Hi mr. Forbes. Thank you so much for taking the time to do this interview. I wonder if we could just start it really broad because your book obviously is about pressing topic of the day inflation and you define inflation a little bit differently in the book then its traditionally i think talked about here in america, and i wonder if you could just go through your definition and how how it differs from other definitions. Well really as we explained in the book, there are two kinds of inflation nonmonetary and monetary the nonmonetary kind which affects prices would be an event like such as a drought or the lockdowns that we had during covid or the war now undergoing in ukraine, which is affecting Food Supplies and Energy Supplies those kinds of events can send up prices. We underestimated for example with the covid lockdowns how intricate those supply chains were and have huge disruption sending up prices. Those are the non very kind of inflation though if they have authorities allow it will eventually work itself out after World War Two for example the us economy. We forget it today under what a huge transformation from a wartime economy to a peacetime economy for making tanks to making cars those things you dont do overnight eventually the price situation settles down the monetary kind of inflation results when governments or Central Banks create too much money undermine the value of their currency which leads to all usually rising prices and that is really the more ominous kind dangerous kind because people dont understand why prices seem to be going up for no real reason and it leads not only to economic problems that also political and social problems as we explain in the book. Okay, interesting, and i wonder if you could talk a little bit about how that differs from. I think the way that we traditionally talk about inflation, especially sort of in the central banking universe, which is very much as sort of what described initially the the shock inflation thats very much sort of supplyside inflation and then economists typically understand the you know, the other side of inflation to be very sort of demand pool, you know, as people are demanding more and going out and shopping. They push up pushup prices it pushes up prices and i wonder how your framing squares with that one. Well, the two kinds of inflation nonmonitoring monetary can coexist as were experiencing today, but in a normal economy if the currency is stable prices rise and fall because of supply and demand something as popular the price goes up or you get productivity gains prices will go down. So those kind of normal signals what makes obviously an economy work which is why we can do literally billions of transactions here and around the world each day. So i think if you separate the two monetary nonmonetary, then you can get policy responses the more effectively address both and you avoid some of the mistakes that we see undergoing now and unfortunately, we as we explain in the past a governments for thousands of years. They always blame other forces. They always blame others rather themselves for for the mistakes they make on the monetary kind. I wonder you kind of just alluded to this, but i wonder if you could walk us through what you see as the causes of the 2021 inflation, which is obviously continuing into today. One cause is on the monetary front the Federal Reserve the Federal Reserve even before the covid lockdowns was undermining the value of the dollar you saw it in rising Commodity Prices rise of gold prices. So there are a brewing trouble even before what happened during the lockdowns. Obviously, they created a lot of to try to keep things from collapsing but unfortunately in 2021 the Federal Reserve even as the covid crisis was the severity was beginning to receive was still turning out churning out tons of money. They are buying 120 of bonds each month and they paid for that by creating money literally out of thin air now, they employed a gimmick which we explained in the book to try to make sure this money didnt flood the economy all at once but they created excess amount of money and theyre not even going to stop this money creation the announced recently theyre going to stop it but awfully awfully late in the game. So the Federal Reserve has been creating too much money undermining the integrity of the dollar and so you pay price for that in the dislocations in the economy. You also combine that with the we still havent fully recovered from the lockdowns now you look at china to the recently for example those severe but i think were unnecessary lockdowns massive lockdown. And shanghai, perhaps beijing and other major cities in china have severely disrupted once again supply chains, which is going to mean delays higher prices at the marketplace. So the the nonmonetary kind of inflation factors are still there. The Biden Administration unfortunately is still putting barriers in the way of production of oil and gas which is raising unnecessarily prices at the pump and thats not just because economies are recovering. Its also because of a lack of supply and putting in regulations on infrastructure they put in some new rules. Theyre going to make Infrastructure Projects even more difficult to get approval for so all of these things combined together to give us an economy that is going to be going into unnecessary trouble. So the Federal Reserve has got to get its act together governments got to get its act together in terms of just leaving the economy alone not putting up these arbitrary barriers. And the amazing thing is as weve seen in the past when these policies are in place by golly things start to get better. Now, of course, i would like to see tax cuts not tax increases. I think that would help economic output which also helps the fight rising prices more supply, but i dont think were going to get that in the near term. I would love to return to the fed later, but i before i do i just want to continue on this topic a bit. Obviously, we saw a lot of spending from the government in response to the the covid shock. We saw first the cares act and in the 900 billion dollar package under President Trump and then we saw the American Rescue plan under president biden. I wonder to what degree you think that spending impacted inflation. Well during the initial covid lockdowns of obviously something emergency spending how to take place. I dont think anyone would argue with that, but unfortunately the pace is spending continued into 2021. You mentioned what present biden did and so the question then becomes when you have these spending bills, how do you finance them and a big chunk of the financing was done in effect by the Federal Reserve buying government debt, they dont do it directly the government auctions of bonds off dealers buy them and the dealers turn around and sell them to the to the fed and the fed and support for people understand how money is actually created in this case. Lets say the Federal Reserve calls up a dealer. Lets use Goldman Sachs as an example and say we want to buy that says we want to buy billion dollars of government bonds. A goldman says fine. They deliver the bonds. How does the fed pay for those bonds . They credit a goldmans bank account for one billion dollars. Where does that one billion come from out of thin air . This is the ultimate atm machine. They just created out of thin air and thats what the fed was doing long past when i thought it was justified. They were doing it in 2021 at a huge pace keeping Interest Rates artificially low and the now were a pain for the price for today. And the question is can the fed unwind this in a way without giving us a big recession. Okay, timely topic. We we just recently had a fed decision in which they announced that theyre going to start drinking those those bond holdings. I wonder you know, most economists would say that those those what you just wait the process you just describe by which the fed creates money and puts it in the system in order to buy these bonds isnt quite the same as Government Spending in the sense that a lot of that money basically just sits on on bank Balance Sheets. It doesnt trickle into the economy in the same way and i wonder i wonder what your thoughts are about that because it does seem to be the case that theres some debate in the Economics Community around how inflationary that process really is. Well when you have massive amount suspending and the scale of the spending in this crisis was exceeded anything weve had in a peacetime. And so the question then becomes how do you finance it and was financed a big chunk of it was financed by the Federal Reserve buying those bonds each and every month and again creating money out of thin air. So the Government Spending created pressure for the Federal Reserve to respond by financing it. Otherwise, they felt the bonds might not sell in the marketplace. You might have higher Interest Rates than they wanted and you would have a trouble so the fed stepped in and bought those bonds at some point one point during the crisis in early 2021. Theyre buying over half of the governments new debt, which was unprecedented that kind of scale of bond buying by the Federal Reserve. So now as you alluded to theyre starting they say theyre going to start to pull pull back on that but theyre starting very very slow pace and what the danger with the Federal Reserve right now is they still believe they have this mistaken notion that you fight inflation by depressing the economy when they talk about soft landing thats fed speak for can we slow the economy down slow job creation and avoid a recession. Thats what soft landing means too often in the past soft landing in terms of economic terms of meant crash landing ie a fullblown recession, but its a bogus idea that you that the way you fight inflation is by depressing the economy the way the fed should do it is keep the dollar stable in value. They did this in a sort of way in the late 1980s and 1990s when Alan Greenspan was the head of the fed and he said at the time he was keeping the dollar trying to loosely tied to go loosely tied to commodity indexes. So at some sort of frame of reference unfortunately, the late 90s he forgot that frame of reference and we got the troubles that led to 2008 but the fed in the past has dealt with the dollar and a more or less semicorrect way in the late 80s and 1990s. But now they seem back to the idea that you have to have have to really slow down Economic Activity to fight inflation. And i think that just gives us unnecessary trouble. Were gonna have problems enough readjusting postcovid and the fed. Unfortunately anything is going to make make it much more difficult. Id love to get back to that point about alan green the Alan Greenspan era because its an important point in your book. But before we do, id like to just finish talking about bond purchases because thats also an important point in your book. I wonder how you sort of square this argument that youre making which is that fed bond purchases spur inflation with the reality that we had fed. Bond purchases also been very large quantities over the sort of postfinancial crisis period and we didnt see a lot of inflation. In fact, we saw very low inf over that period and so i wonder i wonder how those how those things work together. A very good a very pertinent question because what happened after 2008 was a two things one is the Federal Reserve while theyre creating this money in effect froze the money, you know, the mention they the fed buys the bonds they credit the bank account that the dealer has at the Federal Reserve and what they did was something theyd never done before they started to pay interest on those reserve. Theyd never done that before at the same time. They were putting pressure on banks to slow down lending. Thanks for hiring more after the disaster of 2008 2009 banks are hiring more compliance officers and loan officers. So the volume of loans went down even though the reserves went up. So the fed in a regulatory manner it was putting pressure on banks. Well, they thought lending was risky. So slow it down. Theyre paying bank. Some interest to so the banks are still earning money on that even though they didnt lend it out. And also you had the banks replenishing rebuilding their Balance Sheets leading up to 2008 banks got took on too much debt. They did not have enough equity. They did not have enough free free assets you might say and so they had to spend several years and this is why one of the reasons why the fed did qe quantum what they call quantitative easing was to help the banks replenish their Balance Sheets and they had this thing what they call basel 3 Basel Switzerland and the regulators around the world got together and put in Capital Requirements for banks. They call it basel 3. Were meeting the new requirements under basel 3. So you had a period of time where regulations regulators didnt want you to be aggressive in lending theyre paying and they still do today. Theyre paying interest on the reserves and banks were rebuilding the Balance Sheets. That have been battered in 20082009 because they went overboard and lending before 20082009, but its very clear in 2019 that basel 3 requirements or more than fulfilled banks were brimming with reserves. And so we are heading for trouble even before covid. And so what you have today is banks are loaded with cash loaded with reserves and if lending activity picks up that is what they call money creation when banks start to lend the money and thats going to cause could cause problems in the economy. So well see what the fed does if they try again through regulation Interest Rates in the light to try to freeze that money. They created to make sure it stays in the deep freeze doesnt go into the economy strange, but thats what they did. Obviously we have seen quite a pickup in mortgage lending but aside from that debt levels have been relatively steady throughout this period for example, weve seen some uptick and auto loans, but we havent seen a lot of credit card. Indebtedness increase and so i wonder i wonder if you think that this is a problem for tomorrow if this is something were going to see play out and it hasnt quite manifested yet or whether you see signs of this is already happening. Well, i think one of the things that we have to keep an eye on, is that as the payments that were made during the covid crisis when we wanted to keep people above water because everything was being shut down you couldnt earn go go go or money on a job anymore up as those as that cash starts to run down. The savings rate is starting to move down and people see prices rising up they and getting less for their wages. As you know prices are rising at a faster pace than than the wages are. I think youre going to see pressure to for people to be household pressure to be borrowing more businesses are going to want to punch inventories. Theyre going to want to be borrowing again. So you have situation where the distortions created by the covid lockdowns are going to start to work their way through and youre going to have a situation where theres a lot of money. Essentially out there people are going to start to desire to borrow again. People want to spend again. People want to live a life again and but theyre doing in the headwinds of rising prices, which means theyre going to be looking for more cash. Okay, interesting interesting, and i wonder you know you obviously you mentioned earlier the greenspan era as in the early 90s as a period that you think is worth emulating. I wonder if you could walk through in a bit more detail what you mean by that. While during the 1990s which they call it the time the great moderation the Federal Reserve kept the value of the dollar fairly steady Interest Rates were fairly steady. So you had an economy that was growing after bill clinton came in. Yes, he put in tax increases which slowed things down, but then he put in tax cuts which people forget today including a big cut in the Capital Gains tax and so the us economy enjoyed a boom after the early 80s, especially in the late 80s and 1990s. Yeah, theyre ups and downs, but it was a pretty decent period so there was stability. Relative stability not perfect, but relative stability in the value of the dollar and so the economy responded to that now obviously there are other factors that affect an economy, but the thing to remember is money makes it possible to buy and sell and so it should have a stable value. You know when you go buy a pound of cheese you expect to get 16 ounces. It doesnt float 14 ounces one day 18 ounces the next you will go by gallon of gasoline. You expect the size of a gallon to be steady and so an economy works best when money has a fixed a stable value that you know that youre going to get pretty much if you have a dollar today you lend it out here two years three years what youre going to get back is pretty much what you lent out if you have that kind of inst. Today you get less productive longterm investment more speculation and then you get in trouble. Now what happened in the late 1990s . I dont know whether the Federal Reserve meant to do this or not. But what the clinton tax cuts and the rise of the internet where they kept taxes off and with a hardly a regulatory of hand at all. You saw the economy boom the dollar became desirable and the Federal Reserve started to tighten up you saw