Mortgage Payment Factors & Inside Job, The 3rd Pillar & Fault Lines By IMFs Raghuram Rajan

Jason Hartman beings the episode with in-house economist Thomas discussing the things that impact your mortgage payment when you first get your loan. While some of this is pretty straight forward and common others don’t stand out as much. Later on the show, Jason hosts Raghuram Rajan, former Governor of the Reserve Bank of India and former Chief Economist and Director of Research at the International Monetary Fund (IMF). They talk about weakening communities leading to an imbalance with markets and governments. Then they look at jobs being automated. The discussion moves towards mortgage rates and inflation.

Investor 0:00
What I’ve learned is is you like to mention be area agnostic is one of your commandments and that I love that I like to look at this is also be when it comes to real estate investing, be age agnostic, who cares what age you are, you can start doing this in 19 like you did, you could start doing this 20s you can start doing in your 50s I started my 50s

Announcer 0:23
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:13
Welcome to Episode 1154 1154. This is your host, Jason Hartman. And today we’ve got a great guest. We’ve got the former chief economist at the International Monetary Fund, otherwise known as the IMF. He was former governor of the Reserve Bank of India. He was prominently featured in the Oscar winning documentary inside job you probably all saw that and named by Time magazine is one of the 100 most influential people in the world. So we’ll get to that interview in a moment. But first, I’ve got our in house economist, Thomas here. He is working on a survey that I think all of you will be very interested in, which is sort of a scorecard of linear, cyclical and hybrid markets. And hopefully we will make this a standard and do it every year where we just kind of keep score as to how each of these three categories of markets are doing that will help guide us in where we should be investing in income properties. Thomas, welcome back. How you doing? I’m doing well. How are you? Good, good. I’m looking forward to seeing you at meet the masters of income property this weekend, talking about a lot of good stuff there. And I’m also looking forward to your report that I just mentioned, on the three basic types of real estate markets. But today, before we get to our guest, let’s just talk a little bit about mortgage payments, and what really affects mortgage payments. You know, of course, we talk a lot about inflation induce debt destruction, and how that impacts your mortgage over time and what a beautiful thing that is basically inflation pays off your mortgage for you, but what affects the payment that you get when you get the loan, right. Things like credit score, etc.

Thomas 2:53
Yeah, lots of things affect the mortgage payment inflation in that it affects the 30 year mortgage rates. The credit score, the loan amount, the loan term, the downpayment, whether you do a fixed or adjustable rate mortgage, what type of loan? Can the bank resell the loan? The location, the Federal Reserve’s money supply decisions can affect the mortgage payment competition in the market for supplying mortgages. You know, sometimes even the weather can affect the mortgage rate.

Jason Hartman 3:23
Talk to us about the weather for a moment. curious about that one.

Thomas 3:26
So it goes along with when there are dark, gloomy days over the city of New York, research showed that the stock market generally performs poorly. It’s not by a large amount. Yeah, this little differences in large, but a small thing. And so,

Jason Hartman 3:41
you know, that’s really interesting, because you’re right, of course, I mean, this impacts people. I mean, I totally noticed this. When I moved to Arizona in 2011. I left the Socialist Republic of California to move to Arizona cut my tax rate state tax by 69% by crossing the border into Arizona. You know, I couldn’t believe that Thomas, how happy and cheerful the attitude was in Arizona not to say that it’s terrible in California. It’s not people are fairly cheerful. But you go to more northern climates where it is gloomy. And, you know, you look at suicide rates you look at, I’d say overall optimism toward life, whether people are kind of closed up or open. How much clothing people wear on their bodies influences their mood. This is real, isn’t it?

Thomas 4:31
Yeah, we live in a human world. Yeah. And it’s not just driven by numbers,

Jason Hartman 4:34
right? Absolutely. And for you and economist saying that is pretty impressive. Definitely, the credit score, the credit history of the borrower certainly affects the interest rate to get a loan. This is kind of obvious. But what may not be obvious is there are a lot of new credit scoring models that are starting to really become popular the old standard the FICO score is Possibly waning, I think. And I think that is a good thing. You know, the world of big data really keeps about, you know, I’ve heard about 1000 data points on any one person. And there are lots of little things. And I’ve talked about this before, that influence the repayment and the performance of loans. For example, let me give you a really weird one. They have noticed over big statistical samples, that people that fill out loan applications for whatever type of loan by hand, people who write in all capital letters have a higher default rate than people that write in upper and lowercase letters. Isn’t that interesting?

Thomas 5:46
Oh, when I heard that, that made me think I better start writing sentence case I I’m the type of person that writes all uppercase. Oh, my gosh. So you look you’re the type of person where now you don’t send me emails like that where you’re It looks like you’re yelling at me.

Jason Hartman 6:01
So thankfully you, you do use the shift key on your computer, right? But

Thomas 6:05
yeah, yeah, just when I’m writing by hand, I use uppercase. And

Jason Hartman 6:09
that would be bad for me. It’s really interesting. You know, I’ll tell you, I did a strategic defaults during the last great recession. And I talked about that extensively on the show and my live events and so forth and interviewed many guests who talked about that, and it’s something I would have never considered doing before the last great recession, but I kind of thought, look, you know, the banking system has screwed over the American public, about 12 million people give or take to some form of strategic default. And they did it because the banks told us to do it to get a loan modification right. And so my always very high for all my life credit score took a little bit of a hit. And what was interesting about that is I didn’t really apply for any financing for a while, but if I did, they don’t know I’ve got a couple million bucks in the bank, they don’t know that I’ve got a ton of equity in real estate. They don’t know that I’ve got a bunch of businesses, they just know my FICO score, like how would that be a very accurate way to decide the risk of a borrower? It’s just an incomplete assessment of a borrower. The FICO score is just not enough. Is it?

Thomas 7:23
No, I completely agree. I’m a little bit on the other side of it, where I worry, I try to keep my information out of big databases. Right. You know, it’s hard.

Jason Hartman 7:32
Yeah. Well, if you’re, you know, like, if anybody’s a Dave Ramsey follower, who, you know, it’s fine for people who are lower middle American, Dave Ramsey, has a great message, you know, get out of debt, because all of their debt is bad debt, usually right. Now, you know, for more sophisticated people than the Dave Ramsey audience. You know, we say get into high quality, fixed rate investment grade debt attached to good income properties. It’s a fantastic wealth creator, but, you know, he would say your FICO score should be zero because you shouldn’t even have a credit profile. He’s like, just get out of big data completely. So yeah, if you’re playing that game, your credit score isn’t going to be good either isn’t,

Thomas 8:12
oh, I have credit scores. Yeah.

Jason Hartman 8:14
Yeah, you gotta have one, right. But I’m saying there are some people who have completely, at least attempted to get off the grid. They don’t even have a file, or, you know, there’s like, no data. And a lot of these people are pretty out there. They’re sort of survivalist mentality, right? But the FICO score isn’t gonna say anything about them, and they could be a fantastic risk, you know, like a really solid borrower. But, you know, again, they don’t apply for loans because they don’t believe in the system, right? They’re just opting out generally, but yeah, that’s interesting. The other thing obviously, is the loan to value ratio. So the loan to value ratio, the more skin in the game, as the saying goes, you know, the more money the borrower puts down, the lower the risk for the lender. So generally, the lower the interest rate, same as With a loan term, if you get a 15 year loan, rather than a 30 year loan, you’re going to get a lower rate on that 15 year loan. But interestingly, if you want to take advantage of what we call inflation induced dead destruction, that may not be worth it, it may be a better deal to take a slightly higher rate and get the longer term, because there are so many advantages to it. That’s interesting. And, you know, it’ll be interesting Thomas to see if we move into an adjustable rate market in the future. If we see probably, you know, it’ll be after the next presidential election. But if we see rates climb, a significant amount, we may be actually recommending that people look at adjustable rate mortgages, which we haven’t done in 15 years because the fixed rates have been so good, but do you have any thoughts about that?

Thomas 9:50
Well, I’d be surprised if we shift to more of an adjustable rate mortgage world, it seems to me with the presidential candidates that are on the opposite. Aside of the current administration, they they’re more low interest rate. pushers than Trump is, you know, with this modern monetary theory of

Jason Hartman 10:09
mmt is the much debated mmt.

Thomas 10:13
You can pretty much do whatever you want, and it doesn’t matter as long as your debts in your own currency.

Jason Hartman 10:19
You know, Thomas, I gotta ask you about that. And we’ll do another show about it. I would have to think that you are not a believer in mmt, right.

Thomas 10:27
I’m not

Jason Hartman 10:28
me. Me neither. I think it’s immature. And it’s like fantasy land. Adam, who’s been on the show many times, of course, he he seems to be a believer. So you know, we’ll, we’ll see. But I don’t I don’t think mmt is legit. Do you? Warren Buffett doesn’t think it’s legit either.

Thomas 10:46
I don’t know how it could be. I mean, it just searches

Thomas 10:48
a fantasy land.

Thomas 10:50
As soon as a buyer of US currency starts to think that, hey, these guys are just going to inflate their way out of it. Yeah. Why would anybody want to buy A treasury bond.

Jason Hartman 11:01
I couldn’t agree more. I couldn’t agree more. By the way, as you were talking, I just looked up my credit scores now 757 60 and Experian, which was always the lowest one, and I can’t figure out why 715 so 720 is that mark where you’re very good. And if you’re over 740 here, excellent. So excellent credit, you know, so maybe I should go borrow some money. I should go borrow some more money. I love that. As long as it’s attached to good properties, no, no consumer debt folks, no consumer debt, just debt attached to good properties. But yeah, well, we’ll talk about the mmt more, and then, you know, the type of loan, obviously, loans on income property or well, real estate in general, are the best loans available because it’s such a secure piece of collateral for the lender. Okay, you know, last great recession notwithstanding, it’s still just a very, very secure thing. So good stuff. Yeah. Thanks for talking to us about this today. Any final thoughts before we get to our guest? No. All right. Remember Meet the Masters live stream Tickets are available at Jason slash masters. If you’re local to Orange County, California or Southern California, you could still buy a ticket actually for the live event. I think as of yesterday, we had exactly five seats left. Exactly. Because that’s it for that hotel on the fire marshal. No more VIP tickets. Those sold sold out a few weeks ago. But general admission I think we got five seats left as of yesterday, and livestream tickets you can watch anywhere in the world. Jason slash masters. Let’s go to our guest and let’s learn more about the IMF and this is a really interesting interview. So here we go. It’s my pleasure to welcome Robin Rajon. He is the former chief economist at the IMF The International Monetary Fund, former governor of the Reserve Bank of India, vice chairman of the bank for internet National settlements feature prominently in an Oscar winning documentary inside job maybe a lot of you saw that I sure did. And named Time Magazine as one of the 100 most influential people in the world. He’s a New York Times bestselling author of fault lines, how hidden fractures still threaten the world economy. And his newest book, The third pillar, how markets in the state leave the community behind raga. Welcome. How are you? Very well. Thanks for having me. It’s good to have you coming to us today from Chile. Chicago, is that correct?

Raghuram Rajan 13:31
That’s right corner. Okay,

Jason Hartman 13:33
fantastic. Well, a lot of people would probably love to ask this maybe seemingly silly question. I’m going to ask it on their behalf. And on my own. What exactly does the IMF do?

Raghuram Rajan 13:46
Well, it’s the lender of last resort for countries. So when a country finds that it’s in trouble, the financial markets aren’t buying any of its sovereign debt. And it really needs money to fund inputs so that people can eat and live reasonably. They go to the IMF, the country goes to the IMF and says, look, the markets have closed out to us. We have problems. We understand we need to fix them. We need to bring in our fiscal deficits. We need to spend less, tax more, but we need breathing space. Can you lend us some money for that period? And the IMF then comes in, takes a look and says, Okay, if you do doesn’t such actions, we will lend you the money. And typically, this gives countries some breathing time so that the populations don’t suffer terribly during that period. Okay. So what is the difference between the IMF and the World Banks in the IMF is supposed to lend to countries for short term, what is called balance of payments problems, that is when you run a large trade deficit, which you need to finance. The World Bank is more for large projects. So if you want a hydroelectric dam dam in the past, they don’t say anymore. But when you did that, the World Bank used to provide the money and the dam would be built in Sub Saharan Africa, for example. Okay,

Jason Hartman 15:08
so the IMF would be more like a bridge lender, just sort of a central bank, but for the world, right? You know, like, Federal Reserve is our lender of last resort in the US. And so they would be a bridge lender making short term bridge loans, whereas the World Bank would be a, like a mortgage lender making long, probably many decade loans, I’m guessing.

Raghuram Rajan 15:32
Exactly. You’ve got it. Right. Okay. Okay. Good, good stuff. Tell us about the third pillar. You know, you talk a lot about communities. And when you talk about these in the book, you’re referring to physical or geographical communities. Yes. I’m talking about the local community, where people know each other and people look out for each other. And what I argue in this book is really the community plays a very important role in modern economies. Both in preparing people for you know, the market that is, when children are very young, they learn the values from the community, often the community looks after the school and make sure that it works for the community children. And as the kids go through through school, eventually they may go to the community college or out, but they’ve been well prepared for that. So the community plays a role in preparing people, and also if they fall off, so once your unemployment insurance runs out, once you get old, a lot of people returned to the community for support, and the community often is critical there. Now, of course, this is what I call the third pillar. It also plays a very important role in our democracies in organizing political action. And I think this is critical to making our economies work. The other two elements are of course, the competitive markets and the government and my point in the book is the community holds the other two in balance makes sure that the markets don’t get too extreme. And also make sure there is a separation between the markets and the government. Many countries have succumbed to crony capitalism where the markets and government are essentially one. And the fact that we in the West largely happened is primarily my view, because the community broadcasts, broadcasts the wishes of the people more broadly through democracy, and works to creating their bands. The problem today, and that’s what a lot of the book is about is many communities are in decline. And the book talks about why this is a problem. So the communities outside our coastal cities outside of the New York’s and the Washington and San Francisco’s aren’t doing as well as they used to in the past. So the book talks about why that’s a problem, and also potentially how we should think about fixing it.

Jason Hartman 17:53
So the first two pillars are governments and when you say the market being the second pillar, you don’t The stock market you mean the marketplace? the free market? Right? in general? Exactly,

Raghuram Rajan 18:05
exactly. all the aspects that make up that market, including our large firms who compete with each other, the labor market where people compete for jobs as also the financial and stock markets, and then the community is the third pillar, if you will. Right, right. Absolutely.

Jason Hartman 18:24
And when you you talk about this, are you referring mostly to the United States or to really every country,

Raghuram Rajan 18:33
I didn’t set the book largely in our western democracies, that is, Europe, the United States, and to some extent, Japan. But the problems are common across these countries. And often we look internally and say this is a problem we have. And I argue the common force creating these problems across countries is primarily technological change. We’ve had massive technological change over the last 25 years. is it’s brought some amount of good, it’s increased our growth rates. But typically disruption is caused has come before those growth rates have come. And therefore, a lot of areas have been hit by automation by the disruption caused by trade, which is also an offshoot of technological change, but haven’t yet got the benefits, which undoubtedly will come but will take time coming. And that’s why we have more anger today about why the world is not doing as well as people thought, while the children are unlikely to have as good an experience in the world as they had.

Jason Hartman 19:37
You know, in the beginning of our talk today, you you sort of were painting the site, what I thought was an idyllic picture of community. It harkens back to reminding me of these old shows, like you know, Andy Griffith with Mayberry. I don’t even know if you know, the reference I’m making there. But you know, I don’t know I dream about that time. I you know, it’s really before my But it sure looked nice. But boy, I grew up in Los Angeles, California, if I went, I don’t live there. Now I live in Florida. But if I went back to LA, I don’t think anyone would care about me. Cold streets of Los Angeles,

Raghuram Rajan 20:14
right. And I argue this is one of the effects of broadening markets and also broadening state, you know, once upon a time, it used to be that old people used to be looked after by the community because they have nowhere else to go. Today they have social security. Are we better off? Yes, to some extent, because they have a reliable sort of form of income. But we are also heard to some extent because now the community no longer has any responsibility to look after all the people and vice versa. Older people, increasingly, are not supportive of some of the community institutions like schools, they serve evidence on this. So I think you correctly point out that with modernization the community has become weaker. At the same time, because of the need for community, you see different ways people strive to re engage with each other. Right? When I grew up in India, used to live in apartment buildings where, you know, kids used to run in between houses, nobody knew where once kid was at dinner time, bunch of kids will show up for dinner, you know, whose kid was, was were. But we don’t do that anymore. Certainly not. Not in the West. But what we try and do is engage through the school. So today, many parents have much of their social life driven by engagement with parents, of the kids friends, and that’s how they come and make contact. So I was constantly trying to make contact and in the world of the future where I think, you know, robots, and artificial intelligence intelligence programs take over much of the work. I think what is left will be the work that relates to human interaction. And one of the biggest problems we will have to deal with as We age is a problem of loneliness. And so my sense is we rediscover, you know, you’re not, I mean, in England, they actually appointed a, I guess the equivalent of a cabinet post or or a new department of the government to deal with loneliness. That is a serious issue. You know, it’s really sort of hard to get a handle on what technology has done to us in some ways. It has made us more connected. But in other ways, it has made us more distant and more reclusive. I remember in the 90s reading faith popcorns work now I don’t know if you know who that is. She was a futurist. And she talked about the concept as it related, just simply to home theater systems, you know, big screen TVs and surround sound, because that was a new thing back then. And she said, You know, people don’t need to go to the movies anymore. And so there will be we’re starting to see this cocooning effect. And of course, that was before the internet had enabled real impact. And now more than ever, we see this kind of cocooning where people aren’t going out. And I noticed I’ve been to 81 countries. And I tell you something I noticed the poor the country, the more people are out on the street, they’re in the public square there in these sort of public places and seemingly socializing. And my theory has always been about that. It’s because, well, their houses are tiny, and they’re not very nice, and they don’t have high speed internet access. And so they go to internet cafes or, or cafes in general, just to use the internet. Absolutely. You know, and they and they crowd around a water fountains or in a park in the US, we don’t do that stuff.

Raghuram Rajan 23:47
You know? No, we don’t we don’t and that goes to the point that there is a force in technology that keeps us self sufficient then therefore apart as a forcing expanding government and we always think Governments has been opposed to markets, but they actually thrive together, the more developed the country, the larger the government and, and to some extent laws in the markets. However, I think on this issue of technology and what it does to relationships, it can also add, as you pointed out earlier, and and to some extent, you know, one of the experiments in the book is about this development in Toronto, where, you know, half the development was was linked on the internet. And the developer ran out of money and conflict, the other half and associate said, Well, let me study the two halves and see who is more social at the end. And believe it or not, the guys who had the internet were actually more social. They used to come together for block parties, they used to organize search parties look for a missing dog, I mean, it was far more sociable. And the sociologists concluded that, you know, having human relations augmented by the ability to communicate, actually makes it even better Because now you could traverse closed doors, you didn’t have to knock on a door to get to the person on the other side, you could send them an email. And that would traverse the dough. But that wasn’t possible in the one that wasn’t connected. And you can see that I mean, I see it with my kids. They certainly a much more sociable with their friends from college, through Facebook and other social media, they keep in contact. While you know, we had to call our friends one at a time by phone to keep in contact. So something’s changed for the better. And of course, something changed for the worse. But text based communication is is not communication. I mean, you must admit that is it’s just we need to put a moratorium on text based communication. That’s true, but to the extent that it augments face to face communication. Yeah. Okay. Why don’t we meet it doesn’t says please, in 20 minutes? Yes, absolutely.

Jason Hartman 25:55
Absolutely. And john Nesbitt used to talk about that these Author of mega trends, you know, he used to talk about the concept of High Tech High touch. And he said things like, the jet airplane has only lead to more meetings. Right? But right, you know, that’s not necessarily true with social media. And I don’t know, you know, I guess it’s too early to tell, right? It’s just too early to tell. Right?

Raghuram Rajan 26:22
You know, we don’t we are, we’re in the midst of churn. But I do believe that when all said and done, we will rediscover that the most valuable part of us is really the human and the human relationships we have. That’s what gives us identity. And when we’re surrounded by the virtual world, is the world that we will come back to and that’s why we need to think about how we keep that going.

Jason Hartman 26:46
Yeah, very interesting. Okay, let’s switch gears if we can, and talk a little bit about money. Let’s talk for me, you know that that is your career, right? So interest rates, the economy, where are things going, that’s Everybody wants to know, are we headed for a recession? Are we looking at inflation, deflation stagnation? I mean, any thoughts on what’s coming our way?

Raghuram Rajan 27:11
We’re always headed towards the recession. We have learned how to eliminate that from public life. So

Jason Hartman 27:19
I guess we are always here for one. Yes, that’s right.

Raghuram Rajan 27:22
Now, right. So the question is how far down the line and what what might cause it? I think, to some extent, towards the end of last year, whole set of pieces of bad information coming together, slow down in Europe, slowdown in China, the trade war, and of course, the Fed was raising interest rates at regular intervals and things

Jason Hartman 27:43
they were up to aggressively.

Raghuram Rajan 27:45
Yeah, I think. So what the Fed did in January was backed off from that part, and made it much more clear that what it meant or intended to mean was that it would look at the data and then act accordingly. And I think the timing of that statement has essentially been taken by the market as a signal that the Fed now does pay attention to what’s happening in the market. And if the market falls, the Fed will come in and and support the so called fed. And as a result, I think the markets are celebrating quite significantly, and many assets that were thought of as too risky towards the end of last year, back in favor. I think broadly, the Fed has bought us some time before that eventual recession. I think recessions are the hardest thing for economists to predict to. Everybody thinks they can, but I do believe that we pushed it beyond the end of this year for sure. So my guess is, I mean, going forward, what could be the factors that trigger something like a recession? Well, for sure if interest rates Going up once again, especially if inflation picks up of course, there’s no sign yet, but it is going to pick up strongly, which is why the Fed is going to watch and wait. I think that is one factor. The other, which is, I think a little more worrisome, because it builds up continuously is leverage that there was a certain caution about leveraged was the end of the year, it was hard to get leveraged loans anymore. And that caution has has disappeared once again. And my worry is the longer we have accommodative conditions, the more we build up leverage, which then means when the conditions turn, it could precipitate a worse problem.

Jason Hartman 29:39
So these are, you know, we’re really sort of harking back to what you call fault lines in your reader prior book, our interest rates, and especially mortgage interest rates, home mortgages, are they artificially low? Still, I mean, I believe they’ve always been artificially low since the creation of Fannie Mae and Freddie Mac because they’re effectively subsidized by the government. But, you know, assuming that these entities stay in place, and we continue to have them for the next many, many years. Are they artificially low? Or do we have a legitimate market? You know, mortgage market rate, if you will?

Raghuram Rajan 30:15
I think that if you had asked this question a couple of years ago, it would be very hard to tell because the central banks were in full force buying and holding on to significant amounts of long term instruments. I think since the Fed started unwinding its balance sheet and selling some of the bonds that had holes or certainly not investing in them. I think there’s more of a sense that in the US, the prices for these long bonds and therefore the long term interest rates reflect to a greater extent a true market value. Of course, there are still central banks like the Bank of Japan, which are buying long bonds and keeping loan rates low. But I think the growing consensus is That we are in a low interest rate environment. And that long rates at these levels are consistent with a sense that growth over the medium term is going to be, you know, not great, not terrible. So So and therefore, you know, interest rates will not move up hugely from these levels. That said, I think thus far, this is predicated on inflation being really quite low, and it’s been low so far, despite, you know, labor markets tightening up that is unemployment rates, falling to decade lows, both in the United States but also in Europe and in Japan. And that’s surprising for most economists with labor markets so tight, why aren’t we seeing more wage inflation earlier the story was, you’re not seeing workers asking for higher wages because they fear that workers elsewhere will take the jobs, with many economies close to what they considered for employment, there aren’t that many workers around to take their jobs. And so the great puzzle is why wages aren’t moving up faster at this point, especially when every business person is complaining about not finding skilled workers. My guess is this is why the Fed is is sitting in that uncomfortable place where it doesn’t quite know whether inflation is just around the corner, which is why it won’t say it’s it’s paused. At the same time, it doesn’t see growth that is very strong, and therefore it’s not willing to commit now to part of interest rate rises. So you know, we’re in the new world. We don’t fully understand this world. And of course, there are lots of theories around as to what’s going on. Larry Summers talks about secular stagnation. Others talk about modern monetary theory where you print any amount of money you want, and there’s no problem. So I

Jason Hartman 32:55
have to ask you, what do you think about mmt I do think that it would be wonderful to a true. I’m very skeptical. Yeah, me too. I couldn’t agree more. You know, an interesting study by the American Enterprise Institute looked at inflation over the last 20 years. And it was mind boggling if you could only see this graph I’m looking out at I went over it in detail on another episode. It just talks about consumer goods, services and wages. And it shows that in the last 20 years, the cost of televisions, toys, computer software, cell phone service, clothing, it’s all become less expensive, right, obviously, I mean, I know you don’t have to be genius. I know this. cars they say are about even but that’s not true because the automobile today is so much better than it was 20 years ago. So real pedantically I mean, it’s inflated massively, but yet housing, food and beverage medical care, child care, college tuition textbooks, which have to be the biggest scam in history, hospital service. says much more expensive. And it’s just sort of hard to figure out. I look at this as this epic war. You know, it’s this war between the deflationary effects of technology and the inflationary effects of monetary policy who’s going to win or lose that war will technology? Because it’s so deflationary and things just getting so much better at lower prices, or will our massive amount of debt cause inflation? I don’t know who’s gonna win that war? No.

Raghuram Rajan 34:33
Right now, this is a very interesting question. There’s also I mean, the way you put it, there is good deflation and bad deflation, right? And good. deflation is when you’re making you know, stuff better and more productively, and prices are falling for that reason. And that deflation is you know, because people are scared and it is fear and activity is down. That’s why you get lower prices. And for a long time in the 19th century, we had good deflation because things were getting more productive. But of course, that deflation hit people who had debt, like farmers, and that’s when you had the big farmer agitations. The populism in the late 19th century. So even with good deflation, it is possible sometimes that you get some unanticipated effects. The broader point, however, is that we are in a new world. And we have to formulate policies for this new world, and maybe not stay with policies that were targeted at the old one. That said, I think we have to be careful about accepting any new theory that comes along.

Jason Hartman 35:42
Good point. Is there anything else you want to say as we wrap it up? Maybe a question I didn’t ask you about any of your books or your work or thoughts

Raghuram Rajan 35:48
on this. You’ve been very good. You’ve been very good and this is perfect.

Jason Hartman 35:53
Okay. Well, Robin, thank you for joining us. Just to remind the listeners, you’ve got several books including fault lines, and the new book The third pillar how markets and the state leave the community behind. And maybe just to go back to that subject we started with on the community issue. Can’t remember who, Whose song it is. But I believe the song is called alone. You know, it’s a contemporary sort of EDM song. And the lyrics are, everybody’s connected, but no one is connecting. And, you know, I think that’s really a pretty good way to sum up our technological era in which we live. So we’ve got to make sure we actually connect, even though we’re just I

Raghuram Rajan 36:36
think you hit the nail on the head, this that’s why we need to rethink our society. And I mean, it can be done forcibly to we have to recognize what we’re losing and how we connect with again, not just with our friends, but across society.

Jason Hartman 36:50
Everything is a trade off. It certainly is. And we have to be mindful of that. Rather, thank you so much for joining us today. You’re most welcome. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.

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