6-18-24 *INTERVIEW* Economist Brian Wesbury Talking the Dollar, Inflation, and the Fed

Episode Transcript

(00:00):
My old friend, and I domean old Brian Westbury. He is chief
economist at First Trust Advisors First TrustPortfolios. And one of the things I
like to say about Brian seriously,So, there are a lot of economists
out there who work as professors,and I like a lot of them,
and a lot of them are verysmart, and a lot of them get

(00:22):
things right, you know. Butwhen there are people who are prognosticating about
the economy specifically, like, youknow, are we gonna have a recession
or not? What's the stock marketor bond market going to do? You
know, folks like that can makeany kind of prediction they want with no
repercussions. They don't really win anythingif they get it right. They certainly
don't lose anything if they get itwrong. Meanwhile, Brian is in charge

(00:43):
of doing economics for First Trust thathas how much money under management now,
Brian about two hundred and thirty billiondollars, right, So Brian really has,
you know. And Brian has hisown money in these funds and in
First Trust investments, in addition tohaving the responsibility, the fiduciary and ethical

(01:03):
responsibility to his clients to try toget it right. So Brian is an
economist where it actually matters to himand to his people if he gets it
right. And he's been named bythe Wall Street Journal as one of the
most accurate economists in America. AndI just love talking to the guy too.
So with that super long introduction,welcome back to the show. Brian.
It's good to have you Ross.It's always great to be with you.

(01:26):
And yeah, we've known each otherfor a long long time, going
all the way back to Chicago,and so it's always a pleasure to be
with you. So you know thatI'm pretty good at economics, Brian,
and I can answer a lot ofeconomics questions for my listeners. But there's
an area that I really I feellike I'm not strong on, and listeners

(01:46):
ask me about a lot, andthat is the dollar, is the world
reserve currency, and the question ofpotential d dollarization. And I think I
sent you a link to this article. The most recent thing in all this
about Saudi Arabia letting an agreement expirethat has dollars as the only source as

(02:06):
the only currency for settling transactions inoil with Saudi Arabia. So that's no
longer true. So just let's startwith the macro, the big, biggest
macro. What is a reserve currencyand what has been the dollars global role
there? And then we'll talk aboutpotential changes. Yeah, you know,

(02:28):
so a lot of this hits thekind of it hits the wires, if
you will, or people's nerves,because we remember, I mean, I
don't think anybody remembers it, youknow, to the day or anything,
but that the British pound used tobe the world's reserve currency and then they

(02:49):
just failed. The sixties seventies,eighties were a disaster and they finally lost
their reserve currency status and a lotof people think, you know, that
was kind of the end of Britain. I think if we look at Britain,
we have to realize that it wasn'tthe end, and so and and
and so. To come back towhat is a reserve the world's reserve currency,

(03:15):
It is the the currency that peopleI don't want to sound like Kamala
Harris here, the people around theworld choose to do business in and and
that's the key. You can't forcethe reserve currency status of your currency on

(03:37):
anyone. What what you what whatmakes a reserve currency that important is that
people choose to do business in itbecause they trust it, because they trust
the accounting of the country that issuesthat currency. Uh, because they trust
that that currency will hold value overtime and that they can use it anywhere

(04:03):
in the world. And so that'swhat makes a reserve currency. And then
I'll just add real quick, andI'm probably getting a little bit ahead of
you here, but the United Statesis not strong as a country because we're
the world's reserve currency. We're theworld's reserve currency because we have strength,

(04:28):
and I mean the constitution, therule of law, a good accounting system,
and the value of our currency.It's not as good as let's say,
bitcoing in our gold, but it'sbetter than most currencies in the world.
What are the benefits and costs ofany to a nation for having the

(04:51):
world's reserve currency. Yeah, soreally there's only benefits, and that is
that we can issue debt or youknow, if you think of a hundred
dollars bill, it's it's like issuinga bond with no interest. So we

(05:11):
call it seniorage in other words,in other words, we can print all
these hundred dollars bills. Drug dealerseverywhere use them for example, but so
do people doing legal things around theworld. And as long as they hold
them outside of the country, we'venow in a sense have their resources at

(05:34):
our disposal with without having to payinterest. So it's it's called seniorage and
that and that's a benefit. Theother thing is our debt, even though
yes, we have a lot ofit, and people get worried about that,
but people will buy it because theytrust that we will pay it back.
We're not going to default on thatdebt, and and so it just

(05:57):
it makes the finances of our countrya lot easier. Now I would take
this opportunity just to say that,hey, Hong Kong was one of the
most vibrant economies in the world fordecades, and it wasn't the world's reserve
currency. It did not have theworld's reserve currency. So you don't have

(06:18):
to have or be the world's reservecurrency to be strong. You don't have
to And so that's one of thereasons I kind of encourage people not to
worry about this too much. Butthat's just one thing I think people should
remember. So it sounds to mea little bit like you're beginning to make

(06:41):
excuses for the United States if welose the world's reserve currency status, and
I and and I guess what Iwould say is or what I would ask
is and maybe we can talk aboutthis new currency group, the bricks,
right, and the fact that SaudiArabia just did this thing. Do you
think there's a perception in the aggregategoing around the world that maybe because of

(07:04):
our terrible political leadership over the lastmany years or for some other reason,
that maybe the US isn't that stronganymore, and maybe we will lose the
reserve currency because we are perceived asnot so great anymore, and that could
be a significant problem. Yeah.So, so, just to be clear,

(07:30):
you are your observation isn't wrong inthe sense that i'm But but I
would argue, I'm not making excuses. I don't think we're going to lose
our reserve currency status. I don't, not in my lifetime and not in
my kids' lifetimes. And the reasonI would argue that is that no,

(07:54):
we're not. We have made mistakes. Our government is bigger than it has
ever been. In fact, it'sabout the size of the UK's the United
Kingdom before they lost their reserve currencystatus. We have inflation, We have
lots of debt that interest costs arebigger than our defense budget. You know,

(08:16):
all of these things are happening,no doubt. I could sit here
and rip off a hundred things thatare that we're making mistakes with this country,
and we're undermining living standards and potentiallyleading us to lose the reserve currency
status. So having said that,I could also list one hundred things that

(08:39):
are really unbelievable, and that is, there's no other country in the world
that has an Apple and a Googleand a Tesla and Anvidia, and we
are still leading the world by milesin terms of technology and the growth of
technology in the world. And soyou put all that together, Yeah,

(09:01):
we're making mistakes on the government side, but at the same time, because
of the constitution and free markets andpatents and all of this legal system that
we have, we still have thegreatest technology in the world and we're and
we're we're we're pushing the world forwardin that way. So put all that
together, and it's kind of amosh pit for America. I don't think

(09:24):
it's enough to lose reserve currency,but I get that people are worried about
it. The second thing I wouldsay is that if you want to become
the world's reserve currency status, youhave to be free. Saudi Arabia,
Russia, China, Brazil, SouthAmerica or South Africa. These countries are

(09:48):
not free. These are I don'ttrust their accounting, I don't I don't
trust their their their currencies. Idon't trust their laws, their constitutions.
I don't trust any of that,and neither does the who cares what I
believe the financial market's done, becauseif they were already strong enough. When

(10:11):
I use the word strong, it'snot just economics, it's institutions as well.
If they were, if they werethat strong, they would already be
the world's reserve currency. There's onlytwo countries right now that I think could
become the world's reserve currency, Numberone Switzerland, all right, Why because
they manage their monetary policy, theirand their economy extremely well. Their trustworthy,

(10:39):
they have the rule of law,they're a democracy. But they're too
small, it's too small of thecountry. They can't put out the trillions
of dollars that the world demands,the trillion, the trillions of dollars worth
of the currency the world demands.The second one is India. It's the
most populous country in the world.It populous country in the world. It's

(11:03):
democracy, it has the rule oflaw, and as a result, it
could grow into the world's reserve currency. But they are a long way,
a long way from that. Oneof the other things you have to be
is wealthy, and they're just notthere yet. And so those are the

(11:26):
only two that I see that coulddo it. One's too small, one's
not growing up. And no,okay, last quick, give me a
quick answer on this, and thenI want to move to some other things
within this concept of what we're talkingabout regarding the US being the center of
things and people trusting our currency andso on. What do you make of
the fact that bitcoin recently traded seventythousand, it's around sixty five thousand right

(11:50):
now, and that gold has madenew highs, it's backed off a little
bit. Silver's up a lot,I mean a lot of things that people
normally buy when they don't trust currenciesare up a lot. And of course
currency is unlike for example, theprice of IBM, currency is are always
compared to something else. The dollaris strong compared to what right, IBM

(12:11):
is either strong or it's not.But the dollar is strong compared to what
and these other things are kind oftelling us like whoever these people are who
are buying these things, they don'ttrust the US dollar. They also don't
trust anything else. Yeah, andI think there's two reasons to not trust
the dollar. Number one, yeah, yeah, maybe we default on our

(12:33):
debt or something like that. Likeyou could argue it's a credit issue.
It's a world reserve currency issue.It doesn't owning the dollar. You can't
use it to buy stuff or something, all right, that's one. Number
two is just inflation. And wehave inflation. We printed too many dollars

(12:54):
and that's why gold has soared fromI mean back into thousand was four hundred
bucks an ounce. Now it's twentyfour hundred or twenty three, twenty two
or whatever. We're close to thatand so and by the way, if
you made me king, like Iactually like making fun of this, if

(13:15):
you made me dictator of monetary policy, I would move the bitcoin or gold.
I would certainly not keep the FEDthe way that it is today with
all these abundant reserves flying around.But people are you know, if you
look at the way the FED haschanged the way it manages monetary policy.

(13:37):
It did it in two thousand andeight. It has flooded the system with
deposits and new money like we've neverseen before in history. The amount of
cash that they have pushed into thesystem, it worries me, clearly.
It worries people other than me,because they're buying gold and bitcoin. And

(13:58):
so if we were to, bythe way, if we were on a
bitcoin standard, now you know,we know they've lost and we can get
into millions of discussions about this,but you could only have twenty one million
of them. You couldn't have donequantitative easing, and that would be a
better world. That would have beena better world. I don't think we

(14:18):
should have ever done quantitative easing.And that's what that has people worried.
So it's not necessarily just losing reservecurrency status. It's the fact that we're
abusing money, and that's what leadseventually to the inflation, to the erosion
and the value of a currency thatthey can cause it to lose its reserve

(14:39):
currencies. Okay, so let's switchgears, and we only have a few
minutes left, and this next questionI actually know the answer to but the
listener I'm going to ask on behalfof probably doesn't believe me. So I'm
going to ask you. I havea listener who is fond of texting me
and clearly comes from the center leftor the left, and believes that inflation,

(15:01):
the inflation that we've had in theUnited States of America isn't so much
inflation as it is corporate greed.So what is the argument to prove to
someone who is biased to dislike companiesto begin with? And by the way,
I do think companies are profits seekingand that's fine, But what is
the argument? How do you proveto someone that the price increases, the

(15:24):
inflation that we've seen is not causedby corporate greed. Yeah, well,
number one, you have to youhave to understand economics and basically Freedman,
Milton Freedman, and it's it's it'spretty simple. The only way a dollar
can become worth less is if youprint too many dollars. Corporations is like,

(15:52):
great, let's use the word greed. I don't think it's as bad
as everybody wants to make the word. But they're always greedy. They Why
if you produce something who doesn't wantto sell it for the highest amount of
dollars that they can get for it. Everybody does. And and so you

(16:15):
know why didn't we have inflation duringObama or Bush or Trump? But only
under why So so all of asudden corporations became greedy like all of a
sudden Like no, they they're alwaysgreedy. The thing is, they couldn't
raise prices when the Fed wasn't floodingthe system with new money, and now

(16:41):
they can. And and here's thepoint. I would argue that your your
pizza does not cost more, yourpop tarts don't cost more. That What
is true is your dollar buys less. And the reason your dollar buys less
is because they printed to many ofthem. If we traded corn for everything,

(17:06):
and it costs you want bushel ofcorn to get a new tire for
your car, and then all ofa sudden, we have a record crop
of corn, and guess what,Now it costs a bushell in a quarter
to buy a tire for your carbecause we didn't have a record crop of
tires. So the point I'm gettingto is the reason the dollar has lost
value versus goods has nothing to dowith greed unless you want to call it

(17:32):
government greed because they printed money sothey can spend more. Okay, very
quick, I've only got about aminute here as a follow up on this,
and I'll play Devil's advocate for asecond. But it is true that
corporate profits went up a lot throughthis. So do so are you still
saying, even as you, assomebody watches all this, knows that corporate

(17:55):
profits are up a lot, you'restill going to say that corporate greed has
nothing to do with the price hikesthat we've seen. Yeah, I'm absolutely
going to say that corporate profits areThey're driven by a whole bunch of different
things. One of them was thefact that we held interest rates extremely low
zero for nine years out of lastfifteen. So guess what corporation's interest expenses

(18:19):
were? Nothing? The same time, you know, every new AI chip
that you know, I don't eventhink you can call them chips anymore.
These are massive things that Nvidia produces. They make higher profit margins on and
and you could argue that they shouldcut those profit margins, but people are

(18:40):
willing to pay it. And thereason is the return from investing in one
of those is higher. So soyou know this is the interesting thing about
the government's actions during COVID is supposedlythey were designed to help inequality. Fix
inequality because COVID affected you know,certain groups more than other groups, So

(19:03):
we're going to fix that. Well, what they did is they inflated the
value of assets, whether it bestocks, or income to corporations, or
the value of a house. Soif you own assets, yeah, your
profits are going to go up,your net worth is going to go up.
If you don't own assets, inflationundermines the value of your undermines your

(19:26):
living standards, indeed, and soit hurts the poor people most. Inflation
hurts poor people way more than ithurts rich people. Yeah, absolutely,
because rich people have assets and inflationdrives up the value of those assets.
Now, one thing I would remindpeople is your house may may look like

(19:48):
it may it may look like it'sworth more, but don't forget the dollars
lost its value. So you cansell your house make a profit like on
paper, but you can't buy anymore cars because cars cost more now.
Brian Westbury is the chief economist atFirst Trust Portfolios ft portfolios dot com.
This is linked on my blog.Brian and his team write brilliant economic analysis

(20:11):
pretty much every day, or atleast every workday, and it's most of
this stuff is half a page longin plain English. Anybody can understand it.
It's absolutely free and you will learna lot. So go to my
blog at Rosskaminski dot com and findthe link there, or go to FT
portfolios dot com and navigate your waythrough to Brian's blog and sign up for
the daily emails that he and histeam do. It's so good to talk

(20:33):
to you again. It's been toolong. I look forward to seeing you
when you're when you're back in Denver. Absolutely Ross, great to be with
you. Thanks Brian. Great,great