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i think the fed absolutely does not get the pain that's involved with a bubble breaking we just went straight back into the game over stimulating pushing the rates down down and down they have gone for 50 years so they started at 16 on the long bond and now the real return you would get is -2. does inflation and the handcuffs that it puts on monetary policy eliminate that implied option it complicates it and and yes it limits it it it probably does not remove it because of inflation yeah and and because of low rates and now you don't have the tools that greenspan had bernanke was more limited he needed a lot of help from from treasury from government spending and what about now you have a much higher ratio of debt to gdp you have much more debt on the balance sheet of the federal reserve and you have much lower rates they will try they will have some effect there is some element of the put left it is just heavily compromised as you suggest how worried are you about inflation i haven't written about inflation for 20 years i when i did quarterly letters i never featured inflation it i didn't think it was on the radar screen it is now on the radar screen once again it's not that inflation will go roaring back to 1972 or 1982 it's that it will always be part of the discussion from now on in my opinion instead of forgetting about it it will be spiking and irritating and falling back and then spiking again it will be part of the scenery in the way it used to be in the second half of the 20th century there's a lot about this economy i think that will be dragged back into the late 20th century we've had a very very abnormal honeymoon goldilocks period for 20 years which i think is ending let me put it this way we're in the early stages of running out of raw materials of course we live on a finite planet there's only a certain amount of cheap oil cheap nickel cheap copper and we're beginning to hit some of those boundaries and we're going to have bottlenecks here there and everywhere the food price index of the u.n is about as high as it gets a growing food is not getting easier climate change is coming with heavy floods serious droughts and higher temperatures none of these make farming easier so we're going to live in a world of bottlenecks and shortages and price spikes and we have to get used to it and learn to manage our way around it so commodity prices that people perceive to be high right now may yet go quite a bit higher i think so and it may well turn out that owning commodities or selected commodities will be something of an escape valve commodities have a long history of doing quite well when inflation picks up for obvious reasons and inflation is quite likely to pick up looking out into the future it is pretty clear that we are running out of labor fertility rates have dropped like a stone china is reeling from the shock of finding that it has 10.8 million uh babies last year it's only the other the other year seven or eight years ago it had 20.
and this means absolute certainty that the cohorts of 20 year olds coming into the workforce will will be smaller going forward everywhere everywhere in the developed world we're below replacement in fertility hedge funds that have a style of making a hundred small bats trading gas prices against diesel prices and brent uh oil against texas oil they do a thousand arcane little relationships they're all independent of the market if they do it well they'll make a few percent maybe even quite a few percent and there will be some enormous dynamic moves in resources the federal reserve is confident that it can contain inflation with a series of incremental rate hikes what do you think it'll take absolutely does not get the pain that's involved with a bubble breaking you can see that in the history of the last 50 years greenspan encouraged the tech bubble he bragged about the productivity gains from the internet that would last forever actually productivity has declined slowly but surely since then when it broke it caused a lot of pain bernanke learned nothing he encouraged the housing bubble he denied its existence even though it was a three sigma one in a hundred year event that had never occurred in american history before and what have we learned we just went straight back into the game over stimulating pushing the rates down down and down they have gone for 50 years so they started at 16 on the long bond and now the real return you would get is -2. you
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