00:00So tell us how when are you cutting rates? It's a five year accelerating. Look, that's what I want. If
00:07we get that, that'd be the best. Yes. Maybe the Fed will take credit. But I wonder that the Kindle
00:17Burger book about manias, panics and crash was really about bubbles. Is there such a thing as a mania that's
00:25not a bubble? I think there is, actually. And maybe that's what we're
00:30talking about, that people could get really into a thing and it be justified, that it be just as good
00:36as what they thought. The mania is they're counting the chickens before they've hatched. Now, that may be the right
00:45count. The eggs may hatch. In my world, within the Fed, there's a question, what would this do? Let's say
00:55it's true. What would it do to the economy?
00:58But then the grubbier, well, what would it do to the Fed? What should the interest rate response be now?
01:05And the thing that I would, we brought up the 1990s, and I'd just like to bring that example back
01:13to the fore.
01:14At the time, we had a productivity boom right here. Alan Greenspan deduced that there must be an increase in
01:27productivity, even though it was not yet in the data. He said, if you look at corporate profits, they're up,
01:34but the unemployment rate isn't rising and inflation is low.
01:38There must be, the only way to square this, there must be productivity growth. And that is when they were
01:44loose. That is when they did not raise rates. But by 1999, the data showed there was a huge increase
01:53in productivity.
01:54And now Greenspan changed his view. And he said, we got to be nervous. We got to start worrying about
02:03the fact that everybody's counting the chickens that are coming, and now it's expected.
02:07And actually, the Fed raised seven times in less than a year from 1999 to 2000. And there are some
02:15people who say that's what engineered the popping of the bubble.
02:20Take that battle from now ancient history to the young people today, as they say, you were alive in the
02:271900s.
02:30The question of if the productivity growth miracle is happening in an unexpected way, then it will mean lower inflation.
02:43And I think it means rates could go down because you have less pressure.
02:49But if it's expected, but if it's expected, and the more people tell us, hey, what is coming down the
02:55pipe is 6% GDP growth, and we're going to have massive productivity, just remember, future increases in your income
03:06are a wealth effect today.
03:10And if what you see is people pulling forward from what they believe is going to be coming, massive investment
03:20today in data centers premised on stock market valuations that are super high.
03:27Massive consumer spending based on stock market value, massive consumer spending based on stock market wealth off of AI, you
03:33before the productivity has arrived, you can easily overheat the economy in the here and now.
03:40And it's not at all obvious that the Fed would need to lower rates in that case, they might need
03:47to raise the rates in that case.
03:49So if it's as good as advertised, it would be lovely, wonderful, will make us rich.
04:00But if that's still to come in the future, I do think we need to be a little more circumspect
04:07and on the lookout.
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