Will there be Hyperinflation or Deflation? (RE-RELEASE)

Published on
December 30th, 2020
Duration
63 minutes

Will there be Hyperinflation or Deflation? (RE-RELEASE)

The Kiril Sokoloff Interviews ·
Featuring Lacy Hunt and Kiril Sokoloff

Published on: December 30th, 2020 • Duration: 63 minutes

Kiril Sokoloff interviews Dr. Lacy Hunt of Hoisington Investment Management, the world's greatest monetary economist and expert on bonds, on the most important issues of the day. Dr. Hunt explains in very lucid language why many of today's beliefs about the global economy are incorrect: The Fed is not printing money now. QE1, QE2 and QE3 were also not printing money. The current massive U.S. fiscal programs will not stimulate the economy, only accelerate its long-term downward-growth trajectory. The productivity of debt has fallen sharply, and with it, the velocity of money. The best that can be expected from global growth post-COVID is 1% in real per-capita terms. Having reached the zero bound, current monetary policy may be counterproductive. The U.S. has no net national savings and is dissaving for the first time since the 1930s. This means there will not be capital to invest. Based on an examination of 24 over-indebted economies between 1900 and 2008, the over-indebtedness was solved through austerity. The Fed has the power to lend. It does not have the power to spend. However, if the Federal Reserve Act is changed to give the Fed the power to spend, it would result in hyperinflation. The early warning signs are there. The Bank of England may have crossed the Rubicon by giving £500 billion to the UK government to pay its bills. Filmed May 18, 2020.

Comments

Transcript

  • TH
    Tim H.
    1 January 2021 @ 04:06
    There appears to be an inherent contradiction in Hunt's argument that the Fed funding 100% of the deficit is not inflationary as long as the Fed is limited to purchasing from banks Treasury bonds and bills already purchased by banks. The contradiction is this: Hunt ends this argument with the fact that the net result of such purchases is an increase in the Fed balance sheet for which the liability is bank reserves and the prerequisite for inflation is that banks lend out those reserves and that such lending will not occur for a list of reasons Hunt gives (which may be perfectly balanced). Okay that Hunt on the one hand. But on the other hand, Hunt makes the case that large budget deficits created by high deficit spending government fiscal policy is a drag on the economy and the end of his argument on this point is that the resulting high debt levels suck up the savings of the economy which then cannot grow because it doesn't have savings to invest. Okay, that Hunt "on the other hand". But wait a minute. It is inconsistent to argue that we won't have inflation because we'll end up with the banks having massive reserves they can't or won't lend while at the same time arguing that the high debt levels will result in insufficient savings so the economy will not have any money available to invest in productive uses. Does this bother anyone else? What am I missing?
    • MA
      Matthew A.
      1 January 2021 @ 23:19
      I don't interpret it as inconsistent. I interpreted it as Banks are the ones that won't loan out money because of flattening yield curve and Companies are the ones who's savings are reduced by covid while simultaneously being over leveraged. So you have companies that need loans that won't get full-filled by banks due to a flattening yield curve. Normally Fed can affect the yield curve and there by encourage lending from banks but since we are at 0% interest rate, Fed probably does not have a big appetite to continue using this strategy. Furthermore its unprecedented for US to go to negative interest rate. So by that logic would it make sense given a flat yield curve to continue pumping money to banks that won't give out loans and stimulate the Economy? I think not. So if and only if the Fed does not go negative on interest rates, then there won't be more increase in money supply thus no inflation. (Disclaimer Im a nascent student of the economy, so I might not have my facts straight. Here I am only trying to construct an argument for the sake of answering you question) Best Regards
    • MA
      Matthew A.
      1 January 2021 @ 23:35
      Also I just read Jane T. 's comment and it's interesting because it argues that the Fed wants inflation because it will steepen the yield curve. So that makes me ask the question, would the Fed rather go negative interest rate to make money velocity increase again? Or would they rather trigger inflation in order to steepen the yield curve and make money velocity increase again?
    • TH
      Tim H.
      8 January 2021 @ 23:13
      Matthew, thanks for the thoughtful reply. I think that Lacy's argument is that extended debt results in reduced savings for investment in the real economy which then leads to deflation as a result of stymied real growth. He claims the reason for this is that the funding the exorbitant debt levels requires that too much of the available savings in the economy in total ends up having to go into to buying government bonds and is not then available for investment in the private sector. Based on this reading of his position I don't understand how he can turn around and say that the massive bank reserves that resulted from monetary policy won't get lent out. I'm okay with his argument (and yours) that perhaps they won't, what I object to is his claiming on the one hand there are massive reserves available in the first place and on the other hand that their won't be money available to lend out because the economy's collective savings got sucked into purchases of government debt.
  • dw
    douglas w.
    5 January 2021 @ 22:34
    Kiril has been speaking about this since his first interview with RV, and Lacy is quantifying it a bit more defining the mechanics of the fed in this discussion. Thanks again gentleman. Pushing on a string. https://www.investopedia.com/terms/p/push_on_a_string.asp
  • JE
    John E.
    4 January 2021 @ 03:42
    .I would add a qualifier......" Once" great societies take on more and more debt.......... Great societies do not take on more and more debt. Lost societies take on more and more debt.
  • TM
    Tommy M.
    4 January 2021 @ 01:04
    Can we get the chapters, please?
  • MA
    Matthew A.
    1 January 2021 @ 22:11
    Hi there, I watch this video as a millennial investor in his early 20's. My key take away is that monetary policy will be ineffective due to US debt situation and "Unless there's some transformative technology, something equivalent to the combustion engine" then a combination of lackluster GDP growth, lending, and an air of austerity will affect the market negatively. My question to the smart people in the community is... Do you think there is anything concretely equivalent to "the combustion engine" in the financial pipelines right now that will change the world in a 2-5 year time line? Is it naive of me to put trust and money in these SPACs and ARK investment ETFs that target hopeful millennial like myself? How can I hedge hope with the reality that is being thrown in my face watching this video?
    • AR
      Anthony R.
      2 January 2021 @ 18:03
      Matthew - Good to hear you taking yourself to school. Your generation is fortunate to have resources like RV to self-educate with. I could have used it in the 90s. Regarding your question, I'd ask you, and the gentlemen in the interview the following: - Lets assume there IS such an invention. (I'd say its blockchain)... - It will lead to a boom of economic activity for some (the winners), but would likely be deflationary for the masses (a la amazon vs. retail mainstreet). - Given that the world can already produce more than can be consumed (either as a function of demand or ability to afford such demand) in any given category of product, and given that we have growing debt in the face of ever decreasing population after 2050 with whose productivity to pay it down, what, beyond the usual relocation of wealth from losers to winners will such a 'leap' achieve for the general populations of an economy? Answer THAT, and you know where to invest from here. Good Luck.
    • MA
      Matthew A.
      3 January 2021 @ 17:43
      Hi Anthony - Thanks for taking the time to write a thoughtful reply. I definitely see how amazon vs retail main street is a model example of deflation's long term bad effects. Its difficult to figure what will simply contribute to normal reallocation vs what will create overall economic/productivity games. However I suppose that is the name of the game. So thank you for your insight. I will definitely add this to my framework of thinking going forward.
  • KZ
    Konrad Z.
    30 December 2020 @ 20:02
    With regard to the part at 42:24. Yes, but that will take some time, in the beginning the money velocity will take off as new loans are issued, right? And than there can be inflation
    • mf
      massimo f.
      30 December 2020 @ 21:04
      New loans have been accelerating for decades while velocity of money has been declining since 2000. I believe it is not that simple.
    • KZ
      Konrad Z.
      31 December 2020 @ 15:51
      So Russell Napier is wrong in his prediction that inflation will take off when government comes up with the idea of guaranting bank credit? (His interview with Brent Johnson on RV)
    • TH
      Tim H.
      1 January 2021 @ 04:11
      Konrad, I think you are on the right point. Hunt says no inflation because the money will end up in bank reserves that the banks won't lend. Napier says "oh yes they will lend it, just as soon as the government tells them they must and not to worry the loans will be back by the government". Hunt's argument about such lending reserves being the fuel for the inflation fire but only if lit, then has it fire.
    • mf
      massimo f.
      2 January 2021 @ 19:30
      Yes I would say so, not everyone on real vision is correct. Guaranteeing debt might actually make things worse as banks would lend money with their eyes closed. This means further decreases in loan productivity and velocity of money as is discussed in this video. I cant see how loan guarantees would cause inflation.
    • KZ
      Konrad Z.
      3 January 2021 @ 12:16
      Explain that further please. Wouldnt loan guarantees cause inflation at least in the short or mid term as those funds would be spent by borrowers in the real economy?
  • RT
    Ryan T.
    3 January 2021 @ 07:41
    Excellent interview! So much to learn from both gentlemen. But I was amused when both laughed about Bank of England having half-crossed the rubicon. I mena, honestly... Isn't the US also in unchartered waters now?
  • JT
    Jayne T.
    31 December 2020 @ 23:34
    Just some thoughts: 1) Lower rates have had a HUGE affect on the residential real estate markets creating major inflation in many markets 2) Chapman index shows the REAL calculation of inflation--which is very high, 3) Commodity markets are telling us that inflation is at hand. 4) To save the banks, the Fed WANTS inflation in order to steepen the yield curve. 5) The only way out of massive deficits is to inflate. So, inflation may just be a pig in the deflationary python, but it is here--for now.
    • AM
      Abigail M.
      1 January 2021 @ 14:09
      Just exclude food, energy, housing, healthcare and education (who actually uses those anyway?) and you to will see there is no inflation. /s
    • mf
      massimo f.
      2 January 2021 @ 19:55
      I think a lot of these inflation indicators are only skin deep; Rates on the 10 year are up because of commodities and housing; real housing prices are up because of this zero rates = unlimited prices nonsense as well as the current moratorium on foreclosures and evictions; commodities are up because, well we are in a pandemic - supply disruptions are rife everywhere you look, mines, forestry, agriculture, the WCI (measure of prices of shipping by container ship) has doubled, it all has lead to shortages in goods causing increased prices. But, these price increases are temporary as with the vaccine comes the de-bottlenecking of the supply chain and a resumption of foreclosures which seems likely to tank the housing market.
  • AR
    Anthony R.
    2 January 2021 @ 17:51
    Austerity IS the answer. But the average first world person can't survive 3 minutes without their technology triggered dopamine hit - so any policy that requires any modicum of sacrifice is a non-starter. So just focus on your personal game plan and wait for the inevitable collapse. Happy New Year! lol.
  • ss
    steven s.
    2 January 2021 @ 13:37
    We need a Lacy Hunt update!!! Please interview him again to start the year.
  • JB
    Jason B.
    1 January 2021 @ 14:56
    There is an incomplete thought that should be explored further. It has to do with shrinking the capital account and thereby decreasing our importation of net foreign savings. The worry is that interest rates increase as a result of lower foreign savings. Certainly this worry is outdated as our roi on sending our domestic production oversees by way of strong dollar policy as a symptom of the debt super cycle as the world reserve currency has shown to be a dead end. Malaise covered by intelligence is all too common.
    • JB
      Jason B.
      1 January 2021 @ 14:58
      Other than that it is obviously a very strong interview.
  • KZ
    Konrad Z.
    31 December 2020 @ 18:31
    I have never come accross the fact that Japan had been overleveraged already since 1890. Can anyone tell me more about this? I have always had interest in this period of history, it’s even more interesting considering that those were the early days of capitalism in Japan, and already so much leverage....
  • GM
    Giles M.
    31 December 2020 @ 01:45
    Agree with Kim S. below, it would be great to have Lacy Hunt back soon to hear what, if any, of his view have changed. It's always good to hear a contrary opinion to the reflationary consensus. BTW, if you don't read it already, Hoisington Investment Management's (free) quarterly newsletter is a must read.
  • GM
    Giles M.
    31 December 2020 @ 01:45
    Agree with Kim S. below, it would be great to have Lacy Hunt back soon to hear what, if any, of his view have changed. It's always good to hear a contrary opinion to the reflationary consensus. BTW, if you don't read it already, Hoisington Investment Management's (free) quarterly newsletter is a must read.
  • mp
    mitchell p.
    30 December 2020 @ 23:35
    can't believe this only has 47 likes
  • AP
    Alex P.
    30 December 2020 @ 22:35
    Absolute Gentle-gems! As a millennial, they are old enough to be my grandfathers. I wish they were!
  • NI
    Nate I.
    30 December 2020 @ 20:32
    Great interviewer. Great guest. Thanks to both of you. One thing I can't understand about QE. I understand the part about reserves and the part about banks not wanting to lend, but why doesn't all of the government spending ($1T on the military alone) cause consumer prices to go up - which in the modern sense of the word would be called inflation?
  • KS
    Kim S.
    30 December 2020 @ 20:07
    Just rewatched this great talk, I wonder what Dr Hunt would say today? Any plans to bring him back for an update?
  • GS
    Greg S.
    30 December 2020 @ 10:42
    Great conversation, a lot to think about. Let's hope & pray that Cathie Woods is correct about transformative, disruptive technologies that will provide the growth needed to overcome our debt induced low to no growth economic situation.
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:41
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:40
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:40
    Outstanding - we are so screwed!
  • JS
    John S.
    30 December 2020 @ 10:40
    Outstanding - we are so screwed!