TIP331: Inflation w/ Cullen Roche
The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
Stig Brodersen
4.6 • 3.6K Ratings
🗓️ 10 January 2021
⏱️ 68 minutes
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| 0:00.0 | You're listening to TIP. |
| 0:30.0 | Whether there is a rational argument for stocks to be trading at 50 times earnings. |
| 0:34.0 | So with that, let's go ahead and get started. |
| 1:01.0 | Welcome to the show. I'm your host, Dick Brodison. Today I'm here with one of our good friends, our Weestead billionaires. |
| 1:07.0 | Thank you so much for joining me here today, Colin. |
| 1:10.0 | Thanks for having me on. |
| 1:12.0 | So Colin, let's jump right into the first question. And that question is about money supply. |
| 1:19.0 | What you previously said here in the show is that it doesn't tell you anything that the money supply is going to grow |
| 1:25.0 | because that's just an aberrationate reality of the way we structure a dead-based financial system. |
| 1:31.0 | And you also said that the amount of deposits and the amount of loans are always going to grow in the long term. |
| 1:36.0 | So going into this really also to preface this conversation with you, could you please elaborate more on that and how the money supply impacts the economy? |
| 1:46.0 | So obviously money is an extremely important component of what goes into the economy, how we measure inflation and things like that. |
| 1:55.0 | One of the, I think, problems that I have with, for instance, some people might be surprised to hear that I used to be a pretty stricted here in the Austrian School of Economics, |
| 2:05.0 | kind of coming out of college, I read a lot of Myzys and Hayek. And I think that one of the problems I eventually ran into working in the financial industry and working specifically with a lot of bankers and people that were literally the money creators in the economy |
| 2:22.0 | was that the Austrian School defines inflation as an increase in the money supply. |
| 2:28.0 | And I started to find this problematic because if you look at the money supply over the course of history, it basically always expands. |
| 2:39.0 | Over any really long time horizon, the money supply will always expand. And the reason for that is basic in that essentially when you look at what really creates money. |
| 2:52.0 | And people think that the central bank is the money creator. And really what we kind of found coming out of the financial crisis, especially with quantitative easing was that when the Fed makes reserves, so the Fed makes reserves, which is money for banks, and it's only in the banking system. |
| 3:08.0 | The reserve money, or money as reserves doesn't get outside of the banking system. So we kind of know like this whole concept of the money multiplier is misleading it best. |
| 3:18.0 | When the Fed creates one dollar of reserves, this doesn't necessarily multiply into $10 of deposits or $10 of loans. And that's the kicker is that loans create deposits. |
| 3:30.0 | Okay. So when a bank makes a loan, they're creating a new deposit liability for the bank. That's an asset for the borrower basically. |
| 3:40.0 | The real kicker with this is that as the economy grows over time and expands, people want more money. They need to borrow more to produce things. And the banking system is just sort of the liquidity provider that they create the deposits through a loan agreement essentially that literally liquidates the economy. |
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