Global Macro

I have expected deflation right from the very beginning of the '87 crisis, when I first started modelling financial instability, because we have an excessive level of private debt.

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One of the problems that we have about understanding this crisis is about understanding money itself. We are continually getting it wrong.

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A big difference that can actually have them “succeed” in causing inflation is that instead of a lot of this QE winding up in asset prices and winding up in the financial system, a lot of it is getting injected into the economy in the form of business loans that turn into grants and helicopter money to consumers, extra unemployment benefits…

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I was hoping that the Russians and the Chinese would get together and form a currency basket system. The one thing I can say in favor of Donald Trump is he has accelerated discussions by central banks around the world about the need for, potentially, a basket of currencies; basically a version of SDRs to be for international trade as well.

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The Euro, itself, has become part of a symbol of Europe, and people like the fact that they can travel between one country and another and not have to change their bank accounts, or their banknotes, and so on. So, even the Italians, who I have said have economically suffered more than anybody…and they have been forced into austerity… Even the Italians are being wedded to it.

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What is actually causing the increase in GDP is increase in energy. We have a high level of GDP because we use more energy. The correlation coefficient between energy consumption and GDP, at the global level, is .997.

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The idea that government debt is a problem is a problem of understanding what government debt is. We know what the Federal Reserve can do with its keystrokes. If it decides to cancel that debt, it can cancel that debt. It can buy back all the government debt outstanding tomorrow and it could cancel it the day after.

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By the 1940s the private debt bubble was mostly worked off, but then, of course, we entered the WWII period; we had massive federal deficits as a percentage of GDP. … In order to fund those deficits, the Federal Reserve had to take over the Treasury because there wasn't enough natural appetite for the public to buy all those treasuries. So, the Federal Reserve did something that was, basically, quantitative easing, even though they didn't call it that back then.

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This time we have a very high federal debt and very high private debt at the same time. So, back then (1930s) we had one after the other; first, we had a private debt bubble then we had a federal debt bubble. So, they worked them off kind of separately, a decade apart. Whereas, in this time, we had a partial deleveraging ten years ago, but we did not have a deleveraging in the corporate sector. Then, of course, we've had an increase in the federal sector. Basically, we have a larger debt problem to work through…

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A big difference that can actually have them “succeed” in causing inflation is that instead of a lot of this QE winding up in asset prices and winding up in the financial system, a lot of it is getting injected into the economy in the form of business loans that turn into grants and helicopter money to consumers, extra unemployment benefits…

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You could have mid-single-digit sustained inflation with an occasional spike, especially in a yield curve control environment where they don’t raise rates to stop inflation. But, that could quickly get out of control if the global investors lose confidence in the currencies and bonds.

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You don’t want to rely on masks from China if you’re in a contest with China in a great war struggle. Even if it’s not a hot war if it’s a cold war you still don’t want most of your medicines made by your cold war antagonist.

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… it seems odd to me not to have, say, 1% in bitcoin because the market cap, right now, fluctuates between one and two hundred billion but gold's market cap is like ten trillion based on estimates for how much gold (above ground gold) exists in the world and what its current price is.

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Those supply chains for oil can be disrupted. We saw that happen in Saudi Arabia where they were attacked and they lost energy output. I do think we could see a period where we have more commodity scarcity this decade. I think there’s some of the tail risk to look out for is either certain commodity scarcity or how significantly we could have currency devaluations.

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… there are a lot of pensions that have to own bonds… We’ve had a forty-year global cycle in lower and lower yields so bonds have had a really great run. But now that bond yields are equal or less than inflation and debt loads are so high that they can’t really raise rates, I do think that there’s a pretty big risk to these institutions of having so much bond exposures.

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