Rossell: One of the things I want to do is to talk a little bit about the economy and get into a little bit of the details around what I was talking about, answering your questions, but also, communicate and talk to you a bit about how do you communicate these things to your clients? To the people whom you’re dealing with? Maybe you noticed as I went along, I always do three things when I talk. Maybe you even noticed I always work with three points, right?

I always do three things when I talk, and I tend to work with three points in general. I always talk in story. I could have done charts and graphs. I could have brought charts and graphs, and you guys all know the numbers. I could have brought charts and graphs, but you notice I didn’t. One of the reasons I didn’t bring charts and graphs is because I pay a lot of money for my clothes, and I want you to look at me not the charts and the graphs, right? Part of it is pure narcissism that I don’t do charts and graphs, but at the same time, imagine if I had a chart up there. You’d be looking up there and trying to figure out the numbers. Then you’d be looking down at me. I don’t believe most people can do that much at once. Most of us listen really well, or we read really well. But it’s very difficult to read and listen. We all think that we can multitask, but most of us understand by now that multitasking isn’t what everybody thinks it is. You can either listen or you can read, but it’s really hard to do both.

But, one of the things I always try to do is No. 1, tell the whole, big picture story. And I use three ways to support my information. I always use statistics, so notice that I started out giving you growth in the U.S. was this; growth in Russia was this; growth in Japan was this; growth in China was this. Statistics are important, right? That’s the first thing.

You’ve always got to have statistics, but it’s also important to have what I call “expert testimony.” Some of the ways I’m the expert. I’m my own expert testimony. But notice I cited other people’s papers. I told you that there’s a statistic out there, sort of a paper that showed that oil production in the U.S. is nine times more sensitive to a price change than oil production elsewhere. I drew on some other experts other than just me. The funny thing is, in the world that we live in now, people say, “How can you trust experts?” Right? Where do you go for unbiased information?

Where do you go? All I can tell you is this: I have spent years looking at economic data, and most of it is pretty unbiased if it comes from places like the National Bureau for Economic Research. There are some think tanks out there around tax policy that tend to be pretty middle of the road, but if you are looking for data on, say, immigration, the economic effects of immigration, I would just encourage you to take a few steps and look to see where’s it coming from. Is it coming from the center in support of immigration? Or the center for I hate immigrants, right? It’s not that hard to dig through and figure it out. You can usually look at a website pretty quickly and figure out, do they have a point of view, or are they just trying to give you the middle-of-the-road stuff? You always want to go for the middle of the road.

You’ve got statistics; you’ve got expert testimony; and then you have anecdotes. You have stories. You have individual stories. Remember I said I went to a conference in Barcelona, and I saw an individual who said, “Hey, what’s happening to the real estate market because my business is down?” That’s an anecdote. You’ll notice, in good newspaper stories — and when I say good newspaper stories, I’m talking about The Wall Street Journal. I’m talking about The New York Times. I’m talking about The Washington Post. I’m talking about the Financial Times. I actually still read real newspapers, paper ones that are edited and have some sort of fact checking, like real fact checking and that sort of thing. If you look at real newspaper stories, now you know, they all do exactly the same thing. They’ll use statistics. They will use experts, and they will use anecdotes to always support their stories.

When you start talking about the economy, keep in mind that as you build the story, you’re going to communicate with people. You should always use those three things. That gives you maybe a little bit of insight into how I craft my comments on the economy and also how they change over time. The talk that I gave today is actually different from the talk that I would have given even two months ago because the statistics change. Frequently, the expert testimony changes, and I’m always accumulating stories to use around the economy because those are the ways that people are going to connect with you on the topic. I’ve given you some insight into, I guess I would call it, my technique, for lack of a better word. And now we’re going to open up the floor to questions. Aurora is here to join me, and she’s going to help moderate.

I’m going to do this, right? We’re going to bounce it around, and so Aurora’s going to help me moderate the questions. I’m willing to take questions on technique, but I’m also willing to take questions on the content, of course, of what I talked about earlier, or what I didn’t talk about. Is there something that I didn’t get to that you want to talk about? Then let’s go ahead and do that right now.

Tancock: I’m Aurora Tancock, and I’m a Canadian. We have a saying in Canada that when the U.S. sneezes, we catch a cold because we’re connected to your economy. Really, it means a lot to us for us to understand what’s happening. Yesterday we had speakers who talked about the importance of having stories when we talk to our clients. That’s exactly what you’re doing on a much, much more complex subject. You brought it all together. First of all, thank you for doing that.

Audience: Dr. Marci, I have a question regarding sanctions on Iran that started Monday. What kind of effect do you think that will have on the global economy especially in the U.S. economy?

Rossell: So the sanctions in Iran. Basically, we were unclear on how things were going to go early on. When it looked as if the sanctions were going to be hard sanctions in the sense that they were going to cut Iran off from oil markets completely, the price of oil went above $70 a barrel. So, it looked initially like those sanctions were going to be hard sanctions. They were going to affect everybody. They were going to push the price of oil up. I think they would have kept the price of oil in probably the $70 to $75 range had they been hard sanctions.

The nice thing is, at least for oil markets, that plenty of exemptions are going to be given. I’ve got to tell you, I’m totally fine with exemptions, right? When you start to use economic policy for political purposes, I actually kind of don’t like that. I’m an economist, and I tend to be extremely free in my economics. I would really like for politics to not get too involved with the economy now. I know it can’t help it, but I think with part of the trade war with China, it’s using politics to sort of influence your economics, and that has real impacts on real people.

High oil prices impact real people, and not just people in the U.S., but people in poor countries where it really matters more for them. So when you see the price of oil go from $65 to $75 a barrel, well that might be an inconvenience for someone like me, but that could be a real genuine hardship for people in other parts of the world. Those sanctions have real economic effects on the actual people who live in Iran as well, and I don’t ever want to lose sight of that. So fortunately, there appear to be lots of exemptions. Lots of exemptions, and so once it became clear that everybody was going to get an exemption from the sanctions, suddenly the price of oil came back down.

It gives you a little insight into, I think, the way that I personally expected the trade war to go. I thought that it would be very similar to that. That it would look really strict, but that it wouldn’t really bite. That we cut a deal, like I said, just like we did with NAFTA. I kind of expected a deal that would allow everybody to save face, with plenty of exemptions, so it looks like you’re really doing something when in reality you are not, but it’s not going down that way. So, I think that’s why financial markets are sort of reacting badly to it, but the Iran sanctions are going like I thought the trade deal would go in the sense that they look really strict, but in reality there’re lots of exemptions.

Audience: For U.S. oil, it’s so expensive to produce, I heard it was $70 or above. I’m wondering what effect it’s having on U.S. production, even with that sweet spot of $60.

Rossell: Well, you’re exactly right that some of the oil costs $70 to produce, but not all of it. So shale oil production, it’s more expensive than conventional production, right? And certainly it’s far more expensive than what Saudi Arabia pays to get it out of the ground. It’s basically $10 a barrel to get it out of the ground in Saudi Arabia, so they make money no matter what. Their oil is very accessible. Canadian oil very expensive. Cost of production in Canada has always been very, very high. Cost of production for Norway is very, very high because it’s deepwater. So anytime you get deepwater oil, the cost of production goes up pretty high. In the U.S., shale oil production, the most expensive shale oil production is $70 a barrel. There is a lot at $45, $50 and $55. There are some shale oil producers that are making money right now in this price range, and that’s why they are pumping like crazy. So there is some variability. It isn’t all at $70; it’s pretty much all over the map.

Audience: I want to talk about inflation.

Rossell: Absolutely. Me too!

Audience: Princeton economics consultants did a paper in the early 1990s examining the 1980s and the government, you know, they manipulated the way that they calculated the CPI, and they continue to do that. The impact right now— read a paper recently, and I can’t cite it — but it said that the average inflation was close to the 5.7 percent. At 3 percent in 25 years, the dollar is worth 47 cents. You know, in retirement planning, so few people are really finding the success that they really thought they were going to have. What’s your take on the reality of inflation?

Rossell: OK, so what’s my take on the reality of inflation? Well, I want to start out by saying this: I grew up as a monetarist, right? So I’m going to get really boring here for just a second. I grew up as a monetarist sort of studying Milton Friedman, sort of inflation is always and everywhere a monetary phenomenon. I believed that my entire career, and I still believe it. Inflation is always and everywhere a monetary phenomenon. So what that means is if you print money, inflation will result. If you print money, inflation is going to result. So the easiest way to sort of demonstrate that, and to demonstrate it to somebody who is asking you sort of, “What’s the connection between monetary policy and inflation?” is to just do a quick example. I’m guessing all of you are watching me; you’re not watching somebody else, are you? All these people here are watching me? OK, good.

So I need a little audience participation. I need some money. Does anybody have dollar bills? I need two one-dollar bills.

Audience: She’s going to answer what I was going to ask.

Rossell: I’ve got two one-dollar bills. All right. So, I am the Federal Reserve, and you are the economy, right? So you are the economy, and you make stuff. You’re going to make stuff regardless of how much money is out there because you’re just producing. You’re just producing; you’re producing; you’re producing. You’re going to produce pins. So make the pin. OK. So, we produced one pin. Hold it up. OK, so we make one pin in this economy. I am the Federal Reserve. I put the money in circulation. That’s what I do. I don’t print the money, by the way, that’s the bureau printing and engraving, but I put the money into circulation. I do that by buying Treasury bonds. So, you own a Treasury bond, and I am going to buy it from you. This is your Treasury bond. OK.

I’m going to buy it from you, so I put money into circulation by buying a Treasury bond; there is a nice, new, clean dollar. Pull it back out. No way. OK. We have $1; we have one unit of GDP. That’s all our economy has. There’s no savings, nothing. So, you know he’s got $1. How much do you want for the pin?

A dollar? No, one dollar! One dollar! Make the trade; make the trade. All right, now, the economy is stable, right? No increase in GDP, but if I’m the Federal Reserve, and I increase the money supply by 100 percent, how much do you want for the pin now?

You want $2. So what’s the inflation rate? It was 100 percent.

Audience: 100 percent.

Rossell: Right? We got 100 percent inflation in that economy. Wait, do we have another pin? Let me borrow your pin. What if GDP had increased by 100 percent? Now what would each pin cost? The whole point of that silly little story was this: The only thing the Federal Reserve is trying to do is to increase the money supply at roughly the same rate as GDP. If they do that, there will be no inflation. That’s the whole point of that exercise, that the Federal Reserve is trying to increase the money supply at the same rate that GDP is going up in order to prevent inflation. Now, do they always know how much GDP is increasing? No, they have to guess. They have to actually forecast, right? And, monetary increases are not that easy. You could have other factors that affect things. OK, let me give the money back to this person really quickly.

Audience: Let me add to that question, and let’s take fractional banking into the picture.

Rossell: OK, that’s exactly the point. So, from that story, back in 2008, 2009, 2010 when the United States was quantitative easing and our money supply went up by 400 percent, what did I expect to happen? I expected inflation, right? I mean, didn’t you? That was highly inflationary, and that’s not what happened because banks weren’t lending money. And so, part of the money creation process isn’t just the Fed buying bonds to create the monetary base; you have to have the banking system willing to lend the money out. So because of fractional banking, and because our banking system has permanently changed, our banking system is permanently changed. I believe that the financial crisis of 2008/2009 means that financial services for consumers will be more risk-averse than they were before, that they will never return, at least in our lifetime, to the way they lent money before. And so, a higher monetary base is what’s going to be needed to support the same amount of economic activity.

All that being said, you can have inflation in this environment, and I think it’s coming primarily from trade policy. The price of things is going up. It’s undeniable. The price of things is going up. And, if the banking sector ever does come back online and start to pick up, and there’s some evidence that it is, then you’re going to see inflation pick up as well. So I actually think we are living in an inflationary environment, and I agree with you that we don’t always measure it correctly. We might not measure the level correctly, but we always measure the direction it’s going correctly. So I think it’s the same thing with the unemployment rate, even if you can’t believe that actual number. Even if you say it’s not really 3.7 percent. OK, maybe it’s 4.7 percent, but can we all agree that it’s less than it was five years ago?

I think most of you, through your experience, know that inflation today is higher than it was two years ago. Whether the number is 2.5, 3.5 or 4.5, I think the direction of these things matters more, and we all know and can see with our own lying eyes what the direction is. That’s a very good question.

Audience: Could you comment on state deficits, for example things like the Chicago Police Department pensions and pensions that are like they can’t print money, what’s the solution to these?

Rossell: Right? They can’t print money; all they can do is tax. Well, the solution unfortunately is all they can do is tax, and as their tax burdens become heavier and heavier and heavier, what are people naturally going to do? They’re going to move. So, one of the things we didn’t talk about was the tax cuts and the recent tax cuts. I think that the state tax burden, the future state tax burden, is unavoidable unless somehow they default on those commitments. And most of them have constitutions that don’t allow them to do that, so they’re not going to be able to default on the commitments, at least in any way that I can see that would be considered legal. Although, eventually, they will just run out of money and run out of citizens. Now, what happens when they run out of money and run out of citizens? I don’t know; maybe they get absorbed by another state? I mean, I really don’t know what the process is for that, but what I’ll tell you is this: I think that issue, coupled with the fact that people can’t deduct their state or local taxes, that there’s a cap on that now, is going to force people to move to different areas.

If you think about it, if you’re a young person, if you’re a millennial, and we know there’re lots of those, and you’re now making choices about where you want to live per se in the next 10 years, because we know that’s what millennials are doing, where are you going to move to? Chicago? Probably not, right? California? Nope, can’t afford it. Right? Boston? New York? Absolutely not. You’re moving to Atlanta, Nashville, cheaper cities with a lower tax burden. I mean, they’re doing it already, and just as an aside, it changes the political map. So all of those places were reliably conservative, particularly in the suburbs, and as those millennials pour into those southern suburbs, you start to get shifts in the political map as well. I think that will be sort of fascinating to play out over the next four or five years. There you go.

Audience: Thank you. So I want to switch the topic a little if I can. I’ve been trained to have a story with my clients for years and for decades that when we look at long-term investing, when we look at building for the future, that the stock market will always follow the three guarantees: up, down and we don’t know when.

But in fact, for the longer term, there have been some rhythms in the markets over decades where we tend to see markets rise for four, five, six years, seven years maybe, then they have a correction because the price and its ratio, stocks have, in fact, gone over value. We saw that with the dot-com bubble for the run-up in the late 1990s, and then we would have a correction, 15, 20 percent while things go back to more realistic prices, and then we would have the next creative expansion in the market. That seems to have been shot to hell.

It seems that since the great recession, since the chasm of 2007/2008, we’ve had nothing but an upmarket except for a couple, three years of what I call a “bunny market” where it didn’t go up or down; it just sort of went like that. Up, down, up, down, up down. But we seem to be pushing those P/E ratios in an ever-expanding market, and I’m wondering, have the old rhythms gone?

Rossell: Oh no, I wouldn’t, no, no, no. You will never hear me say this time is different. I would not project that at all. But let me say this: Imagine if you fell asleep in 1999, right? You fell asleep in 1999, right after the market crossed. Right after the Dow Jones and Dow Jones average crossed about 1,200, right? Wasn’t that where it was in 1999? Roughly around there. Was it 1997 that it passed 10,000? I think that, I’m in the late 1990s.

So right, we all fall asleep in the late 1990s. We wake up 20 years later. Given the trajectory of the markets that you would experience through the 1970s and 1980s, where would you have expected financial markets to be when we woke up? Less than where they are at now? Higher than where they are now? Or right about here? [visual]

Audience: Less.

Rossell: Less? I don’t think so. I think you’d be somewhere in this range, right? [visual] I don’t think that if you take the volatility out, meaning the ups and downs and the bunnies and the decline of 2008 and the big rally in 2011, that we’re that far off. I don’t think this market would surprise you. You wouldn’t wake up and go, “Oh my God. Look how high, look how much money I have made.” You wouldn’t. So, I think people were actually expecting a little bit more in the late 1990s than where we have come. So, I think it still makes sense to sort of stick with the 5 to 7 percent, but I am concerned about what I would call “reversion to the mean.” I actually do think that P/E ratios do have this tendency to revert to the mean, and we’re above the mean right now. Definitely, so, that doesn’t mean you don’t invest in stocks. I’m not sure, but maybe it changes what we do with people over the life cycle. Where I am versus somebody who’s 70 is a very different thing. I think we’ve gotten maybe a little too comfortable with stocks. And maybe that’s sort of the common ground we can have on this.

I think people are a little too comfortable with where the stock market has been and have forgotten that 10 percent of decline in a year is not unusual. Twenty percent’s unusual, but it’s happened since 1996/1997. A 20 percent down market has happened two, three times already. So, you can have big swings, and I think that’s what people are forgetting. That’s the part that bothers me. Do I think that we’re heading toward long-term stagnation? Kind of Japan style, the bubble bursts, and nothing happens. I don’t think so.

Audience: I just think …

Rossell: I really don’t.

Audience: … that we’re long overdue for that correction.

Rossell: I will say that I can understand why you feel that way, but beware of betting on a downturn. Beware of betting on a downturn, and beware of betting on a recession. That being said, and I tell people this all the time, and I know it has to do with what you tell them too, if you’ve got money that you need in the next five years, it shouldn’t be in the stock market. If you need it, OK? If it’s money you’re counting on, it probably shouldn’t be in the stock market. So, even if markets go down more than 20 percent, which I think is always within the range of possibilities, I don’t think that it would be weird to wake up next year and markets are down 10 and 20 percent. I don’t think that would be odd at all. But it wouldn’t matter to me because I don’t have money that I need in a five-year frame in the markets and over my experience, the markets never recovered over a five-year period of time.

So that’s how I would approach that. I am glad to see people are conservative around these things, because I think people can kind of forget that they can get really burned with stocks.

Audience: So I would like to come back to this gentleman’s question where you were mentioning that people were going to move out of Chicago, out of Boston, out of New York. Is it because, and I’m not familiar with all the different tax rates and all the different states, but are you referring to the property taxes in the localities, not the state taxes?

Rossell: It’s property taxes; it’s all of the taxes. It’s SALT; it’s all the local taxes, but it’s also the expensive real estate. So in the new tax bill, they put caps on two important deductions: the deductions for state and local taxes and the deduction for your mortgage interest. So what kind of places does this penalize? Anybody with a high, local tax burden and anybody with expensive real estate. So we’re talking about New York, Illinois, California.

Audience: Miami.

Rossell: Florida. Those are the states that we are talking about. So, certainly that pushes people who are on the margin in making a decision on where they want to live. I don’t think we consider fully just how much that new tax bill is going to affect 27-, 28-, 29-, 30-, 31- and 32-year-olds in this country who you never thought would move out of our basements, right? Never thought they would get a job. Never thought that they would have families. Never thought they would buy houses, right? But, if you’ve got a millennial in your life, what are they all doing right now?

They are buying houses with people they tend not to be married to, which I think is very strange and risky, but I won’t comment on that. They’re doing all those things; they’re just doing it 10 years after we all did it, so, as they are making those choices, they’ve all wanted to live in Brooklyn up until this point. They aren’t going to be able to afford to stay in Brooklyn, so they are looking for Brooklyn light. Well, where’s Brooklyn light now? Richmond, Virginia? It’s in all of those cities that have some kind of urban attraction but cheap real estate. That’s where you’re going to see those millennials gravitating to.

Again, it changes the politics in those areas pretty significantly.

Audience: A follow-up to that. So changing the topic, we talked after your platform conversation about the deficit. You had mentioned the train that’s coming down the tracks, and people get out of the way. There’s a gentleman by the name of David McKnight who has written a book called “The Power of Zero.” In that book, he basically talks about the train coming with our deficit. It continues to go up, and we must be diligent with our clients, trying to assist them with going into products that are going to provide the lowest tax rate, if not a zero tax rate. After reading his book and his follow-up book, I see where that’s going to be a huge impact to our clients and to our industry and to our country. How do you see that ultimately playing out? In one day, does everybody realize our deficits are at $35 trillion and, oh my gosh, tax rates go up and there’s panic and then we have something worse than what happened in 2007 and 2008? If you could speak to how you see that playing out knowing that we just had the tax cuts, we’re in a very low tax rate, tax environment, how does that play out over the next 5, 10, 15 years for our children and our grandchildren?

Rossell: Sure. So I didn’t talk about the deficit on stage because I can always count on somebody asking me about it. I always sort of save that for the Q&A. And my perspective on the deficit is, I don’t care about the deficit until the financial markets care about the deficit. I care about it when the financial markets care about it. So, what I mean by that is, for the last 15 years, the world has been willing to loan us money at basically zero percent interest, or a little bit above that. So the world’s been willing to loan us money for years and years and years basically for free. So of course we’re going to take it. It’s not a surprise that we are running up big deficits when interest rates are low. But do you realize we ran a budget surplus in this country in 1999 and 2000? Do you guys remember that? We ran a budget surplus in this country in 1999 and 2000. How did we get there?

Well, it was Bill Clinton and Newt Gingrich. Remember those two guys? Remember the budget deal of 1996? In 1996, they basically shut the government down trying to hammer out a budget because one of the things that we forget is that it’s really the House and the president that have to agree on a budget. It’s one of the things that the Senate doesn’t have that much to do with. It’s really the House and the president that have to agree on a budget. So, Newt Gingrich basically said, “I’m not going to take a budget unless you cut spending aggressively.” Aggressively. And they did. We had higher taxes and lower spending, and there was a surplus in 1999 and 2000.

Now, where did that surplus go? Where’d it go? So there were Bush tax cuts and a war in Iraq and Afghanistan that pretty much ate it all away. So, we can run surpluses in this country; we just choose not to. It’s pretty easy in this country to run budget surpluses, but, if you don’t believe me, let me ask you this. You’ve got clients. Do you want poor clients or rich clients? Yeah, don’t answer the question; I know who you want. Because if you think about it, if a poor person is running a deficit, chances are it’s going to be hard to run a surplus. But if you’ve got a rich client who is running a deficit, spending more than they earn, how hard is it for them to run a surplus? It’s probably not that difficult; they just choose not to.

It’s not. They just choose not to, but it’s a lot easier for rich people to run a surplus than it is for poor folks to do so. So, taking that to a national level, we are the richest country in the world. We are, OK? China’s GDP per person is less than Mexico’s. Hear me. China’s GDP per person, which is all that matters, is less than Mexico’s. So I’m not surprised that they’re heavily in debt. They’re a poor nation. But we are one of the richest nations on the planet. How hard would it be for us to run a surplus? Not that hard. We just choose not to. Now, what would force us to run a surplus? Well, why did Gingrich and Clinton cut a deal? Because interest rates, on the long-term Treasury, were 7 percent.

You see, interest rates will force us eventually to cut a deal. As long as interest rates on long-term debt are low, there’s no incentive to do so. As soon as interest rates go up, and the incentive is there, I don’t think it will actually be that hard. It won’t be that hard. You’ll have to do a few things. You’ll have to make Social Security means-tested, right? I mean, that would go a long way toward fixing the problem. You make Social Security means-tested, or you just find other people who will pay Social Security taxes. Where would you find them? Honduras maybe, right? I mean, aren’t there like 3,000 of them coming this way? Couldn’t we put up a sign that just said: “Come on in, 50 percent Social Security and Medicare taxes”? Like come on in, but we’re going to tax you a lot.

I mean, that would fix the problem really easily. But for some reason, we don’t really want to do that. But I totally don’t understand, right? Just tax people and that will happen. But you are absolutely right about the tax burden going up because that’s really the only way to fix it.

Audience: I’ve had an increasing number of people bring up the issue in regard to the petrodollar, the fact that we control the oil pricing in the world because it’s linked to the dollar. Is that going to change? Is this basket of goods that everyone talks about that’s starting to come up more and more that they’re going to link it from the dollar, is that any kind of reality or is that just fake news?

Rossell: Yeah, I was about to say, yeah, tell them to put the Breitbart[KV1]  away. I mean, just like, come on, because it’s funny, I’m hearing that question too, which means it’s somewhere out in the weird internet ether that people are picking up on. But it’s definitely not something that I think you have to worry about for a really long time, and here’s why.

The world needs a currency. The world needs a dollar. They always need a reserve currency. Now, before the dollar, what was the reserve currency?

Audience: Gold.

Rossell: It was gold or the British pound. Actually, it was the British pound that was the world’s kind of reserve currency, so why did the U.S. dollar overtake the British pound in terms of its importance for the global economy? Well, it’s kind of funny if you think about it. Great Britain didn’t really go into decline. Great Britain just changed its name and moved across the Atlantic. Does everybody get that? I mean, all they did was change their name and move across the Atlantic. I guess the Type A Brits basically just came over in this direction.

So in some ways, it’s not as if the pound sterling went into decline and was replaced by the dollar; it’s just that it changed its name in some ways. I mean, it’s just sort of a much broader sort of thinking of history, if that’s helpful. But you’d have to have some competition to the dollar. You’d have to have some replacement. So this idea that this basket of currency, these reserve currencies that now China has become a part of, that the U.S., somehow that’s going to displace the dollar. That’s lunacy. I mean, it’s complete lunacy for a couple of reasons. No. 1, it would require, not to just trust one currency, but you’d have to trust a whole bunch.

Does anybody trust the euro to be here in the next 10 years? I mean, is the euro really any competition for the U.S. dollar? Absolutely not. What about the Chinese currency? I mean, it’s pegged to the U.S. dollar, so it’s not even its own currency. It’s pegged to the U.S. dollar. So in a sense, it’s just a U.S. dollar by another name. This sort of idea that somehow the U.S. dollar is going to be supplanted, I mean maybe by a bitcoin? That question came up six months ago. It seems to have completely gone away, but thinking that some crypto currency would replace the U.S. dollar, those other currencies would have to be superior in some way.

Now, if inflation takes hold and the U.S. dollar is deflating by 10 percent, then we might talk. But at that point, if inflation in this country is 10 percent, we’ve got way bigger problems than the U.S. dollar no longer being a reserve currency, right? I mean, that will be on the bottom of our list, so to speak. But that’s a great question and a great point because my guess is other people are hearing that kind of story floating around as well.

Audience: So, OK, question about sort of the operation of big business in America. You mentioned before that the stock market runs on P/E ratios. It seems to me that there is anunreasonable expectation on profit levels that are required for companies to maintain, and we talk about this in our business. Mutual companies can make long-term decisions versus stock companies that can make long-term decisions versus companies that have to report every quarter. It seems to me that there is a whole lot of pressure on businesses, and many businesses are cutting corners somehow, whether it’s because you have to stay on hold for a half hour to talk to a customer service rep because they won’t hire enough people or because they make shoddy products that aren’t made with the best materials, but there just seems to be an unreasonable level of profit expectation to continue to drive our stock market up. And I’m wondering if you see those kinds of things, and, if so, where do we go from here because it seems like it’s a system about to implode.

Rossell: Well, I actually do think it’s a problem. The solution that companies seem to be embracing is to bail out on the stock market. They either delist or they never go public at all. I think that’s a problem for American business, and for the American investor in general, because we don’t have a way to get a piece. So the beauty of the stock market, if you just take a couple of steps back and you just look at the wide, big picture, one of the beauties of the stock market is that it allows the everyday investor — the person who only has $10,000, $20,000, $30,000, maybe $100,000 — to invest to get a piece of the pie.

Because of these short-term sort of profit pressures, if companies say, “We don’t want to play that game so we are either never going to list — we’re going to stay private — or we’re going to delist for some reason,” that’s bad for the American public, the sort of broad American public that I ultimately care about. I mean, you want the broadest amount of people to have access, and I see that as the biggest problem because the solution to the short term is that people just don’t participate in the experience, and that’s the problem that I’m really concerned about.

Now, how do you get over it? I think part of it is we have to have a change in our mentality in that investors really do have to be long-term oriented. I don’t think companies have quite been able to crack that code of how do they get their investors to focus on long-terms profits rather than short-term profits. I mean, maybe if you moved to a six-month reporting period instead of a quarterly reporting period. Now, that, for me, strikes me as the wrong solution because I always feel like more information is better, like that’s just like a principle. The more information the better. So moving to a six-month reporting period might help just a little bit, but it sort of takes you in the wrong direction of more disclosure, but maybe less frequent disclosure, but more information might make more sense. So it might be less frequent but more. I mean, I’m just throwing ideas out there off the top of my head. I don’t know if that’s exactly the solution because I haven’t thought deeply about it, but it’s one possibility.

Audience: Several years ago, MDRT sponsored a symposium in New York and brought in a lot of thought leaders. Whether you think he is or not, Alan Greenspan talked about Social Security and Medicare, and he said that Social Security really is not that big of a deal from the standpoint that it’s a defined benefit. But the real crux of the problem in our budget is Medicare. With the onslaught of the baby boomers getting older and our bodies breaking down, do you see how that may affect our budget or economy?

Rossell: Sure.

Audience: And what possible solutions would you have, besides raising taxes, I guess?

Rossell: Yeah. You know, I will say Alan Greenspan is no intellectual slouch. I never thought that. No. He is no slouch, definitely not. In fact, when I went to work at the Federal Reserve, it was the height of the Greenspan years. It was the top of the party; it was really great to be there at that time because you had somebody at the top who was a really bright guy, even if he made some people think he made some mistakes in terms of leadership. But he was a smart guy, and it was fun to be there at the time. He was talking about this issue even then. He has been on the Social Security, Medicare, sort of expansion, blow up, stress on the deficit for a really long time. Let me just say that we got here because of our demographics. You alluded to the fact that baby boomers are this huge demographic that is sort of driving all of this, and one of the things that I hear people say frequently is, “You promised me that Social Security, so you can’t take it from me.” Right? You hear this: You promised that; you can’t take it.

Actually, I’m only 50 years old. I didn’t promise you all that. You promised it to yourself. You promised to confiscate my wealth in your retirement because you are an enormous voting block that’s basically moved through time and promised yourself benefits and the rest of us come behind you, and we’re a small voting block, right? I mean, I’m in the 50-something group, so I’m never going to be that overwhelmed, that baby boomer voting block, right? So basically, the problem with Social Security is that we don’t have enough workers to pay for it, right? Does everybody understand that had those baby boomers had enough kids, this wouldn’t be a problem? So, they basically voted for ever-increasing benefits and then stopped having the children necessary to pay for them. They did it to themselves, so it’s crazy talk all the way around. Then you’re going to turn around to my generation, the Gen Xers, and my kids, the millennials and say, “Well, you promised me.” My kids haven’t even voted yet; they did not promise this to you. You promised it to yourself.

So given that reality, it is absolutely true that Social Security is much more manageable than Medicare because Medicare is unending, right? There’s no definition to it at all, but it also suggests that cost control could help. You probably are not going to get death panels and things like that, or any kind of rationing, because Americans don’t take well to that. But I do think that you could solve it pretty easily with immigration, that the easiest solution is you just let more people in and make them pay taxes. It’s the easiest solution. Why we don’t embrace it? I still can’t figure out. It just is a puzzle to me, over and over and over again.

Audience: Looking at things from the next 10 years, what are the two or three areas that you feel are relatively smart for people to put their money?

Rossell: Oh, OK. I am not in the same business that you guys are in, so that’s a really hard question for me to answer. I’ve always believed that how people invest their money depends on where they are in the life cycle. So, for my daughter who is 28 years old, I like domestic equities. Low-cost domestic equities, don’t even think about it. You’ve got 50 years till retirement. What do you care? Just keep plugging away. Put your money there. Maybe eventually, you diversify into a little real estate, but right now, you need something that you don’t even need to think about, or the fees, or the transaction costs, are super, super low. Because she is 28 years old, so what does it matter? And I tell her, “Don’t look. Don’t look every day. Don’t look at your portfolio every week. If you can resist, don’t look every month. In fact, why don’t you just look once a year? January 1, look at it. You’re going to be hung over anyway, so if you feel good, and if it’s nice, you’ll feel better. And you’re going to feel bad already if it’s not a good return, right? So it depends on where they are.

Now, someone like me, who is getting much closer to retirement, I am on that cusp where I have to think to myself, At what point do I pull the trigger and start to move over into some sort of bond portfolio that I don’t care what happens to interest rates? I don’t care what happens to interest rates because it’s a bond portfolio that’s going to give me what I need, and the rest of the world can go to hell around me as long as they don’t default. You know what I’m saying? I mean, so, it depends where you are in the life cycle. And if you need the money in the next five years, you better be in cash or in some bond that’s not going to default, that’s a completely safe investment.

But I think your question is probably, what sector do you think is more exciting? Like where do you think things are? Well, I will tell you that I think in the next 10 years, the most exciting things are going to be happening with blockchain technology. Now, not necessarily crypto currencies, because I don’t think that that’s where the real change is going to be, but I think blockchain technologies have the ability to transform industries, particularly anything related to real estate and financial services in the same way that Uber has disrupted the taxi business, in the same way that Airbnb has disrupted real estate. This is a change in technology that you don’t have to understand how it works; you just have to understand that blockchain technology allows you to have a secure record of transactions that could be anonymous but doesn’t have to be. So it’s a secure ledger of transactions that could be anonymous but doesn’t necessarily have to be, so you can use it in a closed system where it’s not anonymous.

It’s just a technology, but it’s a technology that could do amazing things in the developed world where property rights are difficult to establish. I don’t think it has that much effect on you as property, but I think in property markets like in Central America, property markets in Africa, property markets in parts of Asia where establishing and holding title can be an issue, I think blockchain technology can revolutionize those markets. I’m not much of a futurist, and I’m not much of a technologist, but I do think that if I pointed to one area and said, “This is the one area to watch because I think there are going to be interesting things happening there,” that’s probably it.

Audience: You kind of answered a bit of the question, but I have a lot of older clients who are getting an income stream from their portfolios. Tey don’t need all the money at once, but they are getting an income stream. So are you saying that those people should be in bonds?

Rossell: Oh, hold on, no, no, no. I don’t know what your clients’ portfolios look like, so that is not what I am saying at all. I am not an investment advisor; I am an economist. OK? I am not someone who sort of manipulates portfolios and things like that. I am saying that an income stream that is secure and dependable is what I am talking about. So, if they’ve got an income stream from stocks that pay dividends, and you feel really comfortable with the risk around that, then that’s the equivalent in my mind. But I do want to be really clear about something. I heard this person give an interesting talk that I’ll share with you in case you haven’t heard it. But my guess is that you guys have probably heard this talk already, and it was just news to me because I sort of play in a different pond than you do.

It’s that the idea of retirement being constant doesn’t make any sense. That, really, retirement is three different phases. What you need in the first 10 years of retirement is very different from what you are going to need in the next 10 years of retirement and is very different from what you are going to need if you make it to the third decade of retirement when you’re basically in God’s waiting room, right? So, those three different times of retirement are structured very differently, and this was eye opening for me. I’ve been in the business for quite some time, and it had never occurred even to me that from 65 to 75, I’m going to want to spend a lot of money. I’m going to spend a lot of money traveling; I’m going to go all over the world; I’m going to have grandkids; I’m going to be doing all that fun stuff.

From 75 to 85, either me or my husband, one of the two of us, is going to be sick, so we’re not going to be going to Barcelona at that point. Or if we are, it’s going to be one of our last trips. So the needs that I am going to have in those 10 years are very, very different from what I will need in the final 10 years, if I make it that long, when I’m just going to be sitting around every day and smoking cigarettes. That’s my plan. Ice cream and cigarettes for the last 10 years, and nobody’s going to stop me. So, that was a real eye-opener for me when I did start to think even about my own personal retirement. I’m sure this is not anything new to anybody sitting here, but as someone who is similar to whom you might be sitting across the desk from, I’m more like your client than I am like you in some ways. This was a real eye-opening kind of thought for me, and I’m not sure how that’s going to change my decisions, but you know, that’s sort of how I would discuss it with someone like you.

Audience: The dollar is the most stable currency in the world. However, there is a movement going on. The Russians and the Chinese have decided to dump many U.S. Treasurys, which is our guarantee for payout. As a result, they want to create their own through the IMF.

Rossell: The SDR.

Audience: The SDR. Now, it may take a little while to do that, but I think time is running out for the dollar. It may not be too long before that particular phase might take over. So, a lady by the name of Christine Lagarde is heading up the IMF. You may know something about her, but she’s got it pretty well set, and it could happen by January 1, or slightly after.

Rossell: Sure.

Audience: What are thoughts on that issue?

Rossell: Well, that would require the rest of the world to trust the Russian economy and the Chinese economy more than they trust the U.S. economy. So, think about where do the Chinese spend their savings? Where do the Chinese put their savings? Do they put it in Chinese property? Do they put it into Chinese bonds? When the Chinese have surpluses, where do they want to invest it? They buy apartments in Vancouver. So they put it into Canadian real estate, a lot of Canadian real estate, a lot of U.S. real estate, and a lot of U.S. Treasury bonds. So, they are telling us that they have more faith in our economy than many of us do, that your average Chinese person has more faith in the U.S. economy than the clients you sit across from every single week. So, don’t talk to me about some sort of artificial currency created by the IMF, special drawing rights that can’t even trade as a currency in anybody’s economy. That has really limited effect on the U.S. economy and the supremacy of the U.S. dollar as a currency that the rest of the world trusts.

So, do you think anybody in Africa is going to say, “You know what? Don’t give me U.S. dollars; give me some special drawing rights”? Absolutely not. No matter what the IMF and the Royal Bank try to do.

Audience: I want to go back to your comment about Social Security. A lot of the folks I know who are getting close to where they would be entitled to be able to claim it, don’t necessarily see it so much as a contract we’ve made with our children but as a contract that we’ve made over our entire working lives with our federal government.

Rossell: Yeah.

Audience: And it’s not an entitlement; it’s an earned defined benefit. I think you’re talking, you know, that’s when revolution comes in the streets and things like that, when either you cut or you eliminate Social Security or even if you make it means-tested because even people who don’t need it, by someone else’s judgment, have paid into it. They’re entitled to it. They’ve earned it, and somehow, the federal government has to keep that promise.

Rossell: Well, in my mind, we could just then pay them out what they paid in. How about that?

Audience: Plus interest.

Rossell: Fine, pay them what they paid plus interest, but basically it’s true that Social Security has never been properly sort of PR’d because really what it is, is just like any other social safety net. The purpose of Social Security is simply to keep you from being poor when you are old. That’s the only reason it was put into place. Now, we’ve sort of imagined it to be forced savings, and in some ways, it is. But it’s just like unemployment insurance. We all pay into that, but I don’t want to collect. But nobody says, “By golly, give that to me.” So, it’s insurance, right? I mean, that’s what it ought to be. That’s what it should have been sold as. It’s forced insurance. But, over time, you’re right, it’s morphed into people thinking, I paid in and, therefore, I’ve got to take out. So, I agree with you completely. The problem is, you just didn’t pay in as much as you’re going to take out, so that’s really what it comes down to. People aren’t paying in what they are actually pulling out, and you tell them this, and they still won’t believe you, right?

You can show them the statistics that the equity around it is highly inequitable. So the only people who tend to pay in more than they get out tend to be African American men because they die so young. So, it’s sort of a cross group of people. It’s not the same, but chances are, for their client, they didn’t pay in nearly as much as they are going to take out over time. But again, you fix the problem by just finding some new workers and taxing them. If you don’t want to make it means-tested, you’ve got to find new workers, and you’ve got to raise their taxes.

Audience: I do like that idea. Find an appropriate way to bring more people in and put them to work.

Rossell: And put them to work. Yeah, big taxes.

Audience: I’m coming.

Rossell: Yeah, big immigration fees, right? Come on in for $100,000, you know? Like easy peasy! Sell that visa. So, that’s my new slogan: Sell that visa. Yes, go ahead.

Audience: Love it.

Rossell: Right?

Audience: What I was wondering is twofold. One is, I like your interpretation of what’s going on now. There’re so many papers that say Trump and what he’s doing is destroying our economy and what you look at is the long term. And the other, as someone who markets the people and is a resource, do you or do other people who have blogs that I can pick from to share your explanation of Social Security is my money, you know, what’s going on, or unemployment, I pay into it. I don’t want to get back more than I paid in. So the simple kinds of explanations in the economic realm to make me look smarter to my clients and giving them fundamentals and to remove all the stuff that’s going on now about what Trump is doing or isn’t doing, you know what’s the long-term expectation you have on our economy and our smart people?

Rossell: Sure. Well let me take all that and say one thing first. I’m always very careful to talk about policy, not people. I’m always very careful to talk about what’s actually happened as opposed to what was said. So, what people say in my mind is not news. Let me repeat that. You need to hear me. What someone says is not news. So I don’t wake up every morning and look at anybody’s Twitter feed, right? Somebody asked me that question, “Do you wake up every morning and look at the Twitter feed of blah blah blah?” I’m like, “Why would I waste my time with that?” That’s not what actually happened; that’s what someone said. If you can literally ignore what is said, never look at what anybody says, and just look at what they do, your life is going to get a lot simpler. It doesn’t matter what any politician says. Now, what they do is different.

So when you put 25 percent tariffs on steel, that’s doing something, and I’ll talk about that all day long. What you say about another political party or somebody else is completely irrelevant, doesn’t matter to me at all. So it’s a lot easier for me to cut through. I would say 80 percent of the garbage that’s out there, if somebody said it, I’m not going to read that story because it’s irrelevant. Now, if somebody did something, suddenly I want to read that story. That’s the first way that you can cut through the news. It’s really hard to do because I think we enjoy politics as a blood sport, right? I mean, politics has become a little bit of a blood sport for most of us, and we enjoy the back and forth, and we feel like we’re winning when our team is doing well. But if somehow we can get back to thinking about government as governing — government is to govern — honestly, that’s a pretty narrow world and not very interesting. It’s just not. Government ought to be boring as crap. It ought to be so boring that none of us wants to look at it.

So when did politics become so interesting? It became interesting when everybody got kind of mean and nasty and said, “Hey, can you believe he said that? Can you believe she said that?” So, I would encourage you, for your own intellect, to really try to cut through that and ignore it, which means you’re not going to be able to watch Fox News anymore. Or MSNBC. Whichever side you’re gravitating to, chances are you’re going to have to get rid of both of those because they are just all about what people say. Then there’re people coming on to talk about what somebody said. None of that matters. It matters none. Zero. Nothing. So, I would say that first. So if you ask me, I will never talk about the Bush economy. I will never talk about the Obama economy. And I won’t talk about the current president’s economy. I won’t talk about any of those economies because the economy is so much bigger than one person.

Now, if I see a policy like a trade war with China as having some sort of impact, I will talk about that all day long and share with you what I think is likely to happen. But I think it’s done us grave harm to make politics personal. It has done us grave harm that we have made politics personal, and I think it is happening on red, blue, Democrat, Republican, libertarian, Green Party, wherever you find yourself. We’ve made politics personal. I’m not sure when it happened, but I think it’s definitely done harm to the national discourse. That’s what I care about.

So, if I were sitting in your shoes, though, and saying, “Where can I go for good information?” I personally don’t have a blog or anything like that because I’m really lazy. Those kinds of things have to be done every day, and you have to keep up with it, and I am a terrible writer. Listen to the way that I talk; it sounds like if I would write it, it would be like a Mark Twain novel. You’d think that were you reading Huckleberry Finn talks economics, right? You don’t want that. So, I’m not a writer. I don’t do that sort of thing, but there are a few people I do like to read, and I read the The Economist magazine cover to cover every week. I will tell you, and it tends to be right of center, so it’s a British right of center, which means some people in this country might even think that’s left of center, but it’s British right of center, so I know what its biases are. I know its point of view. But if you can even get through half of it, you will be smarter than 85 percent of the people out there.

It’s going to give you everything important that’s going on in the world. It’s backchecked, and it’s weekly. So it takes you out of that day-to-day spin that is news now, and that basically I think is just bad for our hearts. I think it’s bad for our blood pressure. It’s just up and down all day long. So, taking a step back and going to a weekly publication for your information is extremely important. The other thing, I really like Doug Holtz-Eakin. He does kind of a Washington policy blog, and he’s a little right of center too, but I trust him. I’ve known him for a long time, and I trust his point of view. It’s very good, and it’s very accessible. I can’t think, it’s like the center for policy analysis or something like that, but his name is Doug Holtz-Eakin, and I really do recommend him.

Audience: I want to go back to a point you made about the three phases of retirement because I know we talk about them as the go-go, the slow-go and the no-go, right?

Rossell: Yeah.

Audience: What I tend to tell my clients is that they’re going to be spending as much money conceivably in the no-go. It’s just that they’re not traveling, but there are long-term care issues; there’re health issues. So, I kind of have kept it that they’re going to need this amount of money; it’s just going to be spent differently.

Rossell: I think that’s a really good point to make. Nobody knows your health more than you. Nobody knows your health better than you. So, I think that you kind of have some sense of where you’re going to be at 90. I think there are smarter people out there who can estimate the cost of what’s it’s going to take if you should live to 90, and I’m also one of those people who likes to protect myself pretty broadly from a wide range of outcomes. But I only brought that up because that idea around retirement was new to me. Now, it may be that I need as much money when I’m 80 as I do when I’m 65, but I personally had never thought about it. The only reason I was sharing that with you is that I bet there are a lot of things that your clients have never thought about like that. I’ve never run across that idea. It was new to me. So, you’d be stunned at the lack of thought on the other side of the table. That was the point of that.

Audience: Do you think the comment you made relative to low taxation states, when will that shift to current, what generational part will it be? The Gen Xers, the baby boomers, and what type of time, like will they wait until the tax has been reversed?

Rossell: No, no. In terms of this sort of push of young people out of the cities and into the suburbs around cheaper urban areas, I think it’s happening already. If you talk to real estate people, they can’t keep what they call affordable houses. Anything in the $200,000 to $300,000 range, in these urban areas, there’s no inventory because the millennials are just soaking up those houses. Everybody thought they would stay in the city, right? They were going to stay in their apartments; they wanted to live urban. But the minute they have their first kid, they move right out to the suburbs, just like any other generation. I think it’s happening already.

So, as soon as the more taxes they start to pay, and the less deduction they get, and the more their parents say, “I’m not going to pay for you to live in Brooklyn any longer, you’re going to have to flip the bill yourself,” that’s all happening right now. It is a trend right in front of our faces. Right now.

Audience: I have one more question. You’re an economist; you studied economics. We understand Keynesian economics, John Maynard Keynes. In his book, and I’ve read part of the book, and in the end of the book, he talks about government development of growth, if it’s done to an extreme, can collapse the whole economy. I’m a student of Austrian economics through Mises. Where do you come from?

Rossell: Where do I come from? Well, I tend to be a monetarist, and I am familiar with the Austrian school, and I lean in that direction intellectually. So, let me be very clear what I mean by that. Economists look at the world in two ways. There’s the world as it could be ideally, and then there’s the world as it is. So, my ideal world is pretty harsh. You make what you earn. You take care of yourself, a pretty limited social safety net, that’s sort of for individuals who really can’t take care of themselves, no forced savings, and very light government. All of that is grounded in my fundamental ideology, which is that people should be free. People should be free. If you sort of, cut down, cut down, cut down, and you get into the root of what drives me, and my intellectual sort of framework for pretty much everything, I start in the place of people should be free.

Somebody asked me how I felt about child labor the other day. I thought for a minute, and I said, “I’m not comfortable with any kind of forced labor whether it’s child labor, slavery, or anything else. Because forced labor means that people aren’t free. So, I’m not OK with tariffs because it means I’m not free to buy what I want from whom I want. I don’t believe there should be any restrictions on where I buy goods and services. Whether I buy it from China, Russia or the person next door, any restriction on that freedom I have a problem with. I ought to be free to move to Canada if I so choose. And any restriction on that, I actually have a problem with because I don’t think that just Americans should be free; I think everybody should be free.

So now you can see why I can’t run for office, if you were thinking that for just a few minutes, right? So, when you ask me how I feel about legal marijuana, right? Regardless about how I personally feel about marijuana, because do I really need another reason to want to eat pizza? I don’t think so. Regardless, unlike someone who maybe doesn’t eat pizza, no, absolutely not. But should people be free to do that if they want to? By golly, and all of this, believe it or not, I can rest very well with my own Catholic faith. So I’m a Catholic who thinks God made us to be free. So, imagine how that conversation goes at Thanksgiving at my house.

People have got to be free. All of my feelings about government spring from that. And there are restrictions. I do believe that maybe sometimes we might restrict you if your actions impinge on my freedom, right? I can make the case that you can’t paint your house pink because I have to look at it. So we have zoning and things like that. But even so, you ought to be able to paint your house pink if you want to, in my point of view. But when we talk about regulations, it should never impinge on my freedom. Or if you are going to impinge upon my freedom, you better make a really good case for it. So, that’s sort of where I start, and my economics all sort of flow out of that philosophy.

Sometimes it’s tempered, but remember, that’s the world ideally as opposed to the world we actually live in, and so most of the things I talk about are about the world as it is rather than about my ideal world. My ideal world is very different from the world that we actually live in. But, for most of you, what matters day to day with your clients is the world we live in rather than the theoretical, perfect world that is the world of Mises, the world of Keynes, the world of Milton Friedman. Those are theoretical worlds that I find very interesting to talk about, but most of the time, most of us are living in this world as it is, and that’s where you’re going to spend your time with folks.

Aurora Tancock, FLMI, CFP, is a 17-year MDRT member with seven Court of the Table qualifications.

Marci Rossell is the former chief economist for CNBC and co-host of Squawk Box.