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Joseph Wang: Significant Inflation Coming for the Next Decade

Tom welcomes a new guest, Joseph Wang. Joseph is a former Senior Trader at the Federal Reserve’s Open Market Desk and is the Author of Central Banking 101.

Joseph discusses the Fed’s trading desk, which is also known as the plunge protection team. It collects market intelligence and performs Fed operations. The desk analyzes market activity and reports to the board of governors for their decision-making. They also have access to a lot of confidential corporate internal data. For him this was a very educational experience as it revealed a lot of what goes on behind the curtain.

He explains how the Fed can mitigate inflation through prices and the wealth effect. He believes yield curve control is inevitable due to the incredible amount of debt issuance.

The Fed is using the technique of making everyone a little bit poorer with the intent of muting inflation. Inflation is always a choice that governments can make, and it’s also easy for them to reduce the money supply through taxation. The question is how bad are the side effects. It’s all about trade-offs.

He discusses how the Fed is trying to target the real estate market. Housing is more susceptible to interest rate hikes, and it appears to be correcting. If necessary, they could increase the regulatory costs to banks for mortgages.

There is significant geopolitical risk in the world, and we see a proxy war between the West and Russia. The concern is that people abroad will try to hide their money in safer jurisdictions. Therefore, we could see significant inflows into the United States.

Talking Points From This Episode

  • How the Fed operates behind the scenes.
  • The various tools the Fed has at its disposal.
  • Why there is huge treasury market risk.
  • Why geopolitical concerns could bring foreign capital into the United States.

Time Stamp References:
0:00 – Introduction
1:06 – Fed Open Market Desk
4:07 – Inflation & Data
6:44 – Fed Data & Response
13:22 – Fed Tools
16:33 – The Balance Sheet
20:42 – Treasury Buy-Backs
25:06 – Debt Ceiling Thoughts
28:33 – Debt Servicing & Deficits
34:29 – Fed & Other Countries
37:25 – Pivot Possibilities
41:36 – Talking Down Markets
44:17 – Inflation Targets
48:24 – Energy & Resources
50:05 – Credit Growth & Stocks
53:14 – Treasury Market Risk
55:40 – Treasury Auctions
1:00:25 – Concluding Thoughts

Guest Links:

Joseph Wang spent five years studying the plumbing of the financial system as a senior trader on the open market’s desk. The Desk sits at the center of the dollar system as its ultimate and infinite provider of dollars. It has access to virtually all regulatory and financial data, as well as open lines of communication with all major market participants. It is one of the few places in the world where one can definitively learn how the system works.

Before joining the Desk, Joseph was a credit analyst and in another life he practiced law. He holds a B.A. in Economics from Northwestern University, a J.D. from Columbia Law School, and an M.Sc. in Financial Economics from Oxford University.

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