Steve Forbes, Economist & Editor-in-Chief of Forbes Media, joins Glenn to break down several economic concepts that may be hard to grasp: What IS inflation, is it calculated correctly, and how did it get SO bad today? Plus, Forbes describes the 'gimmicks' used by today's Federal Reserve that are furthering America's current economic crisis: '[The Fed] wants a slowdown, and they just hope they can avoid a recession. It's bogus thinking.'
Below is a rush transcript that may contain errors
GLENN: Welcome, Steve Forbes. How are you, sir?
STEVE: Good to be with you, thank you.
GLENN: So I'm really interested in hearing your take on what we are headed for with inflation. So let's --
STEVE: What --
GLENN: Let's start here. Explain what inflation is. You know, some people. You are so used to hearing, we're going to have 2 percent inflation. Oh, that's good. No, it's not. Is it, Steve?
STEVE: No. Just as you don't say, reduce the size of a gallon of gasoline, and that's good for you. No, it isn't. Keep it the same. So inflation. That's why we did this reader friendly book. No jargon. Straightforward.
There are really two kinds of inflation. One is a nonmoney kind. Nonmonetary kind. One you say, you have bad weather. Commodity prices go up. Wheat prices go up. Or you get the kind of shutdowns we have the pandemic, which disrupts the supply chain all over the world. We're still suffering from that. That sends prices up.
And then you have the money kind, where the government reduces the value, in this case, of the dollar by creating too many of them. And we know the government has been spending on a spree. How has that been financed, a large part of it has been the Federal Reserve. Buys those bonds. How does it get the money to buy those bonds? It creates it out of the thin air. The ultimate ATF. Now, unfortunately, Glenn, on the nonmonetary inflation, normally, if you just leave the economy alone, those things will heal themselves. We did it after World War II. And we converted from a wartime economy, to a peacetime economy. Disruption. But we did it. But unfortunately, the Biden administration is putting obstacles in the way. Starting with the role on fossil fuels. A lot of other the crazier things they've done. Seventy-seven executive orders. $200 billion of new regulations. So they're making the problem worse, instead of letting the economy heal. And the Federal Reserve, they've been printing a lot of money. They've been producing gimmicks to try to keep that money from flooding the economy. But that's going to run out. So if they don't get their act together, we're in from a rough time. Let me conclude on this. Unfortunately, this is where we have a real danger now. The fed believes, the way you cure inflation, is not by stopping the printing press. And making the dollar whole again. Making it stable again. They believe you do it by slowing the economy down. Throwing people out of work. And that's what they're up to now.
GLENN: So, Steve, first of all, the -- the idea of inflation, we say it's now at 8.5. That's just because we measure it differently.
If you look at shadow stats that measure it the way we did under Reagan. It's at 17.1. Is that fair to do, or not?
STEVE: Well, this gets to the whole thing of, how do you measure prices? The whole labor department. It has a whole bureau devoted to it. What do you put in the index. One of the crazy things is when people's buying patterns change. Let's say you have meat prices, which they have. So instead of having steak. You might go for cheap hamburger. Well, they don't account that as inflation. They just say, the patterns have changed stop, yes, you can manipulate these things six ways to Sunday. But the bottom line is price are his going up. The cost of living is going up. Part of it is the pandemic, and the Biden administration making things worse. We can cure that, hopefully with a new Congress.
But the Federal Reserve, they have to get over this notion, that when we do work, when we're trying to be prosperous, they got to slow us down. That's really bad stuff.
GLENN: I don't know that anybody really understands the fed balance sheet, and what they've done, and the money that they have loaned out. Trillions of dollars, that they have bailed banks out all around the world.
If you can't -- you know, theory trying to sell off the stuff, they have on their balance sheet. But every time they try that. And/or raise interest rates, the economy stops. And so not sure they're going to be able to do either of those. How do you pull this money back in, to be destroyed?
STEVE: Well, what -- what you do. First of all, which they won't do this part. Is you leave interest rates alone. Let the market set interest rates. Controlling interest rates is like rent control, which as we know, hurts new construction. This is trying to control the price of money.
Affect the price you pay for renting the money, so to speak. So they should just leave that alone, and let the market sort it out very quickly. On your point about what the balance sheet, when you say balance sheet, people's eyes start to glaze. Just think the fed is sitting on a pile of bonds. And too many of them. And so what they should be doing is letting those bonds mature. Not buying new bonds. Let the money supply go down. And if they do that in a responsible way, we'll avoid a huge slow down.
But let me give you something. A gimmick that they've been employing the past year. When they were creating $120 billion a month. Pulling money out of thin air. Let's walk your listeners through on this.
When the Federal Reserve creates money, they call up a dealer, a bond dealer like Goldman Sachs. And say, we want to buy a billion dollars of bonds. So Goldman says, fine. They give the fed the bonds. How does the fed pay for those bonds? They credit Goldman's bank account. Where does that money come from? No place. The fed just says, voila, you have it. And that's how they create the money out of thin air. So they're doing that last year, at a rate of $120 billion a month. To help finance the government's debt. And so what they did, to try to keep it from an even worse inflation, than we've been experiencing. They then create the money. And then borrow it back from the banks, and money market funds, overnight. If you want to get technical, if people want to look at this stuff, they go to (inaudible), they'll find a thing called reverse repurchase agreements. In effect, the fed is pouring money -- pouring a bucket of water at one end of a pool, and then taking it out at the other end of the pool.
Now, that gimmick can't go on forever. You know, a year ago. A little over a year ago, they had zero of these reverse repos. Now they have $1.7 trillion. That's the game they've been playing. Huge damn of money ready to flood the economy. So we are now also by turning the -- taking the money, and saying, oh, no. You're a central bank. Your dollars are no good, to Russia. A lot of countries around the world are going. Jeez, if I get on the wrong side of America, all of a sudden, what I have as gold is no good. That's not safe for me. We are destroying the dollar at the same time we're inflating the dollar. How is this going to end, Steve?
STEVE: Well, ultimately, and this will sound very strange, and you shouldn't say it in polite company. All the -- in a few years, we're going to do again, what we did for the first 180 years of this country's existence. And that is tie the dollar to gold. What it means is that gold for a variety of reasons, keeps its intrinsic value. What it means, it's like a measuring rod. Not perfect. But it keeps the dollar stable in value. If we maintained the growth rates we did for that 180 years. Which was the greatest in human history. And then we went off the gold standard in the early '70s. And since then, the average growth rate for the United States economy, has gone down by at least one-third, from about four and a quarter percent to two and three-quarters. That doesn't sound like that much, but you do that over 50 years. Let me just give you a number.
The average -- the median household income today is about $68,000. If we had maintained our historic rates of growth, which we did for 180 years, through depressions, wars, civil wars, you name it, we would maintain that average name of growth. You know what the median income would be? $110,000.
That's what we've lost over half a century of funny money. It's bad stuff.
GLENN: Can you explain -- you just said that the fed is going to destroy jobs. Or they're -- you know -- how are they doing it?
STEVE: Yes. They have this theory, called the Phillips curve. It's not a baseball pitch. It's named after an economist who said, if you want low unemployment, you have to have higher inflation. If you want lower inflation, you have to have higher unemployment. They believed prosperity causes inflation. They don't realize devaluing the dollar causes inflation. But they can't grasp that. So as a result, you hear this talk about soft landing, what they mean is, can we slow the economy down enough, without going into a full-fledged recession? Usually, their attempts at soft landings is a crash landing. They are trying to slow the economy down. Create unemployment because they think the economy is too prosperous. That's why they think they have this inflation. So they won't say that, explicitly. But you've pressed them on it. Yes, they want a slowdown. And they just hope they can avoid a recession. It's bogus thinking. Experience disapproves it. But if the fed, the Philip's Curve is wholly writ.
GLENN: By the way, we're talking to Steve Forbes. He's got a new book out called Inflation. What it is, why it's bad, and how to fix it.
Steve, when you look at the money printing that we have done, you immediately think of Weimar Republic. I mean, idiots know that, hey. You can't keep doing this for very long. And at huge sums of money. Okay?
Everybody learned that. Weimar Republic. Zimbabwe. Et cetera, et cetera.
STEVE: Venezuela today.
GLENN: Venezuela. So do we know -- or have a guess on -- on how close we are to that?
I mean, is there a possibility we go into hyperinflation?
STEVE: You can't rule anything out with these people. But I think the answer is, no. I think even some people at the fed are realizing, they're on the -- they're in the danger zone. And so they're trying to figure out, they got themselves into this mess. And they were doing this, by the way. Undermining the value of the dollar. Before the covid crisis. This was starting in 2018. So they can't say, oh, we did it because of covid. No, they were doing it before covid. So I think they're trying to figure out now, how do we get ourselves out of it, without getting a disaster? So I think they're going to slow down the money creation. But what they should be doing now, is instead of trying to manipulate interest rates, just let their -- just let the bonds mature. And the size that they hold of those bonds, go down. Nature will take -- nature will take care of it.
Treat the -- keep the dollar stable. And then let the bonds mature. Run off.
And we'll -- we'll get through this. But the other side of the coin, is even if the fed starts to behave itself, then you have a government that is doing everything it can to slow the productive part of the economy. You know, the genius of Ronald Reagan was, when he cured the inflation. At the same time, he cut taxes, deregulation. And that's why we roared in the '80s. After those tax cuts went into effect.
GLENN: We're doing the exact opposite.
STEVE: So we'll have to wait until 2024, to get that done. But with 2022, hopefully with the November elections, at least we can put barriers in the way of the Biden administration, from putting new burdens on the economy. And also start questioning the fed. What in the world are you guys doing? Why do you think prosperity is bad for us?
GLENN: Steve, can I hold you for one minute?
I have about five more minutes, if you have time. Hang on. Sixty seconds, and we're back with Steve Forbes.
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GLENN: Steve, I know this is off the inflation path, a bit. We're talking to Steve Forbes. The book inflation. What it is. Why it's bad. And how to fix it. But I'm really concerned about these ESG programs. You know, going and switching our economy to a stakeholder. Capitalism. Which is just bullcrap. In my opinion.
And -- and -- and the way we are letting BlackRock and others come in and just buy us all up. They're buying in every seven homes, for sale. Going to BlackRock.
STEVE: Well, this -- and the nice -- the good thing about a free economy, free country, and free speech, is when these things start to happen, you can arouse the public. They won't say it publicly. But Coca-Cola, and Delta, really reversed course after they did what they did last year. When they booted the all-star game out of Atlanta. Because they didn't understand what Georgia did with the voting laws. Which are more -- more liberal than they were in New York City.
Hello. And they got burned on that. They got real pushback on that. Disney is getting pushback on it.
So the way -- the way you answer this stuff, is you push back.
And one of the things I think you're going to see happen after the November elections, is looking at ideas on how, if you're a shareholder in a fund, or a group, BPF or something, how can you have a voice on how your share of the shares, so to speak, are voting at these annual meetings? It's complicated. But I think you're going to see a real thinking on that. So it's not just a group of people. You know, decades ago, there was a great business guru called Peter Drucker. And some schools still read his book. Business schools. But he warned of what he called pension fund socialism. He noted the rise of pension funds, owned by the state. And by -- by endowment funds. And he said, they can end up buying the economy. The government doesn't have to do it. They're doing it for them.
So I think you're seeing real pushback, on that. But they get to what you might call, modern socialism. The modern socialists recognize, you don't have to take over a company or an industry. You just have to regulate it, so its survival depends on your whims. And that's what the Biden administration is doing. Practicing modern socialism. And pressuring the BlackRock and others. BlackRock and others, go along. With the pushing that kind of agenda. That has to be resisted. But modern socialism, different from our mind, you have the regulators to do it. You don't have to take them over.
GLENN: Would you -- would you say that we are now doing modern monetary theory in Washington? We have one minute.
STEVE: They're doing a form of it. Modern monetary theory. Is simply modern gash on the old idea of devaluing money, by creating too much of it. You know, in Roman times, they did it by reducing the precious metals in a coin, and putting that tin and junk in it. In modern times, we do it by printing up a lot of paper money. With now ellipses on your handhelds.
And it's the same thing. And what you see unfolding now -- we discuss this in the book, inflation is the old response of government. They scapegoat.
You know, in Roman times they blame Christians. In able times, witches. Now today, we blame company executives, with the same old movie.
GLENN: Okay. Steve Forbes. Thank you. Hold on for just a second. Steve Forbes. His new book is out today. You want to pick it up.
Inflation. What it is. Why it's bad. And how to fix it. More in just a second.