06/05/14 – Mike Swanson – The Scott Horton Show

Phone records, financial and location data, PRISM, Tempora, X-Key Score, Boundless Informant.
Hey y'all, Scott Horton here for offnow.org.
Now here's the deal.
Due to the Snowden revelations, we have a great opportunity for a short period of time to get some real rollback of the national surveillance state.
Now they're already trying to tire us by introducing fake reforms in the Congress.
And the courts, they betrayed their sworn oaths to the Constitution and Bill of Rights again and again and can in no way be trusted to stop the abuses for us.
We've got to do it ourselves.
How?
We nullify it at the state level.
It's still not easy.
The offnow project of the Tenth Amendment Center has gotten off to a great start.
I mean it.
There's real reason to be optimistic here.
They've gotten their model legislation introduced all over the place.
In state after state, I've lost count.
More than a dozen.
You're always wondering, yeah, but what can we do?
Here's something, something important, something that can work if we do the work.
Get started cutting off the NSA support in your state.
Go to offnow.org.
All right, you guys, welcome back to the show.
I'm Scott Horton.
This is my show, Scott Horton Show.
Thanks for tuning in.
All right, our first guest on the show today is Mike Swanson.
You hear ads for him all the time on this show for his great book, The Worst State, which you can get at Amazon.com and you can get it in audio book format now as well.
Listen and think audio dot com.
And of course, he also runs Wall Street Window dot com, where he does investment advice newsletter type web based sort of a thing.
Welcome back to the show, Mike.
How are you doing?
Oh, I'm doing great, Scott.
Thanks for having me.
Well, I'm very happy to have you here.
And I guess I would explain before I start asking you questions, I would explain to the audience that what's unique about you.
Well, to me, not not entirely unique, but somewhat unique about you is that you combine a libertarian philosophy and Austrian school grounding in economics with, you know, modern day current up to date market analysis and investment advice, which is, you know, Charles Goyette, I guess, does that same kind of bit and and others do a little bit as well.
But, you know, mostly economists are economists and investment advice.
People are investment advice people and they sort of don't necessarily cross all that much.
So it's the combination of disciplines means that you have, you know, interesting perspective, one that I'm interested in hearing.
And and of course, as I say in the ads and everybody's familiar with by now, you used to own a hedge fund and you did so damn good at it.
You don't even need to own a hedge fund anymore.
Now you're writing these great books about the warfare state and and coming soon about the Vietnam War, which I can't wait to read that.
So anyway, that's my big introduction for Mike Swanson.
So everybody knows who you are and what we're talking about here, what we're dealing with here.
And now to the subject matter.
I spoke with Lou Rockwell the other night on my brand new show at Liberty Chat dot com, Tuesday nights at 8 Eastern at Liberty Chat dot com.
And we talked about the combination or the, you know, the intersection of central banking and war and why it's so important to the government that they have the ability basically to counterfeit money, to expand bank credit and to make wars seem free at first.
Because if they announced to the people that this is how much we're going to have to raise your taxes to pay for these extra wars we want to launch, the people would not accept it and would fight back in ways that are at least unacceptable to them.
If, you know, if we wouldn't necessarily win.
But anyway, so I know that you agree with that at least, you know, in in large measure.
But I wonder if we could get a little bit more specific now and talk about the Vietnam War bubble and, you know, how Johnson and Nixon paid for that war and how that came to an end.
And what that particular bubble's popping and the next phase of the business cycle had so much different than everything else.
And that is, of course, Nixon closing the gold window once and for all and ending Bretton Woods II, I guess it was at that time, and moving us to the current so-called ghost economy or just fiat government money standard and the consequences of that.
So I guess, first of all, if you could take us back and talk about, a little bit about monetary policy in the 60s and how it is that you know.
Yeah, sure.
Well, one of the things you said, I'm a libertarian and so forth.
And one in an Austrian, you know, I mentioned Austrian economics.
And the real reason why that is, is because I saw the stock market collapse in 2000, 2002.
And I was trading the market and I was bearish on the market.
But the thing that made me understand what was going on was Austrian economics.
It was the only thing that provided an explanation for these bubbles.
It was the only theory that even said there was a bubble.
And I think it applied to the housing crisis and the crash of 2008 and today even.
And it makes you look at history.
And, you know, they started, we used to start out in Rothbard studying the Great Depression and what caused that and these crazy booms and busts and the problems of debt.
And that's exactly what happened as a result of the Vietnam War too.
After World War II, the Truman administration, and really these things started with Roosevelt too.
But they created something called the Bretton Woods system that tied the U.S. dollar on the international currency markets to gold.
And there was no other currency doing that at the time.
So that created, it made the U.S. dollar the reserve currency of the world.
You know, the U.S. came out of World War II intact with great economy, industry everywhere where the rest of the world was bombed out basically.
So that helped us become the dominant power in the world, not only militarily, but economically too.
Now, there's one Achilles heel to that though, and that was the fact that the U.S. dollar was tied to gold.
And we had gold in Fort Knox and the Federal Reserve Banks and all over the place to back this.
And in theory, somebody could, other central banks and large businesses, individuals couldn't do it, but people overseas could do it.
They could exchange a U.S. dollar for the gold in these vaults in Fort Knox and the Bank of New York and so forth, and people were doing that.
And the reason they would do it is if they were fearful that the United States was going too much into debt, running too big of a budget deficit because of the cost of, at first they were worried about simply the cost of NATO.
And there's books written about this during the Eisenhower and Kennedy administration where some of the gold was flowing out of the United States and into France and Germany.
And there's quotes of Kennedy in meetings talking about this and getting angry and basically saying the fact that we're defending them, spending all this money, and they're taking our gold.
But by the end of his presidency, he was able to tighten the budget deficit, shrink it, so that kind of gold flow out of the United States stopped.
But then, of course, when Johnson became president, expenditures went up because of the Vietnam War and the Great Society.
He ran a budget deficit, and stuff started to get into trouble around 1968, 1969.
Inflation started to pick up.
The stock market had a big blow-off rally that year and made a top on an inflation-adjusted basis all the way up to the 1980s.
So it was basically almost a 15-, 17-year-old top in the stock market.
And when Nixon became president, inflation picked up.
All these trends just got worse and worse, and he tried to come up with ways to stop inflation, put wage and price controls on things, and so forth.
But the flow of gold out by the United States just continued and continued and continued, and it actually got to a point where, theoretically, the United States could go bankrupt and have a real financial crisis.
And to stave that off, Nixon held a meeting at Camp David, I think in 1972, and him and Paul Volcker and a dozen other people decided to delink gold from the U.S. dollar, just make the U.S. dollar a pure paper currency, which is what it is today.
And they suddenly announced that.
Many people in the Federal Reserve didn't even know they were going to do it, and it basically made history.
And I think, in effect, the country kind of did go bankrupt in 1972.
We had to jettison this old monetary system, and now we're in a new system based on simply paper currency, and it can work and work and work until suddenly, theoretically, one day people get scared, just like they did in the late 1970s.
But instead of asking for a gold, they would just sell the dollars.
That's where we're going to pick it up on the other side of this break, with the great Mike Swanson, WallStreetWindow.com, the war state.
You hate government?
One of them libertarian types?
Maybe you just can't stand the president, gun grabbers, or war mongers.
Me too.
That's why I invented LibertyStickers.com.
Well, Rick owns it now, and I didn't make up all of them, but still, if you're driving around and want to tell everyone else how wrong their politics are, there's only one place to go.
LibertyStickers.com has got your bumper covered.
Left, right, libertarian, empire, police, state, founders, quotes, central banking.
Yes, bumper stickers about central banking.
Lots of them.
And, well, everything that matters.
LibertyStickers.com.
Everyone else's stickers suck.
All right, you guys, welcome back to the show here.
I'm Scott Horton.
This is my show, Scott Horton Show.
I'm talking with Mike Swanson.
And yeah, full disclaimer, I don't care.
There's a terrible conflict of interest here.
He advertises on this show because he likes this show so much because we think just alike, only he's a lot smarter and better educated than me and a lot wealthier than me, which is why there's not ads for my show in his book, but for his book on my show.
But that's just because he's brilliant at this money stuff.
Former hedge fund manager, now he runs Wall Street Window giving investment advice, and he writes books about the warfare state, including The War State, which is a great revisionist history of the post-World War II administrations of Truman, Eisenhower, and Kennedy.
And as I say in the commercials here, how they all empowered and also tried in their own way to contain the national security state that had been built up to fight the Nazis and Imperial Japanese in World War II.
And anyway, so please read that great book because it's great.
Because it's great, and yeah, he pays me to say that, and you're damn right, and it's still great anyway, and that's still honest anyway, and you guys know how it is.
So anyway, but I like to give disclaimers if I have one that I could possibly give.
I'd rather do that than anyone think I'm being dishonest.
Mike Swanson has bribed me into being interested in what he thinks about the Vietnam War bubble.
Well, here's something nobody ever talks about, the Vietnam War bubble.
Lyndon Johnson and Richard Nixon and their administrations had to inflate a big bubble in order to pay for the war in Vietnam so that people would keep supporting the damn thing.
And somewhere in here is the re-election in 1972 and all the pressure that Nixon put on the head of the Federal Reserve to keep inflating, at least for now, until the election.
And that's the famous quote of Arthur Burns saying, Well, I had to do what Nixon said, otherwise I would have lost my independence.
That's right, that's right.
And so they kept inflating and inflating, and then finally the bubble popped, and then instead of saying, holy crap, we just can't afford to continue to slaughter millions and millions of Vietnamese, Laotians, and Cambodians anymore, they said, you know what we're going to do?
We're just going to stop honoring our promises.
We're going to end up resting the entire credibility of the U.S. dollar on the IRS's promise to shake the American people down to pay the bondholders their interest.
And so that was the deal ever since Nixon closed the gold window, took us off the gold standard.
But now, so here's the thing, and I'll go ahead and plagiarize Charles Goyette, all the errors are mine and all the brilliance is his here.
He says that when you talk about the bubbles, and it was like the whole damn economy was a bubble, especially fuel, but the whole damn economy was an inflationary bubble in the 70s, just price inflation all across the board, all over the place.
And then you have the post-Volker bubble that popped in 88, call that the MX missile bubble, right?
And then you had the Gulf War I bubble that popped and cost George Bush Sr. his re-election in 92.
And then you had the expand the empire in so-called peacetime bubble that ended up being the dot-com bubble that popped in 1999.
And then you had the gigantic war on terror bubble, gotta make it all seem free or else people start demanding their peace dividend.
So then that came all crashing down back in 2008.
But then Charles Goyette says, hey, look, those are little bubbles on the back.
I mean, if we're talking bubbles here, like soap bubbles are our analogy, there's a really big bubble.
And those are the little bitty bubbles on top of it, maybe not that little bitty, but they're taking your eye off the prize if you're just looking at the next correction in housing, which could be severe, which could take down the whole global economy.
But that still is not where it's really at.
Where it's really at is that the US dollar is worthless.
And when people come to that consensus on one day, the whole world, especially the people living between Canada and Mexico, are going to be in real, real trouble.
So what about that?
Well, I think there's some truth to it, but I don't think it's the dollar itself.
It's actually the Treasury bond market, which they are sort of one and the same.
Well, see, that's my confusion.
So I don't understand good enough.
I guess I thought it is simply one and the same, but it's not.
Simply one and the same?
Well, I'll explain it to you this way.
If the dollar trades up and down on the international market, the US dollar index, which is a basket of currencies that I could trade against the yen, the pound, and on and on.
But the US dollar index is like all of them put together.
It basically trades on how confident people feel overseas about the United States economy, the size, the debt.
They're just their personal psychology or whatever.
And that's not falling apart.
It's basically been trading in a range for 20, 30 years now.
However, if these people start to worry about the size of the budget deficit and the sustainability of that and our trade deficit or the government debt in general, then what they would do is demand higher rates of interest for financing that debt, which they do by buying bonds.
And in time, the US dollar would drop.
We would experience it from that, the dollar falling and inflation increasing inside the United States.
That's how Americans would experience it.
And also if they have bonds, having those bonds fall in value and interest rates skyrocketing and all this sort of thing.
Now, the thing about that is that sounds kind of far out.
Something a little bit like that actually happened in the late 70s.
And Paul Volcker jacked up interest rates to make people confident in the dollar and in the debt and stop inflation and so forth.
But it may sound like a far out scenario.
No one really knows exactly what's going to happen in the future.
But the Secretary of Defense, Robert Gates, when he was Secretary of Defense, he made a statement that from a national security standpoint, the most dangerous thing out there isn't terrorism.
It's Russia, not China, not some retarded kid someone could wind up on an airplane and put a bomb in his underwear, but the American debt, the trade deficit and the budget deficit.
So, you know, people know this is a dangerous thing.
And there's a report written for the Federal Reserve last year in February.
It was written by a guy named Fred Mishkin, who used to be a Federal Reserve governor.
He supposedly was Ben Bernanke's best friend when they were in college.
This report basically says that if the U.S. government doesn't cut spending and stop the quantitative easing program and do something about the deficit, that by 2017 it could have a financing problem in the bond market.
It basically says that because interest rates are so low right now, it's easy for the government to finance the deficit.
But if rates go up, the cost of financing the deficit would just skyrocket.
And as a result, the government can't allow, the report says, for interest rates to go above 5.25 on the 10-year bond.
And they're under 3 right now.
So, in other words, if that were to happen, in order to prevent it from going that high, they'd almost literally have to totally go crazy in the amount of money they're printing, way beyond what we're seeing now, which could cause a dollar to drop.
So what you're saying is they've really painted themselves into a corner here where they can either hold the wolf or let him go.
Yeah, yeah, exactly.
Now, the counterargument to this, which people should get to or know, is that, okay, the U.S. government has been in debt before like this, and that was right after World War II, and it didn't matter because the economy boomed, and the rate of economic growth picked up so much that it became easy to pay off the debts, and therefore maybe that can happen again and this won't be a problem.
So that's the argument not to worry about anything.
Oh, well, good.
I'm not going to worry then.
I mean, the truth of the matter is that no matter how horrible Greenspan, Bernanke, Yellen, or any of these people are, there are still bazillions of unmeasurable dollars worth of wealth in this society, in terms of the skills and education that people have, the factories and machine tools that already exist, the know-how, all of the engineers, and all of the freeways, and all of the everything, the ports, and the whatever.
This country has been at peacetime since the 1860s, and so there's a hell of a lot of wealth that's been built up here.
I don't mean to play down the victims of the police, but you know what I mean.
So we could certainly be all right.
I mean, I certainly think that without really knowing the numbers, I have to assume that you're right when you put it that way, and I appreciate that, and I shouldn't misparaphrase Goyette either because he says it's happening in slow motion now.
He's not so much predicting some kind of crazy panic.
Hey, can I keep you ten more minutes here?
Yeah, sure.
Hang on.
Hey, Al Skye here.
First, I want to take a second to thank all the show's listeners, sponsors, and supporters for helping make this show what it is.
I literally couldn't do it without you.
And now I want to tell you about the newest way to help support this show.
Whenever you shop at Amazon.com, stop by ScottHorton.org first, and just click the Amazon logo on the right side of the page.
That way, the show will get a kickback from Amazon's end of the sale.
It won't cost you an extra cent.
And it's not just books.
Amazon.com sells just about everything in the world except cars, I think.
So whatever you need, they've got it.
Just click the Amazon logo on the right side of the page at ScottHorton.org or go to ScottHorton.org slash Amazon.
All right, you guys.
Welcome back to the show here.
I'm Scott Horton.
Dang, Mike, I should have warned you that I was asking you to hang on for 12 minutes or 9 or whatever it was before I put you on hold there.
Thanks for staying with us, everybody.
It's Mike Swanson from Wall Street Window and TheWarState.com, both of which you hear advertised constantly on this show.
It's such a great book.
I really hope you'll check it out.
And also, another one of my sponsors, Listen and Think Audio.
Boy, do I have them back in the rotation?
Yeah, they're on there.
Listen and Think Audio.
They've done the audiobook version of The War State.
You can oblige us all by going to my website and clicking the Amazon link or the War State link and the Listen and Think link and whatever the hell link.
Go from there, and it'll be great.
All right, good.
So I'm talking with Mike Swanson, and he is an Austrian school economist.
He is a successful former hedge fund manager and now author of books about the warfare state and giver of investment advice.
And so now, one of the things that we've talked about before in the past was about, well, basically, I mean, I guess it's the Keynesian confusion.
But it's also, Mike, if I understand it right, it's the chink in their own arm or their cognitive dissonance, I guess, that they know actually that inflating the money supply all the time is terribly destructive and creates these bubbles.
And that's why every time they create one, they end up panicking.
And as Rothbard puts it, I guess in everything, but especially I know he says this in For a New Liberty and in America's Great Depression and in what has government done to our money and the case against the Fed, I'm sure a bunch of other places.
He says, well, they always panic and they try to, like, prick a little hole in their inflationary bubble and let the air out slowly somehow.
But that never works.
And so it always ends up popping and leading to some terrible catastrophe.
And yet at the same time, they're just simply absolute, you know, ball and chain shackled and married to this conclusion that all they can do is just keep printing money.
So sometimes maybe they'll slow it up a little bit and cause the correction that they know they have to cause before it gets way too out of hand.
But then they just start it right back up again.
And I just wonder, I mean, is it really as simple and stupid as that?
And and also, you know, what do you really know about their decision making here, what they think about what they're doing?
Well, it's that's a really fascinating question.
And I don't know.
I think there's a there's a little bit of a mystery to it that no one is really investigated and explain what I mean by that.
Well, it's the central bank is secret.
It's more secret than the CIA.
Well, what's interesting is they have released transcripts of the Federal Reserve meeting from the 1930s up to, I think, 2008.
And these are transcripts of their monetary policy meeting.
So, you know, every couple of months or a couple of times a year, they, you know, make a decision on interest rates.
And they're recording these these meetings and transcribing them.
And it's really I looked at some of the transcripts a couple of months ago.
I was actually thinking of maybe even writing a book about it.
But I realized that, you know, it's kind of boring to read economists talk to each other.
It's not much drama like it is to talk about the Cuban Missile Crisis.
But anyway, I was reading the David Stockman book, too.
And there's also a really great book by another hedge fund manager named William Fleckenstein.
It's called Greenspan's Bubbles, and it uses the transcripts around 2000 and when everything blew up.
So you can see what Greenspan was saying then in these meetings.
And what I found real fascinating is that for reading that book and these transcripts was I would see Greenspan come on TV and talk to Ron Paul and Bernanke also.
And I would think that what they're saying was lies or just really crazy, you know, because Greenspan talked as if he believed the Internet wasn't a bubble.
Bernanke, you know, talked real estate's not a bubble and, you know, we're not, you know, everything's going to be OK and we're going to have soft landings.
And they'd use all this kind of language.
You'd see Ron Paul argue with them on C-SPAN.
And I just thought these people were liars because to me it was just so crazy.
I thought the stock market was, you know, falling and it was.
You know, the economy was falling apart.
And, you know, until this happened twice.
But reading these transcripts, apparently they believe this stuff, a lot of it that they say on television.
Greenspan didn't really realize that the Internet bubble blew up, apparently, until January of 2001.
And then he went into a total panic.
Wait, what?
Wait, wait, wait.
That can't be right because the NASDAQ crashed in the fall of 99 and the Dow in the spring of 2000, right?
Oh, I mean, I mean, I mean, oh yeah, 2001.
Yeah, yeah, it's amazing.
I mean, I know the guy's a goon and everything, but for God's sake, Mike.
No, it's completely crazy.
He was in these meetings, he was saying, not just him, but all of them were basically saying, oh, you know, the stocks are cracking and these stocks are overvalued.
Wait, am I wrong?
Wait, wait, wait.
I got to be wrong that it was 99 and 2000 for the NASDAQ and the Dow, right?
Am I wrong?
Chatroom, help me out.
Chatroom, help me out.
Someone double check me here.
The NASDAQ topped in April 2000.
Oh, I'm sorry.
I thought it crashed in the fall of 99.
So, okay, I don't know what the hell I'm talking about.
But the whole thing was done by 2000, right?
Because I remember Bush in 2000 saying, hey, this is the Clinton recession.
It ain't mine.
Right.
No, it was all blowing up.
I mean, the bubble popped in 2000.
The tech stocks started crashing then.
The Dow and S&P kind of held up.
But in the fall, it all rolled over and it just basically started to go straight down.
See, I had my spring and fall mixed up.
So, it was the NASDAQ first in the spring of 2000 and then the Dow in the fall of 2000.
Yeah, yeah, you got it.
I see.
I had it the other way where it started in the fall of 99 with the NASDAQ and then the Dow in the spring is what I thought.
But, hey, it's been 13 years.
It's not my fault for being an idiot.
Yeah, it has been a long time.
But it is still kind of crazy.
Yeah, it still means that Greenspan's dumber than me.
So, how do you like that?
Well, in the December meeting, they didn't realize anything was going on, which is kind of crazy because stocks, you know, you could find lots of stocks down 50% and the economy was starting to shrink and so forth.
And in January, they just held an emergency meeting right at the start of the year after Christmas and just cut rates.
You know, I think it was 75 points, which they never had done up to then.
So, it's the same thing that happened in 2008.
If you read these transcripts, they didn't realize what was going on until October 2008, really.
I mean, they knew real estate was falling apart and Christmas stock market was declining.
And they were lowering rates, but they didn't realize how bad it was for the economy until that fall.
In fact, there's one meeting, I think it's in March, where one of the Federal Reserve people said something like, well, our computer simulations say everything's fine.
Right.
It's just kind of crazy.
You know what's funny, too?
I remember, and I'm sorry we're all out of time here.
We're going to have to go, but I remember in right around 98, 99, 2000, Ron Paul confronting Alan Greenspan with what he wrote in Capitalism, the Unknown Ideal about the gold standard, which is almost perfect, I think.
And Greenspan couldn't contradict himself.
He's got too much pride.
So, he told Ron Paul, well, I still stand by every word of that.
Unfortunately, however, my colleagues at the Federal Reserve disagree.
It's not his fault.
Never was.
He was only the chairman of the board, you know.
Oh, geez.
And I spoke too soon.
I guess the music's going to start playing in 30 seconds or whatever.
Anyway, is there anything left unsaid here?
Oh, I guess that's good.
Thank you.
A point I didn't give you a chance to make.
I'm sorry, Mike.
I suck at this.
Oh, no problem.
I appreciate your time on the show, as always, and your support for the show, of course, as well.
Oh, it's fantastic.
Thanks a lot.
Thanks very much.
That's Mike Swanson.
The book is The War State.
And it's a revisionist history of Truman, Eisenhower, and Kennedy.
Their moves for and against the warfare state, the military industrial complex, and the military economy.
And also, he runs the website WallStreetWindow.com, where he gives investment advice.
And basically, he just notifies you of everything that he does in the market.
So, you can play along on paper and see whether it looks profitable to you.
I think he's advising get the hell out of the stock market right now.
WallStreetWindow.com.
We'll be right back with Jeff Tucker.
You may be able to get your first audio book absolutely free.
That's Listen and Think Audio at ListenAndThink.com.
The military industrial complex.
The disastrous rise of misplaced power.
Hey, I'm Scott Horton here.
I'd like for you to read this book, The War State, by Michael Swanson.
America's always gone to war a lot.
Though in older times, it would disarm for a bit between each one.
But in World War II, the U.S. built a military and intelligence apparatus so large, it ended up reducing the former constitutional government to an almost ceremonial role and converting our economy into an engine of destruction.
In The War State, Michael Swanson does a great job telling the sordid history of the rise of this national security state, relying on important first-hand source material, but writing for you and me.
Find out how Presidents Truman, Eisenhower, and Kennedy all alternately empowered and fought to control this imperial beast and how the USA has gotten to where it is today, corrupt, bankrupt, soaked in blood, despised by the world.
The War State, by Michael Swanson.
Available at Amazon.com and at Audible.com.
Or just click the logo in the right-hand margin at ScottHorton.org.
We should take nothing for granted.
Oh, John Kerry's Mideast peace talks have gone nowhere.
Hey, I'm Scott Horton here for the Council for the National Interest at CouncilForTheNationalInterest.org.
U.S. military and financial support for Israel's permanent occupations of the West Bank and Gaza Strip is immoral, and it threatens national security by helping generate terrorist attacks against our country.
And face it, it's bad for Israel, too.
Without our unlimited support, they would have much more incentive to reach a lasting peace with their neighbors.
It's past time for us to make our government stop making matters worse.
Help support CNI at CouncilForTheNationalInterest.org.