By John Mauldin
I'm not certain how many interviews I've done over the last decade. Hundreds? I know it is a lot. There are some interviewers who can somehow tease out what you really have in you. Tom Keene at Bloomberg, for instance, forces you to bring your A game, at whatever level you play. He brings it out of you. You know that he is smarter than you will ever be and that you should really be asking him the questions. Except that you're not smart enough to ask the questions. I have to confess that every time I walk into the room with Tom I'm a little intimidated. I try never to show it, somewhat like the new kid on the block trying to put on a brave face, but inside I keep looking for the exit doors just in case I throw up all over myself. At the end of the day I'm still a small town country boy from Bridgeport, Texas, trying to figure out how the big city works.
And then there's Steve Forbes. If I've done hundreds of interviews, then Steve has done many thousands, on the presidential campaign trail with the best of the best, and gods did he learn the craft. I've done multiple interviews with Steve, and every time I sit down with him I feel that I'm with my best friend. Maybe it's because we have a ton of shared values and I have read and admired him for years. I truly think he would've made a great president in the mold of Ronald Reagan, but for whatever reason New Hampshire did not agree. As I think even Steve will admit, while he may have a philosophical mind meld with Reagan, the Gipper had some small genetic extra, call it what you will.
But for whatever reason, Steve seems to bring out the passion in me. When I think about what central bank policies are doing to savers and investors, how we are screwing around with the pension system, circumventing rational market expectations because of an untested economic theory held by a relatively small number of academics, I get a little exercised. And Steve gives me the freedom to do it.
And so a few weeks ago, philosophically like minded old friends sat down at his offices in New York to talk about the world in general. Monetary policy, Janet Yellen, gold, stocks, commodities, the time value of money, grandchildren, and a lot of other stuff, all folded together into what I think may be the best interview I've ever done in my career. Steve gives me the room to be me and allows that passion that has always been inside me to come to the fore. And with his smile and gentle demeanor, he eggs it on.
So this week, for the first time in 14 years of Thoughts from the Frontline, I offer you a wide ranging interview with John Mauldin, as conducted by the inimitable Steve Forbes. You can watch the video on our home page (lower right, under "Latest Video") or read the transcript below.
John Mauldin: How Central Bankers Will Ruin The Global Economy
John Mauldin, investor and co-author of the new book Code Red, recently sat down with me to discuss monetary policy, a still-lagging economy, and how he might operate the Federal Reserve if he were in Ben Bernanke's or Janet Yellen's shoes.
Steve Forbes: John, good to have you back again.
John Mauldin: Steve, it is always fun to be with you.
Forbes: You've got a new book out, called Code Red.
Mauldin: Yes.
Forbes: Hot off the press.
Mauldin: Yeah, show it up twice now. There we go.
Forbes: Code Red, Jack Nicholson, A Few Good Men. Explain first the title.
Mauldin: Well, in that movie Jack Nicholson famously felt that he had to protect America. He was in charge. And so he issued his famous "code red," and his line was, "You need me on that wall." So at the beginning of the book I paraphrased his speech as if it were Ben Bernanke talking or now Janet Yellen:
"You need me on that committee. You want me on that central bank. Yes, you work for savers and creditors, but I'm responsible for whole economies. I have greater things to worry about."
It's like, a patient is brought by ambulance to the hospital, and instead of operating you put him on morphine. Or it's like asking the arsonist to put out the fire. Part of the reason we had this very crisis was because of central bank policies and government regulations and the interweaving of large investment banks and politicians and central bankers. I don't want to get into conspiracy theories; I think it's just people's self interest.
Forbes: How about a stupidity theory?
Mauldin: Some of it was stupid, but some of it was just greed. Nonetheless, we had a crisis. The banking system froze up. We went to the edge of the abyss. We looked over and it was a long way down. And I believe central banks appropriately provided liquidity. That was their function, and I would argue that almost the sole true function of a central bank is to be there when the stuff hits the fan.
Forbes: To be what Bagehot called the lender of last resort.
Mauldin: Yes, the lender of last resort. That being said, they never took the patient off morphine. At your and my age, we've had the unpleasant experience of caring for friends who are in the hospital. And in today's world, my mother has a hip operation, and they have her up and walking the next day.
They just opened up her hip, put a new hip in. One of my good friends, the same thing – the next day he's up and walking. Forget this morphine stuff. Forget lying around in a hospital bed like we used to have to do. Well, the central banks are still operating with 1900s medicine, so they just kept the patient on morphine.
And now the patient is addicted. The problem is, when you want to end that addiction, whether it's alcohol or drugs or quantitative easing, withdrawal is not going to be pretty. But the Fed's hope is that somehow or other, "We can get the economy going. We can create animal spirits," and that people won't notice when they start withdrawing a trillion dollars a year of monetary easing out of the global system.
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