WBD627 Audio Transcription
How the Fed “Went Broke” with Lyn Alden
Release date: Monday 6th March
Note: the following is a transcription of my interview with Lyn Alden. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Lyn Alden is a macroeconomist and investment strategist. In this interview, we discuss her latest article: How the Fed “Went Broke”. Lyn explains how for the first time in modern history the Federal Reserve is operating at a loss. We talk about the ramifications in terms of continuing high inflation, the bankruptcy of government agencies, and the impacts on the Fed’s independence.
“What they did back in 2008…they said, ‘Well, we’re going to create a tonne of new base money, we’re going to buy some of those assets to reliquefy the system.’ And so, it’s not an exaggeration to say it’s essentially like a Ponzi scheme, it’s something that has to keep growing in order to function.”
— Lyn Alden
Interview Transcription
Peter McCormack: Lyn, hi, Happy New Year. How are you?
Lyn Alden: You too. How are you?
Peter McCormack: Yeah, good. It's weird, I'm wishing you Happy New Year and it's March!
Lyn Alden: Well, because we haven't talked in a while, I guess.
Peter McCormack: I know. You're too busy, you've been too successful, I barely get to talk to you any more. How's the start of your year been?
Lyn Alden: Pretty good, trying to work on a bunch of different things. My book's taking up a lot of time, so I've been trying to limit my bandwidth wherever possible.
Peter McCormack: All right, well we've got a lot to get into, but tell me a little bit about this book.
Lyn Alden: Well actually, I finished the very early first draft. Like I said before, it's a book about money and so now I have to spend a tremendous amount of time editing it, so it's still nowhere near completion, even though it's technically a written book.
Peter McCormack: Can't you get someone else to do that for you?
Lyn Alden: Well, I mean in the final step I will, yeah, but this phase of the editing is the part where I want to make sure that my ideas are expressed as clearly as possible.
Peter McCormack: Do you have a title, can you share it; or is that under wraps?
Lyn Alden: That's still being worked on.
Peter McCormack: Oh, damn it, I thought I might get an exclusive then! Well listen, I can't wait, I will definitely be reading that and I will be pestering you to come on and talk about it. But we have something else to talk about; you've written the most amazing article. So, Danny sent me this, well actually he texted me about three weeks ago, he said, "Have you read Lyn's latest article about the Fed going broke?" I was like, "No?" He was like, "You've got to go and read it". Amazing article, thank you again. I don't know how you keep producing so much incredible content.
One of the most interesting things for me was starting to see those layers of, "We have accounts with the banks, the banks have accounts with the Fed", and I'd never really got that link. But the relationship between the banks and the Fed is very similar to my relationship with the bank.
Lyn Alden: Exactly, and actually this came up a little bit in our eurodollar discussion from a while ago, about a series of nested ledgers. So, a central bank has assets, which in the older days used to be say gold, for example. Now they're often government bonds, mortgage-backed securities, or things like that. And then they have liabilities, which are the monetary base of that country. And so, the United States, the Federal Reserve's monetary base, their liabilities, that's the monetary base of the country. That's basically base dollars. At the end of the day, that's what a dollar is; it's a direct liability of the Federal Reserve.
You can have that in two primary forms. One is physical banknotes. If you hold physical cash, it's a direct liability of the Fed; and two, banks store their cash with the Fed in digital form, it's just an entry on the Fed's ledger, and that's a direct liability of the Fed. So, those two components make up the monetary base. Then what banks do is they essentially multiply it. So, when you have a deposit at the bank, you have an IOU that is for a dollar, but they have way more IOUs than they have base cash, because they know that most people are not going to all redeem them at once, or even try to, so you basically have this fractional-reserve system.
I don't quote it in this article, but then the third layer would be the international eurodollar system. Basically you could have a foreign bank, they have a deposit at a domestic bank, and then they further fractionally-reserve it for people that might be holding dollars with them. And so, you have a series of fractional-reserve IOUs built on fractional-reserve IOUs, that at the end of the day are a claim on the liability of the Fed. Or in another case, if it was the Bank of England, whatever the case may be, that liability side of the central bank is the monetary base of the country.
Peter McCormack: Yeah, and one of the other things, which we will get into, it just didn't cross my mind, or I'd never really had it explained to me, but how the Fed actually generates money. I mean, that whole part of the article, how they, what is it, about $100 billion a year?
Lyn Alden: Sure, yeah. If you look at a commercial bank for a second, before we get into central banks, commercial banks have assets and liabilities and then they have a thin amount of equity that represents the difference between their assets and their liabilities. So, their liabilities are deposits in various forms, chequing deposits, savings deposits, certificates of deposit, they usually pay pretty low interest rates and that represents our assets, their liabilities. Then their asset side is usually higher-interest-yielding things, like mortgages and other types of loans, as well as various securities, like Treasury Bonds or other types of securities, that pay a higher interest. They make money because their assets pay a larger interest rate than their liabilities, and they also charge various fees, and that basically represents their income at the end of the day.
Now, a central bank actually works quite similarly. The bank holds their cash at the Fed and earns interest for it. The Fed also has liabilities in the form of all those banknotes, that are obviously zero-yielding, because they're obviously physical cash. Then they have an asset side, which consists of government bonds, mortgage-backed securities, sometimes other types of assets as well, that historically most of the time have paid a higher interest rate than their liabilities.
But what changed, starting last year, was that now their liabilities, at least for the Fed and this I think applies for a number of other central banks, now pays a higher average interest rate than their assets. Historically, the reason why central banks are set up like this is to be somewhat independent. I mean, the idea is that they're not a direct branch of the government, the President can't just give the head of the central bank a phone call and say, "Hey, we have an election coming up, cut interest rates and boost things a little bit or we're going to pull your funding". You're supposed to have some degree of separation, even though at the end of the day, the government still sets the terms for the central bank, and usually appoints people that oversee it.
But by having longer terms and staggered terms that are different from the current rolling administration of a country, there's some degree of separation, like say a Supreme Court, or something like that, like almost a different branch. So, that's the kind of system we've been operating under and it's kind of flipped on its head recently.
Peter McCormack: Well, I think we should just work through the steps of understanding, because we're going to work towards why the Fed is broke, or going broke, and what that potentially means. And I'm going to make an assumption that the problems you've identified with the Fed are probably very similar to the Bank of England?
Lyn Alden: Yeah, you're going to see this in most things. Any central bank that's rapidly raised interest rates is probably in a similar boat to varying degrees, and that's because historically we've had 40 years or so of steadily declining interest rates. So, if a central bank holds say government bonds from several years ago, chances are the interest rates now are lower than their average assets that were purchased over a period of time, and generally have longer average duration. And, part of their liability side is zero-yielding, because of the physical currency part. So, they start with an advantage where it's actually pretty hard for the liability side to have a higher average interest rate than their asset side.
If that happened to a normal bank -- if a normal bank has basically negative interest income and/or if its liabilities exceed its assets, it's basically game over; whereas, a central bank is different. And so right now, you have a period where because central banks have raised interest rates so quickly and for the first time in decades, they have higher interest rates than even the prior cycle, they're at a phase where their liabilities are paying out higher interest rates, and so they have negative interest income, and then this varies based on the bank, but now that that interest income is eating away their tangible equity, and so many of them have, either on the verge of having negative equity, or perhaps some of them already do.
Peter McCormack: All right, so we'll go through this step-by-step. I think people always appreciate this when we keep in quite easy. Let's talk about the relationship, or how the -- we call them high-street banks, I don't know what you call them in the US, but how they tend to work. I'm just going to throw in there, one of the interest things about this when I was discussing with Danny, he brought up the point like, "We're really just lending money to the bank. We don't realise it but when we deposit money with the bank or we get paid, we're really giving them an ultra-low interest loan".
Lyn Alden: Yes, that's exactly what you're doing. And basically, it's one of the cheapest sources of funding available. That's a key thing that a bank does, is it's able to borrow interest very, very low and then they're able to lend it out at higher interest rates and collect that. And, there's obviously very different types of banks: there are investment banks, there are commercial banks; some banks are very simple, some are very complex. But at the end of the day, what they're primary purpose is, is they're providing chequing purposes, they're providing saving services, they're providing services; but at the end of the day, those are a liability for them, an asset for us, and so they're borrowing money.
Actually, insurance companies kind of do the same thing. They collect premiums, they pay out claims, but in the middle they're holding this big float and they can invest that float, they can collect income on their investments by holding things like bonds, and then therefore that represents income for an insurance company, and you essentially see the same thing with a bank. Basically, most of the modern financial system that we built up over a long period of time is this kind of arbitrage, where banks are arbitraging the fact that they have a bunch of depositors that are coming and going, but in aggregate most of their total liabilities are not changing very frequently.
So, they have this permanent, low-cost source of borrowing that they can lend out for longer periods of time in slightly higher-risk capacities. And by having diversification, by having sufficient liquidity on hand to handle withdrawals, most of the time they're fine and they generate that income and then they pay themselves, they pay their shareholders. It's basically a big, middle-man operation and that's how things work. Now obviously, back a long time ago, this was a really valuable service, because if you're talking about say depositing gold coins at a bank and getting a banknote for them, you're speeding up, you're getting better divisibility, you're getting all these services.
Even today, many of us use banks because we're getting something from the relationship. We're able to connect into this big, global set of ledgers, move money around, not have to store a bunch of physical cash in our home. Obviously there are some recent alternatives that we can use, like say Bitcoin for example, but prior to Bitcoin, this is kind of the best we have, and so that's the world we live in.
Peter McCormack: Yeah, I think a lot of people probably don't, well, a bit like the whole financial system, but don't really realise how this works. I mean, if I was super-honest, I would have said, certainly when I was maybe 18, 19, 20 years old, my assumption was, when I deposit money with them, they just hold that money and I then access it and they make their money off the services they provide me. And I know a lot of those services are now provided close to free, but I don't think people realise that the bank is actually then taking a risk with your money by lending it out; and also, in some ways, taking a higher risk by lending it out on a fractional-reserve basis, which means that if there is some kind of global economic crash or some difficult financial situation we go into, there can be a run on the bank and they can risk your deposits.
Lyn Alden: And that's exactly what happened going into 2008. So, in 2007 for example, in the United States' financial system, there were $23 worth of deposits for every $1 of bank cash. So basically, there's tons and tons of IOUs for every $1 that a typical bank had at deposit with the Fed, or stored up in vault cash, in their ATMs or in their vaults. Even FDIC insurance, or other types of insurance, are not enough to cover massive bank failures. Those are meant to cover if one bank messes up and they go insolvent, the system has insurance to cover depositors so that in a typical operating basis, people don't have to worry about their bank failing, as long as they're within those insurance coverage ceiling limits.
But if you have a widespread failure where there's all these claims for base dollars, that vastly exceed the number of base dollars, and instead banks have a lot of exposure to risky, illiquid loans that are either unable to be moved around easily and converted back into cash, or if they are at risk of defaulting and therefore losing a portion of customer deposits, what they did back in 2008 in part was they created a ton of new base money and they said, "We're going to create a ton of new base money, we're going to buy some of those assets to reliquefy the system".
I mean, it's not an exaggeration to say it's essentially like a Ponzi scheme, it's just something that has to keep going and keep growing in order to function.
Peter McCormack: Well, that was going to be one of my next points to you, but I did want to bring up, me and Danny had a guy on the show recently, I think he goes by the name of Regulatory Jason on Twitter, is that the correct guy, Danny? Jason Brett, I think it is?
Danny Knowles: Yeah, Regulatory Jason. Jason Brett, he's called.
Peter McCormack: Yeah, so he worked for the FDIC during the 2008 Financial Crisis, and it was fascinating, and he was playing us a video. And I think what some people didn't realise is that FDIC insurance is limit, I think it's $250,000; but some people might have had like $20 million with a single institution, and you could lose the vast majority of that. We have a similar insurance in the UK, Lyn. It's much worse, I think it's about £80,000 you're covered for, and I'm not fortunately one of those people who could have maybe £500,000 in a bank account. But if I did, I would be thinking, "I need five bank accounts here", because I know you have separate protection for each bank. But I just don't think some people realise that risk.
Then, when you layer that on, like you said, this is essentially a Ponzi scheme, I mean I don't know any other way to describe it, because if they keep fractionally-reserve-lending out the money and they're successful sometimes, or keep bringing money in, then they've got a higher base to increase those fractional-reserve lendings. But like I say, if there's some kind of economic contraction, what happens?
Lyn Alden: Yeah, what happens is either, let's say it was a harder-money scenario, let's say the monetary base was gold and these were all claims for gold and you had five times as many claims for gold, then the answer was some of those claims would not be met, those would be defaulted on and people thought they had deposits, but they were fractionally reserved and some of them are gone now. In the current system, because the monetary base is flexible, basically it's a central bank ledger, instead what generally happens is if the system starts to collapse, starts to freeze up, like it did in 2008, they instead rapidly increase the monetary base and so you instead kind of spread out via inflation and currency dilution, rather than defaults. So, that's the current era that we're in.
When you zoom out, it kind of goes back to that thing, like if a product is free -- you're not the customer, you're the product for someone else being a customer and so, for example, there are custodians out there. For example, an ETF is in many ways a custodian. They're holding a bunch of stocks, for example, and they're a wrapper around stocks and they charge a very low expense ratio to hold those stocks, or if they're an active ETF, to choose which stocks to hold. But even if it's just a passive ETF, they're just following an index, they're basically holding the stocks for you, they're administering the details and charging a small fee for it, and that's a custodian relationship.
The same thing if you have gold in a vault somewhere, normally you're paying a very small fee in order to maintain that, because they're not lending your gold out, their income comes from you as the customer. Whereas, if you're not really paying much, or even if you're getting paid, then you're essentially the product. In this case, you're providing a low-interest-rate loan to them. And the relationship we have with the banks is a little bit of both, because in some ways we do pay fees. We might pay fees for a wire transfer, or something like that, but we also earn interest, or least we used do, and now we kind of do around the margins because we're the ones providing that low-cost loan to them, and this is the system we've been in for quite a while.
Peter McCormack: You're essentially my financial system Jesus, I always refer to you, Lyn, for any questions regarding anything to do with the financial system, so for me it would be really interesting to understand, from your perspective, are there any pros to a fractional-reserve system; is it something that is beneficial; is it something that is beneficial but is exploited or abused; how do you generally feel about the idea of fractional-reserve lending?
Lyn Alden: So, I generally separate beneficial and harmful, that's one axis, versus inevitable or not inevitable. So, I think the way I put it is that it's inevitably going to happen, at least with the current and the prior level of technology that we had for the past couple of centuries. Essentially, any time you have a custodial service, like you're depositing your gold, you're getting claims for that gold on a future date, those people inevitably realise, "Wait a second, most people don't come and take the gold out at the same time, and therefore I can use this".
Then you start to get market pressures. All these different custodians are holding your gold and they're all charging fees, and then someone says, "Wait a second, if I lend 20% of this out, I can generate some income from that, and then I can charge my customers no fees, and they'll all want to use my service instead of my competitors". And if they don't disclose that to customers, that's fraud; but if they do disclose that to customers, customers might say, "Well, if you're loaning out 20% of it, that sounds reasonable if there are secure lending practices and so forth that's 80% backed by gold, 20% backed by less liquid loans. Sure, I'll take that trade-off".
Then, another one might come along and say, "We're going to lend out 40% of it, and not only are we going to make the custodian free, we're going to then pay you a little bit as profit-sharing". So, I think it's one of those things where if you have a mismatch in speed between the claims and the underlying, so gold is slow and bank accounts are quick, you're going to get that arbitrage and banks are going to make use of that arbitrage. That's why once fractional-reserve banking was a thing, it spread everywhere. So, I think it's one of those things where it's inevitable in that current era of technology. Basically, market forces are going to keep pushing in that direction. Whenever they push it too far, it's going to blow up, so it's less that I view it as good or bad, it's that I view it as inevitable.
Now, I think if you had a bearer asset that could settle quickly, there's less of a reason to fractionally-reserve it, and basically whenever it attempts to be fractionally-reserved, it's much more likely to break because people can pull it out quicker, there's less of a reason to put up with that risk. So, I think basically as technology changes over time, with Bitcoin for example, I think that can squeeze out the need for it, but I think it's basically inevitable over the past number of centuries that it's going to be there.
Peter McCormack: And I think that's a really good place where you can almost compare and contrast what's happened with our industry over the last year to 18 months in that, look, we know what happened in 2008, the banks did fail; and when the banks failed, they were able to be bailed out by the government, whatever it was, $800 billion in relief for the banks back in 2008. And also, the FDIC insurance does exist as a potential bailout.
When you have, let's call it unsound money, the ability to print to protect yourself, the incentive model allows that. But when you look at what happened within our industry over the last year-and-a-half, nobody could print Bitcoin to protect, and as you said, it's a bearer asset that can settle quickly and people did try and withdraw, and that's why we saw things break.
Lyn Alden: Exactly, I think when you have the underlying settlement asset move as quickly as something like Bitcoin does, either fractional-reserve banking doesn't make sense, or the ratios that are workable are so much lower than the current ratios we have now, that you can get up to say 23:1, for example. That type of ratio completely goes away when the underlying settlement asset can move very quickly, and you don't really get any advantages, other than yield, for having it in one of those.
So for example, back in the free banking days, beside yield, the advantage you got for putting your gold in a bank is (1) you didn't have to worry about custodying it anymore; and (2) you're now tied into this telecommunications-connected ledger system and you can move claims around faster, so you basically put it in, you get higher velocity from it. But in a world where it is safer to secure the underlying, let's say for example Bitcoin multisig, you don't have to worry about storing massive amounts of gold in your home; and if the underlying moves just as fast as bank ledgers do, then there's less of a reason to ever put it at risk in any sort of fractional-reserve way, or at least any significant fractional-reserve way. So, I think that's the changeover.
Peter McCormack: And so, is that a reason why the cost of capital is higher when you're trying to borrow from say a Bitcoin lender? If you go and look at Ledn's rates or Unchained Capital's rates, they're kind of 11%, 12%, 13%. Is it because the entire incentive model is different and the risk profile is different, and there is no bailout? I mean, is part of the reason the cost of capital for dollars and pounds is a lot lower is that there is essentially always a bailout?
Lyn Alden: I think that's a big part of it. One thing is the rates went up a lot recently. So, even in the United States, for example, mortgage rates now are a lot higher than they were a couple of years ago. But overall essentially, there's different rates depending on what percentage of loans you can expect to fail, or the cost of administering those loans. It's easier to make a small number of big loans, for example, than a large number of small loans, because you have more overhead costs you have to cover with those interest rates.
On the other hand, there's also risk to consider. So for example, if you're lending money to people to speculate on stocks with, for example, that's going to be a pretty high interest rate; or, if someone's piled up credit card debt, you're going to charge them a pretty high interest rate; whereas, if someone is buying a reliable home, if they're doing something that is considered low risk with it, they get a lower rate. So, really it's about the cost of administration and it's the risk that's being made.
Then, of course, there are market forces. If some company identifies a need that is not being met anywhere, they can get a lot of money from interest rates, because they don't really have competition. And as soon as someone figures out, "Hey, they're basically a goldmine over there", they can come in and they can charge lower rates, and then that market can go back down to whatever makes sense.
So, really it comes to risk-adjusted and overhead-adjusted, are what determine interest rates for the most part.
Peter McCormack: So, when we look at the central bank, how would you say they differ; what are the key differences between them and say a high-street bank that I would use?
Lyn Alden: So, they're one layer down. So basically, they're at the heart of the system, whereas major banks are the layer up. So, you have an account with a bank, they provide services for you and they have assets that back up those deposits. And some of those assets are stored at the central bank, which are a liability for the central bank, which are then backed up by things like government bonds, or other assets on the central bank balance sheet. So, that's the main difference, is that rather than a free-banking system, where every bank has its own underlying assets, like gold for example, and has claims to them, instead most systems around the world are now central banking, which is that they're all connected to the central bank ledger. So, that's the one difference, is just the layer.
Then the second difference is really about what happens if they go insolvent. So for example, if a normal bank goes insolvent, I mean assuming it doesn't get a bailout, then it's at risk of basically some sort of liquidation, forced buyout, some sort of thing like that; they have to be basically reconstructed. Whereas, a central bank technically can survive with negative equity, so they don't really have risk of bankruptcy in the same way a normal bank does, they have different laws that govern their accounting, and they have just overall different constraints. So, that's kind of the main difference there.
Peter McCormack: Can there be a run on a central bank in the same way there is a run on commercial banks; or, can a run on a commercial bank lead, like if it was a nationwide economic situation where people were trying to withdraw their money, say like it happened in 2008, can that lead to a run on a central bank?
Lyn Alden: The short answer is, "Not really". So, a bank run can happen in a couple of different ways. The reason a normal bank run can happen is you don't trust that bank, you're worried they're going to go bankrupt, they're not going to be able to pay you back, so you pull your money out, and you have two choices with what to do with that money. You can either hold it in cash, or you can shift it to another bank. Let's say you're worried about bank X, but you think bank Y is safe, so you pull it out to bank Y.
A central bank is a little bit different in that, one, there's no alternative, at least within that country's currency system, so there's no competitive central bank that they're going to rush to. If you look at international situations, that's different; but for example, there's no world where Bank of America, for example, wants to pull out of the Federal Reserve, because what are they going to do with it? There's no other thing to put it in.
Number two is the central bank controls how much physical currency that there even is. So, they have two sides to their monetary base, which is bank reserves and physical currency. And you can get a situation, I mean if enough people want to do bank runs, or if you have something like that, there's only so much physical currency out there that they can even pull into. So, if enough people tried to do bank runs, you'd actually get told no, even if the bank wasn't bankrupt. Even if it wasn't insolvent, they would just say, "There's literally a cash shortage and we can't meet that demand for your claims being pulled out", and the central bank is what determines.
Every year, for example, the Federal Reserve tells the Bureau of Engraving and Printing how much physical currency they want to order to determine basically what percentage of their monetary base they want to be in that physical form. So, by basically controlling the parameters of what you can even withdraw from, they can avoid any sort of bank run scenario. Now, they have other risks or downsides from having negative equity, and there are other risks that they can run into, but a bank run isn't really one of them.
Peter McCormack: Interesting, okay. And another thing, I think I must have asked you this like five times in the past and every time, I have to get you to come back to it, but can you explain what the reverse repo market is again? Stop laughing at me, Danny!
Lyn Alden: Sure. A reverse repo is basically if financial institutions pool the capital of all this extra cash, all this extra liquidity -- for example, actually, going back to your prior point, a lot of people don't know that if you have too much money in a bank account, it's exposed, it's above the FDIC-insured limit. So, if you have $1 million, where do you stick it? You can either stick it in multiple different bank accounts, or you can stick it into something that's perceived as safer.
One option, for example, is Treasury Bills, right, because your liability is the US Federal Government, rather than a specific banking institution, so you can put $1 billion into Treasury Bills if you want to. Another option is that you can put them into something like money markets, and they hold a bunch of short-term commercial paper, as well as things like T-Bills. And one of the things that they do if they have all this extra cash and if the central bank is offering reverse repos, they can take that cash and give it to the Fed, and then they get T-Bills in return. So, they're basically lending money to the Fed and then getting T-Bills, and that's basically a way to push liquidity away and get collateral, because especially at an institutional level, you can do things with T-Bills. You can lend them out, you can use them as collateral.
One way to think about reverse repos is, they're the opposite of normal repos, which is essentially that if you're an institution that has T-Bills, and for whatever reason you need cash, you need something even more liquid, you can deposit the T-Bill with the Fed, get a short-term loan that's collateralised by that T-Bill, that's a normal repo; and reverse repos are just the opposite of that, you're giving them excess cash and you're getting T-Bills.
Peter McCormack: This whole thing must be an accounting nightmare; things must go wrong.
Lyn Alden: Well, I mean for example, 2019 you had the repo spike. That's why the Federal Reserve had to get so active in the repo markets. That's why whenever you have a big crisis, you have a big alphabet soup of programmes that arise. So, in 2008 for example, the central bank had to do a dozen different programmes. They basically add liquidity to the system. They want to make T-Bills relatively fungible with cash, for example, to avoid liquidity shocks, and the same thing happened in 2020 when global trade dried up, everybody still has all these dollar-based debts, everyone says, "Okay, we're going to sell T-Bills and get dollars to pay our debts".
That crashes the Treasury market, so then the Fed has to say, "No, stop doing that, you can use your T-Bills to get loans. We'll buy some T-Bills from you with new cash, we'll give you loans based on other collateral". There's all sorts of programmes that they do because like you said, at the end of the day, this is kind of an accounting nightmare, and basically you're administering a gigantic ledger that's always increasing in size and complexity.
Peter McCormack: Okay, now I think we need to work towards why; why are they going to go broke, or why they are broke, and what that means. So, in your article, you talked about in 2021, the Federal Reserve earned $100 billion in interest income, we talked about that. So, I mean my first question on that is, why do they target making a profit and what do they do with that interest that they earn?
Lyn Alden: So, they don't directly -- they're not supposed to really do their actions based on making a profit, and they're not incentivised to because they have to give all their excess profit to the Treasury.
Peter McCormack: Okay.
Lyn Alden: So basically, the reason that they make a profit is for independence. Like I said before, if they were just an arm of the government, then they'd be reliant on funding by the government and they could be told to do all sorts of stuff, before an election for example. But instead, by operating almost like an independent agency, and actually there are central banks around the world that are publicly traded, it doesn't really mean that much, but they still technically are, they're publicly traded; the Federal Reserve's not, but some are.
So, you have this degree of independence, because they're not on paper insolvent. They have liabilities, they have assets, they generate their own income, they cover their own expenses. And then, to avoid them operating in such a way that they're a profit, they have a monopoly, so you want to control their activities to some degree, and so they have to pay their excess profits above their baseline expenses to the government. So, that's historically how the Fed has operated.
The Fed's different than other central banks in that it's a public-private partnership and so it's a little bit more complex. But at the end of the day, it's this semi-autonomous entity that is nonetheless overseen by the government. So, going back to the assets and liabilities, their main assets are Treasuries and mortgage-backed securities; and their main liabilities are bank reserves and physical banknotes. So, for most of Fed history, their assets paid a higher interest rate than their liabilities. So, after covering their expenses, they earn tons of money, $100 billion, and then they give all that to the Treasury.
In some sense, you can think of that as, the Treasury has to pay interest to the Fed because the Fed holds a lot of Treasury securities, but then all that money just goes right back to the Treasury. Almost that portion of the debt is zeroed out because any interest they pay on it is essentially going right back to the Treasury.
Danny Knowles: Can I just ask a question there? What's the distinction that makes them independent if they have to give all their profit back to the government?
Lyn Alden: What makes them independent is that they are self-financing, so they're required to give excess money to the government. It's not like every year, Congress has to authorise money to go to the Fed to pay salaries, for example. Let's say NASA, the US Space Agency, their operations, their employees are paid by authorisations of Congress. And if, for whatever reason, Congress just says, "You don't get money this year", well they're out of luck, they would just have to not operate, they'd have to shut down. Whereas, the central bank, because they're a self-generating entity, they're not reliant on these specific funding authorisations from Congress. Instead, they're left to make their own money, but then they have to give excess money to the government.
So, it's kind of this attempt at decentralisation. Now, it obviously runs into limits. During war, for example, or major crises, central bank independence kind of goes out the window, to varying degrees. But during most of the time, that is basically an attempt by the institutions that are constructed in order to make it more decentralised than it would be if the central bank was just a direct arm from the government.
Danny Knowles: Right, and so are there private shareholders of the Federal Reserve, or is it just the government?
Lyn Alden: There are. Basically, it's owned by the commercial banking system, and so commercial banks own shares in the Federal Reserve and they do get a small dividend from that, and they also get to pick the board seats. The Federal Reserve's split into 12 regional Federal Reserve banks, and so they get to pick the majority of the board seats of their local Federal Reserve bank. And then the FOMC, which is the Federal Open Market Committee, that's the entity that determines what interest rates are going to be, what's going to happen with QE, that kind of thing, that's made up from a combination of federally appointed officials, so they're appointed by the President and confirmed by the Senate, as well as a subset of the heads of those 12 Federal Reserve banks.
So, it's basically this public-private hybrid that is, for the most part, controlled by the federal government, but basically the ownership is officially by the commercial banks. And like I said before, there are some, like Switzerland's bank and Japan's central bank, those actually have publicly tradable shares that you can buy. So, the ownerships, they can technically be owned elsewhere, but it usually doesn't mean much.
Peter McCormack: It all sounds a little bit like, how do I put it, like an old boys club, like they all can work together, perhaps collude together, and that doesn't feel like -- if the commercial banks are shareholders in the Fed, it doesn't feel like it's truly independent?
Lyn Alden: Well, I guess it depends on independent from whom? It's certainly not independent from the banking system and when it was made, it was kind of a compromise between the banks and the government. The banks said, "We're not going to give you all the power", and the federal government said, "Well, we're going to take at least some of the power", and that's kind of the arrangement that they came up with. It partially serves the banks, it partially serves the people, because the one who put Jerome Powell in charge, he's appointed by the President, confirmed by the Senate, we vote for these people, so there's basically public representation to control the Fed indirectly, and then there's banking input into the control of the Fed. Basically, you have those two directions of power that goes into the Federal Reserve's governing structure.
Now, the main benefit that comes from that is that they are independent in a near-term sense. So, for example, during President Trump's term, he was frustrated with Jerome Powell for increasing interest rates at a time that he felt was inopportune. He was publicly calling out Jerome for doing that, but it was challenging for him to do anything about it, because Powell had his term, he was not doing anything illegal, the bank's self-funded, it's not like he can just say, "I'm going to fire you if you don't do what I want". So, that's one way that throughout different administrations, throughout time, the President can't just do something right before elections in order to change policy.
Where it breaks down is if say the government's debt is going to default or something, or if there's some sort of crisis, some sort of war, Congress can pass a law and force the central bank to do anything. They can say, "Look, you have to buy our debt", or they can do all sorts of stuff like that. So, really it only gives independence in the short term, it avoids unilateral short-term centralisation, but you still have that problem of, at the end of the day when push comes to shove during crises, there really is no central bank independence.
Peter McCormack: Okay, so in September 2022, the Fed began operating at a loss. Again, you covered this in the article and we'll make sure that it appears in the show notes, people really should read it. Firstly, was this the first time it happened; and why did it happen?
Lyn Alden: So, this is the first time in modern history.
Peter McCormack: Wow.
Lyn Alden: There are some similarities back in say the 1940s or so, but it's certainly in modern history, this is the first time it happened. And the reason it happened is because we've had 40 years of declining interest rates, so there's never a time where they sharply raise interest rates so much that their liabilities are yielding a higher interest rate than their existing asset. Whereas, in 2022, they raised interest rates so quickly that the interest that they're paying on their bank reserves and interest that they're paying on reverse repos are higher than the average interest rate that they're earning on their Treasuries and their mortgage-backed securities.
So, the Fed now has an operating loss instead of an operating income, and so they're now basically -- if they were a normal bank, they'd be on the verge of insolvency. But because they're a central bank, they're different.
Danny Knowles: When the Fed started raising rates, everyone said this might be a reason that they couldn't raise them for too long. Clearly, that's not played out, so why are they willing to raise rates so high that they put themselves into negative equity?
Lyn Alden: One reason is because of the way the accounting's set up; they don't get near-term consequences for having a negative equity. So, the way that Federal Reserve accounting works, right now they're operating at a loss, they're no longer sending money to the Treasury because they're not making money to send it to them, but what they're essentially doing is they're eating into their equity but instead of actually mark it to market and saying, "Okay, now we're actually approaching negative equity", instead they give themselves an asset. It's called basically a deferred asset so that in the future, if they're ever profitable again, they get to pay themselves back first, they get to dig themselves out of this hole, before they would resume having to give their excess profits back to the Treasury.
It's kind of like if you had a business and it starts to go bankrupt and you say, "Well, in the future, they'll probably be a time when I'm not bankrupt, so I'll basically borrow from the future, from my future self, to pay back when that happens", that's kind of the thing that the Fed's doing, where they're approaching negatively tangible equity but unlike a normal bank, there's no consequence when they hit zero, there's no consequence immediately at least when they go negative, and so the main difference is just that they can continue operating and actually, the main consequences are for the Treasury. The Treasury has now lost a $100 billion income source, and even in the future when the Federal Reserve is profitable again, if they're profitable again, it would be a long time before that income source is recovered because the Federal Reserve would be not sending remittances to the Treasury, because it would be digging itself out of its prior hole before it would ever begin sending more money to the Treasury.
So basically, the Federal Reserve is able to do it, because the consequences are for the most part not on them, they're on the Treasury, they're on the taxpayer, rather than them. Now, if it goes on long enough and to a significant enough degree, you could start raising questions around central bank independence, because if you're technically insolvent, that's a different scenario, but that's a long, long way off. In this intermediate phase, they have virtually zero consequences for this and the consequences are instead on the Treasury.
Peter McCormack: So, this current situation, is it getting worse and how dire is it?
Lyn Alden: So, it is getting worse, it's probably going to continue for a long time. It's not as dire -- so, the reason I wrote this article is because a number of weeks, months ago, I started to see basically these doom charts, especially because the St Louis Fed charting system is kind of broken for this particular metric, and so it looks really bad, so there are a lot of people sharing that on Twitter. So, I actually was inspired to make an article to say, "Okay, what is behind this crazy chart that I see being shared around?"
The short version is, there's nothing going to explode because of this. There's no near-term or even intermediate-term wall that they've run into for doing this. Instead, a couple of consequences. One consequence is that budget deficits are going to be bigger now, because that $100 billion income source just completely vanished and is not coming back anytime soon, most likely. So, that's equivalent to four NASAs' worth of expenditure. These days, $100 billion seems like nothing to people, but NASA, for example, is $25 billion. So, the US Government lost an income source; that's one tangible consequence from this.
On the other side of that, the commercial banking system is basically getting paid pretty well because of this, because all that negative equity is basically draining out of the Fed and going into the commercial banking system, so they're actually making out pretty well. Those liabilities, those higher liabilities from the Fed, those higher-yielding liabilities I should say, that's paying out the banks. So, banks are basically getting paid to do nothing, so they don't mind the situation. And the longer-term potential consequence is, you'll get someone like Senator Warren or others either complain that the Federal Reserve is paying banks too much, or you'll get people starting to say, "Why do you have this much negative tangible equity; doesn't that threaten your central bank independence?"
So, some of the long-term consequences can build up by starting to politicise even more so what some of the Fed actions already are.
Peter McCormack: So, if the government has lost that income stream, or the Treasury has lost that income stream, is there anything they can do?
Lyn Alden: The short answer's no. They could cut expenditures, but they're not going to. So instead, essentially what they do is they'll issue another $100 billion worth of Treasury securities so the debt will rise more quickly than it otherwise would have if this didn't happen. And that's of course compounded by the fact that these higher interest rates on the debt are also causing more debt.
So for example, if they had $400 billion in interest expense in a lower interest rate environment, they now have $800 billion in annual interest expense at this higher-rate environment, it could go higher than that. And now, they're not cutting something to pay for that, they're just issuing more bonds than they otherwise would in order to cover that. So, they're basically increasing their debt load in order to cover up the fact that their interest on their debt is higher and they just lost an income source, so it kind of builds up over time.
Peter McCormack: Yeah, it feels like a precarious position, because if we look at those layers, the likes of us, we're lending money at a very low interest rate to the banks; they're using that to try and generate an income, but they're using the Federal Reserve or the other central banks as essentially their bank. But they're all operating at a loss. So essentially, these central banks which underpin all money in the global financial system are kind of insolvent. It feels very precarious.
Lyn Alden: Pretty much, and that manifests generally through inflation. One thing I like to highlight is that it's very different than 2008. In 2008, banks were at risk due to basically deflationary collapse. There were way more claims than there was base money, and so it was at risk of all falling apart. Now instead, I think the key risk is longer-term inflation. It doesn't mean you can't temporarily get the inflation rate down, but it means that as long as these forces exist, the inflation rate's bias is up. So, unless it's actively being held down, it's ready to keep popping up or keep being a problem.
One way to think about it is kind of how everything is a nested ledger. So, we have accounts at banks, they have accounts at central banks, and central banks back up their assets with government bonds. Bailouts happen upward as well. So for example, when in the 1990s, you had long-term capital management, a big, giant, levered hedge fund that blew up, the Fed had it bailed out. That contributed to the dotcom bubble happening, that all blew up, then they cut interest rates and then we had this big housing bubble. And when that finally struck, basically the private sector was totally out of ammo, the whole Ponzi was starting to get marked to market, they basically pulled private sector leverage onto the public sector balance sheet. So, it all wound up on either the Federal Reserve in some cases, or it wound up just right in government deficits and debt.
What we're seeing now is that when all that is held up to the sovereign level, when all the debt goes up very high, the only place to release it from there is onto the currency. So, you get ongoing currency devaluation, ongoing, off-and-on inflation, and ongoing periods of time where however high or low yields are, they're spending most of the time below the prevailing inflation rate, and therefore savers, bondholders, all these types of holders in the system are essentially getting devalued, and that's just spreading out the losses to anyone who's involved in the currency.
Peter McCormack: And this is kind of like when you said to me on the last couple of interviews, you said, "The story of the next decade", you said, "is probably going to be inflation", and I guess this is why?
Lyn Alden: It's a key factor, yes. I think that what's going to drive inflation over the next decade is a combination of uncontrolled fiscal deficits by most developed countries; and then, two, unlike the past decade, there's not really a buffer for commodities, so there's no real commodity oversupply and deflationary commodity markets, they can offset some of this. So, you have the combination of money creations happening because deficits are high; one way to think of it is that government deficits are a surplus for the private sector, so it's basically a way that money pours into the system. And then when you also have tight commodity markets, that makes it so that those increases in money supply do translate into higher consumer prices pretty readily, and that's also true for things like labour shortages.
Now, you can have periods of time where, if you get a recession, if they cause a bane of contraction in a period of time, you could get a temporary disinflation, you could get a temporary contraction, you can reduce demand enough to maybe suppress prices for a period of time, but I think those are going to be the cyclical things; whereas, the structural thing is inflation, unless of course they find a way to sharply reduce deficits, which at this stage of the crisis, is very, very hard to do.
Danny Knowles: So, in the article, you compare what's happening now with the redeemability of gold in 1933. Can you tell that story, because I'd never heard that and the end of that story blew my mind; I did not know this happened?
Lyn Alden: Yeah, so I'll tell it in two parts. One is, people often ask why can't a central bank just forgive the debt it owns to its government. If the Federal Reserve owns a lot of Treasuries, why can't there just be a debt jubilee and the Federal Reserve just forgives that portion of the debt, because it's owned by the central bank; who cares? The reason is, if they did that, the asset side of their balance sheet would be deleted and they'd still have all the liabilities. So, they would now have basically no interest income and no assets backing up their liabilities, and yet they'd have all these liabilities. So, they would lose their independence, they would rely on funding by the government and you would not have independent central banking any more. So, that's one reason why that can't happen.
They actually faced a similar thing back in the 1930s, which was back then, the Federal Reserve owned gold and basically the liabilities, the monetary base, represented claims for gold. You could take your dollar and you could get gold with it at a fixed rate. But because you had a massive banking failure, they wanted to increase the monetary base, but they couldn't increase the amount of gold in the system, and they wanted to centralise all the gold. Instead, they severed the redeemability for gold, they devalued the dollar relative to gold, but then they also said the Federal Reserve has to transfer all of its gold to the Treasury. But they couldn't just do that on its own, because then the Federal Reserve would have all these liabilities and wouldn't have assets.
So they instead said, "We're not just going to take your gold, we're going to take your gold and then we're going to give you gold certificates that represent the fact that you still kind of own that gold --"
Peter McCormack: Kind of.
Lyn Alden: "-- but they're not redeemable". Yeah, exactly, "Kind of". So, here's non-redeemable gold certificates and it's like, what is a non-redeemable gold certificate?
Peter McCormack: It's bullshit!
Lyn Alden: It doesn't make sense. What it is, it's an accounting gimmick. All it is is saying that, here's a placeholder asset that makes it so you're not insolvent, and makes some degree of conceptual sense, "Yeah, we took your gold, here's your claim for the gold, you just can't redeem it". So, that's what kept the Fed solvent for decades. Otherwise, without that gold certificate that really means nothing, they would be insolvent on paper, because their liabilities would greatly exceed their assets, because their assets, gold, were taken from them.
They actually still hold those today. They used to be a massive part of the balance sheet back when the balance sheet was measured in billions of dollars. But now that everything's so much bigger, those gold certificates they're holding from like 90 years ago are something like $12 billion. I mean, they're tiny compared to the size of the Federal Reserve balance sheet today, but they're still holding these meme certificates nine decades later.
These accounting gimmicks that the Fed's using now where when they lose money, they instead have these deferred assets, they're kind of the same sort of accounting gimmicks, where they're approaching the period where they're insolvent in terms of tangible assets; but by having these imaginary assets fill the gap, it's like magic and then they're not insolvent.
Peter McCormack: Lyn, how long can they go on like this for?
Lyn Alden: I think it depends on a lot of factors. It depends on what happens with commodity markets, it depends on what happens with trust in the system. Right now, for example, whenever you see inflation indicators go higher, usually the dollar strengthens because people say, "Well, the Fed's got to get tighter then, so they'll fix this inflation by getting even tighter", so it actually strengths the system. I think when that breaks down is when they're basically so tight and there's still a problem, people say, "Well, they can't even get any tighter", and then they start essentially selling the system.
So I think the short end of it is, you can still go on quite a bit longer in a similar way that you can look at Argentina or Turkey right now and you can ask, "Why is this still going on? If you're having high, double-digit borderline 100% inflation, how is that still going on?" It's a couple of reasons. One is that there's no clear path to fix it in the countries; and two, they've avoided collapsing to the point of say Lebanon, or an outright failed state. They're kind of in that intermediate state where you're still able to function in these countries, and just the money system's just broken and just month after month, quarter after quarter, year after year, it's even more broken.
I think you see a light version of that today in a lot of developed countries, where it's broken, but it's not broken so bad that it leads to an outcome next week, so it just keeps grinding on. So, I think that basically it's going to be a multiyear story of just inflation on average is going to be higher than the target level, and there's going to be various reasons why that is, debates about why that is, what the Fed should do. There might be periods of time where they get it under control, often probably ironically because of a recession, and they say, "Well, we caused a recession and we got inflation down", and then you try to grow back out of that recession and then you get inflation again. So, it's almost like it can go longer because it's not a straight line and it's nowhere near hyperinflation, so you get that long grind.
So, I think it can go on until you start to get really, really negative tangible facts. And so, for example, one deadline is that by around the year 2035, social security goes bankrupt. What that would mean is not that they have zero payouts, but they can only pay out from incoming tax revenue, which is insufficient, so you'd basically have to do a haircut for social security payouts, which would of course piss a lot of people up, so in the run-up to that, you'd have a big issue. Or alternatively, they could increase taxes, but then another group of people would be pissed off.
There are these kind of deadlines where certain things literally run out, but in the next several years, it's just this ongoing background problem that people live with, in a similar but less extreme way that people live with it in Turkey, Argentina and a lot of these other types of countries.
Danny Knowles: Sorry, I just want to -- by 2035, with current projections, social security goes bankrupt?
Lyn Alden: Yes.
Danny Knowles: Wow!
Lyn Alden: So, the way it's been working is that basically they've had a surplus and they store that in Treasuries actually, non-markable Treasuries, so they actually earn interest on their savings. And just actually right as last year, instead of that surplus going up, it's starting to roll over and go down. So, now the programme is so top-heavy that they're paying out more than they're getting in, but they do have those savings to draw from.
So basically, over the next, call it 12 years, and sometimes the estimate changes, like they used to think it was going to be 2034, then it's 2035; it's not big changes, but there's a slight amount of variance for exactly when this happens, but roughly around 2035, it's about $3 trillion currently, that surplus that will be drawn down. Then you'll have a situation where you're already at this point taxes are not covering the payouts, but there's no reserves to draw down either. So, you'd have to cut payouts or increase taxes, some sort of resolution to that outcome. Basically, it's a somewhat different budget process than the rest of the fiscal budget.
Peter McCormack: We sound so fucked! Excuse my language, Lyn, but we sound so fucked!
Lyn Alden: I mean, I think the way this likely manifests over time is you get greater and greater political polarisation, greater and greater differences in opinion over how to handle that, right. There's going to be some people who are like, "No, you have to raise taxes to keep paying for this stuff"; other people are going to say, "No, you have to cut spending because taxes can't go any higher", and it comes down to either checks are going to get set or not.
I mean, we have a smaller version of this every couple of years with the debt-ceiling debate, which is what we have this year coming up, so that's a near-term version. But then that longer-term version is that fiscal spiral, that you have over 100% debt-to-GDP, you have interest on that debt, you have ongoing, pretty large deficits, and you have real-world constraints in terms of labour, in terms of commodities and things like that.
So, basically the public ledger's broken, that generally manifests in inflation, and how high that inflation is partially depends on economic growth, commodity availability. Maybe we have gigantic productivity breakthroughs and we push this out longer, or maybe we have war and we pull it up sooner. There's all these factors that can influence the timing and the magnitude of what happens. But essentially, when you have these structural massive deficits and high debts, it generally manifests in inflation grinding on over time until you have some sort of political consensus to figure out how to balance that out, which generally only happens after a lot of damage has been done, and after a lot of the debts have been effectively inflated away.
Peter McCormack: So, how are you planning for this; where are you putting your money, Lyn? That's what everyone's thinking, and by the way, just sign up to Lyn's Newsletter; she tells you everything you need to know.
Lyn Alden: I mean, the short summary is that I emphasise hard assets. I'm long things that are scarce, and I avoid or am short things that are not scarce. So, I own things like energy pipelines, energy deposits, good-cashflow-producing companies, gold and Bitcoin. And then I either avoid things like holding massive amounts of cash, or I have a low interest rate mortgage, for example, so I'm effectively short the currency.
Now, in periods of time, if I think for example we're going to tighten so much they're going to cause a recession, then cash could be really good for a 12- to 18-month period, because everything else does worse, so there certainly are periods of time, like right now, I think I have some cash. Basically I focus on hard assets, but I also focus on diversification and maintaining liquidity, so that if there are these periods of volatility, I can rebalance into those things. And it partly comes down to not being able to know the future, and then you have to take actions that come and go. I mean, there could be regulatory actions against something like Bitcoin; there could be wars that break out; so, it's basically just diversification into a number of things that I view as being scarce and useful, and avoiding things that I view as being abundant or not useful.
Peter McCormack: Like Lyn's time, Danny, these days; scarce asset! Lyn, wonderful as ever, when do we get to see you in person next; is it going to be Miami?
Lyn Alden: It looks like it's shaping up that way, yeah, I'd be happy to see you there.
Peter McCormack: Yeah, I would love to see you, it's been too long. We're all getting too busy now and we don't get to see you as much any more. Oh, you missed the start, Danny, we were talking a little bit about Lyn's book that's coming.
Danny Knowles: Are you writing a book?
Lyn Alden: I am writing a book, yeah. I actually have the very, very first draft written and now I'm in the long editing phase, so it's still nowhere near completion, even though it's technically written.
Danny Knowles: Very cool. I've got one question, I know we're really short on time, but at the end of the article, you kind of leave us on a bit of a cliff-hanger. So, interest rates typically are seen as a way of quelling inflation, but you say that might not be the case. So, what's this next article?
Lyn Alden: It might not be the next article, but it's an upcoming article, and I've already mostly written it, that talks about the relationship between interest rates and inflation. So basically, when you have high inflation, one of the ways that people want to deal with it is higher interest rates. You say, okay, well there's too much inflation happening so you have to raise interest rates, hurt asset prices, slow down bank lending and that will slow down money creation and therefore slow down inflation, that was basically one of the steps they did in the 1970s. That works as long as lending-driven inflation is the major part of why inflation's happening, why the money supply's increasing.
That does not work very well if large fiscal deficits are what is driving the inflation and driving that money creation. And so, for example, in the 1940s when you had massive -- I mean, the highest inflation the United States ever got officially was 19% year-over-year, and that was in the 1940s, and we kept interest rates at roughly zero, because that inflation was not caused from bank lending, banks were barely lending at all; instead, it was the large fiscal spending on the war.
So, I think one of the challenges that policymakers are going to have during these upcoming years and decade or so is that when they increase interest rates to try to quell inflation, they actually increase the federal deficit, because there's higher interest expense that they're paying out on the same amount of debt, and that actually pours into the economy as a form of money creation. And so, on one hand, you're trying to control bank-lending-driven inflation, but you're making the fiscal inflation worse.
If you have an environment like we do today where fiscal-driven inflation is the bigger component of money creation than bank lending, then you can actually get a situation where higher interest rates exacerbate inflation, rather than make it worse. Or, you can get a period where higher interest rates temporarily push down inflation but then over the long term, exacerbate it. So really, the only way to fix inflation when you have fiscal-driven inflation over the longer term is to reduce those budget deficits. So, as long as they don't reduce those budget deficits, it's probably going to be a recurring problem, regardless of what interest rates are.
Danny Knowles: Maybe that's what we cover in Miami in May then?
Lyn Alden: Yeah, I'll definitely have the article out by then.
Peter McCormack: Well, Lyn, thanks as ever. We only break our in-person rule for you for obvious reasons, but it's great to see you and cannot wait to find out and get a copy and read this book. There's too many good books coming out at the moment. Anyone listening, you're going to have to buy Lyn's book, as well as sign up for her email, and we look forward to seeing you in Miami.
Lyn Alden: Yeah, looking forward to it. Thanks for having me.
Danny Knowles: Thanks, Lyn.
Peter McCormack: Thanks, Lyn.
