1 00:00:04,840 --> 00:00:08,360 Speaker 1: On this episode in this World, President Trump announced Kevin 2 00:00:08,400 --> 00:00:11,920 Speaker 1: Walsh as his nomination for the new chairman of the 3 00:00:11,960 --> 00:00:15,000 Speaker 1: Federal Reserve. We're going to discuss how the markets have 4 00:00:15,040 --> 00:00:18,560 Speaker 1: reacted to his announcement and Warsh's view on interest rate 5 00:00:18,600 --> 00:00:22,639 Speaker 1: cuts and the economy in general. I'm really pleased to 6 00:00:22,720 --> 00:00:26,400 Speaker 1: welcome back my guest, Thomas Honig. He is the former 7 00:00:26,520 --> 00:00:31,080 Speaker 1: Vice chairman of the Federal Deposit Insurance Corporation, former president 8 00:00:31,160 --> 00:00:34,520 Speaker 1: and CEO of the Federal Reserve Bank of Kansas City. 9 00:00:34,960 --> 00:00:37,280 Speaker 1: He was with the Federal Reserve for thirty eight years. 10 00:00:37,680 --> 00:00:42,120 Speaker 1: He is currently a Distinguished Senior Fellow at the Mercadis 11 00:00:42,240 --> 00:00:46,440 Speaker 1: Center at George Mason University. And I can't imagine anybody 12 00:00:46,760 --> 00:01:05,280 Speaker 1: with a better overall understanding than Thomas. Welcome and thank 13 00:01:05,280 --> 00:01:07,480 Speaker 1: you for joining me again on neut World. 14 00:01:08,080 --> 00:01:09,920 Speaker 2: Well, thank you, dude, and it's a delight to be 15 00:01:09,959 --> 00:01:13,240 Speaker 2: with you once again in these interesting times. So happy 16 00:01:13,240 --> 00:01:14,440 Speaker 2: to share views here. 17 00:01:14,600 --> 00:01:16,839 Speaker 1: They are interesting. I'm hoping you'll make them a little 18 00:01:16,840 --> 00:01:21,760 Speaker 1: bit more understandable. Trump announced Kevin worsh as his chair pick. 19 00:01:22,319 --> 00:01:25,080 Speaker 1: Can you tell us what your sense of Kevin is 20 00:01:25,120 --> 00:01:27,600 Speaker 1: and were you surprised that this is who he picked. 21 00:01:28,160 --> 00:01:31,800 Speaker 2: I wasn't surprised that he picked him. He was I 22 00:01:31,840 --> 00:01:36,959 Speaker 2: think well qualified and has lots of experience, and I 23 00:01:37,000 --> 00:01:41,000 Speaker 2: think if there's any degree of surprise, it's that Kevin 24 00:01:41,240 --> 00:01:44,120 Speaker 2: historically and when I was working with him, and he's 25 00:01:44,160 --> 00:01:47,040 Speaker 2: written up as in Wall Street Journal and so forth, 26 00:01:47,120 --> 00:01:51,000 Speaker 2: which are I think the markets claiming their hawkish He 27 00:01:51,120 --> 00:01:54,720 Speaker 2: is very concerned about the growing national dad. He's concerned 28 00:01:54,720 --> 00:01:58,160 Speaker 2: about when he was at the FMC, about QE, all 29 00:01:58,240 --> 00:02:02,280 Speaker 2: things that would suggest somewhat tighter policy than what I 30 00:02:02,280 --> 00:02:05,080 Speaker 2: think the President might want. But only time will tell. 31 00:02:05,280 --> 00:02:09,800 Speaker 2: So in that sense, slightly surprised, but overall, given his qualifications, 32 00:02:10,160 --> 00:02:12,119 Speaker 2: I think not necessarily surprised. 33 00:02:12,760 --> 00:02:16,280 Speaker 1: So from your perspective, was this a good choice for 34 00:02:16,320 --> 00:02:17,919 Speaker 1: Trump of the people he was looking at? 35 00:02:18,600 --> 00:02:22,120 Speaker 2: I think so. From the president's perspective is certainly. I 36 00:02:22,160 --> 00:02:25,840 Speaker 2: think so, from the point of view that he understands 37 00:02:25,880 --> 00:02:31,160 Speaker 2: the markets, and he understands what fiscal policies can do, 38 00:02:31,800 --> 00:02:35,200 Speaker 2: he understands what monetary policies can do, and therefore he's 39 00:02:35,280 --> 00:02:37,520 Speaker 2: good from that perspective. Now, I will tell you, in 40 00:02:37,520 --> 00:02:41,440 Speaker 2: my opinion, he will be under enormous pressure given the 41 00:02:41,520 --> 00:02:44,480 Speaker 2: fact that of his track record and the fact that 42 00:02:44,520 --> 00:02:48,919 Speaker 2: the President apparently wants more rate cuts, and I think 43 00:02:49,040 --> 00:02:52,880 Speaker 2: for Kevin that will be difficult unless the economy itself 44 00:02:53,480 --> 00:02:57,400 Speaker 2: has enormous improvements in productivity or some other reason to 45 00:02:57,600 --> 00:03:01,200 Speaker 2: justify further cuts given where the rates are today. 46 00:03:01,280 --> 00:03:05,640 Speaker 1: Which takes you to sort of this interesting balance that 47 00:03:06,639 --> 00:03:09,160 Speaker 1: on the one hand, presidents would like to control the FED. 48 00:03:10,000 --> 00:03:13,040 Speaker 1: On the other hand, that FED, both legally and by 49 00:03:13,600 --> 00:03:17,800 Speaker 1: over one hundred year tradition, is pretty independent. Kevin having 50 00:03:17,880 --> 00:03:21,920 Speaker 1: been on the FED, I suspect will bring some of 51 00:03:21,960 --> 00:03:25,079 Speaker 1: that bias. Said, Well, he'll be friendly to the president, 52 00:03:25,400 --> 00:03:26,520 Speaker 1: he won't be obedient. 53 00:03:27,080 --> 00:03:29,720 Speaker 2: I certainly. My own view is I certainly hope not, 54 00:03:29,800 --> 00:03:33,200 Speaker 2: because the facts are that, like you say, presidents always 55 00:03:33,240 --> 00:03:36,400 Speaker 2: want to, shall we say, influence the FED to do 56 00:03:36,440 --> 00:03:40,040 Speaker 2: the policies that they think would serve their needs first, 57 00:03:40,560 --> 00:03:43,640 Speaker 2: and I think therein lies kind of the short term 58 00:03:43,680 --> 00:03:47,600 Speaker 2: political pressures they're in place, and the FED is deliberately 59 00:03:48,280 --> 00:03:52,760 Speaker 2: created to be insulated to some degree from that because 60 00:03:53,360 --> 00:03:56,520 Speaker 2: Congress knew that it would spend more than it should 61 00:03:56,920 --> 00:03:59,640 Speaker 2: if it could also control the printing press. And that's 62 00:03:59,680 --> 00:04:02,920 Speaker 2: really why the Fed's independent and why it is imperative 63 00:04:03,040 --> 00:04:07,600 Speaker 2: that Kevin or any chairman resist those influences. 64 00:04:08,000 --> 00:04:12,560 Speaker 1: Do you think, given the political tensions that we're living through, 65 00:04:12,680 --> 00:04:14,960 Speaker 1: will Kevin have a hard time getting through the Senate? 66 00:04:15,920 --> 00:04:20,000 Speaker 2: I don't necessarily think so. I know the Democrats may object, 67 00:04:20,120 --> 00:04:23,680 Speaker 2: although I'm not sure that they should. I don't think 68 00:04:23,680 --> 00:04:26,880 Speaker 2: the Republicans will. Since this is the president's choice, I 69 00:04:26,920 --> 00:04:29,960 Speaker 2: think they will be supportive of that, and so I 70 00:04:30,000 --> 00:04:32,279 Speaker 2: think he'll get through. To be honest with you, given 71 00:04:32,400 --> 00:04:36,440 Speaker 2: his qualifications, I mean, other than personal preferences, I don't 72 00:04:36,480 --> 00:04:39,560 Speaker 2: see why the Senators would necessarily object to him. Now 73 00:04:39,640 --> 00:04:42,520 Speaker 2: some might because they think he will be complying with 74 00:04:42,520 --> 00:04:45,880 Speaker 2: the president. But anyone the President would choose would be 75 00:04:45,920 --> 00:04:49,840 Speaker 2: thought would have that bias. But I think Kevin knows 76 00:04:49,920 --> 00:04:52,479 Speaker 2: the trade offs, and that I think makes him a 77 00:04:52,480 --> 00:04:53,160 Speaker 2: good choice. 78 00:04:53,400 --> 00:04:58,600 Speaker 1: Can you explain to the average American why does the 79 00:04:58,600 --> 00:04:59,239 Speaker 1: FED matter? 80 00:05:00,560 --> 00:05:03,320 Speaker 2: The FED matters because it affects their lives in every way. 81 00:05:03,760 --> 00:05:06,960 Speaker 2: It provides the what I call part of the fuel, 82 00:05:07,279 --> 00:05:09,159 Speaker 2: not all of it, but the important part of it 83 00:05:09,240 --> 00:05:13,880 Speaker 2: that's the monetary element to the economy, and how well 84 00:05:13,920 --> 00:05:16,679 Speaker 2: they do that will affect everyone's lives. If you print 85 00:05:16,720 --> 00:05:20,000 Speaker 2: too much and you get inflation, as we learn here 86 00:05:20,160 --> 00:05:25,159 Speaker 2: not too distant pass. It creates havoc for the average 87 00:05:25,160 --> 00:05:29,320 Speaker 2: American who's trying to pay for groceries and gasoline. They 88 00:05:29,360 --> 00:05:32,440 Speaker 2: have enormous influence over that, over the cost of living, 89 00:05:32,839 --> 00:05:36,680 Speaker 2: and therefore they play that role. Secondly, as an independent party, 90 00:05:36,839 --> 00:05:40,840 Speaker 2: they are also supposed to be somewhat of a check 91 00:05:41,560 --> 00:05:45,720 Speaker 2: designed by Congress to check Congress. That is, It's enormous 92 00:05:45,760 --> 00:05:49,200 Speaker 2: debts that it's accumulating can't go on forever, and the 93 00:05:49,240 --> 00:05:53,800 Speaker 2: Fed is under the enormous pressure to monetize that debt, 94 00:05:54,080 --> 00:05:57,839 Speaker 2: and if they fail to say no at the right time, 95 00:05:58,440 --> 00:06:01,600 Speaker 2: that would only worsen the inflationary biases that the economy 96 00:06:01,600 --> 00:06:04,200 Speaker 2: would otherwise have. So they are so important to the 97 00:06:04,200 --> 00:06:07,480 Speaker 2: American people, and the American people really need to understand that, 98 00:06:07,600 --> 00:06:10,200 Speaker 2: I think better than they do right now. They think 99 00:06:10,200 --> 00:06:13,200 Speaker 2: in terms of interest rates, high introdates being bad, low 100 00:06:13,240 --> 00:06:15,760 Speaker 2: introdates being good, But that's not how it works, and 101 00:06:15,839 --> 00:06:19,600 Speaker 2: Americans need to understand that better so they can monitor 102 00:06:19,720 --> 00:06:22,679 Speaker 2: and really understand where policy is going. 103 00:06:23,200 --> 00:06:27,440 Speaker 1: When you look at the announcement, gold and silver really dropped. 104 00:06:28,200 --> 00:06:30,960 Speaker 1: In fact, they're combined to climb I think was the 105 00:06:30,960 --> 00:06:34,520 Speaker 1: worst probably in the half century. Was that a sign 106 00:06:34,839 --> 00:06:38,080 Speaker 1: did they expect him to tighten up and have more 107 00:06:38,120 --> 00:06:42,080 Speaker 1: stable money because gold and silver boatmen on this huge run. 108 00:06:42,080 --> 00:06:45,240 Speaker 2: Up, Yes, and had an influence. I think much of 109 00:06:45,560 --> 00:06:48,080 Speaker 2: not all, but much of the run up in gold 110 00:06:48,160 --> 00:06:53,200 Speaker 2: and silver prices in commodities, precious commodities particularly, have been 111 00:06:53,400 --> 00:06:57,000 Speaker 2: a part of inflation. Heads people think that given the amount, 112 00:06:57,360 --> 00:07:00,400 Speaker 2: think about it. The government is putting two trains dollars 113 00:07:00,440 --> 00:07:03,400 Speaker 2: a new dead into the economy. The Fed has been 114 00:07:03,440 --> 00:07:06,280 Speaker 2: monetizing a good part of that. The debasing of the 115 00:07:06,279 --> 00:07:09,760 Speaker 2: currency is often talked about, and so the reaction to 116 00:07:09,800 --> 00:07:12,240 Speaker 2: that is, well, we better find another asset. And part 117 00:07:12,240 --> 00:07:14,680 Speaker 2: of it was bitcoins, and the other part of it 118 00:07:14,760 --> 00:07:17,920 Speaker 2: was gold, silver and other precious metals, and so that 119 00:07:18,040 --> 00:07:21,120 Speaker 2: is inflation. So Kevin comes in. If you read his 120 00:07:21,280 --> 00:07:23,400 Speaker 2: pops in a Wall Street journal and you look at 121 00:07:23,400 --> 00:07:26,280 Speaker 2: his statements, you would say, well, he is going to 122 00:07:26,320 --> 00:07:30,680 Speaker 2: be more disciplined in his conduct of policy, and therefore 123 00:07:31,120 --> 00:07:34,760 Speaker 2: that will affect the inflation outlook and therefore affect the 124 00:07:34,800 --> 00:07:37,240 Speaker 2: price of gold and silver and precious metals, and therefore 125 00:07:37,280 --> 00:07:39,960 Speaker 2: we need to sell now now some of that's already 126 00:07:39,960 --> 00:07:43,480 Speaker 2: been recovered, so how they balanced all this in time 127 00:07:43,800 --> 00:07:47,680 Speaker 2: will depend much on the hearings that are held for 128 00:07:47,800 --> 00:07:51,560 Speaker 2: Kevin in his confirmation. Those will be watched very closely 129 00:07:51,760 --> 00:07:54,160 Speaker 2: for any hints of which way he will go in 130 00:07:54,240 --> 00:07:54,760 Speaker 2: the future. 131 00:08:12,320 --> 00:08:17,040 Speaker 1: Part of this whole plot is what happens with Chairman Powell, 132 00:08:17,520 --> 00:08:22,120 Speaker 1: who obviously has had a very contentious relationship with Trump. 133 00:08:22,720 --> 00:08:26,320 Speaker 1: And Powe of course steps down as the chairman in May, 134 00:08:26,960 --> 00:08:30,920 Speaker 1: but he's actually appointed to the board until twenty twenty eight, 135 00:08:32,000 --> 00:08:35,439 Speaker 1: so he could hang around just to make life more 136 00:08:35,440 --> 00:08:36,400 Speaker 1: difficult for Trump. 137 00:08:37,040 --> 00:08:39,880 Speaker 2: Well, that is a possibility. I mean Chairman Eckles, who 138 00:08:39,880 --> 00:08:43,520 Speaker 2: became Governor Echos served after he stepped down for a while. 139 00:08:44,120 --> 00:08:46,560 Speaker 2: Powell could do that, and the environment is such that 140 00:08:47,200 --> 00:08:50,880 Speaker 2: you're not sure what his self interest serves because given 141 00:08:51,000 --> 00:08:55,320 Speaker 2: all this recent events where there's subpoeniaan documents under an 142 00:08:55,320 --> 00:08:59,120 Speaker 2: investigation whether he lied to Congress, and you have Senator 143 00:08:59,160 --> 00:09:01,880 Speaker 2: Tillis saying and I'm not going to do anything until 144 00:09:01,920 --> 00:09:05,040 Speaker 2: that goes away, he might be incentive to stay on 145 00:09:05,480 --> 00:09:08,559 Speaker 2: to make sure that the pressure remains that those inquiries 146 00:09:08,600 --> 00:09:11,520 Speaker 2: go away. So that's part of the problem. Otherwise, I 147 00:09:11,559 --> 00:09:14,280 Speaker 2: don't see why he would serve. It's traditional for the 148 00:09:14,360 --> 00:09:18,679 Speaker 2: chairman to step down. He's served over two terms, so 149 00:09:18,840 --> 00:09:21,720 Speaker 2: there's no other real strong reason for why you say, 150 00:09:21,760 --> 00:09:25,840 Speaker 2: other than to say, I'll be another balance relative to 151 00:09:25,920 --> 00:09:29,280 Speaker 2: the policy. But given that the choice was Kevin Walsh, 152 00:09:29,320 --> 00:09:31,720 Speaker 2: who has more of a Hawky's view, I don't know 153 00:09:31,720 --> 00:09:32,840 Speaker 2: why he would stay on. 154 00:09:33,320 --> 00:09:37,360 Speaker 1: The other part of that is the drama around Lisa Cook, 155 00:09:38,040 --> 00:09:40,880 Speaker 1: who's a sitting fad to go who Trump tried to 156 00:09:40,920 --> 00:09:44,800 Speaker 1: remove under Federal Reserve Act as I under center. Right now, 157 00:09:45,360 --> 00:09:47,079 Speaker 1: the District Court has said he can't do. 158 00:09:47,120 --> 00:09:50,240 Speaker 2: That, and it's before the Supreme Court right now, and 159 00:09:50,320 --> 00:09:54,600 Speaker 2: people are waiting for that decision. It's a critical decision 160 00:09:55,120 --> 00:09:57,800 Speaker 2: because if the court were to say you can, that 161 00:09:57,840 --> 00:10:01,640 Speaker 2: would change the whole dynamics of the and the Federal Reserve. 162 00:10:02,080 --> 00:10:05,280 Speaker 2: So that is an extremely important one, and that's on 163 00:10:05,320 --> 00:10:07,680 Speaker 2: hold until the Supreme Court rules, and I don't know 164 00:10:07,720 --> 00:10:09,520 Speaker 2: when that will be. I don't know if anyone does 165 00:10:09,600 --> 00:10:14,640 Speaker 2: other than the Court, and that may influence Powell's decision. 166 00:10:15,400 --> 00:10:16,560 Speaker 2: I don't see that it should. 167 00:10:17,400 --> 00:10:21,000 Speaker 1: Power himself has said it's the most important legal case 168 00:10:21,880 --> 00:10:23,880 Speaker 1: in the one hundred and thirteen year history of the FED. 169 00:10:24,520 --> 00:10:27,480 Speaker 2: It really is. It would define the independence for the FED. 170 00:10:27,960 --> 00:10:30,480 Speaker 1: Right the presidents can find some excuse to fire you, 171 00:10:31,080 --> 00:10:34,120 Speaker 1: then your independence is limited by how much you piss 172 00:10:34,160 --> 00:10:34,840 Speaker 1: off the president. 173 00:10:35,120 --> 00:10:38,840 Speaker 2: Exactly. To my opinion, that would be unfortunate. Because the 174 00:10:38,880 --> 00:10:42,360 Speaker 2: FED is the creature of Congress. Congress has the responsibilities 175 00:10:42,400 --> 00:10:44,240 Speaker 2: for money and credit in the United States, and it 176 00:10:44,320 --> 00:10:47,480 Speaker 2: delegated that to the FED. If the Congress were to 177 00:10:47,520 --> 00:10:50,000 Speaker 2: take it back, I can understand that. But to have 178 00:10:50,040 --> 00:10:52,120 Speaker 2: the administration take it back and put that in the 179 00:10:52,200 --> 00:10:54,520 Speaker 2: driver's seat I think would be unfortunate. 180 00:10:55,040 --> 00:10:59,040 Speaker 1: I mean, the whole concept originally was that you needed 181 00:10:59,040 --> 00:11:05,320 Speaker 1: an independent money minitary agency that would basically be technocratic 182 00:11:05,440 --> 00:11:06,280 Speaker 1: rather than political. 183 00:11:06,760 --> 00:11:06,960 Speaker 2: Right. 184 00:11:07,440 --> 00:11:10,120 Speaker 1: Part of that also feeds back into the extraordinary cost 185 00:11:10,160 --> 00:11:14,440 Speaker 1: overruns of this whole modernization of the FED buildings, which 186 00:11:14,440 --> 00:11:17,960 Speaker 1: has become like a two and a half billion dollar 187 00:11:18,480 --> 00:11:22,240 Speaker 1: headquarters project. And that then led, of course to some 188 00:11:22,320 --> 00:11:26,880 Speaker 1: effort to investigate Powell about whether I was accurate. I'd 189 00:11:26,880 --> 00:11:29,000 Speaker 1: like to divide that into two parts, and I have 190 00:11:29,120 --> 00:11:32,320 Speaker 1: to say, this is an outsider who used to serve 191 00:11:32,320 --> 00:11:35,679 Speaker 1: in the Congress. The idea of pouring two and a 192 00:11:35,760 --> 00:11:40,200 Speaker 1: half billion dollars into the Federal Reserve headquarters strikes me 193 00:11:40,240 --> 00:11:40,960 Speaker 1: as a bit much. 194 00:11:41,400 --> 00:11:44,040 Speaker 2: It's hard to argue that point. That is a bit much. 195 00:11:44,440 --> 00:11:47,200 Speaker 2: I don't know the circumstances. Maybe that's what people are 196 00:11:47,240 --> 00:11:49,719 Speaker 2: looking into. But when you start a project and you 197 00:11:49,760 --> 00:11:53,240 Speaker 2: get all these unexpected events, change orders add up, and 198 00:11:53,280 --> 00:11:55,880 Speaker 2: you have this overrun, and that's part of it. Whether 199 00:11:55,880 --> 00:11:59,920 Speaker 2: it was well overaw overseen for example, to the FED 200 00:12:00,120 --> 00:12:04,480 Speaker 2: its own architects, how closely did they do pre construction testing. 201 00:12:04,800 --> 00:12:07,360 Speaker 2: Those are all legitimate issues because two and a half 202 00:12:07,400 --> 00:12:11,160 Speaker 2: billion is a bit much for the renovation of the building, 203 00:12:11,400 --> 00:12:12,439 Speaker 2: no question about it. 204 00:12:12,960 --> 00:12:16,240 Speaker 1: Some people I know, for example, sentater Tom tell Us 205 00:12:16,240 --> 00:12:19,320 Speaker 1: of North Carolina, who's not a fan of Trump's anyway, 206 00:12:20,520 --> 00:12:23,880 Speaker 1: has been suggesting that this whole effort of going after 207 00:12:23,960 --> 00:12:27,520 Speaker 1: the chairman on this question of renovation, there's just one 208 00:12:27,559 --> 00:12:31,559 Speaker 1: more effort at undermining the independence of the FED. I mean, 209 00:12:31,920 --> 00:12:34,520 Speaker 1: do you think it's a serious issue or do you 210 00:12:34,520 --> 00:12:37,760 Speaker 1: think it's one that's just being used as an excuse. 211 00:12:38,480 --> 00:12:40,679 Speaker 2: It's both. I mean, it is a serious issue those 212 00:12:40,760 --> 00:12:43,880 Speaker 2: kinds of overruns. The FED is accountable. I mean, Congress 213 00:12:43,880 --> 00:12:47,040 Speaker 2: should be looking into that if they think those overruns 214 00:12:47,480 --> 00:12:50,400 Speaker 2: are excessive. There's no question that the FED should be 215 00:12:50,400 --> 00:12:53,880 Speaker 2: accountable to Congress, and then you go from there. I 216 00:12:53,960 --> 00:12:57,640 Speaker 2: don't question that they need to be accountable. Now, whether 217 00:12:57,679 --> 00:13:00,800 Speaker 2: you do it that way, which through Congress, or you 218 00:13:00,920 --> 00:13:04,400 Speaker 2: do a criminal investigation, I think that's debatable. I've said, 219 00:13:04,880 --> 00:13:07,480 Speaker 2: and you know better than I, I'm sure, but if 220 00:13:07,520 --> 00:13:11,760 Speaker 2: every agency who had an overrun were investigated on criminal charges, 221 00:13:11,800 --> 00:13:15,199 Speaker 2: there would be very few people that wouldn't be investigated 222 00:13:15,200 --> 00:13:18,240 Speaker 2: in Washington given the overruns that we've seen in defense 223 00:13:18,520 --> 00:13:21,520 Speaker 2: and you name it. So I think it's a legitimate 224 00:13:21,559 --> 00:13:24,600 Speaker 2: issue for Congress. It's a bit to me a stretch 225 00:13:24,679 --> 00:13:26,079 Speaker 2: to say is a criminal matter. 226 00:13:26,440 --> 00:13:28,599 Speaker 1: It's almost One of the things I think is interesting 227 00:13:29,400 --> 00:13:32,880 Speaker 1: is that the Federal Reserve defense in part for the 228 00:13:33,000 --> 00:13:35,760 Speaker 1: laborate two and a half billion dollars is that it's 229 00:13:35,840 --> 00:13:39,880 Speaker 1: their money. It's not congressionally allocated, and therefore people should 230 00:13:39,920 --> 00:13:43,760 Speaker 1: just sort of relax. Explain why the FED has two 231 00:13:43,760 --> 00:13:45,559 Speaker 1: and a half billion dollars lying around. 232 00:13:46,600 --> 00:13:49,199 Speaker 2: Well, actually the FED doesn't have to do a half 233 00:13:49,200 --> 00:13:52,360 Speaker 2: billion dollars lying around, but the FED is independent and 234 00:13:52,520 --> 00:13:56,480 Speaker 2: doesn't have to be appropriated. Therefore, the FED can and 235 00:13:56,559 --> 00:14:01,240 Speaker 2: does print money as it does so it can by assets, 236 00:14:01,480 --> 00:14:03,720 Speaker 2: or it can spend it on new buildings. It has 237 00:14:03,760 --> 00:14:07,400 Speaker 2: the flexibility of both being able to create money and 238 00:14:07,480 --> 00:14:09,559 Speaker 2: the way the Board of Governor does it it assesses 239 00:14:09,600 --> 00:14:13,520 Speaker 2: the reserve banks who actually have the income or deferred 240 00:14:13,640 --> 00:14:17,640 Speaker 2: liabilities as it currently is, and that money is created, 241 00:14:17,720 --> 00:14:21,600 Speaker 2: a new liability is created to pay for its new building. 242 00:14:21,880 --> 00:14:25,160 Speaker 2: So it's that much less money that would go otherwise 243 00:14:25,200 --> 00:14:29,000 Speaker 2: to the Treasury in terms of surplus from their monetary 244 00:14:29,000 --> 00:14:30,040 Speaker 2: policy operations. 245 00:14:30,360 --> 00:14:32,920 Speaker 1: So in the fact that it is diverted from a 246 00:14:32,960 --> 00:14:35,680 Speaker 1: stream that would otherwise have gone into the. 247 00:14:35,640 --> 00:14:37,920 Speaker 2: Treasury, that's correct, That's helpful. 248 00:14:38,040 --> 00:14:39,840 Speaker 1: It's confusing, but it's help. 249 00:14:39,880 --> 00:14:40,800 Speaker 2: Yes, it is confusing. 250 00:14:57,400 --> 00:15:02,240 Speaker 1: I think a very real p policy question which I've 251 00:15:02,280 --> 00:15:05,920 Speaker 1: always been intrigued by, and that is that when they 252 00:15:05,960 --> 00:15:09,800 Speaker 1: added the Humphrey Hawkins provision, that the Fed has a 253 00:15:09,880 --> 00:15:14,240 Speaker 1: dual mandate on the one hand to worry about stability 254 00:15:14,240 --> 00:15:17,200 Speaker 1: of the dollar and on the other hand to worry 255 00:15:17,200 --> 00:15:23,880 Speaker 1: about the economy, which I think invariably biases towards inflationary policies. 256 00:15:24,520 --> 00:15:27,240 Speaker 1: Would we be better if we went back to making 257 00:15:27,280 --> 00:15:33,200 Speaker 1: the FED assignment specifically monetary without regard to the economy itself. 258 00:15:34,160 --> 00:15:37,280 Speaker 2: It would be very difficult to completely separate in that sense. 259 00:15:37,320 --> 00:15:41,680 Speaker 2: But I would argue that the mandate should be that 260 00:15:41,680 --> 00:15:45,960 Speaker 2: the FED should have a stable valued currency. That's its 261 00:15:46,000 --> 00:15:49,600 Speaker 2: primary goal. That's why it was created. Well, that's one 262 00:15:49,600 --> 00:15:51,920 Speaker 2: of the reasons it was created. But that should be 263 00:15:51,920 --> 00:15:55,840 Speaker 2: the goal, and in doing that, the economy can run 264 00:15:56,320 --> 00:16:00,320 Speaker 2: as a free market economy should because the FED is 265 00:16:00,360 --> 00:16:04,080 Speaker 2: becoming a mastermind of trying to move the economy in 266 00:16:04,120 --> 00:16:06,800 Speaker 2: different directions. You're right, that is not how it should work. 267 00:16:07,120 --> 00:16:11,480 Speaker 2: It should work stable prices only inflation, and I mean 268 00:16:11,600 --> 00:16:15,680 Speaker 2: asset and price inflation stability, so that the economy can 269 00:16:15,760 --> 00:16:19,600 Speaker 2: function in a capitalistic system as it should and not 270 00:16:19,720 --> 00:16:25,680 Speaker 2: be given this maximum employment. Maximum employment will follow sound monetary, 271 00:16:26,600 --> 00:16:30,480 Speaker 2: zero inflationary policies, and I don't mean deflationary, I mean 272 00:16:31,120 --> 00:16:35,480 Speaker 2: stable price environment. And we've gone way outside of that 273 00:16:35,560 --> 00:16:39,000 Speaker 2: mandate and we've paid a dear price. I think frankly, 274 00:16:39,360 --> 00:16:43,280 Speaker 2: quantitative ease and used and non crisis moments has been 275 00:16:43,320 --> 00:16:45,440 Speaker 2: nothing but harmful to the US economy. 276 00:16:45,880 --> 00:16:50,400 Speaker 1: And is that because of the intellectual arrogance of the 277 00:16:50,440 --> 00:16:53,520 Speaker 1: people who staff it and who think they know better 278 00:16:53,560 --> 00:16:54,280 Speaker 1: than the markets. 279 00:16:55,040 --> 00:16:58,480 Speaker 2: It's hard to know. But I made the comment that 280 00:16:58,600 --> 00:17:04,320 Speaker 2: I think economists take their own position as too exact, 281 00:17:04,400 --> 00:17:05,960 Speaker 2: and they should. They like to think of it as 282 00:17:05,960 --> 00:17:10,560 Speaker 2: a science. And my point is that economists are not engineers. 283 00:17:10,880 --> 00:17:14,480 Speaker 2: They cannot engineer the economy that they think will give 284 00:17:14,560 --> 00:17:17,680 Speaker 2: us the best output. What they can do is they 285 00:17:17,680 --> 00:17:22,119 Speaker 2: can judge the costs, they can judge trade offs. They know. 286 00:17:22,520 --> 00:17:25,439 Speaker 2: They should be able to think through consequences unintended as 287 00:17:25,440 --> 00:17:28,600 Speaker 2: well as intended consequences and give their best opinion. But 288 00:17:28,640 --> 00:17:32,040 Speaker 2: they cannot manage the economy to perfection, and that's where 289 00:17:32,080 --> 00:17:36,520 Speaker 2: they've made some I think fundamental mistakes. Fine tuning is 290 00:17:36,560 --> 00:17:38,160 Speaker 2: not something they're very good at. 291 00:17:38,880 --> 00:17:44,840 Speaker 1: If you believe in a dynamic entrepreneurial culture, it's by 292 00:17:44,880 --> 00:17:47,880 Speaker 1: definition probably not fine tunable. 293 00:17:48,240 --> 00:17:51,920 Speaker 2: That's exactly right. Markets make mistakes, But the thing about 294 00:17:51,960 --> 00:17:55,600 Speaker 2: capitalism is self correcting. But it's not costless. You have 295 00:17:55,680 --> 00:17:57,760 Speaker 2: to develop these things. You have to learn from it, 296 00:17:57,920 --> 00:18:00,320 Speaker 2: and that's where you make your greatest progress. Because a 297 00:18:00,400 --> 00:18:04,680 Speaker 2: market will just quickly whereas you get beeracrats in their managing, 298 00:18:05,080 --> 00:18:07,600 Speaker 2: it doesn't adjust quickly at all. When you start a 299 00:18:07,640 --> 00:18:09,919 Speaker 2: mistay down a road, there's a mistake. You stand that 300 00:18:10,040 --> 00:18:12,879 Speaker 2: road far too long, and therein lies I think a 301 00:18:12,920 --> 00:18:16,720 Speaker 2: fundamental flaw in the FED being so heavily involved in 302 00:18:16,720 --> 00:18:20,480 Speaker 2: the financial markets today. It's really outrageous that they have 303 00:18:20,520 --> 00:18:23,720 Speaker 2: a balance sheet that in such a short period went 304 00:18:23,720 --> 00:18:26,960 Speaker 2: from less than a trillion dollars, less than nine hundred 305 00:18:27,000 --> 00:18:30,000 Speaker 2: billion dollars to at one point nine trade and still 306 00:18:30,040 --> 00:18:32,800 Speaker 2: six and a half trillion dollars. That is a very 307 00:18:32,880 --> 00:18:35,760 Speaker 2: large footprint in the market, and the market knows it. 308 00:18:35,800 --> 00:18:38,600 Speaker 2: That's why they watch every little move the FED makes. 309 00:18:39,040 --> 00:18:43,600 Speaker 1: Is the FED clearly the largest factor in how the 310 00:18:43,640 --> 00:18:44,880 Speaker 1: market behaves. 311 00:18:45,280 --> 00:18:48,240 Speaker 2: I think it is, if not the largest among the 312 00:18:48,280 --> 00:18:51,080 Speaker 2: largest factors and why the market behaves. Let me give 313 00:18:51,080 --> 00:18:53,199 Speaker 2: you an example. If I have these numbers correct, and 314 00:18:53,200 --> 00:18:56,359 Speaker 2: I looked at this polla sheet, But since December of 315 00:18:56,400 --> 00:19:00,520 Speaker 2: twenty twenty five, when they started buying government is again, 316 00:19:01,119 --> 00:19:05,440 Speaker 2: they have purchased about seventy billion dollars of short term 317 00:19:05,480 --> 00:19:09,560 Speaker 2: treasure bills and another thirty billion in notes and bonds, 318 00:19:09,880 --> 00:19:13,720 Speaker 2: and the government's debt has increased about eighty billion, I've 319 00:19:13,720 --> 00:19:17,640 Speaker 2: told And they are huge participants in the money market. 320 00:19:17,960 --> 00:19:21,560 Speaker 2: They're a huge participant in the money market around the treasury. Yeah, 321 00:19:21,680 --> 00:19:24,719 Speaker 2: they have a very dominant influence in the markets today. 322 00:19:25,400 --> 00:19:29,800 Speaker 1: How much controlled does the Federalserve chairman have as compared 323 00:19:29,800 --> 00:19:30,760 Speaker 1: to the rest of the board. 324 00:19:31,280 --> 00:19:34,879 Speaker 2: The chairman is the largest vote on the committee. It 325 00:19:34,920 --> 00:19:38,720 Speaker 2: has become almost tradition that your goal as a member 326 00:19:38,720 --> 00:19:41,840 Speaker 2: of the FOBC should be to support the chairman. You 327 00:19:41,920 --> 00:19:44,480 Speaker 2: have discussions in the meeting and people talk about it. 328 00:19:44,760 --> 00:19:47,600 Speaker 2: Let's say you're split four to four or whatever the 329 00:19:47,680 --> 00:19:51,160 Speaker 2: number is, Okay, there's twelve voters say six and six 330 00:19:51,760 --> 00:19:54,639 Speaker 2: something like that. Well, when the chairman says this is 331 00:19:54,640 --> 00:19:56,720 Speaker 2: what I think we should do, most will vote with 332 00:19:56,840 --> 00:20:00,040 Speaker 2: the chairman. Even the six who are posed are I 333 00:20:00,119 --> 00:20:03,920 Speaker 2: who opposed? The chairman has enormous influence to the bottom line. 334 00:20:04,160 --> 00:20:08,920 Speaker 1: How do you assess twenty twenty six and Bland economically? 335 00:20:10,119 --> 00:20:12,359 Speaker 2: Oh? I think twenty twenty six is going to be 336 00:20:12,359 --> 00:20:15,560 Speaker 2: an inflationary boom year for a whole host of reasons. 337 00:20:15,680 --> 00:20:19,680 Speaker 2: Number one, it is an election year. Number two, twenty 338 00:20:19,760 --> 00:20:22,120 Speaker 2: twenty five was stronger than people thought, so we're coming 339 00:20:22,119 --> 00:20:25,240 Speaker 2: in with some tailwinds. There is a lot of fyscal stimulus. 340 00:20:25,320 --> 00:20:29,480 Speaker 2: There's new tax breaks for tips, for over time, for 341 00:20:29,680 --> 00:20:32,560 Speaker 2: buying cars and assets, so there's a lot of additional 342 00:20:32,560 --> 00:20:36,199 Speaker 2: physical stimulus coming in. There's a monetary policy which is 343 00:20:36,320 --> 00:20:39,880 Speaker 2: I think is much easier than people believe are realize. 344 00:20:39,960 --> 00:20:43,600 Speaker 2: For example, real interest rates today, if you think about it, 345 00:20:44,040 --> 00:20:46,280 Speaker 2: the Fed funds rate is three and a half percent, 346 00:20:46,960 --> 00:20:50,480 Speaker 2: inflation is three percent. That means real rates are a 347 00:20:50,480 --> 00:20:53,000 Speaker 2: half a percent. That is a commodate of policy in 348 00:20:53,040 --> 00:20:56,719 Speaker 2: real sense. That means more stimulus into the economy. And 349 00:20:56,760 --> 00:20:59,679 Speaker 2: as they print money, as they're doing forty billion new 350 00:20:59,760 --> 00:21:03,480 Speaker 2: per just is every month, that will push the economy forward. 351 00:21:03,680 --> 00:21:06,000 Speaker 2: I think the economy will run hot for most of 352 00:21:06,040 --> 00:21:07,520 Speaker 2: the year of twenty twenty six. 353 00:21:08,480 --> 00:21:11,560 Speaker 1: Is there any danger that it will run so hot 354 00:21:11,600 --> 00:21:14,320 Speaker 1: that it will sort of fall back on itself. 355 00:21:14,960 --> 00:21:17,000 Speaker 2: Yes, there is that danger. I think it will come 356 00:21:17,080 --> 00:21:20,480 Speaker 2: after the elections into twenty twenty seven, some pointing into 357 00:21:20,480 --> 00:21:24,760 Speaker 2: twenty twenty seven to twenty depending on what policies the 358 00:21:24,840 --> 00:21:29,160 Speaker 2: Congress decides on and what policies the Federal Reserve chooses 359 00:21:29,200 --> 00:21:33,400 Speaker 2: to take, and then how much impact the deregulation will have. 360 00:21:33,720 --> 00:21:36,720 Speaker 2: All these factors will come in. But I think Potentially, 361 00:21:37,200 --> 00:21:40,119 Speaker 2: given the amount of boost that is going into the 362 00:21:40,119 --> 00:21:42,480 Speaker 2: economy right now, there could be a backing off of 363 00:21:42,520 --> 00:21:45,520 Speaker 2: that in twenty twenty seven. That could be either a 364 00:21:45,560 --> 00:21:49,080 Speaker 2: mild recession or, depending on the financial markets, a more 365 00:21:49,119 --> 00:21:50,000 Speaker 2: serious recession. 366 00:21:50,480 --> 00:21:53,199 Speaker 1: And trying to plot this out as a politician, the 367 00:21:53,240 --> 00:21:56,560 Speaker 1: odds are pretty good that Republicans will be running by 368 00:21:56,600 --> 00:22:00,679 Speaker 1: September with a reasonably strong economy, but they may be 369 00:22:00,760 --> 00:22:03,440 Speaker 1: trying to keep the presidency in twenty eight with a 370 00:22:03,520 --> 00:22:04,639 Speaker 1: much weaker economy. 371 00:22:05,720 --> 00:22:08,119 Speaker 2: That's the risk that could be dead wrong on this 372 00:22:08,280 --> 00:22:11,520 Speaker 2: because policies changed. They could do something that would keep 373 00:22:11,520 --> 00:22:15,160 Speaker 2: it strong beyond that, or policies that avoid a recession. 374 00:22:15,440 --> 00:22:18,240 Speaker 2: Those are all things that you can't predict but are 375 00:22:18,280 --> 00:22:18,800 Speaker 2: at risk. 376 00:22:19,320 --> 00:22:23,520 Speaker 1: From your perspective, do you think that there's much danger 377 00:22:24,080 --> 00:22:27,200 Speaker 1: that the dollar will cease to be the reserve currency 378 00:22:27,240 --> 00:22:28,080 Speaker 1: for the world. 379 00:22:28,640 --> 00:22:32,600 Speaker 2: Not in any near term horizon at all. I mean, really, 380 00:22:33,000 --> 00:22:35,160 Speaker 2: I'd like to say that the dollar is the least 381 00:22:35,200 --> 00:22:38,040 Speaker 2: dirty t shirt in the laundry. We are going to 382 00:22:38,040 --> 00:22:40,640 Speaker 2: be the reserve currency for some time because there's none 383 00:22:40,680 --> 00:22:43,879 Speaker 2: that's obviously able to replace it. Now. China would like 384 00:22:43,920 --> 00:22:46,359 Speaker 2: to decouple from US and they're working hard to do it, 385 00:22:46,720 --> 00:22:49,320 Speaker 2: but that will take them decades, and they have their 386 00:22:49,320 --> 00:22:53,000 Speaker 2: own problems right now that they can't ignore and I 387 00:22:53,040 --> 00:22:56,199 Speaker 2: think will delay their ability to ever take all the 388 00:22:56,280 --> 00:22:56,919 Speaker 2: dollar fully. 389 00:22:57,240 --> 00:22:59,600 Speaker 1: In some ways, you could argue we are the least 390 00:22:59,600 --> 00:23:03,080 Speaker 1: screwed up of the major currencies, which is different than 391 00:23:03,160 --> 00:23:03,719 Speaker 1: being smart. 392 00:23:03,840 --> 00:23:04,640 Speaker 2: Yeah, that's right. 393 00:23:06,000 --> 00:23:08,040 Speaker 1: The others work harder at being dumb than we do. 394 00:23:09,680 --> 00:23:12,879 Speaker 1: It's amazing. I want to thank you as somebody who 395 00:23:13,600 --> 00:23:17,080 Speaker 1: studied a little tiny bit of financial history. This is 396 00:23:17,119 --> 00:23:21,960 Speaker 1: a really complicated area, and you are enormously helpful in 397 00:23:22,040 --> 00:23:25,520 Speaker 1: bringing your lifetime experience and sharing with us. I really 398 00:23:25,560 --> 00:23:26,359 Speaker 1: appreciate it. 399 00:23:26,440 --> 00:23:30,520 Speaker 2: Thanks for asking me, dude, I appreciate that. 400 00:23:29,680 --> 00:23:31,479 Speaker 1: And I want our listeners to know that they can 401 00:23:31,560 --> 00:23:35,000 Speaker 1: learn more about the Quincy Institute for Responsible state Craft 402 00:23:35,320 --> 00:23:40,440 Speaker 1: by visiting your website at Quincyinstitute dot com. Thank you great, 403 00:23:40,480 --> 00:23:41,880 Speaker 1: it's great fun. Thank you so much. 404 00:23:42,200 --> 00:23:45,080 Speaker 2: Thank you for having me have a great day. 405 00:23:47,240 --> 00:23:50,080 Speaker 1: Thank you to my guest, Thomas Honnig. News World is 406 00:23:50,080 --> 00:23:54,119 Speaker 1: produced by Ginger Sweet sixty and iHeartMedia. Our executive producer 407 00:23:54,160 --> 00:23:58,200 Speaker 1: is Guarnsey Sloan. Our researcher is Rachel Peterson. Our work 408 00:23:58,200 --> 00:24:02,119 Speaker 1: for the show was created by Pendley Special thanks to 409 00:24:02,119 --> 00:24:04,399 Speaker 1: the team at Gingwich three sixty. If you want to 410 00:24:04,440 --> 00:24:07,120 Speaker 1: enjoy newts World, I hope you'll go to Apple Podcast 411 00:24:07,480 --> 00:24:10,000 Speaker 1: and both rate us with five stars and give us 412 00:24:10,000 --> 00:24:12,440 Speaker 1: a review so others can learn what it's all about. 413 00:24:13,119 --> 00:24:16,800 Speaker 1: Join me on substack at Gingwich three sixty dot net. 414 00:24:17,160 --> 00:24:19,399 Speaker 1: I am Nick Gingrich. This is newts World.