Well, welcome. I'm Bob Henderson, the Nomad Dad, and we're in Kuala Lumpur, Malaysia.
And with me today, I'm very pleased to have Danielle D Martino Booth.
Well, I am pleased to be here. What a fabulous event so far.
It is a fabulous event that we've all attended. Is this your first time in KL?
This is my first time in Asia, period.
Wow.
Yes. I'm delighted.
It's a really fun place, don't you think?
It is. I actually started my journey in Singapore. And you know what? I like
organization.
Well, then you'll love Singapore.
Yes, indeed.
So, your thoughts on Singapore versus KL. I know it may be a small sample size, but I
see them quite different. What do you think?
Being that I've been in so many U.S. industrial cities, big industrial cities, Kuala Lumpur
has that. You feel that you're in a city that is a financial center of the world,
but at the same time very much a productive center of the world as well. You feel that
industrial edge about it.
Yeah, definitely a financial center. No question about it.
Well, Danielle runs her own economic forecasting firm. I guess it's Quill Intelligence.
I do, yes. QI Research was founded. I published seven days after I left the Fed. I love
writing. I love producing research. And we publish eight times a week. There was
nothing in the world that keeps you more in touch with the economy, monetary policymaking,
and your readers than writing all the time.
So you referred to working for the Federal Reserve in Dallas, and that was part of your
experience. And apparently you didn't like it because you wrote a book about it called
Fed Up. So briefly before we get into today, what is it that concerned you with
the Fed?
Well, in a nutshell, inflation and mis-measurement of inflation. And if there was one big take
away, I started the Fed in 2006, and I'm screaming from the rooftops, we have a problem with
asset inflation, that this housing situation is not going to end well. And yet we're
not capturing it in the inflation metrics that we use to make monetary policy. There's
others that followed the Lehman bankruptcy and internal staff papers and debates and
gnashing of the teeth. We certainly need a new mousetrap. We need a way to not repeat
these sins of the past the next time. We potentially have a crisis at our doorstep,
and we should do that by creating a more modern, sophisticated and comprehensive measure
of inflation. And after all of, literally two years of this, they said, well, you know,
if we do that, and they actually came up with a better mousetrap, but if we do that, we really
won't be able to run unconventional monetary policy because the inflation will stop us
in our tracks. So we're just going to hide behind lies. And that was the policy. So
it got me irritated enough to write a book.
I remember late 2007, I was retail investment business. Ben Bernanke said the crisis was
contained. Now, I was always taught you don't fight the Fed. And I assume he had more data
available to him than I did. And that proved to be a real problem for me in giving advice.
From that point forward, I've lost total faith in anything I hear from them, not
maybe slightly unfair. But, you know, when you talk about being fed up and I look at
today, you know, I left my business eight years ago because I thought this just cannot continue.
This doesn't end well. Well, I've been dead wrong so far. And we were never taught
about these monetary tools that they have used. And again, going back to Bernanke,
didn't he say, well, we're only going to use these for a while, and then we'll
pull everything back. And I don't believe that's ever happened.
Oh, yes, it's going to be a very quick exit. And that was always the game plan. And you
mentioned, you know, having to hear Bernanke say that the subprime bubble would be contained,
there would be no effect on the broader economy. Janet Yellen at the time was saying
the same thing, by the way. You know, she was the president of the San Francisco
Fed while the subprime crisis literally blew up in her backyard. I mean, we all remember
the at length interviews with the CEO then of Countrywide, Angela Mozilla.
And there really was a shared narrative. Of course, they were wrong. They were dead wrong.
But try having been on the inside at the time and saying, you're dead wrong.
The work that I did on subprime, even in the aftermath of the crisis blowing up
in policymakers face was so unwelcome inside the institution. My original paper on
the subprime crisis is now required reading and most college economics program.
Even after everything had happened, they were still in denial. But to your point,
though, the confidence bubble in central bankers is still intact. It really is.
I think that we're about to finally see a turning point in that confidence for the very first time.
We'll go back two years and so-called transitory inflation. There's another
absolute mistake. It was. It was a mistake. Part of it had to do with a leadership vacuum,
with the Biden administration holding J. Powell hostage, dividing the staff. There was a lot of
Game of Thrones going about because Biden was strongly of the mind to appoint a progressive
and somebody who would advocate immediately for a central bank digital currency and central
banking addressing climate change. There's no tool in the toolbox for these things.
And yet in the end, there was so much pushback that he ended up being forced to stay with J.
Powell the minute the Senate confirmed him really after being again held hostage,
left in a holding tank. First thing he did the day the Senate confirmed him
was get rid of transitory and say, this is the 2% inflation target. And by the way,
we're going there. Come hell or high water.
Is it that they don't have real world experience?
In large part. Yeah.
It really is that simple. And that's why from somebody who used to be on the inside of the
Fed to hear Jerome Hayden Powell, Esquire, an attorney who was undersecretary of the
Treasury worked directly with Warren Buffet to resolve the Treasury scandal at Solomon
Brothers to hear a pragmatist at the podium mention things like, gee, it sounds like jobs
hard to get from the confidence from from the confidence board is really go indeed job postings
seem to be declining at a precipitous rate. It looks like our own statisticians can't seem to
hit a payroll report if they try. We know that they're artificially inflated to hear somebody
say these is so unorthodox. You just you just know that the PhDs in economics at the Fed are
it's like fingernails on a chalkboard to have somebody recognize practical inflation measures
that he is making enemies day in and day out internally at the staff.
Well, before we go to today, as I look at the cover of your book,
says fed up and why the Fed is bad for America. So why is it bad for America?
Well, if as the front page of the Federal Reserve's website says that monetary policy
is required to be made in the interest of the public good, if that's the case, then they're
failing. And time and again, they've gone back to the well of zero interest rate policy of blowing
up the ballot sheet, quantitative easing, things that have approaches that have been proven to
elongate business cycles, and thereby amplify the boom bust cycle, you know, that that von
Mises warned against many moons ago, I'm certainly in his camp not Keynes, but ignoring failure.
The world's greatest leaders, Sandy Weill, when he was looking back on his career as a banker,
said the biggest mistake I ever made was letting Jamie Diamond walk out the door.
That was hubris. And look what he went to do. If you cannot recognize your failures and learn
from them and go forward on a better path, then you are by design agreeing to fail again and again.
And that's what the Federal Reserve hasn't done really since August the 12th 1987,
when Alan Greenspan took office. They've agreed to go down a proven path of failure time and again.
So two months after that, we had a 22% drop in the stock market one Monday morning.
And I believe he pledged to provide whatever liquidity is needed.
The Federal Reserve stands prepared to back the financial and the banking and financial systems.
This was a one line assurance released on October the 20th 1987. People get so confused.
They say, well, 1998, the failure of long term capital management. That was the
birth that the Fed put. No, you recognize that it goes to 87.
And from that point forward, it's been a totally different animal
from a layman's standpoint. Okay, so question. If we abolish the Federal Reserve in the U.S.,
seeing as how most of the other countries have a central bank, would we still be able to operate?
Well, unfortunately, the answer is no, which you get to in the very last chapter of a Fed
Up, which is my solution. And really what it does is it revisits the foundations of
the Fed that there was a financial crisis at the time, riddled with gout. JP Morgan brought
everybody into his parlor in New York and said, I'm not going to be here forever. We're no
longer an emerging nation. We're a developed country like the Bank of England. It might be
appropriate for us to have a central bank just in case upon my death, I can't save the
financial system over and over again in my parlor. And that was the genesis of the
Federal Reserve. Fast forward 100 years and we've seen how very vulnerable intellectual
property can be to theft. And that's something that indeed has become a sovereign situation
in the United States. Look at what technology has done to intellectual property and the
robbing of intellectual property. And then suggest to me that we should let all the
guardians of the biggest financial system in the world take the rest of their careers off
and just leave the financial system unguarded completely. That doesn't work either, but
tearing the Federal Reserve down to its foundations and rebuilding it with individuals
who are not in ivory towers, ones who used to be in finance. And that was the beginnings
of their career. Tension fund managers who've had to deal with a zero interest
rate environment. It's pressed them to invest inappropriately to safeguard the assets of retirees.
People who've run corporations, individuals who are on the receiving end of monetary policy,
not people who've never had a payroll and had a headcount. Those are the kinds of individuals
who need to be running a central bank. Pragmatists who understand not just how to make
monetary policy using some pie in the sky model, but rather how it plays out in the
real world. It's become politicized. It's become politicized and it's become highly
malleable to political manipulation. And that is why you have individuals espousing
modern monetary theory and the idea that you can grow the Fed's balance sheet to
infinity and beyond and never have repercussions as somebody who's studied British history about
how that ends. Okay. So you bring up MMT and I said you're thinking for the last few years
it seems like a lot of times the news isn't so good. For example, this year we'll get a report
on employment and then next month it'll be drastically revised lower. And that's happened
what? Eight out of nine months or something like that this year and a lot of these indicators
come out. Everything is wonderful. Wall Street applauds it and next month it's revised lower
and nobody looks at it. You mentioned the blowing up of the balance sheet. We got a lot of zombie
companies. A lot. Yet everything seems to be in pretty good shape at least from an official
standpoint. I talk to people to think the economy is just wonderful sometimes.
And it depends who you are. It really depends on the eye of the beholder, but we have
indeed seen certain thresholds breached. We have seen a rise in Americans on Main Street.
Their perceptions of the job market have definitively turned to the negative. Now
they're being gaslit to kingdom come and they're being told that everything is hunky dory.
And if you ask a lot of individuals who were in the stock market I mean in 1995 when the Fed
successfully engineered the only soft landing it was because the unemployment rate was dropping
and there was a 24% run up in stocks to the Fed's first rate cut. We saw 29% run up
in the stock market in the S&P 500 up until that first rate cut in September 2024. That means that
the faith is that the Fed is going to engineer a bigger soft landing. And yet I've just told you
and you recognize that from the first time private payrolls were announced at 2.4 million
in the year end at March 31st 2024 that that 2.4 million is now 1.4 million. You don't hear about
that. They're not screaming about that on the White House lawn are they? They're not singing that.
And yet the revisions are there and now the public's aware. You think they are? Oh well
that's what that's what the surveys tell us. I mean I guess if you lost your job you know.
And that's exactly the threshold that we've breached. There is a gauge called jobs hard
to get. It's kind of self-explanatory. Jobs are hard to get. Once that crosses a certain
milestone if you will that means the cat's out of the bag. So your average working American is
more than aware that job losses are what they are. We've lost a million full-time jobs in
the last year. In the same time we've created 1.3 million part-time jobs. The gig working economy
there are more part-time working Americans today than there were at the height of the financial
crisis. And maybe they have two or three jobs. That's the point. And that gets counted three
times? It does. Yeah so it's really not legit. No you're not. If you've just lost your full-time
job and you're driving Uber to make ends meet it is time to consider moving in with mom and
dad. Or moving to Malaysia. I have friends who've moved to Italy. And the only thing they tell me
about we used to have discussions about economics and the markets. Now all they tell me about is
what the dinner tab was because it's so low. My gosh I fed the whole family. It was I didn't
even spend a hundred euros and I walked away stinking drunk. Why wasn't I in Italy a long
time ago? It's really incredible to see again one more case in time. August of 2024 369,000
retirees rejoined the workforce in the United States. Why is that? Why they need the money
inflation. Maybe their kids need the money deflation. Much different dynamic. If you're
going back to work to help your kids make ends meet. Okay so we're in an election year.
We'll run roughly two trillion dollar deficit. Absolutely. It's the American way.
Still year 2024 that's the highest ever in peacetime. Seven percent plus of the GDP.
That in my view is why you still have reasonable growth in the economy.
Can the two trillion dollar deficits go on forever? Is this just a ploy to get them
through the election? Yes to your second question. No to the first and by the way
the problem with two trillion dollar deficits is that you've got more than a million going just to
service. More than a trillion going just to serve as the debt. Right the reason that disinflationary
and deflationary forces have become so overwhelming is that the last time you had legislation
passed in the form of helicopter money. You're giving people the money directly. You're
bypassing the banking system. You are taking away the ability of the fed to ease financial
conditions. You're just giving the money to people. That creates inflation. If however you
go back to the bridge to nowhere pork barrel spending the inflation reduction act the
infrastructure spending that we've seen well but now you're bringing back the requirement to
have unionized workforces and and you've got to bribe people that's that's what we do in
America with pork barrel spending. You've got to have DEI ESG. That's when your deficit spending
gets mired in the mud and accomplishes very little in terms of economic output and starts to become
a true drag on economic growth. That's where we are because it's not helicopter money. Is that
why we had a 50 basis point cut? Is it things really worse than they're portraying? Is that
what that means? So a little inside baseball here. The 1983, 1990 and 2001 recessions in the
United States of America never saw a decline in consumption. That's usually not where you would
think that it's a 70% GDP. If that's 70% of GDP, then you would think that you could never
have a recession if consumption didn't decline and yet in three modern time recessions consumption
never fell. It is business investment that leads the U.S. economy into and out of recession period
end. That is why and this is one of the few good takeaways I had when I saw chair Powell
reference the beige book. You're like who cares about the beige book? The Fed does
because that is all 12 districts nationwide gathering reconnaissance on the ground from
companies that sell things, companies that service things, companies that make things.
And when you have all 12 districts report in one month, we're seeing declining consumption.
You have the Fed staff with their hair on fire. So that's the 50 basis point.
That was the 50 basis points. They've curtailed the quantitative.