Lacy Hunt

Money velocity would have told you that that bubble was not real and was going to crash.

Money velocity is not something I hear hardly any economists in the world talk about except for Dr. Lacey Hunt in Austin, Texas.

He is my one and only favorite real economist.

I'm not a real economist.

They're not taught business.

And I have never met a mainstream economist that's ever run a business.

And that even includes Lacey Hunt.

He just happens to get right despite that.

What does demographics is destiny mean?

This conversation came from Lacey Hunt.

Dr. Lacey Hunt is a very interesting character.

He's in his mid-80s.

He was in the Federal Reserve when Lyndon B. Johnson was president, right? 1969.

And he's still working, by the way.

And what Lacey Hunt says, a lot of people get the relationship between economics and demographics backwards.

A lot of people think, well...

In 2020, that trend reversed.

Lacey Hunt, the biggest bond bull in the world who made a ton of money during that whole run, finally reversed his view.

He said, you know what? We live in an inflationary world.

It's like, hey, welcome to the club, dude.

And what we're getting through the AI boom is we're getting a lot of productive investment for the first time since the '50s, and we're seeing that, and we're seeing increases in productivity rates.

This goes to your Lacey Hunt discussion you had the other day.

Mm-hmm.

That's increasing productivity.

So So it's a shocking one, but really the real problem is going to be when all that debt ends up being refinanced now at what the current market rates are, you can imagine what that's going to do to current budget deficits and how much kind of hard discussions are going to have to be held when it comes to determining, well, what budget is going to get cut in order to try and allow us to continue to pay the interest on the actual, the now much higher interest on the existing stock of debt.

I was talking to Dr. Lacey Hunt recently about debt and the unsustainability of debt.

And I asked him a question, you know, we had 2008, Lehman Brothers collapsed.

We were on the precipice, we were on the brink.

Um, one...

So right before I jumped on here with you, um, Mark, I was, um, moderating a discussion, uh, involving Lacy Hunt.

Um, and Lacy was saying that, you know, his impression, uh, not that he has inside knowledge on this, but his impression is that Warsh is probably pre- pretty, feeling pretty frustrated after yesterday, after the Treasury's move.

Because Warsh has basically said, "Look, the Fed has been intervening too much, and that distorts the signal that the market can send us, and we think the market signal is a really important signal.

Yeah

... just a, a notable development, too, is long-term, long-time deflationist Lacy Hunt has recently pivoted and now saying, "I, I think it's inflation." So I agree.

A- all I'm saying is, is I think it would make more sense to s- i- if inflation expectations were spiking to say, "Oh, well, that's why" w- you know,

And how would we know inflation-

Um, we are incredibly lucky today, folks, to be speaking, um, with two giants, I'll say.

Um, the first one is Lacy Hunt.

Um, Lacy is one of the most accomplished economists still living these days.

Um, he is a former, uh, senior economist to the Federal Reserve.

We're gonna pull you in pretty soon.

[laughs]

Um, so Lacy Hunt pre this year was very concerned about deflation, and, um, an important factor in your calculus back then, if I understood it correctly, was the debt situation, the deficit, the debt, and the, um, deflationary impacts that too much debt can have on an economy.

Now you're more concerned about inflation.

Now, that doesn't necessarily take you to negative GDP prints, but what it does is it reinforces that gap between aggregate supply and aggregate demand.

I know I sound like, uh, my good friend Lacey Hunt when I, I feel like getting out the blackboard.

I know Lacey might have a different view on the bond market, uh, than I do, but be that as it may, um, it could well be that that bond yields don't go down if the, if the, if the risk premium doesn't start to ease.

Mm.