Larry we've got jobs numbers out at the end of the week on Friday. Strong job numbers once again. Also by the way I should
say strong increases in wages at the same time. That does raise the question whether this economy maybe even more overheated
than we thought. Look I think the single most important statistic for judging
overheating is the ratio of vacancies to unemployment. And with these JOLTS numbers and these unemployment numbers. That
statistic is going to be plumbing new highs in the in when it's next calculated. And that suggests even more tightness in labor
markets. And I think that points towards even more inflation. So I think near-term we've got a if anything a bit greater
inflation concern than we had before we saw these numbers. Of course it's good that the economy is looking relatively strong.
I think if you were in doubt as to whether the previous weakness was fundamental or was caused by all Micron this would tend to
tilt you towards thinking that it was caused by Omicron. But look labor market indicators are always contemporaneous or
lagging so we don't know what the future holds. And certainly there are worrisome signs in terms of what's happening with
consumer sentiment. But for now I would say these are relatively inflationary numbers and that's how markets look to be reading
them with significant movements towards yield curve inversion. Larry at the same time you'd be the first to say these jobs
numbers are good for the people who are getting jobs and particularly some of the people at the lower end of the spectrum
which is something we should be concerned about. Is there no way that we can both take care of those people make sure they're
employed that they are getting paid fairly and not overheat the economy.
David look this is why the earned income tax credit is such a good idea. This is why I've supported increases in minimum
wages. This is why we need stronger programs for people who don't go to college of many kinds. But we do not do anybody a
favor by overheating the economy because when we overheat the economy there. The chickens do come home to roost at some point
as the inflation has to leave the system. And so I think that this idea that we simply cheer on more and more employment
without thinking about the inflationary consequences is like a doctor who celebrates the results of the prescription of their
painkiller without thinking about what's going to come down the road. I think the Fed too late has awakened to that and is
moving towards a strategy that is much more oriented towards tightening. Larry less time with those chickens maybe coming
home to roost. There is talk about a possible recession here. You and I have talked about that this at various times. I know
you focused on historically when the issues about the 4 percent number under 4 percent unemployment in the sense you have over 4
percent inflation. We also had the yield curve the 2S Ten's yield curve invert a couple of times this week including after
the jobs news came out. Do you pay much attention. The yield curve at this point is a predictor of recession.
I look I look at it. I don't I pay a little less attention to it than people in the markets do. And I think it's important to
understand that it's not a causal relationship if it exists. It's a canary in the coal mine kind of relationship. So it's not
that changing the changing the 10 year interest rate. If you could do it in some way will change the prospect of recession.
Rather it's that when people are forecasting that the Fed is going to be cutting rates they're also forecasting that that's
going to happen because there's a recession. So it's a correlation thing not a causation thing. I think that the what's
happening with the yield curve adds to a sense of economic anxiety that in situations like this historically we have not
achieved soft landings and we have seen recessions. Is it a certainty that we'll see a recession in the next two to three
years. No. Is it more likely than not that we will see a recession in the next two years. I don't see how anybody can
look at either the historical experience or what markets are predicting and not think that it's 50 50 better than 50 50 that
a recession will start sometime within the next two years. Larry we also got the budget from the White House at the beginning of
the week this week and everybody agrees it's aspirational. What is sent out is the budget from White ISE does not actually
become law but it does reflect values as person after person of the White House reminds us. What are the values that you saw in
prison by the. So I was glad to see increases in the defense budget. I was glad
to see a substantial indicative commitment towards doing something about Covid. I was glad to see
an emphasis on mental health as a theme in the budget. I was glad to see open mindedness and open to complete negotiation on
the remnants of build back better rather than re prescribing. All of that expenditure. Those were all I thought positive
steps. I would have liked to see more realism on the tax side. I think the billionaires tax is a bad idea whose time will never
come. I think it's mislabeled to give it a kind of populist appeal relative to what's being proposed. I think the general
idea of taxing capital gains when people don't have those capital gains and haven't sold the assets is not a realistic
one. I think a much better strategy would have been to concentrate on a variety of loophole issues. Capital gains at
death carried interest which the administration has still not gotten
done. Changing like kind exchanges for real estate. But the single most important thing even if nothing else happens is that
the historic bit of economic diplomacy that Janet Yellen concluded on corporate tax with other countries is enabled by
the necessary U.S. legislative action. Larry if you read the fact sheet put out by the White House earlier this week they led
with fiscal responsibility. The fact that they would be reducing the deficit at the same time if you look at the projection over
the 10 years that they do for budgets actually as a percentage of GDP the debt grows from something over one hundred and two
percent to something over one and 6 percent. Is that sustainable for the United States.
It's worse than that David because the interest rate forecasts in the president's budget look comical today in light of what's
happened to interest rates. That's fair enough. They lock in those budget forecasts months in advance. But my guess is that
if you used realistic forecasts you'd add another 5 percent to the debt to GDP ratio ISIS spec. Given what's happening to
interest rates that there's going to be a need for more fiscal adjustment then the administration imagines. I suspect the
administration has underestimated the national security expenditures that will be necessary going forward. And I think
we're moving towards a moment when we're gonna have to start thinking about fiscal policy as well as monetary policy as an
anti inflationary tool. So I think this is a beginning for budget discussions not an end of budget discussions. Well it
does strike me Larry you spent so much time in Washington. I haven't heard. I don't think any politician draw that connection
between taxes on the one hand and inflation on the other is against taxes and he's against inflation. But I haven't heard
anybody getting us ready for the fact that if you really don't like inflation you may have to put up with more taxes. You may
have to put up with more taxes or you may have to put up with some some well-designed
expenditure expenditure cuts. I don't think we're quite there at that point but I think if we start having difficulty containing
inflation which I think is quite possible or we find unacceptable or the global economy finds unacceptable the
magnitude of the interest rate increases that are necessary to contain inflation then I think the whole issue of fiscal
restraint may get back on the
on the play on on the playing field. I don't think that's an issue for the next several months. But I think if one's thinking
about where we're looking down the road that's something we have to consider.