What Happens When the Debt Finally Matters ft. Marvin Barth

[00:00:01] Marvin

The critical driver of inflation is expectations, nothing else. Like, yes, you can create inflation. Otherwise yes, there will be short-term shocks to inflation, but if inflation’s expectations are stable, inflation will come back to where it was. The problem is the Fed allowed inflation expectations to get out of control and that’s why we’re not going to get inflation expectations back down until the Fed does something about them.

[00:00:32] Intro

Welcome to Top Traders Unplugged. In markets success doesn’t come from predicting what happens next, it comes from being prepared for what you can’t predict.

In each episode we go deep with some of the world’s most thoughtful minds in investing, economics, and beyond to understand how they think, how they prepare, and how they decide, and the experiences that shaped how they see the world. No noise, no short-cuts, just real conversations to help you think better and invest with confidence.

[00:01:05] Niels

Marvin, welcome to the podcast and thank you so much for joining Cem and I for what I know will be a fascinating conversation with you. You come highly recommended by our recent guest and friend Dave Dredge. So, we are super excited to have you here. Marvin, how are you doing?

[00:01:21] Marvin

I am well. Thank you for having me on, Niels. It’s pleasure to finally come on the show. I’m a big fan. You guys have a great podcast.

[00:01:29] Niels

Thank you so much. Thank you so much. Has it been a quiet summer for you or has kind of the global macro environment sort of kept you from switching off completely?

[00:01:41] Marvin

Well, you know, I uncharacteristically decided to take a month off. So, for last month I’ve been off – supposedly off.

[00:01:54] Niels

Right.

[00:01:56] Marvin

And you know, one of the things I like to emphasize about my research is that it has a very long shelf life. So, you know, I routinely have people asking me for reports I wrote a decade or more ago because they’re still relevant. And so, what I did is I set up ahead of time a whole spate of emails every two days to all my clients and subscribers that highlight things going on and says, hey, here’s what I’ve written on that topic in the past and that’s been great. The more important thing for me is I have finally gotten a chance to just decompress and start to think deep thoughts again after what has been, I think for everyone, a frenetic 18 months.

You know, President Trump, whatever you think of him one way or the other, is a human volatility machine. In fact, I’ve described him as an antidote to Minsky moments. It’s impossible for too much risk to build up in the system with that guy there because there is something new every single day.

And even for somebody who, for the most part I would say, actually called everything he was doing quite correctly ahead of time, that didn’t help. It didn’t matter. Like, it’s just so frenetic. So, for me, contrary to most people, it actually has been a relatively quiet summer, just simply because I got to disengage for the last month, even though the rest of the world kept going.

[00:03:33] Niels

Yeah, indeed.

Cem, what about you? Any decompression in Chicago this summer, or…?

[00:03:40] Cem

I would say I’m in this brief little eddy in the river this summer. It’s been a busy, busy summer. My kids are back and my son’s about to go off to boarding school. So, this is a beautiful week or two of just reconnecting at 15.

[00:03:56] Niels

Yeah. Good stuff.

[00:03:58] Marvin

Fantastic.

[00:03:58] Niels

Now, since it’s your first time on the podcast, Marvin, I did want for the audience to get a little bit of a sense of your background. It’s pretty impressive. But instead of just doing the usual list of all the kind of prestigious jobs you’ve had, I thought maybe I could ask you to pick… And I know it’s a bit unfair when you don’t know that I’m going to say this, but maybe you could pick two or three kind of pivotal points in your career where you experienced something profound, maybe, that kind of shaped how you think today and which ultimately led you to where you are today and having set up thematic markets that you run today.

[00:04:46] Marvin

Okay, so let me start with something early, which was I largely worked my way through university. I worked, actually, a bunch of odd jobs, but I’ll highlight two. I worked in a Heinz tomato ketchup factory, and I worked as a commercial salmon fisherman in Alaska. And the reason why I highlight those, I used to leave those, particularly the salmon fishing, on my resume. Just because any job interview that immediate gives people a conversation point. “You are a fisherman in Alaska?”

But I mention it here because, you know, I think that’s given me a very different perspective than most people in markets. Most people in markets come from (this is not universally true), but come from very similar backgrounds, went to the same schools, did the same things throughout. And it limits their ability to see a lot of the social and political trends that you would see if you were working with different sets of people who are from socioeconomic groups that most people on Wall Street or in London never really come across. So, I would say that’s been very pivotal to my career, it’s just given me different perspective than most people.

The next thing I would say was going to the Federal Reserve. So, when I was at the Federal Reserve, I started in emerging markets. I was actually dropped into the hot seat. I was thrown in to be the Southeast Asia desk officer right in the middle of the East Asian crisis back in ‘98.

But as soon as that died down, I moved to what’s called the Financial Markets Group, which briefed the board every week on global market developments, foreign exchange developments, and was working very closely with the senior staff leadership. And the wonderful thing about that was we used to have this morning call to go over the morning operation.

Both of you are old enough to remember the Fed used to actually intervene in the market every day to get the Fed funds rate where it wanted, rather than this ample reserves policy they have now. And so, as a result, you had to have a call to approve what the program was for how much reserves they were going to add or subtract from the system. And you would have, you know, Karen Johnson, Mike Prell, Don Kohn sitting there with you. These people had each been, you know, the Barons, the three research directors for 20 years. They had more experience than anyone you’ve seen in your career. They’ve been through everything.

And you would every morning have a call and one of them would say, oh, yeah, this reminds me of the dollar crisis in 1978. And, you know, you just absorbed… It was way better than any economics lesson I could ever have because I had people who were in the room making decisions, who, three of them, teaching me firsthand about economic history of the basically post-Bretton Woods period.

And then the third point was, when I left the Fed, I had effectively sort of maxed out on what I felt was my learning curve and I wanted to try new things. And so, I left and I went with one of my former mentors from the Fed who had gone to Citi, and I followed him there. And for the first time, I was responsible for putting together sort of a general equilibrium view (if you sort of use economist speak). That is, how you put together the whole global view, how all these assets fit together.

Because the Fed, like most places, you’re relatively siloed, but I was in currency research and I had to actually figure out how it all came together. And I had all this training, but that was a real shock to learn how everything works together. So, I would say it’s those three. If you were going to pick three events, those would be the three that really had the largest effect on shaping how I think about the world.

[00:09:09] Niels

Okay, that’s pretty cool. All right.

Okay, so let me try and kind of set the scene for the first question or topic, and then I know that my good friend Cem will come in and we’ll go in different directions, and that’s going to be super, super interesting. So, you know, for the better part of three decades, central banks has kind of rested on a fairly powerful idea that if policymakers understand the economy well enough, set interest rates appropriately, and manage expectations carefully, they can smooth out the business cycle and keep inflation reasonably stable. That broad framework became kind of the intellectual consensus insight of central banks (you can disagree if you want later on).

But after years of, let’s call it extraordinary monetary policies and the inflation shock, we had many forecasting errors. And now we have Kevin Warsh openly basically questioning how the Fed thinks about the economy. It feels as though we may be confronting something much bigger than just the next move in interest rates. So, perhaps the question is whether the entire framework gave policymakers more confidence in their ability to manage the economy than just was ever justified.

So, Marvin, we could of course start with, you know, one way would be to say what exactly the new Keynesian economics promised us, and was the mistake the model itself, or that central bankers eventually started believing the model too much? Or we could get right into the current debate that’s happening among three people who used to work together, namely Stanley Druckenmiller, Scott Bessent and Kevin Warsh. Because I think that is also kind of topical at the moment. So, you can kind of choose your path here.

[00:11:08] Marvin

Yeah, so look, the only disagreement or quibble I might have with the way you frame the question was that it’s been three decades that economists in central banks have thought that they can manage things. Frankly, it goes back many more decades than that.

And of course, the last time they really thought they understood what was going on was the 1960s. And of course, that’s when they sowed the seeds for the great inflation that they had because nothing brings you down like arrogance. Right? This is like a rule in life. And I think that’s the underlying problem.

And the reason why I bring that up is because the exact same thing happened. You went through a period of, you know, critical thinking in economics. What did we get wrong? How did we do this? And it sort of diverged. You had big debates within economics through the ‘70s and ‘80s, into the early ‘90s. In the meantime, you know, Alan Greenspan came in and yeah, there were a lot of really sort of fortuitous tailwinds for him. But the fact was, Alan Greenspan was actually a really interesting guy. I mean, I’m still a huge Alan Greenspan fan as a central banker.

He wasn’t a particularly nice guy personally, by the way, but he was a fantastic central banker for all the people want to complain about him. And part of that was, is that he did accept that we didn’t know everything. He didn’t succumb to that arrogance problem. But he managed the economy so well. And in the background, other economists were coming in and bringing in this new Keynesian framework beginning in the 1990s.

And people started to think, especially in academia, that, wow, we really nailed this. We really know what we’re doing now. And the new Keynesian synthesis offered an amazing number of really powerful insights into economics. But it has a lot of flaws. And most importantly, it is a model. It is not reality. And it’s always really important to keep that in mind.

And I think a lot of people lost sight of that and tried to apply it much too directly to the economy. And we’ve seen the results of that. We’ve seen error, after error, after error. And it results from the same sort of hubris that we saw before, that effectively there was this belief that somehow economists had all the knobs and dials and they could just turn everything as they needed to and get the economy to exactly where it worked.

And when it didn’t work out, they said they never lost faith in themselves. Right? They would always say, we just need to try this new thing from our model, or this path. Right? And so, I’ve used this analogy for regulation as well in my writing, but it applies very well to this situation. I don’t know if you, either of you have ever come across this story about that there once was this little old lady who swallowed a fly, and then she swallowed a spider to swallow the fly, and then she swallowed a rat to swallow… and so forth, and so on, until she swallows a horse and dies. This is exactly what has happened with central banking.

Oh, well, you know, we’ve lost control of interest rates, so let’s try using our balance sheet. Oh, well, our balance sheet isn’t working well enough. So, let’s try doing it in much larger size. Let’s try yield curve control. But go through all these lists, and a lot of that comes just from hubris and the domination of central banking by increasingly…

You know, I go back to one of the questions you asked, or the question you started with, Niels about having a different perspective on life. Almost everyone in central banking today comes from the exact same background, studied under the same thesis advisors. They’re all PhD economists for the most part. And so, they all have bought into this. They have such incredible groupthink around this. So, the hubris plus the groupthink is a real problem. And I think that’s what Kevin Warsh is going to challenge. We can take that wherever you want from there. I think that’s the setup for the problem.

[00:15:33] Niels

Yeah, I mean, before Cem jumps in, maybe just on that note, I mean, you say they all studied the same books, but here we have, you know, three guys, Scott Bessent, Kevin Warsh and Stanley Druckenmiller, who all work together. And again, I’m not an expert like you are in these things, but it kind of strikes me that I think Scott Bessent was at Soros when they broke the British pound, and now he’s sitting kind of in the opposite seat trying to tell his former mentor and former colleague that maybe this thing about market deciding where rates should go, maybe that’s not a good idea. I don’t know. I mean, I’m just jumping in here because it’s a story that popped up in the last 48 hours.

[00:16:25] Marvin

Is he trying to say that? You had a really excellent podcast last week, by the way, with Mark, where you went through the plumbing and everything. And I thought he alleviated a lot of myths about this treasury buyback problem. And I thought that was really great, but I would go even further.

Like, you know, first of all, the first biggest point here is that even with the doubling of size of this program, it’s US$48 billion a year in a US$30 trillion treasury market. Anybody who thinks that’s going to determine interest rates or shape the yield curve literally has no idea how markets work. I mean, that is just absolutely insane.

The program, its entire design is to increase liquidity and off-the-run issues. And that’s what it’s doing. And oh, by the way, it’s working. Look at the on-the-run and off-the-run spread, right. I mean, all of these things have gone well. So, that is not somebody who is saying I’m going to thwart markets or I’m going to overcome markets. It’s somebody who’s saying, look, we need to support treasury bond prices across the spectrum so that investors in them know there’s a liquid market.

That has always been Treasury policy, by the way. And the US Treasury did the exact same thing back in the early 2000s, and nobody complained about it. Nobody thought this was some sort of great manipulation. It’s really about what any good debt issuer would do, who’s a large debt issuer, is managing your debt so that it is liquid and so that people want to buy it and pay the highest price possible for it.

[00:18:15] Cem

All right, I’m going to jump in. You haven’t heard from me yet, Marvin, but I’m going to have a little bit of a bone to pick here.

[00:18:23] Marvin

Please.

[00:18:23] Cem

That increase from US$2 to US$4 billion doesn’t matter. It’s like a fart in the wind. It doesn’t matter. But he said himself, and he knows very well that it’s all about signaling.

[00:18:37] Marvin

Yes.

[00:18:38] Cem

And that’s why it’s important. Most people don’t understand this, but markets have gotten so big, both the bond market and the stock market have gotten so big relative to 10, 20, 30 years ago, that all that matters, period, is the movement of markets themselves. I’ll give you an example as it relates to equity markets. Equity markets are now US$150 trillion public, US$300 trillion public and private.

When it goes up 20%, like it did in two months, just a couple months ago, that’s US$50, US$60 trillion, US$250 to US$300 trillion of new collateral in the system. The US$10 trillion of fiscal spending we did, over the course of the next decade that caused all the inflation everybody talks about, is 20% of that number. It’s not about the dollars, it’s about signaling. That’s why we have a hedge fund manager as head of the Treasury. That’s why we have a hedge fund manager now at the head of the Federal Reserve.

They know it’s not about their actual policy anymore. It’s about the signaling mechanisms and they being the incremental buyer/seller to shift and turn markets. You can watch what Bessent is doing day to day, and what he’s doing is managing markets with narrative, with signaling. That is the whole point.

And so, I hear you, that people can argue all they want about, oh, well, it does increase liquidity, it does… Like theoretically, if you draw a curve, blah, blah, blah, blah, missing the whole point. It’s the intent. It’s what they’re trying to signal to the market and what they’re trying to accomplish, I think, that really matters there.

[00:20:20] Marvin

So, I don’t disagree with anything that you just said. In fact, you know, I’m thankful that you said it because this is one of the things I keep trying to emphasize over and over, is that it’s expectations that matter, not flows. I think all three of us have been in markets where you can see the price move dramatically without a single trade because information and expectations changed.

You’ve also seen especially… I don’t know how much either of you have been in foreign exchange markets. I used to sit at two of the largest foreign exchange dealers in the world and watch literally hundreds of billions of dollars flowing through that desk. And the price doesn’t move because no expectations change.

So, I totally agree with you. It’s about expectations. And I think that is exactly the signal he’s trying to send. And I think this is foreshadowing, if you think about that. Let’s sort of go back to Niel’s question. We have these three people who, together, do we have a group think problem? I don’t think we have a group think problem. I think we have a coordination expectation.

And if you’ve listened to both Scott Bessent and you’ve listened to Kevin Warsh, remember Kevin Warsh actually resigned from the Fed in 2011 over quantitative easing. He said this was a mistake. And by the way, if you go back and read the transcripts from that period, everything he said is exactly true. He forecast the next decade and a half extraordinarily well. Let’s give him credit for that. I’m not sure I’ll call him a hedge fund manager, as you did, Cem…

[00:22:09] Cem

He worked under Druckenmiller. That was the definition.

[00:22:12] Marvin

Yeah, exactly, but I think there’s a big difference between, say, he and Stan and Scott. I don’t remember him ever being a PM.

But anyway, the point is, all of them have talked about, we need to get the Fed out of market. So go back to Niel’s original question about the hubris and how we got to this position and the mistakes that they’ve made, and you built up this massive balance sheet. Bessent has talked about the need to slim it down. Warsh has been very consistent on this over at least 15 years of his career.

We’re going to a world where they’re going to have to slim that down. If you were, as Scott Bessent calls himself (rightly, frankly), the US’s top bond salesman, what would you be trying to do? You would be trying to convince everyone, signal everyone. We’re going to make sure there’s as much liquidity in this market as we can, because we’re going to need it.

[00:23:14] Cem

Yeah, but I want to be clear, that’s a difference, and I believe this is true with Warsh as well, signaling and trying to convince. And we can get to the Druckenmiller Wall Street Journal op ed as well. To me, that’s very clear. Signaling right before Jackson Hole. It is about signaling. It is not actually about policy itself. And I think that’s a critical distinction that people don’t get.

If you think that Warsh thinks we should go to massive austerity to solve this problem right now, they can get on their theoretical high horse and put themselves on a mountain and say we need to be more disciplined and convince the world that the US is going to try and be more disciplined. But if you think the way out of this is austerity, I’ve got a lot of history to show you that doesn’t work and that’s not going to work. And they know that same exact history at this juncture.

Now, at some point, if we had started with austerity, if we weren’t in this mess to begin with, sure we should be fiscally disciplined. But when you’re sitting at this point, with debt growing as a percent of GDP where it is, and a percent of the budget, with inflation structurally because of populism (which I know you agree with) structurally being higher, with a market that’s too big to fail, which we just talked about. 20% moves in the market determines, you know, US$50 trillion of change of collateral day to day, populism building and political need to take money from the rich and move it to the poor, politically.

And a competition with China, which is forcing investment. And then you’re going to turn and say we need to go to austerity, how’s that going to play out?

And so, my point is they know that is not currently… It is a form of narrative that is out there to help preserve and help them manage through this process, in my view. And if you don’t have somebody there that’s playing good cop, defending some level of conservatism, some level of responsibility within this organization, Bessent can’t do his job, which is to shoot the gap and print money. And eventually that’s going to force Warsh into this picture as well. And I think this is where we meaningfully disagree. I’d love to hear your thoughts on that.

[00:25:56] Marvin

Okay, so, I think there’s a few points of disagreement that we might have in there. So, let’s start with the first one and I’m just going to lay some of these out and knock them down. Then you can lay out.

The first one is your point about austerity. So, this is one where actually the empirical research and, from my perspective, the theoretical research as well, is very strong and it goes counter to the consensus into what you’ve said. So, there is an immense volume of cross country, through-time, over like 50 years of macro research, almost 30 countries, looking at how highly indebted countries get out of debt and which policies are most growth positive for that. And it is without… there’s no question, this is absolutely crystal clear. The best way out is to radically cut spending.

And we just saw an example of that, by the way, in Argentina. You get a short, sharp recession that lasts maybe three, six months maximum and you immediately rock it off and you solve the debt problem. That is the only path that has ever worked for any highly indebted country, and it has the lowest growth cost. So, this is the only possible path.

Now then we get to the reality which is are we going to actually be able to do that? You know, Congress doesn’t seem to have seen that and, you know, sooner or later they are going to have to deal with that. And that’s where, potentially, I’m not sure, but you seem to allude that we might have a difference on that one.

From my perspective, you know, the central bank cannot, unless you want to start a hyperinflation, the central bank cannot participate in this process. If they do, that’s how you start a hyperinflation. Because we go back to your earlier point about expectations. What is a hyperinflation? A hyperinflation is precisely when you believe that the non-coupon bearing instruments, the government issues, i.e., currency, are exactly the same as the coupon bearing ones. The difference is that they don’t have a fixed maturity date on them.

So, in normal day to day actions, when everybody thinks they’re money instead of a zero-coupon bond, we’re all willing to accept them and prices are relatively stable. The second people start to think that they’re a debt instrument, they become a zero-coupon infinite lived bond. What’s the price of that? Zero. That is a hyperinflation. That’s the definition.

So, the best thing the central bank can do all the way up until literally the moment of you’re going to default or you have to hyperinflate, the best thing the central bank can do is do everything it can to practice sound monetary policy to keep term premia down. If they don’t, the game is already lost.

And so, the point around that is that unless Congress gets the primary deficit, which you go back to Bessent’s original message 333, those numbers didn’t come from nowhere. If you look at what a 3% fiscal deficit is, it’s effectively a zero primary deficit. That is a noninterest deficit of zero. Your spending and receipts equal each other than interest expense. And if you get there, the math on US debt actually works. The problem is we spend more than we take in and that’s got to correct.

So just one final point on that. In many ways what I see the Trump administration writ large doing (and this is not an endorsement for him or otherwise, this is just what I think they’re trying to do), is that on the international side, you mentioned international competition and defense that we have to expend.

On the international side they see that China has been in economic war with the US for 30 plus years and has eviscerated its manufacturing and now has, actually, a clear advantage in the western Pacific and is moving very quickly towards a global advantage and they need to re-industrialize. But that’s going to take a decade or more.

So internationally they’re trying to prevent World War III, or direct conflict with China, before that happens while the US rebuilds. And I think, to your point, what I see the economic plan as being is that they do recognize they are going to have to consolidate the budget deficit and that’s going to come after the midterms if they win, which is a big if.

But in the meantime, they need to keep the bond market from rebelling against them, which goes to exactly the signaling plan that you were talking about before. So that’s where I would…

[00:31:25] Cem

So, let me give you my framework, and I want you to pick bones, because I think that’ll be easier. My framework is that there are five major pressures in the system. Okay. I kind of named it before. One, accelerating debt – that is becoming too big a part of the budget. That’s unsustainable. That’s obvious. Two, structural inflation – which is tied to populism and protectionism. Which we can get into, which also pushes global conflict, etc. which are all driving structural inflation. It’s the same thing as we saw in the ‘60s, ‘70s, to a T. We’ve seen in other periods as well. Populism itself, which means politically the entities that are, you know, Congress, and the entities that have to make decisions, are hemmed in because they’ve created inequality and they have to address it politically.

For a market that is just too big to fail, they cannot allow equity markets to decline because the leverage and the size and scale of what’s happening there can cause not just a slowdown or a recession, but truly a depression because the amount of capital, all economic output, the majority is driven through CapEx, which is driven through the capital market, the equity, the market channel at this point (It didn’t used to work that way).

China, we have an increasing, accelerating conflict with China. And all of these pressures are influencing one another and accelerating. They’re not just pressures, they are accelerating pressures. They’re forcing an outcome. If you put this into an AI model, if you think it through, there’s only one way out that fits all these things. And the only reason we can do it is because the US has the exorbitant privilege of the US dollar, which is to print and drive investment directly through equities.

The sovereign wealth fund that they’ve created, the Trump accounts, everything is falling down the same path that Japan essentially went down. They’re going to do it without the Japanese central bank, by the way. Not through the central bank like Japan did, over 8% of the Nikkei. We are going to do it through a sovereign wealth fund and through printing money to fund it. There are major risks to this, major risks. Which is why the US has to… the real battle is over the exorbitant privilege of the dollar. It’s about the currency itself. The US is in Iran to underpin, a la Kissinger, the petro dollar. We are in Venezuela to stop China trading yuan. We have done the work in Panama and Indonesia etc. to control trade. That’s my view.

This ultimately is a path that we’re leading down where they’re going to hold the long end of the curve where it is. And what they’re doing is already signaling that. They already put a Hank Paulson, they trotted Hank out there three months ago to tell you, a coming treasury crisis is on the way. We need to create (in his words, not mine) a facility to backstop the treasury market. He’s not going on there without talking treasury. That’s a trial bullet.

So, my view is that the set is doing exactly what they told you they’re going to do, which is do whatever they need to do to hold down interest rates along the end of the curve that amounts to QE, and eventually Warsh… Warsh is the fly in the ointment, if you think about it, just in terms of the narrative that you’re talking about. And that’s why my view is that he’s just there to play kind of, ‘we are a responsible bunch and we are going to be responsible until we have to react’. Because if it’s just all profligacy, not thinking about just Bessent and printing money, then there’s a much quicker bond crisis and becomes harder. You need a gas and brakes, gas and brakes, gas and brakes to manage this. That’s what Warsh is. It’s a good cop/bad cop routine. That’s my view.

Pick bones in it. Tell me your thoughts. I’d love to hear how you think about this.

[00:35:27] Marvin

So let me give you an alternative.

[00:35:30] Cem

Love it. Let’s go.

[00:35:31] Marvin

So, in some areas we’re clearly aligned. I mean, I would say absolutely, the debt is a problem. I mean, that’s what I was saying before. Until they actually solve the primary deficit, it doesn’t matter what they do. This ends in a default, a hyperinflation, or they actually do close the deficit. Those are the only three options. Those other things you’re talking about can delay things, kind of put things off, but there’s no other options. When you have a fiscal debt like this with a primary deficit of that size, it’s the only three options.

We both agree on China. Look, the state capitalist system has been the first real serious threat that liberal capitalist democracy has faced in 200 years. And it’s really good at allocating capital to things that provide state power. And that’s something that only liberal capitalist democracy had been most efficient at doing before. So, you need to address that problem.

Populism, this is one where I think that we disagree. So, you know, I think you’re aware I’ve done a lot of research on populism. It’s one of the things I’m most known for, this politics of rage (as I termed it a decade or more ago), and inequality feeds into it. But inequality is not the problem. The issue is, inequality of representation or a sense of disenfranchisement.

So, when the average person on the street doesn’t feel that their elected representatives are actually representing them, they are disenfranchised. And, you know, this is one of the reasons why immigration has been a touchstone for every single populist movement around the world, is because if you look at polling in Europe, in the United States, everywhere. I can point to polls consistently, back since the first polls I can find, back in the 1970s, somewhere between 60% and 80% of Americans have asked for less immigration since the 1970s at least are the first polls I find of this. And yet what have we gotten? We’ve gotten more immigration.

This is not a statement from my perspective about whether immigration is good or bad. It’s just saying that clearly our elected representatives didn’t care what the people in the United States thought on that issue. And we can go down the list of all the different issues, but immigration is a touchstone because our elected representatives across western democracies have not represented the underlying populace on that. And you don’t have to agree with whether that’s good or bad. It’s just a fact. Okay? And so, you know, that has been the critical driver.

And when you think about that, it comes down to some of the problems that I have with your inflation point and your populism itself point. So, there are different veins of populism. So, we’re seeing a rise, not just in the US with the democratic socialists but also with elements like Die Linke and in sous-science, in France, and other places, a rise of left-wing populism.

Now, left-wing populism is much more about spending. But if you look at the right-wing populace, I wrote a report a year or two years ago where I went across all the different governments that actually have populace in control (this is, by the way, before Trump 2.0, which has had a different effect, obviously), and they actually, in every single case they actually cut spending. Right? The right-wing populists do cut spending. In fact, the best example is Italy. Italy is now fiscally sustainable now because a year ago Giorgia Meloni had one of the largest fiscal consolidations in OECD history. Three and a half percentage points of GDP in one year. By the way, Italy outgrew Germany that year, outgrew most of Europe that year. To my earlier point about…

[00:40:29] Cem

But that’s not actually populism, saying to the world that you are populist and then doing not populist policies doesn’t make you a populist. And I really want to make that point because when you say right-wing populist… by the way, the definition of populism, by definition, left is a kind of a more fair, more equal system, helping improve the distribution for the people. The right is doing things where you’re cutting spending and sending money into the CapEx capital channel, which is what they’re trying to do now while having populist rhetoric, doesn’t make you a populist. I just want to be clear. It may be good for GDP growth. Actually, I think it is. It is good for GDP growth. It’s good for the system working better, ultimately.

There is no such thing as fairness, Marvin. Fairness doesn’t exist. Your mom told you that when you’re a child. You know, life isn’t fair. And the whole problem with populism is it fits into a system of competition and survival of the fittest that is unfair. And when you introduce populism, it slows things down. It’s that simple.

It’s not about GDP growth. It’s about the difference between mean economic growth, mean outcomes and median outcomes. Populism is about prioritizing median outcomes, not prioritizing mean outcomes. And they’re different things.

So, to put up a straw man and say GDP growth has been better than you do right policies and say they’re left. I’m just here to tell you that right-wing populism, as you’re defining it, is not populism in the sense that we’re defining it, which is sending money to the market, to the capital channel, and stopping spending for the poor.

[00:42:06] Marvin

I think you’re taking a very narrow definition of populism…

[00:42:12] Cem

How would you define populism?

[00:42:13] Marvin

… focused on left-wing populism. I would go back to my definition, which is it’s a demand for people to represent their wishes. And I agree with you. Your point about median versus average GDP is a good one. And you do see this. These right-wing populists actually are focused on exactly those issues. They just don’t think that the government spending is the solution. They understand that that’s an unsustainable problem.

And so, if you look at MAGA voters, what were their two single biggest things in the 2024 elections that they wanted more so than anything else? So, this is your mostly working class voters (and by the way, increasingly of all different races) and what did they want? Number one, they wanted someone to tackle inflation because they do not like inflation. The populist right hates inflation. This is their number one issue. Number two, federal spending. They see federal spending as basically a giveaway to the corporations that doesn’t benefit them. Those are their two biggest things.

So yeah, you’re right. They want to raise their incomes relative to others, but it’s because they feel the system is rigged. This is one of the points about the whole Epstein focus. They think that everything is rigged against them and they want their fair share, which is part of why they want to close off borders, have less competition from immigrant workers, have less competition from foreign trade and raise their wages relative to the elites in their society. That is populism. It just doesn’t necessarily mean you have to spend more.

[00:44:07] Cem

So, this is, I think, an important distinction because you’re defining populism as what the people want, not in a classical definition of populism, which is where it’s a more fair or more equal system. And I think the second you go to polls of what people want and not actual economic outcomes, which is I think what you’re saying, because you’re highlighting what the people want and they’re giving them what they want. I understand the political realities of it. And I understand also that the people may want something that does not actually make it more fair for them. And I think that is part of the trick here.

There are some great contrary things between what the people want and what is actually better for them. I think we could both agree on that. That doesn’t mean they’re wrong or that they shouldn’t want. And obviously, politically that sounds awful, the people don’t know what they want. But I’m telling you if…

[00:45:08] Marvin

By the way, that seems to be the anti-populist line, is that we shouldn’t give the voters…

[00:45:13] Cem

This is incredible, no, no, that’s not what I’m saying at all. My point is I agree that you’re not…

[00:45:19] Marvin

Hold on, can I stop you there for a second, Cem? Because your actual definition you gave is exactly what I said. You said it’s that the people want a fair system and they don’t believe that it is because their representatives are not representing them, or the bureaucracy doesn’t, or otherwise. What I think our difference falls, and this is why I said you have to look at the difference between the left and the right populism, is that the right-wing populism honestly believes in ‘teach a man to fish, they’ll eat for a lifetime’. And if you have a fair system that will work. So, they don’t need the government handouts, they don’t want the government spending. They want people to have a fair opportunity to fish. The left-wing populace want to raise median incomes by giving a man a fish. You seem to think that is…

[00:46:13] Cem

No, I disagree with that. I think there’s an embedded political bias on what you’re saying. I really do, and I want to make sure that we’re addressing that. Which is assuming that the left just wants to give the fish, funding education, funding health care, funding things… And by the way, I grew up in a Republican household. I’m a free markets guy. I want to be clear from a classical definition, I’m a ‘right’, I believe in the free market channel as the only natural way to do things. But it is naturally unfair. I want to be clear.

But the idea that… There are multipliers, this is well documented where if you spend money in a way that helps improve outcomes (again, healthcare, education, infrastructure, we can keep going), those things actually help the whole. There’s a multiplier on them. And the idea that, no, no, no, we need to go to the free market channel exclusively because otherwise we drive inflation – that drives wealth disparity which we’ve seen now for 40 years. Monetary policy, the whole structure of the Federal Reserve is one tool – monetary policy, which is supply side economics, which drives inequality.

That is very clear. And at this point to say okay, we’ll just let the free market deal with it. That’ll be better for GDP growth. Better for who? Better for who?

[00:47:39] Marvin

So, I didn’t say let the market go. I said what are their relative…

[00:47:45] Cem

How is the right teaching the people to (sorry to interrupt you), to fish? I want you to take your metaphor and tell me how the right based policies are teaching people to fish as opposed to giving.

[00:47:57] Niels

And we are talking to a prior fisherman. Let’s just not forget that.

[00:48:03] Cem

True. Yeah, what’s your Alaskan fishing metaphor, please? Yeah, precisely.

[00:48:11] Marvin

So, rather than say that, let me give you an example. So, we can both agree that if you give workers more capital or you give them more training, education, all those things, their output is going to go up. And if there is a fair and equitable (and we can debate what is fair and equitable and whether the market would get there) sharing of the increase in output, that real wages go up. Does that… we both agree with that?

[00:48:43] Cem

How you give people the money is important. So, I just want to be clear. If you give it to them as checks. So, I don’t want to be put into like a toy model here, which it is not it, but go ahead.

[00:48:57] Marvin

Okay, but the key point is you do agree, because you just said that, if we give more education to people, if we give them better healthcare, all those things, we’re going to get better outcomes in terms of the economy. And most importantly, we would hope, if there is a fair system for distributing that output, that, actually, the median wage is going to rise. Correct?

[00:49:21] Cem

Correct.

[00:49:21] Marvin

Do you then agree that if we put every additional dollar we had into more education that we would still keep getting those outputs?

[00:49:34] Cem

Of course there’s diminishing returns of scale, but there are lots of other things that we can do.

[00:49:38] Marvin

Hold on. Okay, I just wanted to go there because there is, actually, a huge vein of research that looks at this across different localities in the United States, across different localities in Switzerland, where Niels is, that are the two countries that have a combination of direct democracy and republican democracy. So, republican or representative democracy is you elect a representative to go make decisions for you. Direct democracy is you have a referendum and everybody votes on it and decides on it.

When you mix those two things, guess what, you get far better outcomes because the representatives, because they are always our elites, do run away and represent their own interests and skew the system so that sharing of the output is always in their favor. It doesn’t matter what system, whether it’s a socialist system or purely capitalist system, they make it so it benefits them relative to everybody else.

If you mix in direct democracy with it, if you go too far to direct democracy, the government is nonfunctional. You get Poland in the 18th century or 17th century. But you mix the two do, it’s like the direct democracy, the referenda are basically a check on, hey, you guys went too far that way, come back this way.

[00:51:01] Cem

We 100% agree.

[00:51:03] Marvin

If you look at the data on that, the places, the cantons in Switzerland, the counties in the United States that have the most mix of direct democracy and republican democracy have the highest productivity, they have the best infrastructure, they have lower government spending, they have happier people like you go down the list. It’s literally way better. So, this is, I think, the crucial issue that I’m facing.

[00:51:37] Cem

We both agree here on this.

[00:51:37] Marvin

Exactly. Populism is about, you’re not being represented appropriately and you think the system is screwed against you. And maybe I was a little bit cavalier in saying teach a man to fish versus give a man a fish, but that’s a rough delineation between the populist right and the populist left. And you’re right, it is a political viewpoint.

[00:51:58] Cem

I agree 110% with you, that the answer is in the middle. And it almost, by definition is, because it always is. We know that. But the reason is because free market economics are the state of the world and to divorce yourself from it altogether is incredibly inefficient and does lead to worse outcomes. Fairness is not a natural construct. I want to be very clear. And that’s why… We as humans though, there is a balance that needs to happen. And if you go to just right-wing policies, or republican, or even just representative democracy without the democracy (which is what I think you were originally arguing), what ends up happening is absolute power corrupts absolutely.

And so, your point that, you know what, I don’t think that populism is about inequality, it’s about how people are represent it. That’s like divorcing two parts of the same coin. Power, populism, inequality, by definition drives absolute power, that means people don’t get represented. Absolute power corrupts absolutely. There are two sides of the same coin.

So, my point to you is, in a theoretical world, is it the feeling of disenfranchisement or is it the inequality itself that matters? The truth is both. I don’t disagree with your point. I just think it’s also part of the problem. People do, we are relative value machines. We look around at where we are relative to others and we size our status and self-worth and feeling. We are kings relative to people 10 million years ago, a thousand years 100 years ago, sorry, but we still have 10,000 years ago. We’re definitely kings relative to 10,000 years, but 100 years ago…

But the big idea here is that we look at each other relatively and judge our status and our feeling of self-worth. That’s true, but at the same time, I agree with you, it is also feeling disenfranchised that is a major driver. They’re both true, both can be true, but they are also intrinsically connected. So, I think to say one is…

[00:54:05] Marvin

Exactly, no, no, but we were sort of belaboring this point on the definition of populism. And that’s why I was saying there is this difference here. But what you just said is exactly the point, is that whether it’s to a socialist society… We have very socialist countries in Europe that are undergoing populism. We have very right-wing countries that have populist movements. Even within Switzerland, which has had much less, you do actually have a populist movement there.

The point is, in both cases the elites are always going to shape things to benefit themselves and that is going to drive a difference between median and average outcomes and different solutions.

[00:54:53] Cem

But my final point here, and then we can kind of take it from here on this point, is that right-wing populism is simply not populism in the sense that it’s helping the poor, or inequality, or even making people feel more seen, because those two things are intrinsically connected. Right-wing populism is a wolf in sheep’s clothing. It is simply telling people, you want X, we are going to give you X, we’re going to give you less inflation, we’re going to give you a feeling of more representation. But at the end of the day they’re lot is not better.

It’s still going to go to the free market channel. And we are at a point in history now where all we have done is right-based supply side economics, which is just the free market system. It is driving money to capital. And why? Because the incentive, not because they’re evil, not because they’re corrupt. You know, that happens as well, but the main reason is because the incentives are messed up. The Federal Reserve and the whole system is driven to smooth the business cycle and to not have a crisis in a system that natural selection drives; free market economics, drive better GDP outcomes and absolute power corrupts absolutely.

So, we end up in a loop, and inequality grows, and grows, and grows, and, by the way, creates a sclerotic system because we never get a crisis that drives more equal treatment under congressional rules. The Federal Reserve was created to smooth the business cycle. Great idea. Sounds wonderful. In theory it’s great. But the problem is the US system was built to necessitate crisis in order to drive change.

By definition, like they created a system that they could not pass laws because they didn’t want absolute power, they didn’t want tyranny, absolute power to corrupt the system. So, they said, well, guess what, when things get bad there’ll be a shock absorber. If there’s a crisis, then we’ll come together and pass laws to change things. We’ve just stopped clearing the underbrush because we’ve created a solution that is nondemocratic. And in the process we get right policy, right policy, right policy. And then when populace comes the rights policies they put on their sheep’s clothing and say we’re right-wing populace.

[00:57:21] Niels

Now I really hate to break this up because we could go on a long time. Now, since Marvin is officially the guest here, I will give you.

[00:57:29] Cem

Sorry, my apologies, a very fair point.

[00:57:32] Niels

I will give Marvin a chance. I will give Marvin a chance to a small comment, but I do want to pivot to one other point where I’ll be very interested to see what you come up with here. I think there may be a little bit more alignment on that one, but this is fantastic.

But Marvin, by all means, final thoughts on this before we move on.

[00:57:59] Marvin

I will just say that I think we disagree on definitions. That’s most of what’s going on there. And what you think is right-wing populism, I don’t think really is because I would highlight that, you know, Donald Trump has been talking about… And there are lots of things he talks about, and people say he doesn’t keep his promises. But I do, actually, think this is one of those things that represents exactly his voters. It is exactly what you’re talking about in terms of that redistribution. He’s talked about removing income taxes for the bottom 90% and raising taxes on the top. This is right-wing populism. It is exactly what you’re saying. It’s just not about the government being the sole focus.

So, I’ll just leave that there. I would say, to a market focus, the problem with inflation goes to our earlier conversation, Cem, it’s really about expectations. So, this is what I really strongly disagree with most of my colleagues in economics about. And the odd thing is that, in theory, none of them disagree with me, but in practice they all seem to do, which is that the critical driver of inflation is expectations, nothing else.

Like, yes, you can create inflation, otherwise yes, there will be short-term shocks to inflation, but if inflation’s expectations are stable, inflation will come back to where it was. The problem is the Fed allowed inflation expectations to get out of control and that’s why we’re not going to get inflation expectations back down until the Fed does something about that.

[00:59:46] Cem

I would just argue (last thing here) that they don’t actually want to tame inflation. That I think the assumption that they are trying to tame inflation is the whole problem. I think the only way out of this mess at this point, to kind of your point, you got to hit bottom. You got to kind of clear the slate one way or another. You said through austerity, I’m actually saying through monetization of the debt, which is another side of that coin. And by doing that…

[01:00:17] Marvin

You don’t solve the problem though, because you still have to borrow. You can never solve the problem through monetization until you get primary deficit to zero. That’s the only possible path.

[01:00:28] Cem

If we were the UK or if we were Zimbabwe, I would agree with you. The difference is the US has the exorbitant privilege of the US dollar. It’s the same way Japan worked its way out of this, if it can, if its currency is not going to fail, at the end of the day you can monetize the debt. And the US has done it before.

[01:00:48] Marvin

Nobody’s going to hold the debt. Nobody’s going to hold your currency abroad if you do that. This is my point.

[01:00:54] Cem

That would be true for most countries.

[01:00:57] Marvin

It will be true for the US as well.

[01:00:59] Cem

Well, potentially so…

[01:01:01] Marvin

I think we have a clear difference in that the Japan example is not a good one because Japan is a net saver. They actually fund themselves. They don’t need anybody else to fund them.

[01:01:11] Cem

That’s why they actually had a worse outcome. Candidly, I think the US would have a better outcome.

[01:01:21] Niels

Well, the good news is we’ve already found the topic for our next conversation. So, that makes my life so much easier. Thank you for that.

I want to say a couple of things and then I want to bring home to the last topic and that is, it is great to hear that both of you are planning to come and live in Switzerland so you can experience the wonderful virtue of direct democracy, but anyway.

[01:01:45] Marvin

I have lived in Switzerland. I lived in Basel for a year. It’s a great country.

[01:01:49] Niels

Okay, good stuff.

[01:01:50] Marvin

Wonderful country.

[01:01:52] Niels

I mean having these disagreements is wonderful. But I actually wanted to go to the point of inflation as my last point, but in a slightly different way, so there will be more time to talk about these things. Because, Marvin, you brought up something, just before we hit record, which I think is critically important, not talked about much so far. I know you’re going to do some research on it. So, we’re not going to kind of go maybe completely overboard on this topic, but I think it’s important.

And that is, you told me that (and I think some people know) we’re heading into perhaps the largest El Nino ever recorded. That’s going to have some massive implications. Inflation could be one of them. Tell me, kind of broadly speaking, where you sit on that. I’d love to hear your thoughts of course as well, Cem, but let’s kind of take us into the inflation debate via El Nino.

[01:02:56] Marvin

Yeah, so what I think is really interesting about this El Nino phenomenon, this so called Southern Oscillation, which is basically a random weather pattern to happen throughout history. Happens once every several years where in the tropical waters of the Pacific where instead of, as they naturally do, drifting towards Asia, don’t, and pile up along the west coast of the Americas.

That totally changes the weather patterns globally. And it creates severe droughts in places like Australia, in Brazil, in the Mediterranean. It creates excess rain monsoons in India, in Southeast Asia. Interestingly, it doesn’t affect agriculture in the United States that much. In fact, actually you get more rain in California is the big upshot.

And that actually helps agriculture there. So, it’s not so much that you get, you know, a net effect of less grain output or less power output, as we’re seeing in Europe. You know, water tables are really important to not just hydroelectric but to nuclear power generation, all of these things. It’s that it changes the distribution of those things.

So, you may get that the net effect on wheat prices or soy prices or whatever is not particularly great, but it’s going to be really good for US farmers, really bad for Australia, really bad for Brazil. And you go around the world and who’s going to pay the price at a time when we already have a significant disruption in the hydrocarbons market from two different wars that have raised product prices around the world? It’s always going to be the emerging markets that are going to get hurt more by this.

So, I don’t think it’s a big inflation story for the US, although it could be. You know, basically what we’re doing is we’re expanding the volatility of commodity prices here. But it is almost certain to be a problem for a lot of emerging markets. And so, you’re going to have more inflation in those markets and worse economic outcomes, I think. And so, I think the bigger trade around this is a macro currency and debt trade, not so much a commodity trade.

[01:05:33] Cem

That’s very interesting. One thought here that may be interesting as you pursue this down the road, Marvin, and something I’d love to put out there is most people don’t realize… people look at the inflation from the ‘60s and ‘70s, and if you go kind of read what drove it, there are like three general things that you’ll find on your favorite AI or Internet and that’ll be, one, fiscal spending – Great Society program. Two, you know, a global conflict, so funding for the Vietnam War and all the disruptions that happen through that process. And three, OPEC crisis or commodity crises. Most people think these are all independent. I’ve been very vocal about how they’re all incredibly connected. There’s a reason we’re experiencing them all at the same time here. One, it all is populism. You and I go back to populism, right? If you have populism, you get protectionism.

[01:06:26] Marvin

I’m not taking the bait, Cem.

[01:06:29] Cem

We’re not going back there, don’t worry. But if you have populism (we’re not going back don’t worry), but if you have populism, at the end of the day you need protectionism to protect your people, right? It’s not about the people of the world, it’s about your people.

That protectionism, we’re seeing it with China now. We went from corporate expansion to, now, protectionism leads to global conflict. And the reason (and this is back to your commodity point), where the commodities are matters. We have more than enough commodities in the world, if we have open borders, for everyone. But when you go to a protectionist world, you get sequestered commodities and an inefficiency of the move of commodities, A. And B, because we’re at global conflict, people are, a la OPEC crisis, in the ‘70s, what we’re seeing now in Iran too, people are holding their commodities up as bludgeons and leverage over one another.

Your point about El Nino ties into that in a different way. In that yes, you can get like maybe equal production, but you if get haves and have-nots across the world, which you are, that would likely increase prices. Because what the net problem is there, is the haves aren’t going to just give away to the have nots, for nothing. They’re going to use it as a bludgeon. And that is important to the net supply of commodity. So, that’s an interesting point you make. And I just wanted to add that little wrinkle.

[01:08:06] Marvin

Well, I completely agree with that point. I would throw in, on top of that, the big difference with the 1960s and ‘70s is that we have lost the global order. So, for the last 200 years, you’ve either had Pax Britannica or Pax Americana that have given you freedom of navigation around the seas, for the most part, with the exception of the two world wars. And even then, you still had a fair amount of free navigation.

We don’t have that anymore. And it’s going to get worse. And so, you add that on. I would also say that you’re going to get differential price effects. That’s the whole point is. And it’s one of the things that, part of it’s simply been because China has decreased imports so much that you haven’t had a big effect on the US consumer. But I fully expected, when this war in Iran started, that if the price of gasoline rose too much, “America first” doesn’t mean anything if it doesn’t mean Americans get cheap gasoline and the US can produce all the gasoline it needs. I know there’s all these things about. well, it imports some in California and whatever. The fact of the matter is, for most of the United States, you are going to get cheap gasoline if they want to. Right?

And it’s an interesting measure of how benign this war has been that you haven’t had that happen. But I do think that is something that you should worry about, and it’s certainly something you should worry about when it gets to a critical issue like feeding people.

[01:09:57] Cem

Absolutely.

[01:09:58] Niels

Yeah.

[01:09:59] Marvin

Oh, and I’ll just throw in one other… just a little factoid there. What have been the two largest grain price disruptions in world history as far as we have data going back? Number one, the biggest grain, and by the way, biggest oil disruption in history was the Russian Revolution. Number two was the Great Grain Robbery in 1974, ‘75 actually, coinciding with the OPEC crisis, when the Ukrainian Soviet state had a bad harvest and the Soviet Union hid that from everyone and went out and bought up all the grain around the rest of the world.

[01:10:42] Niels

Interesting. Okay, gentlemen. I mean, we could go on for much longer, and I think we will take a Round Two in the not too distant future because this is great, this is important. And you really do know your stuff. So, I’m sure the audience is getting a lot from this.

Now, Marvin, we could have brought up… We could have gone in many directions. We only really managed to mention one, and then the fire was lit. Is there anything, before we finish up, that you maybe want to just mention as another thing, maybe something you’re working on or something you find important that we didn’t cover?

[01:11:26] Marvin

Well, I do think one of the things that’s been troubling me over this month that I’ve taken off has been that, after calling the Trump administration pretty well for the last 18 months, and the Fed, and the choice of Kevin Warsh, and how he was going to present things, and all his rhetoric and all that, I somehow completely missed the July meeting. I was fairly convinced they were going to hike at that meeting and not only did they not hike, but Kevin Warsh actually voted with the doves.

And that’s been a real challenge to my thesis. And so, I’m doing some retail thinking of that. What does that mean? And that’ll probably be the next thing that I focus on. If you wanted a brief answer on what my pre-thoughts on that are at this point, I think it probably has to do with managing small P politics within the committee that, you know, he has some bigger fish to fry and he wants to deal with those things, and felt that if he voted against the majority that wanted to keep rates stable that he would end up jeopardizing his ability to do some of the bigger picture things he does.

I think there’s also an issue of, he’s still waiting on these task forces to come in, and he’s got a very accelerated schedule for them. And I think part of the frustration of the July press conference is that he doesn’t want to, in any way, prejudge their work and force them into a corner by saying things that pushes them to certain outcomes. I think he wants to leave the door open.

So, I think we’re in for a period of a couple of months here, maybe three to six months, where we’re going to have a lot less guidance from the Fed, even given the abandonment of forward guidance. But we will come to a point where there will be a definitive set of recommendations and then I think he’s going to speak a little bit more clearly, and I think the direction of policy is going to be a bit clear.

[01:13:42] Cem

I think this is great. I’m glad you brought it up because I think this is the most important thing right now. And I’ve been on the other side of that coin. I’ve been very skeptical, as we already talked about – about who Warsh is and what he represents. I 100% agree, the narrative of war or who Warsh represents, which is, I think what most people truly believe him to be, like yourself, is the point. I do think that his role though, is as a foil to Bessent and not the determinant of the outcome. And I think it’s not just that he, in my opinion, it’s not just the politics that he’s bending to. There’s clearly more to it than that, in my view, because he’s also changing the inflation measure, very conveniently, to something that fits that policy view. He’s also changing communication explicitly to allow, to not force his hand, to allow markets to just adjust and not to be hemmed in.

There is a concerted effort, if you look at the whole picture, of stepping away, allowing less communication, allowing less intense inflation measures to hold him at bay, to avoid some level of accountability at this point, so he doesn’t have to act, in my opinion. And so that paired with the, as you said, the move from a less hawkish to a more dovish kind of stance, I think speaks volumes and reiterates my general view. We will see. But I do believe that’s what’s happening.

And I think Jackson Hole, which is coming up, is going to be interesting because I think he will actually reassert this Druckenmiller view to get people, because people are starting to wake up to this. They’re having this conversation, is he really hawkish, is he not, with people losing faith that he is. So, he will need to come in and reassert that vocally. Watch for that. I don’t know if this will come out before Jackson Hole, but we’ll see.

But the point is, I could see him rhetorically doing it, but then go watch his actions and I think his actions will continue to be the other way. I really do believe it’s a bit of a good cop/bad cop routine, because I do think there’s a general plan. And I do believe that Warsh is not over there on his own, not having talked to this, in a sense. I think to do that is very naive.

There’s a reason that they’re both coming from the same sphere. There’s a reason that they are kind of both hedge fund managers, the one in charge of the Fed one. These are not coincidences at this moment, by the way. Both were chosen by the same entities. Remember that this is not a coincidence.

They are there to navigate. And I don’t think this is like… If you put me in charge, I want some level of coordination and teamwork. I don’t want two people that are not going to agree and work together on behalf of America right now. But you do want people with rhetorically different views so that you could do ‘gas and brakes’ and manage what is otherwise a difficult situation.

That’s my view. We’ll see how it plays out. But I expect a reassertion of and I think that’s what the Druckenmiller Wall Street Journal op ed was. It’s to help us now step back into that narrative view, to have people like yourself come out and be like see he’s hawkish, I told you, fiscal discipline. And then watch what he does. Which will not be that.

[01:17:14] Niels

Over to you Marvin for the final, final comment here.

[01:17:19] Marvin

Well, obviously I disagree.

[01:17:21] Cem

Yeah.

[01:17:22] Marvin

Which, we’ll see how things work out. And by the way, look, there is this really important thing coming along that is going to be very determinant of many of the debates that we’ve had on here, Cem, which is the midterm elections. And, you know, if I am right that right-wing populism is actually the new labor policy. I mean I think this is actually the critical thing to remember about right-wing populism. They are all representing labor. They no longer represent capital. That’s the battle within the Republican Party between MAGA and the never Trump Republicans.

If Trump actually does okay, somehow holds the House and Senate, especially given that so far his endorsements have had a 100% successful rate in all those primaries, and in by elections, he’s going to be way more powerful and he is going to push a more labor agenda in that one. And that will help all of these problems. If he doesn’t then we’re not going to see this, and then you’re right. I think the plan doesn’t work very well.

I think at that point Kevin Warsh is a young, rich, good looking guy who doesn’t need anybody else. He’s not playing politics for anybody but himself and he’s going to be concerned about his reputation and his reputation is going to be made by how he manages inflation.

[01:19:10] Cem

We’re going to end this with an agreement which is I do (and a bit of a conceding on my end), there is such a thing as right-wing populism but works in one way and one way only. And I think this is what they will ultimately do. So, I think this is where we can find agreement, which is buy the people into the means of production, meaning into stocks.

The long-term view here and the way this works and the way they are going to shift to the left ultimately it really behooves the right and the rich even more than the left. But the least rhetorically, and to some extent in reality, a policy where you have a massive sovereign wealth fund on behalf of the people and you have Trump accounts on behalf of the people, short circuits the inequality by having everybody be owners of the actual equity. And I think that is the one way that this is likely going. It’s the only way out.

And I do think the sovereign wealth fund will be, eventually, at least in a decade, more than US$10 trillion here in the US, if you have a $3 trillion Norwegian sovereign wealth fund, you know, don’t think the US is going to do much more. And I do think that is the right-wing populism ultimate destination and where they’re going and that will be popular on both sides because it is populace.

[01:20:39] Marvin

Can I just say one quick thing, Cem and Niels, on that? There is an excellent op ed in today’s Times of London, by my good friend, James Kanagasooriam (and I’m not just recommending it because he quotes me in the article), but he actually addresses this right-wing versus left-wing and how they’re fighting over exactly the same voters for populism. He talks specifically about a lot of the proposals that J.D. Vance has that are specifically along the lines of what you’re talking about, union representative on boards, things like that. It is exactly what you’re talking about, Cem.

[01:21:16] Cem

Yeah, this is where we’re going. I actually call it… You know, China did capitalism with Chinese characteristics. We were actually heading towards socialism with American free market, American characteristics. We’re meeting them in the middle because it’s clearly, as you mentioned, the greatest threat to kind of democracy and the capitalist democracy, democratic system. So, they see it working. There are lots of reasons to move in that direction.

[01:21:41] Niels

I don’t think we could have a better way of teeing up the next conversation. And frankly, I’ve never seen so much energy, you know, going on in an episode. It’s been absolutely fantastic.

So, thank you both really for doing this. I’m sure all the listeners will highly appreciate this. Now I’m going to make it short. We’ve gone long, so I’m going to make it short.

First of all, everyone should go and follow both Cem and Marvin’s work over at Thematic Market and obviously Cem is very prolific on Twitter, so please do that. I think that’s pretty much it. I’m just going to say thank you so much to both of you.

Thanks to all of you listening. We look forward to being back with another episode as we take on the global macro issues. And in the meantime, as usual, take care of yourself and take care of each other.

[01:22:41] Ending

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