A couple of interesting interviews with Dr. Richard Werner on Renegade Inc (link to the first one on QE infinity here). Some notes are below; these are paraphrased and for personal reference only, any mistakes in transcription are my own.

On the “Japanification” of the West – always good to compare to historical examples and other countries, but we need to look at the right comparison for the right scenario (e.g. in looking at the policies before and after 2008, it was quite useful to compare to Japan). In Japan, we’ve essentially had a period of low growth and deflation because bank credit creation was zero or negative. Took until 2013 to finally increase bank credit to the real economy and that’s when GDP started to expand. The problem since March 2020 is one of booming bank credit growth and therefore the problem is more on the inflation side. At the time, we couldn’t tell whether it was transitory or not as it depended on whether bank credit creation would continue. The latest update is that they have reduced bank credit creation and central banks have reduced liquidity injections vs. a year ago. Looks like we are not heading into a Weimar style period of galloping inflation, but clearly an inflationary shock. Whether inflation will disappear, get entrenched or accelerate depends entirely on the policies we get moving forward.

On comparisons to the Weimar era – people forget this was a policy decision that led to a disastrous outcome. He doesn’t think the Weimar period is a great comparison. If you look at what happened from March onwards last year, it was much more akin to Stalinist / Soviet Union type scenarios. We had massive intervention by the government in the economy, including restrictions we had never seen before. Central planners will introduce all sorts of further measures if inflation does become a problem. The parallels are there – big queues, people not allowed to do certain trade, price controls come next. As the Covid-19 agenda smoothly morphs into a climate change prevention agenda, you get these targets for all sorts of things (e.g. CO2 emissions, switching cars to electric vehicles).

On the war on cash – he thinks this tendency is global. Look at what happened in India in 2016 with demonetization. Millions of people in the rural areas didn’t even get the information in time. Then they had to scramble to open an account, which is much more difficult (need to join the Aadhaar ID system first). Devastating for a lot of very poor people that had their wealth only in the form of cash. He thinks cash is a very resilient, simple tool that should be maintained. He has been participating recently in the #CashFriday campaign. In some countries such as Germany and Japan, people still love cash, but you see some centralizing forces limiting by law the maximum amount of transactions that can be paid in cash.

On CBDCs – The reason we don’t have them yet is the implications for the economy and society are so vast, governments need to build stronger consensus before unleashing this tool. Some central banks are proposing CBDCs which are essentially surveillance and control tools that have frightening totalitarian aspects, while at the same time undermine the banking system. Other central banks have been working on CBDCs that don’t have these frightening negative aspects. Ironically, one of these is the Chinese central bank. The key design difference concerns the role of the banks. With some CBDCs, banks will disappear, which is the system we had in the Soviet Union, where one bank controls everything. The Chinese central bank made sure CBDCs continues the current relationship between the banks and the central banks, where the latter is a wholesale bank dealing with the banks but not with the public. It is possible to design a CBDC so that banks remain the credit creators in the economy while the central bank also has a digital tool dealing only with the banks. With that design, you will not kill the banks and therefore have the potential of high economic growth and small firms doing well. If you get rid of the banks, it gets worse, and small firms don’t get enough credit. You don’t want a centralized system where the central bank is the only creator of money; a decentralized system where banks create money is superior.

On cryptocurrencies – think these serve both an educational + PR purpose. They get people used to idea there could be digital currencies, just like in the future when we have CBDCs. He thinks the other purpose is to serve as a digital gold so that there’s not so much pressure on the gold price. If you look back to the events of last year, you would normally expect the gold price to go up a lot, but the gold price hasn’t really moved. Lots of evidence that gold price is largely manipulated and kept artificially low. Once the gold price spirals out of control, it’s game over as people start to realize what is happening. To do that you need another outlet – a modern version of gold.

On interest rates – at the moment, central banks still want to be helping the economy, and the knee jerk reaction over the last 50 years has been to lower interest rates. Many different schools of thought in economics but they all agree on one point – if we lower rates, we get higher growth and if we raise rates, we slow growth. He disagrees with this because there is no empirical evidence for it, despite being frequently cited by central banks and macro policy makers. He did the first empirical test of whether there is negative correlation between interest rates and growth, and the direction of causation from interest rates to economic growth. Link to research paper here. He found that interest rates and economic growth are positively correlated and that causation runs the other way – economic growth drives interest rates, but it is credit creation that drives economic growth.

On when the asset price boom ends – when bank creation for non-GDP transactions (i.e. asset purchases) slows to zero and contracts.

On the issue of personal sovereignty – he thinks it is time to speak up, that governments should not be allowed to take away certain freedoms. And if we cannot change things, need to consider moving to a country where there is more freedom.