E6: Bombing the Turkish Economy - Part 2

This is Part 2 of a 2-part episode on the Turkish economy and its ongoing currency/debt crisis. In this part, we will  look into some prescriptive options for Turkey and the lessons that the US and the rest of the Western world can draw from the Turkish experience. 

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Episode Transcript

Henri (00:00):
Welcome back to Part II of our look into Turkish
economics.
In Part I, to set the stage, wetalked about the differences
between theory and practice ofinterest rates and inflation.
So if you haven't listened tothat or you need a refresher, I
recommend you revisit thatepisode.
Here in part two, we'll discussthe prescriptive options for

(00:21):
Turkey and how thoseprescriptions apply to Western
developed nations.
To kick things off, here's finalthoughts from Part I.
Let's have a listen.
Okay.
Well, we just explained whyclassical theory doesn't apply
here, based on the"Curtis LeMayeffect".

(00:41):
So you're probably thinking,okay, well, let's close up shop,

we got it (00:45):
Erdogan clearly is right, and he should lower
interest rates.
I mean, we just spent, I don'tknow how long, but we talked
about all the underlyingconditions, why he should be
lowering the interest rates, itmakes more sense.
Well, actually, despiteeverything I just said, I agree
with the classical economists,he should be raising the
interest rates.

Intro (01:11):
Come on.
Don't me.

Henri (01:25):
He always said
language they hear is"I am fromthe government, and I'm here to
help."

Intro (01:38):
Welcome to"Come On, Don't Bullshit Me!", where we peal
away the messaging of talkingheads to get to the crux of
today's issues.

Henri (01:51):
Well, first off let's, address the elephant in the

room (01:54):
as of the recording of this podcast Erdogan announced
that he's going to guarantee thebank account of the Turkish Lira
to Turkish citizens.
It's basically the Turkishequivalent of a FDIC.
And on this news, the value ofthe Lira shut up.
Now whether this is gonna holdor not, I don't know, I doubt it

(02:15):
will, my personal opinion.
But what matters is the reality.
But the funny thing about thisthough, is that again, we
already, I established thatErdogan hates interest rates.
And interest rates, it's notlike the bank is like, you know,
"Nomine patris et filii etspiritus sancti", and then the
interest rates go up, right?

(02:36):
Or I guess in Erdogan's case, itwould be"Bismillah hirrahman
nirrahim", and then the interestrates go up, right?
Before the interest rates to goup, what happens is...
It's different in the UnitedStates nowadays after
quantitative easing, butgenerally speaking, for Central
Banks and in this case forTurkey, what would happen is, to
raise interest rates the CentralBank has to sell bonds, right?

(03:02):
So what happens is, the primarydealers, or the main banks at
the Central Bank, who haveaccounts at the Central Bank,
give money to the Central Bank.
So that money's removed from theeconomy.
And in exchange, they get bonds,that give an interest payment.
And those bonds, by virtue beingbonds, are also not in the

(03:25):
economy.
It's like a savings accounts,right?
And because there's less moneyin the economy, then presumably
inflation will drop, right?
That's what in the classicaleconomics theory is taught.
See, but that actually is notthe case, because it's not like
the bonds are being issued bythe Central Bank.

(03:46):
It's issued by the Treasurydepartment of the country in
question.
So those bonds are already outthere, they're already issued.
So it's a question of are theinterest payments going to be
paid to the Central Bank, right?
To the Fed.
Which, because by virtue of thatthe Central Bank is effectively
outside of the economy, thoseinterest payments don't do

(04:08):
anything.
Or those interest payments aregonna go to the banks
themselves, which actually arein the economy.
And the best way I can explainthis..
I don't know why I keep goingback to food or Italy, or
Italian food, but anyway, youknow about the espresso
machines?
So, let me give you a storyabout espresso machines.
When I was stationed in Italy,we had a lot of downtime.

(04:31):
And you know, that's not a knockagainst Italy saying, Oh,
Italians don't work, so you gota lot of downtime.
No, it just, as there is anexpression war is, it's sudden
bursts of chaos with longperiods of boredom.
So during those long periods ofboredom, for some reason, I
decided to read macroeconomicstextbooks to try to understand

(04:52):
the economy.
But the way I kind of visualizedthe economics was staring at my
surroundings.
And for my surroundings, whichwas in the break room at the
Command Center or the OpsCenter, as we call it in the Air
Force, was a barista.
And he would fill out the entireBase's orders.
Because basically everyone wouldcome over to the break room and

(05:16):
he would fill out all the ordersof all the coffees.
And me, being an American, notreally being exposed to the
Italian coffee culture, it wasmy first time seeing a proper,
real espresso machine.
I didn't really even know whatan espresso was,'cause I was
that culturally inept, but I would see, it's almost
like an art form with thegrinding of the beans and

(05:37):
putting in the machine, andgetting it with the pressing of
the grounds and then theextraction of the coffee.
And it was really mesmerizing.
It was kinda like watching aclassical music orchestra: it's
simultaneously boring, butmesmerizing.
So the way I was able to imprintthe economy into my brain was

(05:57):
basically that the entireespresso machine is the economy
and the top of the machine, orwhere the coffee beans are
whatnot,-- that's thegovernment.
And the amount of beans you putin-- that's what's going to go
ultimately and turn into coffee.
It's essentially what theTreasury department spends,
right?
The government, your governmentis going to spend, based on

(06:20):
either, if it's a autocracy,that's dictated, or if your
democracy, that's some sort ofparliament or congressional laws
passed, and that's how thepayments happen.
And this is kind of like what wewere talking about with the
government printing the bonds.
Bonds, as we said, could eitherend up with the Fed or in the

(06:41):
general economy.
And in espresso machine, youhave the multiple spouts.
So generally you have twospouts, and with the two spouts
you can either put two espressocups and then fill two orders at
one time, or you put one giantcup in there and then get both
of the streams in that one cup,and then you can make doppio, as

(07:03):
they say in Italy.
So this is kind of like how, theway the bonds and the interest
payments work, right?
Because the bonds are beingissued by the Central Government
and not the Central Bank, right?
There's a distinction betweengovernment and bank.
So the central government isgoing to issue the bonds, based
on whatever laws are passed.
And the Central Bank is kind oflike the barista in charge of

(07:25):
putting the cups underneath thespouts.
And by lowering the interestrate, what you do is, you're
essentially putting two cups inthere, where some of the money
is going into the economy, likein one cup; and the other is,
because of by virtue of the factthat you have low interest
rates..
And again, like we said, lowinterest rates means the Fed or

(07:45):
the Central Bank in broaderterms has bought a lot of those
bonds, means, those interestpayments are going into the
Central Bank.
And of course, then it getsrecycled back to Central
Government and essentially it iswashed out, it's outside of the
economy, right?
Whereas when you raise theinterest rates, those bonds are
now, rather than being locked upin the Central Bank, are now

(08:06):
back in economy.
So in this case, it's kinda likewith the espresso machine
analogy, rather than having twocups for the two spouts, you're
putting one giant cup underneaththe machine, and both spouts are
going to that one cup.
The government payments ofinterest, payments are gonna
happen regardless.
Regardless of what happens withthe Central Bank, because that's

(08:27):
determined by law or inauthoritarian regimes by a
decree.
And the only thing that CentralBank can do is divert those
payments either into or out ofthe economy.
And that's key point here isthat interest rates are not
raised by decree.
Raising interest rates is donethrough the buying or the

(08:49):
selling of bonds by the CentralBank.
And all that does is divertalready existing central
government coupon payments,right?
'Cause the bonds are alreadyissued.
The coffee is already ground.
It's gonna come out of the spoutregardless.
It's either gonna go into aseparate cup or into the drip
tray, right?
Or it's gonna go into the actualespresso cup, that's being

(09:13):
served.
Or in an economic sense, if theCentral Bank raises the interest
rates, that means all thosebonds that were locked away from
the economy are now actually inthe economy and the constant
interest payments that are beingpaid, regardless of it's in the
Central Bank or in thecommercial banks, the Treasury
department of the centralgovernment is paying the money

(09:35):
on the interest of these bonds.
And now, because they're notlocked away in the Central Bank,
but actually all that money isbeing issued to the commercial
banks, well, that's more moneythat's actually going to the
economy and more money justincreases the price level, so it
increases inflation.
So a higher interest rateactually, contrary to what

(09:58):
classical economic states,increases inflation.
And again, like I said before,this is perfectly evidenced by
both Argentina and Japan asclassic examples here of this.
Argentina, they've raisedinterest rates, thinking
classically that it's going toreduce inflation, but inflation
has been going up.

(10:19):
And Japan, again, the opposite,is that they've lowered their
interest rate and the interestrates have been, uh, have been
lower.
Plus all the other things thatwe've been talking about with
the price level increasing,because of the time lag of trade
financing.
So this is the thing thatErdogan is against, right?
What he is saying is, he'sagainst interest rates.

(10:39):
And again, whether it's becauseof Islamic theory or not, that's
immaterial, the point is, he isagainst interest rates.
Which functionally means, he isagainst the Central Bank giving
bonds to the economy.
And when the Central Bank givesbonds to the economy, what does

(10:59):
that mean?
That means the CentralGovernment, the Treasury
department, rather than givingthese coupons to the Central
Bank, which is immaterial to theeconomy, that interest payments
on those bonds is being given tothe commercial economy.
So by him saying"I am againstraising interest rates", he is

(11:20):
functionally saying,"I amagainst injecting money into the
economy".
But what is this buyback or whatis this Central Government
guarantee that he just announcedyesterday, functionally doing?
Well, he is saying that if theprice of the Lira falls, well,
I'm gonna give you more Lira toguarantee the conversion to the

(11:44):
foreign currency.
Well, functionally, that'sexactly the same thing as
interest rates.
So this whole thing about himsaying, oh, I'm against interest
rates, well, he's actually doingthe very thing that he's saying
that he's not going to do.
Which from a classical theorystandpoint, the classical
economists recognize, saying,yeah, okay, whatever, Erdogan,
you can say, whatever the hellyou want, but you just said,

(12:05):
you're going to increaseinterest rates, so for us that's
good news.
And that's why the lira shot up.
So he's actually doing thethings that the foreign
investors want to do.
Now, all that aside, again,'cause this is just a funny
little anecdote, but morebroadly, again, like I said,
despite the fact that classicaleconomics is not applicable to

(12:25):
the Turkish environment andraising interest rates will just
raise inflation, is thinkraising interest rates is the
right thing to do.
Because like I said earlier,controlling inflation is not the
end all be all of governing aneconomy, or managing an economy.
It's about facilitating thegoods and services and providing

(12:48):
for the citizens.
And right now with Turkishpeople, struggling so much with
the shambles of an economy, theyneed capital flow.
And again, the capital flow isnot coming, because the foreign
investors are not coming.
Because again, because of therisky business and all the
things that we've beendiscussing for this entire

(13:09):
episode.
So the only way to get thefunding to facilitate the flow
of the Turkish economy is toattract foreign investment.
And right now, unfortunately, orfortunately, depending on your
perspective, what that means isthe Central Bank has to raise
interest rates.
Not because it's going to helpwith inflation, but because it's

(13:32):
going to help attract foreigninvestment.
Because right now what Turkeyneeds is foreign investment.
Because the Turkish Lira is anineffective medium for
facilitating trade within thecountry.
You need the foreign investment,unfortunately.
And the only way to attract thatforeign investment is to raise
the interest rate, to match theperceived risk premium that is

(13:53):
in investing in Turkey.
We also could say politically,things that Erdogan can do, is
become more liberal, lessautocratic.
But obviously you can see,that's a Total Order, and that's
not really gonna happen.
We will see that happening, whenpigs fly.
Now, all that being said, thereare some other reasons, a lot of

(14:14):
people write off, what Erdoganis proposing.
As in, oh he's either beingsenile, he doesn't understand
economic theory.
Or because he's Muslim and he'sjust trying to create a Sharia
theocracy and dismantle theesecular institution of the
Republic of Turkey.
And that's fine, we can get intoconspiracy theories and all

(14:36):
that.
But there're a lot of economicreasons for why he is proposing
these things, that we need toconsider.
Which may not necessarily helpthe Turkish situation, but will
definitely help understand whyhe is espousing the situations
that he's in.
Well, one thing is that, like wejust said that he needs to

(14:58):
attract foreign investment.
And in order to attract foreigninvestment, one way to do that,
again, is to raise the interestrates to match the perceived
risk premium.
The other way to attract foreigninvestment is through currency
swaps.
And Turkey has been doing a lotof this with China.
This is a part of China's OneBelt One Road initiative.

(15:20):
They are trying to increasetheir economic and political
influence throughout the world.
Good on them, every country hasthe right to do that.
But the way these currency swapdeals work is that Turkey and
China are swapping theircurrency.
And not only they're swappingtheir currency, but they're also
swapping their interest rates.

(15:42):
And we've got to look at thisfrom the perspective of Erdogan.
He has an election coming up in2023, and he's a populist
autocrat, so he relies onpopulism to get him forward.
And with the economy the way itis, he either needs to improve
the economy or find someone toblame.

(16:02):
And also the 2023 election isactually very important to him,
because again, as this moderateIslamist, or whatever you want
to call him, but this"theocraticlight" person that Erdogan is,
it is no big secret, he detestsAtaturk, the founder of the
Turkish Republic, and morespecifically, the secular

(16:25):
institution that he built withinthe Turkish Republic.
And 2023 will be the hundredthyear anniversary of the founding
of the Turkish Republic.
So him being at the at the helm,being able to say at the
Centennial anniversary of theTurkish Republic, you know,"I
have restored the Islamic gloryof Turkey", is something that's

(16:48):
very much on his mind.
So that's also, that's well, oneof the reasons why from a
rhetoric standpoint, he's reallyleaning into this whole interest
is a bad thing, interest isharam, it is, not condoned in
the Quran.
So there's that.
But from a functionalstandpoint, the economy as bad

(17:10):
as it is right now because ofthe current Turkish Lira
depreciation, it can actually bea lot worse.
Because one of the things thatErdogan is doing is that
whatever reserves-- Dollar, Euroreserves-- that Turkish
government has, they are sellingthat to prop up the Turkish

(17:31):
Lira.
Obviously they are not doinggood job, because the Turkish
Lira is skyrocketing, but thepoint is that they're actually
trying to prop up the Turk Liraby selling these foreign
reserves, by selling US dollarsto at least not make it as bad
as it really could be.
And right now a lot ofeconomists are saying that, oh,
well, Turkish reserves arediminishing, it's pretty low.

(17:54):
But what they're referring to isthe gross foreign reserves, the
gross amount of US dollars.
But if you take away thecurrency swap deals that Turkey
has made over the couple years,they actually have a net
negative balance.
So while the gross reservebalance is positive, their net

(18:14):
balance is negative.
And that means removing thecurrency swap deals that they
are having.
So basically with the currencyswap deals, that Turkey has made
with China.
For example, this summer theymade a$6 billion, it was worth 6
billion dollars of a currencyswap, where basically the
Turkish government gave$6billion worth of Turkish lira

(18:39):
and the correspondent Turkishinterest to China; and then the
Chinese government would give$6billion worth of Chinese Yuan,
plus the Chinese interest rateto, Turkish government.
And of course, how this works isthat you have that foreign
currency of your partner, whichmeans now it makes it easier for

(18:59):
you to facilitate trade.
Of course, this is good in thesense that from both
standpoints,'cause China is anet exporter, so they want
people to use the Yuan so thatthey will buy Chinese products,
and Turkey by, as we justdiscussed, necessarily being a
net importer, they need to buystuff.
And if they have Chinese Yuan,they are locked in with that

(19:21):
currency, so they can easilyfacilitate the importing of
Chinese goods.
But another part of this, again,it's not just the principle
that's being swapped, but theinterest rates.
And if Erdogan...
And again, the economy isalready bad as it is, and people
are suffering, losing jobs, theyare already angry, right?
But it could be a lot worse whenTurkey does not have the foreign

(19:44):
reserves to sell to prop up theTurkish Lira.
So essentially, because he isrefusing to raise the interest
rates, the only way he can getforeign reserves, particularly
because of Turkey being a netimporting nation, is through
these currency swap deals.
And China, obviously, with thedesperation of Turkey is in,
China is in a pretty goodsituation where for the swap,

(20:07):
they don't want a high interestrate.
They're gonna obviously go withErdogan and say, No, keep the
interest rate low, because ifwe're gonna do these swaps, if
you want our Yuan, if you wantour foreign reserves, you need
to keep the interest rate low,because we want to pay you a low
rate during the swap deal.
So that's another issue it'skind of overlooked right now is

(20:30):
that, as bad as the Turkish Lirais, it could be a whole lot
worse without the infusion offoreign capital through these
currency deals.
And the only way these currencydeals, these other countries are
going to give that to them is ifthey keep the interest low,
because it's in their interestto have a low interest.

(20:52):
So Turkey is in a really messedup position right now.
Erdogan is stuck between a rockand a hard place, because he
really should be raisinginterest rates to attract the
foreign capital needed tokickstart the economy back up,
but he can't because he is beingheld hostage by these currency
swap deals, where the rates haveto be low so that he can get the

(21:15):
foreign reserves needed to propup the Lira.
Because if he doesn't prop upthe Lira, the situation's gonna
go from bad to worse.

(21:36):
And then from the domesticstandpoint, Erdogan also has
considerations, where he'sreplaced the old oligarchy with
a new oligarchy.
And that new oligarchy is inconstruction business.
Part of his removing of the oldguard, if you will, was giving
his cronies cheap investments inconstruction.

(21:58):
And this is one of the thingsthat even classic economists
would say, is that loweringinterest rates means you are
obviously not getting as much ofreturn as you would normally
want from those bonds.
So what does that do, that's acapital flight to other assets.
And one of the primary assetsthat people give flight to is

(22:19):
construction to real estate.
And with his cronies, theoligarchy that he's created
revolves around construction, sofor the past decade or so,
there's been constantconstruction projects going
around all over Turkey andIstanbul right now.
There's so many, I don't knowhow true this is, but people are
saying that there's moreskyscrapers in Istanbul, than in

(22:41):
any country or any city inEurope or America, which is
freaking insane.
And most of these constructionprojects, they are empty.
Now, this is another situationthat we're seeing in the middle
east and China as well, is thata lot of these wealthy investors
that wanted to park theirwealth, parked it in dubious
real estate investments.

(23:02):
And a lot of skyscrapers or whathave you, are half constructed,
because they just take the moneyand run.
And that situation is nodifferent in Turkey.
And specifically in Istanbul,they had tons of construction
projects, and with the fact thata low interest rate boosts the

(23:22):
value of that real estate.
Because again, there's a capitalflight from, from fixed assets,
from bonds, to real estate.
And if Erdogan is going to stayin power, he obviously needs to
satisfy his cronies, hisoligarchy.
And with that oligarchy beingcentered around construction,

(23:42):
well, not only do they rely onthe low interest rates from a
speculative standpoint, becausepeople are more likely to invest
in their construction projects,but also again, going back to
that revolving debt nature isthat they're constantly relying
on new debt on new domestic debtin this case, because these are
just domestic constructionprojects.

(24:03):
And because they're not actuallycollecting any returns from
these dubious constructionprojects, because they're just
sitting there empty, they needto finance their wealth with
revolving credit.
And increasing the interestrates is only going to increase
the cost of that revolvingcredit to fuel their own wealth.
So that's another aspect of whyfrom a more real politics

(24:26):
standpoint of why Erdogan isrefusing to increase the
interest rates.
And the other issue, again goingback to the populous nature of
his political campaign, is thatin appealing to populism in
Turkey, what Erdogan has doneover the past decade or two
is...

(24:46):
He was the former mayor ofIstanbul, and it has always been
a thorn on his eye that his owncity wouldn't support him.
So what he wanted to do wasflood Istanbul with people from
the countryside-- supposedly thepoor people, the more religious
types, the more pious of Turks--to win, to basically control the

(25:10):
seat of local Istanbul politics.
Because essentially, it's kindof like a"Dune" situation:
whoever controls the spicecontrols the empire.

Well, same thing is in Istanbul: if you control Istanbul, (25:20):
undefined
politically it's much easier tocontrol the whole country,
right?
Because it is the economicpowerhouse of the country.
So he needed his own localpeople in the government there
to facilitate all the thingsthat he was doing.
And by doing that, well, twothings happened.
One is that he encouraged themass migration of countryside of

(25:44):
rural Turks into Istanbul whereIstanbul immediately ballooned
in population.
I think it doubled in populationwithin a couple years.
And Istanbul does not have thephysical infrastructure to
handle this.
So there's the politicalstandpoint of him trying to
flood the pious into Istanbul sothat he could win those local

(26:05):
elections.
But also there's no other aspectof it, is getting all these
people to move to Istanbul,would finance...
They would presumably move intothese buildings, these new
buildings there, that hiscronies are constructing, and
that would fuel the growth oftheir own personal wealth.
But because obviously the realestate in Istanbul is already

(26:29):
high, because it's a desirablecity, and giving sweetheart land
contracts to your cronies andthen them building apartments
and skyscrapers and having ruralTurks, presumably move into them
-- it's a good operation herethat you can cook up.
Of course, that didn't reallyhappen.
And a lot of these rural Turksbecame homeless.

(26:50):
There's this phenomenon called"gecekondu", which means, it's
buildings o r like basicallyshacks o r s hanty towns, that
were put up in the middle of thenight where r ural Turks were
living.
So you have like when you godown the highway in Istanbul,
you'll see all these randomshacks of just people living
there.
And t hese just popped over inthe middle of the night.

(27:11):
And that's what" g ecekondu"means literally in Turkish i s
like"put up in the middle of thenight".
So that obviously wreckedIstanbul as the economic engine
of the country, because justfrom a personal or from an
individual person standpoint,the fact that the infrastructure
of Istanbul couldn't handle thisdoubling size of the population.

(27:34):
You look at the average Istanbulperson.
Usually it's kind of like in NewYork city, where most people in
New York live in the outerboroughs, you know, they live in
like Bronx or Brooklyn and thenyou commute to Manhattan to
work, right?
You take the Bridge or tunnelsand go to work, and then you
take the Bridge or tunnels to goback.
It's kind of similar inIstanbul, where usually people

(27:56):
lived on the Asian side ofIstanbul and then would take the
bridge to go over to theEuropean side and work, and then
come back.
And it was bad enough that thepopulation back in the nineties
for Istanbul was around 8million, which is the population
of New York city.
Not the metropolitan area,because metropolitan area is
larger, but New York city properis also an 8 million.

(28:18):
And New York city has how manybridges and tunnels?
At least a dozen.
But in Turkey they only had two.
Right?
And then all of a sudden now thepopulation of Istanbul is 15
million.
And just recently they finallybuilt a third bridge, but still
it's, it's pretty bad.
But not just from the bridgestandpoint, but just normal.
It's not like, you know, UnitedStates where these are brand new

(28:40):
cities.
Istanbul, Constantinople,Byzantium-- is an old cit.
It's one of the oldest cities inthe world.
So it's not like you have largeboulevards where you can park
cars.
There was actually a Turkisharticle, were they were saying
that if you lined all the carsof Istanbul in the streets, it

(29:00):
would exceed by three times theamount of street available in
Istanbul.
So lengthwise, there's threetimes more cars than there's
actual streets in Istanbul.
Which means there's physicallyno room to park cars in
Istanbul.
And not only that.
The traffic is horrible, andthere are people where normally
the commute back in thenineties, it would take you 20

(29:22):
minutes- half hour to go towork, now people literally are
stuck up in traffic fortwo-three hours.
So if your economic engine, theeconomic engine of the Turkey is
Istanbul, but the peoplephysically can't get to work or
get back from work, becausethey're stuck in traffic
literally a quarter of the day,well the productive capacity of
your supposed economic engine isseverely diminished.

(29:45):
Plus that doesn't even considerthe fact...
Okay, forget about Istanbul fora second.
All these rural people...
Again, Turkey is not like somesuper industrialized or service
economy-based country, likeEurope or Western Europe, or
United States.
It's very much an agrariansociety.
The economy, I should say, isvery agrarian.
But what Erdogan did is, bymoving all these rural Turks to

(30:10):
Istanbul and Ankara-- thecapital-- was that they removed
the farmers that were actuallyproducing the agricultural base
for the Turkish population.
And again, the Turkishpopulation...
Turkey is one of the onlyEuropean countries, whose
population has ballooned.
And so obviously it needs morefood, but now you have less

(30:32):
farmers, less agriculturalworkers that actually provide
you the food.
And of course you need food.
It's not like you cannot havefood, like we've already
discussed.
So what does Turkey do?
They have to import their food.
So just from a base standpoint,even though, and normally like
it's, it's fine, because a lotof European countries import
food too, right?
But those European countries aredeveloped nations, whose economy

(30:56):
is not agrarian based economy,right?
The are service or industrialbased economy.
But Turkey very much being anagricultural-based economy...
Well, if you're anagricultural-based economy and
you can't and produce your ownagriculture, obviously that's a
big red flag.
And foreign investors,obviously, can see that too.
Which provides further politicaland economic, or societal

(31:18):
instability within the country.
Which further increases theperceived risk premium from
foreign investors and furtherexacerbates, the current issues
in Turkey.
And this is where classicaleconomists will come and say:
well yeah, no, duh, that's thewhole point of comparative
advantage.
You know, you just go get yourimport, all your agriculture or

(31:40):
all the food that you need fromEurope or whatever.
Okay.
Well that's good.
But like I said earlier, there'sa time delay with trade.
And that time delay translatesinto a real cost in your imports
in the form of short-terminterest rates.
So raising the interest rates isgoing to make it more expensive

(32:00):
for your imports.
So the comparative advantage,while again, this is a classic
problem of classical economics,is that it all sounds good in
theory, just like with Nordenbomb site and the bomb testing
in the American ranges, but assoon as you take your bombers
over to Germany or Japan orwhatever, then you see that your
theory doesn't quite work.

(32:21):
And here it is again with Turkey, is that, okay, yes,
comparative economicstheoretically exists, but
because of the time delay natureof trade finance and the cost of
importing, those goods are goingto be affected by the interest
rates that you're going to haveto pay.

(32:46):
So is there a way out of this?
Honestly, I don't know becauseTurkey's stuck between a rock
and a hard place.
Either they keep the interestrates low to keep propping up
unprofitable Turkish Lira, orthey actually bite the bullet
and raise the interest rates,which again, doesn't really help
from an inflationary standpoint,but at least it brings foreign
investment and, which hopefullythey could use to turn the

(33:07):
country around.
Either way things are going toget a lot worse before they get
better.
If they ever get better.
And Turkey hasn't really in itsmodern history shown any strong
track record of providingevidence to the global economy,
that it can lay the groundworkfor solid fundamentals of a

(33:27):
sustained growth in thiseconomy.
But you know, hopefully I'mwrong and they can actually,
whatever investment theyultimately get, they can
actually do that.
But at least it acts as awarning sign for us in other
countries.
The main lesson that we can takefrom Turkey is that the
immediate impacts of monetarypolicy, whether it's raising

(33:48):
interest rates or reducinginterest rates, can provide
certain effects.
What those effects are, canalways be up to debate, because
frankly, there's too manyvariables for it to be
accurately deduced.
Monetary policy has always beenan equivalent of trying to push
a piece of string.
Monetary policy will never be aseffective as the sound

(34:08):
fundamentals of fiscal policy.
Fiscal policy, being thespending and taxation of the
Central Government as opposed tothe Central Bank.
And if in the developed world,we've become developed by virtue
of the fact of the proper andthe good management of, despite
our political differences anpolitical turmoils within our

(34:30):
respective countries, thefundamentals of the economic
growth have always been there,which allowed us to be developed
nations.
Now you can argue about, well,yeah, that was done on the backs
of exploiting the Third Worldand indigenous people.
And that's a social issue thatwe can address.
But the lesson we can learn hereis not where Turkey is now, but

(34:55):
how Turkey got there.
And the common theme throughoutthis entire episode has been to
complete absolute mismanagementof Turkey's finances and the
structuring of the Turkisheconomy.
Specifically the extremepoliticization or using the
economy as a hostage to ensurepolitical hegemony.

(35:18):
And that happened becauseeconomic decisions were made not
for the facilitation of economicgrowth, but for the
consolidation of politicalpower.
And unfortunately this is whatI'm seeing happening in the US.
And also what we're seeing,definitely in Eastern Europe,
but lately it started to happenin Western Europe too.

(35:41):
And now there's all this talkabout raising interest rates in
the US, well in EU too, butanyways.
'Cuz they're saying, oh, theeconomy's overheating, the
inflation is rising.
The same shit that's going on inTurkey, they are saying is
happening in the US and the restof the first world.
So they're saying, oh, we'vegotta raise interest rates.

(36:03):
And hopefully this episode hasbeen kind of a warning sign to

at least pause and consider: Hey, should we really be raising (36:07):
undefined
interest rates?
Because if we reference back tothe Curtis LeMay effect, it's
not just about what the theorysays.
It's about what the conditionson the ground are.
And we went back and forth aboutTurkey said, okay, the theory
says we should raise interestrates, but actually theory is

(36:28):
wrong, because for variousdifferent reasons, mostly the
time delay in financialtransactions, and in reality we
should actually be loweringinterest.
And when you look at thisbroadly, I shouldn't say
conventionally, but you know,broadly speaking, raising
interest rates actually raisesinflation and lowering interest

(36:48):
rates lowers inflation.
Going back to that espressoanalogy.
But then again with Turkey,that's not really the issue.
The issue is they need to gettheir investments in order.
They need to get some injectionof capital.
They basically need an emergencyshock.
And right now presumably theeasiest way to get that
emergency shock or fusion ofcurrency, of money, money flow,

(37:12):
cash flow into their economy isthrough foreign investment.
It's kind of like what they say,like dieticians would always
tell you, oh, you know, sugar isbad, sugar is bad.
Well, sugar is only bad, ifyou're in a First World
sedentary diet.
If you are starving forresources or, you know, if
you're feeling a little woozy,sugar is actually the best thing
for you, because it's the bestway to get immediate energy.

(37:35):
Now, of course, if you just relyon sugar, then obviously of
course that's bad, because allthat immediate energy is going
to turn into fat, and you aregoing to have all these other
problems and whatnot.
But for initial shock of energy,sugar is obviously the best
thing, which is why they say forthe elderly, they always
recommend that you carry likelittle tin can of hard candies,
so that if whenever they getlightheaded or woozy, you just

(37:55):
pop in one of those hard candiesand then you're good to go.
And I remember like mygrandmother would have a tin can
of these little sour candies.
And then she would pop itanytime, if she felt a little
woozy, when she needed a littlebit of energy.
So with Turkey, yes, I did sayTurkey should raise interest
rates, but not to combatinflation.

(38:15):
It is to encourage the foreigninvestments, so they can
actually get some cash flow.
And hopefully Erdogan, I meaneven though he won't, but you
know, that's neither here northere, but hopefully he would
take this foreign investment toactually do something sound for
the Turkish economy so that theywould have the solid
fundamentals as a base toexercise the economic policies

(38:39):
that he espouses.
Which is lowering of theinterest rates to keep inflation
low and increase economicprosperity, and I guess in his
terms, you know, bring a rebirthof the Ottoman Empire, which he
seems to be obsessed about.
But so the methodology may bethe same, but the desired

(38:59):
effects are different.

So I still stand by that (39:02):
the theory is wrong.
It's just that this time theblind squirrel has found it's
nut.
And we, again, we have toremember that the end goal here
is not to combat inflation.
I mean, obviously you want tocombat inflation, but again,
that's not the end goal.
The end goal is to do what isbest for your citizens.

(39:23):
And just like with LeMay, theend goal is not to prove whether
the Brits were wrong and thathigh altitude or low altitude
bombing is the best way to goabout.
The point is to rain destructivefirepower on a country's...
on your enemies' manufacturingcapacity, and ultimately to win
the war.
That's the end goal.

(39:44):
And that's what we should befocusing on.
So when it comes to UnitedStates, or I guess the first
world in general, we gotta lookat what are the economic
realities on the ground are.
All these things that theconservative economists are
saying, it's like, oh yeah, wehave to raise interest rates to
slow down the economy, becausethe inflation is going high up.

(40:04):
Well.
Yeah.
Okay.
Broadly speaking inflation isincreasing.
Yes, that is absolutely true.
But inflation is not just some,one off measure and inflation is
about too much money chasing toofew goods.
So you just can't focus on the"too much money" part.
You have to also focus on the"too few goods".
You know, it's kind of like withthe Marvel Cinematic Universe

(40:28):
where Thanos has got theInfinity Gauntlet and his whole
deal was that the Universe isoverpopulated, it's overcrowded.
So there's a lot of starvation and suffering, because there's
not enough resources i nUniverse.
So what's his solution?
He's going to kill half thepeople in the Universe.
A nd I, I feel like that's avery classical economics way to

(40:49):
think about things, becauseyeah, sure, you can definitely
solve t he starvation andsuffering problem, but of course
what you're d oing is, you k illhalf the people.

Thanos, Marvel Cinematic (40:59):
Little one, it's a simple calculus.
This universe is finite, itsresources finite.
If life is left unchecked, lifewill cease to exist.
It needs correction.

"The Little One", Marvel Ci (41:11):
You don't know that!

Thanos, Marvel Cinematic Un (41:14):
I'm the only one who knows that.
At least I'm the only one withthe will to act on it.

Henri (41:21):
There is another way to do it.
If you have the power to killhalf the people, Hey, Thanos,
why don't you consider thedoubling of the resources of the
Universe?
Or for the pedants out there,doubling the productive capacity
of the Universe, and accomplishthe same exact thing: end
suffering, but without actually,you know, waxing half of the
population.

(41:42):
So you could either be likeThanos and attack the"too much
money" part of the inflationequation, or you could be a
little bit more benevolent andattack the"too few goods" part.
And what's been going on for thepast two years or so?
The COVID pandemic, right?
And we have supply chaindisruptions everywhere.
And we can get into argumentsand debates on what are the

(42:02):
causes of that.
But that's immaterial at thispoint.
What matters is that we have alot of supply chain shortages
and that's what's causing theinflation-- it's the"too few
goods" part.
And of course other people willbring out some metric that they
pulled out from some randomstatistic from the Fed and say,

(42:22):
well, no, that's actually nottrue, because of this or that.
Look, we can debate all thedifferent statistics that you
want, but it's kind of likevoodoo fortune telling by
throwing the chicken bones on atrash lid, trying to tell the
future.
Because the statistics thatmatter, are the statistics that
are relevant to your citizens.
And you could look at householddebt, for example.

(42:43):
And that has actually beenpretty flat.
Despite this high rate ofinflation, household debt has
been relatively flat.
And even, we heard about thisduring the stimulus checks is
that, there were reports abouthow the stimulus checks that
came, most American householdswere using that to just to pay
down the already pre-accumulateddebt.

(43:06):
So if debt is not increasing...
You know, this was the thingback during the Clinton years,
was that household or private,whatever you want to call, it
was increasing, it was goingthrough the roof.
And therefore they had to raisethe interest rates to cool down.
And sure, you might remember,during those years, the Clinton
years, much to the chagrin of alot of GOP, they hate to admit

(43:27):
this, is that, you know, we hada field day in the economy:
everything was going amazing andgreat.
During those years, people wereliving on their credit card.
The bond traders on WallStreet...
'Cause my mom was working inWall Street, so she would have
all these stories about howthey'd be like comparing dick
sizes, they'd be comparing theircredit cards, and be like, oh
look, I got the Amex black card!Or it's like, oh no, I got the

(43:50):
visa! Well, I mean, it doesn'tmatter: if you got the Amex
black card, nothing beats that,but you know, everyone would say
, oh, oh, let me get the bill!Right?
Everyone was trying to one upeach other.
So when the restaurant billwould come, they'd be like, oh
no, I got it, I got it.
And they would like drop downtheir credit cards, like
flopping their dicks on thetable.
It's like, oh, look at mine! Igot visa platinum! Like, oh

(44:10):
yeah, well check this out, Bam!I got my Amex black card!
Because that was the wholecultural environment back then.
Private debt, real householddebt, whatever you wanna call
it, was going through the roof.
So of course, back then it madesense: you wanted to raise
interest rates to cool down theeconomy, because people were

(44:32):
spending like crazy.
But again, you look atstatistics now: household debt
has, in some sense in somemetrics has been decreasing
from, again, the story about thestimulus checks going towards
paying down debt, but justbroadly speaking, definitely in
the us and more broadly in firstworld is that household debt has

(44:52):
been relatively flat.
I mean, I say"relatively",because obviously it increase,
but it's the first world, ofcourse it's gonna increase.
We don't need to be littlepedantic about it there.
And of course, more importantly,business borrowing...
Because that's the other side ofthis, right?
Is you have the privateindividuals with their own
private consumption, but thenyou also have the economic
powerhouse of a country, whichis its businesses.

(45:14):
And business borrowing in recenthistory has been the slowest
it's ever been.
So you can see here that notonly from the private side, but
even from the business side, theeconomic growth has been slow.
And this is even despite allthose, you know, they made a
whole big fan fair, theDemocrats, about, oh look, we
passed this huge COVID reliefbill, and this is all great,

(45:37):
it's going to help businessesout and everything like that.
No, it didn't do shit, because,I mean, you can just look at the
numbers yourself.
It's that even without offeringof all these cheap loans for the
pandemic business, borrowing isstill at a, I shouldn't say all
time low, but as far as recenthistory is concerned, like last
decade, business borrowing is,we'll just call it, anemic at
best.

(45:57):
So raising the interest rates ona already flat private and
business debt metric is going todo little to no good.
And again, when you talk abouthow the fact that businesses
rely on low interest rates tofinance their operations, that's
only going to hurt the firstworld.
So again, the problem is noteasy credit, because we already

(46:19):
have easy credit.
Both households and businesseshave it.
So we do have this cheap andeasy money, which presumably
means that we have plenty ofmoney available in the economy.
But if we have all thisavailable money for us and the
economy is still slow, well thenthe only other option that we
have to consider is the supplyside.

(46:39):
Which of course makes sense,given the pandemic.
And everyone knows it, anyonetrying to buy a car or GPU, or
PS5 can readily attest to thefact that the supply chain is in
shambles right now.
And of course we can also gointo the fact about labor force
participation rates andunemployment.

(46:59):
Or more importantly,underemployment.
Because this is another way thatclassical economists will try to

get you (47:05):
they'll point directly at the unemployment rates and
completely ignore theunderemployment rates, right?
Because the people, especiallyin the United States, how a lot
of your benefits are tied tobeing employed, people are in
such a bad position right now,they'll just take any job they
can get their hands on, just sothey can get insurance or some

(47:25):
sort of other type of federal orlocal benefit.
And that doesn't mean thatthey're gainfully employed.
It just means that they are insuch bad conditions, that
they're essentially reduced towhat I would consider, you know,
one level above slavery or anindentured servitude.
So you should always be carefulwhen the economists say, oh,
look at the employment rate!Because unemployment rate is a

(47:47):
bullshit statistics, and youhave to look at the overall
labor market participationrates.
We can go into a separatelong-winded conversation on
difference between U3 versus U6unemployment, but that's a story
for another time.
So, the labor forceparticipation rate is down.
And then even in businesscircles we like to talk about

(48:07):
capacity.
There's this obscure statisticcalled capacity utilization
rate.
And that's been down by over 3%.
Capacity utilization rate isjust a fancy term, broadly
speaking, for your industrialsector.
And with that down, when we'retalking about supply chains,
because obviously those two areinexplicably linked together,

(48:28):
and that industry is veryreliant on supply chains, and so
when you have supply chainreductions or disruptions that
affects your industrialcapacity, and also from the
financial aspect of it, again,one of the biggest sectors that
are heavily reliant onshort-term financial
instruments, you know, shortterm loans and what have you

(48:50):
facilitating trade finance isthe industrial sector.
So the industrial sector beingdown by 3% or so, which doesn't
sound like much, but ineconomics terms, it's a big
fucking deal, as Joe Biden wouldsay.
It matters.
And we can't just blindly orarbitrarily say, oh yeah, let's
just raise the interest rates,because inflation is high.
There's a lot more that goesinto that number.

(49:13):
And it's not just aboutinflation, because inflation
inherently means two differentthings: too much money chasing
too few goods.
All these metrics that I justspent all this time ad nauseam
talking about, is pointing tothe fact that, Hey, we do have
enough money in the economy.
It's just that we have too fewgoods.
We need to increase theproductive capacity.
We need to increase the goods.

(49:35):
Anecdotally, Ronald Reagan wouldfamously say, oh, are you better
now than you were four yearsago?
Just go around asking people,how is their disposable income?
Most people would say that yeah,their disposable income is shit.
But can I really blame...
In some sense, you can't reallyblame the Fed for saying these
things, because they aremandated to stabilize the

(49:59):
economy.
They have the dual mandate ofmaintaining a low unemployment
rate and stable prices or asmost people would say, low
inflation.
So, not to sound cliché, but theold adage goes, if have a
hammer, then everything startslooking like a nail.
And the fed, they only have oneway, one effective way to

(50:20):
regulate the economy, and that'sthe raising or lowering of
interest rates.
Well, if the interest rates arealready at zero, there's only
one thing left to do and that'sto raise it.
So from their mind, obviouslythe only thing they can really
do is raise the interest rates.
And when you have theoriessaying, oh well raising interest
rates will lower inflation,well, it's an easy choice for
them.
Because when everyone around youis saying, oh yeah, high

(50:41):
altitude precision bombingworks, well then yeah, you're
going to follow.
It's easy to go on and follow onand say, oh yeah, we should
totally do high altitudeprecision bombing.
It takes a big man to stepforward and challenge the
prevailing wisdom to do what'sright.
With the Fed's dual mandatetheir job is to control and
affect monetary supply.

(51:02):
So the only thing the fed can dois affect monetary policy.
Which when we're talking aboutinflation being too much money
chasing too few goods, wellobviously they have no bearing
or no effect on the"too fewgoods" part, because they are a
Central Bank.
The only thing they can do isaddress"too much money" part.
So if you have inflation...

(51:23):
And in their mind again with thehammer and the nail analogy,
well the only thing that theycan see is, oh, there's too much
money in the economy, we need toconstrict it.
Or in other terms, too muchmoney chasing too few goods.
Well, too much money is thedemands part.
And too few goods is the supplypart.
So the only thing that the fedcan do is affect demand.

(51:44):
And that's why classicaleconomists always say, oh,
you've got to reduce demand toreduce inflation.
But the Fed, all they can do isaffect the demand side,
vis-à-vis, monetary policy.
The supply side, which is the"too few goods" part, can only
be affected by the actualgovernment in question, the

(52:04):
Central Government question.
And this is one of my mainproblems with classical
economists or specifically...
I shouldn't shit on allclassical economists, but a
major subset of them is supply side economics.
B ut supply s ide economicsmakes no sense, because...
I t's pretty much popularized byRonald Reagan, he was really big

(52:24):
into supply side economics.
But he also famously would saythat the problem with the
government is t he government.
He said said that the scariestwords i n the English language
to hear is"I am from thegovernment and I'm here to
help." Well, you can't say thatstupid quip and then also be a s
upply s ide economist, becauseas I just established here, the

(52:44):
only entity that can a ffect thesupply side is the government.
So you're either gonna have tobe a supply s ide economist and
pro b ig government, or say I'magainst big governments and I'm
going for the demand side.
Obviously it's a marriage ofboth, because it's a balance
between"too much money" and"toofew goods".
It's a balance between thedemand and the supply.

(53:05):
But the Fed can only do thedemand side, where it's up to
the government to address thesupply.
And if the government doesn'taddress the supply, well, the
Fed ends up taking control ofthe economy and the only thing
that they can do...
Again, I don't want to blame theFed, the Fed is just doing what
it's trying to do.
I mean, I actually, I can blamethe Fed.
They could just not do anythingand say, and actually educate

(53:28):
people, just educate the publicand say, look, this is not a
demand issue.
This is supply issue, butthat's, you know, regardless,
that's besides the point.
The point here is that if thegovernment abdicates its
responsibility in addressing itsown economy, well then the only

(53:48):
thing left to do is to rely on aCentral Bank, right?
And if you only look at themoney supply part and ignore the
productive capacity side, well,you end up just like Turkey,
where we just spent this entireepisode, talking about the gross
mismanagement of the Turkisheconomy by Erdogan, by the
Turkish president.

(54:08):
And in this case, especially inAmerica, I wouldn't say well, I
mean, I would say, the UnitedStates government has grossly
mismanaged the United Stateseconomy.
But in this case, it's not in amalicious sense as it is with
Erdogan, but it's just anabdication of responsibility.
Ever since George W.
Bush left office, we've had overa decade of political gridlock,

(54:31):
leading to the abdication of thegovernment's management of its
own economy.
Which has led to such a fragilestate of affairs for our
productive capacity and supplychain, that all it took was some
guy in China eating a bad bowlof soup to send, the world's
greatest economy into a completeand utter disarray.

(55:00):
But we can't just get on Twitterand start shouting at each
other, because a that's notgoing to help with changing the
discourse.
But more importantly, the pointhere being that lately the West
is starting to use, or theWestern politicians are starting
to use the economy as apolitical weapon.
Just like Erdogan has been doingso in Turkey.
I mean, again, this is the wholepoint.
The reason why we've had, we'veenshrined that Central Bank

(55:23):
should be independent, becausethe management of the economy
should be relatively independentfrom political squabbling.
Well, here, now we have it notnecessarily on the monetary
side, but definitely on thefiscal side, we've lost that
independence.
Or at least, I should say, thebipartisanship or coalitionship,

(55:43):
if you are European.
I don't even know if that's areal word.
But this is a dangerous path tobe on, as Turkey has readily
demonstrated, but we just can'tshout on social media to affect
this change.
So the thing about Curtis LeMayis that, okay right now, ex post

(56:03):
facto from a historicalperspective, we're looking and
talking about Curtis LeMay andhis career and the fact that he
had during World War II andsaying, oh my God, look at him,
he's such a genius.
And all the things that he did,he's such a great man, yadi yadi
yada.
But you have to remember that atthe time that this was all going
on, he was going against thegrain.
He was going against theconventional theory.

(56:25):
And as far as the economists areconcerned, he was in the
heterodoxy, as opposed to theorthodoxy.
And ultimately economics, aswell as military theory as well,
it's a social science and itimplies convincing or affecting
change with people.
And during the time of CurtisLeMay's career, he didn't make

(56:48):
too many friends.
As a matter of fact, he made alot of enemies.
And in retrospect, he wasproven, right, but of course,
people that were interactingwith him at the time, obviously
didn't know that.
And people did not like him.
And he made a lot of enemies.
And despite raising up to thelevel of Chief of Staff at the
Air Force, which is the highestposition that an officer in the

(57:11):
Air Force can achieve, he wasnot taken seriously by the
civilian leadership by thepresident.
And this was readily evidentduring the Vietnam war where
during the commencements of theVietnam war, after the Gulf of
Tonkin incident, basically, itauthorized LBJ, president

(57:31):
Johnson, to essentially carryout the Vietnam war.
Curtis LeMay was a big advocateof, okay, well, we basically got
to bomb them into the stone age.
There's a misattributed quoteabout him, saying that we can,
we're gonna bomb the NorthVietnamese back to the stone
age.
Of course, LeMay later on incertain interviews said,"No, I

(57:52):
never actually said that.
I just said, we have thecapacity to bomb them back to
the stone age", but you know,whatever, that's neither here
nor there.
But because he was so againstthe grain, he didn't follow
conventional theory, others inthe military leadership
convinced president Johnson,convinced LBJ, to go with what

(58:12):
we call a tactical bombing orbombing with fighter aircraft.
And obviously Curtis LeMay, hewas completely against this.
He would say, flying fighters isfun, but flying bombers is
important.
And nowadays military historianswould look at this and say, yeah
, it was pretty stupid to gowith fighters, because the whole
point of fighters is theiraerial maneuverability and

(58:37):
loading a bunch of bombs on themweighs them down and slows them
down, which negates the wholeaerial prowess of these
platforms.
And of course, we know allthrough history of countless
POWs during the Vietnam war ofhow many fighters got shot down
by anti-aircraft and anti-airartillery fire by the North

(58:58):
Vietnamese.
And despite his powerfulposition, and despite all his
success that he's had in hiscareer, the United States
essentially ignored the soundadvice.
I wouldn't call it advice withLeMay it was more like an over
demand.
But either way, the UnitedStates ignored the advice of its

(59:19):
highest ranking Air Forcegeneral.
And it wasn't until he retiredand about eight years and a
president later with RichardNixon in 1972, when finally
Nixon said, you know what, thiswhole piecemeal bombing that
we've been doing in the Vietnamwar is stupid with fighters.
Let's just bring in our bombers.
And this is a famous operationLinebacker, more specifically

(59:41):
operation Linebacker II, whichis a seminal moment in modern
Air Power history, because itshowed in a lot of sense that
the United States could have wonthe war if the Air Power was
managed properly.
So with operation Linebacker IIwe finally did strategic

(01:00:02):
bombing, which is what LeMaywanted eight years ago.
And only then did the NorthVietnamese capitulate, or I'm
using quote,"capitulate", andactually come to the peace table
and sign a treaty, which is whatwe wanted at that point, which
is what we wanted to do to endthe war and get out.
And even though LeMay was right,because of his blow hard nature,

(01:00:25):
people didn't listen to him.
The point here is, that beingright doesn't mean you're going
to be heard.
Being right and having the trackrecord the past performance,
showing that you're right,doesn't mean you're gonna be
heard either.
You know, as they say in WallStreet, you don't get what you
deserve, you get what younegotiate?

(01:00:46):
So who knows what would'vehappened.
This is a good historical"Whatif" scenario to kind of think
about.
You know, as Einstein would say,do the"gedanken experiment",
what would have happened in theVietnam war, had LBJ listened to
Curtis LeMay and actuallystarted with strategic bombing
from the get go.

(01:01:07):
Maybe United States would'veactually won the Vietnam war.
And this is the parallel that Iwant to bring back to the
current situation with theeconomy is that we don't want
the Fed to raise interest rateswith the assumption in that
raising the interest rates isgoing to combat inflation.
Because as we just explained,what in reality it's going to

(01:01:29):
do, is destroy the alreadyfragile recovery from this COVID
pandemic recession.
And what we don't want to be isjust like with Curtis LeMay, is
eight years from now say"I toldyou so".
So the challenge is being likeCurtis LeMay and taking the
theory and seeing how it appliesto the real conditions on the
ground.

(01:01:50):
But simultaneously, thechallenge is not to be like him
and actually be heard, so thatwe can avoid another eight years
of needless suffering.
If you would like to comment onthis podcast or on the topics
covered within it, or you'd likeus to raise a new topic in our

(01:02:11):
next episode, please feel freeto leave us a message or
voicemail on www.codbsm.com.
That's Charlie Oscar DeltaBravo, Sierra, Mike, dot com.
Thank you for listening and seeyou at the party, Richter!