Another dead friend. His nickname was Ned, for Edward. I called him Edward. Actually we were very friendly, and what was amazing is that we agreed on almost everything. Edward Gramlich was warning of a crisis in the mortgage business, I was warning of a crisis in the economy. Actually, I could see clearly that we had a boom/bust situation going on, and that – in late 2006 – we were close to the bust. Sure enough, Gramlich and I were proven right. Ben Bernanke thought we would be fine, and of course he was wrong.

What is very weird is that Edward Gramlich (June 18, 1939 – September 5, 2007) died of a blood cancer very similar to the blood cancer that I was diagnosed with in the first week of July 2024. Gramlich died some 9-10 months after the interview we did. He was 68. Apparently, this was his second bout with leukemia. A white blood cell cancer. I had lymphoma, which is also a cancer of white blood cells. What Gramlich had is a rare cancer. What I had is a relatively rare form of cancer. I am not saying there is anything suspicious about his death – it's just so soon after the interview. Gramlich and I were friends.

One thing we had in common was a conviction – call it an overriding concern – that the “economics profession” must be recognizing the importance of ethical considerations. What does that mean? I mean to say that the “working man” should be kept as a variable in the policymaking decisions. The suffering of the ordinary people out there – the powerless – should not be discounted. “Ordinary folks” are prone to getting swindled, to be taken advantage of – you know what I mean.

Gramlich and I were very close. Again, he was very unusual in that he appreciated how inflation was very destructive. He was an inflation hawk, as I am. Making economic policy in a Republic is not so easy, and you might have to admit it is a nasty business. The powerful usually get their way. Inflation.

This situation is under way right now. Gramlich and I would be on the telephone talking about it. Donald Trump wants interest rates to drop, he wants them close to 2%. Even lower. Does Donald Trump have the power and influence to get his way? Certainly not, but he does have some former Fed governors endorsing his low interest rate policy.

In fact, I do not think interest rate policy is all that important. It is certainly important, but it is not what people think it is. The cost of capital is going to be what the market decides it should be. The market decides. The Federal Reserve cannot really do much about what the market thinks. Yes, the Wall Street crowd does not want rising interest rates. Wall Street wants some inflation, and low interest rates.

I will republish the audio of the December 2006 interview with Gramlich as soon as possible. What is most remarkable about it is that both of us saw the bust coming. Who could not see it coming? It was obvious to me. It was obvious to Gramlich. The banks were making a lot of money, everyone was getting “credit” – even those who could not really justify it. It is called a boom. And every boom ends with a bust.

The problem with the these boom/bust cycles is the banking sector. Sometimes a few banks will be taken down, liquidated. So that is presumably why central banks were conceived and established.

“The Sveriges Riksbank, the central bank of Sweden, is generally recognized as the first central bank in the world. It was established in 1668, originally named the Bank of the Estates of the Realm. The Bank of England, founded in 1694, is another early central bank, but it came after the Swedish Riksbank.”

What Donald Trump wants is his stupid tariff regime to be backstopped by interest rate policy. He thinks that if he can get low interest rates, then his economy, the American economy, will not tank with the tariffs. I do not think the rate of inflation right now is being acknowledged by the US government. This is the first time, really. Yes, inflation has always been deliberately understated, but now this understatement is kind of getting out of hand. In other words, the US government – under the influence of the head of state Donald Trump -- is in something of a conspiracy to understate the rate of inflation. That is my impression. Yes, it's a conspiracy, a criminal conspiracy.

Trump wants to get rid of an independent Federal Reserve. My Deutsche Bank Research colleagues are expressing their disbelief that this is happening. And what is happening is that inflation is now seen by Washington as a solution – a solution to their problems.

Once Wall Street does sell off – and I expect it will if Trump does not do TACO – then interest rates can drop to near zero. But we are not there yet. I have been predicting hyperinflation, and I think we will get it, but that may still be a ways off. Hyperinflation, in my view, would be around 20%, perhaps a bit more than 20%. Even 25%. If Trump destroys world trade, and it looks like he wants to, then hyperinflation is inevitable. As I have argued, Herbert Hoover and Donald Trump have a lot in common. My argument would be that if Trump cuts world trade by some 50% we will have a very powerful depression – a world depression.

The United States of America is transitioning from a manufacturing economy to a design bureau economy. It has been about 40 years that it has been in this transition. We are now near the end of the transition. At least, this is my impression.

Artificial Intelligence is going to be the foundation of the design bureau economy. This makes sense, right? We are moving into a much more advanced economy. The transition may take a while. Maybe up to 20 years. Too bad I cannot call up my friend Edward Gramlich and see what he would say. I am certain he would be agreeing with me. He would find it fascinating. “Government” cannot do much about it. Trump is not going to be able to stop it, he's not going to take us back to the “good old days.” He is a ridiculous old man. He's not a policymaker. He's a politician, and he's telling the voting public what many of them want to hear. It's a ridiculous argument from a ridiculous old man. I will bet you that Jerome Powell agrees with me. Stupid tariff policy must not be backstopped by stupid low interest rate/inflation policy.

It's a shame I lost my friend Ed Gramlich. At least I'm not dead. Chemotherapy obliterated my lymphoma. Amazing, isn't it?