Dr. Charles Calomiris On Fiscal Dominance And The Return of Zero-Interest Bank Reserve Requirements

Dr. Charles Calomiris, Henry Kaufman Professor of Financial Institutions Emeritus at Columbia Business School and author of the book “Fragile By Design: The Political Origins of Banking Crises and Scarce Credit,” joins The Julia La Roche Show to discuss his recent paper, Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements.
In this episode, Dr. Calomiris examines the state of the economy in the near-term and longer-term, and the fiscal challenges facing the U.S. According to Dr. Calomiris, there's a significant probability of a fiscal dominance problem arriving in the next decade. Fiscal dominance is the need for the government to fund its deficits on the margin with non-interest-bearing debts, also known as "inflation taxation."
He points out the need for political leadership and accountability in addressing the unsustainable promises of entitlement spending. Dr. Calomiris explains what could trigger panic in the bond market and the potential solutions, including taxing the banking system. He also discusses the implications of such policies on the banking system and the broader economy. Overall, he emphasizes the importance of addressing the long-term fiscal challenges to avoid a crisis in the future.
Links:
Paper: files.stlouisfed.org/files/ht...
Book: www.amazon.com/Fragile-Design...
Timestamps:
00:00 Introduction and background
01:01 Short-run and long-run perspective of the economy
03:23 The dysfunctional state of the economy, the blame is ours
06:37 Generational government accounting and political responsibility
10:06 We are not a grown-up society right now
11:20 Debt situation in the U.S.
13:53 The point of no return?
17:50 Less than a decade to make the political decision
19:50 Deficits, recessionary environment, and the consequences
23:00 Signs to look out for in the bond market
24:40 Fiscal Dominance and its definition
27:30 Will the government tax the banking system into almost oblivion?
28:50 Taxing the banking system and the inflation tax
34:00 If nothing changes, how implied annual inflation could be 35-40%
37:00 Fed could raise reserve requirements, and pay zero interest, lower inflation rate
40:00 Impact on the banking system
46:17 Power of the Federal Reserve
51:00 Bitcoin
54:19 Parting thoughts and advice
#inflation #economy #banks

[@TheJuliaLaRocheShow]

Hey everyone! I hope you enjoy this conversation with Dr. Charles Calomiris. Thank you to Alan, who suggested that I bring Dr. Calomiris on the show to discuss his recent paper: research.stlouisfed.org/publications/review/2023/06/02/fiscal-dominance-and-the-return-of-zero-interest-bank-reserve-requirements. I always appreciate you guest ideas. Let me know what you all think in the comments section below! 💙Julia

[@10317]

One more thing about SS in that it was meant for retirees. President Roosevelt saw retired people in poverty and was shaken by what he saw, so he brought up social security, But over the years politicians have added on benefits to kids, wives, people with disabilities and on and on. Some need it but to be honest I see people signing up for ss that are really capable and can work. They just don’t want to. So yes, that needs to be addressed.

[@markphillips2648]

Excellent interview, “The goal post has been moved selectively far more for my generation than any other generation in our history.” As a retired government worker, I worked 15 years in the private sector and paid into SSI for each of those 15 years prior to entering service as a government worker at the City level. President Ronald Reagan enacted the WEP provision that reduced my SSI benefits “selectively”by greater than two thirds of what I was promised because I was going to have a government pension. By the way my Medicare payments,medical payments, IRMAA payments and taxes in California have led me to consider a third college degree at great cost to keep from drowning! Contrary to popular belief not all government pensions are as good as SSI so that is what just never gets reported!

[@acornsucks2111]

Yes, it does matter who is in power, and if they can withstand the media barrage of insults and lies.

[@advocate1563]

Excellent guest. Thanks Julia.

[@ivivivir]

Great analysis of the current situation not only in US but in most developed countries worldwide.

[@dave5905]

The majority of people seem to be in "all about me" mode. This is why history is destined to repeat time and time again. Humans are a highly capable species, but with a few major flaws. Sacrifice is always for someone else to make.

[@10317]

We have to be careful about Social Security because a lot of boomers are retiring with only two hundred thousand or less in their 401k accounts. Fees from wall street and recessions wittled away at the dollar amount. That is not enough to money to retire on. So it forces them to rely on Social Security. The average ss check is $1,830. The government holds back money for Medicare. Im a boomer and I am worried for my generation. Can you live on $1,500 a month? I totally agree that government is spending more than it takes in. Yes. But you take care of your own. Then you help others.

[@tlindsay1007]

It's soooo frustrating that so many of our elected officials are so worried about things that don't matter, and refuse to take on the issues that do matter. I give credit to those in Congress, such as Rand Paul who is constantly fighting for fiscal responsibility, as well as the lies told to us about COVID by Anthony Fauci, President Biden, many doctors, left-wing, main-stream media, and the CCP's coverup of the Wuhan lab. Unfortunately, those politicians like Rand Paul are few and far between.

[@r.k.2823]

You must be bloody joking. I’ll give you the benefit of the doubt that you are and instead, not an incredibly ignorant (and worse) bot.

[@thegreattheone]

Shut up r.k. What Lindsay said is the truth.

[@kaine1327]

I’m 26 and I just started to think about my money seriously, I’m glad I found this channel a couple days ago. You ask a lot of pertinent questions, and there’s no beating around the bush. Thank you and Happy holidays

[@r.k.2823]

I’m as old or older than the guest. To suggest to the audience that the resolve to the ills of the US political climate is to have a third party makes me realize he might have his own political agenda here. If so, he’s leading future generations down a dark path. I’m sure he remembers the days of Ross Perot and other “spoilers” that dangle shiny carrots in the eyes of those more ignorant (before you spam, ashamedly I was a Perot voter). A two party system has worked beautifully for this country and will continue to do so for decades to come.

[@todddrinnon2332]

Dr. Charles Calomiris See my comment. Allen Simpson articulated your frustration in early 2000s

[@nirvaanmeharchand5896]

Excellent interview - thank you Julia. I ask my adult kids to vote with their feet, their wallet and their ballot for a better world for themselves. We need more truth and less vote-buying along with more young people having eyes-wide-open.

[@thehungergames8918]

What about Etherium 🤔

[@draymond5067]

Very brilliant analyst

[@billgoffe]

Hi, thanks for the clear overall reasoning. A remark for your guest: if the Fed no longer remunerate banks reserves it will raise overall liquidity in the system so inflation could be higher ceteris paribus so I wonder if your guest take into account this effect when he calculates a 10% likely fall in inflation from the 40% needed to find a new sustainable equilibrium

[@PQComments]

Learned so much from this interview! Huge fan of yours Julia. I have gone back and listened to every interview you have done.

[@marcfd3756]

Love this guy! Great guest!

[@TheJuliaLaRocheShow]

Thanks, Marc! I agree - he's great!

[@detectiveofmoneypolitics]

Economic investigator Frank G Melbourne Australia is still watching this very informative content cheers Frank 😊

[@TheJuliaLaRocheShow]

Thank you so much, Frank! ☺️☺️☺️

[@ashanesubasinha8313]

Thanks Julia

[@TheJuliaLaRocheShow]

You're welcome! ☺️

[@astrogumbo]

Yeaux thanks for the interview. read and downloaded the paper:)

[@pbacun571]

Fantastic interview

[@TheJuliaLaRocheShow]

Thank you! 🙏

[@therealscot2491]

Just commenting for the algo love this show

[@TheJuliaLaRocheShow]

Appreciate that!

[@DcapTNT]

Lol, not only they did not wake up, they even made a theory to promote more spending.

[@philhadi172]

Thanks for the great interview

[@texasrunner]

He’s really really good I can’t believe this hasn’t gotten more views

[@vm-bz1cd]

Gold is a hedge against MONETARY Inflation. Calling Bitcoin an "ASSet" is "ASININE" 😀

[@dankwok3]

awesome guest, please have him back on for discussing BTC and gold

[@fubarbrandon1345]

Excellent topic, guest and interview. Thanks Julia.

[@somejohndoe3004]

Great view on Bitcoin. Great interview, value content. Thank you.

[@astrogumbo]

08:13 ITS DATS FUCKING SIMPLE FRENS:)

[@robertmcintosh8773]

Hiw about lay off 50% of government employies like the 250k in the department if education , flat tax so the IRS is no longer nessarry , no new FBI building ect

[@bradjohnson233]

Almost turned off show when I heard guest was an Economics professor. Instead he outlined some common sense views and a novel, interesting take on how the Fed might manage the deficit. Great comments on bitcoin also IMHO. Not sure this gentleman can be the most popular man on campus but kudos for his commentary.

[@TheJuliaLaRocheShow]

I wish I had Dr. Calomiris as a professor! I had not heard him speak before. A viewer wrote in that I should have him on the show. So glad I did. 😊

[@kennethgarrison521]

Too bad we can only do one 👍 for your interviews; 👍👍👍👍👍 would be more appropriate!

[@TheJuliaLaRocheShow]

Awww! Thank you. 💙💙💙💙💙

[@kulveersehra1674]

Best explanation of Bitcoin I've heard if you watch until the end

[@TexasRiverRat31254]

Sorry Julia, I wanted to give this a thumbs up but this guy is ignoring the fact that when these systems were enacted the tax structure was totally different than what we're under today. And the Treasury has "dipped" into the SS but technically never "spent" the money. There are what amounts to IOU's in the fund which will never be paid back and there's a huge number of people on SS disability that could actually do something productive if forced to do so. If they cut the military expenditures on never ending foreign wars, enacted tax schedules that make the billionaires and corporations actually pay tax at the rate before loopholes and applied it to SS there would be plenty for "regular" Americans.

[@johnhammond3090]

So true TexasRiverRat! This guy has forgotten thre multitude of reasons for his so-called "generational theft" pandering crap. Congress was never supposed to spend SSI contributions paid directly into the Social Security fund by the older taxpayers. Also, since Obama's creative welfare program of a modified Social Security Disability program expanded spending to unsustainable levels. Let's throw in all the other income redistributions to the illegal immigration problem... This guy definitely is a neo-con political shill. If he's espousing the warmongering Nikki Haley then forget about cutting spending and generational theft in defense spending or runaway government deficits/debts. I do agree with him that we have a political problem but I blame ourselves, the voting Americans, for being so stupid and apathetic to the morally corrupted political class as its beaureacratric henchmen.

[@marcobiagioni]

❤❤❤

[@user-rp8yr7fj2v]

Defence and size of government is the problem.

[@Patriciavargas004]

I follow you on X

[@dvsdvsdvs329]

#EpicCash

[@robertmcintosh8773]

Niki Hayley is a nightmare

[@henryterranauta9100]

With due respect I beg to disagree with the “generational Theft” against my generation - we have worked for it and we have provided the best of all worlds to Julia’s age cohort. It’s true that she and her age pairs won’t enjoy the same comfortable life they are having now in their old age. I fear that a Chiquita republic will eventually default in honoring promises that electors believe will be a reality in the end of this century. 7:33

[@dailydoseofnews4828]

comment for algo

[@NotForYouorYouorYou]

Name one shipcoin that cannot be inflated by creating more of the same. BTC is forever capped at 21M. Am I supposed to take one person’s word that stablecoin XYZ will never be inflated? Am I supposed to take the government’s word that it would not be inflated? Even gold looses half its value (continued mining) every 35 years. I’m less worried of BTC’s transactional challenges than I am of any of its alternatives. Nothing can claim the moral high ground here Prof.

[@Sleepete]

Pretty sure he’s a gold bug.

[@infraaa_]

Critical conversations. It's a travesty that it's not headline news on every station, every day. He's right, I'm shocked at how young people haven't grabbed pitchforks yet, given what both sides of the gerontocracy have done to us

[@deehendon4204]

Let’s make it simple… revalue gold to $50000…. L. Gromen’s done the math… tax business’s 25% flat on every dollar received and 15% flat on the public.

[@adamcar9376]

Have to admit he's right about everything except Bitcoin. It's time for money to separate itself from the State, as the State once separated from the church on the old continent .....

[@bngeneva]

Debt means duty 😊in which religion or which god says u can continue to borrow recklessly w no intention to pay back 😊how do u think the rating agencies rate the EM debts? Based on the “ability & willingness” of the sovereign 😊by any standards, our debt is already a junk but still carries AA+ rating 😇what the experts are telling u will happen in the future has already happened, bc as always they are the last ones to know😀just check how many constitutional, legal, ethical, moral & even economic principles the criminal Fed has violated & then think about the primary & secondary damages they have inflicted, which will take years if not decades to clean up😊

[@bngeneva]

The morons think just printing slogans like “in god we trust” on bills is good enough to lend on “good faith & the credit” of a corrupt, brain-dead, inept govt😀in fraud we Trust is a better choice😊

[@bngeneva]

That is not even the hardest problem😀the giant asset bubble. Acctng fraud, & massive income/wealth inequality that makes gilded age look normal😊

[@bngeneva]

We are way past the point of no return

[@Sleepete]

Was really following along until the Bitcoin to zero comment. It really makes me question his real motivations.

[@astrogumbo]

1st off Healthcare wouldn't be an issue if we'd 86 all foreign spending/aid

[@postscript123]

How about we stop putting money in to thess wars? Why aren't we talking about that? Gotta be a lot more money there, than taking away benefits that we all have put in for? No?

[@bngeneva]

Have u done the simple math? It doesn’t take more than a fifth grade level 😊it could have worked 20 yrs ago

[@joeregina3627]

Bitcoin is a religion. Whenever discussing bitcoin with a believer, I simply take out my money clip and show the believer a $1, $5, $10, etc... bill and point to the printing that says "This note is legal tender for all debts public and private" and then I ask the believer "Is bitcoin legal tender? Which government/organization's credit worthiness backs bitcoin?" I have yet to hear a good explanation.

[@robertmcintosh8773]

33 min he lost me

[@wwillwill3582]

Why is people blaming the retirees? When it's the corporation who are in control of the expenses in all.

[@jacknaneek1681]

Use social media. Gee. Thanks professor. Bitcoin will go to zero because it’s first. Lame. This guy should spend less time talking about stuff he doesn’t understand.