today we're going to talk about currencies in government debt yeah yeah i know some of you
are just like but trust me this one's going to be a good one 75 basis point
uh in an increase is not something the committee is actively considering
what we are doing is uh we raised 50 basis points today and and we've said that again assuming that
economic and financial conditions evolve in in ways that are consistent with our expectations
there's a broad sense on the committee that additional 50 basis increases should be on
50 basis point acres should be on the table for the next couple of meetings
now the u.s federal reserve is in the process of raising interest rates the idea is that by
raising the cost of borrowing raising the cost of money that there's going to be less consumption
and that's how ultimately you get inflation under control the us is dealing with its highest
inflation rates in 40 years we're seeing it in raw commodities we're seen in energy we're seeing
in housing we're seeing it in baby formula and until we find a balance between supply and demand
this is going to be our normal interest rates are the tool that the federal reserve has but it's not
just the federal reserve in play here there are other major countries dealing with similar issues
the problem for them is they can't raise interest rates if you look at europe or if you look at
japan these are economies whose demographics have aged so fast that all of them have
more people in their 50s and their 40s and 30s their 20s and since economies with a lot of people
in their 20s and 30s are where most consumption comes from these countries are probably
never going to have positive interest rates again europe's already been at zero for the last decade
japan for roughly two they cannot emerge from this if you look at the other major players say sweden
or denmark or the british the british pound it's not quite as bad they do have better demographics
but sweden and denmark joined with the brits and the europeans in supporting sanctions on
the russian system and they're kind of at ground zero for feeling the economic effects
so while they are experiencing inflation that isn't comfortable they feel they don't dare
raise interest rates for the risk of choking off whatever economic growth they might be
able to have in an environment where we have shortages of everything because of the russians
in case the british pound it's even worse because the brits still don't have a plan for what happens
after brexit so anyone who wants to invest in britain just has a huge amount of uncertainty
the only other country of note is china but the yuan is not internationally traded
because the economic system there is now so stilted and because of lockdowns so shut down
that if they were to open their economy to the wider world you'd have a huge amount of capital
flight they can't tolerate that so only about one percent of the circulation of the chinese yuan is
actually available for international exchange and most of that is in hong kong yet on top of that
that the chinese tend to print currency at two to five times the rate of the united states and
they're monetizing their entire system in a way that united states has never even considered now
where does this take us well a lot of the world's con economies the corona in denmark the swedish
corona the european euro the british pound the japanese yen the korean wan the australian kiwi
dollars they're all de facto linked to the united system the united states system now because of
the sanctions that are going on in europe that means that we have a country that has all the
demographic strength united states and a country that has the global currency the united states
an occurrence and a currency that everyone else is taking their cues from the united states that
suggests that the us dollar has nowhere to go but up for years to come and on top of that we have
a bond issue now because all of these countries around the world can't raise interest rates
when they issue debt to get people to buy it so they can fund their government
they have to offer terms that are around zero in fact we've got two five 2.5
trillion dollars of international debt government debt that is actually earning negative returns
death to united states the united states is the beginning of a very long series of interest rate
increases in order to get inflation under control but no one else is that means the differential
between american bond yields and global ones is just going to rise and rise and rise and rise
and that means we're going to see huge volumes of foreign capital flooding from the sovereign
debt markets of the rest of the world into the united states because would you rather have like
a negative one percent return or a three percent return that suggests that the united states is
going to be able to borrow at lower prices for a longer period of time than anyone has factored in
and as long as the u.s economy remains consumer driven with its relatively healthy demography
that is going to be for decades to come bottom line even now in a period of inflation
probably at the turning of the business cycle where the baby boomers are moving to retirement
and taking their money and consumption with them the u.s still looks pretty good in part
because it's doing what ross perot so eloquently put that giant sucking sound pulling the money out
of the rest of the world okay that's it from me we've had two big bursts of inflation since world
war ii the first was in the late 40s to early 60s when everyone was taking advantage of that
first big globalization wave and industrializing so that was industrial demand driven inflation
our second big one was in the late 70s to roughly 1990 that's when the baby boomers had
called were all coming of age and they were founding families and buying cars and homes
that was consumer demand driven inflation and then the last 40 years has been weird
we've had the lowest inflation in human history and it's lasted since roughly 1992
but look on what was going on in the background the baby boomers were no longer in their peak
consuming years and the millennials were too young to be in theirs my generation gen x were the
consumers in that period and there weren't enough of us so we didn't have demand-driven inflation
we also had the chinese labor enter the global market which pushed down the cost of labor
the baby boomers tended to favor two income families which also pushed down the cost of labor
and then the soviet system collapsed soviet industry collapsed but soviet raw material
production did not and so all that aluminum and steel and wheat and oil and natural gas got put
onto the global markets which kept prices down atypical for any age but it lasted until now
well now the russian stuff is going away because of the war chinese labor has aged out the
millennials have come and grown as consumers we need to double the size of our industrial plant
every inflationary thing from the last 70 years is being repeated now
and every disinflationary thing from the last 40 years is now flipping on its head
so we were always with the rebuilding with the demographic shift with equalization we were
always going to have an inflationary pulse here and it is going to last until such time that we
probably double our industrial base i don't see that process being done until at least 2027.
this time passing zero seven zero four one four zero rtb linking via septum
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