Barry Eichengreen

And these tailwinds are really the critical reason why the economy continues to do so well.

Are you modeling out a continued 5% nominal GDP, which clearly within Barry Eichengreen's financialization benefits the haves?

Absolutely, we expect still growth to be strong.

And what's really unique, as you also just spoke about a minute ago, is that when interest rates are high, it hurts the interest rate sensitive parts of the economy, which is housing and autos.

moving around and no real foreign exchange trading.

Barry Eichengreen, a scholar at Berkeley, University of California, Berkeley, has written on this and done some very good scholarly work on it.

So how long was Sterling's run? Well, you probably got to go back to the early 18th century.

Isaac Newton, by the way, he didn't just discover calculus and the laws of planetary motion.

So a big home loan at a low rate can come with a much smaller EMI than a much smaller loan at a high rate.

Now, in a recent paper, Barry Eichengreen, Maxime Menuet, and Gregory Dona looked at data for 12 advanced economies, including US data going back to 1800.

They focused on the primary balance, which in simple terms is the government's budget before interest.

So a primary surplus means taxes are enough to cover spending.

And it's miraculous in some respects, isn't it?

Well, I'm, I'm not a Europhile like I say maybe Barry Eichengreen has been.

Sure.

Uh, I've been watching from afar as a great skeptic of the whole thing.

Now, in the last few years, the markets have been buying.

And one of the things that Barry Eichengreen, who's an excellent gold economist at Berkeley, what he says is that the use of sanctions – has reinvigorated central bank demand for gold in case you're in a country that could be put under sanctions.

You'd rather have that.

You'd want that gold.

Within two weeks, the yen had surrendered about half of that, weakening back past 159.

Barry Eichengreen, writing in the Financial Times, pointed out that $88 billion is ultimately small potatoes against the sheer scale of the currency market.

In ordinary life, $88 billion is real money.

In the foreign exchange market, where trades worth trillions change hands every day, it is a rounding error.

So the 19th century, modern observers have looked back on it and tried to learn lessons about what created such stability.

How did it manage this great amount of stability? And maybe it's the next question, but I think the answer to that is, well, credibility and cooperation, as Barry Eichengreen has emphasized.

I'm going to talk about what credibility and cooperation mean in a second, but I would just highlight here that gold standard didn't work particularly well for countries on the so-called periphery the less developed countries the countries with economies with less well-developed financial systems their track record wasn't so great and so a lot of those countries had exchange rate crises balance of payment crises of the time and great amounts of instability so there's a lot to be learned there too so if you're in the 20th century and thinking the gold standard works all the time I think there's a lot of less developed countries that beg to differ.

Now, I'll just go ahead and talk about the foundation of stability.

There were great incentives to rebuild the global economy, specialize along the lines of comparative advantage with the European coal and steel community and the European community eventually building the common market.

And domestically, labor had made peace with management, keeping investment high, wage growth moderate, and inflation low.

And the story that Barry Eichengreen tells about that is a fascinating one, but it's worth remembering.

And it's, I think, a very nice narrative about some of the general aspects of economic growth in Western Europe and how it was so successful.

I, you know, I wanna synthesize in here your Wharton abilities, which is this linkage here that we have of our financial system into our politics, into our markets.

Barry Eichengreen, with my book of the summer, talks about financialization.

And I think that's maybe what we're all screaming about, including Mr. Druckenmiller and Mr. Bassett.

With your wonderful perspective, Steve Sosnick, how financialized are we right now?