Former Fed Official Warns Money Printing Will Likely Kick Into High Gear Soon | Thomas Hoenig

Summary

• Fed Policy Outlook: Guest sees better-than-50% odds of a 25 bps cut despite CPI near 3% and argues the Fed should not cut, noting QT has effectively paused and QE could return.
• Fiscal Dominance Risk: Persistent $2T+ deficits and massive refinancing needs could force the Fed to prioritize Treasury market liquidity, effectively pegging long rates below equilibrium via balance sheet expansion.
• US Treasuries: Extensive discussion on who will buy large new issuance, the likelihood of upward yield pressure absent QE, and the potential for policy-driven volatility in the Treasury market.
• Rising Rates: Supply-demand imbalances from heavy issuance versus limited foreign/private demand imply structural upward pressure on yields unless the Fed intervenes with QE.
• AI: AI is highlighted as a potential productivity boom that could help address deficits if realized, but it also competes with Treasury issuance for investable capital.
• Inflation and Labor: With unemployment around 4.1-4.3% and CPI ~3%, the guest prioritizes fully defeating inflation, pushing back against normalizing a 3% target and cautioning on shelter’s lag effects.
• Policy Reform Ideas: Proposes statutory limits on reserve growth, temporary-only crisis exceptions, and regulatory simplification to boost productivity and reduce wealth inequality.
• Market Implications: Expect greater rate volatility if markets set rates with tighter reserve creation; risk that asset inflation benefits Wall Street while the broader population struggles.

Transcript

Are we going to go back to QE uh open market? That's a legitimate question and the odds are that we we will. And if that happens, then we are coming very close to fiscal dominance to where the Fed is under enormous pressure. And the way I describe it is it's it becomes a new mandate. So, we have price stability mandate, we have maximum employment mandate, we have uh low long-term interest rates mandate, and now we have make sure the Treasury market is liquid and functioning fully. And if that's your new mandate as the Fed, you're going to print money to buy on the margin that part of the fiscal deficit that the foreign and private sector doesn't take up so that you peg interest rates below what they otherwise would be. And that is a real risk that the Fed and that the country is going to have to face, I think, in the not too distant future. Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Will the Federal Reserve cut interest rates when it meets again in mid December? Wall Street's been whips-sawing the odds back and forth over the past few weeks. To address that question, plus the even larger one of who's likely to replace Fed Chair Jerome Pal when his tenure ends in the spring. We're fortunate to welcome back to the program Dr. Thomas Hanig, former CEO of the Kansas City Fed, former voting member of the Federal Open Market Committee, a former director of the FDIC, and now a distinguished senior fellow at the Mercada Center. Tom, thanks so much for joining us. >> Thanks for having me. It's always good to talk to you, Adam. >> Thank you, Tom. It's a pleasure and a privilege to have you back on the program. Um, all right. Well, look, like I said there in the intro, there's actually a lot to talk about here, so why don't we just dive right into it? >> Sure. Do you think the Fed is going to cut this month? Um if so, by how much? And uh whatever you think their decision is going to be, do you think that's the right call? >> Well, I to answer your question, I would first say I suspect I give it better than 5050 odds that they will cut. Um there's a lot of pressure on him to cut uh among some of the leading members of the committee. uh specifically um Governor Waller um and Governor >> Myron >> as well as Governor >> Bowman. So you have three votes that almost dead certain to cut. The discussions that went on last week or the shall I say some of the speeches that say John Williams of the New York Fed who was a voting member gave were very doubbish in a relative sense. And so he would be a possible fourth. Um after that it gets a little more difficult. Pal is of course holding his cards very close to his chest since he doesn't want to be on the losing side of the vote. I think he's I think he's probably counting votes. Um but given the given the signal that Williams gave and he and Williams and the chairman are usually pretty close in their votes in alignment that gives me a hint that the chairman would prefer to cut. Um so that leaves the other members and um I think if you if you read the some of the dialogue going on or the writings going on right now, the members like Austin Goulby seems to oppose a cut. Um the St. Louis Fed um uh seems to be wanting to hold off on any cuts. Um the the others on the committee are a known Jefferson who's the vice chair I think would stick with the chairman. Uh and so you you when you get all done with it you could have a vote of 75. Uh now that's unusual. That would be a very unusual vote. And when you if it becomes clear to the if it is seven to five, it becomes clear to the five, you may have one or two join it. So it's not so close. So that's the intrigue of the FOMC this week. Um and I'm betting on uh it going towards a cut. There going to be a lot of pressure coming from Treasury, a lot of pressure coming from the White House for a cut. Um you'd like to think you could ignore that, but people are human and I think it'll be very difficult. So that's why I'm kind of of the view that it'll go towards a cut. Now, what do I think? Um I'm pretty much of the mind that um they should not cut. Um and I base that on a couple things. Number one, the economy is doing reasonably well right now. Um the even though the uh continuing and and the Fed is focused on the labor market. So the continuing claims numbers which are showing uh constant increases are a worry to the those who want to have the cut even though initial claims are staying rather steady. That means people are having to look for jobs longer. So that'll worry many of the members. Uh but I put that against the fact that still the unemployment rate is relatively low. Uh still in the you know 4.1 4.2 two range and and that's you know very favorable number. Uh that's number one. Number two, the inflation numbers are still 3%. Uh that's well above the target of 2% and well above price stability which would be closer to zero. So you have a you still have a lot of inflation in the system and it's not coming out. It's been that way for a year. Seems to be holding at that level. uh and I think that is something that leads to trouble if they don't address that now and the reason for that is the other factor in this picture that is not talked about by members of the open market committee but are important numbers and that is the growing uh national debt and the growing deficit or the large deficit that that is being incurred incurred uh at the rate of$2 trillion dollars a year that puts ex that puts uh extra supply into the into the securities market and therefore uh given the limited demand that puts upward pressure on interest rates and and uh makes the Treasury really want the Fed to cut to help buy some of that debt. So there's a lot of things in play uh that on balance lead me to think they will cut when in fact they probably should not. >> Okay. All right. Um, and when you say you you think the Fed might cut, you're you're talking about a 50, sorry, a 25 basis point that nothing, right? >> I I would be surprised. I would be shocked was bigger than 25 basis points. >> Okay. And how how much of a factor at this FOMC meeting or this Fed meeting um is the fact that they had the government shutdown and so a lot of the the government reporting agencies weren't reporting data for the past, you know, month and a half. Is is is that is that a really big deal here? Is the Fed kind of flying blind or do they have so many other different data points available to them? It's not that bad. Well, I I don't think it's enough to uh cause them to make um an irrational choice uh going forward. I think the choice the information they have is adequate for them to make a choice. There's a lot of politics in this choice though that I think is perhaps even more dominant at the moment. Now, I I say that um but the other thing is I think I'm I'm of the mind that uh this month-to-month data and the girrations that go they go through every time there's a new data point which is always preliminary. It's always revised. >> So, I don't think they're handicapped that badly given the volatility of the data. There's been a great deal of discussion about the um basically the uh lack of good survey data because people are not responding to the surveys as they used to. So there's there's a lot of uncertainty around that data regardless. And so I think if they were wise, they'd say, "Well, we're going to take longer term views." And we do know that at the moment the economy is relatively stable. We do know that the unemployment numbers are uh relatively favorable. We know there are risks there, but we also know that inflation is u above target. And if you look at the data coming out just on the Christmas initial Christmas numbers, you know that the e that the demand is still pretty strong and therefore the economy is probably riding uh at a at a pretty stable or strong level. And that is why I'm more convinced that you really don't need to cut rates at this time. You need to focus on allowing the inflation numbers to come down. >> Okay. Um, so I've got a bunch of questions that I've planned, but but you're you're pulling me off them into a couple different directions here. So, >> sorry. >> No, no, no. It's all good. It's all good. Um, but but let's go through this progression now. So, uh, first off, because you have sat at the table and you have looked at the data that the Fed looks at, um, there have been a lot of criticisms of the government generated data. Um, and this is before the government shutdown. So, um, you I'm sure you've heard the skepticism of the validity of the BLS data, um, especially around jobs. Um a and this was a conversation that was beginning to be had before the government shutdown. But during the government shutdown, people had to rely much more on these alternative and in many cases much more comprehensive and much more real-time data sources. And it raises the question of well why are we still relying on these these government generated sort of imperfect highly imputed uh uh forecasts uh or not forecasts but but but um statistics um when we have the ability to go direct to the source in real time it's now 2025 I mean we've got the internet we've got the blockchain I mean we can get real specific so rather than >> rely rely on the BLS payroll data. Why don't we just look at like the ADP data which just is is the actual paychecks or the the the Treasury tax receipts. Um there are alternative sources out there. Um we now have a different source for inflation with trueflation and I'm not saying that that's the the beall and endall, but it is another highly comprehensive way to collect this. So, where I'm going with this is I is there the opportunity here to re-evaluate the data that the Fed and the world looks at uh to to to measure the economy and perhaps migrate from maybe a system that worked okay in the past but isn't really ready for or isn't um you know what we need in the modern era and come up with some some better more modern ways of measurement. Well, I think that's a very legitimate point. I think that first of all, I would still want the BLS or and the Bureau of Economic Analysis to to be in this business. Um, they're they're relatively speaking, they're a trusted source. Private sector also has its errors and its mistakes and its its biases. So I would I would like to see I want to make sure we stay with an impart hopefully an impartial uh source for this data but I do think that the source needs to be um modernized needs to recognize that the technology is here that would give us better more shall we say uh deeper is a better word data uh more reliable data with the technology and I think that should be a primary very objective of the government source as well as a private source. And I do like the idea. Frankly, I've always liked comparing EDP against the Bureau of Labor. You get you get different kind of inputs and outputs to compare and to think about because no matter what it is, it's a survey. It's a it's an estimate and estimates uh are affected by all kinds of factors. So having multiple sources uh that you can sort through is I think a long-term advantage for policym and then finally you have to when the policy maker has this data they have to make uh objective uh choices and have to be careful about what influences those choices. So that's the process and I think we do need to upgrade it, modernize it and I think provide the public with better outcomes. >> And what is keeping us from from doing that? Is it just the inertia of a big government bureaucracy? Um are there parties that that are happy to have data that's a little bit squishy? Um what's your thoughts? >> I well I think frankly inertia is a very powerful force. Um, and I think inertia is part of it. We've always done it this way. It's hard to change. Um, and maybe with the shutdown and maybe with the fact that the survey data is becoming obviously more unreliable to the public, that will force some change and force some improvements. I I I genuinely hope so. And I I'm confident it can be done. I I've just seen the technology. It's so it's so impressive uh how quickly the technology is is is moving forward that the the these sources have to keep up with it. They have to use it and begin to I think benefit from it. So we should do that. >> Okay. Um on on a sort of related note, you you talked about how inflation as measured by CPI is is still at 3%. Um, so you know, somebody might say, "Well, that's only 1% above the 2% uh target of the Fed." And of course, a mathematician would say, "Well, that's 50% above." >> I would certainly do that. >> Yeah, exactly. Um, now I've heard the argument from people uh that well, yeah, it's at 3% right now, but if you look at the more real time data sources we have, they suggest that housing is is is cooling and housing shelter makes up it's the biggest component by far in the CPI calculation and the inputs to shelter um in the current CPI calculation are very lagging. And so their argument is just, you know, they've got a fairly high degree of confidence that shelter is going to start pulling down the CPI almost regardless of what happens with the other components uh over the coming year. Um do you have any strong feelings one way or the other on that? Well, I understand the fact that um the housing prices are coming down um slowly um from very high levels um so I wouldn't get too excited about the fact that they've come down a little bit. >> Yeah. Housing and rents, but yes. Yeah. >> Yeah. Housing and rents implied and I think um I'm mindful of that. Uh but I I'm not prepared to to say that's going to dominate um as we go forward. First of all um housing prices are affected by as you well know a variety of factors but housing cost the cost of construction is not coming down all that phenomenally. Um the goods prices for lumber uh so forth of tariffs those are still going to be elevated. uh and so moderated price is not the same as returning uh to what prices were two or three years ago. I would also point out that you know we talk about inflation coming down but if you think about the accumulative effects of inflation at 2% 3% three two and a half% over over three or four or five years means people are paying much higher prices ultimately >> and then you have to compare that to what incomes are doing and medium real incomes are barely keeping up with those price increases. So the question is, are we really better off? And I think I think it's going to take a while for people to say, uh, I'm caught up again, uh, given this very high high price environment that we've suffered through for the last four to five years. So yes, I want inflation come down. Um, I want it to be 2% or less uh, over time. U, but we're not there yet. We're still at 3%. We're still 50% above. And if you keep 3% inflation going for another three or four years, people are going to have a hard time keeping up uh still. So, let's not get too excited about the fact that inflation is still 3% and not rising or still 3% maybe coming down to 2.8%. Uh we still have an inflation problem and that should be a focus as we go forward understanding that it's a dual mandate and that employment is important. But I will tell you in the long history of economics, if you don't have stable prices, you don't have strong employment over a uh systematic time line. Uh we've learned over and over again. So get the inflation under control, keep it under infl and let employment uh adjust uh and and remain at a relatively low level of four 4.2 4.3%. >> Okay. So um I I I want to get to in a moment to what you mentioned there about how there's a good chunk of the population that is kind of barely hanging on, right? to your point, their wages have not increased enough to to match the increase in overall inflation we've seen over recent years. Um, but I I I what I hear you saying is is look um in the battle against in the battle against inflation, you got to make sure you have killed the inflation dragon before you walk away from the battlefield. And that's the most important thing we got to do. We got to make sure that that dragon is dead before we really start turning our attention elsewhere. Uh you're you're nodding a bit as I'm saying this, but is that I know I'm being simplistic, but is is is that more or less accurate? >> That that is accurate. I think 3% inflation is not low inflation. Uh it is the cumulative effects are enormous. Makes it more difficult for um that portion of the population who do not have a strong market position to keep up. Uh, and I think it does a lot of harm. It does a lot of creates social unrest and those are all things that that have a price tag on them in the long term. And so let's focus on that. Get it taken care of. And I don't mean shock the economy, but I mean don't lose sight of it. I've heard more people argue over the last six months about well maybe 3% is a maybe that should be the target. And >> I think a lot of people suspected that's where the narrative was going to go. Yeah. >> Yeah. Yeah. And and that is a that is a concern to me that you would we've gone that road before. Uh and it's turned out very badly for the American economy and for the American people. >> Okay. So I'm not disagreeing you with you at all Tom um but but trying to channel the argument of some of others here which I also sort of understand their logic which is >> hey if we think that um the the tide has turned you know almost sort of the Bugs Bunny Wy coyote you know the coyote is he's still in midair but gravity is going to take over right their concern is is okay look housing's going to start pulling down that that CPI number in and of itself, but also um there's there's a a growing prepundonderance of data here that shows that this economy which I think to use the word you used you used was looks like it's doing reasonably well. It looks like it's doing reasonably well from a distance on average, right? meaning there's like K-shaped economy. There's a top 20% that's doing just fine and they're keeping the averages looking good, but there's a bottom half of the K made up by the majority, let's call it the the bottom 80% that's increasingly struggling. And we're seeing lots of signs that um those people are having trouble keeping up as you mentioned, but we're seeing delinquencies really starting to to skyrocket here on debt, which obviously, you know, will if left unchecked bleeds into defaults. Um and there's there's just a lot of data points we could probably spend this whole hour talking about about how that bottom 80% is is maybe falling further and further behind. And there's even some some signs that that top 20% may be starting to think about cooling their uh their purchasing. And so the the concerns of these other people is is hey we might get to a point where we we start bringing inflation down but but maybe things go a lot lower than we want meaning you know just overall consumer spending starts going down and companies start laying off people and you get that vicious cycle here. Um I understand your point of view which is get the inflation killed and then then figure out the rest. Um how valid is a worry of of of this other camp that I just described? >> Well, we should we always worry about that. Um and it it has become a bigger issue really over the last 15 20 years. And the question that you need to ask then is why is that? And I think there in lies this, you know, what I call the path of good intentions but bad outcomes. The path of good intentions are we want people working. So we lower interest rates to near zero. We create uh a worsening of the wealth distribution in the economy to where we have this K economy. We have the the the bottom 50% who's fallen farther behind. those who have assets uh and have benefited from this inflation. And remember, it's not just price inflation, general price inflation, it's asset inflation. So those who have benefited from a rise in housing prices, um they so you lower interest rates and they benefit more. That sounds wonderful to them. >> So you know, what are your long-term goals here? Uh and if you keep focusing on the short run and good intentions that have shortrun policies that turn out bad in the longer run, are you doing anyone a favor? And I think it's I think it's imperative that the policy maker understand that what you want to do is raise the income for all participants. And and when you when you bring interest rates down with all the right intentions to close to zero that you stimulate the economy and you create a new kind of asset inflation and you create goods inflation for you know it you know you keep talking about housing but housing inputs are more expensive groceries are more expensive when you inflate the economy and you allow it to continue and the distribution of income becomes worse between those two groups. You've actually undermined your own goals. uh your well-intentioned goals. So, I'm saying let's let's focus on uh getting a couple things. Getting our e economy on an even keel, getting prices to where they're not rising at 3% or better or even two and a half% or better that they are much more stable in the long run. uh and with that you uh improve the broad population's welfare not just the the top by having uh asset values increase and uh incomes for those who are already well compensated growing further. So those are the sorts of things. So and what's behind that? I mean, one of our greatest challenge that no one talks about uh and the Fed refuses to talk about uh is the fact that we we have this huge national debt continuing to grow, putting pressure on the Fed to print money to make sure that that that debt is uh funded uh which creates then more pressure upward pressure on inflation. So why aren't we talking about some of the real problems? Uh and that is our national goals of spending more than we take in as revenue um redistributing wealth through borrowings rather than uh through growing real incomes and jobs. Those are the sorts of things that I think uh don't get enough attention. >> All right. Well, they're going to get attention in this conversation. And and Tom, um I I really just want to flag uh you are sort of what I consider to be sort of the every man's um Federal Reserve exec. Um you you're the guy who actually cares about the things that regular people care about, right? Hey, how are how is the majority of society doing? Um what what what are our long-term goals for how we want society to function economically? Um, and you know, things about like the the debt, right? I mean, you're right. The Fed hardly ever talks about that. You're a guy who's actually waving a warning sign on this. And again, very famously, I don't need to tell you this, but I'll remind the viewers or let the viewers know that don't know about this. Um, you developed um what I consider to be a very respectful notoriety during your time on the FOMC for at the time um setting the record for the um largest string of dissents against the Fed chair. And this is back when uh Chair Berneni uh really wanted to, you know, was was was doing QE or making coming to the conclusion of doing QE and you were the lone boy saying, "Hey, I think this is going to create all sorts of problems and history has proven you right." And by the way, Tom, when I I told folks um on social media that I was going to be interviewing you today, uh a lot of goodwill was sent out to you. People really do love you and they love that what you've been standing for. So, a couple of things and actually relating to um to Twitter or X now, I guess I should call it. Um here was a response uh by Tom Mlen. I don't know if you know Tom Mlen, but he's a pretty well-known technical analyst. Um he asked me to ask you a trick question um which he said, you know, ask ask Tom what this what the statute says is the Fed's inflation target. And um you probably know this. I'm going to expand this so folks can read it. Um, but this comes I I believe from I don't know if it's in the Federal Reserve Act or not. Um, uh, upon achieve this was this is from 1978. Um, upon achievement of the 3%um goal specified in subsection B2, each succeeding economic report shall have the goal of achieving by 1988 a rate of inflation of 0%um. So, is it actually true that sort of in the Fed's charter, if you will, the goal is actually zero% inflation, not not this 2% inflation that we've sort of just adopted. >> Well, people will argue about it, I'm sure. Um, but my own view is that the that the dual mandate uh that's reflected by these words is pursuit of price stability. Now price stability is not 2% inflation. That's inflation stability. And so I have long viewed the idea that uh we should look for price stability as close to zero knowing that there are measurement errors and so forth of course but that does not excuse a target of 2%. Uh that only excuses maybe being a little bit above 1% above zero or a little bit below zero over a long period of time. So that's what price stability is and I I I'm a strong believer in that. Now the argument for this 2% inflation target is number one, you know, you can't there's measurement errors. So you don't want to have uh you don't want to have it be you don't want deflation. And I'm not at all convinced that modest deflation is any worse than modest inflation. >> Uh let's have that conversation. That's number one. But number two, there's there's this new reason given and it was given during my time and that is you have a problem with this lower zero effective lower zero bound and that means that if you have no inflation uh and you have a slowdown in the economy if you get the interest rates to zero well you can't get interest you can't get real interest rates negative and uh I'm saying you know that's you know there's a lot of there's a lot of research on that area and there's real balance effects that you have to consider. There's all kinds of other things that can get you through a zero uh a a and a that that allows a zero inflation rate to work very well in your economy. And you know mild deflation is often and can and should be a reflection of productivity improvements. Mhm. >> Uh and and who who's going to who who really benefits from a low inflation and that that's the say the bottom 50% of the population who works for a salary doesn't have a big asset stash uh that goes up with asset inflation. Uh so those are the people you want to have benefit and let's focus on getting closer to zero inflation. That's the that's the idea behind um my views on inflation and I'm I'm uh I think that's what the statute uh requires of us requires of the Fed I should say zero inflation. >> Um again I think you're you're you're getting a lot of people watching this saying why can't we have Tom back on the Fed? Why can't we have more people like him on the Fed? Um but I'm sure they're going to feel even more that way after the after this at the end of this discussion. Maybe, maybe not. >> All right. Um I'm just looking at this whole long list and figuring out how to best bang through it here. Um let's let's start with um well, okay. Um the Fed is now likely to cut, right? You don't think they should necessarily, but you think that's probably what they're going to do. the Fed, I I guess actually as of today since we're recording this in early December, um has pretty much ended QT at this point in time, right? Um they've they've said they want to sort of freeze the balance sheet here. Um I'm not sure what's so magical about the current level on the balance sheet. Um you know, we we had all been told by back in the Berneni days that when it was starting to increase from the global financial crisis, it would all it would all come back down to where it was before. Of course, >> right? like most things mo most government programs that are temporary they they never really are. Um let me ask you this. Um so we've we we we're back to cutting QT is ended. How how likely is it that you think the Fed will return to QE if not in the near term in the long term? You know, I I' I've heard some people associated with the Fed say, you know, they gotten they kind of realized the optics on it were so bad that it's going to be sort of a a policy of last resort going forward. Do you believe that or do you think QT is is something we're likely to see sooner rather than later? >> QT or QE. I'm sorry. QE. I I'm reasonably of the view that QE will return. Uh I don't know how the Fed the the Fed will have a the Fed will have a difficult choice given the size of the national deficit and debt. The amount of government debt refinancing and the amount of new debt that has to be financed is pretty striking. uh $2 trillion in new debt, $38 trillion debt outstanding. About 910 11 trillion of that has to be refinanced on an annual basis. Then add the extra2 trillion. Who's going to buy that debt has to be the next question. It's it's >> and and who is that? Well, our foreign trading partners maybe less so. The demand for dollars is still strong. I'm not saying that's not. But will they be of the mind to buy all this new debt because they want to hold the dollars? Um, and that's a question mark. Um, so will they do it domestically? Will more will there be more domestic buyers both from the banking industry, from investors, from pension funds? Will they want to have more dollars and invest in it rather than private uh purchases of private uh bonds, notes and so forth. Um we we have to fund AI investment. So who we're competing now for investable funds and the government has to fund itself. So, it's going to pay whatever is necessary. And given the strong supply of that debt and the limited demand, it means there should be upward pressure on interest rates, >> right? >> Over time, >> which is what the administration does not want to see here because it makes their job harder. Yeah. >> What any administration wants to see uh not happen is interest rates going up. And yet, they're going to feel this pressure. So, who's and the Treasury going to feel this pressure? We've seen this before. and the Fed will be under enormous pressure to buy that debt and that means QV and I think that's a reasonable likelihood um I would say better than 50% chance that we will see open market operations resume and the purchase of government debt resume and add to the balance on the Fed's balance sheet u I may be wrong I hope I am but I don't how that is unless unless the Fed and the Treasury and the administration and the Congress in the United States come to an understanding that this can't continue and if they come to that understanding then I think we can find solutions to uh address it without having to have QE. Now that's possible but under current current circumstances I don't know that I see that on the horizon to be honest. >> Right. Right. It's it's it's it's possible I could jump off a five-story building and magically land on my feet and be fine, but it's not probable. >> Not probable. You know, but I I'm going to in a note of optimism, um I will give you two periods where actually three examples. One is post World War II, the debt to GDP of the United States was as high as it is today. uh and the Fed was under a lot of pressure to buy and peg the interest rates at lower levels and they refused to do so and through negotiations were allowed to not do so and the Treasury had to deal with it and the Congress had to deal with it. Now the there were higher taxes uh and there was you know spending uh issues but they did they did get through it and they did actually over the next decade reduce the debt to GDP ratio from that 100% down to half of that >> right but we were the world's manufacturing base helping the rest of the world rebuild I mean there were very different macroeconomic circumstances but I appreciate I appreciate the data point yeah >> right but but but but the fact is they came to an agreement and it wasn't just the fact that we were the industrial base. It's the fact that we said, "We're not going to print money and we're not going to peg interest rates and you're going to have to find a different solution." It happened again in the middle of the 90s, right? Two two adversaries, Clinton and Gingrich. Now, there's other circumstances out there. There was major capital gains, risk seats, and so forth, but it was done. So here we have a we're looking I keep hearing about this new we're on a horizon of a new productivity gain through AI and with great productivity gains there's an opportunity to uh address your deficit problem in a in a productive way are we willing to do that are we willing to say we're going to do that so it's doable but you have to decide to do it and that's something we've failed to do >> that that that that is a fair point Um, you know, if AI does deliver upon all of its promises, that is sort of akin to, you know, coming out of World War II where where there was a big economic boom uh that we were heading into. Um, well, let let me ask you this. Um, the the the president has given lip service to the debt problem um during his campaign, right? So he was he was talking about way too much debt and and and actually promised to to to pay down the debt. Um which at the time uh uh well I I com I commented on a little bit of skepticism but but hey I'd love to be proven wrong. Um but but of late uh he has been saying um hey we're making lots of tariff revenue now and we can use some of that to start paying down the debt. Now he also said we want to give you know checks to households uh again. So I'm not so sure I'm not sure how much is going to be left over to pay down the national debt after if we actually do that. Um, but I guess first and foremost, taking the president at his word, um, do you see a potential here for government revenues, tariff driven or otherwise, to be used to start paying actually paying down the debt or is that just sort of happy talk right now? >> That would be very shocking to to to to say that uh could be delivered. First of all, certainly tariff incomes, let's say it's 350 billion a year. >> I think last month it was 31 billion. So that's that's a fair estimate. Yeah. >> Yeah. Uh and so you you have that now the the the growing debt the new debt is two trillion. So let's say we get it from two trillion to one 18. Uh you know, who knows what's going to happen. That's still a lot of new debt to finance. That's not paying down the debt. And and to get to get to the point where you're running a surplus, you you have to you have to raise well over where you have to do one of two or a combination. You have to stop spending seven plus trillion dollar a year and you have to take in more than5 trillion dollars a year. So those two things have to come in line and we are a long long ways from that happening. No matter who pres who the president is and no matter what Congress does, they have a lot to do yet. >> Okay. So this was sort of my reaction again when Trump was was campaigning was like, okay, I could see you maybe using I can see maybe reducing the deficit but actually paying down the debt. That's a much taller order. Again, I would love to be proven wrong. >> So that's essentially what you're saying. maybe see a shaving a little bit off the deficit here, but we're still net net >> adding more debt over time. Um, >> what I and what I would what I would like to see is just slowing down, you know, the the growth in the debt to where your real economy can grow out of this over multiple years. If we could even get to that level, it would be progress, but we're not there yet even. So, that's something to keep in mind. >> Yeah. Yeah. Okay. So, let me ask you this. So, uh, we have these aggressive fiscal deficits, right? I mean, they they exploded, uh, during CO, but CO's over and they're still we're still running like we're on a wartime footing here. >> Yes. >> Um, does that diminish the Fed's ability to um influence the system? In other words, you know, does does it does it reduce the impact of monetary policy because you just have this massive fiscal spending that even if the Fed is trying to be a little bit more um restrained like having raised interest rates and done Q QT and whatnot, >> right? >> Is it being overwhelmed by this sort of reckless continued spending that's just happening on the fiscal side every year? It's a great question and one of the the the way that can be couched is as our monetary policy today subservient to fiscal policy, >> right? And and let me interject just so you can address this in your your answer. >> You know, there's the concept of of fiscal dominance which I believe you're familiar with. And a shorthand description of that is um the debt problem becomes so threatening that the central bank gives up all its other mandates and its only mandate is to try to just keep the debt affordable which usually means lower interest rates. Are are we there? I mean is that why we're cutting again here at this point in time? >> Well, we are we are on the edge I think is is a fair way of saying it and we don't know yet because we we have to see what the Fed does. uh we have to see if there's a wakening within Congress. But yes, we're very close to fiscal dominance, I think, because if you think about it, you you mentioned earlier we the Fed went on this QE and they were going to return back to normal, you know, normal policy, what we called, I called adequate reserve system or scarce reserve system. We're not printing money uh massively. and we never really left that uh till till we got into 9% inflation and then we went to this new QT program temporarily. Um, so we and now we're now we're we've we've stopped QT. We're now in this kind of transition and the question you raised earlier, are we going to go back to QE uh open market? That's a legitimate question and the odds are that we we will and if that happens then we are coming very close to fiscal dominance to where the Fed is under enormous pressure and the way I describe it is it's it becomes a new mandate. So, we have price stability mandate, we have maximum employment mandate, we have uh low long-term interest rates mandate, and now we have make sure the Treasury market is liquid and functioning fully. And if that's your new mandate as the Fed, you're going to print money to buy on the margin that part of the fiscal deficit that the foreign and private sector doesn't take up so that you peg interest rates below what they otherwise would be. And that is a real risk that the Fed and that the country is going to have to face, I think, in the not too distant future. >> All right. Um that's simply depressing just because I think that's the fear I and many other people have had along this whole journey. >> It it is scary. It is a scary >> um Okay. So um this doesn't help the situation, but we have an administration that really wants to get borrowing costs down, right? And so, you know, the president has been leaning hard on the Fed as an institution. Um, we have, uh, you know, ton of pressure he's placed on Pal and whatever. Pal's going to do what he can do, but he's not there for much longer. Um, we have Mirren in there who's pushing for not just a cut. He's always seems pushing for 50 basis points at least, if not more. >> Yeah. >> Um, and uh, and now everybody is is who who who wants Jerome Pal's job is auditioning for it and and some of the people are actually sitting on that table around the Fed right now. Um, so, uh, let me ask you this. So, um, first off off, is Pal a lame duck chair at this point in time? Does what he does what he wants to do is that increasingly less relevant to the other players that are around that table? >> I I don't know that it that he is a lame duck as such. Um he is however um he is less in control because of the of the more recent Fed governors who um are um in opposition to him. That's that's rare that you have you have three at least three governors uh who are uh in opposition to him. Not I haven't seen it since Vulker. Um so that that is he has to deal with that and that's the that's the difficulty of being a chairman when you don't have everyone on the same u same same page with you now over over time you know and one of the issues that's coming up is if that if the president names uh pal successor who he's going to nominate at least um then that will make him a little less influential. So, he's he's I don't know that he's a lame duck yet, but that is a that is in his future and not too distant future is my my best um my best estimate of that for for the leadership or his leadership. >> Well, well, the week we're recording this, the president has basically said, who knows whether it's really true or not. Trump likes to say lots of things, but he said, "I've made up my mind already." >> And if we look at the betting markets out there, uh the name that is is rising to the top is uh Hasset. >> Y >> um do you think the markets have it right here or do you think someone else is more likely to replace Bell? >> Well, for any other president, I would I would say the markets have it right. Um, but you know, President Trump may at the last minute change his mind. And so I don't think any anyone is has it firmly in place. And they won't have until until the nomination is made public. And I mean, the very fact that he says he's made up his mind, but he won't announce it um tells me that he's still toying with it a little bit. >> Right. Classic Trump. So, so basically maybe maybe take Hasset as the lead horse but by no means guaranteed to win the race yet, >> right? Because you know all the all the players that would been named are qualified and but you know I wouldn't necessarily be surprised if it was someone other than the leading names. I mean that's just how how the how this administration tends to work sometimes. So >> all right and I'm I'm blanking. I'm trying to look it up here in real time but if you know it um please tell me. Okay. So he he is the director of the national uh economic council for the US right now. So basically a high high ranking economic adviser to President Trump right now. >> Yes. >> Um >> let's assume for a moment that that he gets in. He is the pick and and he is chosen. He's selected >> at this point in time. Um your your understanding of the scope of head history is way better than mine. Um, I don't remember as highly politicized a situation at the Fed as as we sort of have right now with Trump beating up on Powell publicly for as long as he had, you know, replacing Fed governors with with people that are very much seem to be presidential yesmen. So if H asset now gets installed at this point in time with with the same group that we have, you know, around the Fed table here, what's the danger do you think of of people regarding that new Fed as really just a proxy for the president? Right? meaning like I'm gonna listen less to what the Fed chair says because the world has revolved around whatever the Fed chair said for the past couple of decades and and more just listen to the president because the Fed's going to rubber stamp whatever the president, you know, tells it to do. >> Well, of course that's a risk. But first of all, um this isn't the first time that the Feds have been under this kind of political pressure. And I'll give you a couple quick examples. You know, after World War II, President Truman very much wanted the Fed to pay rates at lower levels uh even as inflation was picking up. And there was the standoff between the Fed and the president. And it was eventually resolved in what's called the the Fed Treasury Accord, which allowed the the the uh Fed to act independently around interest rates. But the person who negotiated that was William Machesny Martin who became the chairman >> and was really in the treasury and Truman was expected him to pretty much beg interest rates and Martin didn't do it and tra and Truman considered him a traitor for that but he he did what he thought he had to do. Again, President Johnson uh put an enormous amount of pressure on the Fed. Uh again, Martin was the one who had to resist it and had a hard time resisting it. Uh and people will debate whether he did or not. Um I think he he put it off at least for a while. And then of course you had Burns and President Nixon and it was very political then. So this is not new. So the real test will be when when whoever comes in, whether it's Hessid or whomever, the first major decision where it's clear that the administration wants to go one way and the world knows that it probably shouldn't go that way. That will be the test whether >> that will be the tell. Okay. >> Yep. >> Let me ask you this about those those previous examples you mentioned. You know, we we I've heard about them and certainly heard about the the famous um you know, President Johnson pushing Arthur Burns up against the wall. Um really >> Martin. Martin. He pushed Martin up. >> Oh, it was Martin. I always thought it was Burns. Okay. So, Mesa Martin. Okay. >> Yeah. >> So, pushing him up against the wall and and really sort of physically threatening him. Um but so, so I I get it was political. Uh, but was it in the background or was it at the forefront that that it is today? >> Well, it was >> is it something that was in the media? Is it something the regular guy knew about? Yeah. >> Well, the internet was not in the in the >> press at least initially, but the pressure was well known because everyone knew everyone knew Vietnam and the Great Society was putting upward pressure on on uh on the on the debt. I mean, the debt was growing. interest rate pressure was up. So, everyone knew that and everyone knew that Martin was having a hard time resisting. >> Okay. Okay. Okay. So, so they they they they are comparable. Um All right. Uh let's see here. Um this one be a little interesting. Um, the Trump administration, like I said, it's it's given lip service to the the debt. I I don't know if we can really say it's done anything, you know, to to to address it yet. I think the administration would say, well, just wait for two reasons. um when they've said look you know we we we've focused on pushing through a really aggressive set of economic policies that we think will drive a lot of economic growth in this country um and so to a certain extent you know we want to get that debt to GDP ratio moving in the right direction right um what they have said with the o the the the one big beautiful bill that was passed was yes we are going to increase borrowing early But that's going to start diminishing and we're going to start getting the the deficit under control, you know, in later years. Now, of course, that's what every politician says about every bill, right? So, there's there's nothing unique in that. Um but as you look at their policies from tariffs to renegotiating trade deals to trying to reshore manufacturing to bringing international you know trillions presumably trillions of international capital here into the US to the growth provisions in the one big beautiful bill and some some additional forms of tax relief and deregulation. Um, those all sound nice, but as as you understand them from your perch, what grade would you give the Trump administration's economic policies right now, given your concerns about the long-term trajectory of the debt and the state of the economy? >> Well, it's hard to grade someone when they're still taking the test. >> Um, and so I it's it's difficult. I I would say that >> but there could be policies you hate. So, and I don't know if you like or hate these, but yeah. >> Yeah. And and the and the policies that I'm I'm concerned about is the the difficulty is facing the enormous um the enormous challenges of that debt. It's not just that it's there. It's how you address it. Because twothirds of that twothirds of the government of that 7 trillion, okay, is based on social security, Medicare, Medicaid, veterans benefits, you name it. So that that leaves your options for addressing that is can you have enough growth enough gains in productivity to really solve you know be able to provide all those benefits without having to borrow more funds uh or without having to increase taxes. And and the promise is we will provide all these increased productivity benefits without having to increase taxes, without having to cut benefits. So how do you square the circle? How do you how do you how do you get that to make sense? And that's the challenge that I think still is in front of this administration. Uh showing improving how you will square this circle. uh how you maintain these benefits, how you keep taxes low uh and still solve the debt problem, solve the increasing pressure on upward pressures on interest rates, uh how you allow the Fed to ease rates without having inflation. Those are all questions that so far have not been explained uh I think satisfactory to the to the to the public. That's their challenge. >> So, I don't know the administration trying to channel my best for them. They would say, "Well, Tom, you know, we're going to really grow this thing. Um, we're going to uh eventually get the deficit under control." Yeah, right. Everybody says that. Um, and then third, you know, we're gonna we're going to continue the spirit of Doge to make sure of all that that mandatory spending, you know, you're talking about these mandatory programs we really can't cut because they're written in the law. You know, it's like, okay, but there's maybe some percentage of that that's being inefficiently spent and any savings we have there means we don't have to raise taxes to continue to to pay these things. And look, Doge has has, you know, I think everybody has applied to the spirit behind it, but so far we haven't seen the the savings we were all hoping to get from it, but but we can all cross our fingers. I I detect from you, you know, a skepticism to say, "Okay, we'll just cross our fingers and believe all that's true." So, here's my question for you, Tom, which is what do you think is the most likely route here um for dealing with whatever reckoning you think is going to happen here? Right? In other words, you're you're saying, "Look, I've got a concern. I've got a lot of concerns about the unsustainability of the system." Right? So, when that unsustainability can't be kicked down the road conveniently anymore, what does that mean? is that we're going to cut these benefits. Uh the government's just going to be able to do less for its populace. Um is it'll meet its its obligations nominally, but it'll kill the purchasing power, the currency to do it. Uh is it a mixture of those two? Is it something else? You know, what what what do you think is is most likely here with your brutal honest lenses on? Well, there's a couple things that you have to think about, and that is number one, we are the greatest economy in the world. I mean, that's our huge advantage. >> And um that's a that's a good place to be if you're serious about solving the problem. Now, the question is, are you willing to solve the problem? Uh number one, if you are, then you will have to think about which benefits you might cut. Do you have a leadership who can explain that? Um that's been done before. Do you have leadership to say, "Well, we're going to, you know, tariffs are a tax. That's that's a that is taxation. And is there other forms of taxation that will then further bring the deficit down more than the 330 billion annual from the tariffs? Are there other? So h help us think through that. Or >> you can say we we're not going to we're not going to do that. We'll we'll we'll we're going to continue with the benefits. We're going to grow ourselves out of this. We don't know how yet, but we will do it. And you and what happens then the deficit goes up and it goes from $ 38 trillion what it is today the end of a decade it'll be over 50 easily over 50 trillion maybe >> and just to be clear you said deficit but you meant debt >> yeah I meant I meant debt of the total debt the deficit will be 6% of GDP and we'll have a debt of 50 trillion plus and in the meantime we'll continue to grow but we won't grow at three and 4%. We'll grow at 1 to 2%. >> Mhm. >> And we'll become less wealthy slowly over time. And that's kind of death by a thousand cuts. >> Mhm. >> Right. So we we we we have that choice ahead of us. We just haven't made the choice yet. Which of those are we going to follow is really up to the administration and Congress. And Congress is the you know that's the purse. you know, are we going to continue to do that? And is the leadership going to address it or not? I I would hope that they would um say, you know, what I call share sacrifice. We're all going to take a little bit less. Yeah. Rather, you know, the for example, Social Security, it's set at 60 age 65. Maybe it should be age 70. That would take care of a big part of this problem. Medicare, maybe we don't have as many benefits for everyone, but we still have some form of benefit. Um, those are things that they have to think about. Or maybe we have a marginal tax rate that is higher. I'm not sure I, you know, taxes constrained. So, you're going to pay a price. Is a temporary price or not? Those >> I mean, those are choices that are out there to be made. I just don't know where in which path they're taking. It's not clear from Congress that they're taking the the the path that says we're going to cut back some and we're going to benefit in the long run. I haven't seen that yet. And I I think I think that is the Congress's responsibility and they ought to live up to it to make that choice. >> Yeah. What what does it strike you that you know we we have a a Congress right now that is owned by the Republican party who piterally are the fiscal conservatives. Um meaning if you said look the Democrats are just tax and spend and you know they've been in power but they're not now. The fact that the deficit is still as out of control as it is. I mean I I understand your two paths. I just don't see a great likelihood for one of those paths because I don't see any real credible appetite in Congress for fiscal restraint. >> I I agree with you. I've not seen any at all. I haven't. Now, I do know within Congress, within the Republican party, there are um there are leaders there who know this is a problem and they know they need to address it and they're trying to build a base for doing that. what but Congress as a whole um isn't there yet. It's just not there yet. And that's unfortunate because the longer you wait, the greater the problem becomes and the more difficult it becomes to solve. Remember, you know, when when QE started when I when I was concerned about it, the debt was maybe maybe$10 trillion, maybe 11 trillion, you know, 2008 38 trillion now. And it's going to be the debt's going to be 50 trillion if we don't get this taken care of. And yet no one seems to be stepping up to it in terms of enough people stepping up to it. There are some, but not enough yet. >> Well, yeah, there are some. They're not making a difference. And you understand exponentials. I mean, the debt growth is is an exponential curve, meaning it just gets worse faster the longer it goes on, right? >> And that's what's happening. And I think and that means you take the second path of slow death. You know, we should be growing at 3 to 4% a year. We'll be growing at 1 or 2% a year. Even that even this Congressional Budget Office uh with all its assumptions that are very optimistic assumptions are projecting a growth rate of of less than 2%. That is that is unfortunate for the next generation of of Americans. Uh, and that's where I think we're falling down. And it may be that it may be that generation of Americans who finally say, "I've had enough and we're gonna we have to change this, >> right?" >> Uh, and that's, you know, that's what may lie ahead. But right now, we're we're on the this the the slow growth uh rate that we'll we'll we will all suffer from. >> Yeah. I think part of the problem is and this is a this is a feature that that I I believe is a bug of the uh our current form of governance is that um fiscal um you know what's the word um oh gosh I'm blank about it but but um uh fiscal restraint I guess we'll say um uh is It's a career killer, right? The the the the politician who says, "Well, let's spend more to solve X problem not only is is is not just more popular amongst the other politicians on DC." >> Um, but he's more popular amongst his beneficiaries if among his constituency if they're getting a share of that, right? Um, and so, you know, the the guy that's that's, you know, out there saying, "Hey, wait a minute. We need to cut benefits. you know, we need to we need to live beneath our means for a while because we've been living above them so much. Nobody votes for that guy and his colleagues uh on Capitol Hill take out their knives for him because they they that's anathema to them. Um so uh you only get those types of of revolutionary changes on like okay let's we're all austerity that's the word I was looking for. We're all going to embrace fiscal austerity once you've had some really horrible crisis. Right. And >> right, >> one of the things that worries me, and I'm not trying to be doomy and gloomy about this, and I think eventually at some point in time, we'll make the right decision here, but it may be after a lot of continued bad decisions. Um, what I think is is is quite likely here is there's an expression that when crisis hits, the solutions that get implemented are the ones that are already on the table. And we've not been putting a austerity solutions on the table recently. we've been putting actually, you know, hey, let's give direct checks to households. You know, we we've really gone the other direction. So, it seems to me that the next time that we're getting pinched um because of our economic prof, we're just going to triple down or quadruple down on what hasn't been working because that's what's popular in the moment as a politician and that's what your constituents screaming for, right? Hey, you gave us checks last time. Give us checks again now. >> Right. >> Yeah. So, do you share the sort of depression? >> I do. But yeah, I I I do share that. But I I have to tell you another failure that happened I think this time. You know, one of the reasons that the Fed is supposed to be, put in quotes, independent, at least independent of short-term political pressures, is that the founders realized that that politicians tend to want to spend and worry about it later. And the idea was that we're going to make this this central bank that we have now. uh we distrust it but we distrust ourselves every bit as much that is Congress speaking >> we're going to make it to where it can't say no and the the Federal Reserve I think is is part you know it's it's its failure is not in today so much as in 2010 that is when you engaged in massive printing of money called QE you made it easy for politicians to spend without consequence. >> Absolutely. >> When you when you when you pushed interest rates to zero and you kept them there, you made it easy for politicians to spend without consequence. And so rather than saying, "Wait a minute, we can't do this. You know, it's it's our mandate is to maintain price stability asset as well as general prices. And we can't be printing this money like this. you can't do QE at zero interest rates for year after year, which is what they did. And so the second part, the safety valve on this kind of failed as well. And so we got Congress used to spending and paying for it with low interest rates, therefore able to spend even more. Uh and and that uh has come back to haunt us. And here we are unable to solve the problem. I'm going to ask you a uncomfortable question which you can feel free to just say I don't want to answer that but um when I talk to people who you know are in the beltway and and really understand how the political system works the number one thing they say needs to be fixed about the government is getting big money out of politics and the fact that so many um politicians are influenced by the monies that they have to go out there and raise. I mean, the the majority of their time spent during the day is not is not law making, it's fundraising. Right. Right. >> Right. Um, to the point that you just made, how how much of a factor in the Fed becoming complicit in in not saying no, not not doing the hard thing and saying, "Look, we got to we're here to be the adult at the table and and saying, "Yeah, let's grease the the wheels that everybody wants greased." H how much of that, if any, of it is influenced by, you know, what we see what happens after a Fed chair leaves their tenure and gets a really nice cushy board seat at a big financial institution, gets paid a half million dollars a speech and whatnot, you know, how is is is there an influence of those parties while the Fed chair is sitting in the seat doing their job saying, "All right, I know I I got to keep these guys happy because I want the big golden parachute from them. >> I I don't think that's it's that direct a line. I think um I think it's more that when you're when you're in that chair, um you you're you're not necessarily unlike a politician. You want to be liked. you want to be admired. I think that was certainly part of uh Greenspan's second half of his term perhaps. Uh and it's hard to say no. It's just flat out hard to say no. And and and people, you know, people people dislike you for it and they um um >> it's hard to be the adult >> go after you. It's very difficult. It's and and I think that's a real problem. and the and the Fed was set up to allow for that to to better allow for that. It wasn't a guarantee and that's why they had longer terms, but you know, they they that's not a well- paid job. So, you do have the post uh period that you think about perhaps, but I I I don't think that was the driver for it. I think it's a fact that uh more and more of the nominees are political nominees. Even the reserve banks um there there's more there's more influence from the board of governors in the picking of the presidents. It's supposed to be a local board choice. They pick the best person for it. But there's now a lot of interaction uh by the board of governors to u to influence that decision. So it's become more centralized and into Washington as the selective mechanism and I think that's uh makes it even more political than it otherwise would be. So I I just think the whole nature of our system has been uh politicized. Now, you know, I I'm not so naive as to think we can go back to a gold standard, but when we were on a gold standard, we had an external discipline brought back. >> Yeah. >> And and we need to bring some form of that back. Not as a not necessarily as a gold standard, but as a um uh limit on what how much, you know, a limit on QE. I mean that should be retired that the ability to do that massively. There should be a limit on how much the central bank of the United States can increase bank reserves on an annual basis say 2 to 4%. Consistent with real with the real potential growth rate of that economy. It can be changed from time to time, but clear limits. Not not a growth rate of 20%. Because with a growth rate of 20%, you know what you're going to get. You got it. We've proven it over and over again. So, we need we need more external governors on what the Fed can do. Set out in times when it's not, I need to spend more money. You know, the Congress needs to say this is the limit. We know, we'll be sorry we said it now, but we know it's necessary. So that's your limit and I think you'd have a much more successful central bank and a much more successful spending fiscal policy over the long run. >> Okay. I I I was going to ask you for reforms you'd most like to see, but I I I sense maybe you just answered the question there, which is to have some limiter there. In in this case, it might be a statute that just says, hey, um you you can't increase it by more than either 2.4% or you can't increase it by more than than what the economic growth is. >> Right. Right. And and of course there's always the crisis, but here's the thing. I would say in a crisis, you're allowed to go outside that for six months. You you're allowed to print more money than that to provide liquidity into the system for six months and then you have to go back. >> Right. Maybe you can't do it again, you know, until you've you've worked off all that excess. >> Right. Well, or until until there is a, you know, till there is a a mechanism that says this is an exited circumstance and it can't be just the chairman of the Fed saying it. >> Yeah. >> You know, so you have to have limits around uh the politicians and around the Fed uh flexibility. It can't be just right now it's just fullon flexibility. If the Fed decides next week to do QE, it can do QE. There's no limit, >> right? There's nothing saying you can't do it. >> Got it. Okay. So, I I I presume you would you would you'd also like Warren Buffett's um idea, and I can't remember it exactly, but it's something like, you know, if if if the federal budget is above a certain percentage, uh then every sitting incumbent isn't eligible for reelection, right? Something like that, >> right? Yeah. Something something that says you you're accountable for this happening. Uh but you know I I don't know which ideas would have any chance at all but I do think that I I do think that saying you here are the ranges that the Fed can increase reserves and uh here is the exceptions and they're strict so that you do not get out of control as we've done uh in the last 20 years. >> Okay Tom, I apologize. I've looked I look just looked at the time. We've gone way over what I expected. So, thank you for doing this. Um, >> I I'll wrap it up here because I know you're quite busy, but if I can just hit you with some rapid fire questions in the last couple minutes here. >> Uh, to your point there about reforms, I think I've asked you this question in the past, but um, uh, Larry Leard, Lawrence Leard, who's another, um, uh, he's an influencer in this space. He's, he's actually written, uh, quite a good book recently called The Big Print. Um he he um I believe he actually sent you a copy of the book because he he talks about you so favorably in it. Um I think he says he refers to you as Braveheart as the guy who's out there fighting the battle. Um but uh question he wanted me to ask you was um should the Fed be setting interest rates or or should there be a market mechanism for that? You know, some would say it's it's the, you know, two-year Treasury yield, but you know, is that should that be the purview of the Fed or should the market really be setting it? >> Well, I think the reason you have the Fed is to um print reserves that influence interest rates. So, I don't know how you separated out the market, >> although technically, correct me if this is wrong. I mean, at its most base, the reason for the Fed existing is to be a lender of last resort, right? >> Yes. That's what it was originally set up to be. >> So, something that's kind of in the background, >> right? And we were and Yeah. And the Fed was on the gold standard. Yes. >> Yeah. Yeah. So, I mean, why not have the market set rates and do why not have the market be the mechanism up until everything seizes and then your lender of last resort steps in if needed? You could do that. And and this is back to my original point. If you limited the Fed to a printing bank reserves to clear boundaries, say 3 or 4% annual basis that accommodates real growth of the economy, then the market could set the interest rates. However, it would take a lot of discipline because you have every you know and I've said the you know the market the the market is give and take. It's it's transactions and therefore your interest rates would be more volatile. >> That's and and you have to accept that. >> Y >> and the market Wall Street would not like this idea. The market Wall Street likes low interest rates. They benefit from that and they would fight it tooth and nail. The fact of the matter is you limit the the ability to create reserves, let the market set the interest rate, we'd have more volatile, probably zero inflation over time. >> Yeah, it it it it's frustrating in its simplicity. Now, I'm sure there would be, you know, lots of other issues that folks might find with it. Nothing's a paradise. But uh >> well and and to the point and I know we're running late, but you know the idea I mean this whole idea that the Fed is on now an ample reserve system says we've setting reserves to this enormous size and the Fed will set interest rates. We got it backwards. >> The very thing we got it backwards. So yeah, if we if we correct and say no, your job isn't to set interest rate. job is here's how many reserves we can print since we're not under gold stand any longer. That's the limit. And the lender of last resort on a temporary basis only. I hate to ask this because we're we are tight, but since you brought it up, I know you I I know you you mentioned that it would be hardily impractical to return to a gold standard. If Tom Hanukk had his brothers, would you like is that just a great natural governor on the system? Should we just be on a gold standard? >> Well, that's the answer is yes, but the transition would be so difficult that that that's why I think if we could just get a law passed, I mean, that limits the ability to create reserves. >> Yeah. >> You would you would accomplish maybe the same thing. I >> I get it. But if but if Tom Haning was writing the white paper of that we all had to do would your white paper be yeah be on a fixed standard? >> No I Gold Sand had its own shortcomings uh and it was you had you you had not just said you had wild swings in the market and disruptions as well. I think I think if you could really limit reserve creation, you would you would accomplish something maybe better than the gold standard. Assuming and this is a big assuming that you stuck with it. But of course, you have to you have to say that about the gold standard since we go off it every every time it becomes too inconvenient, >> right? But it it it's it's not the um logic of the system. It's the human factor that gets >> the human factor always. >> All right. Um well, just ending up in the human factor here. Um, we we we've kind of mentioned it a few times here, but we have this K-shaped economy. I know in previous times that we've talked, Tom, that you are highly concerned about the general public. Um, what is your current outlook on this wealth divide and the prospects of the bottom 80%. Have we seen the worst of it? You know, co COVID was bad, but we're equiating from it. or do you think that we are continuing down a trajectory where that that wealth gap is getting wider and wider and that bottom 80% is losing out further and further? >> I think we are I I don't think we're falling off a cliff, but I think we're continuing down that path and I think it will take um a fundamental change in policy to reverse that. Um and I think it can be done but we're not there yet. No. And and one thing we didn't talk about that I will mention that the idea of of uh reducing the regulatory burden in this economy would be pro progrowth. Now I don't mean eliminate every rule but I mean get the bureaucracy simplified. Get the rules you know I always say simple, understandable and enforceable. Uh and for a good reason. I think of productivity that would be a boon to productivity and a boon to addressing our our our divide, our wealth divide. But right now, if if we keep printing money, believe me, Wall Street will win. And I don't blame him, but that's because that's where you put in the incentive. You've got to bring discipline back to monetary policy and fiscal policy. You have to. >> Okay. Um well, a lot of people watching are rooting for that. They're just, I think, hungry to see signs of it, which are seem to be precious for you at the moment. Um, all right. Well, look, um, Tom, you've given me so much more time than I could have asked for. Thank you so much. It's always, um, so enlightening talking to you, but but really also, I mean this, it's such a privilege. So, thank you for giving so much time to this channel. >> Well, you're nice for saying so, and I've enjoyed it very much. I hope I hope it I hope it helps. I hope it uh sends the right tone. uh not one of desperation but one of hope. Uh and we'll see what happens in the future. >> Yeah, it's hope. And maybe next time we have you on time, we can dig a little deeper into just, you know, what what should we as voting citizens be demanding of our elected officials to try to get some of the reforms you'd like to see enacted there? You know, be beyond just sort of rolling over and taking it, you know, what should we be doing? Well, and it takes it will take the population saying, "I'm willing to sacrifice, but we all have to sacrifice." And you're the leaders to design a system where we can all feel that we're in this together. Not, you know, not one against the other. Not I mean, right now it's Wall Street's over here and everyone else is down here. That's why you have this bitterness uh in this country uh against wealth. >> All right. Right. Well, look, um, for for folks that have really enjoyed this discussion, Tom, but would like to follow you and your work and your ideas, between now and the next time you come on this channel, where should they go? >> Well, I'm on Finn Red Rag at the Mercada Center. Uh, and we're on Substack. >> All right. Um, so when I edit this, Tom, I'll put up the links uh to those resources so folks know where to go. Folks will also be in the description below this video. All right. Well, folks, please join me in thanking Tom Profusely for giving so much of himself to us today by hitting the like button and then clicking the subscribe button below as well as that little bell icon right next to it. And if you would like to get some help from a professional financial advisor in positioning your portfolio uh to hopefully withstand and maybe prosper uh given some of the forces that that Tom and I have talked about here. If you don't already have a good one advising you, um, feel free to talk to one of the ones that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. To schedule one of those discussions, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds to fill out the form. Uh, these consultations are totally free. There's no commitments involved. It's just a service these firms offer to be as helpful to as many people as possible. Tom, again, I can't thank you enough. It's always such a joy, and I really mean this. It's just such a privilege to have you join us as frequently as you do. >> Yes. Thank you for having me. >> All right. And everybody else, thanks so much for watching.