Cullen Roche: Understanding the Modern Monetary System (EP.132)

Jan 14, 2021

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INSIGHT

Asset Rallies Reflect More Than QE

Empirical links between QE and asset price rises are ambiguous; fiscal policy and corporate profit support also explain prices.
Asset inflation often reflects underlying profit tailwinds from government spending.

INSIGHT

Inflation Has Complex, Uncertain Drivers

Nobody fully understands what causes inflation; many structural factors matter beyond money supply.
Large fiscal stimulus raises upside inflation risk, and governments are getting better at generating inflation.

INSIGHT

Fed And Treasury Have Distinct Roles

The Treasury implements fiscal policy and the Fed manages the payment system; calling QE debt monetization is misleading.
The real cost of government funding is inflation, not an inability to sell bonds to markets.

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With so many moving parts, it's difficult to develop a clear view of the US monetary system. Today we speak with Pragmatic Capitalism author and Founder of Orcam Financial Group Cullen Roche, leveraging his expertise to build a comprehensive understanding of the monetary system. We open our interview with Cullen by asking him the deceptively simple question, "what is money?" We then explore where money comes from, the role of the central bank in securing our money supply, and why poor capitalization restrains banks. After discussing where the value of money derives from, Cullen shares his insights on how decentralized digital currencies are challenged by their lack of flexibility and credit options. We talk more about the role of central banks before diving into quantitative easing; what it is, why it's used, and how interest rates impact its usage. Following this, Cullen unpacks whether quantitative easing leads to asset inflation along with the influence that stimulus policies have on inflation. Reflecting on the relationship between the Federal Reserve and US Treasury, Cullen shows why the US government is in no danger of becoming insolvent. We touch on the dollar's purchasing power, Cullen's view that time really is money, the role of gold in your portfolio, and why Cullen is such a big proponent of global investing. We wrap up our informative discussion by asking Cullen how he defines success in his life. Tune in to benefit from Cullen's clever and concise explanation of our modern economic system.

Key Points From This Episode:

Introducing today's episode featuring Cullen Roche. [0:00:15]
We open our interview with Cullen asking the question, "What is money?" [0:03:50]
Exploring where money comes from and the role of banks in ensuring money supply. [0:06:14]
The factors that constrain a bank's lending ability. [0:09:26]
Cullen unpacks where the value of money comes from. [0:12:36]
Economic constraints posed by decentralized digital currencies. [0:15:08]
What central banks are and why they're such good ideas. [0:20:46]
Cullen explains what bank reserves are. [0:25:00]
How quantitative easing tries to stimulate the economy. [0:25:45]
Why quantitative easing isn't the same as printing money. [0:30:01]
Cullen evaluates the success of quantitative easing as a policy tool. [0:33:19]
Whether quantitative easing leads to asset inflation. [0:33:57]
The impact that stimulus policies have on inflation. [0:39:38]
The relationship between the US Federal Reserve and Treasury. [0:43:04]
Why the US government will most likely never go insolvent. [0:47:44]
Why low inflation trumps high inflation and how increasing government debt might or might not harm future generations. [0:51:17]
Why the dollar's purchasing power doesn't reflect the reality of our modern standards of living. [0:55:26]
Hear about Cullen's view that time really is money. [0:59:14]
How Cullen sees gold as a hedge against the dollar's decreasing purchasing power. [1:00:41]
Cullen explains why he's such a big proponent of global investing. [1:05:04]
There's more to life than money; Cullen defines success in his own life. [1:06:48]