Missing Links at the Federal Reserve

Featuring Martin Barnes

Martin Barnes has been making economic forecasts since the late 1970s and with the sharpest perspective on policy from BCA Research, he connects the dots that the Federal Reserve has been missing. Completing the journey through the debt super cycle, Martin assesses the greatest risks to stability in global markets, with a warning on the Trump 2019 recession. Filmed on May 24, 2017, in Orlando.

Published on
4 July, 2017
Topic
US Economy, US Dollar, Monetary policy
Duration
61 minutes
Asset class
Equities, Currencies, Bonds/Rates/Credit
Rating
131

Comments

  • MB

    Martin B.

    1 8 2017 18:34

    3       0

    Thanks to all of you who posted comments on my interview - even the many critical ones! It seems my comment about "not understanding gold" went over badly. It was a rather tongue-in-cheek remark. Obviously, I understand very well its role as a store of value during times of economic and/or political distress. And its main drawback as an investment - the lack of yield - matters less at a time of low interest rates. Nevertheless, in the absence of a major rise in inflation or some catastrophic event, it is hard to make the case for a major asset allocation to bullion IMHO. I don't rule out a major rise in inflation after the next recession, but I see no need to front run that. When I mentioned a lack of imbalances in the economy I was referring to ones that threatened to cause a near-term recession. Debt levels are high, but at current interest rates do not pose an imminent threat to the economy. I can easily give a fire-and-brimstone view of the world, predicting rampant inflation, breakdown of the international monetary order etc. It's fun to do but will not be useful in getting the markets right in the next year or so.

  • GH

    Gary H.

    12 7 2017 14:50

    0       0

    Comments are always interesting. It appears most subscribers can fit more into the pessimistic camp than Mr. Barnes muddle through forever scenario. But, if we hold Japan out as the example the end scenario takes a long long time to play out.

  • BA

    Blair A.

    11 7 2017 03:36

    2       0

    Nothing new here. Move along. Boring.

    • PM

      Polina M.

      25 7 2017 09:29

      0       0

      Yep, and the whole Debt Super Cycle ending after 2008 is BS, US consumer debt has never been higher, the reason Millennials aren't buying houses is not because they hate or fear debt, it's because they cant afford the down-payment, and are instead living for free in thier parents homes.

  • PS

    PD S.

    9 7 2017 03:03

    0       0

    great interview grant :)

  • MM

    Michael M.

    7 7 2017 18:28

    0       0

    GREAT point about demand for bonds

  • DB

    Douglas B.

    7 7 2017 14:33

    0       0

    SETH L, what specifically made you change the way you think about markets and money?

  • TC

    Tim C.

    7 7 2017 09:17

    1       0

    A quick reference to a chart of global debt levels reaching all time highs may counter the comment made of "seeing no signs of excesses having built up"...

  • ML

    Malcolm L.

    7 7 2017 03:03

    1       0

    This was not an interview, it was a monologue, and despite not being a true economics expert I don't really think I learned much!

  • CD

    Chris D.

    6 7 2017 13:30

    6       0

    Ah. My head is finally at ease. Nothing to worry about here folks. Everything will work out just fine. Debt doesn't matter. And the "debt super cycle" did apparently end in 2008/2009 (despite the fact that credit is still expanding exponentially, way above the income growth and productivity gains). Nice. Where can I buy some off that hOPIUM?

  • SL

    Seth L.

    6 7 2017 13:28

    5       0

    Very disappointing interview in that it reveals entirely conventional thinking. I don't mean to be too harsh, but this could have been on CNBC or in a bulge bracket research note, with the exception of Grant's thoughtful questions. The saddest part, and Mr. Barnes is not alone in this, is how little a Scottish economist knows about the most successful banking system in history: the Scottish free-banking system of 1716 to 1845 (see Larry White's research here for quick hits https://www.alt-m.org/2015/04/28/what-you-should-know-about-free-banking-history/, and here for a longer version http://people.terry.uga.edu/selgin/ECON8620/documents/ExperienceofFreeBanking-Ch.9.pdf)

    • GR

      Guido R.

      7 7 2017 10:21

      2       0

      Thank you for the links

    • SL

      Seth L.

      7 7 2017 14:10

      1       0

      The works of Larry White and George Selgin have changed the way in which I view markets and money. I highly recommend checking out some of Selgin's talks on YouTube, and in particular his one from OCON.

  • TH

    Timo H.

    6 7 2017 13:26

    5       0

    "I don't understand gold" = "I don't understand the history of money."

    • DS

      David S.

      6 7 2017 19:07

      3       0

      Mr. Barnes said gold has been a good investment at times, which is true. He said he wished he had bought gold in 2003. He believes that gold is an emotional investment and a portfolio could have 5% allocation. Just for context. DLS

  • AC

    Andrew C.

    6 7 2017 13:16

    0       0

    http://ritholtz.com/2017/07/central-bank-balance-sheets-past-present-future/?utm_source=dlvr.it

  • GR

    Guido R.

    6 7 2017 10:57

    1       0

    As to governments unable to become bankrupt.... the diminishing marginal utility of debt along with an increase in the exchange value of the US$ buttressed by pension under-funding in the EU and the USA, may spring a surprise on most everyone.

  • LS

    Leigh S.

    6 7 2017 01:13

    2       1

    Same he did not allow Grant to have a discussion, was to keen on making a speach. Clearly Grant had a few things to take issue with, but no go.

  • NH

    Neil H.

    6 7 2017 00:19

    5       0

    Martin is one of the best macro thinkers of our time. For those who discount what he says go back and read the reports when he wrote the bank credit analyst. I think you will change your opinion quickly.

    • RM

      Rainer M.

      9 7 2017 16:07

      0       0

      as a true macro thinker how can he not have a view on gold and just casually remark its an emotional asset ? When he said that he sounded like a government paid Central Bank employee in my view

  • PD

    Peter D.

    5 7 2017 23:24

    2       0

    Fantastic piece Grant. Barnes, who is an accomplished professional, could give those comments anywhere and come off as a droll, wise, world-weary man of wisdom. However in this venue those comments came off as hollow. It really looks like they are losing control of the narrative.

  • M

    Mark .

    5 7 2017 22:07

    0       0

    So the economy will grow based on procreating and “ importing” productive, people, having libertarian laws that promote productivity (inventions, entrepreneurs, individual initiative) and there is NOTHING a central bank can do about that beyond backing up the financial system in a ***punitive*** way (“penalty rates” on real bills). . Congress ***honestly*** GUESSING about infrastructure “investment.” What’s left? Look around. The whole Western economy is a joke. Mises.org is right about everything.

    • M

      Mark .

      5 7 2017 22:14

      0       0

      I got my sentences mixed up, but you get the idea. LOL Brutal discussion.

    • M

      Mark .

      5 7 2017 22:18

      0       0

      Yellen needs to fix this https://www.the-american-interest.com/2017/06/29/minimum-wage-campaign-highlights-blue-model-contradictions/ * https://www.wsj.com/articles/ill-funded-police-pensions-put-cities-in-a-bind-1499180342 Too late now.

  • AB

    Arijit B.

    5 7 2017 19:40

    1       0

    He was right to criticize Michael Woodford and the 'forward guidance' that influenced, and all the rage with Mark Carney a few years back.

  • DT

    Douglas T.

    5 7 2017 18:09

    5       0

    One thing he said was "Governments can print money", which is only true of paper money. A government cannot 'print' bank money. They 'print' treasury bonds, and the banks purchase them in exchange for a demand deposit that the government probably spends the same day. Govenments must have somebody buy their debt in order to create new circulating bank money.
    Also, remeber the Fed returns interst payments on treasuries to the government. In QE-1 when the Fed bought all those 6% 30 year bonds, they essentially converted them to zero coupons. So the debt service paid by the government has been deeply reduced by all the episodes of QE.

    • TS

      Thomas S.

      5 7 2017 22:53

      1       0

      An important point that gets overlooked. All QE is not created equal.

  • GM

    Greg M.

    5 7 2017 17:03

    9       0

    I know my great grandfather is spinning in his grave at the utterance of a Scotsman saying - "I don't understand gold"

    • DS

      David S.

      6 7 2017 19:27

      0       0

      Gold is still subject to supply and demand. When Spain shipped huge amounts of gold home it caused massive inflation. I believe that gold will have its day, but I do not think major countries will go back on a gold standard. DLS

    • DS

      David S.

      6 7 2017 19:31

      1       0

      I wonder what the effects would be if a small country went on a gold standard to control its politicians from printing so much fiat currency? That could happen. DLS

    • RM

      Rainer M.

      9 7 2017 16:10

      0       0

      Think BTC and Cyrptocurrencies

  • RM

    Russell M.

    5 7 2017 15:01

    11       0

    This guy has very good perspective on the history and failure of central bank (and everyone else's) historical lack of accuracy at prognostication couple with an understanding of the complexity and inherent unpredictability of the system and limits of economic prediction. He recognizes the the folly of central bank controlling policy based on prognostication and explains over all central bank behavior which is to do whatever it takes to maintain the status quo regardless of the long term consequences such as clearing out the dead wood in the economy and permitting healthier growth. He explains a very real possible scenario where the economy continues to plod along at a low growth rate and low interest rates regardless of what the Fed tries to do while acknowledging that a 50% market correction is also possible. He seems to have a good grasp of the reality of the situation we are in (including acknowledging that political actions could well trump economic analysis) and is entertaining and effective in conveying it. Hearing him reinforces the need to follow the old principle that diversification is essential for maximum protection.

    • TS

      Thomas S.

      5 7 2017 16:34

      7       2

      Gave you a thumbs up because you summarized the interview well. But with respect to Mr. Barnes, at some point those who try to make an honest living as participants in the financial markets need to stop paying deference and fealty to what is essentially a cartel. The comment about not understanding gold is difficult to believe. Surely someone of his experience actually does understand gold, and also understands the cartel's unspoken war against it.

    • DS

      David S.

      6 7 2017 03:17

      0       0

      Mr. Barnes certainly has the right to his opinion. He was telling it as he sees it. He said it is OK to invest in gold maybe up to 5%?? I think gold would be higher now if it had not spiked to almost $2,000 and then back again. Many people lost their faith in gold at that time. They will return as gold starts to climb above $2,000 again. DLS

    • GH

      Gloria H.

      8 7 2017 21:35

      0       0

      Thanks, Russell. You just saved me an hour.

  • VS

    Victor S.

    5 7 2017 13:06

    15       4

    Sadly this mans thinking is worthless as he is like 100 other economists who tell us what took place ,but sees nothing of the future. Also any man who does not "understand gold" after 40 years in the business is really an academic not a professional. Lastly when interest rates are at 5000 year lows and US "STATED"debt growing AT 8.6% IN A RECOVERY and deficits growing at $1.2trillion a year using "cash accounting instead of GAAP is not someone to take any advice from! However he was a likeable man.

    • IF

      Ian F.

      6 7 2017 17:05

      6       0

      Read David Graber's 5000 years of debt. Gold was used as currency only very inconsistently over the last couple thousand years (or even less). There is no precedent for it needing to be currency in the future. Do your HW before you throw stones.

  • KJ

    Kulbir J.

    5 7 2017 11:56

    9       0

    Why are we seeing so many videos on Real Vision, which were filmed on May 24th and we get to see them 6-8 weeks later? In financial markets that is a very long time

    • PW

      Phil W.

      6 7 2017 00:22

      2       0

      I posed this question last year or so ago. I do believe that we/you should/could turn the videos over a little quicker! All of course IMHO

    • VV

      Vanessa V.

      6 7 2017 03:56

      6       0

      I would agree with you if the content included actionable trading ideas. However IMO, with some discussions such as this one, the timing of delivery isn't a major issue. I think RV is doing a great job at delivering trade ideas as quickly as possible. Educational content carries less urgency IMHO.

    • EF

      E F.

      8 7 2017 21:07

      0       0

      just deliver as soon as it is ready to upload and let people decide when to watch, doesn't have to be one video a day

  • TH

    Timo H.

    5 7 2017 04:41

    7       0

    I'm shorting this guy. That's why I need to understand his thinking extremely well.

  • JV

    Jason V.

    5 7 2017 01:58

    3       0

    Very interesting and rich in information content. As to how you personally process that information is unique to you, the listener. Always useful to hear an educated opinion built over decades of experience. Another excellently conducted interview by Grant.

  • TH

    Tim H.

    5 7 2017 00:35

    6       6

    - Log into Real Vision for first time in a while
    - Notice video has half as many down votes as up votes
    - Assume it must be because guy is not predicting end of world
    - Real comments

    Yep, the ZeroHedge of video is alive and well.

    • TH

      Tim H.

      5 7 2017 00:35

      0       0

      * Read comments

    • js

      j s.

      5 7 2017 14:41

      0       0

      That seems kind of mean.

    • CY

      C Y.

      5 7 2017 18:23

      0       0

      but very accurate

    • IF

      Ian F.

      6 7 2017 16:59

      2       0

      The down votes are because he said he "doesn't get" gold. RV is built by gold bugs, for gold bugs. I'd rather watch water boil, than watch another hour long interview about bitcoin or gold.

    • EF

      E F.

      8 7 2017 21:09

      1       0

      raoul is pretty far from a goldbug, more of an entrepreneurship advocate and scooping up bargain businesses in funny countries bug

  • PR

    Phillip R.

    5 7 2017 00:17

    2       1

    Great balance against a lot of the 'edge of a precipice' kind of stuff, which while more exciting, you can expend a lot of premium chasing.

  • JS

    John S.

    4 7 2017 23:15

    1       0

    Would have never guessed he's an economist!

  • BM

    Bryan M.

    4 7 2017 22:19

    0       0

    I too am over 70, whatever relevance that has, & I agree with Gerald. But then...maybe when all the current Fed members retire and/or get fired they will create the magic/nirvana the current Fed could not.

    • DS

      David S.

      4 7 2017 22:50

      0       0

      Over 70 just gives people a point of reference. DLS

  • DS

    David S.

    4 7 2017 21:38

    1       0

    I wonder if the Japanese demographics are really as bad as most people think. Once robots are fully employed, Japan may still have unemployment. Time will tell. DLS

  • DS

    David S.

    4 7 2017 21:36

    4       0

    Unlike most of you, I am over 70 and really enjoyed this interview. In five years, I will bet that overall he is correct. The Fed is trying but does not know. The Bear Market will happen. Inflation will not be excessive. Nominal GDP will be lucky to get to 4%. Trump will work on making his base happy. There is a lot of good information here, just not given with FB drama. DLS

  • GG

    Gerald G.

    4 7 2017 20:51

    13       0

    Wow! With all the intelligent and sober comments they actually managed to completely dance around the most fundamental question of where continued Fed induced market distortions were headed. On one hand Mr. Barnes asserts that there is an inevitable and natural market downturn/correction coming and then conveniently ignores the evidence that the Fed won't allow that to happen (and certainly what the markets believe). More importantly, if he's not in the Armagedon camp, where exactly does he think the continued "engineering" of market outcomes is headed?

    • BM

      Bryan M.

      4 7 2017 22:10

      0       0

      Well said.

  • CH

    Colin H.

    4 7 2017 20:41

    7       1

    He's mastered the art of talking louder when someone else is trying to speak

  • SC

    Shane C.

    4 7 2017 20:34

    0       0

    Everyone should go look at the feds balance sheet before during January. Then find the February balance sheet. You should check the reserves being held for the treasury. This is what caused the liquidity tsunami that hit the Financial market and currently seems to be hitting the real economy (weird ISM numbers) Trade takes longer to develop velocity. However, It can be a boost to P/E ratings will engage in financial securitization instead of CapEx first. I've got more theories as to why it happened.

  • AH

    Andreas H.

    4 7 2017 20:28

    1       0

    very layed back gent.,very clear and KIIS Thinking, refreshing...

    • AH

      Andreas H.

      4 7 2017 20:33

      4       0

      LOL "we have not built up imballances"...

    • AH

      Andreas H.

      4 7 2017 20:40

      2       0

      LOL2 "I see no massive policy failure by the fed". wow, I am an optimist, but I will have an eye on "the ball"....

  • BG

    Bruno G.

    4 7 2017 19:11

    2       7

    I enjoyed listening to grandpa, he doesn't seem to worried about much of anything. I guess their is some value in that? I just get the feeling when he gets his crushing chest pain, he will just think it's gas and take a nap

    • DS

      David S.

      4 7 2017 21:26

      8       1

      Since I am older than Grandpa, I feel he has perspective and not overreacting with every headline. DLS

  • CL

    Chris L.

    4 7 2017 18:44

    1       0

    Poor Grant can't get a word in.

    • DS

      David S.

      4 7 2017 21:26

      3       1

      Grant can hold his own. Mr. Barnes is being interviewed. DLS

  • KT

    K T.

    4 7 2017 16:16

    3       1

    In this time of uncertainty its important to keep a wider perspective to prevent or confirm any bias. Nice interview, felt like I was listening to my father.

  • HJ

    Harry J.

    4 7 2017 16:08

    0       2

    Excuse me, what did he say?

  • GF

    George F.

    4 7 2017 15:53

    2       2

    He commented on a study of real estate in the late 90s based on existing demographic trends. The underlying date changed due to mass immigration. So the analysis was probably fine. So a good example why economic projections fail. The reason for the failure is the government and the real estate industry took the projections seriously and got busy and changed immigration policy. How did that work out? About 30 years of real estate growth in certain areas. What will happen for the next 30 years? Who knows? I think in Germany they are starting to wonder, but it is not clear they can do anything at this point. The Grenfell fire disaster is in part a story about the inability of a wealthy nation to manage immigration.

    • M

      Mark .

      6 7 2017 07:23

      0       0

      I highly question immigration as a way to boost growth with such non- libertarian economies like the West has. Stuffing a bunch of people into a system that isn’t set up for a disbursed prosperity and individual agency is nuts.

    • MM

      Michael M.

      7 7 2017 18:08

      0       0

      The idea we can solve our problems by importing a new population is the most insane thing we believe right now (in a strong field of insane things)

  • HC

    HJ C.

    4 7 2017 15:35

    4       1

    likable guy, clearly the establishment doesn't see any surprises on the horizon.

  • SS

    Sam S.

    4 7 2017 15:13

    14       1

    Complacent narrative, sit back, relax, it's all good, don't worry, it could happen and so forth. But then spoke of how wacko the Fed has become, so getting both sides of a stretched coin. I'd rather keep my eyes on the ball, be open and prepared to act one way or the other. Likable gentleman for sure. Grant always caries a positive tone which I find special and refreshing.

    • DS

      David S.

      4 7 2017 21:30

      1       1

      What ball are you going to be watching? Mr. Barnes is expecting a standard Bear Market. Is that complacent? It is just not hyped with FB drama. DLS

  • JM

    James M.

    4 7 2017 14:02

    2       1

    A likeable gentleman, and the final chapter was useful for me. I think it could have been edited down a fair bit.

    • EF

      E F.

      4 7 2017 16:08

      9       0

      I see where you're coming from but wouldn't favour any sort of editing in these interviews and rather take the guests as they are

    • GP

      Glenn P.

      4 7 2017 17:03

      4       0

      When a speaker drags a bit. click on the icon in the lower left to speed things along a bit.

  • MD

    M D.

    4 7 2017 12:59

    2       0

    G could have asked more pointed questions., perhaps. Decent video.

    • JM

      James M.

      4 7 2017 13:56

      6       0

      Seems he is not an easily interrupted!

  • LN

    Lucy N.

    4 7 2017 12:11

    3       2

    Endless rambling

  • LN

    Lucy N.

    4 7 2017 12:08

    4       0

    Is he a CNBC contributor

    • TS

      Thomas S.

      5 7 2017 15:54

      0       0

      Should be.