In a recent interview with Mike Maharrey on the Money Metals podcast, economist Peter C. Earle, Senior Economist at the American Institute for Economic Research (AIER), offered his insights on the current state of the U.S. economy, the implications of recent Federal Reserve policies, and the future of sound money.
(Interview Begins Around 5:36 Mark)
Who is Peter C. Earle?
Peter C. Earle, Ph.D., is a seasoned economist and financial markets professional with over two decades of experience in trading, analysis, and consulting. He currently serves as the Senior Economist at the American Institute for Economic Research (AIER), a nonprofit organization dedicated to promoting sound money and economic liberty. Earle holds a Ph.D. in Economics from l’Université d’Angers, an MA in Applied Economics from American University, an MBA in Finance, and a BS in Engineering from the United States Military Academy at West Point.
Before joining AIER in 2018, Earle built a distinguished career in the financial sector, working at prominent securities firms and hedge funds in the New York metropolitan area. His research focuses on financial markets, monetary policy, economic measurement, and the history of financial markets. Earle is widely recognized for his work, frequently quoted by major media outlets such as The Wall Street Journal, Bloomberg, and CNBC. He has also written extensively on topics including economic history, sound money, and liberty, contributing to numerous books and articles.
Peter Earle co-authored "The Gold Standard: Retrospect and Prospect," which examines the history, benefits, and potential future of the gold standard in modern economies. The book provides a comprehensive analysis of the gold standard's impact on economic stability and its relevance today.
Market Volatility and Economic Indicators
Earle began by addressing the recent market downturn, noting that while the 8.5% drop was the largest since 2022, it wasn't historically significant. The downturn was largely due to the underperformance of the so-called "MAG 7" stocks—Apple, Amazon, Alphabet (Google), Microsoft, Meta, Nvidia, and Tesla—which had previously been propping up market indices. Earle emphasized that the broader market was weak, with median U.S. stock prices flat or slightly down year-to-date, even before the recent drop.
He also highlighted a series of negative economic indicators, including higher-than-expected initial and continuing unemployment claims, a decline in job openings as reported by the JOLTS report, and a significant drop in manufacturing numbers from the Institute for Supply Management (ISM). The most alarming data point, however, was the Bureau of Labor Statistics report showing a rise in the U-3 unemployment rate from 4.1% to 4.3%, which triggered the Sahm rule—a historically reliable indicator of a recession. According to Earle, the Sahm rule has accurately predicted 11 recessions since 1950, with only two false positives.
Interest Rates and Monetary Policy
Earle offered a critical view of the Federal Reserve's interest rate policy, arguing that the Fed has either kept rates too high for too long or failed to raise them sufficiently when needed. He pointed out that for most of history, interest rates were determined by market forces, not central banks. Earle recalled a time when interest rates naturally hovered between 6% and 9%, contrasting sharply with the near-zero rates seen in the years following the 2008 financial crisis.
Earle expressed skepticism about the Fed's current strategy, noting the challenges of applying traditional monetary tools to a modern, service-based economy. He highlighted the significant differences between today's economy and the largely manufacturing-based economy of the late 1970s and early 1980s, the last time the Fed raised rates significantly to combat inflation.
Earle also discussed the Fed's reliance on lagging economic data, which could lead to policy actions that are either too late or too extreme. He referenced Milton Friedman's concept of "long and variable lags" in monetary policy, noting that these lags could be even more unpredictable in today's economy.
Recession Risks and Economic Outlook
Earle believes that the U.S. is either already in a recession or on the brink of one, driven by persistent inflation, rising unemployment, and strained consumer finances. He pointed out that fiscal stimulus has accounted for much of the economic growth seen over the past 18 to 21 months, with many jobs created in government and social services sectors—areas that, while valuable, do not contribute to real economic growth.
Earle also questioned the conventional definition of a recession as two consecutive quarters of negative GDP growth. He argued that in the wake of unconventional economic policies and the unprecedented response to the COVID-19 pandemic, the U.S. could experience a "technical recession" or a period of extremely slow growth that still feels like a recession to the average consumer.
The Future of Sound Money
As an advocate of sound money, Earle discussed the potential for a return to a commodity-backed currency system, though he believes this will only happen out of necessity, likely following significant economic decline. He argued that governments will continue to debase their currencies until they are no longer accepted or the economy collapses, at which point a return to sound money could become politically popular.
Earle also noted the growing interest in gold and cryptocurrencies, particularly among younger generations, as a hedge against economic instability. He cited the robust de-dollarization movement, which has seen countries and individuals increasingly turn to alternatives like gold, Bitcoin, and stablecoins as signs of a potential shift towards sound money.
Cultural and Generational Shifts
Earle observed that younger generations, especially millennials and Gen Z, are becoming more interested in gold and cryptocurrencies, driven by concerns about economic stability and the future of social security. He expressed optimism that these trends could signal a broader cultural shift toward sound money principles in the future.
Key Questions and Answers:
Here are the key questions and answers from the interview between Mike Maharrey and Peter Earle. These questions and answers highlight Peter Earle's views on the current economic landscape, the role of the Federal Reserve, and the potential future of monetary systems:
Was the recent market downturn an overreaction or a premonition?
Earle explained that the market downturn, while the largest since 2022, wasn't historically significant. He attributed it to the underperformance of the "MAG 7" stocks (Apple, Amazon, Alphabet, Microsoft, Meta, Nvidia, and Tesla), which had been driving market gains. Earle also pointed to weak economic data, including rising unemployment claims and poor manufacturing numbers, as indicators that the downturn might be more than just an overreaction. The rise in the U-3 unemployment rate to 4.3%, triggering the Sahm rule, suggested the U.S. might already be in a recession.
What is your take on the current interest rate policy and the role of the Federal Reserve?
Earle criticized the Fed's interest rate policy, arguing that rates should be determined by market forces rather than central banks. He noted that for most of history, interest rates hovered between 6% and 9%, unlike the near-zero rates seen post-2008. Earle emphasized the challenges of applying traditional monetary tools to today's service-based economy, which is vastly different from the manufacturing-based economy of the late 1970s and early 1980s. He also pointed out the risks of relying on lagging economic data, which could lead the Fed to make policy decisions that are too late or too extreme.
Are we in a recession, or are we heading towards one?
Earle believes that the U.S. is either already in a recession or on the brink of one, driven by persistent inflation, rising unemployment, and strained consumer finances. He argued that fiscal stimulus has temporarily propped up the economy but that much of the job growth has been in government and social services, which do not contribute to real economic growth. Earle also questioned the conventional definition of a recession, suggesting that the U.S. could be experiencing a "technical recession" or a period of extremely slow growth that feels like a recession to the average consumer.
Can we ever return to a sound money system, or are we doomed to exist under fiat currency forever?
Earle expressed his belief that a return to a sound money system is possible but will likely only happen out of necessity after significant economic decline. He argued that governments will continue to debase their currencies until they are no longer accepted or the economy collapses. At that point, a return to sound money could become politically popular. Earle also noted the growing interest in gold and cryptocurrencies, particularly among younger generations, as a sign that a shift toward sound money principles may be on the horizon.
What are your thoughts on the de-dollarization movement and the pivot towards gold in countries like Zimbabwe?
Earle linked the pivot towards gold in countries like Zimbabwe to the broader de-dollarization movement, where nations seek to reduce reliance on the U.S. dollar and other major currencies. He also noted that many developing nations, burdened by debt, are turning to gold to shore up their finances. Additionally, Earle mentioned that younger generations, who are now experiencing inflation for the first time, are increasingly interested in alternatives like gold and cryptocurrencies as a hedge against economic instability.
What are you reading right now that's not work-related?
Earle shared that while most of his reading is work-related, he recently read a biography of Benny Binion, the founder of Binion's Casino in Las Vegas, and a book about James Simons titled The Man Who Solved the Market. He also mentioned revisiting certain books every ten years as they offer new insights with age. Earle tries to balance his reading by interspersing economic and financial books with non-related ones to avoid becoming too focused on just one area.
Conclusion
Peter Earle's interview on the Money Metals podcast provided a detailed analysis of the current economic landscape, highlighting the risks of recession, the challenges of current monetary policy, and the potential for a future return to sound money.
His insights underscore the complexity of navigating today's economy with traditional tools and the importance of understanding economic history to anticipate future challenges.
