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Daniel Lacalle Economics PHD explains the secrets of DeFi and USA Monetary Policy

De.Fi

January 11 2023 • 6 minutes

Defi

Takeaways from the interview with Daniel Lacalle, fund manager

Hello, De.Fier!

This is the transcription of our full-length interview with Professor of Global Economics Daniel Lacalle.
Check the full interview by this link →

Will We See Reduction Precisely Because of the Monetary Effect and Why Japan doesn’t Face Inflation ?

19:20|Daniel Lacalle:
Yes, it is a monetary effect, and we will see a reduction precisely because of monetary effect. As well when there is some taper, but the vast majority of the increase of 2020 and 2001 doesn’t round trip, it makes exactly the same.

19:42|Michael: I mean the counter argument that gets brought quite a bit (I’m about to hear from you on) is they’ll say well you know there was huge QE and huge money printing in Japan.

Following 1990 obviously their debt to GDP levels way exceeds everything else in the world and yet they haven’t seen inflation.

What kind of view do you have?

20:07|Daniel Lacalle: Yeah, first everyone, that says that has never lived in Japan. If you ask any Japanese person about this inflation — they’re very civilized people and they’re very gentle —

But they would hit you. They would hit you. What the hell are you talking about inflation? Have you ever lived in Japan? It’s a joke?

That is the first.

Thing is again I come back to the official calculation. There has never been this inflationary pressure in Japan. However, massive money creation in Japan is regurgitated into government debt.

The JPY is a distant cousin of the dollar because households save a lot, and companies import a lot of US dollars.

In reality what you have is a system in which all the money creation goes to government debt, that government debt goes to pension funds. Real wages, and the value of those savings disappear.

You have inflation because real wages are coming down. Despite the fact that the prices are not rising dramatically. Because inflation is not just prices going up, it’s purchasing power of the currency going down.

When real wages are down almost every year, as we have seen for a decade in Japan — then you have a huge problem as you do.

Because then what you have is that consumers basically just cannot spend more.

They cannot save it, it’s much more complicated…

Neither Republicans nor Democrats Would Win an Election with a Huge Spending on Deficit Program

44:06|Daniel Lacalle: Think about this. You may have made a deficit. But tell me one single democrat or republican candidate, that could gone to elections successfully with the monster spending and deficit a program that (in this particular case the democrats but I don’t care for) with the monster deficit program that Biden came or that Trump came.

There’s something happening in civil society. That’s interesting and the thing that is happening in civil society is that they actually are starting to believe, that money is free. But it’s still society because if not even Reagan or Carter, or you name it… or, Obama, that came with a very strict fiscal program and then did something else none of the.

None of them could win an election saying “I’m going to drive the deficit to trillions”.

45:17|Michael: yeah you’re saying, yeah..

45:18|Daniel Lacalle: Now it’s the first time in history in which in an election, I have heard from my friends in the United States “ah but money doesn’t matter”.

Well there you go it’s your problem now.

45:33|Michael: Do you think that this is partially true? When we can compare, (you know like you mentioned Ireland, Luxembourg, Germany — these are countries that don’t have their own currency) they’re under the EURO and so there’s kind of some removal between them. And basically the faucet of being able to print money. Do you think that makes any difference?

45:56|Daniel Lacalle: It does actually. It does because you have all those things in civil society that you perceive that something you know.

People are not economists, they don’t need to be economists.

However, if you hear from people who are allegedly experts, that nothing matters, the deficits don’t matter, that doesn’t matter and that money creation is free.

Hey, you know. A Nobel prize winner told me. Well you know that the Nobel prize winner is not going to suffer the consequences.

But if you think about this in South Korea they went the opposite way of Japan precisely. Because of Japan’s policies. In the Asian countries they went the opposite way of China precisely because of China’s policies, in Chile, in Uruguay, in Colombia, in Costa Rica, in El Salvador — they went the opposite way of Argentina, Venezuela, Mexico and Brazil. Precisely because of that.

People are not that stupid and what we need – the US citizen is to be blunt, to start being more aware of the risk to the US dollar of what they’re doing.

47:39|Michael: What you’re saying uh seems to imply to me almost, that you know, there’s that expression you can either be a great example or a horrible warning. They need a horrible warning. This is great. I appreciate you sharing this particular thing about civil society. It is a really interesting insight.

What are your thoughts on digital currencies and everything that’s going on in that respect?

48:10|Daniel Lacalle: Well, again – digital currencies are in the same situation as bitcoin. BTC is obviously a response to this momentary insanity. But Central Bank digital currencies are another step towards even higher monetary insanity.

Digital currencies — they continue to be some kind of shelter from monetary insanity. They might become an alternative but right now they’re startup currencies. They’re not yet currencies, they’re not units of measure reserve of value and widely accepted means of payment which is what you need to do.

That is on its way — but it’s not yet there. And I think that’s what if central banks don’t learn from the lesson the level of risk that is happening right now digital currencies and BTC, ETH, independent currencies will rise.

Thanks for reading! We’re excited how this interview turned out — a lot of insights for the entire team:)

Check the full interview by this link →