Dr. Lacy Hunt On The Unintended Consequences Of Federal Reserve Policies

Dr. Lacy Hunt On The Unintended Consequences Of Federal Reserve Policies

FRA: Hi, welcome to FRA’s Roundtable Insight .. Today we have Dr. Lacy Hunt. He’s an internationally recognized Economist, the executive V.P. and Chief Economist of Hoisington Investment Management Company. It’s a firm that manages over $3.8 billion USD for pension funds and its insurance companies and others. He also served in the past as Senior Economist for the Federal Reserve Bank of Dallas, where he was a member of the Federal Reserve System Committee on Financial Analysis.

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Welcome. Dr. Hunt.

Dr. Lacy Hunt: Nice to be with you, Richard.

FRA: Great. I thought we’d have a discussion on a variety of topics relating to the economy and the financial markets. You recently mentioned that you thought this was the worst economic expansion recovery in U.S. history since 1790. Wow. Can you elaborate?

Dr. Lacy Hunt: Well, if you calculate the average growth rate in the expansions in 1790, this is the slowest. It’s a long-running expansion, but it’s the slowest and in the last 10 years the household sector is very, very poorly. The rate of growth in real disposable household income per capita is only 0.9 percent per year. And in the last 12 months, we’re only up 0.6 percent per year. So it’s a long-running expansion, but it’s been a poor expansion. Certainly with some of the earlier data there are certain problems with it, but this is clearly slowest expansion since the end of WWII and our households are the main problem they’ve not kept up.

FRA: And do you point a finger for this cause as primarily on the Federal Reserve or do you see structural changes happening to the economy?

Dr. Lacy Hunt: I think that the main element that has oppressed the growth has been that the U.S. economy is so heavily leveraged. We have few much public and private debt and the debt, unfortunately, does not generate an income stream for the aggregate economy. And as a result of the prolonged higher indebtedness, which is on the verge of going much higher because of the problems in the governmental sector, the economy is now experiencing very poor demographics. We have a baby bust, a household formation bust, the birth rate is the lowest since 1937 and this is exacerbating the problems because we have too much of the wrong type of debt. And because we have too much of the wrong type of debt, the velocity of money falling and in fact velocity this year will be the lowest since 1949, only 1.3. And the debt creates a situation where monetary policy capabilities are asymmetric. A lot of action to sort of stimulate the economy has a very muted impact on economic activity, whereas a little bit of tightening goes a long way in depressing economic activity. So what the root cause of this underperformance is the extreme indebtedness.

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Gordon T Long

Meet the Host of our Program Show Gordon T Long, co-founder of the Financial Repression Authority. Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public. Mr. Long was a senior group executive with IBM and Motorola for over 20 years. In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) with graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship.