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Recent discussions in the macroeconomic field highlight a comparative view of inflation trends, especially considering interviews dominated by economists Lacey Hunter and Steve Hank.Hunter is known for his deflationary outlook, while Hank argues for a slowdown in inflation, and their analyses challenge the mainstream narrative of sustained inflation.In a detailed conversation between investor Lawrence Lepard and host Adam Tagart on the Thoughtful Money platform, Lepard criticized these perspectives while outlining his own expectations of monetary policy, asset prices and economic cycles.
To understand these perspectives more fully, we need to review the current macro environment.The U.S. economy is facing challenges from high debt levels, trade tensions and monetary policy shifts.The Fed’s interest rate path, fiscal deficits and global geopolitical factors are all shaping inflation expectations.Hunter and Hank’s views represent a cautious end, while Lepad emphasizes potential inflation risks.By examining these debates, we can better grasp economic uncertainty and provide guidance for future decision-making.
Criticism of Hank’s outlook for slowing inflation
Hank’s view emphasizes a slowdown in inflation, attributed it to factors such as debt burden and reduced consumption after excessive borrowing.He pointed to historical examples, such as the stock market crash in 1929, in which debt deconstruction led to deflation.However, Lepad questioned the applicability of this framework in the current environment, arguing that central banks and government policy responses tend to offset deflationary pressures through radical monetary expansion.This reflects the role of interventionism in the modern economy, unlike the historical laissez-faire policy.
The core of the divergence lies in the measurement of inflation.Hank relies on official consumer price index (CPI) data and suggests that money supply growth (M2) is about 4.5% not enough to meet the Fed’s 2% inflation target, and M2 needs to expand at a rate of 6% to achieve sustained inflation.Lepad retorted that CPI underestimated the real inflation rate, such as electricity prices rose by more than 3% per year.He believes that M2 growth itself is the core driver of inflation, and it performs unevenly in different sectors, including the inflation of asset prices during the low interest rate period after the 2008 Global Financial Crisis (GFC).
This division underlines a broader debate on monetary indicators.Historical data shows that M2 grew by an average of 7% over 50 years, consistent with long-term inflation trends, but short-term volatility — such as a 4.7% contraction after peaking during COVID-19 — complicates the forecast.Lepader’s analysis shows that the face value acceptance of official indicators ignores structural bias, which may lead to underestimating inflation risks.For example, asset inflation, such as the stock market and real estate bubble, is not fully reflected in the standard CPI, but has significantly affected wealth distribution and economic stability.
To further expand this view, we can examine the historical evolution of monetary theory.From the monetary perspective of Milton Friedman, money supply is the main determinant of inflation.Hank, as a monetist, seems to partially agree, but his focus is more on short-term adjustments.By contrast, Lepad adopts a stricter monetary approach, emphasizing asset inflation channels.These channels were evident in quantitative easing in the 2010s, leading to a boom in stocks, but consumer goods inflation remained moderate.This suggests that inflation may shift from commodities to assets, challenging the effectiveness of traditional indicators.
In addition, the current global environment adds complexity.Supply chain disruptions, geopolitical tensions (such as the Russian-Ukrainian conflict) and energy transition are all driving costs.These factors may amplify Lepad’s concerns that official data fails to capture real economic pressures, thus misleading policy making.
Differences and consistency with Hunter’s deflation argument
Hunter’s deflation forecast is more obvious, predicting price declines due to fiscal dynamics and external shocks.He believes that the U.S. fiscal situation is more balanced than generally believed, criticizing the Congressional Budget Office for accounting errors in the predictions of recent legislation such as the Big Beauty Act.Hunter estimated tariff revenues to exceed $300 billion, which could offset the deficit, reflecting an optimistic assessment of trade policy.
Lepad challenged this optimism, pointing out that the recent tariffs were about $20 billion a month, and an annualized $240 billion — lower than Hunter’s forecast.He stressed the bill’s potential additional spending, estimated at $200-600 billion, and warned that the slowdown could worsen the deficit by reducing revenue and increasing safety net costs, as seen in 2008 and 2000, as the deficit accounted for 6-8% of GDP.This fiscal deterioration may amplify cyclical risks and lead to a more severe recession.
However, Lepad agreed with Hunter’s reference to the Kindleberg spiral, referring to historical tariffs in the 1930s such as the Smut-Holly tariff, which averaged 19.7%—similar to the current U.S. level of 18%.Tariffs, as taxes, reduce demand, trade deficits and foreign investment in the U.S. market, may lead to deflationary pressure.A weaker dollar may further prevent foreign capital as currency losses offset asset gains.This has begun to emerge in the current market, and foreign capital inflows have slowed down.
This section unanimously reveals a subtle point: While tariffs may induce short-term deflation, Lepad emphasizes a possible policy response—radical monetary easing—to prevent system collapse.Hunter’s call for a 100 basis point rate cut is consistent with this, although Lepad pointed to the Fed’s “fiscal urgency” in its restrictive position amid rising interest rate expenses.This highlights the policy dilemma: short-term stability vs. long-term sustainability.
To deepen the analysis, the Kindleberg spiral originated from the work of Charles Kindleberg, describing how the financial crisis is amplified through feedback loops.Applied to the present, tariffs may initiate a contraction of demand, leading to a reduction in global trade and investment outflows.This is similar to the Great Depression, when protectionism exacerbated the recession.Lepad added that the depreciation of the dollar could amplify these effects as foreign investors face exchange rate risks, further weakening market liquidity.
The consistency is to recognize structural risks, but the differences lie in policy flexibility.History shows that central bank intervention, such as the Fed’s quantitative easing in 2008, often reverses the deflation trend and turns to re-inflation.This may repeat in the current cycle, especially in a fiscal-dominated era.
Broader Impacts: Inflation, Fourth Turning Point, and Asset Strategy
Discussions extend to long-term cycles, characterizing the current era framework as the “fourth turning point” (2008-2038), characterized by institutional turmoil and potential currency resets.Lepad expects major inflation events within three years, driven by fiscal leadership, with money printing covering interest payments.Historical parallels, such as post-World War II yield curve control resulting in a 17-21% inflation peak, supporting this outlook.This reminds us that historical lessons of monetary policy are often overlooked, leading to cycle repetition.
Energy costs have become a key inflation factor, with U.S. electricity prices driving demand rising due to AI.This could boost energy into a practical limiting factor for growth, similar to oil prices before the shale boom, which could overshadow the Fed fund rate.A policy shift to nuclear and gas expansion may alleviate this, but delaying risks continues to price pressure.For example, China’s leading position in nuclear energy investment highlights the United States’ lag, and if it does not accelerate, it may lose its competitive advantage.
Regarding asset allocation, Lepad advocates sound currency alternatives: gold, silver and Bitcoin.Gold and silver have broken through key resistance levels (gold $3,500, silver over $40), signaling a breakthrough from suppression.Bitcoin, seen as digital scarcity, has a fixed supply of 21 million, expected to reach $140,000 by the end of the year and $1 million by 2030, performing well due to the adoption of the curve.Mining companies are still undervalued relative to metals and trade at low cash flow multiples, with further earning potential.
In contrast, stocks appear to be overvalued, although commodity-related and international stocks offer opportunities.Lepad warned of zero allocation to sound monetary assets, recommending 10-30% to protect against devaluation.This is especially important in volatile markets, where diversification can mitigate risks.
Expanding this part, the fourth turning concept stems from the work of William Strauss and Neil Howe, describing the social cycle every 80-100 years, including climax, awakening, deconstruction and crisis stages.The current crisis phase involves a debt crisis and social division, which may end with monetary reform.Lepad quotes historical resets such as Roosevelt’s 1933 gold repricing to fight deflation.This may repeat in the contemporary era, enhanced by digital assets such as Bitcoin.
In asset strategies, Bitcoin is unique in its fixed supply, which is in contrast to gold’s annual growth of 1-2%.This supports its potential as a hedge, especially in a digital economy.The valuation dynamics of mining stocks reflect the leverage effect: rising metal prices increase profits, but also increase volatility.Investors should consider diversification to mitigate risks and monitor global trends such as central bank gold purchases.
in conclusion
Hunter and Hank’s interviews illuminate the deflationary risks of debt, tariffs and fiscal pressures, but Lepader’s analysis highlights the reverse inflationary power of policy interventions.This tension indicates a volatility path: potential short-term inflation slowing or deflation in the economic slowdown, followed by radical printing of money in the “big money printing” scenario.Investors face a landscape where traditional assets may perform poorly, favoring diversified exposure to real assets such as precious metals and cryptocurrencies.Ultimately, addressing these dynamics may require structural reforms such as returning to sound monetary principles to stabilize the system in the context of ongoing monetary challenges.
For more in-depth discussion, we can consider potential scenarios.If deflation dominates, bonds may benefit from safe flight, but policy responses may lead to yield curve control, similar to the 1940s.This could trigger asset repricing, favoring liquid assets.On the contrary, if inflation accelerates, commodities and hard assets will become the first choice.Policymakers face a dilemma: balance growth with stability.The Fed’s dovish turn may intensify inflationary pressures in the future.Investors should be vigilant that education and diversity are the keys to navigating this era.
