Unknown: 0:16

The content of this podcast is for informational purposes only and should not be construed as financial or investment advice. The views and opinions expressed in this podcast are those of the hosts and their guests. They do not necessarily reflect a position of any associated employers or organizations.

Adam Rice: 0:33

Hello, everyone, and welcome to episode 13 of the applied MMT podcast. We're going to kick it off today just kind of going through what's going on in the market and what our take on that is. So, first of all, Ryan, I think, I mean, you and I have been making this observation for a long time now that there's despite all this talk of recession for months and months and months now, we're yet to see any signs of a recession and the market and the you know, the unemployment rate, the real economy are actually both in really good shape. So unemployment is at a multi decade low and looking at, you know, equities, half

Ryan Benincasa: 1:10

a century, over half a century low.

Adam Rice: 1:14

And looking at equities in particular. And then also Bitcoin, which is supposedly a zero interest rate phenomenon. So at the end of last year, we saw like the most aggressive rate hikes, I think, you know, definitely since Volcker, right. Yeah. And s&p 500 is up about 10%, year to date. And as NASDAQ is up 22% year to date, we actually just had the highest close since August of 22. The NASDAQ that is, Bitcoin is up 62% year to date, which you often hear people refer to as a zero interest rate phenomenon. And the iShares home construction ETF is up 28.45%, year to date, as of today, May 19. So And what's interesting to me is, you know, everyone is focused on this potential recession still, and no one is really looking at the broader picture. And seeing that the employment market is really tight. And the stock market, in aggregate is performing extremely well, even though we had these these rate hikes that supposedly, you know, are contractionary.

Ryan Benincasa: 2:29

Yeah, I mean, it's just what either what's what's remarkable about those statistics to Adam, is that like, literally, I heard for over a decade about how all these speculative tech stocks a lot of which make up the NASDAQ are overvalued because of because of zero interest rates. And it's only because of zero interest rates. And, and literally, we've had like the, again, like you said, this most aggressive rate hikes since Volcker and it's the NASDAQ. Right? The suppose it, you know, long duration assets with cash flows, outweighed to the future and stuff that are that only benefited because of ZURB. They're the ones that have been, you know, the outperforming you know, the s&p 500. And, and it's and you know, the homebuilders? Right, like, I mean, think about the, what everyone says about, you know, the rate hikes are going to crush the housing market. No one, you know, that no one's going to be able to, to afford the new homes and stuff. And look, the home builders are making 52 week highs, like every like every day. It's unbelievable. Unbelievable, how incredibly wrong. Everyone has, like, is about this about this whole race thing. Right. And, and what we see today, 93% of s&p 500 earnings have come in better than expected. Right. And earnings growth is up, I think, like 9% year on year. I mean, it's who cuz you're not coming who

Adam Rice: 4:12

could have seen it coming. It's just, it's just, it's crazy to me that people, you know, the consensus is still just mystified by this, because it goes against, you know, conventional thinking when it comes to monetary policy. Right. It's just like, oh, that, you know, these rate hikes were supposed to be contractionary. Turns out, they're not. How could anyone, how could anyone possibly explain this when the explanation is like, you know, this stuff isn't complicated. It's really not. I'm saying that about MMT. In particular, like, it's not complicated. If you look at the fiscal flows, and you look at, you know, the the, like, interest income channel, for example, I feel like most people would understand this. But for some reason, it's just entirely ignored still. And we're just living in this world where everyone's going, Oh, how could anyone have ever predicted this? This is crazy. A recession must be coming eventually. And we have no way of explaining what's going on with the economy right now.

Ryan Benincasa: 5:09

And no, not one of them will get fired either.

Adam Rice: 5:11

Oh, no, no, they'll still be brought on to explain what's going on in the economy in here. Is and

Ryan Benincasa: 5:17

explain why, you know, rate hikes or tightening financial conditions or some nonsense like that.

Adam Rice: 5:24

And and we should also I just want to touch on I know, we tweeted about this as well. But isn't it just insane that you know, inflation is now coming down substantially. And I think a lot of that is, obviously the supply chain constraints and oil prices are falling. And like a year ago, you had all these big time economists saying that we needed 10% unemployment in order to bring inflation down.

Ryan Benincasa: 5:49

I mean, these people are profound or are there they should be considered like national security threats. Like, like, honestly, it's, they are so profoundly anti American and, and intellectually dishonest, like, they should just be just just discarded to the dustbin of history. Like, it's so bad. It's so bad. It's so bad and no, not one of them. Not one of them apologizes, either. Right. Like, I think, I don't know if we ever put this out, like, publicly, like in written word or anything, but you and I were talking about I was like, I think, I think one of the few things that I would bet on this year, is the deficit going higher and inflation going lower.

Adam Rice: 6:33

Right. Right.

Ryan Benincasa: 6:37

And that's literally exactly what's happened so far. So, I mean, let's just, let's just run with that for a second. When everyone people people want to blame inflation on on, you know, this Excessive government spending or something, literally, the fiscal year 2022 budget deficit was less than it was in fiscal year 2021. And it was 2022, where we saw the big inflation spike, and then this year 2023 has a higher deficit so far than 2022. And we've seen inflation come down. So it's just it people, but you point this out to people, and they're, they're just like, they refuse to believe, you know, it's like, they refuse to trust their their eyes like, right, it's like, believe me or your lying eyes. Right? I'm really, I mean, I'm still kind of thinking about the discussion we had with Moser. And there's so much I mean, I've listened to it like a number of number of times, I'm sure you have to. Yeah, one thing that I keep coming back to is his comments on Argentina and how he's just, yeah, you know, the, the people who have all the money, they, you know, the they raise a policy rate and they give more pesos, they just sell the pesos into the FX market. Right. This to myself, or I was talking to a buddy the other day, I was just like, yeah, that like, does that not make sense? Like they're literally printing more pesos, and then they're just selling it to the FX market. And you know, the real purchasing power is going down. And people are always they have the same reaction. They're like, yeah, that makes sense. But like, yeah, that's two out there. Right. Two out there. How these markets work.

Adam Rice: 8:29

I mean, it's just it's like, it is amazing that Argentina is continuing with the rate hikes. It's what I think I think

Ryan Benincasa: 8:38

600 basis points went from 91 to 97%. And inflation is now over 100%. Yeah,

Adam Rice: 8:44

I think I think inflation I think is, is 104% year over year, and they just raised rates to 97%. Like, when when do they think you know, when is it supposed to kick in? When? When is this supposed to start working?

Ryan Benincasa: 9:01

Keep Yeah, keep

Adam Rice: 9:04

keep drilling holes in the boat until you let the water out. I mean, it's perfect. It's perfect. It's unbelievable. It's

Ryan Benincasa: 9:10

unbelievable. On only believable.

Adam Rice: 9:14

Amazing. That was amazing. So

Ryan Benincasa: 9:16

a couple Yeah, and you know, just thinking about, like, headlines that come out in talking about earnings and stuff. Well, first of all, and maybe we'll do a longer episode on this, but I went to the Berkshire Hathaway meeting recently. And one one thing I just want to note really quick is is Warren Buffett talking about how, you know, they had this sort of warlike economy during COVID. Right, and the government, you know, spent a lot of money and that created this boom, and, you know, now they're and they had massive backlogs and record sales, and no one was discounting anything. And he acknowledged that, you know, now they're kind of seeing some softness, or within the last six months, they've seen some softness, you know, a little bit more discounting, you know, promotions and stuff. That comes on the, you know, the heels of the record fiscal fiscal tightening that we had in 2022. Right, I would just like to add in there, but, again,

Adam Rice: 10:16

just Sorry to interrupt you. But again, something that's just never mentioned. How do we how do we explain that? You know, that technical recession we got in the beginning of 2022? Oh, no one knows. No one knows.

Ryan Benincasa: 10:29

But what's funny is like people were outraged. Yeah, they claimed that, you know, the administration or people in the government were like, moving the goalposts or changing the definition of, of employment of our session, but the reality was, we had robust job gains and declining unemployment. So they couldn't, you can't call that a recession, according to you know, that whatever the committee is that that, you know, decides whether we're in recession or not, like, let's just in compatible with, you know, their standards for what defines a recession, right. You know, it was Brian Moynihan, CEO of Bank of America was going around, saying, you know, we had a jobless recovery post global financial crisis, you know, this time around, we might have an unemployment, let's reverse recession, which is basically what last year was, yeah, yeah, totally. But just just to finish the one, the one comment on, you know, what Buffett was taught, as he said, you know, a little bit slower, a little more more discount promotion, on on sales, and, and so, you know, that'll be a hit to our earnings and stuff for this year. But he's like, no guarantees. But I'm have a pretty high degree of confidence that our earnings, or you know, our operating earnings, as he defines it are gonna be up in 2023, because of the interest that they're getting paid on their pile of cash. Because whole thing that was issued, let's talk about, you know, how that, you know, he's got, like his trailer that comes in once a week or something and just rolls like 120 billion worth of T bills.

Adam Rice: 12:20

Right?

Ryan Benincasa: 12:23

Yeah, we'll just keep rolling some T bills.

Adam Rice: 12:26

I mean, it seems like it's, like Buffett is is pretty close to just being an MMT. Er, like, it seems like we can we can just kind of count him in. I don't know. I don't know what it would take to officially countermine but it seems like it seems like he's pretty much on MMTs page. Oh, he's,

Ryan Benincasa: 12:44

he's so close. And Stephanie Kelton had them are included, quote, quotes from him quoted him in, in the deficit myth. You know, because of his calm, and she and she has been tweeting about this too, how he's talked about how, ya know, you know, the United States cannot voluntarily default. It's not, we're not like Greece. Right. So this was happening back in 2011. The, with the eurozone crisis, he said, we're not like Greece, you know, we are all of our debt is, is in our own currency, we can just print the money and and, you know, pay back the debt. We can't involuntarily default on the debt. And so he's he's said things like, like that before. I'll never forget, personally, just just a quick, just a quick story. This was a year ago, my firm goes to the Berkshire meeting every year. And so I was at the meeting a year ago. And I had just signed up for the week long MMT seminar at, at the levy Institute. And, you know, I was a little bit a little bit nervous, right, because A, I was paying for it, you know, out of my own pocket, it wasn't like, my firm was paying for it. And it was just my own savings. And, you know, take a week off of work. And I know, we had a, like a five month old baby at that point. And so I was gonna, I mean, I was able to do some back and forth because it's about an hour and a half away from my home. So I was able to make it work with my wife, but it was just like, it was kind of a big thing for me to deleuzian spending my own money, you know, sacrificing time away from my family with my five month old daughter and wife, and I'll never forget Buffett, this was last year 2022 You know, he had been criticized by I think it was Peter Thiel went on some was at like the Bitcoin conference or something like a week before the meeting and called off it like a like a sociopathic geriatric grandpa or something and, and said that, you know, we needed like a political revolution to make Bitcoin money and all this other stuff. And Buffett, just, you know, on the, the projector holds up point our bill and basically says, This is money. This is the only thing that's going to be money, you know, for your entire lives. And he said, and the reason it's money is because it's the only thing that the IRS will will accept from you with payment as your taxes right? Just sitting there And this that comment no one, that it's not like any, like, it just went over everyone's head. Right, right. There was no like buzz about that comment on the outing myself, like, what this is, the thing about this is this is MMT Yeah, it's the, it's the government that that, you know, needs to resource itself. And so it imposes a tax, and then, you know, it pays for, for whatever the resources it needs, in its own unit of account and, and then tries to tax in that unit of account. So it's like, this is literally him, basically saying MMT is true and correct, right. And this and this guy is, you know, the, the, he's been the face of American capitalism for God knows how long 50 years and, and, and, you know, he's, like, the most successful banking and insurance investor of all time, let alone investor. And, and, you know, so So I felt a sense of relief. I was like, Okay, no, I'm definitely I haven't gone crazy. You know, like, this is, this is a prudent thing for me to go to and learn more about this conference and stuff, it's worth the money and the time away and stuff. Because here's, here's Warren Buffett literally confirming, you know, MMTs assertions as being correct. Right. Right. And that was, so just kind of a fun, kind of personal story with so, you know, it's not some reason to say, Oh, this is definitely right. But but, you know, this is, it's good to have that kind of confirmation

Adam Rice: 17:01

of approval. Yeah. Yeah, definitely. If Warren Buffett's on your side, you're probably making a good bet.

Ryan Benincasa: 17:09

Exactly. Yeah. Speaking out, so yeah, so he's just like, Yeah, you know, we'll just roll some T bills. And, and so we'll we'll make that's going to offset the some of the other weakness that we're seeing seeing in our companies and that income is going to so aren't he's like, our earnings are gonna be up. It's just exactly what we've been talking about. And I have, okay, so I have a, you know, cut out from a Financial Times article, I think, from last week, or maybe maybe two weeks ago. And because I'm a boomer at heart, I saw the paper. So the headline is, you X, US banks defy turmoil with record $80 billion earnings, all profits, advanced 33% In first quarter, you know, and then blow in the Arctic. Okay. So it says most of the industry is not failing, the economy is still in pretty good shape, hence those profits. It says US banks, in general benefited from rising interest rates, low loan defaults, and expanding job market.

Adam Rice: 18:16

You don't say?

Ryan Benincasa: 18:21

I think it was episode four, where we talked about banking and stuff. And now like, it's like, okay, okay, how do the interest? How do the interest paid the three income channel? Actually, you know, boosts the economy? Yeah. And, and essentially, the argument was that this is, well, you know, you're, you're handing out money to the holders of these, of these Treasury securities. So, you know, companies like Berkshire Hathaway, so their earnings are going to be up, right. So in general, when earnings are up, it means that companies can invest more, they invest more in, in catbacks. And so that produces more productivity, more hiring cetera. The other thing is, you know, for banks and stuff, banks hold a lot of these Treasury securities. So that income flows through the income statement and accrues and helps build the, you know, the capital account, the equity capital, you know, assuming that, you know, that they can, that they're still making a positive net interest margin spread between their assets and their liabilities. So, that helps sort of, you know, that helps grow bank earnings. And, and, and, and, you know, brings their cap capital ratios higher, you know, if, let's say, you're, you know, if you're a manager of the bank, and you say, like, hey, you know, we're targeting like a, you know, 10 to 12%, you know, capital ratio or something and you're at 15. It's like, well, you know, what she's like this is to this, we need to go make more loans because, right, we need to bring that that capital ratio down, you know, we're, we're way above our target. So we need to grow the asset size, we need to grow our balance sheet, we need to grow our assets make more loans, because in doing so, that actually brings the capital ratio lower, right. And then if you if you pull back, you know, and shrink the balance sheet, then the capital ratio is going to go higher. Assuming that you don't take any impairments on on the assets that you sell. So but, again, like that's, that's how this capitalist system works. And so that's why, you know, when you have this fiscal spending impulse, whether it's through Social Security, whether it's, it's through, you know, there's obviously gonna be variations in terms of economic outcomes, you know, depending on what the actual spending, where the dollar is actually flow to it in the economy and stuff. But I think I mean, well, I've been tracking is the deficit, the budget deficit, your day has been around 7% of GDP? Yeah. And so for context, you know, between 2013 2019, it averaged around three and a half percent of GDP. So that's another reason why I have come to agree with most was that at this level, at this magnitude of fiscal spending, relative to like, it's gonna count it's gonna counter, you know, the, these regional banks failing and stuff, because it's so much like, is, are a couple of regional banks failing, really gonna do enough to offset? You know, 7%? You know, government spending of GDP and to the economy, right. And we didn't have a recession 2013 to 2019. And it was at three and a half percent. Yeah. So even if you say, okay, higher rates and banks blowing up, what would shave off? Three, three points off of, you know, the, you know, with, with counter three points with a worth of 3% of GDP, which would be, I think, crazy and ridiculous to assume that, but even if you assume that that's correct, you're still at a net 4% fiscal spending impulse, you know, if you if you take government spending, and you bet and backing out this kind of banks blowing up and credit pullback, so you're still at 4%. Right? It was at three and a half percent 2013 in 2019. So like, I don't really see, I don't really see the issue. And it is, it's, it's true, by the way that like, some parts of the economy are soft, like Home Depot, reported horrible earnings. Well, it's like, yeah, you know, you have a big spending boom, boom, you know, during 2020 2021 2022, you know, people doing home projects, people, you know, you build a new back deck, you know, things around the house, etc. But guess what, you, you build that back deck, you're not gonna build it again, right?

Adam Rice: 23:42

It's just like, you know, yeah, of course, in any in any bull market, in any strong economy, it's not like every bit every business is not going to be bullish. Right, exactly. Like the same course. Of course, there's going to be soft spots, but in in aggregate, and that's what we're often talking about is in aggregate things are going well. Exactly, exactly. I think everyone kind of takes their eye off the ball, you know, they don't see the forest for the trees. Right.

Ryan Benincasa: 24:09

Right. Right. And people will be like, oh, you know, Home Depot, it's like a, it's like a bell. And it's just like, there's so much and I, you know, I want to get into this maybe maybe another time or so. But there's so much of just like people just taking, you know, boomers just taking some sort of historical correlation and posting it on Twitter and saying, Well, this is this is proof that we're about to enter a recession, because, you know, we've never had a period of, you know, where, you know, Home Depot reported this much, and we're not in or whatever, whatever sort of cockamamie excuse that they come up with, or the yield curve stuff. That's annoying. I've been thinking about it for

Adam Rice: 24:49

or it's the year before an election and historically. Yeah. So one thing I actually wanted to touch on is so I know, you know, some people that that listen to our podcast might also follow Michael Green on Twitter. He goes by Prof. Plumb 99 And I think he's pretty firmly in MMT. Or, and I think he, he and Warren agree on most things, what they do, they do disagree on kind of the outlook for the economy. So green is expecting a recession. Mosler is obviously bullish if you if you've listened to our conversations with him or paid attention to what he's writing on Twitter. But green is bearish, because, you know, he agrees that the deficit spending is what's keeping the economy going. And the rate hikes are stimulating the economy. But he thinks that it's mostly accruing to savers and people that will not, at least in the case, the interest income, will not spend those excess savings. So I thought that was interesting. I would really love to see because this seems to be like a big point of disagreement within the MMT community is like, where's that interest income going? And like, are the are the recipients of that interest income spending it? You know, is it having like the I don't know if you'd call it the multiplier effect. But is it basically trickling through the rest of the economy? Right,

Ryan Benincasa: 26:17

right. Well, I think a couple of number one, I spoke with Mike Green before he's is super nice, really smart guy, we should try to get him on the podcast. Yeah. But but I'm not saying like, like, I think that that is a valid point. And we need to potentially explore this more. But I would also add, though, that like, what really what I Mosers real point is that what really matters is the aggregate sort of financial situation of households and businesses in the US. So if, if you don't have credit, if people have are fewer employed, they have income, they have income, that conserves debt. Okay, if that, if that debt service is manageable, you can, you know, the economy should hum along, right. And essentially, I think what the MMT view is sort of, like every recession is about is a so called Balance Sheet recession, it's just the the private sector of the households and business and municipalities, you know, don't have sufficient income for whatever reason, to, you know, pay back the, you know, the debts that they owe, whether that's, you know, a function of taxes, or consumer debt, or private debt, whatever you want to call it. And so that's sort of it's that situation, that causes the pullback and the aggregate pullback in spending and layoffs and stuff and then you get the counterbalance, with the, you know, with the with the government's automatic stabilizers, right. I also think that there is something to be said for, you know, like the the in inflation Reduction Act and the, you know, the chips and all these sorts of manufacturing jobs that are and capital spending that's happening right now. That's affiliate with that, and I think that's a big reason why unemployment has remained low. I would add, though, that other measures of employment, including labor force participation, and employment population ratio, while they have gotten better, there is still room to go there. And there's definitely because of concerns, I think about there being enough workers in the economy, right. So we need to have more more immigration and stuff because the boomers are just getting older, and they're going to need you know, more bodies to to care for them as they as they age and stuff. So yeah, we definitely, there's definitely you know, some there's definitely some some challenges and some problems, but I think ultimately, what matters most is the, the financial status of the private sector, the credit status, and up to now we're, we're not seeing, I mean, even looking at, you know, junky corporate credits, like they're actually still in, in decent shape in terms of leverage leverage levels and stuff. And the thing is, when you have higher like government government spending is is a direct contribution to to corporate profits. Yep. Right. It's part of like the Cholesky profits equation if the government's spending inside and province is gonna be high and and that means that there's there's sufficient income to support debt payments and and it's when That is reverses when there's not enough income to support debt payments. That's when you run into problems, and recessions come. Yeah, that's so but the fact that, you know, earnings are up, you know, 9% year on year for s&p 500 companies, that's a, that's a really strong sign that things are okay. And you've gotten saying, hey, our earnings are gonna be up this year, right? And

Adam Rice: 30:41

you know, things like, mortgage delinquencies, I think, are at a near all time low. So there's just like, there's, I'm not seeing the red flags. And it still seems to me that the red flags are all in you know, they're stuck in just like kind of conventional textbook monetary policy thinking of Oh, rate hikes are going to slow down the economy. Exactly.

Ryan Benincasa: 31:06

Which is wildly Oh, I have to I have to mention that. One other thing from the Financial Times. Just Just while is while we're doing it, this was from the other day. So the title of this article was Warburg and this is private equity firm, Warburg Pincus, Warburg boss says investors must focus on margins, an era of high rates, higher interest rates have so fundamentally shifted the financial environment, that the investors must focus on a company's ability to maintain margins, rather than just its growth prospects, veteran private equity executive chipchase it, think about that, what what they're saying for a moment, okay. Higher interest rates are a real cost to businesses, when you have, you know, floating rate debt, okay. When when the policy rate goes up, you're, you know, the cost of service, your debt goes higher, if you want to maintain your margins, you have to raise prices, right? It's not complicated. And, and the fact that, that that is like a controversial view that where I'm like, oh, yeah, you know, rate hikes are inflationary, because they cause, you know, companies to raise prices, because their cost of funding is higher. So they have to, you know, maintain their margins, they have to raise prices, and I get so much pushback from people for that,

Adam Rice: 32:38

you know, it's odd to me about that is like the common kind of the common refrain on tax increases is that, oh, if you if you increase corporate taxes, then those costs are just going to be passed along to consumers. Right? So it's the same thing. It's

Ryan Benincasa: 32:54

the same thing. It's just who's taxing you? Is it that? Or is it the financial sector? Right,

Adam Rice: 32:59

exactly. But for some reason, there's so much resistance to recognizing that the cost of capital is just like a cost of doing business that will likely be passed on to consumers to maintain margins. Right? Crazy.

Ryan Benincasa: 33:13

It's crazy. I also think that there's something to be said about the kind of, and Randy Ray wrote about this in his book, like the balance of power between, you know, lenders and bankers versus, you know, borrowers, and, and, you know, borrows, essentially is that, like, when rates go up, that essentially means that comes at the expense of borrowers into and goes to the benefit of lenders and savers, and bankers and stuff and fund managers. So, so essentially, like, it gives them the way I think about it is, it sort of gives them a higher portion of total output. And so when you think about, you know, the distribution of output, the distribution of income in an economy, like zero rates don't necessarily, like cause people to to start a business or to buy a house, but it is true, that they are a benefit, you know, ex post to people who decide to do those things, right. Because the cost is lower. Right. You know, it's raise prices on consumers, if that happens to right.

Adam Rice: 34:25

I'm actually, you know, I'm thinking about how, you know, you and I have talked a lot about, or MMT, in general has talked a lot about how, you know, lowering interest rates during a financial crisis is not going to increase bank lending, because you're not affecting the number of credit worthy consumers out there. Right, exactly. It's the same, it's the same thing where it's like, you will start a business if you believe there are you know, people out there with sufficient incomes or sufficient savings to afford your products and services, right, not because interest rates are too

Ryan Benincasa: 35:01

low. Right, and that you can make a sufficient margin and sufficient return on investment. That you know, that I mean, this is I mean, it's just unbelievable. That, that, you know, Economists have turned sensible, you know, thoughts like that and just and just like take that and say no, that's not right and then give you some gobbledygook in exchange. So, to go over debt ceiling stuff real quick,

Adam Rice: 35:34

I would say I gotta run in a minute. So let's, let's go over the, the Madison quote that you found recently.

Ryan Benincasa: 35:41

Okay, well, okay, so I just, I just stumbled this apologies because I, someone on Twitter posted it, and I just, I didn't record who that was, I found this post, but so apologies to that person. But basically, you know, 1780 ish, James Madison, wrote this paper called money. And there are so many good nuggets. You know, from from this paper that essentially confirms what MMT says, And so, here are a cup, and you can find this online. The, I got this on the Was this the, as from like, the National Archives or something. So, um, alright, here's one quote, If the circulating medium be a municipal one as paper currency, still, its value does not depend on its quantity, it depends on the credit of the state issuing it, and on the time of its redemption, and is no otherwise affected by the quantity than as the quantity may be supposed to endanger or postpone the redemption. So let's just think about that for a moment. Okay. You know, because they, you know, during wars and stuff, you'll see scenarios where, you know, there's high inflation or currency or currency depreciation, as they would call it. And essentially, what he's saying is that the ultimate value, what gives currencies value is that one day, they will be redeemed, right? So if you're pushing out that date, that redemption date, that's going to cause the currency to depreciate, and, and so that that, you know, raises, you know, decreases your purchasing power with that currency, because it's going to take longer for the government to be able to, or the issuing, or the issuer to be able to redeem it. And if you think about, you know, there's this book published last year called Ways and Means that that kind of went into Lincoln's cabinet during the Civil War and, and financing and Solomon Chase and, and all stuff at the beginning of the book, they they show a chart that compares the the price or the relative value of greenbacks versus the Confederate notes. And, you know, the, the greenbacks, you know, they experienced some inflation, but, but that actually ends up kind of recovering, the Confederate notes basically goes to zero. I mean, I think they experienced like a 7,000%, like, extreme hyperinflation, and they talked about this in the book, how, how, you know, there was no taxing authorities established by the Confederacy. So essentially, they just kept issuing notes and never redeemed them. But that, but if you think about it, too, if, if you don't have confidence that a government is going to be around, why would you? Why would you own their paper? Right? If you're like, okay, they're losing the war, this government's gonna get disbanded. They're never going to redeem this from me, that's not worth anything. Right. Right. And so if you think that, you know, the United States government today is going to be around for, you know, a very, very, very, very, very long time, and that it's going to continue to redeem its currency. Well, then. That's, that's enough, you know, to for it to be a valid currency and medium of exchange. Yeah, store of value and stuff. It's not complicated, like you think the government's going away. They're never gonna redeem it, right. gets pushed out, you know, into perpetuity. So

Adam Rice: 39:35

I figured out who it was. I mean, I'm assuming this is where you found it. I think it was David Andolfatto, who used to work for the Fed, who tweeted, who tweeted a link to that.

Ryan Benincasa: 39:47

Oh, so Right. Right. Right. So he does whatever. So he Yeah, he did like a write up of the original essay. Yeah, I'm like, I just want to go to the source. Right. Right.

Adam Rice: 39:59

So he's so I'm just looking at the tweet right now. In the tweet. He says in his essay entitled money, James Madison argued that inflation is not related to the quantity of money. My old professor, the brilliant prolific, Bruce D. Smith mostly agrees. So it's basically refuting you know refuting. quantity theory of money which has unfortunately become was

Ryan Benincasa: 40:20

even before it was even the real theory, right? It was even, you know, Milton Friedman was even around. Right.

Adam Rice: 40:26

Right. Right. Which is amazing. It's

Ryan Benincasa: 40:30

amazing. Yeah. 150 years. Right. Yeah. 150 years before Milton Milton Friedman was born. Yeah. You know, and James Madison was already was already, you know, debunking his ridiculous theory that still permeates today that still is used as, as the foundation of the political economy and the economics profession in the United States and globally, that still has incredible influence on on public policy on, you know, policies that get passed and bills get written into law. Literally, James Madison, one of the founders talked about how it was totally wrong, right. At the founding of our country,

Adam Rice: 41:23

it is amazing.

Ryan Benincasa: 41:24

It's just amazing. It's amazing that something like this gets lost in translation. I'm just, I read this and I was shocked. Yeah, it's there. It's out there. How is this not? How was I not taught this in my seventh grade civics class,

Adam Rice: 41:41

right? Right. It's amazing.

Ryan Benincasa: 41:46

So but that's where we come in.

Adam Rice: 41:48

That is where we come in. Knock on wood. Alright, Ryan, it was great talking to you as usual. I'm going to jump off. Thank you everybody for listening. And we will all see you next time.