Stable prices should mean a goal of zero inflation, expert reveals

Here's a summary of the YouTube video transcript, maintaining the original language and technical precision:

Key Concepts

• Inflation Target: The Federal Reserve's goal for the rate of price increases.
• Stable Prices: The original mandate of the Federal Reserve, interpreted by some as aiming for 0% inflation.
• Gold-Backed Bonds: A proposed financial instrument where the value is tied to gold.
• Treasury Inflation-Protected Securities (TIPS): Bonds designed to protect investors from inflation.
• Debasement of the Dollar: The act of reducing the value of a currency.
• Supply-Side Economics: Economic policies focused on increasing the supply of goods and services, often through tax cuts and deregulation.
• Gold Standard: A monetary system where a country's currency or paper money has a value directly linked to gold.
• Monetary Inflation: An increase in the money supply, which can lead to price inflation.

Discussion on Inflation Targets and the Federal Reserve

Larry introduces the topic of inflation, noting that it's lower than under the previous administration but questioning if the current rates (2-3%) are sufficient. Judy Shelton argues that the Federal Reserve's original mandate was for "stable prices," which she interprets as aiming for 0% inflation, not a stable rate of 2%. She criticizes the current focus on a 2% inflation target as "stable inflation" rather than true stable prices.

Steve Forbes questions the origin and rationale behind the 2% inflation target, stating it was "picked out of thin air" by the New Zealand central bank and adopted by others. He advocates for the Federal Reserve's focus to be on "stable value for the dollar." Forbes suggests that supply-side tax cuts and deregulation would naturally lead to lower prices and a reduced cost of living, eliminating the need for the Fed to manipulate interest rates to stimulate or depress the economy. He believes the economy should be left alone, allowing entrepreneurs to drive progress.

The Concept of Gold-Backed Bonds

Larry brings up the idea of "gold-backed bonds," a concept he knows a president is intrigued by, and asks if such a bond could solve problems. Judy Shelton explains that a gold-backed bond would focus attention on the issue of the Federal Reserve "deliberately as a matter of policy seeks to debase the dollar." She contrasts this with the founders' intention for the dollar to be an "honest measure." Shelton likens a gold-backed bond to a TIPS bond, offering protection against loss of purchasing power for those lending to the government. Instead of using the Consumer Price Index (CPI) for measurement, gold would serve as a surrogate for the real economy, appealing to those who trust the stable value of gold and seek discipline.

Larry inquires about purchasing gold now and its impact on the gold-backed bond concept, noting gold's current high price ($4,000 an ounce) and its potential to rise further. Judy Shelton points out that gold's increased value makes the idea more compelling. She highlights that the Treasury currently carries its gold holdings at a nominal value of $40.22 per ounce, whereas their actual market value is over a trillion dollars. She proposes using this gold as specific collateral for "gold-backed bonds," suggesting an initiative to issue them on July 4, 2026, to celebrate America's 250th anniversary, calling it "perfect for the golden age."

Steve Forbes supports the idea of gold backing, stating that the U.S. would not have experienced inflation if it had remained on the gold standard for the 180 years it was in place. He believes gold-backed bonds would be a better measure than TIPS, as they would be more transparent to the public. Forbes criticizes the manipulation of money's value and draws a parallel to the White House and Treasury's hints about trade balances, which he argues have historically led to trouble. He asserts that money, like minutes in an hour or inches in a foot, should be a "measure of value period." He also references Alexander Hamilton's actions in bundling and federalizing debt, backed by gold, as a key strategy that helped the U.S. avoid the fate of Latin American nations and build its financial system.

Forecasts on Future Inflation

When asked about the direction of inflation in the next year, Judy Shelton predicts it will come down due to the impact of supply-side measures. Larry interjects that inflation can change direction quickly. Steve Forbes warns that if the dollar is not firmed up, "we are in for another bad ride" of monetary inflation. Larry mentions the possibility of the Fed inching up interest rates. Forbes reiterates his stance, advocating for leaving interest rates alone, comparing it to how markets set prices, and calling it a "revolution."