Submitted by Taps Coogan on the 4th of April 2018 to The Sounding Line.

Hoisington Investment Management’s Dr. Lacy Hunt recently spoke with Gordon T Long in a wide ranging interview and, among many points, issued the following warnings for the US economy:

“Continuing to rely on debt, the debt factor of production, is going to trigger the law of diminishing returns, one of the most important concepts in economics. And so the end game of trying to use debt to solve our economic problems, ultimately, is going to produce even worse results and you’re already beginning to see proposals that at the start of the next downturn there will be massive increases in debt, trying to fund it somehow by the Treasury, have the Federal Reserve fund it. But that does not negate the fact that the debt capital is a factor of production and its over use will result in declining marginal productivity of debt and stagnation in economic activity… We cannot continue along the high debt path and we can certainly not exacerbate it by engaging in trade wars…”

“This is my position. The long term rates can go up, Gordon, but the economy is too fundamentally weak for them to stay up… Remember what my work shows, that the most forward looking of the markets are the currency markets and when the foreign currency markets are convinced that the US economy is weakening, the dollar will rally and shortly after that you will see the bonds improve considerably. It’s kind of counter intuitive thinking but that’s the way the world works. Foreign exchange markets are very forward looking and they will point the way… If the dollar is trying to make a bottom now, which I believe that it is, that’s an important sign and the turn in the dollar, the fact that the economic numbers are falling short, not all of them, there are intermittent signs because the whole economy does not move together, but they are beginning to show a weaker trend in general, and we have the… collapse in money supply growth, bank credit growth, flattening in the yield curve, and a very low velocity of money, and these are powerful and consequential forces and when they are looked at in their totality, the underpinnings, the pylons supporting the overall economy are eroding…”

There is much more to the interview so enjoy it below:

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