06/21/13 – Alan Butler – The Scott Horton Show

Hey y'all, Scott Horton here for WallStreetWindow.com.
Mike Swanson is a successful former hedge fund manager whose site is unique on the web.
Subscribers are allowed a window into Mike's very real main account and receive announcements and explanations for all his market moves.
Federal Reserve has been inflating the money supply to finance the bank bailouts and terror war overseas.
So, Mike's betting on commodities, mining stocks, European markets, and other hedges against a depreciating dollar.
Play along on paper or with real money and then be your own judge of Mike's investment strategies.
Let's see what happens at WallStreetWindow.com.
All right, y'all, welcome back to the show here.
I'm your host, Scott Horton.
This is The Scott Horton Show.
You can find my full interview archive at scotthorton.org.
More than 2,800 of them now going back to 2003.
Also follow me on Facebook, Twitter, and YouTube at slash scotthortonshow.
It's true we can't be friends on Facebook because I'm over my limit, but you can subscribe to me, which, as far as I can tell, is the exact same thing.
So there you go, Facebook, Twitter, and YouTube at slash scotthortonshow.
As I was telling y'all earlier, this show, it goes out from scotthorton.org and from noagendastream.com and Anomaly Radio and Liberty Movement Radio and a lot of other things like that, but it's replayed later in the day from 3 to 5 Eastern Time at libertyexpressradio.com where I get to write Peter Schiff's coattails there and pick up a whole hell of a lot of new listeners.
I'm very happy to be on there.
And the boss and the host of Butler on Business is Alan Butler, my new best friend in the world.
Welcome to the show, Alan.
How are you doing?
Hey, Scott.
I'm doing good.
It's always a great day to talk to my buddy.
Well, there you go.
Good deal.
I'm very happy to have you on the show here.
And now here's the thing of it.
This guy Ben Bernanke, the chairman of the Federal Reserve Open Market Committee, he gave a speech and then, oh my God, all the numbers started going up and down.
What in the hell is going on?
You know, the thing that's perplexing to me, Scott, is that the street, as they've taken the calling, the financial elite up there in New York, basically got what they wanted.
Ben Bernanke said that he was going to print, continue printing the money.
He was going to curtail printing the money.
He may accelerate printing the money.
I'm beginning to think that what we might be seeing now is a worldwide reaction to the fact that Bernanke, it is now beyond his control.
Personally, if you look at the fiscal situation here in the United States, whether you and I like the money printing, and I am vehemently opposed to not only the money printing, but a privately owned banking cartel controlling our money, but the deficits in this country are to the point now, coupled with the fact that the foreigners are not buying the treasuries anymore.
Ben Bernanke and his cartel members just concluded purchasing 78 percent of all the net new treasuries issued since the beginning of this calendar year.
They are on track to purchase 100 percent of all net new treasuries within the next few weeks.
What we have going on now is the full monetization of the U.S. debt.
Whether you and I like the idea that Ben Bernanke is printing money is beside the point.
Ben Bernanke will have to continue to print the money, because no one else is buying the treasury debt.
We are beginning to turn the corner.
The end game is near, in my opinion.
This is a totally unsustainable situation that we are in now.
Yeah, but you're smart.
What about all these idiots on Wall Street who heard everything they wanted to hear, but then the numbers all crashed anyway?
What they are fearful of is that Ben Bernanke may actually slow down his destruction of the U.S. dollar.
You remember, it's not you and I that are borrowing freshly printed dollars off of Ben Bernanke's printing press at zero percent.
It is the bankers.
They're the ones that get that free money, not you and I.
What they heard when he was all over the map, frankly, Wednesday, was that they may not be able to get as much of that free money as they otherwise were getting.
Now they're throwing their little temper tantrum, and I think like a spoiled child, they're going to throw this temper tantrum until Bernanke relents and says, you know what, I'll continue to give you fellows free money.
Well, now, here's the thing, too.
It isn't just because they're greedy and they like free money.
It's because they still have gazillions of dollars worth of bad bets that need covering left over from the crash of 08, right?
Oh, absolutely.
Which brings me to the next point.
Bernanke, with his $85 billion a month, which calculates to over a trillion dollars of new money every year, $45 billion of that per month is to buy mortgage-backed securities, toxic mortgage-backed securities.
But he fails to mention who he's buying it from.
You don't own any mortgage-backed securities.
I don't own any mortgage-backed securities.
The banksters own the mortgage-backed securities.
So these bad assets, these toxic assets, Ben Bernanke is buying it from the cartel members with these freshly printed dollars.
Now the big question is, how can Ben Bernanke ever unwind his balance sheet?
You know, there's talk that he's going to unwind the balance sheet, but who in their right mind is going to buy these toxic mortgage-backed securities off of the Federal Reserve?
Who is going to buy Treasuries off of the Federal Reserve?
The answer is nobody.
So this money does not get repaid.
We, the American taxpayer, are going to be saddled with this via the inflation tax, and it's the inflation tax is the reason Congress allows a private corporation like the Federal Reserve to control the money supply.
They're like Alfred E. Neumann in Mad Magazine.
What?
Me worry?
They don't worry, because they will be out of office when this bill comes due.
Yeah.
Well, you know, it's funny, because that was actually the argument that I first heard when I very first learned about inflation as a kid, that, you know, it's not perfect the way we have it with this separate, independent central bank type thing, but jeez, if you let Congress do it, they get re-elected every two years.
So they will only ever want to inflate, and they will never, ever, ever, ever want to take the punch bowl away, and if you have this separate, independent Fed, at least they are supposed to be insulated from that kind of pressure and say, sorry, there's only so much we can inflate without completely, you know, screwing up every damn trade balance in the country or something and bankrupting everybody, and at some point we have to knock it off.
So what you're saying is, just from the corner that they've painted themselves into, politics aside, you know, political pressure aside, just financial pressure dictates that they can't do anything except continue down the same path.
That is the way I see it, because the appetite for U.S. debt has disappeared.
This whole notion that we're borrowing all this money from China is a smokescreen.
China is a net seller of U.S. debt.
That leaves one buyer, and he's buying with reckless abandon, and that is Ben Bernanke.
And Ben Bernanke now holds, the Federal Reserve now holds the largest collection of Treasuries in the entire world, and the thing that I find most criminal about that behavior is that Ben Bernanke bought all of those Treasuries literally without one red cent.
Now that he's buying all these mortgage-backed securities, the central bank, our Federal Reserve, is becoming America's largest landlord, and all of it without really one red cent.
Yeah.
Well, and I keep seeing in the news that, hey, the housing market here, there, and the other place is doing really good, and of course they just look at it like, great, the economy is healed, I guess, because housing prices are up in a couple of places.
But I see other news stories from time to time that say, oh, yeah, there's still, what, 16 or 20 million unoccupied houses in America right now, where the banks are redlining entire – well, that's not even the right word, because that word already has a specific meaning, but they're drawing lines around entire neighborhoods, I guess, and just keeping entire neighborhoods off the market, where they're not even for sale at all, in order to try to prop prices up instead of just letting them fall.
Now anybody could afford a house if they just let the prices fall.
This so-called recovery in housing, the very investment firms, the very entities that unloaded all of these toxic houses onto Freddie and Fannie are now the ones buying them back.
You know, what a great system if you're one of the financial elite.
You can unload your bad bets on the American taxpayer at 100 cents on the dollar, and when the media is looking the other way and the American people are busy living life, now you're coming back in, buying the very same properties for cents on the dollar.
They're buying thousands of houses at a time for the purposes of renting these houses out to people in order to chase yield, because nobody's getting anything on their interest income.
My friends that are tied to the housing industry, for example, the people in the lumber industry, that industry is still in a state of depression, Scott.
The recovery is an illusion.
In fact, this whole economic recovery has been an illusion.
It's an illusion brought about by the deliberate understatement of inflation.
If you understate the real rate of inflation, then you do, by extension, overstate all of the economic activity.
If we counted inflation the real way, the way it was counted, even as recently as 1980, inflation is significantly higher than the official numbers that are coming out of the government.
Here's the thing now.
You sound like me in the 1990s, and then again in the early 2000s, and of course I'm a very vulgar Rothbardian.
I'm not one of you real businessmen or economists or experts, I'm an anti-war guy, but I read Jekyll Island when I was a kid, and Griffin's economics are sound there, Misesian and Rothbardian economics there.
I was always saying, nah, come on, the 1990s, there's bankruptcies everywhere, the economy's really in shambles in a lot of places, people are hurting all over the place, all their jobs are being shipped away and whatever, and yeah, so the stock market looks good and the dot-com, NASDAQ looks good and everything, but really that's just inflation, only instead of across-the-board price inflation, it's just inflating certain sectors.
Those bubbles popped in 1999 and 2000, so then in the early 2000s, everyone said, well the economy's doing a lot better now, even in spite of the cost of the war, it's amazing, somehow I'm not really sure, but anyway, yeah, the economy's doing great, the stock market's up and the housing market's up and everything's fine, and I would say, yeah, but that's just inflation.
I mean, if you owned, say, a trucking service that delivers fuel, I guess you're doing great because fuel prices are up, but that's just price inflation.
Same thing for housing, same thing for food and whatever, but that's not really economic growth, that's just, but it's not price inflation all the way across the board either, it's just in these certain sectors, so where some people say it looks like these sectors are doing good, I just see hot air, right?
But then, so here's what I'm getting at, I'm only talking this long for a reason, I swear, and that is that in this current era, most of the Austrians, not all of them, but most of the Austrian economists who very well pegged the housing bubble said that what they expected to come next, due to all the bailouts and all the Bernanke inflation, would not be a bubble in housing, a bubble in stocks, a bubble here, a bubble there, it would be a massive rampant inflation across the board of the money supply and then price inflation across the board.
And that hasn't happened, and now when I talk with Bob Murphy and then they say, well, yeah, because apparently Bernanke was listening, or maybe I'm making up that part, but at least Bernanke realized that there was a danger of that, and so he came up with this new trick, completely illegal, but he just made it up and went along with it and did it himself, and that was to pay the banks, he'd give them all the money they wanted, right, give them a trillion dollars, but then he'd pay them to keep that money at the Fed rather than turn around and loan it out to you or me for the new business we're trying to start, and that way they and all their bad debts get filled in and they get bailed out and saved, but the rest of us don't get that money, which, okay, so it's at our expense in whatever degree there's inflation and that sucks, but it's actually better that way, because if they really were loaning out all that money to everybody, they would have completely and totally destroyed the entire economy by now with rampant, you know, double digit inflation worse than the 70s or something like that, but so where does that leave us then, because like you're saying, they can't unwind it, but they can still only print so much before the prices of everything just go completely out of control.
Scott, you raised several good points.
Let me try off the top of my head to address, first of all, the paying of interest by the Federal Reserve to the banks on their excess reserves was authorized by Congress.
So what we're referring to here is a situation where Ben Bernanke is creating this money out of thin air, as the old saying goes, lending it to his banker buddies at 0%, and part of that money they're using to buy treasuries, as they're unloading their toxic mortgage-backed securities onto the Fed and eventually onto the American taxpayer, that's creating excess reserves.
And Ben Bernanke, despite all this talk about helping the economy, that he's doing all this to helping the economy, and if you'll recall, you know, all these bailouts, it was to keep the credit lines open and to keep food on the table and the ATM machines working.
And yet while they were making those statements, they were actually paying the banks' interest on those excess reserves, in essence, paying them not to lend the money out.
So that's the first point.
The second point, thanks to people like John Williams, that original basket of goods and services that was out designed to tally the rate of inflation, when inflation, when the CPI originally was a metric that was designed to tell us how much we had to spend in order to maintain a fixed standard of living.
And as the inflation problem grew, they began to manipulate the CPI-U.
Under Richard Nixon is when they introduced the concept of the core inflation, and that's when they took out the food and the fuel.
So now that CPI-U is ex-food and fuel.
Then there were several other manipulations.
During the Clinton administration, they convened a commission called the Boskins Commission.
And this is when we had Bill Clinton, a Democrat in the White House, and a Republican Congress.
And the mission of the Boskins Commission was to devise another metric to further understate the rate of inflation, and then that's when we got the notion of semi-substitution, and then hedonics, and then eventually geometric progression on the substitution-based method that they will assume that, suppose the original basket of goods and services used to be an airplane ticket from New York to Los Angeles, but now that has become cost-prohibitive, so they assume with substitution-based accounting that instead of flying from New York to L.A., you'll now take a bus.
The bus was actually cheaper than the original plane ticket, so now they understate the inflation, or if steak gets too expensive, you're going to switch to hot dogs.
So they began manipulating that number with hedonics.
That's the notion where, okay, let's say the iPad, I remember William Dudley, head of the New York so-called Federal Reserve Bank, held up an iPad 2, and because in his view it was deemed 35% better than the iPad 1, well in the hedonics adjustment, even though the iPad 2 may have cost the same or a little bit more than the original iPad, since William Dudley deemed it to be 35% better, they now took the iPad and said it was 35% cheaper.
With hedonics, I mean, excuse me, with the geometric progression, they give more weight to things going down in price than they do going up in price, so now, even though using all of these shenanigans, it's still higher than what they want to tell us.
That's the reason we're beginning to hear about the chain-weighted CPIU, and that will further understate the inflation rate, but that original basket of goods and services is still out there.
So let's take, for example, the official inflation rate last month, year over year, came out at 1.36%.
That's the CPIU as reported.
The chain-weighted CPIU came in at 1.31%, so that's a further reduction in the official rate of inflation.
If we go back to the way inflation was tallied during the Clinton years, that 1.36% CPIU turns into 4.5%.
If we go back to the way they calculated inflation under Ronald Wilson Reagan and Paul Volcker, that's 9%.
So the government's response to rising inflation is just to redefine inflation.
Of course.
Yeah, just like they've redefined freedom and everything else in the world.
Wow, so really 9% under Reagan's stats?
Under Reagan's stats last month, year over year, 9%.
Now, I'm not saying that surprised me at all, because the cost of living is just going up all over the place.
I don't have the calculator to do the market basket myself, but I sure believe you, because what you say sure sounds right, and I'm sure ...
Could you give us a good footnote where we can check the different calculations, the way they keep changing it, the way you described there?
John Williams at ShadowStats.com is probably the foremost tracker of these government statistics.
There is also a publication out of the UK, but the one that most of us go to now is ShadowStats.com.
Unreal.
All right, now, so wait a minute.
If Bernanke is paying every banker in America to just be rich and go on vacation and not loan that money to mom and pop, then why is there so much price inflation?
Well, it's supply and demand.
Because it's all based on the fraction reserve rate.
They're loaning that money out to somebody.
Yeah, it's supply and demand.
Too many dollars, not enough demand, but there's an underlying trend that's taking place here, too, and that is the loss of reserve status of the U.S. dollar.
Now, when I was a child, growing up, the dollar had become the world's reserve currency by virtue of the Bretton Woods Agreement after World War II, and the central banks and other banks around the world held dollars as their reserves, but what we're seeing is a movement away from the dollar as the world's reserve currency.
You know, and you mentioned Bob Murphy.
Bob's been a guest on my show as well, and I like the way he said it.
With the dollar being the reserve currency of the world, it was almost as if the world were paying us some sort of tribute, and where the other countries in the world had to always convert their currency into dollars in order to do trade internationally.
As we lose our reserve status, and it's happening on a daily basis, these countries are now trading with each other, bypassing the U.S. dollar.
You know, I had read a stat that over 90% of all the $100 bills ever created are actually outside the United States.
As we lose reserve status, as people no longer need to hold dollars in reserve, those dollars are all coming back into the United States.
Right.
That's mom and pop are the ones who are left holding the bag at the very end.
Scott, you know, Sunday morning, I went and bought a basket of groceries.
It cost me $100.90, and I was talking to the clerk, who was a Turkish fellow at the tender young age of 24, and he was commenting about how in his three years working at that grocery store, how shocked he was to see the prices rise.
So I did quick math, and you know, that basket of groceries that I bought this past Sunday for $100.90, in 1980, 1980, would have cost me slightly under $6.00.
And all the while, we've had no inflation.
But let's talk about Ben Bernanke's target rate.
You know, they used to use that PCE, personal consumption expenditure index, that he's tied to, which includes all those manipulations to tally inflation that I mentioned earlier.
It used to be that that was the rate at which they would not exceed.
Now if you heard him Wednesday, that is his target rate.
In his view, and in the view of those bankers, those central bankers, we don't have enough inflation.
So they're going to inflate to get us to 2%.
Well, their 2% in reality is 9%, based on the 1980 calculation.
But give them his 2% for a minute.
Let's just assume that is an accurate figure.
Well, 2% compounded over 10 years is 24%.
So that means over 20 years, you're looking at 48%.
Over the 30 years, going back to that 1980 $6.00 basket of goods and services that I mentioned, you know, we're now up in the 60% to 70% range.
But the real rate of inflation has been significantly greater.
So imagine that you're a baby boomer who's retired right now.
You've saved all your life.
First of all, you're not getting any interest income because of what they've done to the interest rates, the deliberate manipulation of the interest rates.
But the purchasing power of your dollars are plummeting.
So if you live 20 years, even if you give Ben Bernanke his 2%, then what you have saved for your retirement will buy half as much 20 years from now as it's buying today.
But the real rate of inflation, you know, you might be left with $0.10 or $0.15 on the dollar.
And that's what's happening to our middle class.
The cost of everything is rising.
Our incomes are not keeping pace.
Yeah.
Well, you know, it's been 10 years.
I'm sure this is still true.
But last time I saw, they said real wages haven't gone up in America since 1972 or some crap like that.
Yeah, since the early 1970s.
That is a fact, man.
If only there was a way to make everyone hate that Richard Nixon, you know, oh, wait, he's the one guy that it's OK for everyone to hate.
The one politician.
It's OK.
Well, so what's the real unemployment rate?
And in fact, if you could tell it to me in the way that they calculated it in the 1930s.
OK, well, as you know, because we're going real quick because we're almost out of time.
OK.
Well, I have the fortune every first Friday of the month to interview a fellow by the name of Keith Hall, who ran the Bureau of Labor Statistics for five years.
He stepped down February of last year.
Keith has taught me how to read the unemployment reports.
The U3, the one the media continuously calls the unemployment rate, merely are the number of people who have been unemployed for 26 weeks or less and who have actively looked for a job in the last four weeks.
It is a tiny, narrow slice.
Once you go unemployed for 26 weeks in a day, you're no longer counted in the U3.
You could be counted in the U6, which counts them up to 365 days.
Once you go to 366 days, you're no longer counted in the U3 or the U6.
The average unemployed person in this country right now has been unemployed for 44 weeks, which means they're not even in the official rate of unemployment.
The go-to statistics for the career statisticians in the BLS is the employment-to-population ratio.
Last month, in May, that hit a low, a 34-year low at 58.6%.
Now that doesn't mean, by extension, that 41% unemployment rate, because there's a certain percentage of those people who really don't want to work.
For that, we looked at the participation rate.
That came in at 63% and changed.
The real rate of unemployment is somewhere north of 22%, south of 30%, Scott.
That's according to the BLS.
That's not my number.
Right.
Now, I just wanted to reiterate what you said there.
This doesn't include grandmas and kindergartners.
This doesn't include people who are paraplegic and live with their parents.
These are people who would like to be working if they could be.
Exactly.
That's the participation rate.
The BLS wants to get away from the U3.
It is a meaningless number.
For lack of a better description, it is a political number.
Hey, we've got to do this more often.
Okay.
Anytime.
I like learning this stuff.
All right.
Later.
Wasn't that great, everybody?
I think so, too.
Thanks, Alan.
Appreciate it.
Bye.
Everybody, that's the great Alan Butler.
He's the host of Butler on Business and hosts my show at his network, the Liberty Express at libertyexpressradio.com.
We'll be right back after this.
Scott Horton.org.
So, you're a libertarian and you don't believe the propaganda about government awesomeness you were subjected to in fourth grade.
You want real history and economics.
Well, learn in your car from professors you can trust with Tom Woods' Liberty Classroom.
And if you join through the Liberty Classroom link at scotthorton.org, we'll make a donation to support the Scott Horton Show.
Liberty Classroom, the history and economics they didn't teach you.
Oh, man, I'm late.
Sure hope I can make my flight.
Stand there.
Me?
I am standing here.
Come here.
Okay.
Hands up.
Turn around.
Whoa.
Easy.
Into the scanner.
Ooh, what's this in your pants?
Hey, slow down.
It's just my...
Hold it right there.
Your wallet has tripped the metal detector.
What's this?
It's the Bill of Rights.
That's right.
It's just a harmless stainless steel business card size copy of the Bill of Rights from securityedition.com.
There for exposing the TSA as a bunch of liberty destroying goons who've never protected anyone from anything.
Sir, now give me back my wallet and get out of my way.
Got a plane to catch.
Have a nice day.
Play a leading role in the security theater with the Bill of Rights Security Edition from securityedition.com.
It's the size of a business card, so it fits right in your wallet, and it's guaranteed to trip the metal detectors wherever the police state goes.
That's securityedition.com.
And don't forget their great Fourth Amendment socks.
Hey, guys.
I got his laptop.
Over at AIPAC, the leaders of the Israel lobby in Washington, D.C., they're constantly proclaiming unrivaled influence on Capitol Hill, and they should be proud.
The NRA and AARP's efforts make them look like puppy dogs in comparison to the campaigns of intimidation regularly run by the neoconservatives and Israel firsters against their political enemies.
But the Israel lobby does not remain unopposed.
At the Council for the National Interest, they put America first, insisting on an end to the empire's unjustified support for Israel's aggression against its neighbors and those whose land it occupies, and pushing back against the lobby's determined campaign in favor of U.S. attacks against Israel's enemies.
CNI also does groundbreaking work on the trouble with evangelical Christian Zionism, a neocon engineered Islamophobia, and drumming up support for this costly and counterproductive policy.
Please help support the efforts of the Council for the National Interest to create a peaceful, pro-American foreign policy.
Just go to councilforthenationalinterest.org and click Donate under About Us at the top of the page.
And thanks.
Hey, y'all.
Scott Wharton here for the Future of Freedom, the Journal of the Future of Freedom Foundation.
Every month, Plum Line Individualist Editor Sheldon Richman brings you important news and opinions on policy by heroic FFF President Jacob Hornberger, hard-hitting journalist columnist James Bovard, and others from the best of the libertarian movement.
The Future of Freedom tackles the most important issues facing our country, from the bankrupt and insane welfare and regulatory states, to foreign wars and empire, the dismal state of our economy, and ongoing assaults on civil liberties.
This society needs peace and freedom for prosperity to prevail.
Subscribe to the Future of Freedom in print for just $25 a year, or online for $15 a year at fff.org/subscribe.
And hurry up, because this summer they'll be running my articles about the wars in Libya, Syria, and Somalia in the Future of Freedom, too.
That's fff.org/subscribe for the Future of Freedom.
And tell them Scott sent you.
Admit it.
Our public debate has been reduced to reading each other's bumper stickers.
Scott Wharton here for LibertyStickers.com.
I made up most of them, and most of those when I was mad as hell about something.
So if you hate war, empire, central banking, cops, Republicans, Democrats, gun-grabbers, and the status of all stripes, go to LibertyStickers.com and there's a good chance you'll find just what you need for the back of your truck.
Own a bookstore?
Sell guns at the show?
Get the wholesaler's deal.
Buy any hundred stickers and they drop down in price to a dollar apiece.
You can spread the contempt and make a little money, too.
That's LibertyStickers.com.
Everyone else's stickers suck.