THIS PROGRAM IS MADE BY MPT TO SERVE ALL OF OUR DIVERSE COMMUNITIES AND IS MADE POSSIBLE BY THE GENEROUS SUPPORT OF OUR MEMBERS.

THANK YOU.

LIVE FROM MARYLAND PUBLIC TELEVISION, THIS IS "DIRECT CONNECTION" WITH JEFF SALKIN.

*] >> JEFF: GOOD EVENING AND WELCOME TO YOUR "DIRECT CONNECTION."

TONIGHT WE GET ANSWERS TO YOUR QUESTIONS ABOUT THE REAL ESTATE MARKET.

OUR FEDERAL JOB CUTS BOOSTING INVENTORY AND ARE HIGH MORTGAGE RATES LIMITING BUYERS?

JOINING US ARE ELAINE KOCH SENIOR REAL ESTATE AGENT AND TEAM LEADER AT LONG AND FOSTER AND BRUCE ALLEN SENIOR LOAN MORTGAGE OFFICER AT MID-ATLANTIC CREDIT UNION.

THANK YOU FOR JOINING US.

ELAINE, GIVE US A SENSE OF THE MARKET?

WHERE DO THINGS STAND?

>> ABSOLUTELY.

THE MARKET IS IN GENERAL, I THINK IS BALANCING.

I THINK PREVIOUSLY WE HAD VERY, VERY LOW INVENTORY LEVELS.

WE'RE STARTING TO SEE INVENTORY INCREASE AND THAT IS BALANCING THINGS OUT.

WE'RE ALSO SHIFTING BACK TO WHAT I THINK IS MORE OF A NORMAL MARKET THAT A LOT OF US AREN'T USED TO WITH PRICES BEING A BIT UP AND OVER.

THINGS ARE BALANCING AND INVENTORY IS INCREASING.

I THINK THOSE ARE HEALTHY THINGS HAPPENING IN THE MARKET.

>> Jeff: DOES THAT MAKE IT A BUYERS MARKET?

ARE WE AT THE POINT WHERE THAT MANY PEOPLE ARE TRYING TO SELL?

>> MORE OF A SELLERS MARKET RIGHT NOW, JEFF.

WE ARE NOT QUITE THERE AND SAY IT IS A TRUE BUYERS MARKET.

BUT IT'S SHIFTING A LITTLE BIT.

I MEAN, I THINK BUYERS HAVE A LITTLE BIT MORE LEVERAGE THAN THEY DID SIX MONTHS AGO.

WE'RE STARTING TO SEE HOME INSPECTIONS AGAIN AND CONTINGENCIES WHEN SIX MONTHS AGO WE DIDN'T SEE ANY OF THAT.

I WOULDN'T SAY IT IS A TRUE BUYERS MARKET BUT I WOULD SAY WE'RE MOVING IN THAT DIRECTION.

>> Jeff: BRUCE, WHAT ARE YOU SEEING ON THE MORTGAGE SIDE?

RATES HAVE BEEN INCHING UP A BIT.

>> FIXED RATES IN PARTICULAR HAVE BEEN A BIT STUBBORN THEY ARE AT OR ABOUT 7% SOME CASES HIGHER THAN 7.

MOST PEOPLE HAVE BEEN DOING THE ARM RATES WHICH IS AN ACRONYM FOR ADJUSTABLE RATE MORTGAGE.

THE ARM RATES ARE MUCH LOWER THAN FIXED A WHOLE PERCENTAGE POINT AND THEY ARE FIXED FOR A PERIOD OF YEARS BEFORE THEY CAN ADJUST.

SO IT IS A GOOD OPTION.

>> Jeff: HOW DO MOST OF YOUR CUSTOMERS LOOK AT THAT DECISION?

SO 7 FIXED, 30-YEAR.

VERSUS SIX WITH A POTENTIAL THAT IT COULD ADJUST ONE WAY OR THE OTHER, RIGHT?

>> CORRECT.

WITH THE FIXED RATE YOU NEVER NEED TO WORRY ABOUT THE RATE ADJUSTING.

AND THERE ARE NO PREPAYMENT PENALTIES ON ANY OF THESE LOANS SO YOU ARE NOT STUCK WITH ANY OF THEM.

YOU GO WITH THE FIXED RATE THE RATES GO DOWN YOU CAN REFINANCE SAME THING WITH AN ARM YOU ARE NOT STUCK IF THAT EITHER.

BUT THE PAYMENTS ARE MUCH LOWER WITH THE ARM RATES FOR THAT SAME LOAN SIZE AND PRESUMABLY THE SAME PERIOD OF TIME THAT WE'RE WAITING FOR ALL RATES TO COME DOWN.

>> Jeff: ELAINE, ON THE MARKET FOR HOMES AND CONDOS, TELL US A LITTLE BIT ABOUT YOUR REGION, BUT ALSO WHAT YOU ARE SEEING IN TERMS OF PRICE TRENDS?

HOW MUCH APPRECIATION HAVE WE SEEN IN RECENT YEARS?

>> SURE, ABSOLUTELY.

MY MARKETPLACE IS MOSTLY MONTGOMERY COUNTY, A LITTLE BIT OF FREDERICK AS WELL.

IN TERMS OF PRICE INCREASES, I MEAN WE'VE SEEN RECENTLY AS MUCH AS 13% PER YEAR IN SOME AREAS.

OBVIOUSLY DIFFERENT HOUSES GET DIFFERENT AMOUNTS OF APPRECIATION BASED UPON UPGRADES.

BUT A NORMAL MARKET HAS ALWAYS BEEN 2-3% PER YEAR.

AND WE'VE SEEN AGAIN AS HIGH AS 13% DURING THE TIMES WHEN THE INTEREST RATES WERE SUPER LOW AND FRANKLY, EVEN WHEN THEY WERE CREEPING UP, BECAUSE INVENTORY WAS SO LOW.

NOW WITH THE GOVERNMENT LAYOFFS WE ARE STARTING TO SEE THE INVENTORY IS INCREASING.

>> Jeff: I WAS GOING TO REMIND OUR VIEWERS IF THEY HAVE A QUESTION FOR YOU TO SEND US AN E-MAIL RIGHT NOW AT LIVE QUESTIONS AT MPT.ORG AND WE'LL TRY TO GET YOUR QUESTIONS ANSWERED.

SO HOW ABOUT SOME ADVICE, IF SOMEBODY OUT THERE IS LOOKING MAYBE IT'S A STARTER HOME, IN WHAT SOUNDS LIKE AN EXPENSIVE MARKET, WHAT ADVICE DO YOU GIVE PEOPLE?

>> YOU KNOW I'M TELLING BUYERS RIGHT NOW TO BUY THE HOUSE THEY LOVE.

DON'T WORRY ABOUT THE RATE.

YOU ARE NOT BUYING THE RATE.

YOU CAN ALWAYS REFINANCE YOUR MORTGAGE DOWN THE ROAD OR DO CREATIVE FINANCING WITH ADJUSTABLE RATE MORTGAGES THAT WOULD BE MY ADVICE TO BUYERS.

BUY YOUR HOUSE THAT IS YOUR DREAM HOME.

AND DON'T REALLY PUT THINGS OFF.

A LOT OF TIMES BUYERS SAY, THERE'S A LOT GOING ON WE'RE GOING TO WAIT-AND-SEE.

AND I THINK AGAIN IT'S SHIFTING INTO SOMEWHAT OF A BUYERS MARKET.

SO I WOULD TELL BUYERS TO GET OUT THERE AS FAR AS SELLERS GO, I WOULD TELL SELLERS TO BE REALISTIC WITH THEIR PRICING.

AND MAKE SURE THEIR HOME PRESENTS VERY, VERY WELL.

AND THEY WILL GET GREAT RESULTS.

>> Jeff: ARE YOU SEEING THAT EFFECT HOW LONG THAT TAKES SOMEBODY TO SELL THEIR HOUSE?

>> NOT YET.

I MEAN, ON OCCASION, WE'LL SEE A HOME THAT MIGHT TAKE A COUPLE WEEKS TO SELL VERSUS ONE WEEK.

WHAT WE ARE SEE SOMETHING CHANGES IN HOW MANY OFFERS COME IN WHICH HAS GONE DOWN.

AND HOW MUCH PEOPLE ARE WILLING TO PAY OVER THE LIST PRICE THAT HAS GONE DOWN AS WELL.

>> Jeff: WHAT BUYERS MAY HAVE BEEN CRAZY TIMES AT PERIODS IN RECENT YEARS WHERE THERE ARE GOING TO BE MULTIPLE OFFERS AND IT WAS GOING TO BE SORT OF LIKE AN AUCTION, YOU MAY NOT EXPERIENCE THAT NOW, WHICH I THINK THEY WOULD APPROVE OF?

>> EXACTLY.

AND, AGAIN, FRANKLY, I THINK THAT IS A BALANCED MARKET.

I THINK A LOT OF US ARE SPOILED AND DON'T REMEMBER WHAT A FORMAL MARKET IS.

AND THAT IS WHEN YOUR HOUSE IS ON THE MARKET FOR 30-45 DAYS AND YOU MIGHT SELL IT FOR 98 OR 99% OF LIST.

THAT IS A NORMAL MARKET.

WE'RE NOT USED TO THAT.

>> Jeff: BRUCE, HOW NORMAL ARE THINGS ON THE FINANCING SIDE IN TERMS OF CREDIT SCORES AND THE TYPES OF DOCUMENTATION AT THAT TIME YOU NEED THAT SORT OF THING?

>> THAT'S REALLY REMAINED VERY STEADY, VERY CONSISTENT.

WE'RE ALL UNDERWRITING TO THE SAME GUIDELINES IN THE LENDING WORLD AND THOSE GUIDELINES HAVE NOT CHANGED OVER THE LAST SEVERAL YEARS.

LONGER THAN THAT EVEN.

SO SCORES ARE FOR THE MOST PART GOOD.

I DON'T SEE A LOT OF LOW CREDIT SCORES COMING IN.

EITHER FOR REFINANCING OR FOR HOME PURCHASE.

AND I AGREE WITH WHAT ELAINE SAID IN TERMS OF FINDING A PROPERTY AND OBVIOUSLY YOU HAVE TO QUALIFY FOR THE LOAN SIZE, YOU DON'T WANT TO GO CRAZY WITH A SUPER EXPENSIVE PROPERTY IF YOU CAN'T QUALIFY IT'S NOT GOING TO WORK ANYWAY.

BUT DON'T ALSO AIM TOO LOW.

AS ELAINE POINTED OUT YOU ARE NOT MARRIED TO THE MORTGAGE YOU CAN REFINANCE AT ANY TIME.

>> Jeff: WHAT ARE YOU SEEING IN TERMS OF CREDIT SCORES?

ANY HITS?

IT IS A LITTLE BIT EARLY FOR I MEAN WHAT I GUESS IS A LOCAL PHENOMENON FOR PEOPLE WHO WORK FOR THE FEDERAL GOVERNMENT AND CERTAINLY A LOT OF PEOPLE IN THE BALTIMORE AREA WORK FOR THE FEDS THAT YOU'RE NOT SEEING THAT FILTER INTO DELINQUENCIES AND REPOSSESSIONS THAT SORT OF THING?

>> NO, I HAVEN'T SEEN ANY OF THAT.

REALLY ELAINE WOULD BE MORE ON THE FRONTAL OF -- FRONTLINE OF FEDERAL WORKERS SELLING AS A RESULT OF A JOB CHANGE OR RECENT JOB CHANGE.

THE INVENTORY HAS INCREASED.

THE ONE THINGLY POINT OUT, THOUGH, SINCE YOU ARE ASKING ABOUT CREDIT SCORES IT DOES NOT AFFECT YOUR CREDIT SCORE FOR A MORTGAGE CREDIT INQUIRY.

IT IS A HARD PULL.

NOT A SOFT PULL.

BUT IT DOES NOT IMPACT YOUR SCORE.

AND I THINK SOMETIMES PEOPLE ARE HESITANT TO APPLY FOR PREAPPROVAL OR TO HAVE ME LOOK AT IT BECAUSE THEY ARE WORRIED IF I PULL THEIR CREDIT THEIR SCORE WILL GO DOWN AND IT IS NOT THE CASE.

>> Jeff: ELAINE WHEN YOU WERE WORKING WITH A BUYER YOU WANT THEM TO KNOW AHEAD OF TIME HOW MUCH THEY ARE GOING TO BE ABLE TO FINANCE?

>> CORRECT.

ABSOLUTELY.

THAT IS ONE OF THE FIRST THING WE DO.

WE DON'T WANT THEM OUT THERE LOOKING AT HOMES THAT MIGHT BE ABOVE THEIR MEANS.

WE WANT TO EDUCATE THEM AND I ALWAYS TELL THEM LET'S START WITH WHERE YOU WANT YOUR MONTHLY PAYMENT TO BE.

LET'S WORK BACKWARDS FROM THERE.

>> Jeff: HOW MUCH OF A DOWN PAYMENT DO YOU NEED THESE DAYS?

>> WELL, IDEALLY 20%.

BUT THERE'S ALL KINDS OF DIFFERENT PROGRAMS.

BRUCE CAN SHARE WITH 20% YOU AVOID MORTGAGE INSURANCE BUT THERE'S ALL KINDS OF DIFFERENT PROGRAMS.

>> ABSOLUTELY.

THE RULE OF THUMB THE MORE YOU PUT DOWN THE LOWER YOUR LOAN AMOUNT WILL BE AND THE LOWER THE MONTHLY PAYMENT WILL BE AND THE LOWER THE RATE WILL BE AND YOU DON'T HAVE THE MORTGAGE INSURANCE.

HOWEVER A LOT OF PEOPLE CANNOT SWING THE 20% DOWN AND THAT'S FINE.

FIRST TIME HOME BUYERS CAN PURCHASE WITH AS LITTLE AS 3% DOWN.

UNLESS IT IS A V.A.

LOAN AND YOU CAN BUY A HOUSE WITH ZERO PERCENT DOWN IF YOU ARE AN ELIGIBLE VETERANS FOR A V.A.

LOAN.

MOST OF THE ONES I SEE ARE 5% DOWN.

>> Jeff: THAT IS ACCOMPLISHED WITH THE MORTGAGE INSURANCE AND THE DOWNSIDE TO THAT IT'S EXPENSIVE?

>> IT'S ADDED TO THE MONTHLY PAYMENT IT IS AN ADDITIONAL HIT TO YOUR MONTHLY PAYMENT YOUR MORTGAGE PAYMENT.

RATES CAN ALSO BE A LITTLE BIT HIGHER WITH A LOWER DOWN PAYMENT.

>> Jeff: WHAT'S TOUGHEST TO MOVE RIGHT NOW?

ELAINE, IS THERE ANYTHING MAYBE CONDOS SOME PLACE THAT ARE SITTING ON THE MARKET?

>> DEFINITELY CONDOMINIUMS FOR SURE, ABSOLUTELY.

CONDOMINIUMS THEY ARE GREAT STARTER HOMES FOR PEOPLE.

BUT THE FEES CAN BE OVERWHELMING WHEN THEY GO UP.

THERE COULD BE SPECIAL ASSESSMENTS TO DO IMPROVEMENTS TO THE BUILDING.

AND CERTAINLY A LOT OF PEOPLE HAVE HEARD ABOUT THE BUILDING THAT COLLAPSED IN FLORIDA AND THE NEW REGULATIONS THAT ARE IN PLACE.

SO CONDOS ARE NOT DOING THAT GREAT RIGHT NOW.

>> Jeff: I KNOW YOU'RE FAMILIAR WITH THE FLORIDA MARKET.

THAT COLLAPSE WHICH WAS A TOWN NORTH OF MIAMI, I THINK, FORCED A REEXAMINATION OF THE STRUCTURAL INTEGRITY OF ALL THESE BUILDINGS.

AND A LOT OF THEM NEEDED WORK.

AND MAYBE JUST FOR PEOPLE NOT FAMILIAR WITH HOW CONDOS WORK, HOW THAT FILTERS DOWN TO THE OWNER OF A PARTICULAR UNIT.

>> ABSOLUTELY.

SO THE NEW REGULATIONS SAY THAT BUILDINGS HAVE TO HAVE INSPECTIONS REGULARLY.

AND THERE NEEDS TO BE A CERTAIN AMOUNT OF RESERVES.

SO HOW THAT IS IMPACTED A LOT OF CONDOMINIUM OWNERS THAT HAVE ASSOCIATIONS WITH VERY LITTLE RESERVES, IS THAT THEY ARE PAYING SPECIAL ASSESSMENTS.

SOME TO THE TUNE OF $275,000 IN THE FLORIDA AREA BECAUSE THEY WEREN'T MANAGED PROPERLY AND THEY DIDN'T HAVE A LOT OF FUNDS ON HAND.

SO TO MEET THOSE NEW REQUIREMENTS A LOT OF HOMEOWNERS ARE BEING FACED WITH LARGE SPECIAL ASSESSMENTS.

>> Jeff: OUCH!

>> YES.

>> Jeff: I HAVE A GENERAL QUESTION FOR PEOPLE THINKING ABOUT SELLING A PROPERTY ANYWHERE, WOULD YOU ADVISE IF THE KITCHEN IS A LITTLE BIT OLD OR THE BATHROOM IS OLD, DO YOU TELL PEOPLE TO FIX IT UP AHEAD OF THE SALE?

OR TO NOT SPEND THAT MONEY?

IS IT MONEY YOU GET BACK OR NOT?

AND DO YOU WANT THE BUYER TO LOOK AT IT THINKING I GOT TO DO WORK HERE BUT I'M GOING TO SAVE MONEY ON THE PURCHASE PRICE?

HOW DO YOU SEE THAT?

>> WELL, WE DEFINITELY TELL PEOPLE TO FIX THE KITCHEN UP.

THE KITCHEN YOUR RATE OF RETURN ON THAT IS EVERYTHING YOU PUT IN AND THEN SOME.

PLUS IT'S THE MOST IMPORTANT ROOM IN THE HOUSE.

TODAY'S BUYERS REALLY WANT TURN KEY.

THEY WANT TO SEE THINGS LOOKING REALLY GOOD.

AND AS AGENTS, WE KNOW HOW TO DO RENOVATIONS AT VERY MINIMAL COST.

WE KNOW THE SMALLER THINGS THAT CAN HAVE A BIG IMPACT.

SO OUR CLIENTS OFTEN ARE NOT FACED WITH A FULL-BLOWN KITCHEN OR BATHROOM VENERATION BUT WE KNOW THE LITTLE THINGS THAT MAKE THE KITCHEN AND THE BATHROOM FEEL LIKE THEY ARE REDONE WITHOUT SPENDING A LOT OF MONEY.

>> Jeff: BRUCE IF YOU HAVE SOMEBODY WHOSE CREDIT REPORT ITSELF IS A LITTLE BIT OF A FIXER-UPPER, HOW HOW MUCH CAN YOU DO WITH THAT?

>> GOOD QUESTION YOU NEED TO ALLOW A LITTLE TIME FOR THAT.

WHAT WE DO WITH THE CREDIT UNION WE'LL LOOK AT THE CREDIT IF THERE ARE AREAS THAT COULD USE SOME IMPROVEMENT, WE CAN ADVISE HOW TO BEST GO ABOUT THAT TO ENABLE THE SOURCE TO GO UP QUICKLY.

BUT QUICKLY IS RELATIVE.

BECAUSE IT TAKES A FEW WEEKS FOR SCORES TO CHANGE AFTER CHANGES ARE MADE.

LIKE PAYING SOMETHING OFF.

IT DOESN'T HAPPEN OVERNIGHT.

>> Jeff: YOU KNOW, WE WERE TALKING EARLIER ABOUT THE ABILITY TO MAYBE IF YOU DO ONE OF THE ADJUSTABLE RATE LOANS YOU CAN REFINANCE AT SOME POINT AND PEOPLE REFINANCE FOR A VARIETY OF REASONS BUT THAT IS NOT WITHOUT COST, RIGHT?

>> THERE ARE COSTS TO REFINANCE.

BUT REFINANCE CLOSING COSTS ARE MUCH LOWER THAN PURCHASE CLOSING COSTS ARE BECAUSE YOU DON'T HAVE A LOT OF THE SAME CHARGES WITH THE REFINANCE.

AND YOU CAN ROLL THOSE CLOSING COSTS INTO THE LOAN IN MOST CASES.

USUALLY IT IS A ZERO OUT OF POCKET TRANSACTION TO REFINANCE.

ZERO FUNDS NEEDED OUT OF POCKET.

>> Jeff: WHAT IS THE DEAL THESE DAYS FOR PEOPLE SELF EMPLOYED IN TERMS OF BEING ABLE TO PROVE TO THE LENDER YOU HAVE CONSISTENT INCOME?

>> WELL, IT'S A DIFFERENT CALCULATION TO ARRIVE AT INCOME FOR SELF EMPLOYED PEOPLE.

THEY NEED TO BE SELF EMPLOYED FOR AT LEAST TWO YEARS AND THEY NEED TO HAVE FILED AS A SELF EMPLOYED INDIVIDUAL FOR AT LEAST TWO YEARS AND THERE IS THE TWO YEARS ARE AVERAGED.

SO WE USE THE NET AVERAGE OF THOSE TWO YEARS.

AND THAT'S THE INCOME WE USE TO QUALIFY FOR A LOAN.

SO IT'S DIFFERENT THAN A W2ED EMPLOYEE OR SALARIED EMPLOYEE WHO IS COLLECTING A PAY STUB AND HAS W2s OR 1099.

>> Jeff: BRUCE ALLEN SENIOR MORTGAGE LOAN OFFICER WITH MID-ATLANTIC CREDIT UNION AND ELAINE KOCH SENIOR REAL ESTATE AGENT AND TEAM LEADER AT LODGE AND FOSTER.

WE APPRECIATE YOUR TIME.

THANK YOU BOTH FOR JOINING US.

>> THANK YOU FOR HAVING US.

>> THANKS FOR HAVING ME.

>> THANK YOU.

>> Jeff: NOW, ON THE BOOK BEAT WE ARE JOINED BY STEVE HANKE PROFESSOR OF APPLIED ECONOMICS AT THE JOHNS HOPKINS UNIVERSITY THE COAUTHOR OF "MAKE MONEY WORK: HOW TO REWRITE THE RULES OF OUR FINANCIAL SYSTEM".

PROFESSOR GREAT TO HAVE YOU BACK ON MPT.

WHY DO THE RULES OF OUR FINANCIAL SYSTEM NEED TO BE REWRITTEN?

>> WELL, FIRST OF ALL, JEFF IT'S GREAT TO BE BACK WITH YOU.

THE RULES NEED TO BE WRITTEN BECAUSE REALLY TWO THINGS.

ONE, IS THAT THE EMPHASIS IN THE BOOK IS PUTTING MONEY BACK IN THE PICTURE.

BELIEVE IT OR NOT, THE FED THE CENTRAL BANK AND THE UNITED STATES AND THOSE WHO RESIDE IN WASHINGTON D.C., THEY DON'T PAY ANY ATTENTION TO THE MONEY SUPPLY ANYMORE.

THE QUANTITY THEORY OF MONEY.

SO WHAT WE'RE ARGUING IN THE BOOK AND PUTTING REALLY A NEW CHAPTER TO THE WHOLE THING, IS THAT MONEY IS WHAT MAKES THE ECONOMY GO AROUND.

AND IN SHORT IT MAKES NOMINAL GDP GO AROUND AND NOMINAL GROSS NATIONAL PRODUCT INCLUDES THE REAL RATE OF GROWTH IN THE ECONOMY PLUS THE RATE OF GROWTH IN THE SPRATION RATE.

AND WE'VE SEEN THIS THE FAILURE OF NOT HAVING MONEY IN THE PICTURE, HAS BEEN REALLY BROUGHT TO OUR ATTENTION WITH THE PANDEMIC OF COVID THAT STARTED IN FEBRUARY OF 2020.

WHAT HAPPENED THEN?

THE FEDERAL RESERVE GOOSED THE MONEY SUPPLY IT WENT UP ACTUALLY IT WAS INCREASING AT ITS PEAK AT 18% PER YEAR.

THAT IS THE HIGHEST RATE OF GROWTH IN THE MONEY SUPPLY SINCE THE FED WAS FOUNDED IN 1913.

AND WHAT DID WE GET?

WE GOT INFLATION.

GOOSE THE MONEY SUPPLY YOU WILL GET MORE INFLATION, MORE PRICE INCREASES.

>> Jeff: PROFESSOR EVERYBODY WATCHING IS FAMILIAR WITH THE BOUT OF INFLATION THAT WE HAD.

BASED ON YOUR WORK HOW DO WE PREVENTED THAT FROM HAPPENING AGAIN?

>> OKAY.

SO WE PREVENT IT BY FOLLOWING THE GOLDEN GROWTH RATE FOR THE RATE OF GROWTH IN THE MONEY SUPPLY THAT SHOULD BE 6% PER YEAR THAT WOULD KEEP US HITTING THE INFLATION TARGET OF THE FED OF 2% PER YEAR.

IF YOU WANT TO HIT THE INFLATION TARGET AT 2%, THE BROAD MONEY MEASURED BY M2, THE MAJOR WITH THE FED MAJORS FOR BROAD MONEY THAT WOULD BE 6% A YEAR.

SO IT WENT UP TO 18.

THAT'S WHY WE GOT INFLATION AT 9.1% WHEN IT PEAKEDDED IN 2022.

EXACTLY WHERE I PREDICTED IT WAS GOING.

I SAID IT WOULD GO UP TO 9%, USING WHAT?

THE QUANTITY THEORY OF MONEY ONE OF THE CENTERPIECES OF THE BOOK MAKING MONEY WORK.

AND THEN THE FED, OF COURSE, HIT THE BRAKES ACTUALLY HIT REVERSE AND STARTED CONTRACTING THE MONEY SUPPLY.

AND SINCE APRIL OF 2022 WHEN WE HAVE HAD THE MONEY SUPPLY WAS GROWING AT THEN INFLATION WAS DEGREING, SORRY AT 8.3% BUT THE MONEY SUPPLY PEAKED OUT.

IN APRIL.

>> Jeff: WHEN YOU TALK MONEY SUPPLY I'M PICTURING PILES OF MONEY BUT THAT IS NOT WHAT ARE YOU TALKING ABOUT.

YOU ARE TALKING ABOUT THE AGGREGATES.

>> I'M TALKING ABOUT THE AGGREGATES THE BIGGEST AGGREGATE AND THIS GETS TO THE SECOND POINT OF THE BOOK.

YOU ASKED ME A QUESTION AND I GOT OFF ON A LECTURE WHICH MAYBE I SHOULDN'T HAVE BUT I DID ANYWAY.

YOU TOLD ME I'D HAVE A LICENSE TO DO THAT.

>> Jeff: ALWAYS A PROFESSOR GO ON.

>> SO THE FIRST POINT OF THE BOOK WE GOT TO GET THE FOCUS BACK AND LOOK AT THE MONEY SUPPLY USE THE QUANTITY THEORY OF MONEY TO ANALYZE THINGS.

IT'S BEEN AROUND SINCE THE 16TH CENTURY.

IT'S THE ONLY RELIABLE PROVEN WAY TO GET A HANDLE ON WHERE THE ECONOMY'S GOING, WHERE INFLATION'S GOING THAT SORT OF THING.

AND I SAID THE RIGHT RATE OF GROWTH FOR THE MONEY SUPPLY MEASURED BY M2 IS ABOUT 6% PER YEAR AND THAT IS CONSISTENT WITH HITTING INFLATION TARGET OF 2%.

NOW, YOU SAY WHAT IS THE MONEY SUPPLY?

THIS IS THE SECOND POINT.

MOST PEOPLE DON'T REALIZE THEY THINK THE FED PRODUCES THE MONEY.

WELL, THE FED PRODUCES A TINY BIT OF THE MONEY.

80% OF THE MONEY IS PRODUCED BY THELE FANTD IN THE ROOM AND THAT IS COMMERCIAL BANKS.

COMMERCIAL BANKS PRIVATELY PRODUCE ABOUT 80% OF THE MONEY SUPPLY M2 THAT WE HAVE IN THE UNITED STATES.

AND THAT IS TRUE FOR MOST COUNTRIES.

>> Jeff: AS SIMPLY AS POSSIBLE EXPLAIN HOW THEY DO THAT?

>> OKAY.

NOW, THEY PRODUCE IT -- IT'S ACTUALLY CALLED IN THE OLD DAYS THEY CALL TO DO PEN MONEY.

THEY WOULD PRODUCE THAT OUT OF NOTHING.

THEY WOULD WRITE A CREDIT TO SOMEBODY A LOAN, AND THAT WAS IT.

NOW IT'S ALL DONE DIGITALIZED.

WHAT HAPPENS IS THAT BANKS IDENTIFY BANKABLE PROJECTS, PROJECTS THAT THEY THINK ARE GOING TO BE GOOD.

AND THEY MAKE A LOAN FOR THAT PROJECT.

AND THE REASON THE BANK THINKS IT'S GOING TO BE GOOD IS THEY THINK IT'S CREDIT WORTHY AND WHATEVER THE PROJECT IS, WHATEVER THE LOAN IS BEING MADE FOR WILL PRODUCE A SURPLUS THAT WILL BE ABLE TO ACCOMMODATE THE REPAYMENT OF THE LOAN.

AND WHEN THE LOAN IS MADE, WHATEVER THAT BANKABLE PROJECT IS IS USUALLY COLLATERAL FOR THE LOAN.

BUT THE MONEY COMES FROM WHERE?

OUT OF THIN AIR.

>> Jeff: SO YOU WANT THE BANKS TO BE ABLE TO DO MORE OF THAT WITH LESS REGULATION BUT WASN'T IT JUST A FEW YEARS AGO THAT WE HAD TO BAILOUT THE BANKS?

>> WELL, WE DID.

THIS IS THE RATE FINANCIAL CRISIS OF 2008.

BUT THE GREAT FINANCIAL CRISIS OF 2008 REMEMBER, THE FINGER WAS PUT ON BANKS AND THEY SAID BANKS WERE THE BAD GUYS AND BANKERS WERE THE BAD GUYS AND THE BANK REGULATIONS THEN CAME IN WITH DODD FRANK REGULATIONS AND ALSO FROM SWITZERLAND AT THE SAME TIME BOSS I WILL FREE WHICH INCREASED THE CAPITAL REQUIREMENTS OF THE BANK AND THE AMOUNT OF CAPITAL THEY HAD TO HOLD.

NOW, THE PROBLEM THERE WAS THAT AND THIS GETS INTO YOUR QUESTION.

YOU SAID WELL, WHAT REGULATIONS DO WE HAVE TO CHANGE?

WELL, WE HAVE TO CHANGE SOME OF THESE BANK REGULATIONS THAT WERE IMPOSED DURING THE GREAT FINANCIAL CRISIS.

BECAUSE THEY MORE OR LESS STRANGLED BANKS.

BANK MONEY GROWTH NOW IS ONLY RUNNING AT 3.4%.

AND AS I SAY, SHOULD BE UP AROUND 6% OR SOMETHING LIKE THAT.

THERE ARE A LOT OF GOOD PROJECTS THAT AREN'T BEING FINANCED BECAUSE OF THE CONSTRAINTS THAT THE BANK REGULATIONS PUT ON THEM.

SO SOME OF THESE REGULATIONS FOR EXAMPLE, YOU HAVE TO HOLD AS MUCH CAPITAL AT A BANK AGAINST U.S. TREASURY BONDS THAT ARE HELD AS BANK ASSETS AS YOU DO FOR OTHER PROJECTS THAT ARE A RISK EITHER REQUIRE RESERVES TO BE SET ASIDE.

SO OUR ARGUMENT IN THE BOOK IS THAT THE BANKS ARE THE BEST ONES TO BE DECIDING HOW MANY RESERVES THEY SHOULD BE HOLDING RELATIVE TO THE KINDS OF LOANS THAT THEY MAKE AND THE KINDS OF ASSETS THAT THEY ARE HOLDING ON THEIR BALANCE SHEETS.

AND NOT SOME BUREAUCRAT IN SWITZERLAND OR WASHINGTON D.C. THAT'S WHAT GOT US INTO TROUBLE, BY THE WAY.

>> Jeff: PROFESSOR I KNOW THE BOOK TOUCHES ON CRYPTO CURRENCIES.

YOUR VIEW ON THAT SUBJECT?

BITCOIN AND ETHER AND ALL THESE THINGS IS THAT MONEY?

>> NO.

THE PROBLEM HERE IS THAT SAVINGS PEOPLE SAVE MONEY.

THEY DON'T CONSUME THEY SAVE MONEY AND THEY PUT THAT MONEY INTO WHAT?

INTO BITCOIN FOR EXAMPLE, AS A SPECULATION.

AND RIGHT NOW, OF COURSE, LATELY THEY HAVE BEEN WINNING ON THE SPECULATION BUT THEY PUT IT INTO THAT.

IT'S LIKE TAKING A HOOVER VACUUM AND SUCKING UP SAVINGS AND SUCKING THE SAVINGS AWAY FROM INVESTABLE PROJECTS AND BANKABLE PROJECTS.

>> Jeff: STEVE HANKE PROFESSOR OF ECONOMICS AT JOHNS HOPKINS.

THE BOOK IS "MAKE MONEY WORK: HOW TO REWRITE THE RULES OF OUR FINANCIAL SYSTEM".

>> GREAT TO BE WITH YOU JEFF.

>> Jeff: AND THAT IS "DIRECT CONNECTION" FOR THIS WEEK WE'RE BACK FRIDAY WITH "STATE CIRCLE" AND THE LATEST ON MARYLAND POLITICS.

JOIN US FOR THAT FRIDAY ANG AT 7:00 P.M. YOU CAN SEE PAST EDITIONS OF OUR PROGRAMS ON-LINE AT VIDEO.MPT.TV.

FOR ALL OF US AT MPT THANK YOU FOR WATCHING AND HAVE A GOOD NIGHT.

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