(audience applauding) He's a financial historian. And to say that Dick Sella is a financial historian is kind of like saying that Steph Curry shoots hoops, okay? He is, I think, commonly recognized, universally recognized as the dean of American financial historians. He is the author of A History of Interest Rates, which is on everybody's shelf who does finance.

And I am just tickled to have Dick here with me. We heard earlier today a very elegant description of the mathematics of personal finance. You know, return, volatility, risk aversion, and how you plug that into an asset allocation. And I like to say that investing is half mathematics and half Shakespeare.

So you heard an hour and a half ago a very eloquent exposition of the mathematics. But without the Shakespeare, the history, and the psychology that feeds into it, you are dead in the water. So without further ado, I'm going to ask Dick a rather offbeat question, which is, when I checked into the hotel the other day, the clerk took one look at me and said, "Yes, you get room 1929." (audience laughing) Okay, should I be worried?

- What was the question? - Oh, the clerk said, "You're in room 1929. "Should I be worried?" - Well, I don't think so. I'm kind of curious as to why they gave you that room. You know, was it because they thought you were 95 years old? (laughing) - I don't think there was anything terribly nefarious, but I did think that it was one heck of a coincidence.

- So Bill mentioned he was going to ask me that yesterday, and I thought about it a little bit. Then I realized my own room was 1521. And I said, "Why would they put Bill in 1929?" And me in 1521. And of course, the answer was immediately obvious to this historian.

1521 was the year the Pope excommunicated Martin Luther. (laughing) And 1929 was the year that Reverend Martin Luther King Jr. was born. So that's the answer, Bill. - Okay, help. - The hotel has a sense of history. (laughing) - Very, very touche. All right, so we're going to start with a subject I think that Dick wanted to begin with, and it's a good one, we touched on it already, which is that the United States has large annual fiscal deficits.

We have a debt to GDP ratio, which is now approaching one or greater than one, I don't know the exact value, but it's large. Which is okay if you've just fought a war, or maybe if you've just had an enormous financial crash. But it is not good to have that at a time of prosperity and a time of peace.

And there doesn't seem to be any end of this in sight. We seem to be headed toward a debt spiral. And I'm wondering how worried you are about that and how worried we all should be about it. - Well, this does bother me quite a bit, and I think it should bother most of you, because I believe it has investment implications going forward.

And you know, I'm a fairly old guy now, and half a lifetime ago, I remember that the U.S. national debt was $1 trillion. In 1980, that's like, in my case, half a lifetime ago. And now it's between $35 and $36 trillion. And think about that. You know, it took, what, 180 years of American history to get up a national debt of $1 trillion.

And now in the last 44 years, we've run that up to $35 trillion. So that, the number in itself, is one that's worth thinking about. But also, you know, you would say that, you know, what does this represent? And I think it represents fiscal irresponsibility. For most of American history, we were a fiscally responsible country, but in our political system, you know, there might have been always a spending party and another party that was conservative and said we have to pay for things.

But it seems to me what bothers me most now, and this is an election year, but nobody talks about this. You don't hear the candidates saying, you know, nobody asks them, what are we gonna do about this, having a, you know, trillion plus deficits every year. And in the background, of course, it's even worse than it seems because if you can calculate what Social Security and Medicare are gonna cost down the road, and, you know, some of those deficits dwarf even the, you know, trillion or two deficits we've been running annually at the federal level.

And so why is it that, you know, with all this going on, it doesn't seem to be a major issue. Neither party talks about it. And I think it's got implications going forward for the investment world, and so we should all be thinking about that a little bit. - How do you think it plays out?

It's not gonna play out in an election year or the next five or six weeks. - No. - But it's gonna play out after that, I think, and how do you think that happens? - Yeah, well, I, you know, what's going on? This is as old as the hills.

I mean, Alexander Hamilton talked about this because in the 1790s, we had a, when the government was first formed, we had a national debt of $70 million left over from the American Revolution. And, you know, we didn't do anything about it in the 1780s, and so the new government on the Constitution had to do something about it.

And so Hamilton basically funded the debt, created the Treasury bond market, and, you know, founded the first national bank, central bank. But he said at the time that everybody was pressuring him to get us out of debt. We wanna be out of debt as a country. And Hamilton would say there are two ways to do that.

You know, we can raise taxes, and immediately the congressman said, "No, no, we can't do that, we can't do that." Or the other way, Hamilton said, is we can reduce spending. And they said, "Well, we can't do that, we can't do that." And, but Mr. Hamilton, we charge you with getting us out of debt.

And Hamilton then said, this makes life very complicated for a finance minister because people have these inconsistent views. And it seems to me that's where we are now. And many of us would say if somebody proposed, you know, one of the candidates would propose much higher taxes this year, we'd say, "I don't like that, "I'm not gonna vote for that person." Or if they talked about reducing spending, you know, cutting Social Security, cutting Medicare, we would say, "No, no, I can't vote for that candidate, "but I'm very disturbed at the growing debt we have." So we haven't changed much in 200 and some years, but I think it's really a problem for our country, and we should all be thinking about it a lot more and thinking how can we become more fiscally responsible?

- Well, that's, you know, the collective action aspect of it, but what are you doing about it as an investor? - Well, my guess is that the, unless something is done about it, and I don't see any signs of that right now, that it means that we will have more inflation in the future because what inflation is, is the tax, it's a form of taxation.

And if we won't pay real taxes, and we won't cut back on our government spending, because nobody wants to pay higher real taxes, and nobody wants to have lower government spending, the only way the books are gonna balance is if we, inflation reduces the real value of the debt and makes it possible for the government to come through.

And you know, one of the first things you learn in EC1 or EC10, whatever the course is, is that inflation is bad for creditors, people who lend money, because they get lower value money back when it's paid, but it's really good for debtors, because the debtor can pay back in lower value money.

And then you ask yourself, who is the biggest debtor in the world? And the answer is the government of the United States of America. So our government actually has a vested interest in inflation, I would say. And I think that's something to keep in mind as you're making your investment decisions.

Been a lot of talk about tips and things like that at this conference. And my own view, Bill told me once, he thought all the old people should invest in tips. But my view is that a little bit of tips might belong in almost everyone's portfolio. And when Consuelo Mack, I don't know if you know Consuelo Mack has a TV show called WealthTrack, and I've been on it a few times.

And at the end of it, she used to ask everyone, what's your favorite recommended investment? And I said the same thing all the time. I thought I was being safe and concerned. Maybe everybody should have a little bit of tips in their portfolio. - I guess I wouldn't disagree with that.

Okay, we're gonna turn the clock back now 13 years to the year 2011, which was a bit of a scary year. And you were interviewed for the Wall Street Journal by Jim Browning, D.S. Browning. I don't know how he got the name Jim, but that's what everybody calls him.

And this was a bad week in the stock market in September of 2011. And he wanted your very, very long-term perspective. And so you said that you wanted to take a long-term approach and you showed him this graph, which got published in the journal article. And it's a nice sort of rolling graph of 10-year returns of the stock market.

And so right at the far right aspect of that was returns had been near zero. In fact, as Paul Merriman mentioned a couple times, and I'm fond of quoting as well, between 2000 and 2009, that decade, U.S. stocks lost about 20% in real terms. And you thought that augured well for the stock market.

You thought that stocks would be a good place to invest. And of course, you were right. And so I decided to look and see if there was any value in looking at 10-year stock returns. And this is sort of a dirty graph. It sort of slopes down into the right, but it's a very dirty graph.

So I lengthened that to 15 years, and then 20 years, and then finally 30 years. And boy, at 30 years, it sure looks really pretty off on the left side, okay? All you have to do is wait for 30-year real returns of near 0% or 1% or 2%, and you have it made in the shade.

Now, the problem with that is there aren't that many independent 30-year returns. In fact, when you're looking at the far left side of that graph, you're only really talking about, I think, 1830-something and 1938 or something like that. So really, you have to wait 100 years to execute this strategy.

And the problem becomes immediately apparent when you just take rolling 30-year stock returns. You see that in the past century, there's been only one period of time, almost 100 years ago, when we saw real returns, 30-year returns of near zero. And even if you held your threshold for buying at 5%, that you really were only going to have one or two opportunities, buying opportunities.

So how do you use rolling returns and realized returns of stocks? How valuable do you think they are? - Well, if you want to go back to the Wall Street Journal chart, that was, one thing I did in my checkered career was to actually extend our knowledge of the U.S.

stock market back to almost the beginning. And the only way you could do that was by looking at old newspapers, because the newspapers starting in the 1790s began to report the stocks then were usually bank stocks, local bank stocks, and the Bank of the United States. And then you had three kinds of government bonds that Hamilton had issued.

And they were reported. I mean, I think one of the great things about our country is it had somewhat modern finances right from the beginning. And that's the debt I think we should all remember that we owe to Alexander Hamilton. Because he had this idea that, he knew his financial history.

If you read about Hamilton, he would talk about Dutch finance and British finance, the Italians, and what was going on. And he thought the U.S. ought to be equipped with modern financial arrangements. We were probably the third country in the world after the Dutch and the British to have modern financials system.

And we had it right from the beginning of the country. So you could actually go back and get, this is from 1801 to 19, to 2010 or something like that. And so we got the stock market data, made some assumptions for the earlier, before we made the 1870 on it, it was easy.

The previous work had been done. But going back to the beginning of the country. And what I noticed was that there's this kind of pattern, up and down, up and down. And so in the year 2000, actually 1999, when everybody was worried about the dot-com bubble, I was asked to give some talk.

And I brought out this chart. And it was only up to 1999 then. But I said the 10-year moving average real returns, that's what this shows, 10-year moving average real returns, they've fluctuated a lot through U.S. history. It looks like there's, roughly speaking, on average there's 10 years up and 10 years down.

And usually when you got to some very high level, the range of this at the maximum, you can see like in 1929 or late 1950s or '60s, and then again in 1999, when you're up at that level, maybe 16, 17, 18%, usually what happens when you're at one of those peaks, the next 10 years aren't so good.

So what I did in 2000 when I first did this, and this is what Jim Browning knew about and why he wrote the article, is I said, let me assume that the returns for the next 10 years, that is 2000 to 2009, will just be 0%, we're talking about real stock market returns every year, 0%.

And I got the red chart there, the red line. And it turns out that over the next 10 years, the blue line is what actually happened and the red was almost the same as the blue. So hey, I'm a pretty smart guy, right? (laughing) And so Browning thought about that and he said, well, what's, in 2010, 2011, I talked to a lot of investment groups in New York and they want to know what's gonna happen next.

And I said, well, when things are that bad for 10 years, usually the next 10 years are better. So then the Wall Street Journal asked me to calculate what might happen in the next 10 years. So I made another simple assumption that let's just suppose the average return that is throughout US history is what we'll get in the next 10 years.

And I got, at that time, my forecast of what the market would do in the next 10 years. It's actually done a lot better than that because it's done above average. But when I made this statement, it said the next 10 years will be better, everyone was pessimistic. Well, no, we don't think you're right.

They really got burned in 2007 to 2009 and they were very skeptical in 2011 that the stock market was gonna do well. Well, I turned out to have been not optimistic enough. So, and basically, that's where this comes from. But you can sort of get an average, I mean, the range is from a return of about 16, 17, 18% a year at the various peaks you see in this 200-year chart.

And the low is down around zero, usually. And so I think that my guess is to answer the question is that this pattern will continue. We're actually much higher now than my forecast, that red line. I haven't really updated my, but I think we're in the last 10 years of moving average return.

Real return would be something like 15 or 16 or 17%. So if the past is any guide to the future, I don't think you should expect really great stock returns, let's say for the next decade or so. - Yeah. Those of us who've been coming to this conference for a little while know that Jack would go through an orthogonal episode exercise, an exercise that was a little different, but it would arrive at exactly the same conclusion.

He would do a Gordon equation type of exercise where he would add the dividend yield and then the dividend growth. And then he would add in a mean reversion term, which was basically based on the cape cyclically adjusted earnings. And so he came to this conference, one of the very first ones in 2002, and basically said, we're looking at zero returns, nominal returns over the next 10 years.

And in 2011, 2012, he came and was much as optimistic as you are for, basically amounts to the same reason. One of my very favorite stories even predates that. It was in the year 2000. And I had the pleasure of following him around New York for a day, which included a dinner in which I made sure he had had his second martini before I asked him, had he changed his asset allocation at all?

Because he had written that you should never, ever do that. And he sort of looked conspiratorially over his shoulder. And he said, well, I've sold about five or 10% of my stocks. So even he was not-- - He's a market timer. - Exactly, exactly. I never held him to that.

Well, all right. So the next graph, and we'll be done with graphs here shortly, I apologize for these. This comes from your book, A History of Interest Rates. And this is just an example or an illustration of what's happened to interest rates over the past millennium, more or less.

Dick pointed out to me when I showed him this graph that I could have used a much better data set later on in the book, which would have been even prettier. But you see that the rate of return on securities has been falling. These are debt securities. And this is work that was done more recently by Paul Schmelzing.

I guess Rogoff and Rossi got their names on it. But I think he's the one who did all the legwork. And what you're looking at is the returns, again, to debt instruments over the past 700 years or so. So it shows that the rate of return on investments is falling.

I think Dick knows I have my own theory as to why this is, but I'd like to hear your theory of exactly what's going on here and what that means to people in this room. - Well, I want to say a couple things first. Sidney Homer wrote the book, A History of Interest Rates, but he passed away around 1980, I think.

And so he did a couple of editions. But after that, people were still interested in interest rates. So I was asked to update the book and keep it going. And I did a couple of more editions of it. I think Homer did a great job of getting the long-term interest rates going way back in history.

I think the earliest hard numbers were the Code of Hammurabi where cash loans were 20% and grain loans were 33%. And so this one goes back, let's see, it goes back to the Middle Ages, I guess. Homer and I found that there was a long-term trend down in interest rates.

And that's what Schmelzing finds. But Schmelzing actually did a lot more work. He really enriched the database by doing a lot of hard work in archives in Europe, things that Homer didn't know about and I didn't know about either. But I think they basically get the same thing. There's been a long-term declining trend in real interest rates.

And you see they were back in the 1300s, I guess. They were between 10, and these are sort of the lowest interest rates, 10 or 12%. And then you get down to in the vicinity of zero there in the early 20th century. And now it looks more like it's hard to see exactly where it is, but somewhere positive.

Anyway, Schmelzing, I know him and we've had some chats and all that. And he actually tried to be provocative by saying, this trend is gonna continue. And one great point in recent years when interest rates were so low until the recent Fed raising, we all thought that was abnormal.

These were abnormally low rates. And I said myself, I'm very privileged to have lived in the period I did because I have seen the highest interest rates in US history around 1980, '81. And I have seen the lowest interest rates in US history in 2010 to 2020. And Schmelzing said, well, this is just a long-term trend.

All these people saying interest rates are really unusually low and they aren't gonna stay that way a few years ago. Schmelzing says, no, no, we're right where we should be in history. And in fact, they're gonna go even lower and money is sort of gonna be freely available. The real interest rate will be in the vicinity of zero in just a few years.

Well, that was provocative, I think. But I think what the low rates recently are sort of rigged, I call it financial repression. I mean, the Fed buying mortgage bonds and keeping the rates low. I think we've seen now in the last couple of years the normalization that I would have expected.

- Yeah, so financial economists like to talk about, I think it's R*, which is the natural rate of interest. And you think that R* is about 2%. - Yeah, I would think so. I think, you know, I just have a feeling in my bones that there's probably some theory that could predict it, that the R* is roughly the rate, real rate of economic growth of the economy.

So the 20th century, we grew at about 3%, I think, per year, real economic growth. In the 19th century, it was about 4%. And more lately, we're thinking, well, 2% growth is really not so bad. And I think the natural rate of interest is something like the real growth rate of the economy.

And so I think it might be about 2% now, because that seems to be how fast we can grow. - Yeah, that's interesting. I mean, I read the same, Schmelzing's working paper, and then this paper. And I have to admit that I thought to myself, my gosh, this guy is prescient, because we are looking at zero and negative real rates now.

But I think you're right. I think that those probably are-- - Remember, those are real rates. So if 2% is the real rate, and we're having 3% inflation, then the interest rates might be, you know, 5%. - So I think the piece of short-term advice that we would get out of that is, you don't have to be in a rush to buy TIPS right now.

There may be higher rates on offer at some point later. - It could be, it could be. - Yeah. All right. So that's the one thing I will point out, which is that we talked about a session and a half ago, which is that at this conference last year, we were like two weeks or a week off of the peak of, from the peak of TIPS rates.

And there was a lot of excitement and a lot of buzz, and perhaps too much buzz and too much excitement about them. So it's, I'm reasonably heartened, because I don't want TIPS rates to necessarily fall. I'd like to be collecting those fat coupons for the next 20 or 30 years.

I will add that those of you who have questions, Karen is, and one or two other people are going around. So if you have questions for us, let us know. All right, well, you know, the next question that I have, I guess, has to do with investment frictions. You were, you came of the financial age at a time when the financial frictions, at least by today's standards, were absolutely gargantuan.

When simply it was absolutely impossible to put together an indexed portfolio, you know, buy the S&P 500. People often talk about, you know, if you'd only invested in the S&P 500 when the Ibsen database incepted in 1926, you know, you'd have, I think it's $15,000 for every dollar you invested then.

But of course, the problem was that that was uninvestable. And when it comes to small value stocks, they really didn't become investable for the small investor until the early 1990s. So the returns that you see going back were returns that were basically garnered by very, very small business people who owned shares of small corporations very individually.

There was nobody who could actually own a small cap value index fund until really 1990, 1992 or so. And so the question I have for you is now that you can buy the entire stock market for a couple of basis points, or if you're willing to leave your money in Fidelity for the rest of your life, zero basis points, you know, how do you think that's impacted the financial markets and what individual investors should be doing?

In other words, do you think that that lack of frictions, the fall in intermediation costs have, or will lead to lower returns? - I don't, I can't really see a connection why the cost of intermediation where we're trading stocks, you know, which are very low now and almost free, right?

Almost free. I don't see how that should, I mean, it should impact returns by saying that, well, the costs are lower, so whatever the return is will be better than it would be if the cost of investing had been higher. But I don't see a really strong connection. And, you know, I knew Jack Bogle pretty well.

He was, I considered him a friend at least for the last 10 years of his life. And, you know, he would have thought these low costs of trading were really great, but he would worry about the implication that it would, if it was really cheap to trade, then people would probably do too much trading.

He liked to say, you know, I remember when he was a visiting professor at NYU, thanks to the beneficence of Henry Kaufman, he used to say, when the American people go to bed at night, they own exactly the same portfolio of stocks that they owned when they got up in the morning, which probably isn't true if, you know, foreigners were buying or selling stock that day and we were buying.

But anyway, he didn't like the idea that we should be trading a lot. But he liked low costs, but he didn't like a lot of trading. So I, but really, I think, you know, if we avoid the temptation to overtrade, and I think, as I understand this very sensible group, none of you would ever do that.

If we avoid the temptation to overtrade, we should just be glad that the costs of intermediation are so low because, you know, when I bought my first stocks back in the 1960s, I guess I was buying funds, but you didn't wanna really trade very much 'cause the brokerage costs were higher.

Funds had, you know, some of the mutual funds had seven or 8% upfront charges, you know, that was really discouraged trading. I think basically the way our markets have developed over history is the way our political system has developed in the sense that we, more and more people were brought in, and you know, when Thomas Jefferson said, "All men are created equal," he met all white men with property, but he didn't include women, he didn't include black people, he didn't include Native Americans.

But over time, we've become much more inclusive in who we allow to vote. I think we've also become much more inclusive in making investments available to a wider range of people, and that's been a good thing. And low costs are certainly something Jack Bogle loved, so I think they're a good thing, as long as we avoid the temptation to overtrade.

No day traders in the group, are there? - Yeah, I mean, when it comes to, you know, trading and buying versus buying and holding, I think that this particular room is almost a point singularity in this quadrant of the galaxy. Out there, the rest of the world, and the way they emotionally approach investing is somewhat different, although, you know, in fairness, the use of target date funds as default vehicles in defined contribution plans certainly has been, you know, brought about a real improvement.

The one thing I would observe though, Dick, is that, you know, you go back to, you know, the Great Depression, or even for that matter, the 1950s, only a very small percent of people invested in stocks. I haven't, it's been a while since I've looked at the Labor Department's data on this, but only, you know, until 30, 40 years ago, only about 10% of people owned stocks, whereas now it's much more than half because of defined contribution plans.

And that, you know, there's an upward trend, obviously, over the past 100 years in that number, but there's also been some variation within that period of time. And, you know, you go back, for example, to 1980, only 20, 20%, 25% of people owned stocks, and that was a great time to buy stocks.

- It was, I mean, the '70s turned out, you know, were a terrible time for the stock market. I mean, I remember that in 19, I think I first bought stocks when the Dow Jones average in the middle of the 1960s was around 900. And 17 years later, in August 1982, the Dow Jones average was 780.

And in between, you know, there had been all this inflation that sort of averaged 6% a year, if you remember the great inflation from the late 1960s through the early 1980s. Inflation was 6% a year, and stocks, you know, the Dow average had actually gone down over that period.

So in real terms, investors were really cream, but you could get, you know, that was a good time to buy. My wife and I were professors, and I knew finance theory way back in the 1960s, and I said, you know, we're young now, and so we should put all of our money into equities.

And we did, and then in the '70s, my equities weren't doing very much, but I steadily put in the little bit of money that I could put in month by month. And my wife, she said, interest rates are very high now, so I'm gonna reduce, I'm gonna disagree with you and not put so much money into stocks, I'm gonna put it into interest.

And she was sort of right for a while, I think her stuff grew faster than mine, but in the 1980s, she turned out to be wrong when the stock market recovered and the Great Bull market began. So it was, yeah, I mean, it was a good time to buy stocks.

But most people at the time thought it was terrible because the stock market wasn't doing anything. That's the time to buy. Who was it, J. Paul Getty said, other people have said something like it, buy when everybody else is selling and hold on until everybody else is buying. - Yeah, or Buffett's famous quote, that to be greedy when others are fearful and fearful when others are greedy.

- Yeah, yeah, right. - Which you mentioned though, the word inflation. Again, I really wanna get back to one of the first questions I asked you, which is what do you think happens to our increasingly dire, the nation's increasingly dire fiscal situation? Increased taxes, decreased benefits, or the government will inflate things away with debt.

Which do you think of those is most likely? - I think right now, I would say, since nobody's talking about this at high levels of government, that inflating away, making the government's financials, the arrangements easier, inflation is ahead. That's what I would worry about. And of course, the Fed is committed to 2%.

I could never figure out why they were committed to 2%. Zero seemed pretty good to me. The 19th century, the country did pretty well, and the inflation rate of the 19th century was 0%. But now we say 2% is okay. And I think the signs I would look for is when we, I would expect something like this to occur fairly soon.

Well, we're close enough to 2% that we don't really have to, everything's fine now, and then it'll creep back up toward 3%. And they'll say, well, that's okay. And maybe we could live with 3%. I'm sort of disgusted with some of my fellow economists who said, we should make 3% the target now.

I think that's kind of irresponsible economic advice. But if it goes up to 4% or so, then you're getting back to our situation in the 19, like we had in the 1970s, where it's sort of bad for the stock market. - Okay, here's another question for you, which I can't help but ask you, which is, you're an educator.

And what reading, what is the essential reading that everyone should be doing in this room regarding financial history? If you could read one or two books, which would they be? - Well, one that just came out a year or so ago, and I think is pretty good, and it's by a non-academic fellow named Mark Higgins.

It's a book called "Investing in U.S. Financial History." It's a fairly big book, and it seems to have done pretty well in its first year, because now they're gonna make it into an audio book. I mean, the book is full of charts and tables and things like that. I don't know what happens to them in an audio book, but Mark Higgins, "Investing in U.S.

Financial History." And I've been teaching a sort of short course in financial history in retirement at the Fordham Business School, the Gabelli School. And we used the book last year, and the students sort of liked it. So you like to assign students books that they like. And this Mark Higgins book, I think he puts together a lot of 200 years, 230 years of U.S.

financial, all the way through the COVID pandemic, and starting off with Alexander Hamilton, I suppose. And it's just, and he's big on people like Hedy Green, who was this woman investor in the 19th century. And a lot of people, they call her the witch of Wall Street, but he says Hedy Green was really smart, and a lot smarter than the men that she was dealing with back in those days.

So that's a nice feature of the book as well. But yeah, I mean, I think a long-term view of what happens, such as we had in a few charts here, it's really worth having. We get kind of, we're too oriented toward the latest event. What did the Fed do last week, or what is it gonna do next week?

And on Wall Street, they say history is five minutes ago. I think people should have a longer-term perspective. And I detect in this Bogleheads group that people do have a longer perspective. - Yeah, I will second Dick's recommendation of the Higgins book. It is spectacular. Investing in U.S. market history, right?

- Investing in U.S. financial history. - Financial history, yeah, right. It's a spectacular-- - So it has double meaning. - Good book. One of the reasons why I read it, by the way, was that Dick had told me to read it. He had reviewed the book favorably, and one or two other people who I respected as well.

And hopefully, with luck, we can get him at the conference next year. All right, well, here is a good question. What do we miss by focusing on market history primarily in the U.S.? Should we be considering a global historical view when thinking about the future? And I actually broached this with one of the other speakers last night.

And he discounted a lot of foreign financial history because it was blighted by war and conflict, which he thinks is much less of a consideration in this country. So you look at the financial history in Austria and Italy and Germany and Japan, and it's awful because those countries were leveled in war, and he says that's not relevant to here.

So what do you think about that? - Well, I think the U.S., we talk about emerging markets, and China's been a great emerging market for the last 40 years, and Japan probably in the late 20th century was a great big emerging market. But our own country, the United States, was probably the most successful emerging market of the last 200 years 'cause we were an emerging market.

And it turns out that we were a very successful emerging market, and we all had these financial markets, treasury bond markets, stock markets, going back to the beginning, and we also have the best records of it. So when the world looks at equity investment, they often, everybody's thinking about what happened in the U.S., but as Bill pointed out, in most other countries, the experience wasn't nearly as good as that.

And in some places, stock markets disappeared altogether. In the United States, there'd been a few times when the stock market was shut down. I think it was shut down for a few days in 1873 when there was a financial panic, and it was shut down by government order, although we only found that out recently, from the end of July 1914 until December of 1914.

It turns out that the Treasury Secretary asked the New York Stock Exchange to shut down. But in other countries, markets have disappeared altogether. Think if you were an investor in Russia. They had a big industrialization movement on the stock market. If you've been to St. Petersburg, there's a nice building on the waterfront there that was the St.

Petersburg Stock Exchange, and maybe it is again now. But there was a period from 1917 through 1990 when it was not the St. Petersburg Stock Exchange. So there is a bias in the way people around the world look at financial markets. A lot of what they know is U.S.

financial history because we had a successful market and we had the best data. But still, since half the world's market cap is, roughly speaking, half the world market cap is the United States, it's not so bad. The world knows that we had a good record and they invest here.

- Do you worry at all about, and this is talking about global stock markets in particular, about declining birth rates, particularly in developed nations? I mean, I think that the fertility rate in Korea is 0.8. You need 2.1 for replacement. Japan is almost as bad. - Yeah, well, there were people in the past that worried about too many people in the world.

Remember, there were people saying we're all gonna starve to death because there's too many people in the world. But now they're talking the opposite way, that the world population is gonna start shrinking. Actually, economic historians, I'm one of them, we've done a lot of study of, not myself, but other people have done, it's called the demographic transition.

And usually in a pre-modern world based largely on agriculture, birth rates are high. And then as countries modernize and become more diversified, commercial, industrial, post-industrial, birth rates come down. And there's been a lot of speculation why that happens. But I think now, most of the world is commercializing and industrializing.

And so the birth rates are coming down. And it may be that we're not too far from peak world population. And after 2050, it may start shrinking. And I think in places in the world where population has gone down, certain countries, like Italy for the last 20 or 30 years has had a declining population, I think.

And their economy hasn't been doing very well. So we're gonna have to figure out what we need to do in the economy with the fewer people every year. And that usually means that more and more of the people are old and there are fewer young people. So that has implications for the social safety net.

Young people pay into Social Security so that guys like Bill and me can get our monthly check. And what happens when there are very few young people and a bunch of old guys like Bill and me? - Yeah, I mean, you know, whenever I see a younger person who is trying to save for retirement, especially if they've got an enormous amount of student debt, I apologize to them for stealing their future, which is what we boomers did and people older than boomers, like Dick did, is we really did a job on Generation Z and even Generation X for that matter.

- You used to say there were bumper stickers in Florida that said spending the kid's inheritance. - Yeah, I mean, my med school tuition, I'm fond of telling people, was $1,550 a year. All right, even adjusted for inflation, it was still pretty ridiculously low. Reserve currency status, okay? Do you worry about the U.S.

losing its reserve currency status and what investment implications do you think that has for individual investors? - Well, there's no doubt that the U.S. gains a lot by being the world's reserve currency. I mean, if you think about it for a few cents, the government can run off a $100 bill and then it can buy $100 worth of goods in the United States or it can buy $100 worth of goods in foreign countries.

So that's, we call it, the technical term is seniorage. The U.S. gets a lot of seniorage from being able to print a $100 bill for a few cents and get $100 worth of goods for it. So that is a great advantage of the United States. It's worth trying to protect it, I guess, and there are challengers.

China, I mean, I had some folks from China come into my office at NYU once and say, we want to build up our currency to be a sort of reserve currency. And how can we do it? And I said, well, the first thing is you have to let people take money in and out of your country.

You can't regulate capital flows as much as you do. But they're working on that now. And people thought the euro would be a good rival, but the euro has its own problems. But it is worth keeping the currency. And remember, it's being threatened partly by things like the sanctions we put on Russia, seizing some of their assets and that after the invasion of Ukraine.

So I think you have to have a sort of set of, people won't trust you. I mean, I think that we've actually lost some of that trust just in the last few years by some of the things we've done to, some call it the weaponization of the dollar. We're gonna make it hard for you to deal in dollars.

And if people will look at that, they say, well, we better think twice about holding dollars as a reserve currency. And it's well known now that many countries in the world that held gold reserves in the United States and had a lot of dollar assets, they've been taking their gold home from the United States.

I think the Germans loaded up a lot of their gold in the Federal Reserve Bank in New York and took it home. 'Cause that's where the gold vault of the Federal Reserve Bank in New York has a bunch of gold in it. It's a good tourist stop if you can get in there.

And they used to say a financial crisis, the actual real world equivalent of a financial crisis was some guy in the vault in the Federal Reserve Bank in New York would take some gold bars from one country's vault and put them in another country's vault. That's what a financial crisis was.

- Well, one final question, which is if index fund investing has revolutionized the last 30 to 40 years, what technological advances do you see coming down the pike? Or are you of the school of thought that says it's impossible to forecast technology? - Well, I don't know about technology.

It's hard to forecast technology, but it's very important to have some idea where it's going. If we're now stuck in a 2% real growth world, it's because technological change is not as fast as it was in the past. College classmate of mine, Robert Gordon, wrote a book a few years ago, The Rise and Fall of U.S.

Growth. And he basically said the great inventions were the indoor plumbing and things like that. He used to love to hold up his iPhone and say, "If you had a choice between indoor plumbing "and this iPhone, which would you choose?" (laughing) Most people would say, "Indoor plumbing "was maybe a little more important to us "than having an iPhone." So anyway, if we are to grow faster again, and people think we ought to grow at 3% or something like that, it'll be dependent on technology and technological advance.

So there'll be a lot of improvements. I think, I don't know if it's just technology, but I think now, at certain points in my life, I said, "Well, should I get involved "in commodity investments? "Or should I just kind of stick to the stock market "and the bond markets, fixed income markets?" And I once dabbled in commodities.

I didn't have any great success or any great failures, but I just decided it required too much work to keep up with that. What I've noticed now is I have silver in my portfolio because I can buy SLV. That's a silver, apparently, if I give 'em $1,000, they buy $1,000 of silver, but it's a tradable security.

Or GLD, gold is another one. So the markets have improved to the point where you can become a commodity investor without really dealing with the Chicago commodity exchanges. And I see that, the financial world is becoming much more sophisticated and opening up new opportunities to people, easy investment in commodities.

And I noticed my silver's up 30% this year, so not bad. If I say everybody should have a little bit of tips in their portfolio, I might also say that maybe everybody should have a little bit of silver or gold, and it's very easy to do that now, much easier than in the past.

- Yeah, that's one way to do it. And silver, SLV, and GLD are two things that you can buy that you can actually benefit from the spot price. Otherwise, when you're dealing, unless you can store a large amount of grain and oil in your backyard, you can't own the spot price.

You have to deal with futures, and the problem with dealing with futures is that if too many people chase them, you wind up in something called-- - Right, the great worry, they used to say the great worry of a commodity investor is that someday a railroad car will come up to their house and unload 50,000 pounds of pork bellies.

(laughing) - Okay, well, I think we'll call it a day. - Okay. you