All right, my friends, welcome back to Antiwar Radio on Chaos 92.7 FM in Austin, Texas.
We're streaming live worldwide on the internet at chaosradioaustin.org, antiwar.com slash radio.
And for the first hour all week, focusing on the economic crisis with the experts from the Austrian school, we're streaming from the Campaign for Liberty, Ron Paul's new website.
And he is our first guest on the show today.
You all know Dr. Paul.
As Anthony Gregory says, he makes James Madison look like Alexander Hamilton, best congressman we've ever had.
I'm not going to lie about my bias.
He's a medical doctor, not a lawyer.
That's probably part of the reason right there.
Former presidential candidate.
He's the author of Pillars of Prosperity, Freedom Under Siege, The Case for Gold, Gold, Peace and Prosperity, Mises and Austrian Economics, A Foreign Policy of Freedom, and the new one and my favorite, The Freedom Manifesto.
Welcome to the show, sir.
Thank you.
Good to be with you.
It's good to talk to you again.
So, let's get right to it.
Right there on Capitol Hill, it seems like the powers that be are doing everything they can to push through this bailout, Bill.
Is it a done deal?
Well, they claim not, and they're still working on it, but there's a lot of politics going on, as usual.
The Democrats, of course, want welfare for their group of people.
We got welfare for the rich, so they'll have to get some welfare for the poor.
But I think McCain has muddied the waters because he came over here and the Democrats saw this as a good chance to play political games.
So instead of allowing it to go forward, my interpretation is that they probably purposely slowed it up.
And I think as soon as he leaves town, they'll probably have an agreement if he ends up going down there for the debate.
But that's the kind of thing that gets involved.
First, it's serving as many special interests as you can, and then also getting involved in partisan politics.
Well, the special interest thing must really play into it, besides just the bankers who are being bailed out, the obvious targets of this.
All the news reports say that the switchboards are just lit up, that the American people, at least the ones interested enough to call Congress about it, are as angry as they can be and are adamantly opposed.
So I guess they've got to figure out a way to pay off 435 different little districts in different ways in order to get these votes lined up, huh?
That's what they'll have to do, and do some arm-twisting and promises.
The bill won't have everything in it.
It won't be overly apparent, but it may be future promises and things like that.
There'll be a lot of activity between now and probably Sunday evening.
It may well go into Sunday before they pass something.
And now, the Treasury and the Federal Reserve, my understanding, they've already given up $700 billion of American taxpayer money for this.
Why are they even bothering coming to you guys in the first place?
Why do they need a law passed?
You know, that's a pretty good question.
I don't have the absolute answer to that, because, you know, you can go to the Fed, and they can borrow unlimited amounts, and they buy up so many assets, and they did use up, you know, extended about $700 billion worth already.
It might be just that old saying about pushing on a string.
There's a limit to how much more borrowing that banks want to do, because they might not want to borrow anymore and have borrowing on the books as much as they just want flat-out somebody buying these things, and maybe they just quit even taking loans from the Federal Reserve.
But, you know, there are some good banks, especially the small banks, are calling in, and they don't like it.
They say, why don't you just punish the people who got us into trouble?
Why should you punish everybody, and the small solvent banks shouldn't be penalized.
I have this Bloomberg article here that says that the FDIC has a secret list, and that they're afraid to release it because it'll cause more panic.
Well, I guess if your bank's on the list, it would make you worried.
You know, I'm not usually one to say don't sweat things too much, but in many ways, you know, that isn't the problem.
It isn't the problem that, you know, if your bank closes for a day, you're going to get the money out.
The big problem is getting money that has any value, or exactly when you want it.
Social Security, you know, as this economy unwinds, Social Security beneficiaries are always going to get their checks, and the checks are going to gradually increase, but they'll never keep up with the cost of living.
So it's the value of money that we're dealing with.
Every time they prop up this system of bad debt, bad investments, what they're doing is diluting the value of the dollar, and they just can't keep up with that.
Well, I learned watching the President's speech the other night that the cause of this is those darn foreigners, apparently in a plot to destroy us, have invested a lot of money in our economy.
Yeah, we've got to check into that.
You know, it's always the Chinese fault or somebody else.
You know, they work hard, sell us goods, we give them paper money, and they save, and then they start buying stuff up.
And the embarrassing thing is that they actually are our banker and act more like capitalists than we do.
I mean, we act like the aggressors, and the Chinese are over there buying up assets and participating in investments in Iran.
We're over there trying to start a war with them.
So there's quite a difference in approach.
It's hard to believe that we've gotten ourselves into this mess.
You know, we saw the dot-com bubble in the 90s, and then as it's been explained to me by some of your colleagues in Austrian school, what happened was instead of letting there be a recession when the NASDAQ bubble popped, they kept inflating and they created a new bubble in housing instead.
And I just wonder, is there such a thing as a war bubble?
Is it the money that's being spent on the war that's then turning around and going into the housing, or are these separate issues?
Well, I think they're connected.
I think they're all one thing.
It's a dollar bubble, and we increase the amount of dollars we have to pay for the welfare here at home, the military-industrial complex, for all the activity we do overseas.
You know, it's not like Osama bin Laden didn't warn us.
I mean, he was pretty clear on what he wanted to do.
He wanted to bleed us.
He wanted to drag us out there and spread us around the world and dilute our military strength and then wreck our economy and bankrupt us.
I mean, he even stated this, and so it seems pretty silly for us to do exactly what he wants, so we continue to follow that policy.
But I think our financial problems are so intertwined with our foreign policy.
If you got rid of all the militarism, it wouldn't solve all our problems, but it would be a big help, because we probably could end up balancing our budget, and a lot of that money would be spent here at home instead of overseas, and maybe then we could work on domestic welfare and clean that up, too.
But I think the easiest thing politically is to attack the militarism overseas.
You know, I thought it was funny that between the Federal Reserve and the Treasury coming up with $700 billion and them trying to get $700 billion out of you guys in the Congress, the Congress went ahead and gave the Pentagon, and I guess other agencies, a $612 billion appropriation earlier this week, right?
Yeah, this week.
When did they get that money?
And, you know, they're yelling and screaming that we have to do this, you know, to bail out Wall Street, and some of the conservatives go, oh, no, we shouldn't do this, we shouldn't do this, this is a serious problem.
But they all vote for this other expenditure, you know, the continuing resolution.
A lot of them voted for that, and that was huge.
And then there was the military budget, it was over $600 billion, so it's on and on.
We've had, you know, dozens of bills this week, and everybody knows I'm going to vote against them, even if I have a dollar in them, because you've got to make the point, it's the spending there, that's where the basic problem is, and they're dealing with the symptoms and the consequences, and, you know, figuring out what to do with the failed banks is one issue, and that's important, but that's dealing with a symptom as a consequence of all this overspending and the monetary system.
You know, it's kind of throwing me for a loop, it's great to see you being interviewed on all these TV shows, because they know that you said this was going to happen, and there must be something valuable they can learn from you, and then they bring you on and you explain that all the things that they say are the cause, rewind just one more step, you're telling them, it's the government's easy money policy that created the bubble, and they sort of seem, you know, they run out of arguments against what you're saying, they don't really know what to say to that, but it seems like it's almost impossible for you to actually teach any of these people enough that then they would use that as the basis of a question for any of their other experts.
It's like, well, that's what Ron says, but...
They're very frank about it, they say, well, we don't want to deal with, you know, what led up to this, we want you to deal now with the problem.
Of course we can, we can talk about, you know, the mistakes they're making now on, you know, not allowing the market to liquidate debt and argue our case, but really we won't get very far until they understand how the bubble came about.
All right, well, I hear you say often, and usually you have such a short amount of time on these TV interviews and you've got four different people interviewing you and they don't know what you're talking about, but I think probably a lot of people in the audience don't quite get it either, so I wonder, you know, don't give us the extra long explanation, but explain what you mean when you say that the Fed's easy money policy creates malinvestment.
What does that mean, that everybody starts making bad investments, and why does easy money make them do bad investments instead of good ones?
Yeah, that's overly simplistic, but you've got to get it out as fast as you can.
We also use the term printing money, which is not exactly correct either.
It's the creation of credit.
People don't ask, they don't come, when they talk to the Fed, they don't come and say, hey, give us easy money, give us more money.
The term they always use is, we want low interest rates.
We want low interest rates, and how do you get low interest rates?
They have to put a lot of money out there to, you know, buy debt, and that lowers the rates of interest.
Now, according to Austrian economic theory is that interest rates are vital to give information to the investor and the businessman, the entrepreneur, to decide what to do, and this is another fallacy in the system, and I try to get after it as much as I can, because people say, well, see, this is another time capitalism has failed, and that, of course, came out of the Depression.
They said in the 20s, the gold standard in capitalism failed, but the real problem is that when the Fed lowers interest rates, they create money.
We don't have any savings.
Savings are supposed to tell you when to invest.
If there are no savings, interest rates should be very high, and then the businessman backs off, and the consumer backs off, and the consumer says, oh, interest rates are high, I'm going to save more money, and there is a natural cycle there, but when the Fed comes in, and when interest rates in the market should be 8%, and they make them 1%, there's a disillusionment.
Everybody thinks, oh, there's a lot of savings out there, and we have to get busy, and then the so-called malinvestment comes in.
The builders say, everybody can have a house, and so they overbuild their houses, and then our housing programs insist that we make these bad loans, but there's enough bad loans just from the artificially low interest rates, and then it feeds on itself, and the houses, because of the inflationary impact, the prices of these houses go up, and people feel very, very rich.
One time, Alan Greenspan argued with me before the committee about whether or not we had capital or not, and where this was coming from, and he says, well, it comes from the value of the house going up, and I told him flat out, I said, I think you're confused on what is debt and what is real capital, but he called that savings and capital because the nominal amount of dollars of the house is going up, but if that were the case, it shouldn't dissipate so quickly, you know, and real capital wouldn't disappear that way, so the house is down, and just think of the disappearance of all this capital, and it's very important.
But that is at low interest rates, because businessmen, they do the wrong thing, they overinvest, and they malinvest, make a lot of mistakes, then the market dictates a correction, and then everybody hesitates to allow a correction, but the correction is locked in place.
The most important thing we can do is to allow the correction to happen, let the bankruptcies come, let the prices come down, and what's so terrible about a nice house going down in value?
Somebody who maybe was frugal enough to save his money, he might get a real good deal, and those houses have to get in the hands of stronger holders.
Well, now there are some who are saying that this is just the beginning, that when you really start peeling the onion, and you look at all the bad debt held by American citizens, businesses, municipalities, and states, and all these different things across the country, that really we're due for a major unraveling here, that this is just the tip of the iceberg.
I think that's a good possibility, and it's worldwide, too.
I believe we're facing something that we've never faced in history before, because there's generally been a few sound currencies around, no sound currencies for 35 years, it's a paperback world monetary system.
We have had the advantage of that, and other currencies are based on the dollar, too, because they have the dollars in reserve.
I think it's worldwide, and I think we're only seeing the beginning of this coming apart, but by not allowing the correction, we're destined to make this much more severe and last much longer, and this is a tough sell.
I compare this to talking with a drug addict, and you tell the drug addict, look, you don't need this anymore, and then he says, oh, I'm not going to feel very good, so he gets another fix, he feels pretty good, he feels better, but you keep doing that, you kill the patient, but if you put up with the withdrawal symptoms, and do what you're supposed to do, you can save the patient, and you can feel a lot better, and right now, we're addicted to easy money, and big government spending, and all these bailouts, so it's not easy politically to argue the case for tighten your belt, and suffer the consequences, when you think maybe next week, you know, Sunday night, we pass the $700 billion package, next week, stock market might go up 1,000 points, and then later on, it's going to go down, something like that, but the short-term fix is what they want, and that's what politicians will generally always do.
Yeah, well, it's strange timing, too, because they want a short-term fix, but I don't think they want it this close to the election, that short-term, because we're going to still remember their names, the people who worked on this thing.
Yeah, I think that's the case, and what I think is happening is they've had a lot of control, they've had a lot of profits, they probably know pretty much what we know, but I think they're arrogant, and believe they can always contain it, and take care of it.
I remember another debate I had with Greenspan, when I challenged him about, you know, the balance of payments, and how gold was important, he says, well, he says, yeah, I used to believe that, but we, as central bankers, have learned how to get paper money to act as if it's gold, you know, gold itself, so he was sort of a bit pompous in saying that, yeah, that's true, but a well-managed fiat currency by us smart central bankers, we can make it work, and I think a lot of them believe that, but I'm convinced that they can't make it work.
I mean, you can't make a wristwatch out of paper, so I don't think the paper standard's going to work.
Yeah, well, I expect his new book, titled Mea Culpa, to come out real soon here.
So let me ask you then, you talked about during your presidential campaign, Dr. Paul, about if you were president, what you would like to do is have the Congress legalize competing currencies so that, I guess, banks could issue their own money backed by commodities such as gold and silver.
How's that work?
Or how would it work?
Let's say what you have to do is get rid of the legal tender laws that prohibit us from doing it, and only the Federal Reserve note is the technical legal tender, and if we could legalize the circulation of gold and silver, preferably, really, one metal would be better, but if you had two metals, there shouldn't be no fixed ratio, but let's say you had gold circulate parallel to the dollar, we're very accustomed to this, because worldwide, you have dozens and dozens of parallel currencies that are fluctuating from minute to minute, so we could handle that, especially in the electronic age, and to adjust them.
People who opted for getting paid in a gold standard and buying in gold and saving in gold, they could do it.
For instance, if somebody had been on a strict gold standard in these last 10 years, the price of their gasoline would not have moved, it would be essentially the same.
I argue this because the system we have today is very, very complex, and I don't think it would be wise to purposely turn it off in one day, even though if you have runaway inflation, it is going to get turned off in one day, so we like to avoid that, but this way, you could introduce it to people, and then they could make their decision, and if they thought they'd rather get paid in gold, then they could do it, and then that standard, I think, would gradually just absorb the paper money.
Well, back in, I think, 1981, you were on, I guess, Got Created, the gold commission, and wrote its minority report.
Is there any chance that perhaps this would create enough new interest that you could create another gold commission, and maybe your minority report could serve as the majority report this time?
Well, that thought crossed my mind.
They're not quite ready to have the, they're not serious up here about having a monetary conference, and they're not going to admit that this system is done in.
They're trying to salvage it, but we really ought to start thinking about that and laying the groundwork, which is generally what I think I do all the time, laying the groundwork for the day when it comes that we have more people interested than ever before.
Just a few minutes ago, I had somebody come up to me on the House floor, and they brought me an article that was on the internet, and somebody had on the internet, and they said, you know what?
If John McCain would do this, he'd win the election cold.
It was a pure Austrian economic article, the one that I put on CNN, and she was just bragging about this and thought it was wonderful.
We are changing minds, but they're not quite ready to have that key conference to have monetary reform.
All right.
Well, we'll wait.
We'll see what happens.
Just keep teaching them as well as you're doing, and we can't do anything but better, I think, from here.
Okay, Scott.
All right.
Thank you very much for your time today, sir.
Thank you.
Bye-bye.
All right, folks.
John McCain, born 1914 in South Texas.
He's the author of Pillars of Prosperity, Freedom Under Siege, The Case for Gold, Peace and Prosperity, Mises, and Austrian Economics, A Personal View, which I highly recommend.
That's such an interesting read, A Foreign Policy of Freedom, which, man, oh, man, it's just a collection of speeches from the 70s all the way through today, and just nothing but right the entire time, the best, and you'll learn so much reading that book.
And, of course, my favorite, The Freedom Manifesto.
His website is campaignforliberty.com, and we'll be right back with Robert Higgs after this.
Why doesn't a recession happen in a couple of weeks or a month or so?
Well, the reason it doesn't happen in a couple of weeks, you don't have a quick boom, a quick recession almost before you can see it, is because the banking system, in order to validate the process, keeps inflating.
It's not a one-shot proposition.
It's not a one-shot proposition.
In order to keep price on the other companies afloat, you have to continue to increase the money supply, continue to inflate, so it's allowed, for example, price to buy more, finance their inventory more as prices keep going up.
They then have to get more bank credit to keep the thing going.
It's like staying one step ahead of, if you're a heroin addict, let's say, increasing the dosage to stay one step ahead of retribution, one step ahead of total collapse by getting a larger dose as they keep the whole inflationary boom afloat.
