WEBVTT - Tony Katz & Dr. Matt Will on Growing GDP & Boosting Yen 0:00:05.160 --> 0:00:10.800 Why Rumball, Heart Player and the Crossroads of America. It's 0:00:10.880 --> 0:00:14.239 Tony Katz today. What in the world is going on 0:00:14.520 --> 0:00:17.440 with the end? What is going on with the Japanese economy? 0:00:17.480 --> 0:00:19.360 I mean, I thought they were out of the stagflation. 0:00:19.520 --> 0:00:23.360 Why are we propping it up. I'm not saying I'm opposed. 0:00:23.400 --> 0:00:26.560 I just want to understand. Why is this Argentina all 0:00:26.600 --> 0:00:30.360 over again where we're buying pesos? I mean, we got 0:00:30.360 --> 0:00:32.920 the money back, so I guess all was good. But 0:00:33.080 --> 0:00:35.600 is this what we do now? Or is this about 0:00:35.640 --> 0:00:37.839 something having to do with China? It is about the 0:00:37.880 --> 0:00:40.879 politics more than it is about the money. But it 0:00:40.960 --> 0:00:44.200 is costing us money or is it not? You see, 0:00:44.240 --> 0:00:46.800 that's just it. Everybody wants to say something, but no 0:00:46.800 --> 0:00:50.400 one actually digs into what is actually going on. Tony Katz, 0:00:50.440 --> 0:00:53.239 Tony Kats today, good to be with you. Just call 0:00:53.280 --> 0:00:55.480 me the digger because that's what I'm doing. Doctor Mattwill 0:00:55.560 --> 0:00:59.040 joins me right now, economist at the University of Indianapolis. 0:00:59.080 --> 0:01:01.800 We're gonna get to Japan. We're going to talk about 0:01:01.800 --> 0:01:04.080 what's going on with the yend here. But I want 0:01:04.120 --> 0:01:07.240 to start where I start, which is our economy and 0:01:07.319 --> 0:01:09.840 on Friday. I was out on Friday, but happy to 0:01:09.920 --> 0:01:13.080 be back today. And we take a look at GDP's 0:01:13.120 --> 0:01:16.440 second quarter GDP and it grew at a rate of 0:01:16.480 --> 0:01:19.600 one point five percent, not two point one percent that 0:01:19.720 --> 0:01:23.440 was the first quarter one point five percent. In all 0:01:23.520 --> 0:01:27.119 of these cases, a number means nothing unless we can 0:01:27.160 --> 0:01:30.200 analyze why the number is what it is. So you 0:01:30.280 --> 0:01:32.560 take a look at one point five percent. Economist to 0:01:32.600 --> 0:01:36.240 Matt Will, what's the story. It's false. 0:01:37.080 --> 0:01:39.000 I will tell you that the number is much higher 0:01:39.000 --> 0:01:41.840 than one point five percent. And this goes back to 0:01:41.920 --> 0:01:45.680 the Keynesian flaw and how they calculate GDP. So yeah, 0:01:45.760 --> 0:01:47.840 let's look at the headline one point five. By the way, 0:01:48.160 --> 0:01:51.200 the market wasn't phase because the market knows what I know. 0:01:51.920 --> 0:01:54.160 First of all. One of the reasons it was only 0:01:54.200 --> 0:01:57.040 one point five is because the government portion of the 0:01:57.080 --> 0:02:01.040 GDP was reduced. That's a good thing. You and I 0:02:01.200 --> 0:02:04.520 everyone listening to the show knows that the smaller government 0:02:04.600 --> 0:02:08.919 is better, So that pulled down GDP. Also, imports pulled 0:02:08.960 --> 0:02:12.120 it down one and a half percent. Again, a huge 0:02:12.360 --> 0:02:15.880 flaw with the GDP formula is that it punishes the 0:02:15.880 --> 0:02:20.080 country for imports, but it ignores foreign direct investment, because 0:02:20.120 --> 0:02:23.480 those dollars that we spend to buy stuff from overseas 0:02:23.520 --> 0:02:27.960 flows back into the United States. Exports boosted it by half. 0:02:28.080 --> 0:02:31.840 That's good. Consumption up half of two points two percent. 0:02:32.480 --> 0:02:36.280 Investments were up, in fact, fixed investments, you know, equipment 0:02:36.440 --> 0:02:38.880 and buildings and stuff up one and a half percent. 0:02:39.240 --> 0:02:42.080 I'm telling you this is this is good underneath the hood. 0:02:42.760 --> 0:02:47.440 Accept the eyeword. Inflation is still over five percent in the. 0:02:47.520 --> 0:02:49.959 Lifeboord, Let's hold off a little bit and let's get 0:02:50.000 --> 0:02:53.640 back to this. The argument is that the GDP number 0:02:53.680 --> 0:02:58.480 of one point five percent is false because we're to 0:02:58.919 --> 0:03:03.040 a discussion of government is about government spend or government 0:03:03.160 --> 0:03:03.920 lack of spend. 0:03:04.480 --> 0:03:09.440 Government growth. The growth of government reduces GDP, I mean 0:03:09.560 --> 0:03:14.280 increases GDP. So when the government is constrained, that causes 0:03:14.280 --> 0:03:16.919 a GDP to go down. And that's what this report shows. 0:03:16.919 --> 0:03:20.920 It shows less. You know, we call real versus you know, 0:03:21.040 --> 0:03:26.080 nominal dollars. So inflation adjusted government spend in the economy 0:03:26.760 --> 0:03:28.560 it decreased yer point one four percent. 0:03:28.720 --> 0:03:31.639 So when the government is spending, when government is spending. 0:03:31.680 --> 0:03:35.040 Talking to doctor Mattwill, economists at the University of Indianapolis. 0:03:35.080 --> 0:03:39.080 When the government is spending, we consider that growth. In 0:03:39.120 --> 0:03:41.760 the United States, we talk about GDP gross domestic product. 0:03:41.840 --> 0:03:45.800 Government spending is seen as as growths. So when the 0:03:45.840 --> 0:03:49.160 government is going on wild spending spreeze, those people who 0:03:49.200 --> 0:03:51.120 engage the spending can look at the. 0:03:51.080 --> 0:03:54.200 GDP it say see, look how much we're growing. And 0:03:54.240 --> 0:03:57.040 that's what happened under Biden. That was his primary source. 0:03:57.200 --> 0:03:59.720 When we looked at the microscopic parts of GDP under 0:03:59.720 --> 0:04:02.080 by and we saw that almost all the growth in 0:04:02.120 --> 0:04:05.440 the economy was coming from government growth. Under Trump, it's 0:04:05.480 --> 0:04:08.080 a completely different picture. Almost all of the growth is 0:04:08.120 --> 0:04:12.320 coming from private industry. In fact, GDP is subtracting, I 0:04:12.360 --> 0:04:16.360 mean government is subtracting from GDP. So the formula which 0:04:16.440 --> 0:04:19.560 John Maynard Kaines wrote back in the forties, and by 0:04:19.600 --> 0:04:21.880 the way, at the end of his life he actually said, 0:04:22.040 --> 0:04:24.279 you know what, it's really flawed, but it's the best 0:04:24.320 --> 0:04:27.560 we've got. And I would agree with him. It's very flawed, 0:04:27.800 --> 0:04:29.640 but it's the only thing we have at the moment. 0:04:29.880 --> 0:04:33.120 It ignores a lot of things like import exports, foreign 0:04:33.120 --> 0:04:35.960 direct investment, so you have to look under the hood. 0:04:36.360 --> 0:04:39.120 Not all one point five percent are created equal. 0:04:39.640 --> 0:04:42.119 Now let's get to the next which you talked about 0:04:42.160 --> 0:04:47.599 investments up point five three percent, about half a percent 0:04:48.800 --> 0:04:54.920 investments into your talking about long lasting goods manufacturing goods, 0:04:54.920 --> 0:04:56.600 is investments into. 0:04:56.360 --> 0:04:59.160 My four oh one k. What are these investments made 0:04:59.240 --> 0:05:01.960 up of. Yeah, that's an important point that you're making. 0:05:02.279 --> 0:05:07.800 This is company investment, private corporate investments in production, manufacturing, 0:05:08.120 --> 0:05:12.479 including services, so anything that a company is investing to 0:05:12.600 --> 0:05:15.120 expand their business. So that's we're not talking you and 0:05:15.200 --> 0:05:18.839 I saving for retirement. This is actual investments made by 0:05:18.880 --> 0:05:23.160 companies to grow their businesses. And underneath that this half 0:05:23.160 --> 0:05:26.000 a percent growth, one and a half percent of the 0:05:26.040 --> 0:05:30.080 GDP was due to fixed investments. That's putting up a 0:05:30.120 --> 0:05:35.440 facility to build some product that is a long term benefit. 0:05:35.640 --> 0:05:38.239 That is huge, and we didn't see that under Biden. 0:05:38.520 --> 0:05:42.160 We've seen that under Trump because he's instituted policies and 0:05:42.440 --> 0:05:45.800 deregulation that has encouraged this. And you know, we talk 0:05:45.880 --> 0:05:49.080 about are those other countries around the world investing that's 0:05:49.120 --> 0:05:52.520 not even in this number. That's foreign direct investment which 0:05:52.560 --> 0:05:55.680 should be included, which isn't in the GDP calculation. 0:05:56.600 --> 0:05:59.960 Talking to doctor Matt well, economists at the University of Indianapolis. 0:06:00.080 --> 0:06:03.280 Let's keep breaking this down, understanding our numbers, and one 0:06:03.360 --> 0:06:08.120 of these is manufacturing. When it comes to the ISM report, 0:06:08.160 --> 0:06:13.159 which is something you look to keep in high regard, 0:06:13.279 --> 0:06:18.160 this tells us something. This matters. ISM was fifty three 0:06:18.240 --> 0:06:22.159 point three. That's up about six percent, which is the 0:06:22.360 --> 0:06:28.320 six straight increase that we have had. That signals what. Wow. 0:06:29.839 --> 0:06:33.919 It signals wow because that's the private economy. So go 0:06:34.000 --> 0:06:36.640 back to the GDP that was plus one and a 0:06:36.680 --> 0:06:40.239 half percent on fixed investments by companies. We have proof 0:06:40.440 --> 0:06:43.760 it's not just a bogus estimate by the government ISM 0:06:44.120 --> 0:06:48.560 Private Industry Report. Actual companies calling in saying hey, this 0:06:48.600 --> 0:06:50.880 is what we're doing. So this is the six month 0:06:50.920 --> 0:06:55.159 in a row. Inventories are up, production is up. There's 0:06:55.200 --> 0:06:58.560 these are sub parts of the ISM report. New orders 0:06:58.600 --> 0:07:03.520 are up. This is fantastic. It's what Trump wanted to 0:07:03.600 --> 0:07:05.960 do with the terroriffs, but the tariffs actually delayed it. 0:07:06.360 --> 0:07:10.080 I believe these things would have been up inventories, production, 0:07:10.520 --> 0:07:15.040 new orders without the tariffs sooner. But the tariffs have 0:07:15.080 --> 0:07:17.520 been in place for a long time. Now they're they're 0:07:17.560 --> 0:07:19.960 they're baked into the economy. Not in a good way 0:07:19.960 --> 0:07:22.520 in some places, like inflation. The only thing in the 0:07:22.520 --> 0:07:26.840 ISM report that was concerning is employment is flat. But actually, 0:07:27.000 --> 0:07:30.800 if you consider all the disruption with AI, flat employment 0:07:30.880 --> 0:07:34.440 right now, that's good because it should be dropping with 0:07:34.480 --> 0:07:39.560 all the disruption. So the growth is overcompensating for the 0:07:39.640 --> 0:07:42.880 AI disruption. There's a lot of good things that's report, 0:07:43.200 --> 0:07:48.600 except double digit inflation for manufacturers, that's right, double digit 0:07:48.840 --> 0:07:52.800 commodity prices, aluminum copper, It's not good. 0:07:54.080 --> 0:07:57.800 This now leads into what you said, where the problem is, 0:07:57.840 --> 0:08:01.600 Where the issue is with inflation. We have seen Kevin Walsh, 0:08:01.640 --> 0:08:05.280 now Chairman of the Federal Reserve twice say we're not 0:08:05.520 --> 0:08:08.600 changing interest rates. They are not going down this camp 0:08:08.640 --> 0:08:12.360 please President Trump at all. But we have been I 0:08:12.400 --> 0:08:14.600 have been very very consistent. I think you have been 0:08:14.640 --> 0:08:17.920 with me on this. I would never say otherwise. The 0:08:18.040 --> 0:08:21.200 inflation is here. You've argued that it's baked into everything 0:08:21.200 --> 0:08:25.840 Wall Street is doing. What somehow is still unfathomable to 0:08:25.960 --> 0:08:30.320 people is that we accept that this is the way 0:08:30.360 --> 0:08:33.920 it is. We are there is no aggressive push to 0:08:34.040 --> 0:08:37.720 bring it down because we discuss policy. So where is 0:08:37.760 --> 0:08:42.000 inflation right now and what are the competing forces. Well, 0:08:42.040 --> 0:08:43.960 first of all, I don't agree that we've accepted it. 0:08:44.000 --> 0:08:47.800 I don't do not accept inflation. And if Wall Street 0:08:47.840 --> 0:08:50.160 is accepting it, shame on them. But they are. I mean, 0:08:50.240 --> 0:08:52.599 I'm arguing that they are right. That's the point. I 0:08:52.640 --> 0:08:54.719 didn't say you and I, sitting on a barstool, are 0:08:54.760 --> 0:08:57.280 happy with this. This whole thing sucks. To quote Rodney 0:08:57.320 --> 0:09:01.000 Dangerfield from Caddy Shack, but I do say that Wall 0:09:01.000 --> 0:09:04.560 Street has absolutely accepted this. They've baked it into the cake. 0:09:04.559 --> 0:09:07.360 We've discussed this many times. It is not where Midwest 0:09:07.400 --> 0:09:10.599 main Street is, but it's absolutely in my view outsider 0:09:10.640 --> 0:09:11.960 looking in where wall Street is. 0:09:12.520 --> 0:09:15.160 Well, let me tell you, I'm gonna pivot a little 0:09:15.160 --> 0:09:17.880 bit and say, Kevin Walsh is he is doing the 0:09:17.960 --> 0:09:20.679 right thing. He's announced he's not going to change rates. 0:09:21.040 --> 0:09:23.480 I'm okay with that. I think the Fed funds rate 0:09:23.559 --> 0:09:25.280 is where it should be. I think this is a 0:09:25.360 --> 0:09:28.480 stable rate. And notice Trump didn't scream at him about 0:09:28.520 --> 0:09:31.880 this because Wall Street's pushing him to increase. He even 0:09:31.960 --> 0:09:34.880 had some of his governors. Three of his fellow governors 0:09:35.160 --> 0:09:39.280 voted to increase rates last week, but he refused. He's 0:09:39.320 --> 0:09:42.880 playing the long game. What he's doing, and people pay 0:09:42.920 --> 0:09:45.760 attention to this. He is reducing the amount of information 0:09:45.960 --> 0:09:48.680 flow out of the FED. He set up a special 0:09:48.800 --> 0:09:53.320 commission to look at the selling of assets off the 0:09:53.360 --> 0:09:57.160 FED balance sheet. I am convinced that he's going to slowly, 0:09:57.240 --> 0:10:00.920 behind the scenes, move this giant ship, and he's going 0:10:00.960 --> 0:10:04.320 to convince his fellow governors once this special Commission does 0:10:04.360 --> 0:10:08.640 their work to start shedding assets from the balance sheet, 0:10:09.040 --> 0:10:12.280 sell those assets, pull the cash out of the economy 0:10:12.559 --> 0:10:16.720 without increasing inflation. He knows how to cut inflation and 0:10:16.760 --> 0:10:19.160 he's going to do it the right way. I'm confident 0:10:19.400 --> 0:10:21.960 based on what he's doing right now his strategy that 0:10:22.000 --> 0:10:24.840 he's going to pull it off patients, and I think 0:10:24.840 --> 0:10:26.120 even Trump has patience with. 0:10:26.160 --> 0:10:28.680 Him on this. But let's continue on this conversation of 0:10:28.720 --> 0:10:32.160 inflation in general. Never minds where we are about the 0:10:32.160 --> 0:10:37.520 market accepting this. The inflation is here. What are the 0:10:37.679 --> 0:10:41.520 competing forces that are causing it to remain. 0:10:41.800 --> 0:10:47.280 Well, it's still the tariffs, It's still growth of government deficits. Now, 0:10:47.360 --> 0:10:50.720 we talked about government spending earlier, but the deficits also 0:10:50.840 --> 0:10:54.520 contribute to this whole phenomenon. Because the FED is forced 0:10:54.520 --> 0:10:58.559 to monetize the deficits, so we have to cut the deficits. 0:10:58.840 --> 0:11:00.640 And that's where the FED is between a rock and 0:11:00.679 --> 0:11:03.559 a hard place, because they don't control the fiscal policy. 0:11:04.080 --> 0:11:06.920 They only control the monetary policy, so they can control 0:11:06.960 --> 0:11:09.680 the cash in the economy, but so can the federal 0:11:09.760 --> 0:11:14.520 government by deficit spending. And that deficit spending is really 0:11:14.640 --> 0:11:18.360 massive at the moment, and that's a huge issue. That's 0:11:18.400 --> 0:11:23.000 causing the sustained inflation despite the growth in the economy 0:11:23.000 --> 0:11:24.040 in the private sector. 0:11:24.360 --> 0:11:27.440 So that's the economy, that's the GDP. But we have 0:11:27.520 --> 0:11:30.720 to get into the conversation about Japan and the end 0:11:31.160 --> 0:11:34.480 because this has got some people and I don't even 0:11:34.520 --> 0:11:38.040 know if it's confused. It's got them bothered like somehow 0:11:38.080 --> 0:11:40.880 we're doing something very very wrong. But I think most 0:11:40.920 --> 0:11:43.720 people don't understand what we're doing. We will break that 0:11:43.840 --> 0:11:48.200 down with doctor Matt Will, economist at the University of Indianapolis. 0:11:48.440 --> 0:11:50.679 Keep it right here, guys, I'm Tony Katz and this 0:11:50.920 --> 0:11:54.120 is Tony Katz today. So this whole yen thing with 0:11:54.280 --> 0:11:56.800 President Trump has got a bunch of people in an uproar. 0:11:56.840 --> 0:11:59.280 Except I don't know if there's anything to uproar here 0:12:00.080 --> 0:12:03.480 when you hear about this deal, we're propping up the 0:12:03.679 --> 0:12:06.160 end or are we buying the yen? Is this like 0:12:06.200 --> 0:12:08.959 that Argentina deal where we bought pesos and they got 0:12:09.000 --> 0:12:14.040 dollars and then they did pay us back. So what 0:12:14.160 --> 0:12:16.400 is the story here? I mean, maybe we should be 0:12:16.440 --> 0:12:20.160 asking what's up with the Japanese economy? Tony Katz, Tony 0:12:20.240 --> 0:12:22.959 Katz today, great to be with you talking to doctor 0:12:23.000 --> 0:12:26.720 Matt Will, economist at the University of Indianapolis. The story 0:12:26.760 --> 0:12:30.319 out of Japan, which the market doesn't seem to care 0:12:30.360 --> 0:12:34.000 too much about. Again, the market fascinating. It was just 0:12:34.040 --> 0:12:36.240 so happy that there's an alleged deal with Iran and 0:12:36.280 --> 0:12:38.920 the opening the straight of horn moves boom, like the 0:12:38.960 --> 0:12:41.040 Dow opened and it went over seven hundred in the 0:12:41.040 --> 0:12:42.800 first hour. I don't know where it's going to close, 0:12:42.880 --> 0:12:46.840 No one does, but everyone's very, very excited. But this 0:12:47.040 --> 0:12:49.839 yen story and what's going on with the Japanese economy, now, 0:12:50.000 --> 0:12:54.240 this seems the kind of stuff that always puts me 0:12:54.320 --> 0:12:56.959 a bit on edge. At first I thought this was 0:12:57.000 --> 0:13:01.040 a story much like Argentina and US buying, and then 0:13:01.080 --> 0:13:03.200 I said, well, this is Japan this is a country 0:13:03.200 --> 0:13:06.160 that's coming out of thirty plus years of stagflation. I 0:13:06.280 --> 0:13:08.880 thought they had already come out of it. This does 0:13:08.920 --> 0:13:11.000 not signal that. And then there's a question whether or 0:13:11.000 --> 0:13:13.440 not this is an economic move or a political move. 0:13:14.040 --> 0:13:17.079 Talk to me about what's happening in the Japanese economy. 0:13:17.480 --> 0:13:20.079 What did they signal to the world, and why did 0:13:20.080 --> 0:13:21.319 the US come to the rescue. 0:13:22.440 --> 0:13:24.839 Wow, Okay, there's a lot to unpack here, and I'm 0:13:24.840 --> 0:13:27.040 gonna put on my professor cap and try to explain 0:13:27.080 --> 0:13:29.400 it clearly. But you added one thing that I had 0:13:29.400 --> 0:13:33.440 not thought about, because I'm an economics nerd, the political angle. 0:13:33.559 --> 0:13:35.480 You are one hundred percent correct. I had not thought 0:13:35.480 --> 0:13:36.760 about why the US. 0:13:36.640 --> 0:13:37.080 Is doing this. 0:13:37.120 --> 0:13:40.439 It's political. So what's going on here? The US bought 0:13:40.559 --> 0:13:44.200 yen a significant amount. This takes them out of circulation. 0:13:44.679 --> 0:13:47.280 So go back to the same discussion we have about 0:13:47.320 --> 0:13:51.160 inflation and taking dollars out of the economy. The United 0:13:51.160 --> 0:13:55.040 States government bought yin and took them out of circulation 0:13:55.200 --> 0:13:59.520 in Japan. So that makes the yen stronger. That reduces 0:13:59.600 --> 0:14:03.240 their inflation, and that's a good thing for them, but 0:14:03.320 --> 0:14:06.680 it also makes the yen stronger. Against the bull, which 0:14:06.679 --> 0:14:09.320 weakens our currency, which is which is a side issue. 0:14:09.320 --> 0:14:12.400 But it's interesting why we are accepting that. And I 0:14:12.440 --> 0:14:14.560 got a theory as to why we're accepting that. But 0:14:14.600 --> 0:14:17.240 it's a little different than Argentina. And let me tell 0:14:17.240 --> 0:14:21.040 you it's similar, but not exactly. Argentina needed US dollars. 0:14:21.600 --> 0:14:24.240 They needed US dollars to buy other things, so we 0:14:24.400 --> 0:14:28.960 gave them US dollars by buying pesos. Japan doesn't need dollars, 0:14:29.320 --> 0:14:32.920 they just need fewer yen. They've got plenty of US dollars. 0:14:33.160 --> 0:14:35.560 They needed fewer yen in their economy, and they wanted 0:14:35.680 --> 0:14:38.120 us to take them out. And I got to give, 0:14:38.760 --> 0:14:42.000 you know, Scott Bessen and the Treasury Department genius for 0:14:42.240 --> 0:14:44.960 how they did it. They did it in a way 0:14:45.000 --> 0:14:47.720 that we've never seen before. And Wall Street got very 0:14:47.840 --> 0:14:53.080 upset at this. They didn't buy yen with dollars. They 0:14:53.080 --> 0:14:56.960 bought yen with euros. They took the euros that we 0:14:57.120 --> 0:14:59.960 hold and we do hold a lot of international currencies, 0:15:00.080 --> 0:15:03.720 and they bought the yen with that. That totally messed 0:15:03.760 --> 0:15:07.400 up Wall Street's arbitrage and the speculators and the traders 0:15:07.840 --> 0:15:10.360 because they didn't want to spend dollars. My theory is 0:15:10.400 --> 0:15:13.120 that they believe the dollar is a good investment right 0:15:13.160 --> 0:15:15.800 now because Trump's all about investing. He's all about I'm 0:15:15.800 --> 0:15:17.600 going to make money here and make money there. And 0:15:17.680 --> 0:15:21.880 Scott Vessen did a very good pivot and disrupted the markets, 0:15:22.040 --> 0:15:24.200 and I think it's going to help Japan. But Japan 0:15:24.280 --> 0:15:25.800 has to get their own house in order. 0:15:25.880 --> 0:15:30.800 Also, Okay, everything you just said makes people want to 0:15:30.840 --> 0:15:34.440 have a drink. No part of that for the normal 0:15:34.560 --> 0:15:40.880 person makes any sense. So let's start going back. Why 0:15:40.920 --> 0:15:44.800 did Japan need us to buy yen and pull yen 0:15:45.040 --> 0:15:47.560 out of their economy. 0:15:48.280 --> 0:15:51.880 Japan is causing their own inflation and they're asking us 0:15:51.920 --> 0:15:55.080 for help to bail them out because they're not doing 0:15:55.200 --> 0:15:58.640 enough domestically. Their own Prime Minister, she's doing a great 0:15:58.720 --> 0:16:02.200 job in trying to be responsible. She's a good free 0:16:02.320 --> 0:16:07.160 market capitalist type person. Yes, it's a culture. They have 0:16:07.240 --> 0:16:11.720 tremendous they have price caps, they have price caps, they 0:16:11.760 --> 0:16:16.960 have government subsidies across the board for their citizens, and 0:16:17.080 --> 0:16:22.120 therefore she's having a tough time domestically controlling this monster 0:16:22.760 --> 0:16:26.240 which is the Japanese government and what they give to 0:16:26.280 --> 0:16:29.640 their citizens. I know this sounds weird. They also have 0:16:29.680 --> 0:16:33.200 another problem, this is going to sound very weird. Their 0:16:33.200 --> 0:16:36.720 people save too much and don't borrow enough. They have 0:16:36.720 --> 0:16:39.440 one of the highest savings rates in the world and 0:16:39.480 --> 0:16:42.960 they have one of the lowest borrowing rates in the world. Well, 0:16:43.200 --> 0:16:47.360 that doesn't encourage people to grow their businesses. And because 0:16:47.400 --> 0:16:50.400 of the price controls. Okay, I hoping I'm not losing 0:16:50.400 --> 0:16:54.640 people here. Their CPI is low, but their PPI is 0:16:54.680 --> 0:16:58.280 seven point one percent. Their producers are experience inflation as 0:16:58.320 --> 0:17:01.080 bad as ours, and they can't pass it along because 0:17:01.080 --> 0:17:05.040 of government controls. So she's trying to rein in this 0:17:05.200 --> 0:17:11.479 government monster. This okay, ready Godzilla in Japan, so that 0:17:11.480 --> 0:17:15.240 that's not my role, okay. But she needed the US 0:17:15.359 --> 0:17:18.160 government help, and they reached out and asked us for help. 0:17:18.200 --> 0:17:22.400 It was a coordinated effort. I'm pretty impressed with how 0:17:22.440 --> 0:17:24.720 it's going in our cooperation on this. 0:17:25.280 --> 0:17:31.920 So they needed yen out of the economy to thwart 0:17:32.119 --> 0:17:36.080 the inflation issue, which is because of their own government policies. 0:17:36.080 --> 0:17:39.520 But they're not about changing the government policies, not changing 0:17:39.520 --> 0:17:40.359 them fast enough. 0:17:40.560 --> 0:17:43.680 She is trying to change them. She's having great difficulty 0:17:43.720 --> 0:17:46.639 and you can imagine Trump wants to keep her politically strong. 0:17:46.680 --> 0:17:49.440 So you added that genius touch there. I didn't think about. 0:17:49.760 --> 0:17:52.120 There is politics here, and he wants to prop her up. 0:17:52.359 --> 0:17:54.840 He doesn't want her to suffer. And by the way, 0:17:54.960 --> 0:17:56.880 she will be punished if she tries to take away 0:17:56.920 --> 0:17:57.760 some of those goodies. 0:17:58.359 --> 0:18:01.960 And understand that the politics here, you can argue, are 0:18:01.960 --> 0:18:05.600 within Japan and of itself. But these are politics that 0:18:05.640 --> 0:18:09.000 are about China and thwarting China and making a strong 0:18:09.200 --> 0:18:12.040 Pacific rim. And this is about shipping lanes and the 0:18:12.080 --> 0:18:14.640 Taiwan Straight and the Yellow Sea in the South China Sea. 0:18:14.800 --> 0:18:18.200 This is about navigable seas. This is about hegemonic power. 0:18:18.480 --> 0:18:21.159 There's a lot here. And Sonai Takaichi, the Prime minister 0:18:21.240 --> 0:18:25.919 that we're talking about, has been very very westward looking 0:18:26.280 --> 0:18:30.399 and forward looking with President Trump wanting that alliance because 0:18:30.440 --> 0:18:34.120 she knows if Taiwan goes, everything is up for grabs. 0:18:34.359 --> 0:18:38.080 She's nobody's cool talking to doctor Matt Will, economist at 0:18:38.080 --> 0:18:41.239 the University of Indianapolis. So let's now go back to 0:18:41.240 --> 0:18:45.320 what happened here. We end up buying yen to pull 0:18:45.440 --> 0:18:47.760 yen out of the system, and we pay them in 0:18:47.840 --> 0:18:50.919 euros that we're holding. What the hell do they do 0:18:51.040 --> 0:18:55.040 with the euro? What gets weird is I don't care 0:18:55.200 --> 0:18:57.639 if you give me a pound of gold, or you 0:18:57.760 --> 0:18:59.920 give me the equivalent in dollars, or you give me 0:18:59.920 --> 0:19:03.600 the the equivalents in platinum. The money is still there, 0:19:04.440 --> 0:19:07.720 so it's not necessarily pulled out. All you did is 0:19:07.800 --> 0:19:10.120 go from a liquid to a solid to a gas man. 0:19:10.480 --> 0:19:12.760 You changed its form, but you didn't change the thing. 0:19:13.680 --> 0:19:17.000 Ah, but Japanese citizens don't pay for stuff in euros. 0:19:17.200 --> 0:19:20.600 They pay for stuff in yen. So to quote you 0:19:20.640 --> 0:19:22.679 know one of our favorite politicians, you put it in 0:19:22.720 --> 0:19:26.000 the lock box in the corner of Tokyo and nobody 0:19:26.040 --> 0:19:28.080 touches it. So the euros are in the lock box 0:19:28.440 --> 0:19:31.040 and no one's touching them, so it's not causing the inflation. 0:19:31.480 --> 0:19:33.680 I got to go back and just say, told don 0:19:34.080 --> 0:19:36.240 did you just quote Al Gore on this show? 0:19:36.680 --> 0:19:39.600 You got the reference? Yes, gosh, guys, I want to 0:19:39.600 --> 0:19:43.719 apologize to everybody. I try to vet the people on 0:19:43.760 --> 0:19:46.800 this show to the best of my ability, doctor Wils 0:19:47.000 --> 0:19:52.040 quoting Al Gore, My goodness, gracious sir, but continue please, Well. 0:19:51.920 --> 0:19:54.840 But your analysis I was doing the I can explain what. 0:19:55.000 --> 0:19:57.960 I understand what occurred. The mechanics. I can even go 0:19:58.000 --> 0:19:59.960 into what we call a cash and carry trade and 0:20:00.000 --> 0:20:04.560 an arbitrage yen dollar rates. But you said the political. 0:20:04.840 --> 0:20:08.320 Now I understand why the why was missing. 0:20:08.960 --> 0:20:09.560 You know, all the. 0:20:09.480 --> 0:20:11.879 Financial press this morning are going over the top looking 0:20:11.920 --> 0:20:15.119 at this, crunching the numbers, saying this is this is interesting. 0:20:16.000 --> 0:20:18.280 But that's the why. The why is the politics because 0:20:18.600 --> 0:20:22.159 he needs Trump needs her in that place for the 0:20:22.200 --> 0:20:26.240 whole China's situation, and because it actually makes a dollar 0:20:26.440 --> 0:20:30.440 stronger or weaker. I mean, this is he's going against 0:20:30.440 --> 0:20:32.000 his own thing. By the way, you know how he 0:20:32.040 --> 0:20:34.600 can solve the problem with China much or with Japan 0:20:34.680 --> 0:20:39.040 much easier. Eliminate the tariffs. Eliminate the terriffs. It's causing 0:20:39.080 --> 0:20:41.879 their exports to cost more. If he would just eliminate 0:20:41.920 --> 0:20:44.719 the tariffs, that would have a huge benefit for Japan. 0:20:45.160 --> 0:20:47.480 So why don't we just eliminate the tariffs. 0:20:47.600 --> 0:20:51.359 He's not going to do this on any level. So 0:20:51.440 --> 0:20:54.400 here we are. We just bought this currency, so this 0:20:54.480 --> 0:20:57.480 is different. Talking to Dr Matt Well, economists at the 0:20:57.600 --> 0:21:00.639 University of Indianapolis, and by the way, you and getting 0:21:00.720 --> 0:21:03.239 rid of all the tariffs, and as you know, I'm 0:21:03.280 --> 0:21:07.120 not a tariff guy. We buy this currency. It doesn't 0:21:07.320 --> 0:21:10.200 hurt us. I mean it does if you want to argue, 0:21:10.280 --> 0:21:13.359 weaken the dollar, which would be Trump going against his 0:21:13.400 --> 0:21:17.480 own desires. But he sees a bigger long term value. 0:21:17.960 --> 0:21:20.480 And now we hold on to this yend like we 0:21:20.560 --> 0:21:23.080 held on to the Euro. It doesn't change anything. Is 0:21:23.119 --> 0:21:25.120 that how it's different than the Argentina deal. 0:21:25.920 --> 0:21:29.240 Yes, the Argentina deal was a swap. We knew that 0:21:29.359 --> 0:21:31.359 we were buying pesos and we knew that we were 0:21:31.359 --> 0:21:33.520 going to sell them back. That was a you know, 0:21:33.840 --> 0:21:37.440 a swap is literally that Japan had access to what's 0:21:37.440 --> 0:21:40.480 called a repo. A repo is like a swap. It's 0:21:40.480 --> 0:21:42.840 an overnight where you sell your currency and buy it back. 0:21:43.200 --> 0:21:45.800 They didn't want that. They want it taken off the market, 0:21:46.119 --> 0:21:50.960 not forever, but for the foreseeable future. And so yeah, 0:21:51.000 --> 0:21:54.320 we own the euros. They're sitting you know, in electronic 0:21:54.400 --> 0:21:57.119 form in banking, you know, New York or d C. 0:21:57.320 --> 0:21:59.359 And they'll just sit there until we decide we want 0:21:59.359 --> 0:22:00.000 to get rid of them. 0:22:01.119 --> 0:22:05.159 So now we get into the next steps here. What 0:22:05.400 --> 0:22:08.600 happens in the Japanese economy or what should we be 0:22:08.680 --> 0:22:12.119 looking for? What are the markers in the Japanese economy 0:22:12.440 --> 0:22:15.600 to see whether or not this has provided them value? 0:22:16.040 --> 0:22:18.200 And is there something we need to be looking at 0:22:18.200 --> 0:22:21.119 it to see whether or not it has done us harm? 0:22:21.520 --> 0:22:25.240 Okay, I could not have answered that until you mentioned 0:22:25.280 --> 0:22:27.639 the political angle. Now I get it. So this is 0:22:27.680 --> 0:22:29.679 what I think is going to happen. I think it 0:22:29.680 --> 0:22:32.600 gives the Prime Minister cover. I think it allows her 0:22:32.640 --> 0:22:36.120