As a graduate of a college that is one of the few left that espouse Austrian Economics (free market economics, which is one of my undergraduate degrees), this is a very rare column for me and probably won't be repeated. I can see my professor, Ludwig Von Mises student Dr. Hans Sennholz, spinning in his grave at the thought of a student of his attending the event I did on Thursday.
It was a talk given by Bill Dudley, former president of the Federal Reserve Bank of New York and vice chairman of the Federal Open Market Committee (FOMC), at Princeton University, where he is a senior research scholar at the Griswold Center for Economic Policy Studies. Dudley made waves in a late August Bloomberg column in which he essentially stated that the Fed should not enable President Trump's trade war with China by cutting interest rates
While I would not normally have sought out a talk like this, it was a chance to meet up with a couple former Bloomberg cohorts and dear friends. As it turns out, I am glad I attended. I heard some things I did not expect, while two big question marks went unanswered for me.
First off, Dudley believes the current expansion, the longest in U.S. history, can continue, and he does not see a recession on the horizon. The wild card, however, is what happens with trade and China, and Dudley suggested that China may be less likely to make a deal if it believes Trump is on the ropes and won't be re-elected. So there is big question mark No. 1.
Dudley was relatively unconcerned about the inverted yield curve saga; while many pundits have used that condition as the predictor of a dreaded recession, Dudley said that "this time is different." At this point, with inflation not an issue and unemployment at just 3.5%, we are in a different world, he maintains. He briefly touched on stock market valuations, indicating that stocks may be fully valued, but not overvalued, and that while price-to-earnings (P/E) ratios are elevated, profit margins are not, and we remain in a low interest rate environment.
One of my biggest concerns is the national debt (question mark No. 2), and the sense I get that no one seems to care about it anymore, on either side of the political aisle. When a two-part question of how big of an issue it is and when it might come to a head was posed to Dudley, I was disturbed by his answer, which was "Yes, it is a big deal" and "I don't know."
That frightens me. There are those economists who believe the national debt does not matter, but Dudley is not one of them. Yet no one seems to know how to tackle it, and if we don't, what the ramifications will be, and when. On that subject, I whispered to one of my former colleagues to stock up on gold, silver and bullets, just in case; he laughed, but I was only half kidding.