Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and I'm Moldana across asset reporter with Bloomberg. Add
Speaker 1: this week on the show. Well, we hate to sound
Speaker 1: like a broken record around here, but when it comes
Speaker 1: to financial markets, it's all about inflation again. Both the
Speaker 1: stock and bond markets got off to a roaring starts
Speaker 1: of the year following a disastrous twenty twenty two. I've
Speaker 1: made hopes that last year's surge and consumer prices had
Speaker 1: finally been tamed, but that strong start has mostly been
Speaker 1: reversed following some higher than expected inflation readings both in
Speaker 1: the US and Europe. So where do we stand now?
Speaker 1: Are these recent reports just potholes on the road to
Speaker 1: the normalization of inflation or is something else going went on?
Speaker 1: And what does it all mean for the path of
Speaker 1: interest rates. We'll get into it with a very influential
Speaker 1: economist who's best known for being Vice Chair of the
Speaker 1: Federal Reserve and a member of President Bill Clinton's Council
Speaker 1: of Economic Advisors in the nineteen nineties. He's got a
Speaker 1: new book out and it's all about the history of
Speaker 1: monetary and fiscal policy in the US. But first, vil Donna,
Speaker 1: I have to say I'm excited about this guest for
Speaker 1: two reasons. One, I think he's the perfect guest to
Speaker 1: sort of talk about all the issues affecting markets these days.
Speaker 1: But also, do you remember how excited I got a
Speaker 1: few weeks ago? Unreasonable, I will admit, unreasonably excited when
Speaker 1: I got to ride the Dinky. Yes, I remember? You
Speaker 1: remember what the dire happy it's Is it a train
Speaker 1: or a bus? It's a train. It's it's the shortest
Speaker 1: I believe, maybe our guests can correct me. It's the
Speaker 1: shortest train line commuter train line in the US. It's
Speaker 1: like two and a half miles. It goes from Princeton
Speaker 1: Junction to Princeton to Princeton University or Princeton Town the
Speaker 1: town Okay, well, yes, yes to both. Yeah, it lands
Speaker 1: right on campus. You were not as excited when I
Speaker 1: got to ride that as No, because how long of
Speaker 1: a ride? Is that? A minute? Like it's like I
Speaker 1: think it's like five minutes. Okay, So you can't even
Speaker 1: sit down, you can't even have a snack. You can
Speaker 1: you have to snack quickly. You have to snack quickly.
Speaker 1: That's what makes it exciting, is the superlative of the
Speaker 1: shortest ever train line. I've never I've never been on it.
Speaker 1: Maybe you and I can make a trip out there.
Speaker 1: We should, We should. I think our guests has been
Speaker 1: on it, including our guests. I bet he's written it.
Speaker 1: I have many times. Okay, well, before you tell us more,
Speaker 1: it's the person speaking is Alan Blinder. He's a professor
Speaker 1: of economics at Princeton and he's a former FED vice chair.
Speaker 1: Thanks so much for joining us on the podcast. Oh, sure,
Speaker 1: you're welcome. How has the dinky been riding it? Well?
Speaker 1: Have it it lately? I mean that's the way to
Speaker 1: get to New York. I used to go to New
Speaker 1: York quite a lot. Two things happened. The obvious one
Speaker 1: is the pandemic, and I don't go there very much anymore.
Speaker 1: The non obvious one is we had some grandchildren, little
Speaker 1: ones in Washington, so my wife and I now go
Speaker 1: south more often than we own North. Oh, let's get
Speaker 1: into sort of the current state of the markets. And
Speaker 1: by the way, congratulations on your book. I'm about halfway
Speaker 1: through it. It It really fascinating and I think just a
Speaker 1: really important read for anyone who wants to get an
Speaker 1: overview of sort of how we got where we are
Speaker 1: and sort of the the dynamic between monetary and fiscal
Speaker 1: policy and sometimes frictions. I guess you could say, but
Speaker 1: I'm curious how you're thinking right now about inflation. Yoyo'd
Speaker 1: op ed in the Wallstreet Journal earlier this year in
Speaker 1: which you were very optimistic that perhaps we've seen the
Speaker 1: worst of inflation. You look at sort of the first
Speaker 1: half of the year twenty twenty two versus the second half.
Speaker 1: It was super hot, double digit inflation in the first half,
Speaker 1: and then back closer to the Fed's target in the
Speaker 1: second half. You know, if you look at it month
Speaker 1: over month on an annualized basis, I think it was
Speaker 1: three months annualized basis. Correct me if I'm wrong. But
Speaker 1: we have seen sort of renewed concern about inflation. The
Speaker 1: January numbers were a little hotter, both pc and CPI.
Speaker 1: This week, the market's reacting pretty strongly to France, Spain,
Speaker 1: and Germany reputing hotter than expected inflation. How are you
Speaker 1: thinking about it now? Is it still is there still
Speaker 1: reason to be optimistic that we're trending in the right direction.
Speaker 1: You know, is this just sort of a pothole on
Speaker 1: that road to normalization or is there any reason to
Speaker 1: be more concerned. I think it's more of a pothole
Speaker 1: with one big exception. And this is my beef with
Speaker 1: the Bureau of Labor Statistics that I usually love, it's
Speaker 1: one of the great statistical agencies in the world. But
Speaker 1: what they did after I wrote that Wall Street Journal
Speaker 1: piece that you correctly referred to, this is going to
Speaker 1: send very wonkish change the seasonal adjustment factors. So it's
Speaker 1: no longer true. If you look at the year when
Speaker 1: I wrote that piece, it was true that roughly speaking,
Speaker 1: inflation in twenty twenty two was about eleven percent annual
Speaker 1: rate in the first half and about a two percent
Speaker 1: annual rate in the second half. Of Wow, that's quite
Speaker 1: a difference. It's nothing like that now because of changing
Speaker 1: the seasonals, which you know, struck me as dirty pool
Speaker 1: for a prognosticator. I was looking at what turned out
Speaker 1: to be wrong data. That said, the qualitative story that
Speaker 1: old lower inflation in the second half than in the
Speaker 1: first half remains true. That did not disappear from the data.
Speaker 1: It's also mostly universal. I won't say every country, but
Speaker 1: it's certainly true in Europe and in most other countries.
Speaker 1: But in terms of magnitude, nothing like what it was
Speaker 1: before they change the data. And that's the sense in
Speaker 1: which I view it as a kind of a pothole,
Speaker 1: but a pothole now on a road that's not as
Speaker 1: deeply declining as we used to think, but declining. That's important.
Speaker 1: So can you tell us more about this because this
Speaker 1: piece it did come out a couple of weeks ago
Speaker 1: before we got the minutes from the last FED meeting.
Speaker 1: But you said the FED now has a good chance
Speaker 1: at a soft economic landing. Yeah, because of this data revision,
Speaker 1: I'm revising that we whole revise things where we get
Speaker 1: new data. I'm revising that to be a little less optimistic.
Speaker 1: I think they still have a chance, but it's a
Speaker 1: tougher chance than it was, you know, just to repeat
Speaker 1: with the old data. By late in twenty twenty two,
Speaker 1: we are pretty close to the target where the FED
Speaker 1: wanted to be, but with the new data, we're not
Speaker 1: quite as close. And among other things, that means we
Speaker 1: have to fed as likely to raise interest rates more. Okay,
Speaker 1: I have a bunch of follow up questions about this,
Speaker 1: because there's a bunch of debates going on, you know,
Speaker 1: especially when I'm hearing people on bloom or TV or
Speaker 1: people I talked to on a daily basis, A lot
Speaker 1: of them are saying that a six percent Fed funds
Speaker 1: rate is a real possibility. To what extent you would
Speaker 1: agree with that, No, I'd bet against that. It's not
Speaker 1: beyond the realm of the possible. You're reminding me a
Speaker 1: bit when I was on the FED in ancient times
Speaker 1: in the nineteen nineties. You're too young to remember this.
Speaker 1: When we were tightening in ninety four ninety five, market
Speaker 1: sentiments at one point, not just for a day, for
Speaker 1: a while was that we were going to go up
Speaker 1: to eight percent on the federal funds rate. I remember
Speaker 1: sitting there in my office in Washington saying, are those
Speaker 1: people crazy? We're not going to go anywhere near eight percent.
Speaker 1: But in those days you weren't allowed to say anything.
Speaker 1: Those are the days when the FED was mum and
Speaker 1: if the markets flew off in some wild direction, Alan Greenspan,
Speaker 1: who was the chairman, wouldn't do anything to bring them back. Eventually,
Speaker 1: events brought them back, and in fact, we topped out
Speaker 1: coincidentally at six percent, not eight percent, so I'd be
Speaker 1: surprised if we get to six. I want to get
Speaker 1: into that idea of the Fed staying mom and sort
Speaker 1: of compare and contrast that with today. But first, before
Speaker 1: we do that, I think two things have shifted in
Speaker 1: the sort of the market's view of where the Fed's
Speaker 1: rate is going to go. One is exactly how high
Speaker 1: it's going to go, and we can debate five and
Speaker 1: a quarter, five and a half or six. But I
Speaker 1: think what's we're alarming to investors these days is the
Speaker 1: notion that it's going to stay there for a while. Um.
Speaker 1: You know, we we came into this year. If you
Speaker 1: look at the dot plot, uh you know, which is
Speaker 1: the feds uh individual members projections of where they see
Speaker 1: the FED funds rate or even market pricing in the
Speaker 1: SOFA or Fed funds futures markets that you know, it
Speaker 1: seemed to be at an unanimous consensus almost that that
Speaker 1: rate would peak maybe this spring early summer, and then
Speaker 1: immediately come down, that the Fed would pivot and start
Speaker 1: cutting rates. That seems to be you know, that dot
Speaker 1: plot hasn't been updated yet, but I'm assuming what it
Speaker 1: is that that that pivot's not no longer going to
Speaker 1: be there, and in the pricing of the you know,
Speaker 1: SOFA and FED funds futures market, it's no longer there either.
Speaker 1: Is that the correct interpretation and view of the rest
Speaker 1: of the year, do you think? I think so? I
Speaker 1: think the markets were getting were, frankly a little bit
Speaker 1: wacky when they had, as you correctly characterize, view that
Speaker 1: the FED was going to go up to a peak
Speaker 1: and then write down that's not what usually happens with
Speaker 1: monetary policy. The much more likely scenario always was it
Speaker 1: was going to go up to some peak, and one
Speaker 1: could debate, and people did debate where that peak would be,
Speaker 1: and then hang around there for a while see what happens.
Speaker 1: The same thing is true when the FED is going down.
Speaker 1: It goes down for a while, it flattens out, usually
Speaker 1: to wait and watch, wait and watch what, among other things,
Speaker 1: the effects of the policy it's already promulgated, and then
Speaker 1: keep moving if necessary, or reverse if that seems appropriate.
Speaker 1: So I never thought that was a likely scenario, and
Speaker 1: I'm glad to see the markets don't believe it anymore.
Speaker 1: And what about the debate that the FED will have
Speaker 1: to rethink it's two percent target. And we've had guests
Speaker 1: on this podcast as well arguing that maybe they should
Speaker 1: be rethinking that two percent just isn't very realistic. So
Speaker 1: let me assure you of one thing, and then I
Speaker 1: elaborate slightly. There is no debate inside the FIT. None. Zero.
Speaker 1: It is not going to happen. Bet your whole portfolio
Speaker 1: on it, all right, if the FIT is not changing
Speaker 1: its target. Now, a broader question, which is interesting to
Speaker 1: economists and historians we're talking about a book on economic
Speaker 1: history here, is whether it should have set a higher
Speaker 1: number when it did latch onto a target not two.
Speaker 1: I think that's quite debatable, and I think I'd be
Speaker 1: on the side of yes, it should have gone higher.
Speaker 1: So why do I say both? Because and the reason
Speaker 1: it's the same answer to the reason. Why is there
Speaker 1: no debate at the FIT? Because it would look like caving,
Speaker 1: giving in, surrendering. We can't do it, So we're going
Speaker 1: to make our target easier. And immediately people would start saying, oh,
Speaker 1: you went up to three, how do I know you
Speaker 1: don't go up to four? And those are the kinds
Speaker 1: of reasons why the FED will never ever. Ever, well,
Speaker 1: ever is much too long. Let's say for the next
Speaker 1: thirty five years that it is not going to think
Speaker 1: about changing the target. What would have been, in your view,
Speaker 1: a better target than two. I thought three would be
Speaker 1: better than two. And the main reason is what we
Speaker 1: were experiencing before the pandemic with zero quote zero interest rates,
Speaker 1: that if it was three rather than two, the FED
Speaker 1: would have had more room as the economy crater to
Speaker 1: push the economy out of the crater with lower interest rates,
Speaker 1: as if it had started with interest rates one hundred
Speaker 1: basis points higher than it did, or would add one
Speaker 1: hundred basis points more easy before it had to resort
Speaker 1: to the so called unconventional policies. Well, and I think
Speaker 1: maybe an important distinction to draw is the idea of
Speaker 1: while the FED may not change that two percent target,
Speaker 1: I assume that that doesn't necessarily mean that they won't
Speaker 1: pause or pivot before it gets to two. Right, Absolutely,
Speaker 1: I think they'll pause, not pivot, That's what we're talking about. Before.
Speaker 1: They'll pause once inflation gets low enough and is falling,
Speaker 1: so the two percent, so to speak, is in sight,
Speaker 1: then they'll pause to see, all right, is it going
Speaker 1: to two? Is it not going to two? How's the
Speaker 1: economy look? And so what about other areas within the economy?
Speaker 1: Actually hear this question a lot, and I asked this
Speaker 1: question a lot when I'm talking to people. Look where
Speaker 1: actually are we seeing any weakness? Or I'm thinking about
Speaker 1: the housing market. I get a ton of notes in
Speaker 1: my inbox on a daily basis that says, the housing
Speaker 1: market now is also showing some signs of pricking up
Speaker 1: and of a turnaround, and the consumer remains strong, etcetera.
Speaker 1: Where might you point to even show any weakness right now?
Speaker 1: I point to the housing market, and I'm getting the
Speaker 1: same email says you're getting or some of them. And
Speaker 1: if you look at the graphs that accompany with them,
Speaker 1: it looks like it's gone down, down, down a usual
Speaker 1: way and then a tiny little uptick. Let me see
Speaker 1: that uptick grow over a month, and then I'll start
Speaker 1: getting worried. And the reason I say that is that
Speaker 1: classically for decades, if you ask people on the fed
Speaker 1: away from microphones, so it's stop being recorded by Bloomberg,
Speaker 1: where do you think you can do your damage or
Speaker 1: help for that matter, If it's the other direction on
Speaker 1: the economy, they'll say, housing, Housing is by far the
Speaker 1: most sensitive to interest rates, and to me, despite these
Speaker 1: little blips of optimism, very lately housing as well down,
Speaker 1: and that's what you'd expect. The second place, by the way,
Speaker 1: is more puzzling, and I can't figure it out, which
Speaker 1: is automobile purchases. They generally respond to interest rates a lot.
Speaker 1: And the reason I can't figure it out of the
Speaker 1: reasons maybe there are people that are more expert in
Speaker 1: the auto market than I is. As you remember, we
Speaker 1: had all these shortages the manufacturers couldn't make enough cars
Speaker 1: because they couldn't get enough chips and so on and
Speaker 1: so forth, and there have been some unusual fluctuations, so
Speaker 1: you wouldn't want to attribute those down drafts to interest rates,
Speaker 1: and that sort of confused the whole picture. So I
Speaker 1: don't know what to make of automobiles if and I
Speaker 1: just haven't studied it enough. Maybe if I had, i'd
Speaker 1: have a clearer pictures. But those are the two places,
Speaker 1: and the third, which is also down, is business investment.
Speaker 1: The worst of this past recession caused by the pandemic
Speaker 1: was in concert sumer services. Anybody who was expecting the
Speaker 1: FEDS tightening to affect spending on consumer services was not
Speaker 1: paying attention to history. It doesn't have any effect zero.
Speaker 1: Now that's a big hunk of the economy. But even
Speaker 1: in the good old days when nobody questioned whether the
Speaker 1: FED could push the economy around, like the Volker days
Speaker 1: or the Greenspan days, nobody on nobody at the FED.
Speaker 1: I don't want to speak about the whole earth. No
Speaker 1: nobody at the FED ever thought they were able to
Speaker 1: either push up or push down consumer spending on services.
Speaker 1: You know, Professor, It's it's interesting how one hundred percent
Speaker 1: of the discussion around fighting inflation these days relates to
Speaker 1: monetary policy and what the FED can or can't do.
Speaker 1: A part of your book that I found really fascinating
Speaker 1: is you get into the sixties during the present and
Speaker 1: see of JFK and LBJ and how the the Keynesian
Speaker 1: economists had really come into power and you know, and
Speaker 1: influence under both of those administrations, and you know, the
Speaker 1: notion of you know, using fiscal spending to boost demand,
Speaker 1: don't let worries about the deficit really handcuff you in
Speaker 1: that sense, And you talk about how Keynesians sort of
Speaker 1: got a bad rap back then because inflation accelerated pretty
Speaker 1: pretty fast during the Vietnam War because of all the
Speaker 1: defense outleads and Keynesians were actually advising on fiscal restraint
Speaker 1: to to to to bring down inflation. And as you
Speaker 1: point out, I think you know, and this to me
Speaker 1: is kind of relates to today's world two with modern
Speaker 1: monetary theory, in that it's very easy for a politician
Speaker 1: to go out there and promise lower taxes, more spending,
Speaker 1: that sort of thing. It's pretty much political suicide to
Speaker 1: to suggest some kind of fiscal constraint and higher taxes,
Speaker 1: less spending in order to help reduce inflation. Is it
Speaker 1: just a lost cause to ever think that fiscal policy
Speaker 1: could or will ever be used in the fight against inflation?
Speaker 1: Is it just too politically impossible to even consider anymore. Yes,
Speaker 1: in a word, I wish it weren't true, but I
Speaker 1: think it is true. One of the things I discovered
Speaker 1: in reminded myself, i should say, in researching and writing
Speaker 1: this book is and this is to your point, the
Speaker 1: last time fiscal policy was used deliberately by the government
Speaker 1: to take some steam out of the economy to fight
Speaker 1: inflation was nineteen sixty eight nineteen sixty eight. That's a
Speaker 1: long time. There had been other episode since sixty eight
Speaker 1: in which fiscal policy turned contractionary, but that was always
Speaker 1: motivated by concerns about the deficit, not about concerns about
Speaker 1: the economy. I was in the Clinton administration and that
Speaker 1: was an example. Right, we promulgated and barely got through
Speaker 1: Congress by the skin of our teeth, or more accurately,
Speaker 1: by Al Gore breaking a tie vote in the Senate,
Speaker 1: a contractionary fiscal policy to reduce the deficit. It was
Speaker 1: not to bring down inflation. The inflation was three percent.
Speaker 1: Most of us thought, oh, three percent, We were just
Speaker 1: talking about three percent inflation. Believe me, Bill Clinton was
Speaker 1: not concerned that the inflationary was three percent and that
Speaker 1: was terrible. He was concerned about the budget deficit. So
Speaker 1: there have been some episodes like that, but none since
Speaker 1: These Keynesian economists who were referring to finally convinced Johnson
Speaker 1: that we needed to raise taxes because of the Vietnam inflation,
Speaker 1: and then john after a year and a half of cajoling,
Speaker 1: finally convinced Congress to do it. It was a really
Speaker 1: hard fight. Since then, there's been no fiscal contraction for
Speaker 1: demand management reasons. I love taking all the different scenarios
Speaker 1: and historical time periods that you talk about in the
Speaker 1: book and then comparing them to maybe developments that we've
Speaker 1: seen over the last ten years or so. And you
Speaker 1: said recessions at the end of the fifties and the
Speaker 1: two recessions at the end of the fifties and at
Speaker 1: the start of the sixties, they didn't see Congress or
Speaker 1: the White House coming in to help mitigate things. And
Speaker 1: obviously that is very different from what we saw during
Speaker 1: the COVID pandemics. So maybe you could talk a bit
Speaker 1: about that and how things have changed. Yeah, those episodes
Speaker 1: that you talked about were in the United States, though
Speaker 1: not in Europe in the pre Kansian era. Came Zianism
Speaker 1: was considered back then a strange foreign doctrine. Probably some
Speaker 1: people were calling it communist. I was once called a
Speaker 1: Malice Keynesian. I haven't figured out what that is yet,
Speaker 1: But in those days in the Eisenhower administration, the Keynesian
Speaker 1: ideas had just not caught on in the American political world.
Speaker 1: They had in the academic world absolutely. I mean I
Speaker 1: was a young student back in the sixties and we
Speaker 1: were taught that kind of stuff, but an academia, no,
Speaker 1: and that was one of the things that was revolutionary,
Speaker 1: though it took a long time. In Kennedy's call for
Speaker 1: a tax cut, which he first made in nineteen sixty two,
Speaker 1: let's note the dates. It finally passed in nineteen sixty
Speaker 1: four and only after he was tragically assassinated. We can't
Speaker 1: run history again, but my best guess is it never
Speaker 1: would have passed where Kennedy not assassinated, if he was
Speaker 1: still alive and trying to push it through Congress. There
Speaker 1: was tremendous resistance to Kenzie and ideas, largely because they
Speaker 1: were going to raise the deficit in that if it's
Speaker 1: Kenzie and in that direction. A few minutes ago we
Speaker 1: were talking about Kenzie and in the other direction, trying
Speaker 1: to throttle back demand. But if it's Keynesianism in the
Speaker 1: expansionary direction, it's going to raise the deficit, something Ronald
Speaker 1: Reagan should have known in nineteen eighty one. Maybe he did,
Speaker 1: but that's another story. But the point is that these
Speaker 1: ideas were foreign and considered kind of revolutionary back then.
Speaker 1: Not anymore, but back then, yeah, Well, I wonder. You know,
Speaker 1: I still feel like the debate hasn't been settled on
Speaker 1: exactly how we got where we are today with inflation,
Speaker 1: and maybe it can't be settled. But you know, your
Speaker 1: book really points out the various drivers of inflation throughout history.
Speaker 1: You know, it was UH in the sixties, first JFK's
Speaker 1: tax cuts and then the big spending on the Vietnam War.
Speaker 1: Then later in the seventies it was the you know,
Speaker 1: the oil price shock obviously played played a big role.
Speaker 1: I feel like these days we've gotten hit with it
Speaker 1: all at once. You know, we had the Trump tax cuts,
Speaker 1: the covid UH spending, the were in Ukraine, and the
Speaker 1: oil price shock, not to mention all the supply chain
Speaker 1: disruptions during the pandemic. So how in your head, how
Speaker 1: do you sort of assign the blame for the inflation
Speaker 1: inflation problem between you know, fiscal policy, monetary policy that
Speaker 1: arguably stayed too loose for too long, the oil shock,
Speaker 1: on and on. How do you sort of assign the
Speaker 1: influence of each on on where we are now? Your
Speaker 1: list is exactly right. Assigning a portioning the blame is
Speaker 1: harder and controversial, But my list would put the supply
Speaker 1: disruptions in the recovery from COVID on the top of
Speaker 1: the list. They were pervasive all over the place. It
Speaker 1: wasn't like just one thing. And then would put the
Speaker 1: supply shocks which were not one hundred percent but very
Speaker 1: much exacerbated by the war in Ukraine. And then the
Speaker 1: excessive stimulus of the economy. Now that's the one that's
Speaker 1: most controversial. People that want to blame Joe Biden or
Speaker 1: Donald Trump before him latch onto the tremendous fiscal stimulus.
Speaker 1: And it was of tremendous fiscal stimulus, and that's the
Speaker 1: kind of thing that you expect to be at least
Speaker 1: somewhat inflationary. But my view is that the forces clobbering
Speaker 1: the economy over the head, we're so powerful that giving
Speaker 1: some upward impetus to the economy, a substantial upward impetus,
Speaker 1: was necessary if we aren't going to go into a
Speaker 1: deep hole. And then finally we come to the FED.
Speaker 1: Part of the blame that is related is the FED
Speaker 1: started tightening too late. There's unanimity on that. Jerome Powell
Speaker 1: himself has said that numerous times we goofed that wasn't
Speaker 1: that's not the way to talk. After of the Chairman
Speaker 1: of the FED, but he said, we goofed and we
Speaker 1: should have raised interest rates earlier than we should and
Speaker 1: that's right. But if you try to put magnitudes to
Speaker 1: that through models that we used to estimate the effects
Speaker 1: of monetary policy, remembering also that the mistake was maybe
Speaker 1: a delay being three to six months too late, not
Speaker 1: two years too late, it's hard to come for me
Speaker 1: to come up with big numbers on that. So, yes,
Speaker 1: the mistake of the FED did contribute to inflation, but
Speaker 1: I don't I put it closer to the bottom of
Speaker 1: the list than to the top of the list. One
Speaker 1: other very interesting anecdote you talk about is the downturn
Speaker 1: in the first quarter of nineteen eighty and you said
Speaker 1: consumers voluntarily stepped stopped spending, They sort of stepped into
Speaker 1: do their part to help out, which is I don't know.
Speaker 1: I just find that so so fascinating because the Prince,
Speaker 1: the data princes that we've gotten in recent weeks have
Speaker 1: shown really strong retail spending numbers, etc. Etc. So maybe
Speaker 1: you can tell us more about that. It was the
Speaker 1: second quarter of nineteen eighty at Jimmy Carter was president,
Speaker 1: and inflation, of course, was the problem of the day,
Speaker 1: the economic problem of the day. In a speech, he
Speaker 1: urged people to put away their credit cards and not
Speaker 1: use them and spend less. He also pushed Paul Volker,
Speaker 1: who wasn't too happy about it, to invoke credit controls
Speaker 1: on banks, something we don't normally do, and Volca was
Speaker 1: very unhappy about doing it, but felt that Carter was
Speaker 1: giving him him in the fence such a free reign
Speaker 1: to do nasty things that were against Carter's political interest,
Speaker 1: that he ought at least go along and do that.
Speaker 1: But coming to what you asked, an astonishing number of
Speaker 1: people tore up their credit cards and wrote to the
Speaker 1: White House, here's my torn up credit card. I'm not
Speaker 1: using it anymore to try to help the fight against inflation.
Speaker 1: I don't remember what I thought at the time, but
Speaker 1: I'm sure I was astonished. To take you back a
Speaker 1: little bit further, it was only about six years earlier
Speaker 1: that Jerry Ford as president, tried something similar. They were
Speaker 1: issuing wind buttons with inflation. Now, wi n I still
Speaker 1: have mine as an historical souvenir. It was a joke.
Speaker 1: Nobody did anything, so I certainly didn't think Carter's urging
Speaker 1: people to tear up their credit cards wasn't going to
Speaker 1: do anything. But boy was I wrong, and consumer spending
Speaker 1: just fell off a cliffs. It almost it sort of
Speaker 1: looked like what happened at the beginning of the pandemic
Speaker 1: that was a bigger cliff, but a smaller version of
Speaker 1: that happened in the second quarter of nineteen eighty. It
Speaker 1: was so severe the contraction that both Vulcar and Carter
Speaker 1: got scared, like this economy sliding down hill really rapidly,
Speaker 1: and Volca eased up on monetary policy and Carter reversed
Speaker 1: field and took away the controls. But while it lasted,
Speaker 1: it was a whopper. I just can't imagine people ripping
Speaker 1: up their credit cards today. Well neither could I. Then. Yeah,
Speaker 1: if you asked me if Joe Biden did the same today,
Speaker 1: would people listen? My guess is no. But I I
Speaker 1: remember having the same guests in the Jimmy Carter case. Well,
Speaker 1: it gets to the notion of communication, at least you
Speaker 1: know from the White House, can be influential. I remember
Speaker 1: reading that, Yeah, Carter, people would actually mail their ripped
Speaker 1: up cards to the to the White House. I mentioned
Speaker 1: at some point maybe you wanted to tape them back
Speaker 1: together and send them back turn asunder. But um, but uh, professor,
Speaker 1: I wanted to get to that notion of FED communications.
Speaker 1: You know you said earlier how in the Greenspan era,
Speaker 1: Alan Greenspan wouldn't necessarily come out and push back against
Speaker 1: the market's interpretation of FED policy. Obviously, in this era,
Speaker 1: Chair Pal has been very vocal about more communication is better.
Speaker 1: But I feel like it's a it's a difficult needle
Speaker 1: to thread because say, you know, you're the FED chair
Speaker 1: and you do believe that inflation is under control and
Speaker 1: that it'll continue to normalize and maybe by the end
Speaker 1: of the year we'll be back at two percent. That's
Speaker 1: a dangerous opinion to communicate to the market because investors
Speaker 1: hear it, the markets go wild, stocks go up, yields
Speaker 1: come down, and you run the risk of loosening the
Speaker 1: financial conditions enough to to sort of defeat your own purposes. So,
Speaker 1: you know, I hate to use the word subter future misleading,
Speaker 1: but it's it possible that fedeficials kind of come across
Speaker 1: a little more hawkish than maybe they are in their hearts.
Speaker 1: In order to avoid that type of thing. Yeah, I
Speaker 1: think so. I think so. And what I was going
Speaker 1: to say, what they definitely do is stay away from
Speaker 1: interesting or colorful adjectives and adverbs. Be boring. It boring, Lee,
Speaker 1: you know, just the opposite of what you want to
Speaker 1: do in the media show. That's why everything's modest and moderate.
Speaker 1: And yeah, I mean they use boring pros and in
Speaker 1: the statements, in the formal statements, as you know, you say,
Speaker 1: tend to see the same words over and over and
Speaker 1: over again. You know, if you think that's designed to
Speaker 1: put you to sleep, it is. They don't want you
Speaker 1: getting hyper excited because they know. And this is the
Speaker 1: other point, it's inherent in the financial world they live
Speaker 1: in that markets will over act. This is not a
Speaker 1: surprise to the Fed. This is not somebody it wasn't expecting.
Speaker 1: It's always expecting markets to overreact, and they just about
Speaker 1: always do the nice thing. So that's the bad thing
Speaker 1: about markets. The nice thing about markets is they tend
Speaker 1: to self correct when they see, oh, the Fed's not
Speaker 1: going to cut interest rates next month, they reprice securities
Speaker 1: so they do correct. And to come back to the
Speaker 1: way you introduced this question, the FED nowadays, not in
Speaker 1: the old days, but nowadays helps them with that by
Speaker 1: basically saying, politely, you guys got it wrong, and here's
Speaker 1: the way you should be thinking about what we're thinking.
Speaker 1: That was what I was alluding to. Alan Greensman just
Speaker 1: refused to do that in the nineties. He wouldn't, but
Speaker 1: Ben Bernanke started doing it, Janet Yellen did it, and
Speaker 1: Jay Powell does it. You also said in the book
Speaker 1: that you once asked Volker how monetary policy crushes inflation
Speaker 1: and he said by causing bankruptcies. Yeah, you're a close reader.
Speaker 1: I gasped when I read that. She's in three different
Speaker 1: book clubs. Professor, She's you're a close reader. And yes,
Speaker 1: I was shocked by that. I mean, yeah, very surprised
Speaker 1: by that too. This was a conversation we had pulled
Speaker 1: vocal between FED jobs. Spent the year or two years
Speaker 1: as a visiting professor at Princeton, and I had a
Speaker 1: number of discussions with him, and I was engaged, as
Speaker 1: a lot of macroeconomists were engaged in different theories of
Speaker 1: how monetary policy works. So one day at lunch, I figured, well,
Speaker 1: I have the former chairman of the FED right here.
Speaker 1: Let me ask him how he thought it worked that.
Speaker 1: That's what he gave me as an answer, not that
Speaker 1: he relished it, but he thought that's how it actually worked. So, professor,
Speaker 1: let's kind of get you were state of mind right
Speaker 1: now for how the rest of the year turns out.
Speaker 1: Is it basically a plateau in rates and still that
Speaker 1: chance of a soft landing amid that? Is that a
Speaker 1: fair characterization? I don't. I don't think we're at the
Speaker 1: plateau yet. Yeah, I think the FED is going to
Speaker 1: go up a bit more and then probably plateau and
Speaker 1: watch what happens. Soft landings are tough, and the heart
Speaker 1: the higher the FED goes, the tougher it is to
Speaker 1: land softly. And so the odds are moving in the
Speaker 1: wrong direction right now. But I you know, if I
Speaker 1: was betting on this, depending of course, on the definition
Speaker 1: of the bed of what's a soft landing, I guess
Speaker 1: I would handicap it as just a hair below fifty
Speaker 1: percent chance. And an important part of that, Mike, by
Speaker 1: the way, is that unlike some previous feds in history,
Speaker 1: including the one I served on in the nineties, this
Speaker 1: FOMC wants to achieve a soft landing if it can.
Speaker 1: Many of them have said that, either directly or indirectly,
Speaker 1: and that includes Chairman Powell. If you had asked Paul
Speaker 1: Volker in nineteen eighty one, are you shooting it for
Speaker 1: a soft landing, he'd a laugh, He said, with this
Speaker 1: kind of a problem, there's no way we land softly.
Speaker 1: This is going to be a crash landing. But and
Speaker 1: what's interesting in your book you point out, you know,
Speaker 1: I think many people believe that it's a pipe dream
Speaker 1: to engineer a soft landing. But as you put on
Speaker 1: the book, it's it's happened. It has happened several times
Speaker 1: in history. Yes, yeah, it depends on your definition, but
Speaker 1: but yes, it has happened several times in history. Yeah, well,
Speaker 1: fingers crossed, it happens again. With that said, professor, we
Speaker 1: can't let you go just yet, because we have a
Speaker 1: tradition on this podcast where we all like to observe
Speaker 1: the craziest things we've seen in markets and economics and
Speaker 1: whatever's in your wheelhouse in the last week or so.
Speaker 1: Then why don't you start, what's the craziest thing you've
Speaker 1: seen in the past week. I think this technically was
Speaker 1: from at the It came out at the end of
Speaker 1: the prior week, but I'm gonna go with it because
Speaker 1: it's striking. Okay, Blackstones CEO Steve Schwartzman, did you see this.
Speaker 1: I'd have to hear the rest. Okay, No, he's been
Speaker 1: in the news quite a bit. This is big. He
Speaker 1: took home a record one point two seven billion dollars
Speaker 1: in twenty twenty two. One point two seven Be like, boy,
Speaker 1: not bad work if you can get it, Professor, what
Speaker 1: do you think that's more than Princeton pays me? You know,
Speaker 1: I don't want to talk down to your audience, but
Speaker 1: some of the rewards in the financial sector seemed way
Speaker 1: out of line with their contributions to society. That's a
Speaker 1: good thing. It's a good thing. C Schwartzman isn't listening
Speaker 1: to this podcast. Even if he is, I don't think
Speaker 1: there's much debate on that. That's that's pretty good, all right.
Speaker 1: I'll give you mine. Uh Maiden's courtesy of the Twitter
Speaker 1: user Zoran law Vanny. It's on the Hustle dot Co website. Dona,
Speaker 1: what was your favorite toy as a child. I had
Speaker 1: this Barbie that I really wanted and my mom got
Speaker 1: it for me for my birthday, and if you press
Speaker 1: this button on like her abdomen, she sang a song
Speaker 1: and I and I wanted it for forever. And the
Speaker 1: day I got it, my sister took the doll. She
Speaker 1: was so mad jealous, I guess, and ran it over
Speaker 1: with her tricycle like fifty times. Like she basically flattened
Speaker 1: the Barbie pancake. Oh my goodness, that is that's a
Speaker 1: traumatic memory to be brigg it up for you. My
Speaker 1: sister listens to the podcast, so I have to call
Speaker 1: her for being evil. Well, Biden's related because my favorite
Speaker 1: toy was hot wheels, you know, the little toy cars,
Speaker 1: And apparently Mattel had such a hit with Barbie that
Speaker 1: they came out. They're like, well now we got to
Speaker 1: sell something to the boys, so they came out with
Speaker 1: hot wheels. So the story on the Hustle dot com
Speaker 1: website talks about this guy, Bruce Pascal, who's got a
Speaker 1: one point five million dollar collection of hot wheels. Pretty
Speaker 1: extensive collection. But in order to turn this into our
Speaker 1: game show, the prices precise. I want you to guess
Speaker 1: the most expensive, most highly valued hot wheels. It hasn't
Speaker 1: sold in a while. But what the collector's estimate is
Speaker 1: the most highly valued hot whale in his collection, And
Speaker 1: I'll give you a little details on here. It was
Speaker 1: a prototype for the nineteen sixty nine rearloading beach Bomb,
Speaker 1: which was basically kind of looks like one of those
Speaker 1: old Volkswagen vans has a surfboard coming out the back.
Speaker 1: There are only forty some of them made, but this
Speaker 1: was the actual prototype. Um So, so what's your bid?
Speaker 1: What's your bid on that for this one car? One
Speaker 1: nineteen sixty nine rear loading beach Bomb surfer Van hot wheels? Okay,
Speaker 1: then I'll go with two hundred thousand dollars. Two hundred
Speaker 1: thousand dollars, very quick, quick and uh confident answer on
Speaker 1: your part, professor, What do you think if you're if
Speaker 1: you're on the prices right, what are you been for
Speaker 1: the world's most expensive hot wheel? Definitely less than hundred
Speaker 1: thousand dollars. I'll tell you what you just both taught me.
Speaker 1: My six year old grandson as a burgeoning collection of
Speaker 1: hot wheels, I'm gonna make sure he doesn't do with
Speaker 1: it what I did with my collection of baseball cards
Speaker 1: when I was six. What'd you do with that, I
Speaker 1: just let it go to rotten. We put him in
Speaker 1: a bicycles spokes, took them outside in the rain, and
Speaker 1: you know, yeah, I probably had a Mickey mantle from
Speaker 1: nineteen fifty something, but I don't have it anymore. It
Speaker 1: was putting up though, I'm gonna go lower. One hundred thousand,
Speaker 1: hundred thousand. Well, you guys split the difference perfectly. It
Speaker 1: was one hundred and fifty thousand dollars. Is the value?
Speaker 1: So I think prices precise roles. We have to give
Speaker 1: it to a professor bondary here you think another item
Speaker 1: for your resume. There, professor, you win. The prices precise.
Speaker 1: I'm not buying, not really betting on that hot wheel.
Speaker 1: How about you Alt? Have you seen anything crazy recently? Sure?
Speaker 1: To me, almost everything about cryptocurrency is crazy. So you
Speaker 1: can start with Sam and it doesn't stop with that
Speaker 1: company was once valued in the market at twenty five
Speaker 1: billion dollars. I'll put that up as crazy. Yeah, what
Speaker 1: do you think it? Is? It the loose monetary policy
Speaker 1: that a lot of people blame. As an economics professor
Speaker 1: in historin with your credentials things like that, how do
Speaker 1: you explain the booming crypto. There have been fads and
Speaker 1: crazes like that throughout history. I when I talk about
Speaker 1: the stock market in economics one on one, I tell
Speaker 1: my students that the first bubble in the stock market
Speaker 1: happened with the very first company. It was the south
Speaker 1: Sea Bubble in England, the first listing company basically, and
Speaker 1: already they having a bubble, so people have gone crazy.
Speaker 1: And then there was the tulip of craze, and yeah,
Speaker 1: the tech stock craze, and you know, you go on
Speaker 1: and on and on. It just happens in speculative markets. Oh,
Speaker 1: just inevitable sort of human nature to people who get
Speaker 1: hyper excited about the new new thing, and and they
Speaker 1: wind up paying outrageous prices. Yeah. Yeah, you only know
Speaker 1: they're outrageous later, right right, right, Well, great perspective, Professor
Speaker 1: Alan Binder, Princeton University. We really appreciate your time and
Speaker 1: your your insights. I think you really helped a lot
Speaker 1: of us think about the current state of affairs, especially
Speaker 1: from that that really important historical perspective that you bring
Speaker 1: with your new book. It's called A Monetary and Fiscal
Speaker 1: History of the United States nineteen sixty one to twenty
Speaker 1: twenty one. Thank you so much for your time. Nice
Speaker 1: to be with you. Thank you, Professor What Goes Up.
Speaker 1: We'll be back next week. Until then, you can find
Speaker 1: us on the Bloomberg Terminal website and app, or wherever
Speaker 1: you get your podcast. We'd love it if you took
Speaker 1: the time to rate and review the show so more
Speaker 1: listeners can find us. And you can find us on Twitter,
Speaker 1: follow me at Veldona Hirich. Mike Reagan is at Reaganonymous.
Speaker 1: You can also follow Bloomer Podcasts at podcasts. What Goes
Speaker 1: Up is produced by Stacy Wong and our head of
Speaker 1: Podcasts is Sage Baldman. Thanks for listening and we'll see
Speaker 1: you next week.