What History Tells Us About the Difference Between Hyperinflation and Inflation

This week, Alon Levy, a fellow at NYU's Marron Institute, joined to discuss why the U.S. is not good at infrastructure and why public works projects carry a higher price tag in the U.S. as compared with other countries. Diogo Monica, the co-founder and president of Anchorage, a digital asset platform for institutions, came on to talk about Visa allowing transactions with UDS stablecoin. Boris Jordan, the executive chairman of Curaleaf, which just closed a deal to buy Emmac Life Sciences for $285 million giving the company entry into the European market, discussed the cannabis sector's growing momentum in both the U.S. and Europe. Then Zach Carter, the author of the best-selling book "The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes," joined to talk about what history tells us about the difference between hyperinflation and inflation.

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Episode Transcript

Speaker 1 (00:08):
Welcome to What You Missed This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes Show that I co anchor along with
Romane Bosti and Caroline Hyde. What do you miss It's
the perfect way to kick off your weekend. We kicked
off this week talk about President Biden's massive two point
two five trillion dollar infrastructure plan. Everyone loves the idea

(00:29):
of infrastructure, but now that the White House plan is
actually here, facing some pushback from Republicans as well as
moderate Democrats, some fighting over the meaning of the word infrastructure.
However you define it, though it will be expensive. Allen Levy,
a fellow at n y U s Mayor and Institute,
joined us to talk about why these projects carry a
higher price tag in the United States versus other countries.

(00:52):
So the number one reason is a problem, I would say,
a problem of curiosity. Above all, countries tend to learn
mostly from themselves, and then sometimes they think we need
to learn from other people. So you will see it.
Usually it's poor countries learning from richer countries, smaller countries

(01:14):
learning from larger countries. UM and the United States. Well,
it's a very rich country. It's a very big country.
It's a very culturally dominant country. Everyone UH in the
global elite speak English. Not everyone speaks German, Japanese, Chinese, Spanish, French.
So it's very easy to think that because America is

(01:36):
good at so many things in biotech, in tech, in UH,
in agriculture, in mining, it's also the best literally everything
such as infrastructure construction, which it is not. So it
is so even if there may have been a completely
random reason it happens seven years ago that lead them

(02:00):
ark and costs to be higher than European costs, it's
just doesn't get corrected because people in the United States
are not as familiar with how things work um in
other countries, especially once they don't speak in question. So
I'm curious, Alando, I mean, how do you sort of
change the structure here in US in the US, because
you know, I mean, look, any every country sort of

(02:21):
falls back onto what they know best, and we do
whatever you do here in the US. And whether that's
best or not certainly debatable. But how would you change
the mindset here to even get us to a level
where we could sort of compete out a cost level
with other countries. So UM, you need certain um legal reforms,

(02:44):
some kind of more understanding of engineering techniques, but the
basic ideas to understand that UM. When the frontier of transportation, infrastructure,
construction of the most innovative technology is not Unfortunately in
North America. The main frontier parts of the worldness are

(03:05):
a continental Europe and UH, East Asian. It's mostly rich
East Asia. China does some nice things, but China is
not at the global frontier. The construction costs in China
are actually rather average and UM. So for example, you
might want to look at the exact set of techniques

(03:28):
and I can give and I can give some examples.
It could give a lot more examples if I had
ten hours of things are being done for for example,
for the high speed rail plant, and people are talking
about giving eighty billion dollars demand. Actually you could, for
example look at how at what Germany is doing right
now to improve its intercity rail and UH. And of

(03:51):
course Germany is also big enriched and maybe doesn't learn
from everyone of the tribal learning troops from so you
can learn from the country's Germany is trying to learn
from Switzerland and Netherlands, Austria, UM and see how and
see how they they minimize and see how how they
minimize coasts whenever they can. They try to avoid over building.

(04:12):
They try to do things that are they aren't just
being cheap there inexpensive, but also really high quality that
they try to make sure that the trains always connect
to figure out how to make sure the trains are
exactly on time. In Sowrtherland, if you have a rail ticket,
it's likely to involve a connection UM and the connection

(04:35):
might lab might take five minutes, and you will make
it because they made sure the trains are gonna run
in time. So they can do that. So so it's
just to learn how they how they do that and
to learn certain construction techniques are being used in Japan
and South Korea to do that. And do you send
people to those countries? Do you get them to come here?

(04:56):
Do you just sort of cultural exchange and exchange of information?
What's the best practical way of making that happen? So,
UM what you're proposing the two exchanges UM. It's funny
we literally had a meeting at at the Research group
trying to think about this UM and we talked about
both of these UM. So the answer is yes, UM,
but it's important that you have longer exchanges. You don't

(05:20):
just send the managers for a four day doctor trip
in which oh everyone wants to go on a four
day doctor trip that looks like a fact fighting capre.
Or you're just vacationing in Barcelona and Rome in Berlin. Um.
Everyone likes these, but you don't learn very much in staid.
What you want is to, um, maybe send someone on
exchange for a period, for for a longer period, may

(05:41):
be measured in months. UM. And I know there are
exchange programs between various European railways already. And I know
someone works UH for the German railway Deutsche ban who
was doing this for a couple of weeks in Russia
and UH, and I know they also do this with
the Jeff hands. It was not just internally to Western Europe.

(06:02):
So participating in this program, in hiring people, hiring some
of the managers from agencies in Spain and in Italy
and in Sweden so on, and having them helped run
UH infrastructure construction in America would be really instalved. So
we just have like about a minute left. Let's say
President Biden calls you up and says Alan, I'd really

(06:24):
like you to advise me on this too in a
quarter trillion dollar infrastructure plan. Obviously, Biden himself or you
yourself can't unilaterally change the culture. What would be the
most important thing for that should be written into the
bill such that we have at least a shot of
getting stuff built in a reasonably timely manner. So for
writing stuff into the bill, I would UM, I would

(06:47):
look at certain practices they're used for cost control UH,
such UM such as um UM fighting loss. If you
have nimpy lossuits, you probably want to fight rather than
surrender to them. UH. If you want you probably want
to avoid over building. UM. You want to avoid the

(07:09):
problem where you have this other people's money problem where
state or locality UH just uses federal money to do
unrelated things UM, and try to UH and try to
require some measure of cost control UH and the bill
in order to prioritize infrastructor. Visa recently made waves when

(07:30):
it announced the transactions on its payment service could be
made using the stable coin usd coin, a stable coin
powered by the Ethereum blockchain. So the cynic that I
am I was not convinced and at the time I
even tweeted quote, I strongly believe this will go nowhere,
and I'd like to make a bet on this with them.
And so we spoke of someone who could make me
eat my words, Dio Go Monica, the co founder and

(07:52):
president of Anchorage, a digital asset platform for institutions, which
is involved with the Visa news, and he joined us
to tell me why I was wrong. So I'm definitely
gonna take the other side of that bed, and the
way that I'll do it is by maybe zooming out
a little bit and saying, number one, not all crypto
is bitcoin, and you're absolutely right that bitcoin has been

(08:13):
invested as capital preservations store a value, and since the
value fluctuates, people are hesitant to sell their bitcoin for fiat. However,
just in the past twenty four hours that has been
over a hundred and sixty billion dollars of stable coins transacted,
and so there is a type of crypto called stable
coin that tracks the value of other fiat currencies like

(08:35):
the US dollar, that is perfect to be transacted. So
if we go back to encourage this partnership with Visa
and what Visa announced uh this last week where we're
seeing as a dramatic difference and change in the market structure.
That are companies that are crypto companies that want to
offer banking services without ever having to rely on the

(08:55):
FIAT rails, and now with this Visa partnership they can't.
They can actually replaced the settlement side from the crypto
company that is issuing a visa credential all the way
to Visa without ever having to touch FIA. And so
that is what's actually being announced. It is a change
in the market structure and is not something that is

(09:16):
reliant on Bitcoin. It was really something that has to
do with stable coins in the power stable coins to
change the market structure of in this case, the payment
system in the United States. So instead of using a
US dollar ever along that rail, as you say, use
USDC instead, the so called stable coin aligned with the
value of the US dollar. Why pick USDC? What are

(09:38):
there gonna be plenty of other stable coins? Will they
end up becoming part of of the visa rails and
payment network. That's right. The USDC is actually not the
largest table coin in the crypto market. It actually represents
a small percentage of it. There's many other stable coins
and We also saw the announcement of the d M project,
in which Anchorage is also part of That is also

(09:58):
the goal is to have something that a stable, that
is easy to use. If we take a step back
further and we say what is the current status quo
of someone that wishes to have a Visa credential, it
is pretty hard for people to do. There's hundreds of
companies issuing these Visa credit cards or Visa debit cards
that actually have backing of normal dollars. What is happening

(10:20):
is that companies like crypto dot com have a lot
of interest from their client base to actually have crypto
back the actual visa card purchases. So you can buy
a coffee using crypto. You're just not doing it with bitcoin.
You are tapping your Visa card and on the back end,
all of it is being taken care of by Anchorage.
And what is in it for Crypto dot com Why

(10:41):
do they care about this? Well, because before they needed
a relationship with an issuing bank, they actually needed FIA
dollars deposit on a bank account just sitting there so
they could settle with Visa twenty four hours later to
actually settle the whole transactions. Now they don't need that,
they can settle in a matter of minutes. That action
is uh do recoverable in the sense that there is

(11:02):
no clawback. It is more efficient, it has strong finality,
and it's going directly to Visa in USDC by using
the Anchorage crypto platforms. And that is what we're offering
to the company. And I could definitely see how those
folks who are sort of bought into the crypto and
the sort of blockchain world would definitely see the advantage
of it. But how do you sort of approach you know,

(11:23):
I guess regular people who are still you know, tether
to FIAT currencies, which is probably like you know of
the world. I mean, what's the value proposition for them
to say, let me do this, uh using my Visa
linked card as opposed to just using my Visa link
card which is linked to actual dollars. So that is
the beauty of this is that the retail clients, you

(11:46):
and I continue operating the same way, but now we
have superpower. We can actually connect our Visa card to
our account, our crypto account and crypto dot com for example,
in this case, which was the first the first company
that exact of participating in this pialet with Visa and Encorage,
and for them there is no different. There are spending
their money and they don't actually care at the end

(12:08):
of the day. At the end of the day, if
you have a nap on your phone and on one
side it says us D and on the other side
it says USDC. For you as a consumer, they are
both dollars. And if you start being able to spend
it equally, then that is the answer of mass adoption
of crypto by consumers. It is it is the exact
same thing that you did yesterday, just on crypto rails,

(12:31):
got it, Djogo? Is Visa betting on mass adoption of
crypto by bone or is Visa more wanting to ensure
that it serves everyone, even the unbanked, even though it
is particularly in emerging markets. I think they're definitely betting
on mass adoption of crypto. And the interesting thing here
is that this particular, this particular partnership doesn't even to

(12:52):
rely on mass adoption. There's another way for you to
look at this and actually think about this partnership, and
it is efficiency. We are working in a fiat world
that is in many cases Deeplest two. We've seen a
lot of issues with deep List two in the past
few months in the structure of the market. If you
can eliminate those structures, if you can have less trust
between parties, if you can have more finality on the

(13:14):
settlements and faster settlements, why not take that regardless for
now for the moment of the consumer adoption. If you
have a way of using crypto to make the current
market structure better, why not do it? And that is
part of the partnership that is happening now, is us
using crypto to for this specific segment making the market
infrastructure better. Now, marijuana has been gaining momentum on both

(13:39):
sides of the Atlantic. Recently, New York and Virginia both
legalized recreational use, with Virginia becoming the first southern state
in the country to do so. All Over in the UK,
London Mayor Study Khan, who is up for reelection, is
promising to set up a commission to examine the benefits
of decriminalization if he wins another term. So we spoke
about these developments in the space with Boris Jordan's, the

(14:00):
necative chairman of Curely, which just plays a deal to
my MC Life Sciences for about two million dollars, giving
the company an entry into europe rapidly growing cannabis market.
We started by asking Boris if things were more exciting
for the marijuana industry in the US or in Europe.
I mean, obviously, the United States is where the near

(14:21):
term growth is going to be. The market's much more
developed than Europe. We have a tremendous amount of states,
as you just mentioned, moving from medical to recreational. It's
not only New York, it's Minnesota, it's uh, New Mexico.
I believe Vermont and Connecticut is indicated they want to
do it this July. I think Pennsylvania is gonna be next.
So it's a domino. We said this, you know, when

(14:43):
New Jersey voted in November, I said to everybody, I
think this is a domino effect from here on. And
that's what's happened. And it's happened, to be honest, faster
than we thought. So definitely, the major growth is in
the United States, and curely major focus is continues to
be the US, but Europe is not far behind. Europe
is where we were in two thousand seventeen, and you know,
purely from two thousand seventeen till now grew from you know,

(15:05):
seventeen millions of revenues to over a billion dollars of revenues.
So I think that's where Europe is today. And and
and Cure Leave decided to put its footprint, UH to
move our brands into Europe, and and we bought the
largest operator in Europe. And we all also raised a
hundred and thirty million dollars of financing in order to
finance that build out. So we're very excited about the
European operation. And the big differentiation between Europe and the

(15:28):
US is that Europe is a capital light model. Europe
is it's legal. The medical business in Europe is absolutely
you know, legal in the you and so we don't
have to build these operations in every single country. We
can build a centralized operation in Portugal and Spain, which
is where we are in a distributed roll of Europe. Well,
and so once you get that sort of distribution level,

(15:49):
I mean, you're not worried at all about any sort
of impediments with regards to any of the members states
maybe deciding that they want to sort of set their
own parameters you're certainly here that we're gonna have sort
of that I guess blanket rule coming out of the EU.
So under the under the it's very interesting. Under the
u N Charter, medical is legal, and so Europe has

(16:10):
taken the position that it's you can cross borders with it.
So there is no impediments today on medical in Europe.
Today eMac sells to the UK, to Germany, to Italy,
to Spain, to France and now in to Israel. UM,
so there is no impediments in Europe. And now adult
use that you've heard recently, UM, Switzerland and Holland have

(16:31):
announced adult used pilot programs. And the reason they call
them pilots is because under the UN Charter, recreational and
adult use cannabis is not yet legal, but if you
call it a pilot, you can launch it. And so
it's gonna be interesting to see how the regulator environment
develops in Europe around adult use cannabis as it moves
forward here. So going back to the US for a second,

(16:53):
we started with that map showing the you know, the
patchwork and state regulations. Some state there's nothing, some as medical,
some rent creational. How costly is that to have you
know you mentioned that the advantage in Europe is because
it's a medical legal you can consolidate production in capital light,
how costly is it for h you know, sort of

(17:14):
a US based businesses to have such a wide range
of legal regimes. So curely Um last year spent about
a hundred million on capital expenditures. This year we'll probably
spend now that New York has has legalized, will probably
spend closer to a hundred and eighty million dollars in capex.
So that's about what we're putting to work every single

(17:36):
year purely since it's its founding has probably spent close
to a billion dollars in building its infrastructure in the
United States, which is why we have the leadership position
that we do, where twenty three states were now launch
doing national launches and products. As we forecast, it will
do somewhere between one point two and one point three
billion dollars of revenue this year. That's on on the
back of a six hundred fifty million dollar a year

(17:58):
last year, so about hundred percent growth year on year.
Boris there's a hundred thirty million from a single strategic
institutional investor. Now I'm interested that they're not divulging who
they are. But we get very excited when we look
at other sort of really ballooning such as crypto and
institutional players come in. We're like, say, this is a
sign of real support. What does this investment mean to you?

(18:22):
Why are they doing it and why not staying there? Well,
this this particular investor is very excited about the European market.
They they see the Europe as exactly as I said,
we're the United States was four or five years ago.
Europe is a market that's one and a half times bigger.
The economy is one after in the US. The cannabis
use as as prolific as the United States, and so

(18:45):
there's a huge opportunity. If you think about totally, for
two thousand seventeen, Curely it was a three hundred million
dollar market cap company. Today it's a ten point seven
billion dollar cap companies in four years, you know, quite dramatically.
And if you think that that's the kind of growth
prospects that you have in Europe, I suspect that investors
believe that that's the kind of growth they're gonna see.

(19:05):
And and that's why we financed at the European level,
because we also didn't want to breach the veil, right,
I mean, europe is legal and we wanted to maintain
that legal status, and so we raised money at the
European level. And we finished the week with some highly
anticipated PPI data, producer prices climbing more than forecast last month,

(19:28):
rising by the fastest rates. We also got some more
niche price data with wood pallets increasing. So with so
much focus on inflation, we took a look at price
stability and the difference between normal inflation and hyper inflation.
And our guest was Zach Carter, who is the author
of the best selling book The Price of Peace, Money, Democracy,
and the Life of John menard Kin's and we started

(19:48):
by asking him if wood pallet price increases typically perceived
hyper inflation. Well, if it is, I haven't seen it
in the data. I know claim to have seen all
economic data from all time, but that that's not what
I've watched super closely. Uh. You know, I think there's
there's an understanding of inflation and sort of demand driven

(20:13):
inflation that if you have enough aggregate demand in the economy,
people's pursags and powers will push prices higher. But that's
different from hyper inflation. Hyper Inflation is something that happens
when you have a political crisis, and so inflation can
be a problem. It could be something you want to
worry about, something you want to fight, but it's it's
it's a distinct problem from hyper inflation, which is which

(20:36):
is when people lose faith in the legitimacy of a government. Frankly,
which are taught something you've written about plenty with your
thoughts and particularly on John Maynar Kanes as an economist.
At the moment, we have this sort of push and pull,
this emotional tug of some people on once I want
to worry about inflation, others really not so doing and
wanting to see the whites of the eyes of two

(20:57):
percent if we ever get there. Do you think it's
Do you think we'll ever get to overshoot? From your perspective,
do you think there's something we should really legitimately be
worrying about. Look, I think people who are supremely confident
about what they think inflation is going to look like
in the next two years or two months are uh,

(21:18):
let's just say they have more confidence than than than
I have. I think these these price changes, they make
sense until your model is wrong. Right. Um, I'm myself
am not worried about this right now. I think that
the federal government can afford to spend frankly, quite a
few I don't know, quite a few, but a few
more trillion dollars before we have to worry about demand

(21:40):
driven inflation be becoming a problem. Um. But but I
could be wrong, you know. That's like I've been wrong
about stuff before, that it happens sometimes. Uh and and
if so, the thing, the thing that that sort of
animates me at this particular moment is that, you know,
if if we overshoot and we get and we get
too much, and and inflation does happen. There are an

(22:01):
enormous number of tools in the Federal reserves toolkit right
now that are just designed for fighting inflation, and they
haven't been using them for for like fifteen years. So
it doesn't seem to me to be that that terrible
a risk to overshoot. So we could overshoot, but if
we do, I don't I don't see what the catastrophe is.
But when we talk about that, those tools, and I

(22:22):
guess the potential negative effect of them having to sort
of utilize those tools, should we start to see some
sort of meaningful inflation. A lot of folks are saying, look,
I mean, if you don't have some sort of a
gradual normalization, then it means that you are sort of
setting us up for what could be a policy shock
where the need for a policy shock, UH, similar to
maybe what we saw in the late seventies early eighties.

(22:43):
Do you think that that's the potential risk here or
should we not be worried about that? So, so the
reason that I don't worry about that, and again I
could be wrong, but the reason I don't worry about
it that is because in the nineteen the late nineteen seventies,
in the early nineteen eighties, one of the reasons that
Paul Boker or uh you went for this extremely high
interest rate policy was because you had not only high

(23:05):
inflation but also high unemployment. And so if you're only
worried about one of those two variables, it seems like
to me that those that that there are there are
pretty clear policy tools available to fight either one of them.
When you have both of them at the same time
and they're they're extremely elevated, then fighting one often seems
like it can create problems for the other. It's not

(23:28):
clear to me at all that if we have a
little bit of extra inflation, or even a lot of
extra inflation more than we want in three um, that
we will also have elevated unemployment and so and so
as a result of that. I think this this problem
is is is not super complicated. It's if you run
the economy a little bit too hot, or or even

(23:49):
a lot too hot, you have you know how to
how to pull it back, and I don't worry about it.
So let's talk more about hyper inflation. And you made
the point at the begin meaning that it's a fundamentally
different thing, that it's more about politics and losing faith.
What does that mean? What is the sort of connection
that we should think of, how it's different than running
the economy heart the connection between sort of losing faith

(24:12):
in the system and true intense inflation that destroys people's
savings and makes consumption impossible. I think to something that
even talking about this is is the sort of thing
that it freaks people out a little bit, right, Well,
thank you system, Yeah, you know exactly, like, but also

(24:34):
instead of free, instead of freaking out about extreme inflation,
we've been writing a lot about how just small inflation
does hurt those that actually the Federal Reserve is trying
to help the most at the moment, which in those
on low income, the fact that food is getting more expensive,
the fact that gasoline is getting more expensive. It does
become a political and a philosophical issue a bit, both
of which you mentioned in oh oh, Yes, certainly. And

(24:57):
I didn't want to be dismissive to to Joe there
I was. I was I was trying to make a
jokes insulting Joe. Yes, yes, certainly, if if, if consumer
prices rise, the prices of the things that most people
buy on a regular basis rise at a rapid level
that that you know, reduces the sort of living of
ordinary people. That's bad, um people, ordinary people not being

(25:20):
able to have access to a job and a paycheck
is also a problem. So so how how you balance
these two things together is always uh, you know, it's
it's not necessarily obvious to any moment in time with
the right call is there. But but generally speaking, I
tend to air on on the side of more employment.
And if and if you get if you get too
much employment and the inflation starts taking up then okay,

(25:40):
you know, it's okay to take a minute and and
think about about pulling back. But but these these political
crises that the Joe is talking about, things like like
the Weimar hyperinflation. I mean, this is what we're talking about.
When that happens, that's a real breakdown in the collective
faith of this society to believe in both the political

(26:03):
legitimacy of the government and the value of the currency.
That is that causes things to happen that that don't
square to you know, the money supply or or aggregate demand.
Things that are just out of control. And that's that's
a different kind of problem. And that's it for what
you missed this week. If you like to show and

(26:24):
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Thanks for listening and have a great week.