LARRY: WELL, I THINK IT’S FAIR
TO SAY, A RECORD INFLATION SPIKE
IS DEMORALIZING MANY AMERICANS
BUT LET’S TALK ABOUT WHAT CAUSED
IT AND HOW TO FIX IT WITH SENIOR
FELLOW AT THE INDEPENDENT
INSTITUTE AND FORMER TRUMP
ECONOMIC ADVISOR MIGRATE PAL
JUDY SHELTON.
WELCOME BACK, JUDY.
YOU’VE BEEN COVERING THIS AND
COVERING THIS.
WHAT CAUSED IT?
IS IT THE PANDEMIC?
IS IT THE BIDEN BUDGET IS GOING
TO REDUCE INFLATION?
IS IT THE FED?
WHAT IS IT, EXACTLY?
>> WELL, THE BIDEN BUDGET IS
NOT GOING TO REDUCE INFLATION,
LET’S START WITH THAT.
LARRY: YOU THINK?
>> AND THE FED IS PALESTINIANS
RESPONSIBLE FOR STABLE PRICES, I
THINK THAT’S THE MOST IMPORTANT
PART OF ITS DUAL MANDATE BUT
BOTH FISCAL POLICY AND MONETARY
POLICY ARE COMPLICIT IN BRINGING
ABOUT THIS HIGH INFLATION.
LARRY: SO OKAY, THAT’S AN
IMPORTANT POINT.
THEY’RE SPENDING AND BORROWING,
THE FEDERAL GOVERNMENT, ACTUALLY
MORE THAN WE DID THROUGH ALL OF
WORLD WAR II ACCORDING TO JOE
MANCHIN’S PEOPLE, VERY
INTERESTING, AND THE FED IS
INDIRECTLY FINANCING IT.
THEY BUY BONDS FROM THE BANKS,
THEY DON’T BUY IT DIRECTLY, BUT
SO THOSE TWO, THAT’S WHAT, IT’S
NOT JUST THE SUPPLY SHORTAGES.
IT’S NOT JUST THE PORT OF LOS
ANGELES.
IT’S TOO MUCH GOVERNMENT
SPENDING AND TOO MUCH MONEY
PRINTING FROM THE FED.
THAT’S YOUR TAKE ON THIS?
>> YES.
I THINK THAT THE FED HAS MADE IT
FAR TOO EASY AND TOO COMFORTABLE
FOR THE FEDERAL GOVERNMENT TO
ENGAGE IN IRRESPONSIBLE SPENDING
THE FED OWNS A QUARTER OF ALL OF
THE TREASURY DEBT OUT THERE, SO
THEY’VE DISTORTED THAT MARKET,
BUT BY PURCHASING THAT DEBT, I
THINK THAT THEY’VE MADE IT JUST
TOO EASY AND IN THAT SENSE, HELP
ED FACILITATE THIS EXCESSIVE
FISCAL STIMULUS.
LARRY: AND JUDY SHELTON, HOW
LONG WILL THIS INFLATION LAST?
MORE OR LESS?
>> WELL, WE KNOW IT’S BEYOND
TRANSITORY.
WE’VE HAD SIX MONTHS NOW OF OVER
5% INFLATION, AND I THINK IT
WILL GO WELL INTO NEXT YEAR, AND
POSSIBLY BEYOND THAT.
THE NUMBERS TODAY SHOWED PRICES
ARE GOING UP NOT JUST IN
ISOLATED SECTORS, BUT
ACROSS-THE-BOARD, AND THAT’S A
BIT FRIGHTENING.
THE WAGE INCREASES THAT ARE NOW
REQUIRE ARE ALREADY BECOMING
PART OF THE FUTURE CALCULATIONS
FOR RETAILERS, FOR GROCERS, FOR
BIG DISTRIBUTORS.
THEY’RE ALREADY ADDING ANOTHER 5
% IN WAGES AND I THINK WE ALSO
SEE WORKERS WANTING TO DEMAND
HIGHER WAGES BECAUSE THEY SEE
THAT THEY’RE HAVING A VERY
HARD TIME EVEN KEEPING UP WITH
THE INFLATION, SO THAT BECOMES A
VICIOUS CYCLE OF EXPECTATIONS
AND THAT MAKES IT MORE DANGEROUS
AS FAR AS PROLONGING THE
INFLATION.
LARRY: YOU KNOW, I’VE ALWAYS
THOUGHT, I ALWAYS LIKE TO SEE
WAGES GOING UP.
I LIKE TO SEE THE BLUE COLLAR
MIDDLE CLASS PROSPERING BUT I
ALWAYS FELT, JUDY, THE BEST WAY
TO DO THAT WAS WHERE THEY
ESSENTIALLY EARNED THEIR WAGE
INCREASES THROUGH HIGHER
PRODUCTIVITY.
IS THAT HAPPENING TODAY?
>> WE’RE NOT GETTING THAT.
IF YOU DO GET THE PRODUCTIVITY,
THEN THERE’S NOTHING INNATELY
INFLATIONARY ABOUT LOW
UNEMPLOYMENT, BECAUSE YOU ARE
ADDING BOTH TO THE DEMAND AND
THE SUPPLY, SO LONG AS THE WORK
IS PRODUCTIVE YOU’RE INCREASING
THE OUTPUT, AND SO YOU CAN HAVE
STABLE MONEY, UNDER THOSE
CIRCUMSTANCES.
THE PROBLEM IS WHEN PARTICULARLY
FROM A FISCAL SIDE, YOU’RE
PROVIDING PAYMENTS TO PEOPLE WHO
WERE NOT ENGAGED IN INCREASING
CAPACITY, WHO ARE NOT ENGAGED IN
HIGHER PRODUCTION, SO IN THAT
CASE, YOU’RE JUST INCREASING THE
DEMAND WITHOUT INCREASING
THE MATCHING SUPPLY AND THEN
THAT IS WHEN YOU GET INFLATION
FAST AND POSSIBLY HARDER TO
CONTROL.
LARRY: YEAH, GOT IT.
AGREE.
JUDY, HOW TO FIX IT, HOW TO FIX
IT, HOW TO FIX IT AS SOON AS
POSSIBLE.
>> WELL, I THINK THAT THE FED,
FIRST, HAS TO ACKNOWLEDGE THAT
IT IS THE FED’ RESPONSIBILITY,
AND I THINK IT WAS A MISTAKE FOR
CHAIRMAN JAY POWELL TO
ENCOURAGE THE FISCAL SPENDING.
NOW HE HAS TO SEND THE SIGNAL
THAT HE RECOGNIZES THERE’S BEEN
TOO MUCH OF THAT STIMULUS ON TOP
OF THE KINDLING OF THE MONETARY
STIMULUS THAT’S BEEN GOING ON
FOR YEARS THAT WAS NO NEED TO BE
ENGAGED IN QUANTITATIVE EASING
AT LEAST FOR THE LAST SIX MONTHS
NONE OF THAT WAS DOING ANYTHING
TO "SUPPORT" THE ECONOMY.
IT WAS JUST SUPPORTING THE
GOVERNMENT SPENDING, SO THEY
SHOULD HAVE STARTED THAT TAPER
AT LEAST LAST SUMMER.
WHAT THEY CAN DO NOW BEINGS AND
I THINK WE’LL SEE THAT COMING
OUT OF NEXT WEEK’S MEETING, IS
SIGNAL THAT THEY DO TAKE THE
INFLATION PREVENTION PART OF
THE MANDATE SERIOUSLY.
THEY ACKNOWLEDGE WE HAVE A
POTENTIAL SERIOUS PROBLEM, AND I
THINK THAT IF THEY FINISH THIS
OUT, AT LEAST BEFORE MARCH,
I MEAN, I WOULD STOP AT TOMORROW
, AND IT BE BETTER IF
THE FED WOULD CONSIDER ACTUALLY
SELLING SOME OF ITS SECURITIES
AND REDUCING ITS FOOTPRINT THE
WAY PAUL JOKER VOLCKER
BROUGHT INFLATION UNDER CONTROL
BUT I’M AFRAID THEY ARE GOING TO
USE THE ADMINISTERED RATE AND
THAT’S A PRETTY BLUNT INSTRUMENT
THEY HAVE TO BE VERY CAREFUL
WITH THAT.
LARRY: THEY’RE DOG THIS WEIRD
THING IN THE MONEY-MARKET,
COMPANIES, MONEY-MARKET FUNDS,
BANKS CALLED REVERSE RP’S
ESSENTIALLY THE FED’S TAKING
MONEY OUT OF THE SYSTEM, SORT OF
ON A NIGHTLY BASIS, BUT THEY ARE
STILL BUYING BONDS SO IT’S NO
SOLUTION, BUT THEY’RE STARTING
TO, THEY ARE ACTUALLY STARTING
TO SELL BONDS.
I THINK YOU’RE RIGHT BY THE WAY.
JOKER VOLCKER DID THAT AND YOU
HAVE TO TAKE LIQUIDITY OUT OF
THE SYSTEM AND THAT WILL SLOW
DOWN THE INFLATION RATE NO
QUESTION ABOUT THAT.
LAST QUESTION, JUDY.
YOU’RE FAMILIAR WITH THE FED.
WILL JAY POWELL HAVE ENOUGH
SUPPORT, YOU’VE GOT NEW BOARD
MEMBERS COMING IN, I THINK
THEY’RE GOING TO BE PRETTY WOKE.
I THINK THEY’RE GOING TO BE
PRETTY INTERESTED IN CLIMATE
CHANGE.
I DON’T KNOW HOW INTERESTED
THEY’LL BE IN BACKING JAY POWELL
TO FIGHT INFLATION.
WHAT DO YOU THINK?
>> WELL, I THINK THAT HE’S NOT
DEMONSTRATED SUFFICIENT
LEADERSHIP TO STAY CLEAR ON WHAT
IS OUR CENTRAL BANKS APPROPRIATE
ROLE.
THAT IS I THINK HE’S GIVEN
SIGNALS THAT HE’S MORE OPEN TO
TAKING ON THESE INCREASED
RESPONSIBILITIES OF RACIAL
EQUITY OR CLIMATE CHANGE ISSUES
, THE GREEN AGENDA.
THIS IS NOT THE JOB OF THE FED.
I BE HAPPY IF THEY COULD DO A
LITTLE BIT BETTER ON BOTH THE
PRICE STABILITY AND THE
EMPLOYMENT METRICS SO THIS
IS NOT THE TIME TO TOLERATE
EVEN FOR THE SAKE OF CONSENSUS,
THESE NEW PEOPLE COMING ON AT
THE FED WHO I THINK WILL
REPRESENT THE PROGRESSIVE WING
OF THE DEMOCRAT PARTY.
THAT IS WHAT YOU CALL POLITICIZ
ING THE FED.
LARRY: THAT’S WHAT I FEAR.
I HOPE I’M WRONG BUT THAT’S WHAT