All right, y'all.
Welcome back to the show.
It's Anti-War Radio.
And our next guest today is Robert Wenzel.
He writes the blog Economic Policy Journal.
Just add dot-com on the end of that.
EconomicPolicyJournal.com He's also got an archive at LewRockwell.com.
Welcome to the show.
How are you doing?
Hey, very good, Scott.
Well, I really like your blog.
I really appreciate you joining us on the show.
Of course, I found your blog from Lew's constant links to your hilarious and insightful blog entries here, and I learn a lot and laugh at people, which I like doing, too, with you, at them, the same people you're laughing at.
So, yeah, speaking of which, I was hoping you could explain, because I'm, as an economist, a good anti-war guy, as Lew might say, I was hoping you could help me wrap my head around exactly what is the crisis in the eurozone with the Greek debt and all these different nations within the euro, loaning money in emergency terms to each other, and where it's all headed, what it means for our economy, and all these big questions that I don't really know very much about the answers to.
Yeah, Scott, you didn't tell me you wanted me on for a full week, 24-7.
That's what it would take to explain all that.
But let me give you the short version.
Yeah, that's what I'm shooting for.
Right.
What's going on is you have a union of countries where they have one currency, but then they each have their own fiscal plans, government spending, and all that.
Now, most of them, to one degree or another, are welfare states where they're spending money like crazy, but what they've been counting on is the other states to bail them out.
Now, the most conservative one has been Germany, although if you took it from a libertarian perspective, the Germans are far from libertarian.
But what's been going on is the Greeks and Italy and Spain have been spending more money than the Germans on a per capita basis relative to the revenues they generate and what they tax from the people.
So consequently, what's been happening is the German people have been bailing out the Greeks and the Spaniards and the Italians and are finally sick of it.
So consequently, what you have is a situation where the Italians and Greece are not able to get any more money, raise any more money in the market, because the interest rates are so high and it would bankrupt them within a very short period of time.
So all these negotiations that have been going on are really negotiations to try and figure out a way to bail out Greece and Italy and Spain and possibly even France and to find a way to get the money from somewhere, because the Germans don't want to pay for it anymore.
Although the German Chancellor Angela Merkel, I think if the German people would let her get away with it, she would just go ahead and tax the Germans more and use that money to bail them out.
But the Germans, you know, the way the Germans see it is the Greeks are laying on the beach taking it easy and the Germans are working hard to bail out Greece.
So politically, she's limited in how much she can continue going on.
Well, she's in a real bind, okay?
Because on the one hand, the global banksters, which she's a part of, are pushing her to get some kind of deal done and bail out the rest of the Eurozone, the ones that are in trouble.
But on the other hand, politically, she's in a lot of trouble for doing any kind of bailout.
So she's in a very difficult position if you look at it from her perspective.
Well now, does the German government have any money to loan or they're borrowing it from somebody else?
No, they would tax their own people.
So that's why that's not going to fly, okay?
I mean, are they already running deficits and have been this whole time?
Or do they typically have a balanced budget?
No, no, no.
They're running deficits also.
They're just not as large as some of the other Eurozone countries.
Okay, so now here's the trick.
They really only have two ways out of this when it really comes down to it.
Either these companies declare bankruptcy, companies, countries declare bankruptcy and and stick the losses with the people who bought the debt in the first place, which is generally bankers.
And that's why really all this bailout stuff is going on.
Believe me, it was you and me holding the Greek paper or the Italian paper.
They bankrupted immediately and we'd be hit with the losses.
But it's the banks that are the ones that are holding all this paper.
And that's why there's so much focus on these bailouts of one sort or another, okay?
Yeah, so one choice is sticking it to them.
It's going to be the other choice.
What's that?
Right, printing money.
Sticking it to us.
Well, no, what I mean, I'm printing money by creating inflation in Europe.
The European Central Bank has not been printing very much money.
This may change now for two reasons.
First of all, all the pressure coming from the bankers, but also Mario Draghi from Italy has just become the president of the European Central Bank as of November 1st.
And what he's going to be doing, first of all, he's an old Goldman Sachs guy, to give you a perspective on where he's coming from.
He was in there three days, November 3rd.
He cut interest rates once already.
Okay, so my guess is that's not the last interest rate cut we're going to see.
I think he's going to continue.
I think we're headed for a near global inflation, because in the United States the Bernanke's printing like crazy.
So, I mean, it could be one of the most dramatic inflation ever, because of what's going on in Greece.
Now, there's some talk that the Chinese are going to come in and bail out the Eurozone, but, you know, that's fairytale stuff.
I mean, the Chinese have their own problems in China, so they need to contribute some money, but nothing near the trillions that are needed to to turn around the Eurozone.
And here's another key.
When most people get in trouble, bankruptcy sort of solves it for them, okay?
Because they have spending that they stop and they can start building a new life, new revenues and all that, without worrying about the old bills.
With Greece and Spain and Italy and all these countries, they have all these entitlement programs going on that are not going to stop.
So, even if it was a bankruptcy, that would only be a short-term solution, as long as they're paying out on these welfare state programs.
Well, and now, to paraphrase some congressman from a generation ago, when you talk about a trillion here and a trillion there, pretty soon you're talking about real money.
He said that about billions when I was a kid.
I forgot who it was, John Tower or one of those guys.
Right, yeah.
This is a lot of money.
So, if there's this global inflation that you're talking about, trillions and trillions and trillions of newly-created dollars, just to pay off these old debts and all that, then what does that mean for the world economy?
It means it can't function, right?
Yeah, Scott, what I think will happen is there will be a move back to gold pretty quickly, okay?
Once the inflation really starts, people are going to just realize across the globe that, you know, you can't trust these governments.
They're printing money like crazy.
Right, I mean, they have been.
The investors have been kind of going back and forth between the euro and the dollars, which is the safe haven this week.
Comparing the two to each other, they're both worse than each other.
Yeah, Scott, but what's going to happen?
The inflation is going to be so bad that people are going to realize there's no real choice there, okay?
The inflation coming in the United States, consumer prices are going to start going up at double-digit rates in a very short period of time.
I mean, the news media isn't covering it, but producer price index is climbing every month, and the consumer index won't be very far behind that.
And the Indian inflation here is going to be bad.
If they start printing in Europe in the same fashion, people are just not going to trust any currency.
In China, they have a huge inflation now.
Largely, they've imported it from the United States by propping up the dollar, but they're having strikes and riots and everything in China because of the inflation there, which in some...
You don't really get the real numbers from the government, but it could be as high as 20-30 percent.
Well, so...
I'm sorry.
No, no, no, please.
If you wanted to continue that thought, please.
It's just going to be a global inflation.
It's right at the edge in the United States.
China's already there, and Europe is starting.
All right.
Hold it right there.
We'll be right back, everybody, with Bob Wenzel from Economic Policy Journal.com.
All right, y'all.
Welcome back to the show.
It's Anti-War Radio.
Talking with Bob Wenzel from Economic Policy Journal.com, and there's truth and simplicity in my ignorance, Bob, I think.
Hopefully, at least, in your clarifying my misunderstandings, we can get to some, you know, truth of the matter about some things here.
So, I remember one time a long time ago, Peter Schiff said to the Mortgage Association people, right as the bubble was starting to be pricked by the Federal Reserve, that as big as the bubble is, is how low it's going to fall to.
It's not just going to fall to level and real prices.
It's going to be a massive collapse with these massive dislocations.
If you're picturing a sine wave, as much as it goes up, it's going to go down, right?
And so now, as per my understanding, the number, the numbers that are going around, 75 trillion dollars just at Bank of America worth of bad debts means bazillions of trillions of dollars, more atoms than there are in the universe or something, is the amount of all the bad debts here.
So, what seems to me, in my simple way of looking at it, the way it seems is what what Ben Bernanke believes at least sounds plausible on its face, that if we, if this bottom end of the sine wave, never mind that he caused the bubble in the first place, him and Greenspan, but if he can, what he's trying to do, basically, is pour dollars into this hole to fill it back up again.
If we can't fill it up with real blood sweat and tears, because that would be too much to ask of the people, they'd overthrow us, then we'll just fill it up with dollars.
And so, does that not counteract the inflationary effect of having all that money?
If all the new money is going just to buy up bad debt, isn't that virtually the same as just cancelling out denominators and writing it off?
Yeah, what really goes on there, Scott, is the money goes into a different section.
It doesn't go directly to the banks that are necessarily holding the debt, although the Federal Reserve always pumps its money through the banking system, what's known as the primary dealers.
But what that money will do is it will go out throughout the country, especially the capital goods sector, okay?
And that money works its way through.
So then what happens is that debt becomes less of a problem, because it's a smaller piece of the overall GDP or price level.
Think of it this way, if you've got a mortgage, let's say 50 years ago or something like that, you could have had a mortgage on a house $20,000 or $30,000, which doesn't seem like very much, but there's been so much inflation since then, that's why it doesn't seem that much.
I can remember my parents, when they first bought a house, I think their mortgage payments were $200 a month or something like that.
And so what happens is the debt stays there, but it becomes less important relative to the overall price level and what's going on and where people are dealing as far as prices.
Yeah, that's like my professor in junior college taught me that inflation is good, because it means that regular people can borrow in dollars and pay back in dimes, and it's the banks that are getting ripped off.
Well, it would be, it's not good because we're not the first ones to get it, unfortunately.
It's the guys on Wall Street that are the first ones to get it, and then it goes out into the government sector.
I'm here in Washington DC.
This is the richest section of the country.
There are people earning more money here than anywhere else in the country.
It used to be Silicon Valley, but Washington DC has surpassed that because they're getting their money, their handle on the money, quicker than anybody else.
So we get it in ways down the road.
So although it may help us on the mortgage end of things, or the people that have mortgages, where it's going to really hurt us is in clothes, in food, in things we buy every day, because we're competing against the people that get that money first.
And really that whole dynamic where the average homeowner can take out a loan and you know, as we said, you know, pay it off in depreciated money over decades, that's part of the problem in the first place, is that process itself subsidizes distortions in the housing market.
Just the very first step in the giant bubble we just went through, right?
Right, right, correct.
And another real problem is as this inflation continues, in order for them to keep the whole thing going, they need to print more and more money.
And then at some point the inflation gets just so crazy that they stop.
That's how it was in the the late 1970s, early 1980s, when Paul Volcker came in and shut things down for a while.
I mean, we were getting very close.
Well, that's what happened at the end of what, 05, right?
To a degree.
I mean, I think Bernanke's a funny guy and does things that other Fed Chairman would not do.
So he shut it down, I think, before other Fed Chairman would have, and kept it shut for a long time.
And I don't think he really understood what was going on, because as you pointed out, he wasn't aware of the housing bubble and how great the damage was.
He thought it would just be a problem for the subprime market, and at the same time he was clamping down on the money supply.
This guy is a rodeo...
Well, that's what Rothbard says, is they always think that they can prick the bubble and slowly let the air out once the inflated prices in certain sectors has gotten out of control, and even they recognize it.
But they can't prick it.
They pop the balloon every time.
They have to.
Right.
Exactly.
And with Bernanke, it's just worse.
I mean, he's a rodeo bronco rider who's, at one minute, he's tightening the money supply, dropping it almost to zero growth, and then other times he's at 15% plus.
Right now, the money supply is growing at 15% plus, which is extremely high, and you know, that'll boost some of the numbers that the government watches.
I call it a manipulated boom.
It's like he's blowing hot air through that same bursted balloon.
Oh, yeah.
Oh, yeah.
I mean, that's a good way to put it, because what you have is you have a really destroyed economy, and he's pumping all this money in it, and there will be boosts in certain areas, but it's not going to help everybody, and it's going to get very inflationary very fast.
And then what's he going to do?
He's going to stop again and re-crash everything.
I think it's insane.
I really do.
Well, and then at this point, if the interest rate goes up any higher, then the national government's interest payments on the debt every year become absolutely undoable, right?
You're right.
Then they'll just abolish Social Security, I guess.
Yeah.
I mean, it's going to be a really, really big problem, because those interest rates are going to go very, very high, and as you point out, then the deficit is really going to balloon, okay?
And who's going to buy that?
The Chinese are basically stopping, okay?
Now, here's something most people don't realize.
Until recently, the Social Security Administration, about 25 percent of all, roughly 25 percent, of all government Treasury securities issued, okay?
Just last year, they went cash flow negative, which means that instead of more money coming in than they're issuing to people they're paying Social Security out to, they are now taking less money in than they're sending out.
So what that means is they have to start selling off their Treasury securities.
So think about that.
Just basic supply and demand.
You have a huge organization that was propping up the Treasury security market by 25 percent.
Suddenly, they're not buying anymore, and they're actually selling on top of that.
There's going to be so much pressure on interest rates, it's going to be incredible.
Well, something weird is going on, because I saw Newt Gingrich say, you know, maybe Ron Paul's right that we need to go ahead and get out of Europe.
And I saw Rick Santorum say, the man's not crazy at all.
He obviously is very knowledgeable about foreign policy, and we simply have a gentleman's disagreement and these kinds of things.
And I was thinking, did the word really go out that they're going to have to cut the Pentagon because, really, they don't have the money?
Yeah, you know, with Newt Gingrich to say that is really astounding to me, you know?
Yeah, you know, first of all, you can't always trust them when they get into office.
Remember, Obama was going to- Oh, I don't mean he means it.
I just mean the reality is coming clear, whether they'll try to defy it or not.
This is a separate question.
Yeah, I think you have to credit Ron Paul for that.
I mean, he just consistently sticks with his principles, makes his point, and more and more people are recognizing that in the general public.
So what's happening is guys like Gingrich and Santorum, they read the poll, okay?
They know what people are thinking now, and they know they have to position themselves in front of Ron Paul in order to try and get some of those votes.
I mean, look at Michelle Bachmann saying that she read Ludwig Romney's at the beach.
I mean, what was that all about?
Well, and in that debate where Mitt Romney says, oh, what would I cut?
I'll tell you what I would cut, and then he just outright plagiarized Ron Paul's plan for a trillion dollars in cuts that was released that day and pretended it was his.
Yeah, exactly.
That filthy S.O.B.
Sorry.
It's your interview, not my commentary.
Yeah, no, I got it.
I mean, you know, that's what's going on.
I mean, you can see it with all of them.
I mean, they see the numbers.
I mean, except for Ron Paul, all those other guys will take any position necessary to get elected, okay?
And what they do is they see the poll numbers, and they see the people listening to Ron Paul and listening to his message.
And so consequently, they see that's what they have to say to get votes, and that's what's going on.
All right, so how doomed are we?
I mean, is this- there's nothing that could be done smart here to get us out of this mess short of some massive hyperinflation that destroys our Weimar Republic or what?
Yeah, well, it doesn't have to go that way.
I mean, we could really, you know, cut back spending, okay?
The Eurozone could go bankrupt.
I'm not sure it's not a bad idea for the Treasury to go bankrupt also, okay?
And basically, just start off the way normal people would start off after bankruptcy, and you just cut your expenses down to the bone, and you're rebuilding, you grow that way.
But I don't think that's going to happen.
There's just too much political pressure on these guys in Washington here to keep the spending going and all that kind of stuff.
All right, now, all things being equal, Ron Paul's sworn in in January 2013, and he tells the military, that's it, pack up your stuff and put your men on planes, or you're all fired and replaced with men who will.
That's it.
The empire is over.
Come home.
And not only that, you're all fired, too.
Go get a real job.
I'm making up that part.
That's not part of his platform.
But were that to happen, Ron Paul's first hundred days, basically, the Pentagon Defense Department becomes the tiny little war department again, like back a long time ago, and then all those people are set free from their so-called service and are reintroduced to the economy.
Does that mean that the price of wages would just fall for everyone, and there would be terrible dislocations, and it would make matters much, much worse?
I mean, you think about a town like Killeen, it can't exist, other than the fact that it's adjacent to Fort Hood.
Yeah, Scott, I'll tell you what would happen, and we actually have an example.
Right after World War II, all those soldiers came back from Europe, and there were lots of economists warning, how is the economy going to absorb all these economists?
And all these economists, how they were going to absorb all these soldiers, and what you had was a situation where they were all absorbed, the economy boomed, and we had one of our greatest booms ever, starting after those soldiers came home.
So you might have pockets of problems that were, that serviced the the military, okay?
You know, armament manufacturers are going to have a tough time, okay?
But the rest of the economy is going to boom.
Remember, what's going to happen at a time like that, is the government spending of all that money on military is going to stop.
And that money is going to stay in the pockets of the average Joe.
He'll have money to do all kinds of things he can only dream of now.
So what happens, and this is how the propaganda, the Washington DC propaganda, goes out.
Oh my, you know, all these military are going to be out of jobs, and you know, those areas are going to be out of, have problems.
But they don't look at what Henry Hathaway taught us in Economics One Lesson, is that you've got to look at the seen and the unseen.
And the unseen is, hey, at the same time you're cutting air, all that money doesn't disappear.
It's going back into the pockets of the people, and they're going to spend it on on things that will really create a boom, instead of spending it on empire adventures across the world.
All right.
Well, we're over time.
We'll have to leave it there.
But that's a pretty good place to leave it, if you ask me.
Thanks very much for your time on the show today, Bob.
Really appreciate it.
Sure, no problem.
Take care.
Bye, Scott.
Everybody, that's Robert Wenzel.
The website is economicpolicyjournal.com.
Great stuff.
