♪.
LARRY: WELL OKAY, WE MAY NOT
KNOW MUCH ABOUT THESE CHINESE
BALLOONS BUT THEN AGAIN DO WE
KNOW MUCH ABOUT THE ECONOMY?
ARE WE HEADED FOR A DOUBLE-DIP
RECESSION?
JOINING ME NOW ROBERT HELLER,
FORMER REAGAN APPOINTED FEDERAL
RESERVE GOVERNOR AND OLD FRIEND.
ROBERT, WELCOME BACK.
YOU’VE BEEN ARGUING A DOUBLE-DIP
RECESSION.
I GUESS THE FIRST DIP WAS FIRST
HALF OF LAST YEAR.
NOW PEOPLE ARE GETTING BULLISH
ABOUT THE ECONOMY, SOME PEOPLE
ARE SO I WONDERED WHAT YOUR
THINKING WAS?
>> MY THINKING IS STILL
UNCHANGED.
I SEE THE MONEY SUPPLY PLUNGING
RIGHT NOW.
IT HAS BEEN GOING DOWN IN
ABSOLUTE TERMS SIN APRIL OF LAST
YEAR.
SO THAT WILL HAVE AN EFFECT ON
THE ECONOMY AND I SEE A SECOND
HALF OF THAT DOUBLE-DIP
RECESSION COMING IN THE MIDDLE
OF THIS YEAR.
LARRY: YOU KNOW IT IS FUNNY,
MONEY SUPPLY THERE, IS ONLY
HANDFUL OF US WHO MENTIONED THIS
BUT IT HASN’T GONE AWAY, IT
KEEPS FALLING.
THE INDEX OF LEADING INDICATORS
KEEPS FALLING.
THE YIELD CURVE IS REALLY
INVERTED.
I WAS MENTIONING LAST WEEK I
MENTIONED YOU NOT IN VAIN,
WAYNE ANGELL AND MANLY JOHNSON,
COMMODITY PRICES HAVE STABILIZED
WHICH I THINK IS A INTERESTING
PART.
LET ME ASK YOU, ROBERT HELLER,
IS THE DISINFLATION GOING TO
CONTINUE?
IT IS NOT OVER, I GET THAT BUT
THE FED MADE PROGRESS, BUT WHAT
DO YOU THINK IN THERE?
>> YES, THE WORST OF THE
INFLATION IS DEFINITELY OVER.
WE HAD TWO YEARS OF 25%
INCREASES IN THE MONEY SUPPLY
AND THAT WAS REFLECTED THEN IN
VERY HIGH COMMODITY PRICES, HIGH
PRODUCERS PRICES AND THEN HIGH
CONSUMERS PRICES.
BUT WE ARE OVER THAT HUMP.
IT IS COMING DOWN.
THAT DOESN’T MEAN THE ECONOMY
WILL BE BOOMING RIGHT AWAY AND
THE FEDERAL RESERVE STILL HAS
MORE WORK TO DO AS CHAIRMAN
POWELL SAYS.
INTEREST RATES HAVE TO BECOME
POSITIVE AT THE MOMENT, THE FED
FUNDS RATE IS STILL IN REAL
TERMS, IN INFLATION ADJUSTED
TERMS IT IS STILL NEGATIVE.
SO, THAT WILL HAVE TO BE
OVERCOME BY THE FEDERAL RESERVE,
BY RAISING RATES A BIT MORE.
LARRY: ROBERT HELLER, JUST YOU
LOOK THE QUESTION RIGHT OUT OF
MY MOUTH, HOW MUCH MORE DO YOU
THINK THEY HAVE TO GO?
>> WELL, PROBABLY ANOTHER
PERCENT OR SO WILL DO IT BECAUSE
ALSO AS WE WERE ARGUING BEFORE
INFLATION WILL COME DOWN SO THE
TWO WILL MEET IN THE MIDDLE.
INFLATION IS COMING DOWN A
LITTLE BIT, INTEREST RATES GOING
UP A BIT MORE SO THE TWO WILL
CROSS PROBABLY IN TWO, THREE,
MONTHS OR SOMETHING LIKE THAT
AND AFTER THAT THE FEDERAL
RESERVE WILL HAVE ITS FOOT ON
THE BRAKE RATHER THAN ON THE
ACCELERATOR PEDAL WHICH THEY’RE
STILL HAVE AT THE PRESENT TIME.
LARRY: SO YOU’RE THINKING 6%,
NEARLY 6% FED FUNDS RATE?
>> THAT’S ABOUT RIGHT.
LARRY: YEAH.
THAT WILL DO IT.
YOU’RE, THAT IS AN ABOVE
ESTIMATE, ABOVE CONSENSUS
ESTIMATE.
INTERESTING POINT.
LAST ONE, SOME PEOPLE ARE SAYING
TO THE FED, FINANCIAL
CONDITIONS, MEANING BOND YIELDS
HAVE COME DOWN AND STOCK PRICES
HAVE GONE UP.
STOCKS ARE UP AGAIN TODAY.
THEY HAVE HAD A PRETTY GOOD
RALLY YEAR-TO-DATE.
THAT INDICATES FINANCIAL
CONDITIONS ARE TOO EASY AND THE
FED HAS TO BE MUCH, MUCH TOUGHER
BUT YOU KNOW, CONSUMER LOAN
RATES ARE VERY HIGH AND
PROHIBITIVE.
AS YOU JUST MENTIONED, THE MONEY
SUPPLY HAS PLUNGED.
YOU THINK THE FED SHOULD BE
LOOKING AT THE STOCK AND BOND
MARKET AS FINANCIAL CONDITIONS
ARE TOO EASY?
>> NO.
I DON’T THINK THE FED SHOULD BE
LOOKING AT THE STOCK MARKET.
CERTAINLY IT IS NOT A GOAL OF
THE FEDERAL RESERVE TO MAKE
STOCKS GO UP.
IT IS A BY-PRODUCT.
THAT WILL HAPPEN BUT YOU CANNOT
STEER THE ECONOMY BY THE STOCK
MARKET.
BONDS, THIS IS A LITTLE BIT
DIFFERENT STORY.
IF YOU HAVE AN INVERTED YIELD
CURVE, YOU WILL ESSENTIALLY HAVE
A PRECURSOR OF A RECESSION, THIS
IS A SIGNAL THAT THE RECESSION
IS LIKELY TO COME AND WE HAVE
THAT AGAIN AT THE PRESENT TIME
WITH A SHORT-TERM BOND YIELDS
ARE HIGHER THAN THE LONG-TERM
YIELDS.
THAT IS A PRETTY GOOD INDICATOR
OF A COMING RECESSION AND
THEREFORE I STICK WITH MY
DOUBLE-DIP.
LARRY: ALL RIGHT.
WELL, YOU KNOW YOU AND I AGREE A
LOT ALL THESE YEARS, WE AGREE.