comprehensive analyses of debt crises that I have ever seen you say this

pattern repeats itself again and again why write a book about this well I'm at

a stage of my life that I want to pass along the principles that helped me this

was really research that was done before the 2008 financial crisis and it lays

out a template of how these things happen over and over again in other

words I believe that same things happen over and over again and if you study the

patterns of them you understand the cause-effect relationships and then can

write down principles for dealing with them well we dealt with them very well

in that financial crisis and in other debt crisis is and I wanted to pass that

template along it's actually only in the first 60 pages of the book so it's not a

big read if people want to and you're giving it away for free which is great

so where are we in the current debt cycle

you often hear lots of talk about debt obviously we're now ten years as you

note past the financial crisis but debt still comes up the deficit is ballooning

in the United States where are we in the cycle I think that there are six stages

to the cycle I'm going to touch on them briefly

there's the early part of the cycle where debt is being used to create

productivity incomes and then it can be serviced well asset prices go up

everything is great and then you come to the bubble phase of the cycle and in

that bubble phase you're in a position where everybody extrapolates the past

because asset goes up they think it's assets are going to continue to rise and

you put you borrow money and they leverage and when you are in that phase

you do it when we do the calculations well you could start to see that maybe

you won't be able to sustain that level of debt growth then you come into the

third phase of the cycle which is the top that's typically the part of the

cycle when central banks start to put on the brakes tighten monetary policy and

the like then you come into the down leg and when interest rates hit 0% you come

into a depression part of that cycle because monetary policy doesn't work

normally when interest rates hit zero then you have to

have quantitative easing and you begin that expansion and then you carry that

along and you begin the cycle carry that so I think the period that we're in is

very similar to the period that we were in in the 1930s if I may oh absolutely

explain it okay there are only two times in the history of this century where we

had debt crisis in which interest rates hit zero and in both of those times the

central bank had to print money and go to a different type of monetary policy

which we call quantitative easing and to buy financial assets and that drives up

in both of those cases the value of those financial assets and produces a

recovery but it drives interest rates down to zero or near zero where they are

around the world and that buying in this case fifteen trillion dollars of

financial assets has put up pushed up financial assets and drove driven the

interest rates down to zero so it's caused asset prices to rise it's also

caused populism more populism because that process creates a gap between the

rich and the poor those who have more financial assets now see those asset

prices go up and for various other reasons a wealth gap has developed if

you look at right now the top 10% of 1% of the populations net

worth is equal about to the bottom 90% combined that's very similar to the late

30s when we had that stimulation and so on so we in a situation where we're in

the part of the cycle later part of the cycle where quantitative easing has been

used most of its energy asset prices are up interest rates are low and we're

beginning a tightening of monetary policy very much like we began in 1937

and we have a political situation in terms of having more of a conflict

between the rich and the poor which is bringing out a populism populism around

the world is the selection of strong-minded

leaders who are sort of take charge but tend to be more nationalistic and so

we're in that type of position and you've written extensively and

articulately about what happened after 1937 which is we went through a real

surge of populism and nationalism and got to World War two and all the

horrible things that happened there what do you think happens now given where we

are I think the cause-effect relationships

are analogous meaning that if you have a wealth gap and you have a downturn in

the economy where you're sharing the pie how do you divide a budget sharing the

budget there's a risk that the both sides are at odds with each other

there's also a greater international risk in tensions economic tensions

produce global tensions for various reasons so I think that in this

expansion we're about in the seventh inning of a nine inning game let's say

we're in the later part of the cycle the part of the cycle in which monetary

policy is tightening and there's not much capacity to squeeze out of the

economy and that as interest rates tend to rise if they rise faster than is

discounted in the curve it can hurt asset prices and asset prices are fairly

fully priced at this level of interest rates at some point we're going to have

a downturn because that's why we have recessions nobody ever gets it perfectly

and my concern is what that downturn would be I think that that's not

immediate we don't have the same pressures but I think it's maybe into

maybe it's in two years I can't say but I think that that what concerns me is

that it concerns me also internationally because the situation internationally is

quite similar to the late 30s in that in the these periods of time these

geopolitical cycles there is an established power and an emerging power

that then have a rivalry at first it's an economic rivalry and then it can

become mystic so back then the United States

and England War One World War one and we had the peace but then as there was a

rising Germany and a rising Japan there became that kind of economic rivalry

that became more antagonist ik I think that we have a situation where there is

a rising China and the United States is an existing economic power and there is

a rivalry about that and there can be an antagonism about that so what when I

look at it I think the parallels are quite similar doesn't mean that the same

outcomes have to happen okay but does mean that I think we have to be

alerted to the fact that going forward in a downturn monetary policy will not

be able to be as effective as it was last time so we have to be cautious

about a downturn I would say err on the side of having a little bit more leeway

and be and then we have to be concerned about the wealth gap and the

consequences geopolitically and if we don't want to repeat what happened in

the late 30s and 40s what do we have to do what is the having studied history

the right way to handle this and head that off well I think one of the things

is to make sure the capitalism works for the majority of people to look at the

bottom 60% of the population and use that as metrics to say is that improving

or not and how do you approach that wealth gap it's not just a wealth gap I

think it's more important than the wealth gap is an opportunity gap that

people need to be made useful by being able to have jobs and so on so I think

that there should be that should be considered you know an imperative I

think that we have to be thinking about our balance of payment situation and the

amount of debt that we're producing we're in a very privileged position of

having a reserve currency one of the things that distinguishes countries that

really have problems from those who are able to manage their debt problems is

whether the currencies denominated the debt is denominated in one's own

currency that requires us in order to do that to continue to maintain sound basic

finance I think we're going to have though a

squeeze that will be not just related to debt but even more importantly related

to pensions and healthcare obligations that will happen so I think these will

be difficult times not not immediately but I think in maybe a few years and I

think it will be very dependent on how we are with each other so let me ask you

about both of those first how do we make capitalism work for everybody

it seems like part of the problem is that as you pointed out the rise in

asset values are not accruing to 60 to 80 percent of the population anytime you

suggest that companies pay people more the financial class well Sal that's

outrageous that should be free markets we can't have minimum wage and it should

be hey Iran was right you want to raise you've got a bargain for it so how in

that you you obviously care about the economy how do we make capitalism work

for everybody without wrecking I think I think the first thing that you need to

do is realize that it's a the issue as a national emergency I would like the

president to declare it as a national emergency and then use metrics to judge

that in other words take the population the bottom 60% 60% and take those

numbers and make the metrics and then bring together a commission of people a

bipartisan Commission to be dealing with this I think there are a lot of things

that could be done I see it to some extent philanthropic last thing at an

education for example in education we're in a situation where in many cases

terrible terrible conditions in education literally in schools that I

know children are having to share pencils they'll break a pencil and half

and sharpen it at both ends or they'll pass it back and forth they don't have

adequate books there were some day those children in Connecticut where the state

that I'm from which is either the richest or what certainly one of the top

three richest country states in the country we have 22% of the pop

Highschool population that is either disconnected or disengaged and and so

I'll tell you what that means a disengaged student is one that attends

high school but doesn't participate they don't study they don't really make

progress a disconnected student is one that they don't even know where they are

22% of the population in Connecticut is one of those high school students is one

of those those those are students that are not going to be able to be

productive they're going to be on the streets if you look at the cost of

incarceration cost of incarceration it's between 85 and 100 $45,000 typically a

year in terms of that so there were certain things I think I think you could

create public/private partnerships so that these some programs do well I'm

support I support for example microfinance microfinance in being able

to bring about there are many things forget the things that I'm supporting

I'm saying if we take an initiative and you say in national emergency and you

bring together others and you establish metrics like good management of that I

think that you are you will be making progress toward dealing with that in in

public part private partnership I don't know what'll happen I don't think that's

going to happen I have no prospect of that that's why

I'm a little bit concerned that what will the next downturn will be like does

it require our raising taxes because the other problem as you point out is the

debt and the debt growth is accelerated with the recent tax changes any time you

mentioned the idea of more money to education or more money to other social

services lots of people freaked out and say we can't afford it so are you

suggesting that we do need to have an increase in the tax base I think that

most probably we do but the real issue is mostly productivity right in other

words to unleash productivity there was a time that women were in part of the

world for workforce and when they entered the workforce it it caused a

great productivity boom I think if we make it a mission that that group

becomes much more productive and has the opportunity

I mean I think the country you know is what are we about I think it should be

the land of opportunity and we bring that together and produce those

opportunities because that produces productivity candidate Trump going back

to debt campaigned on how awful the administer administration was doing that

debt was growing how President Trump has a big new tax plan that has radically

accelerated the growth of debt given your concern and expertise in dead

cycles are you concerned about what's happening at this stage of the cycle in

terms of the increasing debt the private sector debt for the most part I don't

have much in the way of concerns for when we do our pro form of financial

numbers and we look at we see pockets that will probably have problems

servicing their debt there's a lot of cash around I am concerned in about a

two-year period about the amount of dollar denominated debt that we're going

to have to sell abroad because we're going to have to fund the deficits and

then in addition we'll have our balance sheets the Federal Reserve's balance

sheet go down and that'll involve a significant amount of selling of

dollar-denominated debt when I look at the portfolio's of different entities

that are holding different amounts I think it'll be more difficult to sell

that amount of debt I think that will cause upward pressure on interest rates

but the way that works is that pressure will sort of be negative for the economy

now let's say two years from now but it will also probably be at that point more

negative for the dollar right now we're in a short squeeze $4 because there's a