The Inflation Fairy Tale

Published on
October 7th, 2020
Duration
92 minutes


The Inflation Fairy Tale

The Interview ·
Featuring Jeffrey Snider and Steven Van Metre

Published on: October 7th, 2020 • Duration: 92 minutes

Is inflation on the horizon? Should bank reserve balances stored with the Federal Reserve count as "money"? According to Jeffrey Snider, head of global research at Alhambra Investment Partners, and Steven Van Metre, macro fund manager and founder of Portfolio Shield, the answer to these questions is a resounding "no." Drawing upon a data ranging from Treasury auction sales to Eurodollar futures curves, van Metre and Snider explain why low yields are, in fact, deflationary -- contrary to conventional wisdom. They pull no punches as they describe the "zero lower bound trap" that the Federal Reserve now faces, drawing upon their research into Japan. Lastly, Snider and van Metre analyze the March spike in Treasury prices and explore whether the funding pressures are over or if March was just a preview of what is to come. Filmed on October 5, 2020.

Comments

Transcript

  • VB
    Vikram B.
    29 October 2020 @ 09:50
    Hi all, Wasn't there supposed to be a follow-up Q&A video to this in the Exchange or whatever? How do I find it?
  • BP
    Brian P.
    29 October 2020 @ 04:39
    SOOO GOOOOD, These two gentlemen understand each other and the energy between them keeps getting amplified. As if to say, FINALLY someone that really understands! So nice to be a fly on the wall in this conversation.
  • Cd
    Christiano d.
    8 October 2020 @ 07:30
    Great conversation and intriguing at the same time. I keep hearing "Central Banks printing money" at several renowned podcasts. But you guys say QE is not inflationary and I see it didn't increase "consumer inflation" to high levels. What about the Financial assets and real state? I live in Germany and real state just don't stop going up! => OK I guess we could blame NIRP for this + high immigration. What have made stocks increase for 10 years? => This is hard to believe only low interest rates and retail have pushed it this high. All this increase in the value of assets in a deflationary trend, doesn't make our current situations super fragile? Ppl that have been buying these assets at current prices could face huge capital destruction if there is flight to cash.
    • KH
      Kjell H.
      29 October 2020 @ 01:57
      Of course real estate is a good indicator of inflation. We don't see the inflation when dollar appreciates. It feels like we are getting richer. When interests goes down more debt does not mean more expence
  • AP
    Antonio P.
    8 October 2020 @ 10:43
    I have a question: I believe I understand what you tried to convey: the FED can increase banking reserves but banking reserves are confined to the interbank market. Money is created when the banking sector lends. Fine. The banking system is not extending credit but then why M2 is growing at more than a 20% pace this year? Are bank deposits growing because of the transfers the government have provided due to Covid-19? And if this is the case, would not this bank deposit growth (which is funding for the banks) ultimately lead to credit growth and potentially inflation? Thanks for the help!
    • VD
      Violeta D.
      8 October 2020 @ 12:06
      I have the same question. I also noticed that the M2 supply continued growing even after the expiration of the fiscal stimulus (pop and the$600 additional unemployment). Wher e are the money coming from?
    • EK
      Emil K.
      8 October 2020 @ 13:26
      The M2 is growing because the Fed-created bank reserves are included as part of the M2 calculation (M2 = M1 + M0). Also, corporations drew down their revolvers bringing to life the contingent liabilities of the banking system. The banks credited the deposit accounts of these corporations, which is a part of the M2 calculation (whereas the contingent liability was not). Now, is this potentially inflationary? Could it ultimately lead to credit growth? Yes and yes. But that is a decision to be taken by the banking system and private enterprise, as in, 'Do we want to put this money to work by disbursing it throughout the economy?' That seems improbable because this money creation wasn't for proactive purposes but reactive and defensive. The 20% surge in M2 wasn't because there was a sudden surfeit of available investment opportunities. It was because during the fourth ebbing tide of eurodollar liquidity in 13 years (2007-09, 2011-12, 2014-16, 2018-20) there was a second asphyxiating liquidity squeeze (2008, 2020).
    • AP
      Antonio P.
      8 October 2020 @ 20:00
      Emil, M1 does not include banking reserves. Banking reserves are included in the monetary base. Pating the definition of M1: M1 is a narrow measure of the money supply that includes physical currency, demand deposits, traveler's checks, and other checkable deposits. .
    • EK
      Emil K.
      9 October 2020 @ 14:07
      Sweet Moses Coming Down from the Mount with the Tablets! I had swore that I had read somewhere that bank reserves were part of the Ms. Oh, oh.. I see. In some countries they are included as money. Got it. But not in the USA. Thanks Antonio for setting me straight.
    • GC
      Garo C.
      10 October 2020 @ 21:19
      Emil - not to put you on the spot, but how does this change your response? Thanks!
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:11
      M2 is rising due to fiscal transfers.
    • EK
      Emil K.
      12 October 2020 @ 19:37
      Thanks Garo C. for the opportunity. I believe it to be corporations pulling down revolvers to protect themselves by building up a store of near-at-hand liquidity. I believe it to be a conversion of bank contingent liabilities into actual credits to deposit accounts. I believe that this newly created money isn't going to make it out of the building (i.e. the corporations are not going to use this money and put it to work in the economy other than to maintain their metaphorical noses above water).
    • KH
      Kjell H.
      29 October 2020 @ 01:43
      - M2 is growing at more than a 20% pace this year? The answer I give is what main bank employed explained in detail. Wikipedia is humbug.
  • RS
    Rob S.
    8 October 2020 @ 15:06
    I appreciate the interview. However, I have a number of questions: #1 - The conversation focused on QE limited to bank reserves. However, below are a number of examples that sure look like the Fed is directly or indirectly infusing money outside of bank reserves. I would appreciate if each of these items were addressed. 1.a – Mortgage Backed Securities. Roughly speaking, a bank creates money, lends it as a mortgage, then sells the mortgage which eventually ends up on the Fed balance sheet. The bank sold an asset, didn’t they receive money? 1.b – Bond ETF. Roughly speaking, the Treasury gave the fed ‘capital’ which the Fed leveraged by 10x and purchased Bond ETF in the general public (not limited to bank reserves) which ended up on the Fed balance sheet. Technically, whoever sold the ETF indirectly received Fed money. 1.c – PPP. This appears to be a two-step process. First step, roughly speaking, is Congress told the banks to create money, give out a loan, forgive the loan, get reimbursed by the Fed. Second step, roughly speaking, the Treasury gave the fed ‘capital’ which the Fed leveraged with plans to purchase these defunct PPP loans, which will end up on the Fed balance sheet. Technically, whoever received the PPP loan indirectly received Fed money. 1.d – Corporate Bonds. Roughly speaking, the Treasury gave the fed ‘capital’ which the Fed leveraged by 10x and purchased Corporate Bonds which ends up on the Fed balance sheet. Whoever sold the bond now has Fed money. 1.e – Repo. From what I have read, it appeared that hedge funds and/or other investors had highly leveraged positions using bonds as collateral and the banks who normally do Repo were getting uncomfortable (or had limits set by regulations). The NY Fed would announce every morning the amount of Repo that was offered and they accepted as a lender of last resort. This money is invested in the stock market and the borrowers are clearly outside the ‘bank reserve’ system. 1.f – Treasury Purchases. The primary dealer is printing money to buy treasuries knowing that the Fed is the ultimate buyer. Sure, they sell some to retail, but the deficits are too large so the Fed is the buyer of last resort. If the Fed announced they would no longer purchase any bonds the primary dealers would stop buying at current prices/quantity. When the primary dealer creates money, buys a bond, sells the bond to the Fed, the primary dealer ends up with the funds the Fed gave them for said bond. It seems obvious that these funds are outside of bank reserves, seems likely the primary dealer allows these funds to find their way into financial assets. I am open to a detailed explanation on how this works, but on the surface it looks to me that this is how the Fed is funneling money to risk assets. #2 – This next section is regarding your thesis that QE can’t/won’t cause ‘economy inflation’. I like Stewart B. Billion Dollar example. He is exaggerating, but makes a perfect point. The only reason QE has yet to generate ‘economy inflation’ is because in the past QE was limited to bank reserves, and IMHO some found their way to financial risk assets which caused ‘financial asset inflation’. However, as Stewart B. points out, if money is placed in the hands of consumers ‘economy inflation’ will definitely occur. Below are examples, I would be interested to hear if you think these won’t cause inflation (I think they will cause inflation). 2.a – PPP Type Lending. Meaning, similar fiscal and monetary policy that tells banks to create money, lend, forgive, sell loan to Fed. 2.b – MMT-UBI Type Stimulus. Meaning, similar fiscal and monetary policy that continues on a long ongoing process to give direct payments to consumers (enhanced unemployment, $1,200 checks, etc). 2.c – Infrastructure-GreenNewDeal Type. Meaning, similar fiscal and monetary policy as 2020 (where the government deficit is many Trillions over budget) and the Fed uses it balance sheet to support the ‘purchasing’ of Treasuries and this money is being spent in the economy (in the Trillions). 2.d – Debt Jubilee. There have been discussions of forgiving college debt. IMHO that is just the beginning, I can see states and municipalities as well as overindebted corporations lining up next. All this will end up on the Fed balance sheet, resulting in the ex-debtor spending less on debt service (which means they have more available cash to spend in the economy).
    • LC
      Liam C.
      10 October 2020 @ 00:23
      Lacy Hunt has explained his view on what determines whether an act is "money printing" or not. "These liabilities, however, do not meet the definition of money which must be a medium of exchange, store of value and unit of account. These Fed liabilities are an asset of the depository institutions with an overnight maturity that remains on the books of the Fed. These liabilities can be used to trade with other banks, the Fed and the Treasury, but they cannot be used to directly purchase goods and services." https://hoisingtonmgt.com/pdf/HIM2020Q3NP.pdf
    • GC
      Garo C.
      10 October 2020 @ 20:56
      Couldn’t agree more with Rob’s points. Would love to see these addressed
    • KH
      Kjell H.
      29 October 2020 @ 01:21
      Every mortgage is money creation with private bank as the creator. A loan requires private bank to have a certain fraction as own equity, like 5 or 10% of mortgage. 5% means 20 as leverag for the bank If interest on loan is 3%, the bank makes 60% on own equity as interest income
  • DL
    Douwe L.
    14 October 2020 @ 05:28
    Hi Steve and Jeff, thanks for the great talk. You promised to answers some q's later on, here some : 1. Is euro dollar a sort of stablecoin, but then issued by non-US banks at their decoration 2. Why does the S&P go up when QE happens? How buys how? Is there causality in the strong correlation? 3. Can handing out digital dollar cause inflation? What is the effect there upon? 4. What will the effect be of the digital dollar? Will we see more helicopter money? Will this increase the M0 monetary base? 5. What happens if we all start using Libra’s stablecoin? 6. When loans are paid off, what happens with the money on the banks’ balance sheet? Do they ‘delete’ it, as the opposite of ‘creating’ it? 8. Where does the money come when government auctions debt? 9. Is there money creation involved when governments issue debt?
    • KH
      Kjell H.
      29 October 2020 @ 00:53
      - 6. When loans are paid off, what happens with the money on the banks’ balance sheet? Do they ‘delete’ it, as the opposite of ‘creating’ it? It is destructed Where does the money come when banks issue a moirgage? From nowhere. Motgage contracts is considered a big heap of cash..
  • MS
    Menachem S.
    26 October 2020 @ 19:08
    So if you see deflation coming, then real rates are either positive, or much less negative than widely thought? What's driving precious metals? GDX looks like a signal to markets screaming that it wants A LOT more ounces. How would you answer to people like Rick Rule, who have an entire premise built on negative real rates?
  • AK
    Alex K.
    15 October 2020 @ 18:54
    How do you have an in-depth conversation about the prospects for inflation, or lack thereof, without referencing the government's ability to put spendable currency directly into people's bank accounts? They already did it on a mass scale, via $1,200 stimulus checks and months of topped-up unemployment payments at $600 per week. A lot of those funds were spent. As confirmed by surveys and data, a fair amount of government cash made its way directly into the stock market -- e.g. work-from-homers who used their stimulus check to YOLO on Tesla and Zoom -- and the personal saving rate of the entire country went up. If the government does more of this on the fiscal side, what happens? What if they do a lot, lot more? They are already talking about it: In May three Dem senators introduced a bill to provide $2,000 per month, per household. That ain't bank liquidity. That's spendable currency in bank accounts. How do you justify having conviction on an inflation versus no inflation macro outlook, in terms of your expectation as to what will happen, while ignore the fiscal elephant in the room? Talking about monetary without addressing fiscal, at this stage of the game, feels like analyzing half a pair of scissors. The sensation is that you are technically correct in all that you cover with impressive amounts of detail, and you leave out the plumbing variables that could swamp your non-inflation thesis completely.
    • AK
      Alex K.
      15 October 2020 @ 18:57
      Leave out the non-plumbing variables rather -- the stuff on the fiscal side that is very close to "helicopter drop" in terms of the government's ability to put large amounts of spendable currency into the hands of citizens who are prone to either spend it or aggressively invest it.
    • DM
      David M.
      23 October 2020 @ 14:26
      Asked here: https://youtu.be/B4xcCO9v-Os?t=1465 Lyn has the better great reply. In short, the deflationary forces are greater than any potential "stimulus." Calling it stimulus is actually misleading - more like relief/aid.
  • SB
    Stewart B.
    7 October 2020 @ 13:19
    Nice one. A question for Jeff and Steve. Consider the following scenario. The US gov sends every person a billion dollars. The US gov finances this by selling Treasuries with a combined value of 330 million billion dollars. The Fed buys up all of these with broker dealers as the intermediary as a QE program. Now, given the Fed returns any coupons paid on the treasuries it holds to the US government, then there is no cost to the US government from this scheme. Also, let's assume that the Fed keeps rolling these treasuries perpetually. I understand the social and political arguments of why the above scenario may or may not be a good idea. But surely if this scenario is mechanically possible, it should be inflationary, right? It is hard to imagine if every person had a billion dollars that we wouldn't see inflation. Or, if there are mechanical limitations that make this impossible, what are they?
    • SB
      Stewart B.
      7 October 2020 @ 13:23
      I realise this is a very extreme and far fetched example. But if they can do the same thing on a smaller scale, why not a larger or insane scale?
    • SB
      Stewart B.
      7 October 2020 @ 13:31
      If I may, a second question for Jeff and Steve. Is it possible that in the future we may see the US gov with a public debt of say 1100% of GDP, where the Fed owns 1000% of GDP of assets? This seems the way Japan is going. Is this really any different to the US gov having a 100% of GDP public debt without Fed involvement? Remember, given the yield from QE assets is returned from the Fed to the US gov, the net cashflows look very similar to the 100% of GDP public debt scenario.
    • PD
      Peter D.
      7 October 2020 @ 14:09
      Stewart B: Excellent interventions. Bears have assumed for years that a system reset was imminent. However it may be possible for careerist Fed officials willing to overlook second order effects, to orchestrate several more 1994-2001 and 2002-2008 style boom-bust cycles. Marc Faber in one interview joked that the Fed at some point could buy out the entire stock market. Luke Gromen has suggested that in order to maintain government's ability to manage the economy, the Fed might one day buy out the entire bond market, thus increasing its balance sheet well over 2X of GDP. Van Meter and Snider would be perfect guys to game this out.
    • RN
      Richard N.
      7 October 2020 @ 14:18
      I'm also very interested in the answer to this question from the mechanics stand point. Great question Stewart B.
    • SB
      Stewart B.
      7 October 2020 @ 17:39
      And a third question - As the Fed (and other CBs) are buying assets, they are reducing the number of assets left for everyone else to own. This is like musical chairs, where the Fed fancies a Treasury or MBS and takes it, only to find when the music stops someone else no longer has it and has cash instead. Would you both agree that QE purchases puts upwards pressure on assets as investors camel trade those remaining assets between themselves?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:46
      The Fed buying bonds reduces the supply which leads to higher bond prices and lower rates.
    • SB
      Stewart B.
      21 October 2020 @ 14:17
      Thanks Steve but I'm not sure that answers the question.
  • NA
    Nicolas A.
    19 October 2020 @ 11:28
    This was low key epic
  • JH
    Joel H.
    17 October 2020 @ 04:56
    really great conversation, thanks guys!
  • JT
    Jayne T.
    14 October 2020 @ 22:08
    Hey Steve, nice back drop of of 70’s paneling and barcolounger😂. Seriously, residential mortgage origination is at a 17 year high, so banks are in fact, lending and on inflated asset prices. What are your thoughts here vis a vis your negative outlook on bank growth. Thanks
  • ME
    Mark E.
    14 October 2020 @ 15:00
    The way forward is for central banks to start increasing interest rates. This will eventually wipe out the zombie companies and disincentivize poor uses of borrowed capital like share buybacks. More expensive money means companies will have to be more careful with it and invest in endeavours that are earnings productive. Managements will have to be better at increasing earnings organically or they will be out of a job. Savers will be rewarded and the central banks will have more wiggle room to ease when recessions occur. Wall Street will scream like a stuck pig for a while, but so what? Take the pain now in order to build a better future.
  • FC
    Felipe C.
    13 October 2020 @ 20:55
    Men that was a good talk!
  • JL
    Jonathan L.
    13 October 2020 @ 17:31
    You guys said it. U.S. banks cannot directly use reserve assets to push markets, therefore they CAN INDIRECTLY use reserve assets to push markets.
  • MJ
    Marc J.
    7 October 2020 @ 09:52
    Is it possible to calculate the size at which fiscal policy becomes inflationary? $23 trillion?
    • MJ
      Marc J.
      7 October 2020 @ 09:57
      On a similar note, regarding USD bulls/bears. The main bear argument, as I understand, is excess fiscal policy. What would the numbers have to be?
    • MJ
      Marc J.
      7 October 2020 @ 18:27
      One more point, I've spotted a contradiction somewhere. If the fed believe in what they are doing, why would they try to "promise to be irresponsible"? In other words, if their maths work, why do they need to lean on people's emotions? This contradicts your arguments surely, assuming you are saying that A) they believe in their models and B) their only tool is to convince us that inflation is coming. Can both be true?
    • BT
      Branimir T.
      13 October 2020 @ 14:07
      It is not a machine -- no determinism in this system -- it is a confidence game and confidence is measured in... ?
  • PR
    Private R.
    7 October 2020 @ 15:06
    I agree with everything they say BUT everything is about to change - inflation here we come.
    • BT
      Branimir T.
      13 October 2020 @ 13:45
      Stagflation anyone? I think Jeff and Steve are talking international level finances where deflation is clear, however the items of immediate household utility -- food, would get more expensive as the supply chains are in total disarray.
  • AH
    Amir H.
    10 October 2020 @ 08:55
    Thanks very much Steve and Jeff for a wonderful talk! I have a question for the follow-up talk: you mentioned that the current acts of the fed and the government are not inflationary, and that only some extreme action might be inflationary, but one thing was missing out in the talk - what about the asset bubble - cant that for itself cause inflation? if the stock market continues to go up and up, and the public participation increases, wont that cause a meaningful inflation? (and in this issue the U.S is different than Japan and Europe - Americans love stocks...). Take care, Amir.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 00:46
      Good question. I'd like to know Jeff's thoughts on that as well.
    • BT
      Branimir T.
      13 October 2020 @ 07:37
      The US stock market melting-up is a consequence of worldwide deflation -- domestic and international money flows selling out of their respective economic debacles (peripheral sovereign / corp bonds) and buying into US stocks -- a confidence shift. Since the bond markets are huge compared to US stocks, the blow-off in US stocks is the result... IMHO... would we ever have a chance to see Martin Armstrong of ArmstrongEconomics ever invited to share his observations ?
  • BT
    Branimir T.
    13 October 2020 @ 06:45
    Thank you for sharing the real world view of the Fed's smoke and mirrors. How / where can we look at euro-dollar futures? Any specific ticker symbol or website where this is published clearly? This is in reference to the end of the conversation, where Jeff Snider encouraged us to look at the euro-dollar futures -- how they are nearly inverted -- implying market risks of September 2019 recurrence.
  • GC
    Greg C.
    13 October 2020 @ 05:03
    Great interview guys. Would love to hear more about the effect of all this on the stock market. I get that bank reserves can't be used to trade stocks or buy assets. But how do you explain the ongoing bull market? Is it lowering of discount rates (via lower bond yields) pushing values higher? Is it fiscal stimulus seeping into the economy and supplementing company earnings? Or is it simply belief that the Fed is 'printing money' that creates its own form of stock market liquidity? Also, we know velocity from an economy wide perspective. Are there any measures of stock market velocity...how many times the same 'dollar' is going through a stock price and pushing it higher each time? cheers
  • AK
    Anand K.
    12 October 2020 @ 21:49
    Not sure why everyone is fixated with CPI for inflation. CPI is cherry picked to ignore sectors which people care about in their day to day life. Healthcare, education, real estate, stock market has gone up more than the rate of 2 percent since 2008. The big mac index is better indicator of inflation. Big mac was $3.57 in 2008. July 2020 it was $5.71. It is up 60 percent.
  • DO
    Daniel O.
    12 October 2020 @ 21:05
    I had to watch it 3 times. So much to learn in one video. Thank you!
  • SL
    Stephen L.
    10 October 2020 @ 09:56
    Wouldn't this actually make the Central Bankers some of the smartest people in the world? To manage to pull off one of the greatest slights of hand in history. They have spun a "fairy tale" and managed to keep it in place for over a decade, that's incredible work .
    • SL
      Stephen L.
      10 October 2020 @ 09:56
      *sleight of hand
    • SV
      Steven V. | Contributor
      11 October 2020 @ 00:46
      It does, until they are exposed!
    • MS
      Michael S.
      11 October 2020 @ 14:21
      Is Toto about ready to grab the curtain?
    • EK
      Emil K.
      12 October 2020 @ 19:15
      No exactly. The present batch of central bankers are drawing down the central bank credibility account BUT they were not the ones that filled it up. It was filled up during the 1980s and 1990s. So it's not these central bankers that are the smartest in the world. And they're only spinning the fairy tale (i.e. expectations policy, expectations management) out of desperation. They do it with fingers crossed and believing that soon the fairy tale will turn real and they won't have to pretend. So, not smart. Just happenstance.
  • BS
    Bevyn S.
    11 October 2020 @ 19:22
    Jeff & Steve-Would love to hear you guys do a deep dive on Richard Koo's "balance sheet recession" concept and his recommended approaches. In particular, Koo recommends two secular cycling paradigms (i.e. two phases in a 80 yr + credit cycle)... One of monetary policy dominance and central bank independence (dominated by private credit expansion and relative gov. fiscal conservatism), and then another of continuous (as opposed to purely counter-cyclical) fiscal stimulus (deficit spending) to offset a backdrop of private sector deleveraging / credit contraction.
    • BS
      Bevyn S.
      11 October 2020 @ 19:24
      To be clear-looking for your opinions on Koo's theories / recommendations, and what flaws or validity you see in his approach
    • EK
      Emil K.
      12 October 2020 @ 18:59
      Jeff wrote about it recently. He makes the point that 2007-11 might have been a balance sheet recession because it could plausibly be viewed as a shortfall in credit demand (from non-financial corporations and households). But thereafter it became indisuputably clear that the problem was a shortfall in credit supply (i.e. bank balance sheets no longer being extended to private enterprise). “That’s because the balance sheet recession begins with the premise that the shortfall is in credit demand, not credit supply.” Bubbles and Balance Sheets, Demanded (Money/Credit) Supply https://alhambrapartners.com/2020/09/25/bubbles-and-balance-sheets-demanded-money-credit-supply/
  • RO
    Robert O.
    12 October 2020 @ 05:23
    Similar discussion of deflation and the Fed by Grant Williams, Bill Fleckenstein and Lacy Hunt. https://ttmygh.podbean.com/e/teg_0006/ The End Game Ep. 6 - Lacy Hunt August 9, 2020 Bill and Grant welcome a man who is the absolute epitome of the phrase 'a scholar and a gentleman', Lacy Hunt, to The End Game. The three discuss arguably one of the greatest trades of the century: Lacy and his partner, Van Hoisington's 40-year bet on deflation. Lacy talks about staying the course, the methodology they used to simplify their framework and what it might take for them to change tack after all this time. The perfect counterpoint to Russell Napier's appearance in Episode 5 of The End Game, Lacy uses his encyclopedic knowledge of econometric analysis, financial history and regulatory frameworks to explain why he remains resolute in the face a rising number of calls for the return of inflation.
    • JI
      JWD I.
      12 October 2020 @ 09:36
      Appreciate the refrence!
    • KS
      Kathleen S.
      12 October 2020 @ 14:27
      Our fiat money gets its value from TAXATION not scarcity. Lacy also ignores the difference between public and private debt. Steve Keen gets it --- the US Government does not operate like a household. The govt does not need to impose austerity (dumbest thing ever) -- wish Lacy would study how Nazi Germany got out of Weimar fiasco --- wasn't through austerity. Hitler's banker Hjalmar Schacht got it and that is NEVER ever mentioned. USA and all country's that create their own money spending is only limited by underlying real resources. You get hyperinflation when you print money and give it to the masses without having the underlying resources for them to spend their money on. During WW2 the USA had full employment and because factories where turned from making consumer goods to military armaments the Govt imposed rationing and War Bonds were sold not because US Govt needed the money -- they were sold to put off people's spending. THESE GUYS GET IT ALL WRONG.
  • AC
    Ashish C.
    10 October 2020 @ 16:05
    It would be really helpful to know Jeff’s thoughts as to how QE inflates asset prices, particularly stock prices and precious metals?
    • JB
      James B.
      11 October 2020 @ 09:12
      Second this, QE seems to be inflationary in asset prices only...inflation shows up in the markets that the receivers of the money participate i.e. banks, hedges funds etc are receiving the money they dont go out and buy consumer goods they buy (riskier) financial assets
    • BS
      Bevyn S.
      11 October 2020 @ 19:10
      100x thumbs up on this. I would love to hear Jeff's opinion on how/if QE affects asset allocation preferences. I.e., is the "reach for yield" caused by QE? Or is the QE just a reaction to the same deflationary forces (i.e. an extraneous variable) that is causing the reach for yield? Maybe the truth is somewhere in the middle?
  • KI
    Kevin I.
    11 October 2020 @ 02:02
    Can we put Jeff Snyder and Richard Werner together to talk about the "Eurodollar" system and Cenral banks.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 17:14
      I'd love to see that!
  • DT
    Daniel T.
    10 October 2020 @ 11:32
    Please stop pairing people who agree on everything, this takes away the thought provoking aspect and results in an hour and a half of ranting.. Schneider is good, but Van Metre doesn’t guide the interview and doesn’t he let Schneider to fully explain his views.. please get rid of Van Metre as an interviewer.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 00:45
      Sorry to hear you didn't enjoy the interview. It was intended to be a deeper look into some of the questions people have about the system. I thought Jeff did a great job of explaining his views.
    • MS
      Michael S.
      11 October 2020 @ 14:19
      Steve Van Metre is a valuable addition to the Real Vision team, and this interview with Jeff Snider does a great job of explaining why QE is not inflationary, something that I would guess 90% of Wall Street doesn't understand.
  • TL
    Thorsten L.
    11 October 2020 @ 14:18
    Wow! That was an eye-opening discussion! By far the best and most educational interview I watched on RealVision so far. Great job!
  • PB
    Priyag B.
    9 October 2020 @ 01:40
    Still don't understand why housing prices continue to rise, food/cars inflating at 10%/year since 2000, college tuition, healthcare both inflating.
    • VM
      Veliko M.
      11 October 2020 @ 07:48
      Totally agreed. This is my problem with understanding the deflation thesis. Sounds very curious intellectually. However, I am still stuck in some basic questions like: --- If no inflation, why are there such asset bubbles? --- If no printing is going on, where are the money for said bubbles coming from? --- If no inflation, why is the purchasing power of the dollar going down long term (see education, houses, cars, etc.)?
  • JS
    James S.
    7 October 2020 @ 13:51
    Guys, can you guys link the IMF report from the video above to an attachment?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:44
      Brent e-mailed it to me so I don't have a link.
  • JG
    Jordan G.
    7 October 2020 @ 18:09
    Guys, I've watched both of you, and Brent, and Luke. What I want to understand is what happens when the government borrows so much that there aren't enough dollars to cover all borrowing at auction. For instance, what happens in a hypothetical situation where there is a $20 trillion spending bill. The auction "fails", and pulls only $5 trillion from the market to buy bonds. The bonds likely have some ungodly yield. Are the other $15 trillion new dollars which are added to the system, creating inflation?
    • JG
      Jordan G.
      7 October 2020 @ 22:10
      Additionally, if there are some bonds with an ungodly yield, is this when the fed implements a potential yield curve control?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:37
      Primary dealers can temporarily create money to buy at auctions.
  • PU
    Peter U.
    7 October 2020 @ 18:27
    I voted thumbs down on this but I will refrain from indicating why I did this. There is no way I could express my views without offending one of the participants.
    • HS
      Henry S.
      7 October 2020 @ 18:54
      If it's constructive criticism then share it, we're all grown ups here.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:37
      Feel free to provide your criticism if you don't like me.
  • SS
    Sarfraz S.
    7 October 2020 @ 18:30
    @Steven you speak a lot about dollar going up which then will prove your thesis (bonds up, equity down, gold down). What indicators are you tracking behind your thesis and what sort of timeline do you expect?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:36
      At this point I'm just waiting for it to play out. I look at the broad economic data to see if something inflationary is coming. Sooner than later!
  • BV
    Bas V.
    7 October 2020 @ 20:21
    Great interview. Left me with one big fat queestion. Governments fund their deficits by issuing bonds. As far as I understand, governments get money for these bonds from the (commercial/investment) banks (primary dealers). Money that they can spend in the real economy. Are these bonds financed with existing private sector money or financed (indirectly) with Central Bank reserves? To my understanding, QE means that they are (at least partially) financed (indirectly) with Central Bank Reserves. A government is to spend that money in the way they see fit. IF they spend it on giving everyone a blank $1000 cheque every month for the next year, how is that not highly likely to be inflationary (Unless people just keep it to save of course). In other words... Inflation can still occur if governments decide to change their spending habits to effectively provide 'helicopter money', financed by their deficit, if that money is not sucked out of the private sector in the first place but financed (indirectly) with central bank reserves. Is this correct or am I overlooking something?
    • LJ
      Lynn J.
      7 October 2020 @ 21:23
      My best guess is only tiny piece of the stimulus goes to individuals who really need it for daily life consumption. Over 80% goes to bailout companies or public sectors/gov't, which mainly increases the price of stock/bond market.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:29
      Stimulus or recurring checks have to be borrowed.
  • TB
    Tobin B.
    7 October 2020 @ 21:33
    @34 ish There is a massive dollar shortage, and the Fed doesnt *want* to fix it. Great talk guys I love hearin me some Fed knockin
    • TB
      Tobin B.
      7 October 2020 @ 21:45
      You guys give the Fed too much credit. Both literally and metaphorically. Do you really think that these "blunders" are by mistake? They are not, and there is something much deeper going on right under our noses.
    • TB
      Tobin B.
      7 October 2020 @ 22:01
      I'm so glad to hear you guys being skeptic about how the system "works". !!!!! Keep it up we need more like you
    • TB
      Tobin B.
      7 October 2020 @ 22:21
      @-5 ish Jeff you got it. The Fed didnt do what they should have done. It's high time we stop viewing the Fed as a public servant entity. They are not. They are private and unelected. They are human (mostly). As such we can expect them to act selfishly. Each crisis has been orchestrated, and its time to wake up.
    • TB
      Tobin B.
      7 October 2020 @ 22:28
      Oh ok Steven you want a question; here you go: Given all these shenanigans and ridiculous decisions that we agree have happened at the hands of the Fed, who stands to gain? Look forward to your followup and will post video in the Exchange on this!
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:27
      The Fed can't fix it.
  • DB
    Donna B.
    7 October 2020 @ 23:46
    Questions for Jeffrey and Steven: In mid-March the Fed lowered the interest rate from 2.25% to zero. Was this necessary? Damaging? Alternatively should they have left the rate as is with everything else they were doing?
    • EK
      Emil K.
      8 October 2020 @ 13:45
      The Fed was catching up to the market which had been lowering rates broadly since 2018. The Fed follows the market, not vice versa. At least until it re-establishes market participants' confidence in its abilities, character, courage, knowledge, etc.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:23
      The Fed had no choice as Treasury yields were forcing the Fed's hand.
  • LP
    Leonard P.
    8 October 2020 @ 00:48
    Great interview Steve! The only criticism... on your YouTube channel, I always look forward to your bond king crown and the "Bond Kingdom Under Siege" intros. Kindly renegotiate that into your deal with Real Vision.
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:21
      I'll try!
  • JC
    James C.
    8 October 2020 @ 01:10
    That was the best discussion I have seen so far on Real Vision. I learned so much! Bravo. Quick question- can you elaborate more on with graphs and charts regarding the amount of Bonds and ETF's the Federal Reserve has purchased since this those buying programs began. To what extent do you think those purchases have propped up corporate bonds and stocks?
    • JC
      James C.
      8 October 2020 @ 01:33
      Another question pertaining to how trust works in the global banking system. How does the global banking system verify the "general ledger" of all electronic deposits at the end of everyday. What prevents on rogue bank counterfeiting an electronic deposit? What global institution says those electronic deposits are conducted with fair play? Also what happens when a rogue bank from a rogue country also cheats on their loan to reserve ratio and creates new currency that shouldn't be allowed? In summary what prevents a corrupt syndicate from counterfeiting digital currency? What happens when a bank spends 10 business days verifying your funds before they become withdrawable? What are they verifying specifically? Any books you can point me to?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:20
      The Fed has this on the H.4.1
  • TJ
    Terry J.
    8 October 2020 @ 10:40
    Jeff is such an authority on the the Fed, the eurodollar and Treasuries. Thanks to RV introducing me to him several years ago in his first video, I have followed Jeff's daily market blogs without fail, and have learnt so many things about these three topics. Over the past few decades, we have seen a number of supposed "bond kings" exposed as emperors without clothes. For me Jeff and Dr Lacy Hunt are my bond kings as they firstly know their markets inside out and secondly have been consistently proved right with their market analysis. Jeff and Steven's discussion is another priceless video from RV! Bravo!
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:13
      Jeff & Lacy are the true kings! Glad you enjoyed the interview!
  • JF
    John F.
    8 October 2020 @ 14:31
    Steve, your the reason I signed up to Real Vision. What are possible black swans that may surface by the end of the year (besides this video becoming widely known)?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 01:08
      Thank you! Black swans are impossible to predict. I don't put too much thought into them.
  • LH
    Lik H.
    9 October 2020 @ 03:49
    I like the discussion because both speakers are objective and layout the framework logically. It is a breadth of fresh air when both of them commented on the problem of USD - it certainly beats the previous the prevalent thinking of "It is my USD, but it is your problem" that surfaced back in the 70's. As a resident in Asia - I've seen the the negative effects of low rate since 2008. And I think its negative effect finally shows up in the US when I heard the comments of Ed talking about his mom struggling to find interest incomes and the only advise a financial advisor can provide is to put the money onto assets with higher risks hence higher returns. Do we really want to do this to all those folks out there who're in their 70's ??? And the central bankers can go to sleep every night thinking that they've done such a great job in "saving the world" ???
    • lf
      liam f.
      9 October 2020 @ 07:18
      Van metre is not objective, He sells bonds for a living - he is the self-proclaimed "bong king" because he not original enough to create his own title and not steal Jeff Gundlach's. I find this interview is Van Metre using Snider who is relatively objective to project his thesis. It is like when Johnson interviewed Van Metre so they could do a lot of agreeing.
    • AL
      An L.
      9 October 2020 @ 22:04
      @Liam wow really?
    • SV
      Steven V. | Contributor
      11 October 2020 @ 00:53
      @liam f: I don't sell bonds for a living.
  • MT
    M T.
    10 October 2020 @ 01:12
    Thanks Steve and Jeff. Great Interview. Question: We know Fed QE does not create new money. We also know now tht govt, borrowing money from market/public does not create new money. So, when the stock market falls >10% , we know Fed will again do bigger QE and asset purchases. This will create "new purchasing power" in financial sector (non banks). That money wud end up in assets again and stocks should go up again. And we know Fed can do infinite QE without causing any inflation since no new money is created. Then why would stocks ever crash? Fed can always do more QE and asset inflation keeps going. Whats u both's thought on this. Thanks
    • SV
      Steven V. | Contributor
      11 October 2020 @ 00:49
      Only the non-bank QE is likely to lead to asset purchases but there's no guarantee it will or does. I don't believe QE causes asset prices to rise as much as investors believe it does, so they buy stocks on the belief QE can keep asset prices up. If that were true, March shouldn't have happened.
  • SM
    Sam M.
    7 October 2020 @ 08:37
    I can't believe you are both still getting it wrong. What will it take for you to understand that the reserve balances are used to gross settle trades between the participants in the payment system (in most countries just the central bank, the government and the banks - there is nothing special about a primary dealer in this sense they will appear in the ledger system the same as any other bank that has direct access). FWIW, the fed covered this topic fairly well in 2009 - "Why Are Banks Holding So Many Excess Reserves?" https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr380.pdf Primary dealers settle the purchase of newly issued bonds using their reserve account balance. When the Govt issues the bond it gets reserves debited to its reserve account from the banks (and their customers with a lag) that buy (and they lose their reserve balances). Most modern countries will run a Real Time Gross Settlement System ... and banks do not want to find themselves in a position where they are gross settling the purchase of the bonds from the auction and they don't have sufficient reserves - they would have to immediately try and rectify such a breach by borrowing in the cash market (borrow reserves unsecured from another bank to settle the trade) or by borrowing secured (ie repo). Just this simple example - that banks need reserves to settle the purchase of a Govt Bond with the Govt - should prove to you that reserves are a means of exchange between the direct participants in the payment system (ie only those entities that have a reserve account (in most countries this is just the central bank, government and banks)). And once you understand this simple point there are still other "magicians tricks" that are going on. The "words" regarding Broad Money doesn't prove what you think it proves, you misunderstood, and it proves my argument. The "reserve account" balance is only useful for a participant in the payment system - ie you are the central bank, the government or a bank. If you are a customer of a bank your deposit is tracked in a ledger of the bank you bank with - you do not have a reserve account because you are not a direct participant in the payment system. But a bank can exchange reserve balances with the Govt in exchange for getting a Govt Bond Asset. Dr Asset (Govt Bond) Cr Asset (Reserve Account) This is Accounting 101 ... do the double sided journal entries and it is crystal clear what is happening. You don't get a ticket to the debate if you can't do the journal entries.
    • SM
      Sam M.
      7 October 2020 @ 09:25
      If you don't understand that central bank reserves are used to settle trades between any direct participant in the payment system you have a house built on sand. You can't deduce anything further since your foundation is rotten. I am not sure how to convince you as it is common knowledge in a bank (see this SWIFT paper about using reserves "Central Bank Money" https://www.swift.com/node/4001 to settle real time gross trades between payment system participants). Bank reserves are important to banks (up to a point and only where they get a penalty rate). Bank reserves are important to the price of all other assets in the system (up to a point assets have repriced to an equivalent risk adjusted margin). The transmission mechanism of QE is entirely accurate - it will tend to create more bank deposits where the "original seller was not the bank itself (and banks view deposits as funding whereas reserves are an asset). It will tend to lower bank funding costs (since they are all buying each others short term debt to get a better return than on reserves) and it will increase their profit margin. This is all designed to try and encourage banks to make more loans. And more loans at the margin equals more demand.
    • JI
      JWD I.
      7 October 2020 @ 12:42
      Sam...appreciate the referenced links!
    • SM
      Sam M.
      7 October 2020 @ 12:48
      I can provide more source links .. it is not me being crazy and claiming to be a primary source. I am not claiming to be any such thing.
    • JR
      Jeremy R.
      7 October 2020 @ 13:21
      @Sam are you familiar with Jeff’s conceptualization of the monetary system as an offshore, wholesale system (deposit and reserve free), that operates outside of the Fed’s purview and control? Or his claim that banking and money have greatly evolved in size and scope, beyond even the Fed’s understanding? If you go back to Jeff’s work with Macro Voices, he goes into great detail about how the system has changed and evolved beyond recognition. He goes over Fed Funds and the EFF and its relationship to offshore funding markets in intricate detail. I definitely think Jeff knows that reserve accounts are used to net out payments, but he places it within a massively broader context of this hierarchical interbank wholesale Eurodollar system. And in this system, the Fed and central banker monetary policy has little to no effect.
    • EK
      Emil K.
      7 October 2020 @ 16:19
      So are you saying that bank reserves are helpful / useful / critical to the economy and/or have been supportive in pushing the economy forward for the past decade or so?
    • SM
      Sam M.
      10 October 2020 @ 06:56
      @Jeremy R. yes I have listened and I can go back and listen again. I likened his description to banks that can access the US payments systems as being able to act almost like a fractional reserve bank since in a given jurisdiction the bank can make USD loans but also receive USD deposits so they only present a "net" requirement to the Central Bank which disguises the gross longs and gross shorts.
    • SM
      Sam M.
      10 October 2020 @ 07:05
      @emil k. I could be wrong but this seems like a smart ass comment. Assuming it isn't, the total balance of reserves is important because banks will try and maximise the risk adjusted return on their liquid asset portfolio (reserves earn very little, bonds more, bank bonds more but they require capital to be held etc). So if the Central Bank increases system reserves their will be an economy wide impact on the pricing of assets as banks try and shed reserves in exchange for higher earning assets. They can't shed the reserves in total since someone must hold them (accounting identity). Separately, the reserves are created by the Central Bank buying assets from the banking system (or Govt). If the asset was (effectively) sold by a customer of the bank (and not the bank itself) then they have a deposit at the bank. This has further impacts 1) the customer has sold a risk asset and now has a deposit and they may look to invest in a riskier asset to get a higher yield; 2) the bank has more funding sources (a bank considers itself to be funded by deposits, bonds, hybrids, equity capital). And banks only lend when they are already funded (they do not rely on credit creation to fund new loans as the loan may be spent to a customer at a different bank). The focus on reserves completely misses the impact on bank balance sheets when the reserves are created. You wouldn't know this if you didn't work at a bank since you would likely take a top down view and think that because banks create money when they lend they don't look for funding before making a loan; and secondly you would probably make the mistake that reserves are a stock ... but that doesn't mean there isn't a lot of "flow" of assets being purchased repeatedly between banks.
    • SM
      Sam M.
      10 October 2020 @ 07:18
      Most of the issues I have posted are written about by the Bundesbank here - https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392 e.g. -> A bank has to have funding sources before it makes a loan: "Despite its ability to create money, a bank still has to fund the loans it has created since it needs central bank reserves for the cashless settlement of payments when sight deposits created by lending are transferred to other banks" [Sight deposits = customer deposits at a bank] -> Central bank reserves are under the control of the Central Bank: "These [central bank reserves] are balances which only the central bank can create." -> QE tends to increase deposits at the banks but the impact is uncertain as the ultimate seller is unknown when the bond is initially purchased: "The only way asset purchases can have a direct positive impact on the money supply is if the end sellers are domestic non-banks, with the report adding that, "in this case, the transaction leads to an increase in the central bank holdings of government bonds and an increase in sight deposits held by the seller". However, the ultimate sellers of the instruments could also be commercial banks or non-residents." -> QE not only impacts deposits, it also impacts on reserves and they have a channel of influence as well: " In addition, the money supply could also be indirectly influenced by, in particular, the transmission of the asset purchase programme to asset prices and yields or lending. This is why there is no mechanistic relationship between the increase in central bank reserves and the broader monetary aggregate." So if someone believes I haven't provided a primary source for an argument I am making let me know on the exchange etc. This is (apparently) an advanced topic but it is understood by senior people that work in bank Treasury Departments (my work experience traversed the central bank, the prudential regulator and working in a bank in lending, trading, interest rate structuring, treasury capital and funding planning and forecasting).
  • LL
    Lucas L.
    9 October 2020 @ 04:23
    My question might sound stupid, but what if the FED knows they cannot create inflation, and their goal is simply to inflate financial assets, so demographic trends can act and alleviate those negative effects?
    • SL
      Shawn L.
      9 October 2020 @ 05:18
      Baby boomers demographics are why the fed is inflating assets. BB are the largest / richest demographic groups with the least amount of time before retirement (effectively right now). They have no time to rebuild if they lose their pensions. If they lost it all, it would be approx. 70 million retired financially ruined Americans spending their last few years poor, destitute, living with their even poorer children, effectively bankrupting America. You think covid is bad, this would be much worse and it is very close to happening now. BB are still greatly exposed to the 60/40 and long passive equity strategies. How long can the fed keep this market inflated with deflation, solvency issues, demographics, pandemics and dysfunctional politics as strong headwinds? Add to this, as Jeff and Steve said, with the fed being effectively (powerless?) limited to signaling and portfolio effects, do you think we can bluff our way out of this long term debt cycle bottom? Depressions are painful and this one has and will continue to be too.
    • LH
      Lik H.
      10 October 2020 @ 02:40
      I agree with what you've indicated as well as the comments from Shawn L. But one thought that keeps popping up in my mind is - If I'm a baby boomers with good nest eggs on these inflated financial assets, won't I be looking at cashing out 40-50% of it and just keep them in cash and take profits. Once enough folks feel that it is good enough to take some money off the table and keep them as cash, the market will have very little buyers unless the Fed wants to be the buyers as the passive flow will not be able to cope with that.
  • ar
    andrew r.
    9 October 2020 @ 17:07
    Another excellent installment of Snider U, and Steve was the perfect guy to interview him, adding some good color of his own. Well done.
  • SW
    Scott W.
    9 October 2020 @ 15:56
    Here's a fantastic dive into the complexities of inflation/deflation: https://www.lynalden.com/fiscal-and-monetary-policy/ Rather than a binary around QE inflationary/QE deflationary, Lynn explores the nuances that make it more of a situational calculus. I won't go point by point in terms of what these gentlemen discuss; suffice it to say Alden's work could very well help some make better sense out of this topic.
  • vb
    vincent b.
    9 October 2020 @ 15:49
    ...so Quantitative Easing is really Qualitative Easing...
  • MD
    Matt D.
    8 October 2020 @ 17:29
    Hi guys, Following Jeff & Emil for years (and now Steven) I really recommend their Eurodollar university content. My question is: For some years now I have seen a revolution brewing in international cross-border payments. Including a system allowing the use of a centric digital asset, eliminating the need to use Nostro / Vostro accounts. Their key point is that it would free up trillions of dollars stuck in these accounts. My question is 1. Would that in fact free up liquidity for the banks? 2. If so, could this be the signal as a bank 'now that I have plenty of cash, it's gone 'let's lend and restart the machine', 'dare to lend again'!
    • EK
      Emil K.
      9 October 2020 @ 14:01
      Thanks! Maybe it would free up liquidity for the banks. That would be good - for them. But would that convince them that it was time to throw caution to the wind and to dive in, face first into the wider economy? Passing out credit left and right? If the banks feel that there is more risk than return, that we are at the end of an era and the rules of the future road are uncertain, that they don't have any confidence in their central bank to act as backstop, that they are worried about all the 'garbage' other financial institutions took on their balance sheet during Globally Synchronized Growth,... well they just won't go all-in, no-pants in extending their balance sheets.
  • SS
    Sunny S.
    8 October 2020 @ 20:34
    Hi Emil K, Steven Van Metre Emil I like the explanation in your first paragraph to Antonio P. regarding the increase in M2 and that it is due to the increase in reserves or base money and that M2 = M1 + M0. Doesn't the government stimulus differ to FED QE in that it would increase money directly into the economy? I think it would be interesting to display the composition of that M2 in M1 and M0 on a graph and breakdown where the figures are likely coming from i.e. government packages. Why because we haven't illustrated in sufficient detail if the money is primarily going to paying back debt, increasing saving or spending. My main question is what happened to the seasonal financial market liquidity squeeze or collateral fail. Shouldn't this be a hot topic as per continuing my reply regarding liquidity crunch on Macro chat - US TREASURIES – Lodged Chicken Bone? Possible Coughing Fit Ahead. My screen shot on Treasury fails this time last year shows a spike in treasury fails in early September 2019. Currently we've basically skipped the collateral problems that shut down the financial plumbing at this time of the year or delayed them. Is it partially due to the stop on QE over the last few months combined with the FED buyout on corporate bonds? My burning question is what has prevented or delayed the seasonal fall in confidence in the collateral markets?
    • EK
      Emil K.
      9 October 2020 @ 13:58
      Hello. Thanks. Yes, the Federal Government's checks to people are more money than the Federal Reserve's creation of bank reserves for financial institutions. Both are types of money, the former more dynamic than the latter. But they are not being created in a vacuum, both are being provided in the middle of a depression in which private enterprise is destroying much, much more money. So both the Fed and Feds are trying to fill in a hole, not adding fuel to a fire. The Feds money should be considered a "stipend" not "stimulus". Is anyone going to take this money and consume wildly with abandon in the belief that good times are now locked in? With respect to why didn't the mid-month quarter-end collateral squeeze manifest itself, Jeff answers it in this article: "Mid-September 2020 Hasn’t Disappointed At All" https://alhambrapartners.com/2020/09/16/mid-september-2020-hasn’t-disappointed-at-all/
  • EL
    Emanuel L.
    8 October 2020 @ 22:05
    Thank you for sharing your thesis. I have a question regarding. You state that the low interest rates of treasuries are an expression of a global dollar shortage. Why over all these years of lower interest rates do we not see the the dollar appreciate significantly in the FX markets? Thx, e
    • EK
      Emil K.
      9 October 2020 @ 13:51
      Seems to me like it is appreciating: https://fred.stlouisfed.org/series/DTWEXBGS
  • BS
    Benjamin S.
    9 October 2020 @ 03:11
    Just excellent. Pause - google - Pause - google, etc. Extremely deep and insightful discussion.
  • JN
    Jerrick N.
    9 October 2020 @ 01:04
    incredibly insightful!
  • GC
    Gregory C.
    9 October 2020 @ 00:55
    given the deflationary outlook, what are the investment implications for capitalizing on it? Sure, bonds, but are there other asset classes that make sense? Great interview!!!!!
  • SM
    Stephen M.
    8 October 2020 @ 12:47
    Thank you Steve and Jeff and RV! What an awesome discussion .. I will be greedy and request much more from these men! It would be great to have a static infographic of the truths they laid out in this discussion; such as, the Fed and central banks do not print money. I did not know what SDR was, so that sent me to go learn and the first article I opened immediatley framed their argument about the Central Banks printing money. Having these truths of how the system does work in a list or infographic would be great reference for simply 'fact checking' articles and discerning good and bad author narratives. It would also be very good to have a sketch narrative (cartoon) that narrates visually what they are describing of how Central Banks and the banking system do not work (i.e.; inflation, QE, ..). Again, VERY MUCH enjoyed and appreciate these men and RV!
    • RD
      RAJIB D.
      8 October 2020 @ 13:02
      That would be really great.
    • SS
      Sunny S.
      9 October 2020 @ 00:36
      Hi Stephen, I completely agree! These guys are great and completely knowledgeable in their fields however they lack the rigor of proofing their thesis with illustrative means that force them to flesh out detail and test their understanding in front of others. This is good practice when one needs to prepare a forecast of time and cost of delivery on large infrastructure projects. It's time consuming and exposes all the assumptions for open questioning not just to others but to oneself. If you present monthly forecasts it forces you to go through all your assumptions quantify, illustrate, justify and explain them. This is what as an analyst, I would call rigor because you are forced to put yourself out there and make a claim that can be easily proven wrong. Its an iterative learning process that draws in knowledge from observers. For example there is a lot of data on the bond market that could be recompiled into stocks and flows that can build a narrative. The various forms of money supply could be broken down graphically in a way that order of magnitude and origin could explain the dynamics and probabilities of the market behavior. As investors the answer of when and how much or a frame of reference is really important. I feel that this can't be developed without quantifying a thesis beyond the typical pattern identification on various forms of time graphs. Info-graphics that Stephen mentioned would be a great platform to build off other peoples auditing and peer review of a knowledge base. A first step towards rigor and more fuller comprehensive open source peer review.
  • PB
    Paolo B.
    9 October 2020 @ 00:05
    Really great video! As you are gathering questions, I’d really like to hear more about the link between QE and rising equities. It doesn’t seem it is even clear how the first influences the latter and I’d love a deep dive on this point.
  • ER
    Ernesto R.
    8 October 2020 @ 21:56
    This was really great. Both has a knowledge of how the system work thanks RV for this amazing interview
  • HR
    Humberto R.
    8 October 2020 @ 20:51
    I went down the rabbit hole and found this episode from Jeff: https://www.youtube.com/watch?v=P7Wx7AYFDsQ When you listen to that, read the article sited in the video, and couple those ideas with Raoul's insolvency thesis, Houston we really have a problem. At the very least I will be investing in stocks/etfs with a completely different background attitude. Essentially, invest as if it can all disappear quickly or slowly over time.
  • DR
    David R.
    8 October 2020 @ 20:19
    Incredible, fantastic discussion plainly spoken.
  • RI
    R I.
    8 October 2020 @ 17:25
    Same rant. Different year.
  • WW
    Wayne W.
    8 October 2020 @ 14:57
    Thank you for sharing your knowledge here. Bonds are to me much more complex than understanding Equities, Blockchain and even alt coins. Could you explain where and what to look at to see fully what the bond market is currently telling us. Also how the short term, medium and then long term bonds paint a picture of what is happening / will potentially happen. I was also starting to understand the repo market stuff you were mentioning at the end here but didn't fully grasp it. Really appreciate your work here. Wayne
  • AW
    Andrew W.
    8 October 2020 @ 04:31
    Reserves creation by the Fed and holding bonds on their B/S is displacing funds that otherwise would have been spent on Treasuries and forcing those funds into all other assets, including corporate bonds and equities. This displacement effect is the entire reason that asset prices are inflating. This whole inflation/deflation debate is getting really stupid because we all know QE doesn't cause consumer inflation. Let's talk about what all of us on here are interested in: asset price inflation.
    • EK
      Emil K.
      8 October 2020 @ 13:42
      We talk about consumer inflation because the monetary authorities are doing all they're doing so as to convince us that there is and or will be consumer price inflation.
  • JG
    Jave G.
    8 October 2020 @ 04:51
    Great conversation, though I can't say I'm knowledgable enough to follow all of it. Here's a fundamental question: where does money come from? For most of my life, I was taught that the US government "prints" money - only the Treasury can create dollars. (I come from a non-financial and non-economic background.) Yet, I've recently learned that banks create money through loans. And I can understand this latter idea, to an extent. (Mr. X deposits $1000; bank uses that account as a reserve against a $10k loan to Mr. Y; now there's $11k in the system.) I've seen elsewhere people say that if all debt were magically forgiven, all money in the system would cease to exist. While I can see how much of the money would cease to exist, I don't see how all of it would go bye-bye. So I guess my over-all question amounts to: how is money created and destroyed; how has this process led to any of our current problems; and how can that process be reformed in order to fix those problems? (Easy answer, I'm sure!)
    • DC
      Derek C.
      8 October 2020 @ 05:58
      I think of it like this, there is public money, called fiat because the government issues it as their liability (the dollar owner has an asset). Then there is private bank money, called credit. The bank issues credit to anyone, let's call that person the debtor. The bank can issue an arbitrary amount of credit, through the use of their balance sheet. The bank creates a liability, the amount of money that they are pledging to allow the debtor to use. They then enter an asset on their balance sheet, which equals the liability plus some interest. The debtor has an asset, a pile of credit to do stuff with, and a liability, the principle plus interest to be paid back to the bank. The debtor's liability is the bank's asset. There are two parties each with opposites as an asset/liability. When people say the debt standard, or a debt based monetary system, this is what they talk about. Credit creation is creating money, credit destruction is destroying money. The number that always gets quoted is that 3% of the money in the system is fiat, the rest is credit. All of this money is credit, and all that credit has an equivalent amount of debt + interest. In order to pay back the debts, the debtors have to have spend the initial credit they received in such a way to generate cashflow. This cashflow will allow them to pay the required debt + interest. If their cashflow is interrupted / stopped, they will default on their credit. If enough people default, the bank loses all those assets, and when assets are less than liabilities (the amount of money they sent out as credit) they go bankrupt. When a bank busts, as the of their liabilities they owe other people default as well, meaning they default too, creating a chain reaction. (speculation on my part) Solutions: Inflate or deflate. Inflate: The government should create money and flow it through the system so that everyone can work their debts down. Deflate: Those that default, default and the system should be allowed to restore imbalances. I think the issue with a debt jubilee type scenario is that wiping out the debts (liabilities) of debtors is wiping out the assets of creditors (banks or whoever lent the money).
    • EK
      Emil K.
      8 October 2020 @ 13:41
      Derek C. has got it. I would only add that government does not have a monopoly on money. They have a monopoly on currency bills and coins that will be accepted for tax purposes. But many entities create money. Grocery stores create a money called coupons. Airlines create a money called frequent flier rewards. Arcades have tokens. Online games have mined manna. You could convert each of those into goods, services or other forms of money. All you'd have to do is find a willing counterparty. So, private banks likewise create money like coupons, tokens and manna called ledger balances. And we've all agreed to use these ledger balances because it is very super convenient. (Also, many decades ago the private banks began to create ledger balances outside of the purview and/or interest of regulatory authorities in 'offshore' jurisdictions like the City of London. In relatively short order this offshore, off balance sheet, off the regulatory radar money DWARFED official money. Then in 2007 the creation of this money 'stopped'. Ever since central banks have been trying to fill in the difference but the deficit is so yawning that they have no chance. And thus, the past 13 years of economic growth have been some of the worst of the last 150 years.)
  • MR
    Marco R.
    8 October 2020 @ 06:41
    If FED doesn’t print money, which they don’t, why is M1 up? Doesn’t it mean, that more USD is in the system?
    • EK
      Emil K.
      8 October 2020 @ 13:31
      I attempted to answer this question to Antonio P. (Oct 08, 2020 @ 05:43)
  • MF
    Martin F.
    8 October 2020 @ 07:30
    Hi Steven, hi Jeff. As i know you both from your YouTube Channels i didn't expect less than this extraordinary video. One question, is money created if the banks buy the TSYs from privates first and then sell it to the FED. You always start with banks already holding them. Thanks, great interview.
    • EK
      Emil K.
      8 October 2020 @ 13:29
      I don't believe so but would be interested to hear what others say. Buying an asset like a US Treasury would be done by drawing down an existing stock of deposits. Creating money would be the creation of a loan / debt / credit.
  • RD
    RAJIB D.
    8 October 2020 @ 13:01
    You have not covered how Dollar value will change in the short term and the long term with these fake money printing and ineffective QEs?
  • DH
    Daniel H.
    8 October 2020 @ 12:33
    Question about the efficacy of our fiscal response. I’ve seen some charts recently that indicate that our trade deficit is larger than it has ever been, so it seems that at least some of the US stimulus flowed to China/other trading partners (i.e., US consumers buying Chinese goods). Are there any estimates for how much of the stimulus was mostly a benefit to China et. al.? Assuming this is non-trivial, how should we shape fiscal stimulus going forward?
  • Mb
    Matthew b.
    8 October 2020 @ 12:06
    Why can’t you clip coupons on bonds?
  • MD
    Mark D.
    8 October 2020 @ 12:06
    Ps Steve and Jeff are great, awesome to have them on Real Vision!
  • MD
    Mark D.
    8 October 2020 @ 12:00
    “Was March a one off event, or was it really the warning?”
  • AS
    Ananth S.
    8 October 2020 @ 11:06
    FedCoin is the missing part? Completely go around the impaired banking system
  • SS
    Steven S.
    8 October 2020 @ 09:52
    Holy mackerel that was excellent.
  • PO
    Paul O.
    8 October 2020 @ 07:01
    Wow - that was fantastic. Congratulations to both Steve and Jeff on a marvellous interview. Extremely intriguing ideas were unveiled within a good humoured and stimulating conversation. Bonds are looking bloody cheap after watching the video!
  • EK
    Emil K.
    7 October 2020 @ 19:55
    I am intrigued by this mysterious person that Steven references with one minute left in the show. He sounds handsome.
    • AL
      An L.
      7 October 2020 @ 21:58
      I wonder if he is still apply sunscreen for tips?
    • AL
      An L.
      7 October 2020 @ 21:58
      US$ Tips
    • AL
      Aaron L.
      7 October 2020 @ 22:43
      Ha!
    • Av
      Alexander v.
      8 October 2020 @ 06:26
      Thanks for your comments here Emil. You’re a great explainer.
  • DY
    Damian Y.
    8 October 2020 @ 05:32
    Great interview thanks.
  • SC
    Sejong C.
    8 October 2020 @ 05:29
    This was long, but fun. Bonds selling well; would that not be more relevant with Basel regulations? Buying them because it is required.
  • AL
    An L.
    7 October 2020 @ 16:58
    This video need to be on Youtube for FREE ASAP, everyone needs to know this
    • IZ
      Ileana Z.
      8 October 2020 @ 05:07
      LOL most people won't understand it!
  • PC
    Paul C.
    7 October 2020 @ 23:30
    Who could possibly down vote, real vision is turning financial dissemination of information on its fucking head. Get on board!
    • BK
      Brad K.
      8 October 2020 @ 03:51
      Agree wholeheartedly Paul. Real Vision is showing us how Monetary Policy really works. I love Steven's comment in relation to what Fed and media are saying, spin 180deg and you will be closer to the truth. Loving the content Steven is bring to You Tube and Real Vision!! Real Vision is the best money I have spent to advance my performance!!!
    • AW
      Andrew W.
      8 October 2020 @ 04:47
      I down-voted because Jeff Snider is a broken record saying over and over again that QE doesn't cause consumer inflation which we all know by now. What's of greater interest is understanding whether QE can be used for debt monetization and what those limits are, whether the Fed can buy a $100T coin from the Treasury and when that will happen, what the fall-out of that will be. Basically, where we are going next. I got nothing out of this video.
  • BB
    Brent B.
    8 October 2020 @ 03:34
    This video (style and substance) is the reason I subscribe to RealVision. Outstanding job guys!
  • NJ
    Nicolas J.
    8 October 2020 @ 00:20
    Thank you Both - must admit that the Eurodollar market impact is extremely misunderstood.. Question though, Bank Reserves, if considered as part of the BASEL framework of RWA for banks, have a much lower risk weight no? Wouldn't this improve bank balance sheets thus attempting to foster 1) credit growth/lending increase or 2) Asset price growth/speculation by these same institutions (either by lending to hedge funds, more reputable speculative counterparties).. But seems #2 happens more easily..
  • BT
    Billy T.
    7 October 2020 @ 21:06
    If QE + stimulus have not produced inflation, then what will? $10T stimulus, $50T, $100T? Which at $100T stimulus, just looks like currency debasement to me.
    • TM
      The-First-James M.
      8 October 2020 @ 00:19
      Formally writing off the debt would probably do it, after the Fed has bought the lot.
  • MS
    Mark S.
    7 October 2020 @ 23:57
    It would be nice to have some flow charts in a presentation like this.
  • JL
    James L.
    7 October 2020 @ 23:46
    Seems like a huge flaw in the monetary system that it needs to keep expanding in order for there to be more money to pay the interest on the debt. That seems to be why at every economic crisis the banks need to be bailed out because no one is creating additional base money during an economic expansion. If they had let the markets clear and debt deflate then maybe it could oscillate around a point rather than constantly try to expand. Under the gold standard at least we did add to the monetary base during expansion keeping up with population / economic growth, but that also could not be expanded unnaturally by central banks.
  • AL
    Aaron L.
    7 October 2020 @ 21:57
    Great interview Steve Three broad questions for Jeff, 1) Please elaborate on the different repo markets, how the TGA fits In to the picture and how the fed shot themselves in the foot with wqe that wasn’t qe 2) Use your framework to explain the 1970s inflation, it's drivers and how it’s different today 3) is there a way to get inflation beside credit growth via private banks, such as a loss of confidence due to fiscal mismanagement, cost-push etc etc Cheers Aaron
  • TV
    Tyrell V.
    7 October 2020 @ 21:39
    I would have been fantastic to have a threeway with Prof Rich Werner adding to this conversation as well. He was the one who termed the QE term afterall.
  • JR
    Jeremy R.
    7 October 2020 @ 09:22
    Steve and Jeff, Fantastic conversation. I think slowly, but surely we're peeling back the layers of this wholesale shadow system onion, and also pulling back the curtain from the central banking wizards. I have a question to put to Jeff: I'm in Australia, and our central bankers are lamenting the "limits" of monetary policy and interest rates, cuts. They hope for a Pavlovian inflationary response in the economy, yet constantly wish the government would fiscally spend more. My question is: if we were to conduct our own research into how the eurodollar system is impacting our countries' economies, where would Jeff recommend we start looking?
    • EK
      Emil K.
      7 October 2020 @ 16:03
      • @MacroVoices Eurodollar University (1-7) https://bit.ly/3fX9fw4 • @CatherineSchenk's "Origins of the Eurodollar Market" https://bit.ly/3fFLMix • @ICMAgroup's "Origins of the Eurobond Market" https://bit.ly/2VAPnYb • @PMehrling's @coursera class: https://bit.ly/31GRHiF • @csissoko's "The Collateral Supply Effect on Central Bank Policy" https://bit.ly/3iFpoas • @csissoko's interview with @DavidBeckworth https://bit.ly/2SyRBWb
    • KW
      Krzysztof W.
      7 October 2020 @ 16:58
      Hi Emil, I didn't know that you watch Realvision:)
    • JR
      Jeremy R.
      7 October 2020 @ 21:13
      @Emil - thank Emil! Your show with Jeff is fantastic as well! I've been looking more and more at Australia's month to month yield curve movements, after reading Jeff's blogs they are also communicating interesting information to us (deflation). Our economy is also dependent on China buying our resources with iron ore and coal being prominent, perhaps their futures curves could be interpreted similar to oil's? Or perhaps like Jeff, I could dive into the history of our central bankers' musings to read about their legacy of ineffectiveness, in the face of a growing Eurodollar system.
  • AO
    Audie O.
    7 October 2020 @ 20:31
    Well done guys this was very interesting and I have learnt so much.
  • JK
    Johan K.
    7 October 2020 @ 20:09
    Hi, Thanks for a great discussion. My questions: 1. I understand the argument that the fed can't pump freshly printed money into the economy without the help from the banks because the fed can only create bank reserves, but it is up to the banks to use these reserves to actually lend new money into existence. But I don't understand why you say that stimulus checks handed out by the government, funded by newly issued treasuries and monetized by the fed, is not inflationary. Please explain. 2. If the fed's QE cannot spark inflation, can it pump up asset prices like stocks? If yes, please describe the mechanism of how this works.
  • BK
    Bruce K.
    7 October 2020 @ 20:03
    Absolutely epic, a tour de force! Kudos to Steve, Jeff, and the entire team.
  • DH
    Daniel H.
    7 October 2020 @ 19:57
    Got a two-part question: a) What policies in the past would have prevented us from reaching the zero bound? b) Now that we are effectively at the zero bound, what type of event is going to allow us to escape? Thanks guys for a great discussion!
  • AW
    Alexander W.
    7 October 2020 @ 19:43
    What an incredibly amazing conversation.
  • DS
    David S.
    7 October 2020 @ 19:22
    Value is always added listening to Mr. Snider. The primary function of the Federal Reserve when it was established was bank stability. The additional official mandate by Congress is employment stability. Employment stability would be much better handled by Congress with fiscal policy. Congress just uses the Fed as a whipping boy for their fiscal incompetence. Consciously or unconsciously the Fed seems to believe its real second mandate is to keep the stock market up to protect the stability of the pension markets. If the stock market crashes, many more pension funds will be markedly underfunded. By assiduously protecting the stock market, the Fed has fallen into the current interest trap. We are, however, in the same monetary trap regardless of Fed’s reasonings and subsequence actions. As an aside, Dr. Friedman certainly respected both the money supply and the velocity of money. From the 1960 to 1990 the velocity of M-2 was stable. It is misleading to assume that Dr. Friedman would “roll over in his grave” concerning inflation with the increase in M-2. He would merely point out the precipitous drop in the velocity of money – elementary. DLS
  • AP
    A P.
    7 October 2020 @ 19:21
    Excellent conversation! Please wrap Jeff in bubble-wrap, somewhere in that brain is our path into the future! Would love to hear his thoughts on two questions: 1. "Stimulus" doesn't work because it's inherently temporary. Are we moving into a new phase where (fiscal dominance) UBI allows governments to bypass the banking system (even as fractional money continues to deflate) and stir demand directly in the real economy? Also, a 'permanent stimulus' has the actual effect of changing behavior permanently. 2. Are we seeing the consequences of the US not hoarding gold reserves? At this stage, with USD overvalued, the one asset that Americans could buy in the past is the one asset that can safeguard the value of their savings to eternity (without 'counter party risk'). The US buying gold would reset the price of the USD against other currencies in ways that swap arrangements don't ... because swaps eventually unwind. Gold is also the only import that pushes USD out that doesn't require US consumption / indebtedness.
  • JS
    Jon S.
    7 October 2020 @ 18:36
    I am such a fan of this guest. Can we have him very in detail on plus tier? Please.
    • JS
      Jon S.
      7 October 2020 @ 19:14
      The interview is very unestructured... the Interviewer is not interviewing the guest... not good RV not good. I miss Ash for such a guest!
  • mw
    michael w.
    7 October 2020 @ 19:13
    So why did we see rates jump last September, forcing the fed to start repo operations?
  • HC
    Hugh C.
    7 October 2020 @ 19:11
    so glad you got these two on a video together.
  • JA
    John A.
    7 October 2020 @ 18:59
    Jeff and Steve say that the failure of the existing system is required before any change or redesign of the system can take place - something I wholeheartedly agree with. Those with a heavy stake in the existing system will fight tooth-and-nail to keep their stake whole. I am hoping that at some point in the future, the two of them can address what the failure of the system looks like. What does it look like when we get TO the end of the system, and what does it look like as we go THROUGH the end of the system? Thanks to both of you for adding greatly to the understanding of the system that is currently in place.
  • NR
    Nathan R.
    7 October 2020 @ 15:47
    If you don't work to understand both the structure and dynamics of the overall system, you are picking up nickels in front of a steamroller. Up, Up, Up, blown out.
    • JT
      John T.
      7 October 2020 @ 18:58
      That's why the real winners, just like in 2008-2009, use a heads-I-win-tails-you-lose setup. Keep the proceeds when things are going well, but make sure someone else - taxpayer, pension fund, retail investor - is sitting on that risk when it blows up. LBO firms do this with special dividends and by carefully separating the assets from the debt-laden balance sheets.
  • DM
    Dominic M.
    7 October 2020 @ 18:55
    Fantastic conversation, gentlemen—thanks to you both.
  • AA
    Aaron A.
    7 October 2020 @ 18:02