 So the big story, I think, maybe the biggest story economic-wide this week was the fact that the Federal Reserve has changed its stance and it now recognizes that there is indeed inflation in the United States of America, and that it is something that it wants to combat, that it's not just gonna accelerate and let grow with no stoppage. By the way, questions, feel free to ask questions on a topic or anything else. I've got a backlog of questions on all kinds of topics here. Most of them are below $20, but from now on, if you could do $20 questions, we're in the last half an hour, do $20 questions so we can get to our goal of, which were about 220 or something like that, short of, $20 questions. All right, so the Fed announced that, yeah, it looks like surprisingly, shockingly, inflation is not just transitory, but it's actually real. So what they've done, inflation is Trump's fault. It's Biden's fault as well, but it's certainly also Trump's fault. Without those checks that Trump wrote to everybody and without his advocating for even more checks that Biden actually passed but that Trump pushed for, we wouldn't have inflation. Inflation is primarily a phenomena of the last year and a half, of the last two years of literally sending checks to people, economic quote stimulus, which has basically increased demand for goods while keeping people at home who are gonna supply it. So you've had a significant increase in demand for goods, for products, which is what writing checks to people does. Bush has his own place in hell. We don't have to go that far back. COVID is responsible for this round of inflationary pressure and this round of price inflation, price inflation that's widespread, that is infecting lots and lots of goods that is disrupting supply chains. That is all COVID related and there are only two presidents that can be responsible for that and that is Trump and Biden and neither one of them should get off the hook for that. Inflation is also a phenomenon. There's a whole physical theory of inflation which I think is interesting. That is the idea that as people, as markets look at, you know, as people look at the government deficits and government deficits growing and growing and growing, as they come to the conclusion that these government deficits cannot be paid for, that either the answer is either default or inflating them away, that's when people's inflation expectations rise and that's where you get more inflation. So a lot of this is the budget deficits and if you had to blame anybody for budget deficits, you'd have to go back to Bush, Obama, Trump in a big way and Biden in a big way. So again, past presidents leading up to where we are today and Biden right now with just spending plan after spending plan, trillions of dollars after trillions of dollars after trillions of dollars. The last time the United States had a balanced budget was Clinton 1999. Ever since then we've had ever growing deficits and the deficits under Trump were ever growing bigger than under Obama and I fear that they're gonna be even bigger under Biden and as a consequence of that, I think that's part of why we're seeing inflation. So two ways in which the Fed thinks it can deal with inflation, whether these actually will deal with inflation, big question mark. One is the stand away, raising interest rates and they are now promising that they will raise interest rates next year three times. Like inflation is happening right now, they'll raise interest rates next year, don't worry, they know what they're doing. They always do, they've got their formulas, they've got their equations, they know what they're doing so trust them. And then the second way in which they think they're gonna fight inflation is they're gonna stop buying bonds so they've been buying huge quantities of bonds and they promised that sometime in the first quarter of next year they'll stop buying bonds and they're gonna start slowing down buying bonds. Now, they're gonna slow down but they're still gonna buy bonds. Now what happens when you buy a bond? You're taking out a financial asset, a bond, out of a circulation, you're putting money in. Again, whether that's inflationary, how exactly that's inflationary is a real question, right? It's a real question. But they think it's inflationary or they think that stopping it is disinflationary. Now, it's interesting that they still bought I think $90 billion of bonds this last week so they're still going at a record pace. But notice this is typical government response. We have a real problem, inflation, year over year inflation that it's highest that it's been since 1982 and it's not just the consumer level, it's at the producer level as well. There's real inflation out there in the economy and it's rising and it's rising faster than what economists and people at the Fed and people in government are expecting. So this is worse than anybody expected, anybody in government expected. And what is their response? Well, instead of raising interest rates in 2023, we'll raise them in 2022 and early on in 2022, at some point in 2022, we're not promising exactly when we'll stop feeding the inflation by dumping more and more money into the economy. It's truly stunning. It's like the FDA, when they gave emergency authorization to the vaccines, they said, yeah, this is an emergency we'll figure it out really, really quickly. And then they kind of went away for three weeks to make up their mind, even though they had all the data and three weeks later said, yeah, yeah, okay, we'll authorize it. How many people would have been saved just in those three weeks if their vaccines had been available? It's just the whole attitude of government is, just wait for us. We'll deal with it when we need to. And the Fed is basically saying, we don't know if we really believe in this inflationary stuff. We don't know exactly how to deal with it or we don't know that we need to deal with it right now. We're a little afraid to raise interest rates because we're afraid that the market will drop and indeed the stock market today, NASDAQ was down like 2% today and people are thinking that it's partially because of worries about, well, the Fed is gonna squeeze the amount of money and raise interest rates. It's not good for stocks. So maybe what the Fed is doing is testing the market and if the market responds really, really negatively, then they won't do it. This is what Paulson did in 2018, went for a while, he said he was gonna raise interest rates and Trump told him, don't raise interest rates really, really bad. And stock market went down, so he backed off and he didn't raise interest rates. Maybe he's doing the same thing. He's talking the talk to see how the market will respond, trial balloons, whatever. Is the Fed really committed? Is the Fed really interested in engaging in dealing with inflation? Is it willing to suffer the consequences? Is it willing to see interest rates go up high enough to quash inflation but also raise the cost of borrowing for the government when it's running such high deficits? I mean, the consequences of not doing anything are horrific because we're gonna get higher and higher inflation. The consequences of actually doing something serious about it are horrific because we could really have a deep recession and the government spending is just gonna spiral even more to control because of the interest payments that they would have to make. And that would only potentially make the recession and potential inflation even greater. That's a disaster. I think what the Fed is trying to do is do something soft, not to have too much impact on anybody. How's that gonna work? Well, we will have to see these predictions, predicting these kind of things is really, really, really difficult and really tempting to make big, bold pronouncements about them. Very difficult to be right about those bold pronouncements around them. But I see inflation, what is it now, six to 8%? I see that sustaining and staying with us for quite a while. I don't see forces out there that are gonna reduce this inflation. The fact that wages are going up significantly is, again, a sign that the inflation is throughout the economy. It's not just asset inflation. It's not, for example, just stock market going up. And as the Fed starts raising interest rates to try to deal with price inflation, you might see markets come down significantly. Markets don't like higher interest rates and they're not used to higher interest rates. They've gotten used to zero interest rate environments. It'll be very interesting to see how it all plays out. All right. Do you think we should cheer for Brandon? No, I don't think we should cheer for Brandon. I don't think we should cheer for Biden. He is an awful president. He was always going to be an awful president and he's living up to our expectations. Shay asks, what precisely is inflation? Money supply increasing? Could you have goods cost increases relative to what? Something else? People argue metrics without even defining what it is to be measured. Yeah, I mean, that's a great point, Shay. And Shay, it's a tricky issue. Traditional inflation has been increasing money supply. The problem, I think, in the kind of financialized world in which we live, in a kind of world in which we live where money is so fungible, everything's electronic, and there are lots and lots of money substitutes. And money flows in and out of countries at a blink of an eye, and it's constantly flowing. It's very, very difficult to figure out what the money supply is and whether it's increasing or not. So superficially, all of us thought that the money supply was increasing during the 2008-2009 financial crisis when the Fed went on this massive buying spree of assets. But by many measures, the money supply did not increase. And that's why you could argue there was no inflation. So there's no consensus around what a good measure is for money. Now, we know that with gold, what it is. But in this world in which, particularly now that we have 0% interest rates, with zero interest rates, government bonds, particularly ones that show duration government bonds with less than one year treasury securities, are they money? At zero interest rates, they serve as money. They function like money. Are they not money? So when the Fed buys treasuries and issues currency, is it really increasing the money supply when the treasuries want money before and the new money is money in? So it's very, very difficult today to figure out exactly what money is and to measure it and to know whether we're increasing supply of money or not. M1, M2, M3, modified M3, there used to be an M4. Which one is right? Which one actually reflects anything? And are any of them right? Maybe the real measure of money is different than M1 and M2. I mean, I wish Milton Friedman was alive today and to comment on this and to help us out. But I think even he was surprised sometimes by the lack of inflation. Because even he, I think, lost sight in a financialized world of what money is. But in particular, in a zero interest rate environment, that becomes even more difficult. Gold is not a good reflection. Because gold is a speculative asset. It represents the market's anticipation of inflation. Not what inflation is right now. So gold went up a lot last year in anticipation of inflation. Now that we have it, it's flat. It's basically saying, OK, it's priced in. The inflation we have right now is priced in. We're not expecting even more inflation. Maybe. But gold is also heavily manipulated by big buyers, including governments. Hard to tell what the price of gold is actually reflective of. The way most people talk about inflation is the way the Fed talks about inflation. And that is the rise of consumer goods. And as measured by the CPI, or by the adjusted CPI, or by CPI minus, I don't know, volatile food and the food index or whatever, it's your cost of living. It's your cost of living gone up or down. It's what you pay for stuff. Now, those of us who understand how money works, that's one way in which monetary inflation gets reflected. It's not the only way. You could have malinvestment misallocation of capital. You can have asset bubbles. You can have all kinds of ways in which prices change in distorted, artificial ways that is not the price level in the entire economy going up. But certainly the price level in the entire economy going up is one form of inflation. And that's the form most people are familiar with. That's the form most people talk about. That's the form in which the Fed is discussing right now. That's what we say is up 6% to 8% or something like that. It's that kind of inflation. It's cost of living. So that's what most people mean by it. And whether the Fed can lower that is very hard to tell. It can, but whether it has the courage, the foresight, the knowledge to actually do it, I don't know. I don't know. And again, a lot of it has to do with how do we measure the money and do we have a good sense of what kind of levers we have to decrease it? Is the cost of living going to go up by significant amounts, by over 2%, let's say, a year long term? Right now, it looks like it's going up. 68%. How much is it going to go up in a year in five years and 10 years? Well, if you look at the markets, it suddenly looks like the markets don't believe it's going to go up at all. They believe the Fed will crush this inflation and it's going to go away completely. But so the bond market, if you look at 10-year bonds, 30-year bonds yields are very low. And that suggests that the markets don't believe inflation is going to be very high. Well, the more wages rise alongside, first of all, they usually don't keep up with prices. But secondly, it's long-term distortions. And a big part of inflation is its unpredictability. And the problem that creates is planning. How do you plan for the future? I mean, this is Michael Ali has the question, how does a young person in this decade build long-term wealth in the face of inflation eating away returns for investing in the market? Well, you invest in the market because the market will keep up with inflation for the most part. But the problem is companies have a hard time with inflation. Because how do you plan into the future? How do you make capital allocations decisions? How do you decide whether a project is worth investing in or not? What interest rates do you use? Do you look at the bond market, which says there's not going to be inflation at all? Or do you look at inflation right now and you price that under that assumption, a lot of projects are less profitable? But it's the uncertainty. If I could predict inflation every single year into the future, what markets, what's good for the economy, what's good for economic planning at the corporate level is a predictable prices, predictable future, at least in that dimension. The more uncertainty, the more difficulty there is for businessmen to plan. That's the real danger. Thank you for listening or watching the Iran book show. If you'd like to support the show, we make it as easy as possible for you to trade with me. You get value from listening. You get value from watching. Show your appreciation. You can do that by going to iranbookshow.com. I go to Patreon, subscribe star locals, and just making an appropriate contribution on any one of those channels. Also, if you'd like to see the Iran book show grow, please consider sharing our content and, of course, subscribe. Press that little bell button right down there on YouTube so that you get an announcement when we go live. And for those of you who are already subscribers and those of you who are already supporters of the show, thank you. I very much appreciate it.