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Richard Duncan

lines on the record: 67
first: 2022-10-30
most recent: 2022-10-30
sittings or episodes: 1
sources: podcast

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“Thank you, Travis. Really great talking with you. You always ask such good questions and leave plenty of time for your guests to reply to them. So thank you for that. And first, I hope your listeners will buy my new book. It's called The Money Revolution, How to Finance the Next American Century. And then if you'd like to follow my work more closely, I produce a video newsletter called Macro Watch. Every couple of weeks I upload a new video, a PowerPoint presentation of me discussing what's happening in the global economy and how that's going to impact asset prices. They can find that on my website at Richard Duncanics dot comradanics dot com. I hope they'll go there and check that out.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Inflation. So, overall, I think the policy response was very successful. The downside was higher rates of inflation and enforcing the Fed into, and of course we had a huge surge in asset prices, which created a lot of wealth, especially for the wealthiest people. I think in the two-year period after starting in March 2020, U.S. wealth increased by $35 trillion over two years. It was just a mind-boggling increase in U.S. wealth. So overall, the policy worked because our economy didn't collapse.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“As the Great Depression led to World War II. So overall, I think people need to give them a break and realize that these are good people trying to do the best they possibly can with the very difficult cards they've been dealt. And generally, look, the U.S. economy came through this crisis. We got through the other side. In early months of 2020, it wasn't sure what the U.S. economy would look like in late 2022. It could have collapsed by now, but it didn't. The GDP is larger now than it was, and the unemployment rate is at a 50-year low. That's a big accomplishment. And, okay, the price we paid for that, increase in government debt, which in my opinion is not that big of a deal, and inflation, peaking at 9%, which is painful, but that's not going to last, and particularly since so many Americans receive such a large amount of stimulus that probably covered some of their losses that have resulted from high.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Amazon, the demand for manufactured goods became very high and overwhelmed the supply of such manufactured goods. So semiconductor prices shot up and shipping rates shot up. And this was a perfect storm for the Fed. And then just when there was hope that it was going to go away, Russia invaded Ukraine. You know, you can't expect JPAL to anticipate that Russia is going to invade Ukraine. That was beyond his control. Overall, with hindsight, It's easy to say they should have done things differently. But if you were in the driver's seat at a point where the United States could easily collapse into a new Great Depression if you didn't provide enough stimulus, then it's better to provide too much stimulus and live with elevated rates of inflation for a while rather than having a nineteen thirty style depression with 25% unemployment and deep deflation, leading to a global economic calamity leading to third world war potentially.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“If the government had to borrow $5 trillion in the free market, borrowing $5 trillion would have pushed up interest rates to a very high level. And instead of helping the economy, very high interest rates would have crushed the economy. So the Fed really could have decided, okay, you're on your own government, but that's not how it works. The Fed and the government work hand in hand. And the Fed stepped up and agreed to finance essentially 70% of all of that borrowing. The Fed created $5 trillion. So it was the Treasury Department that was the dog just wagging the tail Fed. Fed was responding to the government policy. And they didn't, they thought, like me, they thought globalization, since they'd been able to create so much money after 2008 and get away with it with no inflation, they thought they could probably do it again. But it turned out that there were big supply chain bottlenecks. And suddenly, and also with everyone's staying home and ordering computers across.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Prices and it was hard to make the inflation grow by 2% a year. Suddenly out of the blue he gets hit by COVID. The U.S. economy entirely recovered from the 2008 response to that crisis. During that crisis, the Fed had three rounds of quantitative easing, increased its total assets by five times. And that didn't cause any inflation. The highest rate of inflation then was 3.9% in 2011. And by early 2015, we had deflation again. So that had all passed through the system by then. We were back in a disinflationary, low inflation environment. Then suddenly COVID happens. And with COVID, everyone's required to stay home. No money to pay their rent or their mortgages or anything else. And so the government decides to give them three big rounds of stimulus packages. And the Fed, that required the government to borrow the stimulus programs, they say, in total, $5 trillion it cost to get through COVID. The Fed had a choice.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“So, everyone, so many people on the internet love to criticize the Fed and the government and the whole American system now. I think this is probably very well funded by our enemies of Russia and China through Facebook and all the other social media outlets. But that is a very debilitating attitude for the Americans to have. And it's not right. Now, these people in the Fed are trying to do the best they can possibly do with the situation they inherited. And the situation that J.P.L. inherited was a world in which the Fed had been unable to make the inflation rate move up to its 2% inflation target from the year 2000 to 2019, the average inflation rate on the CPI was 1.7% a year per 20 years. So the situation he inherited was globalization was extremely deflationary. It was putting downward pressure on.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“So, if we have 75 basis point rate hike in November, 50 basis points in December, that takes us to 4.3. There are four meetings in the first half of next year, FOMC meetings. If they hike 25 basis points every time, that takes us to 5.3. That would probably do it. And then the economy would be in recession, and they could start cutting interest rates in the second half of the year. And that could potentially bring them back down to 4.6%, which is what they forecast in their dot plot. They said the federal funds rate was likely to be 4.4% at the end of this year and 4.6% at the end of next year. They didn't say it wouldn't be higher in the middle of next year. They said at the end of next year four point six. So that may be the way they get to 4.6% at the end of next year.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Bring inflation down. It can't create more supply. It can't drill more oil wells or plant more wheat, so it has to destroy demand. And to destroy demand, it has to throw people out of work. And so far, that's not working. The job numbers are still rising. They increase by more than 200,000 last month. So the Fed is going to have to creep hiking until a few million Americans lose their jobs. The other way they can destroy demand is making the stock market fall and asset prices fall. That creates a negative wealth effect. So that's what we're experiencing now. Until we get inflation at a much lower level, the Fed's going to have to keep tightening monetary policy until millions of Americans lose their jobs and until asset prices fall further, and that will bring supply and demand back into balance. This may take a year or two more, could suddenly happen with some sort of big shock in financial crisis.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Think in terms of the monetary policy is we can think about monetary policy like driving a car. If you drive it too fast, you may have a mishap in terms of higher inflation. And if you drive it too fast in hazardous conditions like global supply chain bottlenecks and the war in Russia, which disrupt global supply chains, that increases your chances of having a mishap such as higher inflation. But the lesson to take away from that is not to stop driving the car and go back to riding and horses and buggies. The lesson is just drive more slowly, or at least drive more slowly when you're experiencing hazardous conditions. So we ended up driving monetary policy too quickly and hazardous conditions, and that's contributed to the inflation we're experiencing now. That's given everybody more savings than they had. So the unemployment rate is very low. Now, the Fed can't increase demand. I mean, it cannot increase supply. It has to bring supply and demand back into balance.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“And such, so they wouldn't fire their workers. And that money allowed the Americans to keep paying their mortgages and their consumer credit card bills. And so they didn't default. Had they defaulted, then the U.S. economy would have spiraled into depression and all the banks would have failed. So that didn't happen. But as it turned out, all of that stimulus, that much new money going into being directly deposited into the consumers, households, bank accounts, and the corporations' bank accounts. This led to a big buildup in deposits, a big build up in savings. If you look at the M2 money supply growth, it was 27% year on year at the peak M2, which reflects, includes demand deposits. In 2008, the M2 only grew by 10%. So that was 27% was too much and contributed to full employment. Unemployment rates at a 50-year low. So the way to think of this.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Destroy 1.1 trillion dollars over the next 12 months if it actually is not stopped before then. And that represents about 13% of all the dollars. So that's extreme monetary tightening. And that's what frightened the markets to answer your question. Markets realize that liquidity drives asset prices, and right now the liquidity is drying up, and we're experiencing very aggressive monetary policy tightening. Now, the economy hasn't quite caught up to the markets. The markets are supposed to discount things in advance. The three rounds of stimulus packages during the pandemic, and starting in March 2020 and then December 2020, again in March 2021, that stimulus in total was about $5 trillion, $1.8 trillion of dollars of that went directly to households in terms of stimulus checks, and $1.7 trillion of that went to businesses to pay check protection programs.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“So, as I said at the beginning, I believe that credit growth drives economic growth. But liquidity determines which way the asset prices move. Most basically, when the Fed is creating a lot of money and injecting it into the financial markets, then asset prices tend to go up. And when the Fed starts destroying money, as it's doing now, it takes money out of the financial markets and asset prices tend to go down. And also interest rates are zero. That makes it very easy for people to borrow and speculate which pushes up asset prices. But when interest rates start moving up to 3% as they are now, heading toward 5% as they may well be in a couple of quarters, and suddenly it becomes a whole lot more expensive for people to borrow and speculate and asset prices fall. So generally, the time to buy is when during QE and the time to sell is during quantitative tightening, which is where we are now. Quantitative tightening at the rate of $95 billion a month is going to”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Well, what I'm calling for is a multi trillion dollar program over 10 years. That would not be inflationary in the same way that we're experiencing now by any means. And even if it were, that kind of inflation is a price we would have to be willing to pay to ensure that we're not conquered by China.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“People would always say, You can't believe. I mean, they would say, This is an interesting idea, but you can't believe the government would ever do anything like that. Well, now they've started to do it. The only thing is $280 billion. Okay, that's a big number, and that will probably buy us an extra two years ahead of China. That will keep us ahead of China for two years. That's not enough. That only takes us to 2032. This has got to be the first installment. We need now to be making plans for the next installment, which should be even bigger than $280 billion. And then we need to turn this into a multi-trillion dollar investment program over the decade. Now, multi-trillion, it sounds like a very big number, but the U.S. government increased its debt by $2.8 trillion in the second quarter of 2020 alone. So that's a multi-trillion dollar increase in government debt in three months. That's not what I'm calling for. That probably overdid it and contributed to the inflation we're now experiencing.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Nanotech, robotics, neurosciences, and green energy, et cetera. So the passage of this 280 billion dollar act, the chips and science act, that allocates $52 billion of money for the development of semiconductor manufacturing facilities in the United States, which America desperately needs because most of them now are located in Taiwan, and Taiwan could be under attack any day, any year, too soon for comfort. And we can't allow that to happen. Who knows how many of our military parts and equipment would not work without sufficient supply of semiconductors? But in addition to that $52 billion, the rest of the 82 billion, the rest of the 280 billion in the Chipson Science Act is going to be invested in new industries and new technologies, just like I called for in the book. So this was fantastic news. I've been calling for this sort of investment for a very long time now, at least 10 years.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Are going to become exponentially smarter very, very fast. So whichever country develops, gets to that point first, we'll have the rest of the world at its mercy. And that's going to be China. If we don't radically accelerate our investment in new industries and new technologies starting immediately. So the passage of this 280 in my book, The Money Revolution, How to Finance the Next American Century, that's what the book is all about. And what it calls for is for a multi-trillion dollar investment program to be financed by the US government and carried out by joint venture companies between the U.S. government and the private sector with scientists and entrepreneurs running the company and the government funding these joint venture companies and keeping a 60% equity stake for the government and a 40% equity stake for the entrepreneurs and scientists managing the companies across industries like artificial intelligence, quantum computing, genetic engineering, bio.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“I was really thrilled. I mean, this was such a great positive development for the United States and for our future because I certainly don't have any issues with Chinese people. But the fact is China is on the verge of overtaking the United States technologically, economically, and militarily. In the year 2000, the United States invested eight times more in research and development than China did. Last year, China invested more than the United States did in R&D. And if current growth rates continue in both countries, by the end of this decade in twenty thirty, China will invest forty percent more in research and development than the United States. And if the United States allows that to happen, China is going to develop artificial intelligence before the United States does. And in terms of artificial general intelligence, where computers can do anything humans can do, and then immediately after that, the computer...”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Russia's future is bleak. Lake and peg their ruble to the gold if they want to, but nobody's going to invest there anyway. And if they try to sell their oil in gold, then that's not going to work because no one has enough gold to buy their oil. And so they'll just simply stop having, they won't be able to sell any more gold because people don't, other countries don't have enough gold to buy it. So it's like the United States has a $1 billion a day trade deficit with China. If China tried to make the United States pay for that with gold, the US would run out of gold in a few months and it wouldn't be able to buy one more pair of tennis shoes from China. And China's economy would collapse. So we're not going back to a gold standard ever unless there's some sort of madmac disastrous scenario where the world collapses and reverts to barter, in which case the warlords would accumulate all the gold. So that's not going to happen.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Well, you can see why Russia would like to accumulate more gold since it was preparing to invade its neighbor and try to conquer and eliminate Ukrainian nation in advance rather than having a lot of dollars because the US is able to impose sanctions that prevent them from using a lot of those dollars. It's not going to do any good for, I mean, first of all, Russia's economy is going to be in dire straits for decades to come now. They're very dependent on energy exports to start with. They're kind of suffering from the oil producer curse. If you have a lot of money from being a big oil producer, the rest of your economy tends to be lazy and not very effective. We're looking at a future where 20 years from now, there's not going to be any need for oil. We're going to have renewable energies and you won't be able to give oil away. Remember when oil prices turn negative in 2020?”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Particular crisis to stop that particular run, whether it's in the government bond market or the corporate bond market. And by making that announcement, they would calm the markets again. And so in that sort of crisis, that's what we would most probably see.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Out for buying every month. So the amount of bond buying that they've had to do is much lower than when they were saying they would buy X amount of Japanese government bonds every month. So it doesn't take that much government intervention. It only takes the announcement that we are determined. Did you get the situation under control and we have limitless amounts of resources to do this when they say that they're going to control the bond yield at a certain level? If the markets believe them, they don't really have to spend that much money to do it. And if the markets don't believe them and test them out, the central bank creates a little bit more money and burns everybody who tested them out. So that's probably what we would see if we have some sort of financial crisis emerge in the US. The Fed would make an announcement similar to the Bank of England that they're prepared to buy $100 billion new dollars worth of US government bonds or whatever is required to support that.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“And so by just spending 5 billion pounds and buying 5 billion pounds worth of bonds, they showed everybody in the market that they were there and that they would buy as many bonds as necessary to stop the interest rates from going any higher. Well, they were supposed to end this on Friday, and maybe they will, maybe they won't. If the bond yields start moving higher again, they'll have to spend some more. And so the same sort of, and that's the way the Bank of Japan controls the Japanese government bond. They've been doing quantitative easing, and Japan even longer than we have. But what they discovered is just by the Bank of Japan announcing that we will buy as many Japanese government bonds as necessary to peg the yield on the 10-year Japanese bond at 25 basis points, they discovered they didn't really have to buy that many bonds. They ended up buying far fewer bonds than they had been earlier on when they had set a fixed amount.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Willing to buy up the 65 billion pounds of UK government bonds in order to prevent the bond yields from moving any higher and stopping the panic in the bond market. But in fact, they haven't had to buy 65 billion pounds worth of bonds. I don't have the precise figure, but I think it's more like... Actually, they only have to spend five”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“I think the response would be similar to what we're seeing from the Bank of England when this dynamic took hold in the UK with the pension funds being forced to sell their government bonds to cover their hedged positions, their derivatives exposure, then that set off a dynamic that pushed the bond yields in the UK even higher and caused the pension funds to sell even more bonds. It was creating an out-of-control, vicious spiral that was driving up the government bond yields in the UK and endangering the pension system in the UK so that the Bank of England, central banks are created to be the lender of last resort to prevent banking panics when they occur. That's their main purpose from the beginning of time. And so what the Bank of England did is exactly that. They became the lender of last resort. They announced that over the next, I believe, as a two-week period, that they would be”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Well, first of all, just a general lack of understanding. This is not without precedence. In 1936 and 1937, the Fed doubled its required reserve ratio from, I believe, 10 to 20 percent over a two-year period. So there is precedence for this happening. But how many of our policymakers, especially in Congress and the Senate, are aware of that or are aware of any of what I've just explained about so generally, I think why this isn't happening is because Congress isn't aware that this is a possibility. But if I read my book, The Money Revolution, I spell it out there. And it is a possibility. And as the Fed's losses begin to mount, I think they'll become made aware of this. And hopefully they will enact this legislation.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Required reserve ratio is 0%, and the Fed is having to pay 3% interest on all of these reserves. So what the government should do is increase the required reserve ratio from 0% In that case, the Fed would become immensely profitable again. So this is what the government should do is reimpose very significantly higher required reserve ratio to absorb all of these excess reserves. That would immediately restore the Fed's profitability. And it would ensure that all of the Fed's profits go to the government, which is, in other words, go to the U.S. taxpayers, rather than ending up as windfall profits to the banks who've done nothing whatsoever to earn them.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Meaning that the money multiplier is infinity. The only constraint on how much the banks can create now and money is their reality that if they lend too much, the people they lend to won't be able to afford to pay the interest on the money that they borrowed. So the solution to this problem of the Fed having to pay such high interest rates is the Fed should just simply reimpose a required reserve ratio on the banks that is high enough to absorb all of their reserves until there are no more excess reserves left. So right now, the required reserves are calculated by the amount of reserves the banks have as a percentage of the bank's deposits, the required reserve ratio is how much reserves the banks have as a percent of their bank deposits. In the past they were required to keep a reserve against their deposits. Right now, their amount of reserves relative to their amount of deposits is about 16%. Right now, the”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“To reduce the required reserve ratio year after year after year after year. And the more it reduced the required reserve ratio, that made the money multiplier expand. This may be a bit technical, but through the process of fractional reserve banking, the money multiplier is one divided by the required reserve ratio. What that means is if the required reserve ratio is 10%, one divided by ten percent is ten times. And that's the money multiplier. What that means is for every new deposit that enters the banking system, it can effectively create ten times that much money through lending and relending and relending that deposit. But over time, the Fed reduced the required reserve ratio again and again and again until it was really in the low single digits. And then in 2020, they reduced it to zero. So there's no longer any required reserve ratio whatsoever for the United States.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“The Fed to be paying interest on bank reserves because the banks didn't do anything to earn those reserves. They didn't make loans. They didn't speculate in port bellies. They did nothing whatsoever to earn those reserves. The Fed's action created those reserves by creating money and depositing that money into the bank's reserve accounts. That money is a pure function of the Fed policy. Nothing whatsoever to do with what the banks have done. And so all of the profits the banks are earning on this 3% interest payment from the Fed, it's pure windfall profits, which they do not deserve, and therefore there's a way to resolve this right over time I mentioned in the nineteenth century banked the legal required reserve ratio was twenty percent at some points in some banks in some cities. But over time in the US, the Fed continued”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“As bank reserves, except reverse repurchase agreements are where the money market mutual funds can park their money, and they will also be paid 3% interest right now, since that's where the federal funds rate is. And that will prevent them from lending to anyone at less than 3%. So the Fed now has to pay interest on not only bank reserves, but on what are effectively the reserves of the money market mutual funds. It has to pay interest on both of these bank reserves are around three trillion dollars and money market mutual funds have about two point two trillion dollars at the Fed. So that's something like five point two trillion dollars that the Fed is now paying interest on. And that is why their interest expenses shot up, and that's why their profits have dropped from over $100 billion last year to probably a negative number next year. Now, this is a real issue that I think there is a solution to. There's no reason for.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so things become even more complicated because, yes, it is. But in addition to bank reserves, bank reserves are on the Feds their liabilities. But suddenly there's a new big item on the Fed's liability side that didn't exist very long ago. And that is reverse repurchase agreements. And rather than that, so banks have bank accounts at the Fed, and that's where they keep their bank reserves. Suddenly, over the last couple of decades, money market mutual funds have become a big new thing, relatively speaking, over the last couple of decades. And these money market mutual funds also need some place to make a profit. They've got, I think last I looked, nearly five trillion dollars of assets. And so this forced the Fed to allow them essentially to all have bank accounts at the Fed also in the form of reverse repurchase agreements. It's essentially the same thing.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“So the Fed, of course, can create as much money as it needs. And in the future, it will also revert to a position where it once again has more interest income than interest expense, assuming that one day interest rates go back down. I think for much of the money the Fed has extended through its quantitative easing programs is guaranteed by the government. So the government debt instead of being lowered by government profits, as it has been practically every year since 1913, the government debt going forward for the next couple of years will probably be higher as a result of the Fed's losses.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Have a lot of capital because it gives all of its profits to the government every year. As I think I mentioned earlier, since the Fed was created, it has given the government $1.8 trillion. And just since 2008, most of that has come since 2008 when they started quantitative easing. The Fed has given the government $1 trillion since 2008. If it were a normal bank, all of that would have been in their capital account. But now they don't have very much capital because they have to give all their profits to the government. So they're going to make a loss if they have a loss. They'll have negative capital. But that's not, I don't think that's a particularly pertinent issue.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Them to do this. This is how they make the interest rates go up now. So if they increase the federal fund rate. Up until very recently, when the federal funds rate was very close to zero, the Fed didn't have to pay any interest on bank reserves or on the money that it created. And so all of its interest income was pure profit. But now it still has the same amount of interest income. But the problem is it's now paying a lot of interest on bank reserves. And so paying 3% interest on all of these bank reserves suddenly means that the Fed has a very high level of interest expense. And apparently, as you mentioned in September, if their net profit turned negative in September, it is because their interest expense, three percent on bank reserves, is greater than their interest income on all of the bonds that they own. And so it's possible now that it seems likely that for this full year, they'll probably still have a profit. But for next year, they will probably make a loss. But of course, you've got to keep in mind that the Fed doesn't have a lot of capital, and it does.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“All funds right. Every time the federal funds rate moves up, the Fed makes it move up by paying a higher interest rate on bank reserves. So now that the federal funds rate is at a range between three and three and a quarter percent, the Fed's currently paying three point one percent on all the bank reserves held by the banks. And therefore that's why the banks won't lend any money at less than 3.1%. That's how the Fed is moving up the interest rates. If the Fed didn't pay interest on these bank reserves, then there's so many reserves. The banks, there's excess supply of reserves. So that would put downward pressure on interest rates. And the Fed would be unable to push interest rates higher. It would be unable to tighten monetary policy to fight inflation. But by this new policy that they introduced in 2008 of paying interest on bank reserves for the first time ever. Before 2008, it was not legal.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Are floating around in the financial system. So now the banks have massive excess reserves any way you look at it. And the only way to get rid of the excess reserves would be for the Fed to entirely reverse all of the money creation that is done over the last 14 years. And that's not going to happen. So the Fed has had to create a new way to control the federal funds rate. And now the way they control the federal funds rate is entirely different than the way they controlled it in the past. Now they control it by paying interest on bank reserves. So before the Fed started hiking interest rates in March, the federal funds rate was about 25 basis points. And so the Fed paid the banks 25 basis points on their bank reserves so that the banks wouldn't lend money at less than 25 basis points. Why would the banks lend money to anybody else at less than 25 basis points when they can earn 25 basis points interest from the Fed? Well, now the Federal”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“The Fed would sell some of the bonds that it already owed to a bank, and the bank would have to pay the Fed by transferring its bank reserves to the Fed, and that would make the reserves in the system more scarce, and that would make the federal funds rate move up. So by making relatively small changes in his open market purchases and sales, in other words, by just selling a relatively small amount of bonds or buying a relatively small amount of bonds, it could change the supply and demand dynamic in the market for federal funds affecting the federal funds rate. And that's how the Fed moved up and down the federal funds rate by small adjustments in making bank reserves more plentiful or more scarce. But after 2008, that doesn't work anymore because the overall level of bank reserves in the system are not scarce anymore. They're super abundant. The Fed is effectively created $8 trillion extra dollars.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Sometime the legally required reserve ratio was as high as 20%. The banks were required to keep reserves of 20% at one point. Over time, this required reserve ratio fell and dropped and dropped and dropped. But so you get the idea these bank reserves were legally mandated, and the banks didn't keep excess reserves if they didn't have to. And so reserves were always scarce. And the Fed was able to manage the federal funds rate by making relatively small adjustments in reserve balances. So, for example, if it wanted interest rates to go down, then it would buy some bonds from the banking system. And when it buys bonds, it would inject new reserves into the banking system. So that would create the amount, increase the amount of bank reserves, and that would make bank reserves more plentiful. And so the cost of borrowing reserves would drop. And conversely, if it wanted interest rates to move higher,”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Disappear no matter how much the banks lend, or no matter what they do with those bank reserves. They could buy a building with it. They could buy pork bellies. The bank, just because the reserves move around, they don't disappear. And they're never going to disappear until the Fed destroys them through quantitative tightening, which the Fed is now doing. Now, so in the past, making a long story even longer, in the past, the way the Fed controlled interest rates, the federal funds rate, there didn't used to be massive excess reserves. Banks were required to hold a certain portion of their deposits at the Fed in their bank accounts, at the Fed as reserves to make sure that if suddenly their customers came knocking on the door asking for their deposits back, then the banks would have enough reserves to pay the customers their deposit back so there wouldn't be bank runs back in the 19th century.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Think of this as pennies, you know, just imagine these mountains of pennies that the Fed is creating. And just watch where the pennies move. It's the same. Bank reserves are the same as dollars or pennies or anything you want to look at it. When the Fed creates bank reserves, those bank reserves are not going to go away until the Fed destroys them with quantitative tightening. So for example, the Fed may buy a billion dollars of bonds from JP Morgan and deposit a billion dollars into JPMorgan's bank reserves. Now, JP Morgan can do anything with those bank reserves that it wants. Those reserves are money. So it could lend that billion dollars to Trey Lockerbie. But Trey Lockerby is not going to keep the billion dollars worth of pennies in his backyard. That would be ridiculous. He's going to deposit them in his bank. Goldman Sachs, for instance, perhaps. And then so the bank reserves moved to Goldman Sachs. They don't disappear.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Meaning the Fed had created $8 trillion new dollars and money that it pumped into the financial system, into the banking system, causing bank reserves to expand. Now there is massive excess supply of bank reserves. Now, since people become very confused about what bank reserves are, and it is really a bit difficult to get your mind around it. But on the other hand, it's not as complicated as you think. Bank reserves, they're just money. So rather the money gets transferred around the banking system now electronically. And it becomes very confusing when you think about these digits moving around the banking system and from the banks to loans and the banks might buy bonds or might make investments in stocks. It all becomes very confusing. But if you think of these bank reserves as just dollar bills and follow where the dollar bills are going or think of them even to make it more dramatic.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“At the Federal Reserve. All the banks have a bank account at the Fed. And so when the Fed buys a bond from JP Morgan, for example, it simply deposits money into JP Morgan's bank account, money that it has created, is not money that existed before. And that expands the amount of money in JP Morgan's bank account at the Fed. In other words, it expands JPMorgan's bank reserves. Now, what's happening is bank reserves, because the Fed has created so much money through quantitative easing starting in 2008. The Fed has created something like, well, at the end of 2007, the Fed's total assets were, let's say, $1 trillion, a little less than a trillion dollars. At the peak a few months ago, they had increased to nine trillion dollars. So between 2008 and now, the Fed's assets had increased by $8 trillion.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Order to pump money into the financial markets, since those bonds pay interest to the Fed, the Fed has a lot of interest income. And since it created the money that it used to buy those bonds for free, it has very little interest expense thus far. And so with a lot of interest income and little interest expense, that's where all the profits come from. Now, what has changed is when the Fed creates money, it does this by it buys a bond, for example, from a bank, and it pays for that bond by making it a deposit.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Okay, well, this takes some explanation. Let me begin by saying that when we spoke in February, the data for last year was not yet available. So when I said the Fed was the most, if it had been a corporation, it would be the most profitable in the world. That was for 2020 data. That year in 2020, the Fed's profits were $87 billion. And the Fed is required to hand over all of its profits to the government. So that year, the Fed's profits reduced the U.S. budget deficit by $87 billion. Last year, the data now is available for 2021. The profits were much higher than they were the year before. Last year, the Fed's profits were $107 billion that it handed over to the U.S. Treasury Department, reducing the budget deficit last year by $107 billion. So how this works, as you mentioned, the Fed creates money essentially at no cost to itself, and it buys bonds.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“In order to peg the 10 year Japanese government bond yield at 25 basis points. Meanwhile, the U.S. rates are going up very sharply and very suddenly. So the yen is at a 20-year low. And it's taken some intervention from the Bank of Japan to prevent it from dropping even further. If you look at Europe, they have a disaster with their energy crisis since they've been cut off from all of almost all of Russia's energy supply. They have high rates of inflation, and their central bank, while it recently did increase interest rates a little bit, they're not going to be able to keep increasing interest rates as much as the Fed is just because Europe's likely to have quite a severe recession. And England's a story unto itself. But overall, it does look like the dollar is probably going to continue to appreciate.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“If you can forecast those moves, then that's great because it does have big implications for the rest of the global economy. Normally when the dollar gets stronger, commodity prices get weaker. When quantity prices get weaker, normally that's bad for the most of the commodity producing countries in the world, which are normally emerging markets. Also, when the dollar is very strong, that tends to be bad for U.S. corporate profits, since they earn a significant amount of their profits from abroad. And that since weaker profits suggested weaker share price. So it tends to be bad for the U.S. stock market. So that's sort of where we are at the moment. And it does appear that the dollar has a good chance of continuing to get stronger because as you mentioned, the yield on the 10-year Japanese government bond is 25% of 1%. In other words, it's 25 basis points. The Bank of Japan is creating money and buying Japanese government bonds.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“So, not so long ago, the great chorus echoing across the internet space was the dollar was doomed, the dollar was going to collapse, and that was going to be the end of the dollar. And now we've got the dollar index at 113. That's a 20-year high. And as you suggested, it looks like it's probably going to keep moving higher. So the first takeaway from this is the dollar swings up and the dollar swings down. If you go back, it started floating in 1971 with the breakdown of the Bretton Wood system. It doesn't really swing that far in either direction. Now, during some decades, it's down from the place it started in 1971. Other moments such as now, it's above where it started in 1971. And this is what we should continue to expect for over the decades ahead. The dollar is not going to collapse, the dollar is not going to go away. Sometimes it's going to be stronger, sometimes it's going to be weaker.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“Well, of course, anyone who's buying a new home will have to pay the higher mortgage rates. And that's deterring a lot of new buyers. And that's the reason we've seen such a sharp decline in new home sales. So that's taken all the froth out of the market. It's suddenly changed very suddenly. That alone is enough.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT
“The one thing that's keeping the inflation rate number elevated, one of the main things is the house price inflation that is appearing, particularly in the core CPI numbers. And that's going to take a number of many months to work out any way you look at it. But we're probably going to see home prices starting to fall quite soon. The 30-year fixed mortgage rate has shot up astonishing 7%. Clearly, that's going to be very damaging for home prices. So once home prices start dropping, as it appears that they will, then we'll see much less upward pressure on rents and rents too may begin to drop before too much longer.”
2022-10-30 · We Study Billionaires · TIP488: Current Market Conditions W/ Richard Duncan · IDENTIFIED FROM THE TRANSCRIPT