On this episode of News World, we're experiencing a record high stock market. In fact, on Friday, the S and P five hundred ended last week with a record high, beating its previous record from January twenty twenty two. The Dow Jones Industrial Average, which surpassed as twenty twenty two peak last month, also closed at a new record Friday, and according to Reuters on January eighteenth, the number of Americans filing new claims for employment benefits fell last week to the lowest level in nearly one and a half years, suggesting job growth likely willmain solid in January, and very strong retail sales growth in December during the holiday season shows an upbeat picture of the economy. Yet, in poll after poll, when you ask the average American what issue concerns the most, they say inflation and the economy. The reaction seems to be out of line with some of the key economic indicators. However, I think it's important to understand why people are feeling this way. Here to discuss the state of our economy as we head into the election season. I'm really pleased to welcome back my guest, Thomas Hunnik. He's the former vice chairman of the Federal Deposit Insurance Corporation, former President and CEO of the Federal Reserve Bank of Kansas City. He is with the Federal Reserve for thirty eight years. He is currently a Distinguished Senior Fellow at the Mercada Center at George Mason University. Tom, welcome, and thank you for joining me again on News World.

On this episode of News World, we're experiencing a record high stock market. In fact, on Friday, the S and P five hundred ended last week with a record high, beating its previous record from January twenty twenty two. The Dow Jones Industrial Average, which surpassed as twenty twenty two peak last month, also closed at a new record Friday, and according to Reuters on January eighteenth, the number of Americans filing new claims for employment benefits fell last week to the lowest level in nearly one and a half years, suggesting job growth likely willmain solid in January, and very strong retail sales growth in December during the holiday season shows an upbeat picture of the economy. Yet, in poll after poll, when you ask the average American what issue concerns the most, they say inflation and the economy. The reaction seems to be out of line with some of the key economic indicators. However, I think it's important to understand why people are feeling this way. Here to discuss the state of our economy as we head into the election season. I'm really pleased to welcome back my guest, Thomas Hunnik. He's the former vice chairman of the Federal Deposit Insurance Corporation, former President and CEO of the Federal Reserve Bank of Kansas City. He is with the Federal Reserve for thirty eight years. He is currently a Distinguished Senior Fellow at the Mercada Center at George Mason University. Tom, welcome, and thank you for joining me again on News World.

Well, thank you, Neil for having me and appreciate the opportunity for this conversation. So I hope it's interesting and useful.

Well, thank you, Neil for having me and appreciate the opportunity for this conversation. So I hope it's interesting and useful.

You know, I thought we'd just dive right in and I wanted to get your reaction to why you think we're hearing from American voters that inflation in the economy is their top concern. What do you think is motivating these feelings.

You know, I thought we'd just dive right in and I wanted to get your reaction to why you think we're hearing from American voters that inflation in the economy is their top concern. What do you think is motivating these feelings.

Well, I think there's several things, perhaps, but number one is the American people know that the government is continuing to spend enormous amounts of money. Even though we talk about the concerns about the deficits and so forth, we're still spending over six trillion dollars a year. They also know that the interest on that debt is accelerating rapidly. It was almost half of the increase in the debt this last year, so that's number one. Number two. They know that the debt itself has grown from a decade ago about ten trillion to thirty four trillion dollars today. They know that's got to have an impact at some point, and I think those are a couple of things. I think the reason though, that the market continues to do well is there remains a lot of liquidity from that government spending and from the FED. Its balance sheet, which people thought was great at nine trillion dollars, is still seven point seven trillion dollars. There's enormous numbers of reserves, well over three and a half tree in reserves still in the banking industry. That's down from four and a half tree in, but still well above its historic norm. There's a lot of concern about inflation because of those events. And at the same time, even though the unemployment rate is low and the job's claims were low, there's still a lot of uncertainty about jobs in the future. The retail sales were strong, but they are concerned that was carried a lot by increase in leverage, either by reducing savings that were there, but mostly by using your credit cards. That weren't there. And so with all this turmoil and all these conflicting events and the consumer's ability to spend, I think people are more uncertain about the future and therefore concerned about inflation and concerned about the economy.

Well, I think there's several things, perhaps, but number one is the American people know that the government is continuing to spend enormous amounts of money. Even though we talk about the concerns about the deficits and so forth, we're still spending over six trillion dollars a year. They also know that the interest on that debt is accelerating rapidly. It was almost half of the increase in the debt this last year, so that's number one. Number two. They know that the debt itself has grown from a decade ago about ten trillion to thirty four trillion dollars today. They know that's got to have an impact at some point, and I think those are a couple of things. I think the reason though, that the market continues to do well is there remains a lot of liquidity from that government spending and from the FED. Its balance sheet, which people thought was great at nine trillion dollars, is still seven point seven trillion dollars. There's enormous numbers of reserves, well over three and a half tree in reserves still in the banking industry. That's down from four and a half tree in, but still well above its historic norm. There's a lot of concern about inflation because of those events. And at the same time, even though the unemployment rate is low and the job's claims were low, there's still a lot of uncertainty about jobs in the future. The retail sales were strong, but they are concerned that was carried a lot by increase in leverage, either by reducing savings that were there, but mostly by using your credit cards. That weren't there. And so with all this turmoil and all these conflicting events and the consumer's ability to spend, I think people are more uncertain about the future and therefore concerned about inflation and concerned about the economy.

Given your extraordinary experience, when you look at what's going on, do you find yourself thinking that this may be a period of instability where we actually don't quite know what's coming.

Given your extraordinary experience, when you look at what's going on, do you find yourself thinking that this may be a period of instability where we actually don't quite know what's coming.

I think it's very much that. I think there is more uncertainty than normal because of all these conflicting all this conflicting information for the consumer to try and deal with. And remember when you look at other factors, like industrial production has moderated its one percent increase year over year this last year. That's not a precursor of a strong economy. That's a precursor of a slowing economy. And people see that, so are they going to have those jobs next year? And there's more and more discussion. I'm afraid about the fact that people are being laid off, it's taking longer to find a new job. The number of job openings to job seekers is slowly coming down. That difference, so if you're out there and you're entering the workforce, or you've been recently laid off. You're not as optimistic as you were before, and you're anticipating a less shall we say, exciting in future as far as the economy goes from.

I think it's very much that. I think there is more uncertainty than normal because of all these conflicting all this conflicting information for the consumer to try and deal with. And remember when you look at other factors, like industrial production has moderated its one percent increase year over year this last year. That's not a precursor of a strong economy. That's a precursor of a slowing economy. And people see that, so are they going to have those jobs next year? And there's more and more discussion. I'm afraid about the fact that people are being laid off, it's taking longer to find a new job. The number of job openings to job seekers is slowly coming down. That difference, so if you're out there and you're entering the workforce, or you've been recently laid off. You're not as optimistic as you were before, and you're anticipating a less shall we say, exciting in future as far as the economy goes from.

Your perspective, Can we continue to add the scale of debt that we're adding right now? I mean, just to share interest on the debt is beginning to itself be a factor in increasing the debt. We're not anywhere close to getting control both on spending. If interest go back up as the largest borrower in the world, the US government will have a horrendous debt.

Your perspective, Can we continue to add the scale of debt that we're adding right now? I mean, just to share interest on the debt is beginning to itself be a factor in increasing the debt. We're not anywhere close to getting control both on spending. If interest go back up as the largest borrower in the world, the US government will have a horrendous debt.

Let me say, the way we are right now, the government will not be able to pay this debt back, and I think that's becoming more and more apparent. Number One, the way you get out of something like that is through inflation. You devalue the value of the dollar that you have to pay back, so that eases it for the government. Number one. Number Two, the government is not slowly as spending. I mean, this is an election year and both parties one talking about increasing spending, the other reducing taxes, and their compromises will do both, and I think that worries the consumer, the public about what the future holds then for the national debt and the burden that that brings forward into the future, that is a big factor for them. And if you are looking at even what the Congressional Budget Office shows with an increase in debt over the next decade of over twenty trillion dollars and because of that, the interest on the debt becoming almost three and a half percent of our national income, are total deficit seven percent of national income. Those are scary numbers. And when people think about that, they say, well, how is this going to end? And they worry about inflation coming down the right now. The other important point of that is even the Congressional Budget Office is projecting that our long term growth rate, which has been around two point three percent, is projected to faull to one point eight percent. Well in real terms in terms of real wealth, that means a reduction in what we could have had in terms of real GDP growth of over a trillion dollars less in ten years than what we would have had if it could have stayed of the two point tis three percent growth rate. And the reason that growth rate is being projected down from two point three to one point eight is because of the heavy carrying costs of the national debt and the effects that have on crowding out investment as it moves from the private sector into the public sector to pay for that new increase in spending or continued to increases in spending. So people are watching that, they're reading about that, and I give them credit. They're thinking about what the implications of that are, and they are uncertain and worry. So the spinning has to come down, and the FEDS willingness to monetize that debt has to stop, and we bring discipline to our fiscal side, so that allows the private sector to retain more of that, more of our investment fund more of our savings for new products, new investments, and new ideas and new technology. I tell people that to be a great athlete requires, first of all, discipline. You could use your talents best same thing for a country. We cannot just wildly spend on everything. We have to prioritize, bring our spending and our revenues into balance, and allow our private sector to produce and bring greater productivity, bringing those numbers back up from one point eight percent back above two point three percent. So the future generations live as well as our current and past generations.

Let me say, the way we are right now, the government will not be able to pay this debt back, and I think that's becoming more and more apparent. Number One, the way you get out of something like that is through inflation. You devalue the value of the dollar that you have to pay back, so that eases it for the government. Number one. Number Two, the government is not slowly as spending. I mean, this is an election year and both parties one talking about increasing spending, the other reducing taxes, and their compromises will do both, and I think that worries the consumer, the public about what the future holds then for the national debt and the burden that that brings forward into the future, that is a big factor for them. And if you are looking at even what the Congressional Budget Office shows with an increase in debt over the next decade of over twenty trillion dollars and because of that, the interest on the debt becoming almost three and a half percent of our national income, are total deficit seven percent of national income. Those are scary numbers. And when people think about that, they say, well, how is this going to end? And they worry about inflation coming down the right now. The other important point of that is even the Congressional Budget Office is projecting that our long term growth rate, which has been around two point three percent, is projected to faull to one point eight percent. Well in real terms in terms of real wealth, that means a reduction in what we could have had in terms of real GDP growth of over a trillion dollars less in ten years than what we would have had if it could have stayed of the two point tis three percent growth rate. And the reason that growth rate is being projected down from two point three to one point eight is because of the heavy carrying costs of the national debt and the effects that have on crowding out investment as it moves from the private sector into the public sector to pay for that new increase in spending or continued to increases in spending. So people are watching that, they're reading about that, and I give them credit. They're thinking about what the implications of that are, and they are uncertain and worry. So the spinning has to come down, and the FEDS willingness to monetize that debt has to stop, and we bring discipline to our fiscal side, so that allows the private sector to retain more of that, more of our investment fund more of our savings for new products, new investments, and new ideas and new technology. I tell people that to be a great athlete requires, first of all, discipline. You could use your talents best same thing for a country. We cannot just wildly spend on everything. We have to prioritize, bring our spending and our revenues into balance, and allow our private sector to produce and bring greater productivity, bringing those numbers back up from one point eight percent back above two point three percent. So the future generations live as well as our current and past generations.

Larry Kudlow keeps pointing out there's actually a long stretch after World War Two where we were averaging around three or three and a half percent real growth. And it seems to me that if you set that as your goal, and you said, Okay, what do I have to do with deregulation, what I have to do with tax policy, what do I have to do with controlling spending? And with certain kind of social reforms. I mean, when we passed a workfare replacement for traditional welfare, we had a huge impact both on the quality of life. When Clinton signed that, it was bipartisan, a really tough negotiation. By insisting on work, parents' incomes went up. It was the biggest increase in children leaving poverty of any act in American history. It dramatically helped the states, which we had frankly not calculated on because it took all these people off Medicaid, off welfare, put them out paying taxes, earning a living. You know, those kind of changes. If we could get a Congress and a president to work together and have that kind of a growth focus, opportunity focused future, it could have I think could turn around the system remarkably fast. When we campaigned, we thought we could balance the budget in seven years. And when we made the decision that we were going to balance the budget, John Kasek, who was our budget committee chairman, came in and said, guys, you know this is really going to be very very hard. Well, how about if we have ten years, and as a leadership group, we all voted. Everybody who was not responsible voted for seven. John was himself. The next week we gave him a marble plaque for his desk that said balance budgets seven years. But the amazing thing was, once we turned the corner, we balance the budget in four years, because the momentum gets to be so enormous.

Larry Kudlow keeps pointing out there's actually a long stretch after World War Two where we were averaging around three or three and a half percent real growth. And it seems to me that if you set that as your goal, and you said, Okay, what do I have to do with deregulation, what I have to do with tax policy, what do I have to do with controlling spending? And with certain kind of social reforms. I mean, when we passed a workfare replacement for traditional welfare, we had a huge impact both on the quality of life. When Clinton signed that, it was bipartisan, a really tough negotiation. By insisting on work, parents' incomes went up. It was the biggest increase in children leaving poverty of any act in American history. It dramatically helped the states, which we had frankly not calculated on because it took all these people off Medicaid, off welfare, put them out paying taxes, earning a living. You know, those kind of changes. If we could get a Congress and a president to work together and have that kind of a growth focus, opportunity focused future, it could have I think could turn around the system remarkably fast. When we campaigned, we thought we could balance the budget in seven years. And when we made the decision that we were going to balance the budget, John Kasek, who was our budget committee chairman, came in and said, guys, you know this is really going to be very very hard. Well, how about if we have ten years, and as a leadership group, we all voted. Everybody who was not responsible voted for seven. John was himself. The next week we gave him a marble plaque for his desk that said balance budgets seven years. But the amazing thing was, once we turned the corner, we balance the budget in four years, because the momentum gets to be so enormous.

I totally agree with that. If we make up our minds to do that, we have the wherewithal. But part of the two is over the pandemic. We transferred from the government and transfer payments enormous sums of money that deemphasized work and de emphasized productivity to take care of things. I understand the immediate effects of the pandemic, and I think I understand the important but to continue that for such a long period actually worsened our debt problem reduced our willingness to work and therefore our productivity, and we pay the price for that. So if we now decide, as we did with your bipartisan effort, to say, wait a minute, we can't do that anymore. We have to reduce our spending, We have to watch our tax burden. We have to allow people the freedom to innovate. And that's the regulatory burden issue here, which is big, I can tell you, and then you can become productive and we will take care of this problem over I don't know how many years, but I think again, faster than what people otherwise would think. But if we continue down the road we have been on, then this will only multiply and become worse until we have a crisis. And when I say crisis, I don't mean necessarily an immediate everything collapses, but what I call a death by a thousand cuts of slower and slower productivity. That reduces your ability to invest and innovate and increase productivity. And that's what we have to avoid. But it takes determination to do that. One other thing I've got to point out is because we put this enormous regulatory burdens on the banking astry, which I was a part of as a supervisor. We bring those costs way up. And a major cause of one banking crisis after another is not necessarily the behavior of banks as an industry, but by the very dancial accommodative monetary policies that lead to inflation of assets, both in the seventies and eighties and then in the two thousands, and then following the pandemic that then has to be corrected, and that puts deflationary pressures on asset values, brings the economy even down further, and you have to get through that transition. So the sooner we address the problems, bring the balance back, the budget back into balance, and reduce these burdens, the more productive our economy will be and the faster we will turn this thing around. And I really implore the Congress and the executive branch to get together on this, or else I think we will slowly reduce our productivity and our wealth as a nation.

I totally agree with that. If we make up our minds to do that, we have the wherewithal. But part of the two is over the pandemic. We transferred from the government and transfer payments enormous sums of money that deemphasized work and de emphasized productivity to take care of things. I understand the immediate effects of the pandemic, and I think I understand the important but to continue that for such a long period actually worsened our debt problem reduced our willingness to work and therefore our productivity, and we pay the price for that. So if we now decide, as we did with your bipartisan effort, to say, wait a minute, we can't do that anymore. We have to reduce our spending, We have to watch our tax burden. We have to allow people the freedom to innovate. And that's the regulatory burden issue here, which is big, I can tell you, and then you can become productive and we will take care of this problem over I don't know how many years, but I think again, faster than what people otherwise would think. But if we continue down the road we have been on, then this will only multiply and become worse until we have a crisis. And when I say crisis, I don't mean necessarily an immediate everything collapses, but what I call a death by a thousand cuts of slower and slower productivity. That reduces your ability to invest and innovate and increase productivity. And that's what we have to avoid. But it takes determination to do that. One other thing I've got to point out is because we put this enormous regulatory burdens on the banking astry, which I was a part of as a supervisor. We bring those costs way up. And a major cause of one banking crisis after another is not necessarily the behavior of banks as an industry, but by the very dancial accommodative monetary policies that lead to inflation of assets, both in the seventies and eighties and then in the two thousands, and then following the pandemic that then has to be corrected, and that puts deflationary pressures on asset values, brings the economy even down further, and you have to get through that transition. So the sooner we address the problems, bring the balance back, the budget back into balance, and reduce these burdens, the more productive our economy will be and the faster we will turn this thing around. And I really implore the Congress and the executive branch to get together on this, or else I think we will slowly reduce our productivity and our wealth as a nation.

We did a podcast back with somebody who had studied the very sharp depression of nineteen twenty twenty one, and there were no efforts to ameliorate the problem. People just said, coming out of World War One, we've had gross over spending, prices are way too high, and they bit the bullet within eighteen months, but an enormous pain they had, nonetheless righted the economy and it grew for the next eight years.

We did a podcast back with somebody who had studied the very sharp depression of nineteen twenty twenty one, and there were no efforts to ameliorate the problem. People just said, coming out of World War One, we've had gross over spending, prices are way too high, and they bit the bullet within eighteen months, but an enormous pain they had, nonetheless righted the economy and it grew for the next eight years.

Right, I'm familiar with that history. I think it's absolutely correct. And remember this even with Voker when he shut down the economy because he said, enough of this fourteen percent inflation, We've got to take care of it. We went through some really painful times, but after that growth picked up immediately, and I think we're on the way then to find the solutions that then your Congress and Clinton did at that time to again address the budget and bring our debt back into balance, and our economy grew very significantly. So I mean, the history is there to show that this is the better way to go. But right now we're not taking that path. We're still spending enormous amounts of money. The Federal Reserve, who has said they're put a hold on increasing their balance sat. They are under a lot of pressure now and they'll be under more pressure this year to ease. All you hear about now is it's time to bring the interest rates back down. And yet we're still what appears to be a booming stock market. I'm not sure the timing is right for that, given all that we have yet to address in terms of our debt, our deficit, and our economy going forward, I.

Right, I'm familiar with that history. I think it's absolutely correct. And remember this even with Voker when he shut down the economy because he said, enough of this fourteen percent inflation, We've got to take care of it. We went through some really painful times, but after that growth picked up immediately, and I think we're on the way then to find the solutions that then your Congress and Clinton did at that time to again address the budget and bring our debt back into balance, and our economy grew very significantly. So I mean, the history is there to show that this is the better way to go. But right now we're not taking that path. We're still spending enormous amounts of money. The Federal Reserve, who has said they're put a hold on increasing their balance sat. They are under a lot of pressure now and they'll be under more pressure this year to ease. All you hear about now is it's time to bring the interest rates back down. And yet we're still what appears to be a booming stock market. I'm not sure the timing is right for that, given all that we have yet to address in terms of our debt, our deficit, and our economy going forward, I.

Have to plead guilty a little bit. Time was living in Rome close to was the ambassador of the Vatican when COVID broke out, and COVID originally broke out in northern Italy because there were about one hundred thousand Chinese workers in northern Italy and they came back from Chinese New Year, and what I think was almost a deliberate strategy by the Chinese government. They wouldn't let him fly to other places in China, but they could fly to foreign countries. So you had this enormous impact. Very early Italy was sort of the forerunner of the pandemic. Watching what was going on, I wrote a memo for the administration and said, whatever you plan to spend, triple it because you're going to have such a sharp pandemic response that you're going to face a very very steep economic problem unless you intervene. But I think your point which was I still think that was the right memo. At the time, but it assumed that when that was over, we'd quit doing it, not that it was established a new sort of plateau for additional spending.

Have to plead guilty a little bit. Time was living in Rome close to was the ambassador of the Vatican when COVID broke out, and COVID originally broke out in northern Italy because there were about one hundred thousand Chinese workers in northern Italy and they came back from Chinese New Year, and what I think was almost a deliberate strategy by the Chinese government. They wouldn't let him fly to other places in China, but they could fly to foreign countries. So you had this enormous impact. Very early Italy was sort of the forerunner of the pandemic. Watching what was going on, I wrote a memo for the administration and said, whatever you plan to spend, triple it because you're going to have such a sharp pandemic response that you're going to face a very very steep economic problem unless you intervene. But I think your point which was I still think that was the right memo. At the time, but it assumed that when that was over, we'd quit doing it, not that it was established a new sort of plateau for additional spending.

And that's been my point all along, the same thing. After the Great Financial Crisis in third quarter of two thousand and nine and twenty ten, economy was recovering, and yet we decided to print more money, and the debt continued to grow in the pandemic means kind of moving back by August of twenty twenty, and yet we kept this enormous spinning, this normous support system in place until March of twenty twenty two, way past when its usefulness was kind of behind them and now was going to cause us inflationary problems, and it did and misallocate resources and it did. And so it's not that the government shouldn't intervene in a crisis. It's when to step away from that and let the market and the private sector re emerge as the driving force for the economy. And by waiting too long and moving all those resources into the government, it's very difficult to get them back out. And that's really the painful part that we have yet to face.

And that's been my point all along, the same thing. After the Great Financial Crisis in third quarter of two thousand and nine and twenty ten, economy was recovering, and yet we decided to print more money, and the debt continued to grow in the pandemic means kind of moving back by August of twenty twenty, and yet we kept this enormous spinning, this normous support system in place until March of twenty twenty two, way past when its usefulness was kind of behind them and now was going to cause us inflationary problems, and it did and misallocate resources and it did. And so it's not that the government shouldn't intervene in a crisis. It's when to step away from that and let the market and the private sector re emerge as the driving force for the economy. And by waiting too long and moving all those resources into the government, it's very difficult to get them back out. And that's really the painful part that we have yet to face.

One of the consequences of that amount of liquidity. And I kept trying to tell people over the last year and a half. The one of the challenges the FED faces is the Fed's primary tool is interest rates, and the primary impact of interest rates is on the private sector. But if the Congress and the President are insisting on spending more money at the very time that the Fed's trying to slow the economy, it sort of erases the effect and makes it much harder to bring things under control. And what I was struck with is does people ask these questions about, well, if the inflation rate's coming down, you know, why don't people feel better? But I think people have a memory of what it was like around twenty nineteen or twenty twenty. I know Clisso went to the store last night to pick up Hamburger to make spaghetti, and she came back and she said, you know, this is at least double the price I used to pay. And so even though technically this month's inflation rate may be down, the cumulative effect and something which Dave Winston at the Winston Group has come up with as a presidential inflation rate, where you measure from the inaugural through the entire term and Biden is now I think, surpassing Carter in a presidential inflation rate. And what people feel is not this month's inflation number, but the total cumulative weight of what's happened to their pocket book. I mean, does that make sense to you?

One of the consequences of that amount of liquidity. And I kept trying to tell people over the last year and a half. The one of the challenges the FED faces is the Fed's primary tool is interest rates, and the primary impact of interest rates is on the private sector. But if the Congress and the President are insisting on spending more money at the very time that the Fed's trying to slow the economy, it sort of erases the effect and makes it much harder to bring things under control. And what I was struck with is does people ask these questions about, well, if the inflation rate's coming down, you know, why don't people feel better? But I think people have a memory of what it was like around twenty nineteen or twenty twenty. I know Clisso went to the store last night to pick up Hamburger to make spaghetti, and she came back and she said, you know, this is at least double the price I used to pay. And so even though technically this month's inflation rate may be down, the cumulative effect and something which Dave Winston at the Winston Group has come up with as a presidential inflation rate, where you measure from the inaugural through the entire term and Biden is now I think, surpassing Carter in a presidential inflation rate. And what people feel is not this month's inflation number, but the total cumulative weight of what's happened to their pocket book. I mean, does that make sense to you?

Absolutely makes sense. I've talked to people frequently who say, yes, I understand inflation three percent, but since it started, my cost of food, how much I've spent in prepares of my home, how much I've spent on just entertainment, they are so much higher. And yes, that's why I think why you see some of these labor unrest and their insistence on getting higher wages because they're falling so far behind, and that leads to social unrest and challenges. So those are real things. And here's the other fact that I think is very important. When you increase the debt, one thing you know is the government might complain about how high interest rates are, but they always fund themselves no matter what the interest rate is. The private sector not only has to complain about it, but it rations them out because they can't make investments pay at increasingly higher interest rates. And the longer they stay that high, the more difficult it is for them to invest and reinvest, and that's why I think you're seeing industrial production at moderate increase at best one percent, and productivity will over time not pick up as much as we would like. And that's what we have to be concerned about. We ration out the private sector that it makes it harder for the worker, and as they see inflation go, they become more and more resentful of what is happening in this country. And that's what makes for an unstable environment.

Absolutely makes sense. I've talked to people frequently who say, yes, I understand inflation three percent, but since it started, my cost of food, how much I've spent in prepares of my home, how much I've spent on just entertainment, they are so much higher. And yes, that's why I think why you see some of these labor unrest and their insistence on getting higher wages because they're falling so far behind, and that leads to social unrest and challenges. So those are real things. And here's the other fact that I think is very important. When you increase the debt, one thing you know is the government might complain about how high interest rates are, but they always fund themselves no matter what the interest rate is. The private sector not only has to complain about it, but it rations them out because they can't make investments pay at increasingly higher interest rates. And the longer they stay that high, the more difficult it is for them to invest and reinvest, and that's why I think you're seeing industrial production at moderate increase at best one percent, and productivity will over time not pick up as much as we would like. And that's what we have to be concerned about. We ration out the private sector that it makes it harder for the worker, and as they see inflation go, they become more and more resentful of what is happening in this country. And that's what makes for an unstable environment.

If you are telling the auto industry that it has to make cars no one wants to buy, which I always startled. The other day there was a poll that said that six percent of the American people want to buy electric vehicles, and the government wants it to be one hundred percent. I don't think you can socially engineer, in a free society a transition on that scale. So you have downward pressures in terms of things that are happening in the market. But let me go back just for a second to the sort of Reagan era very rapid growth, which we also achieved towards the end of the Clinton years. If we got to three or three and a half percent growth and sustained it for a decade or more. Wouldn't that have a huge impact on the viability of social security and medicare?

If you are telling the auto industry that it has to make cars no one wants to buy, which I always startled. The other day there was a poll that said that six percent of the American people want to buy electric vehicles, and the government wants it to be one hundred percent. I don't think you can socially engineer, in a free society a transition on that scale. So you have downward pressures in terms of things that are happening in the market. But let me go back just for a second to the sort of Reagan era very rapid growth, which we also achieved towards the end of the Clinton years. If we got to three or three and a half percent growth and sustained it for a decade or more. Wouldn't that have a huge impact on the viability of social security and medicare?

It certainly would, but we still have a problem there because it's growing so much faster. To really address the debt, I'm afraid you have to put those kinds of entitlements at least up for consideration to moderate their future growth. Not necessarily cut as people are concerned about, but moderate their future growth, because if you get productivity up to three three and a half percent, then the debt as a percent of GP, the debt will grow faster than the growth in GDP, and the burden will over time, over ten or twenty years, become less. But I don't think you can do that in today's environment because two thirds of our government's budget is entitlements. Right now their indexed those are kind of on their own, and that leaves a third as discretionary, and part of that's interest and that's going to grow rapidly because interest rates are higher and the debt is going to continue to grow. So that's an issue. And the other is defense, and we can't be cutting defense if the world is shall we say, almost on fire with breakouts everywhere. That's another issue. So just growing is absolutely essential for controlling our ability or enabling our ability to manage the debt. But also we have to address our spending across the board. It can't be just one small sector. It has to be across the board. So growth plus watching our spending going forward, Yes, we can manage this problem. Yes we can allow productivity to occur at higher rates, but it isn't going to happen on its own.

It certainly would, but we still have a problem there because it's growing so much faster. To really address the debt, I'm afraid you have to put those kinds of entitlements at least up for consideration to moderate their future growth. Not necessarily cut as people are concerned about, but moderate their future growth, because if you get productivity up to three three and a half percent, then the debt as a percent of GP, the debt will grow faster than the growth in GDP, and the burden will over time, over ten or twenty years, become less. But I don't think you can do that in today's environment because two thirds of our government's budget is entitlements. Right now their indexed those are kind of on their own, and that leaves a third as discretionary, and part of that's interest and that's going to grow rapidly because interest rates are higher and the debt is going to continue to grow. So that's an issue. And the other is defense, and we can't be cutting defense if the world is shall we say, almost on fire with breakouts everywhere. That's another issue. So just growing is absolutely essential for controlling our ability or enabling our ability to manage the debt. But also we have to address our spending across the board. It can't be just one small sector. It has to be across the board. So growth plus watching our spending going forward, Yes, we can manage this problem. Yes we can allow productivity to occur at higher rates, but it isn't going to happen on its own.

Even though the US is running a fairly large amount of debt, we still seem to be a place where you get a flight to safety, so that the world seems to be willing to absorb a remarkable amount of American debt. I mean, is that a function of the differential of threat to your money in different countries?

Even though the US is running a fairly large amount of debt, we still seem to be a place where you get a flight to safety, so that the world seems to be willing to absorb a remarkable amount of American debt. I mean, is that a function of the differential of threat to your money in different countries?

Well? Yes, partially we are the safe haven. However, China isn't buying her debt as they once did. Japan probably isn't buying her debt. It seems to be slowing as well. That's because our debt relative to theirs is becoming less preferable, and that will slowly occur over time. But I will tell you this, Yes, if you think about our debt relative to other countries, we are still the greatest country. We still have the best rule of law, We still are the best pace to locate for investment, so that advantage hasn't left us, but it's not as strong as it once was.

Well? Yes, partially we are the safe haven. However, China isn't buying her debt as they once did. Japan probably isn't buying her debt. It seems to be slowing as well. That's because our debt relative to theirs is becoming less preferable, and that will slowly occur over time. But I will tell you this, Yes, if you think about our debt relative to other countries, we are still the greatest country. We still have the best rule of law, We still are the best pace to locate for investment, so that advantage hasn't left us, but it's not as strong as it once was.

In my opinion, What is your sense tell you about how the economy is going to play out in the election?

In my opinion, What is your sense tell you about how the economy is going to play out in the election?

Who knows for sure, right, so I'm kind of giving you my thoughts on it. I think in election years you usually do not go into a recession. Now doesn't mean you won't, but you usually don't because, as I've already said, the Congress, both sides are saying we want to increase spending in the Democrats, the other is we want to make sure taxes stay low. Have those declines, so our debt will continue to grow. The Fed will come under increasing pressure. They're already talking about three to five cuts this year that they be in the market, and the Fed itself says we're not raising rates any longer. It's more likely we're going to cut. We don't know when that is, but that means we get through twenty twenty four, perhaps without a recession. But what about twenty twenty five if we continue to run these debts, if the fed. If they do ease rates and they continue to print money, the inflation will reignite. That was the experience in the seventies, and that's what we have to avoid. It is something we cannot take for granted. I do think this year we will, but after this year we're going to have to pay some pain. I think there is a recession ahead. I just don't know the timing.

Who knows for sure, right, so I'm kind of giving you my thoughts on it. I think in election years you usually do not go into a recession. Now doesn't mean you won't, but you usually don't because, as I've already said, the Congress, both sides are saying we want to increase spending in the Democrats, the other is we want to make sure taxes stay low. Have those declines, so our debt will continue to grow. The Fed will come under increasing pressure. They're already talking about three to five cuts this year that they be in the market, and the Fed itself says we're not raising rates any longer. It's more likely we're going to cut. We don't know when that is, but that means we get through twenty twenty four, perhaps without a recession. But what about twenty twenty five if we continue to run these debts, if the fed. If they do ease rates and they continue to print money, the inflation will reignite. That was the experience in the seventies, and that's what we have to avoid. It is something we cannot take for granted. I do think this year we will, but after this year we're going to have to pay some pain. I think there is a recession ahead. I just don't know the timing.

I remember because I got elected in seventy eight, and then I was a sophomore with Reagan in eighty one. You know, his first two years were very tough. Morning in America would not have been a successful campaign ad in eighty two, but somehow, by getting through it, we we sort of a takeoff stage that was pretty astonishing.

I remember because I got elected in seventy eight, and then I was a sophomore with Reagan in eighty one. You know, his first two years were very tough. Morning in America would not have been a successful campaign ad in eighty two, but somehow, by getting through it, we we sort of a takeoff stage that was pretty astonishing.

Exactly right. I mean, we had fourteen percent inflation in this country because we dabbled through the seventies and didn't address it firmly. So then Folk comes in. We would go through a terrible time, I mean a major recession, a double dip recession. But we got inflation back down closer to four and a half percent and felt comfortable that it would continue at that point from a very high fourteen and things took off and inflation did come down further. So that's what we have to look for as we go forward from here. But remember inflation in the seventies moved from one and a half percent to three percent four and a half percent when Nixon put waging price controls on, and then we went back down and then it went up to nine percent, came back down and then went to fourteen because they weren't resolute in the saying we're bringing this down and a staying down. That's what the challenge is ahead for the FED.

Exactly right. I mean, we had fourteen percent inflation in this country because we dabbled through the seventies and didn't address it firmly. So then Folk comes in. We would go through a terrible time, I mean a major recession, a double dip recession. But we got inflation back down closer to four and a half percent and felt comfortable that it would continue at that point from a very high fourteen and things took off and inflation did come down further. So that's what we have to look for as we go forward from here. But remember inflation in the seventies moved from one and a half percent to three percent four and a half percent when Nixon put waging price controls on, and then we went back down and then it went up to nine percent, came back down and then went to fourteen because they weren't resolute in the saying we're bringing this down and a staying down. That's what the challenge is ahead for the FED.

Yeah, I mean, I think whoever wins this election is going to have to enter twenty five with a determination to really try to turn the whole thing around pretty aggressively.

Yeah, I mean, I think whoever wins this election is going to have to enter twenty five with a determination to really try to turn the whole thing around pretty aggressively.

They have to, and I'm not sure we'll get that. That's what we have to do, otherwise we will, I think, face an outlook that the CBO projected an enormous increase in our debt, they reduced productivity in our country, and we will fall further behind and it will be more challenging to come out of it. So we have to do it sooner rather than later. And that's the message I think the American people are waiting for. That's why I think they're not optimistic right now because they're not hearing that message. They're not hearing that message, you know.

They have to, and I'm not sure we'll get that. That's what we have to do, otherwise we will, I think, face an outlook that the CBO projected an enormous increase in our debt, they reduced productivity in our country, and we will fall further behind and it will be more challenging to come out of it. So we have to do it sooner rather than later. And that's the message I think the American people are waiting for. That's why I think they're not optimistic right now because they're not hearing that message. They're not hearing that message, you know.

I think, in addition to talking at the big level, it's really helpful to talk about personal finances and personal decisions. And I'm curious, given the depth of your knowledge, what's your advice to the average American at a time when we have far too much credit card debt and where people are very often virtually without adequate savings. What would you advise the average couple or the average individual about what their personal financial strategy ought to be in this kind of environment.

I think, in addition to talking at the big level, it's really helpful to talk about personal finances and personal decisions. And I'm curious, given the depth of your knowledge, what's your advice to the average American at a time when we have far too much credit card debt and where people are very often virtually without adequate savings. What would you advise the average couple or the average individual about what their personal financial strategy ought to be in this kind of environment.

Well, I think it's like so many other things. They have an inflation issue, so they're worried about that, So you tend to spend sooner to avoid the higher prices down the road. But what we have to do, they cannot spend more than they make on a continuing basis, and they cannot leverage themselves up or they will have a crisis in a year or two years, whenever it is. So you have to redo your budget to make sure that your income, and just like the government, your income and your spending is in line. If you avoid doing that, and all you do is borrow against the future you will find yourself in greater problem, and the incentive right now is to spend to avoid that. And there is this, I think, this presumption that the FED is going to ease sooner rather than later, and therefore they will wait for that period to come and that will stimulate things as they go forward. But I think to count on that as a mistake, and one way or the other, we're going to see a slowing and spending. Hopefully it is done in a way that balances their budgets and allows the economy to continue to grow modestly as we move forward. But I would not recommend speculating in the stock market at this point. It's at an all time high. As you mentioned, the odds are that it will have to adjust down now. That may be bad advice, but that's my concern as far as how strong that stock market is the best advice in the world. There are financial planners. I guess you do better, but that's my general take on things as we go forward from here.

Well, I think it's like so many other things. They have an inflation issue, so they're worried about that, So you tend to spend sooner to avoid the higher prices down the road. But what we have to do, they cannot spend more than they make on a continuing basis, and they cannot leverage themselves up or they will have a crisis in a year or two years, whenever it is. So you have to redo your budget to make sure that your income, and just like the government, your income and your spending is in line. If you avoid doing that, and all you do is borrow against the future you will find yourself in greater problem, and the incentive right now is to spend to avoid that. And there is this, I think, this presumption that the FED is going to ease sooner rather than later, and therefore they will wait for that period to come and that will stimulate things as they go forward. But I think to count on that as a mistake, and one way or the other, we're going to see a slowing and spending. Hopefully it is done in a way that balances their budgets and allows the economy to continue to grow modestly as we move forward. But I would not recommend speculating in the stock market at this point. It's at an all time high. As you mentioned, the odds are that it will have to adjust down now. That may be bad advice, but that's my concern as far as how strong that stock market is the best advice in the world. There are financial planners. I guess you do better, but that's my general take on things as we go forward from here.

Well, you may not be a financial advisor, you nonetheless know so much about finance and so much about the economy that it's pretty useful advice for folks to think about I hope. So, you know, one of the things I'm curious about when you watch people who are overextended get more over extended, I think partially because it's so easy now to go online and buy things. To what extent do you think that COVID sort of jarred their whole sense of stability and there's kind of a why not spend it now, who knows what's going to happen next, kind of attitude.

Well, you may not be a financial advisor, you nonetheless know so much about finance and so much about the economy that it's pretty useful advice for folks to think about I hope. So, you know, one of the things I'm curious about when you watch people who are overextended get more over extended, I think partially because it's so easy now to go online and buy things. To what extent do you think that COVID sort of jarred their whole sense of stability and there's kind of a why not spend it now, who knows what's going to happen next, kind of attitude.

I don't know that that was the effect as much as there was so much wealth transferred from the government to the consumer, and I mean consumers that were making over one hundred thousand dollars still getting checks from the government into their accounts, and so the excess savings, which was over two and a half trellion dollars, was there, and so then you feel wealthier. You are wealthier, and so you spend it. And once you get into that habit of spending, then is the savings fall down? Well, you have your credit card and so you begin to leverage yourself. And that's what we're seeing again. So I'm worried that the carryover from COVID is the feeling or the understanding that, well, if anything goes wrong, the government will step in and make transfer payments and we'll be bailed out of this again. Either the federill print more money, the government will continue to spend for the consumer, transfer the wealth to the consumer as they have in the past. And so I'm going to take my chances and spend the money I have or leverage up because I think the government will take care of me. Now that may be conspiratorial in one sense, but it's what I worry about is that people have forgotten and got out of the habit of saving for the future. It's I've got all this money, I'm going to spend while I have it, enjoy it, and we'll worry about the future later.

I don't know that that was the effect as much as there was so much wealth transferred from the government to the consumer, and I mean consumers that were making over one hundred thousand dollars still getting checks from the government into their accounts, and so the excess savings, which was over two and a half trellion dollars, was there, and so then you feel wealthier. You are wealthier, and so you spend it. And once you get into that habit of spending, then is the savings fall down? Well, you have your credit card and so you begin to leverage yourself. And that's what we're seeing again. So I'm worried that the carryover from COVID is the feeling or the understanding that, well, if anything goes wrong, the government will step in and make transfer payments and we'll be bailed out of this again. Either the federill print more money, the government will continue to spend for the consumer, transfer the wealth to the consumer as they have in the past. And so I'm going to take my chances and spend the money I have or leverage up because I think the government will take care of me. Now that may be conspiratorial in one sense, but it's what I worry about is that people have forgotten and got out of the habit of saving for the future. It's I've got all this money, I'm going to spend while I have it, enjoy it, and we'll worry about the future later.

To put it crudely, Tom, I really want to thank you for joining me. I want to let our listeners know they can find out more more about the Mercadas Center of George Mason University and the work you're doing there at mercadis dot org.

To put it crudely, Tom, I really want to thank you for joining me. I want to let our listeners know they can find out more more about the Mercadas Center of George Mason University and the work you're doing there at mercadis dot org.

Thank you very much.

Thank you very much.

Thank you to my guest Thomas Hunting. You can learn more about the state of our economy on our show page at Newtsworld dot com. News World is produced by Ginglish three sixty and iHeartMedia. Our executive producer is Guarnsey Sloan. Our researcher is Rachel Peterson. The artwork for the show was created by Steve Penley. Special thanks to the team at Gingrishtree sixty. If you've been enjoying Newtsworld, I hope you'll go to Apple Podcast and both rate us with five stars and give us a review so others can learn what it's all about. Right now, listeners of Newtsworld concern up from my three freeweekly columns at Gingishtree sixty dot com slash newsletter. I'm Newt Gingrich. This is Newtsworld.

Thank you to my guest Thomas Hunting. You can learn more about the state of our economy on our show page at Newtsworld dot com. News World is produced by Ginglish three sixty and iHeartMedia. Our executive producer is Guarnsey Sloan. Our researcher is Rachel Peterson. The artwork for the show was created by Steve Penley. Special thanks to the team at Gingrishtree sixty. If you've been enjoying Newtsworld, I hope you'll go to Apple Podcast and both rate us with five stars and give us a review so others can learn what it's all about. Right now, listeners of Newtsworld concern up from my three freeweekly columns at Gingishtree sixty dot com slash newsletter. I'm Newt Gingrich. This is Newtsworld.