Okay so we're in an election year. 16:27.950 --> 16:32.320 We'll run roughly two trillion dollar deficit. Absolutely. It's the American way. 16:32.460 --> 16:37.900 Still year 2024 that's the highest ever in peacetime. Seven percent plus of the GDP. 16:39.220 --> 16:44.120 That in my view is why you still have reasonable growth in the economy. 16:44.640 --> 16:49.260 Can the two trillion dollar deficits go on forever? Is this just a ploy to get them 16:49.260 --> 16:53.900 through the election? Yes to your second question. No to the first and by the way 16:53.900 --> 17:01.380 the problem with two trillion dollar deficits is that you've got more than a million going just to 17:01.380 --> 17:07.360 service. More than a trillion going just to serve as the debt. Right the reason that disinflationary 17:07.360 --> 17:15.220 and deflationary forces have become so overwhelming is that the last time you had legislation 17:15.220 --> 17:20.740 passed in the form of helicopter money. You're giving people the money directly. You're 17:20.740 --> 17:26.620 bypassing the banking system. You are taking away the ability of the fed to ease financial 17:26.620 --> 17:33.560 conditions. You're just giving the money to people. That creates inflation. If however you 17:33.560 --> 17:38.800 go back to the bridge to nowhere pork barrel spending the inflation reduction act the 17:38.800 --> 17:44.420 infrastructure spending that we've seen well but now you're bringing back the requirement to 17:44.420 --> 17:49.680 have unionized workforces and and you've got to bribe people that's that's what we do in 17:49.680 --> 17:56.720 America with pork barrel spending. You've got to have DEI ESG. That's when your deficit spending 17:56.720 --> 18:04.120 gets mired in the mud and accomplishes very little in terms of economic output and starts to become 18:04.120 --> 18:11.060 a true drag on economic growth. That's where we are because it's not helicopter money. Is that 18:11.060 --> 18:15.900 why we had a 50 basis point cut? Is it things really worse than they're portraying? Is that 18:15.900 --> 18:26.420 what that means? So a little inside baseball here. The 1983, 1990 and 2001 recessions in the 18:26.420 --> 18:34.400 United States of America never saw a decline in consumption. That's usually not where you would 18:34.400 --> 18:40.280 think that it's a 70% GDP. If that's 70% of GDP, then you would think that you could never 18:40.280 --> 18:46.220 have a recession if consumption didn't decline and yet in three modern time recessions consumption 18:46.220 --> 18:53.500 never fell. It is business investment that leads the U.S. economy into and out of recession period 18:53.500 --> 19:02.840 end. That is why and this is one of the few good takeaways I had when I saw chair Powell 19:02.840 --> 19:08.420 reference the beige book. You're like who cares about the beige book? The Fed does 19:08.980 --> 19:15.520 because that is all 12 districts nationwide gathering reconnaissance on the ground from 19:15.520 --> 19:20.060 companies that sell things, companies that service things, companies that make things. 19:20.200 --> 19:26.720 And when you have all 12 districts report in one month, we're seeing declining consumption. 19:27.080 --> 19:31.560 You have the Fed staff with their hair on fire. So that's the 50 basis point. 19:31.560 --> 19:35.260 That was the 50 basis points. They've curtailed the quantitative.