Financial Repression Authority with Dr. Lacy H. Hunt, Ph.D.
SPECIAL GUEST : Lacy H. Hunt, Ph.D. is an internationally known economist, is Executive Vice President of Hoisington Investment Management Company, a firm that manages over $5 billion for pension funds, endowments, insurance companies and others.
Lacy Hunt is the author of two books, and numerous articles in leading magazines, periodicals and scholarly journals. Included among the publishers of his articles are. Barron's, The Wall Street Journal, The New York Times, The Christian Science Monitor, the Journal of Finance, the Financial Analysts Journal of Portfolio Management.
Previously, he was Chief U.S. Economist for the HSBC Group, one of the world's largest banks, Executive Vice President and Chief Economist at Fidelity Bank and Vice President for Monetary Economics at Chase Econometrics Associates, Inc. A native of Texas, Dr. Hunt has served as Senior Economist for the Federal Reserve Bank of Dallas.
Lacy Hunt and his partner Van Hoisington were called "The Henry Fords of bond investing" by Forbes Magazine. You can understand why when you listen to Dr Lacy Hunt describe the current global macro environment.
"A superficial attempt to deal with the excessive indebtedness that grips the global economy .. and in my opinion will not work!"
"Monetary Policy is not the solution here. There are Fiscal Policy solutions but they require shared sacrifice, strong leadership (something we don't have in the US or Europe - no one has) ... basically what w are trying to do is to solve an extremely over-indebted situation domestically and globally by taking on more debt and aggravating the problem "
"The current economic maladies and continuing downshift of economic activity has been the over-accumulation of debt. In many cases "Debt funded the purchase of consumable and non-productive assets, which failed to create a future stream of revenue to repay the debt." "The increase since 2008 has been primarily in emerging economies. Since Debt is the acceleration of current spending in lieu of future spending."
- Impairs global activity,
- Spurs dis-inflationary or deflationary trends and
- Engenders instability in world financial markets.
The Currency Wars Of The 1920s & 1930s
Lacy muses on the effects of debt and takes us back to the '20s and '30s, when there were similar problems with debt in countries that had engaged in currency wars for over a decade.
Clearly the policies of yesteryear and the present are forms of "beggar-my-neighbor" policies, which the MIT Dictionary of Modern Economics explains as follows: "Economic measures taken by one country to improve its domestic economic conditions ... have adverse effects on other economies. A country may increase domestic employment by increasing exports or reducing imports by ... devaluing its currency or applying tariffs, quotas, or export subsidies. The benefit which it attains is at the expense of some other country which experiences lower exports or increased imports.... Such a country may then be forced to retaliate by a similar type of measure."
The existence of over-indebtedness, and its resulting restraint on growth and inflation, has forced governments today, as in the past, to attempt to escape these poor economic conditions by spurring their exports or taking market share from other economies. As shown above, it is a fruitless exercise with harmful side effects.
It behooves us to pay attention to Lacy since he has been one of the most accurate forecasters of interest rates for the last 20 to 30 years.
2015 -Parallels to that earlier period.
- First, there is a global problem with debt and slow growth, and no country is immune.
- Second, the economic problems now, like then, are more serious and are more apparent outside the United States. However, due to negative income and price effects on our trade balance, foreign problems are transmitting into the U.S. and interacting with underlying structural problems.
- Third, over- indebtedness is rampant today as it was in the 1920s and 1930s.
- Fourth, competitive currency devaluations are taking place today as they did in the earlier period. These are a combination of monetary and/or fiscal policy actions and also, with floating exchange rates, a consequence of shifting assessments of private participants in the markets.
"The downward pressure on global economic growth rates will remain in place in 2015. Therefore record low inflation and interest rates will continue to be made around the world in the new year, as governments utilize policies to spur growth at the expense of other regions."
"new lows in yields in 2015 in the intermediate- and long-term maturities of U.S. Treasury securities"