08/04/14 – Mark Thornton – The Scott Horton Show

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All right, you guys, welcome back to the show.
I'm Scott Horton.
This is my show, The Scott Horton Show.
I'm gonna change things up for a minute here and talk with our friend Mark Thornton from the Ludwig von Mises Institute.
He's a senior resident fellow there.
He is the book review editor of the Quarterly Journal of Austrian Economics and is the author of The Economics of Prohibition and the co-author of Tariffs, Blockades, and Inflation, The Economics of the Civil War and other books, too.
Welcome back to the show.
How are you doing, Mark?
Hey, Scott.
I'm doing great.
Great to be back on the show.
I'm actually vacationing in New Mexico after a grueling summer at the Mises Institute to the Rothbard Graduate Seminar and the Mises University, which just got over with, which was outstanding.
But it's a real, real long, hard week.
Well, I appreciate you taking time out on your vacation, especially then to join us here.
And yeah, there's a lot of great stuff.
In fact, of course, Bob Higgs on the war and all that is going to be my favorite.
But can you please tell people a little bit more about that, where they can find the archives, all the great speeches and seminars and the rest of the great content?
You guys know that Mises.org has about 10 zillion pages of content for free there, right?
OK, anyway, I'm sorry.
Go ahead.
Yeah, we're the biggest economic content in the world, I think.
And, you know, of course, it's all libertarian oriented in Austrian economics.
And for the Mises University, you know, we had like 150 people there.
We had Judge Napolitano giving a special series of lecture.
Bob Higgs, phenomenal.
And the greatest Austrian economists working on the planet were there, you know, giving lectures.
And they are all video recorded or audio recorded.
They're available on Mises.org, M-I-S-E-S.org.
It's on our YouTube channel, Mises TV or Mises Media.
You really need to subscribe to Mises Media.
That's a great way to keep up with what's going on in the world of Austrian free market economics.
But yeah, it's all there.
It's all for free.
Great.
Yeah.
And it's all, you know, grade A stuff, too, of course.
All right.
Now, so here's the thing I want to ask you about.
And I hope people will remain engaged, even if like me, they're mostly anti-war people and not so much economics based or whatever, because I don't really want to talk theory like high theory.
I want to talk theory like it seems to me the most important thing in the world, other than the empire.
But of course, it's all intertwined with the empire anyway.
And that is the American central banking system and the boom in the bus cycle.
And it just seems like there's, you know, if we were to count all the dislocations that come out of that Federal Reserve system around the world, we could never really stop.
But anyway, tell us how it where it starts.
What's going on with this thing here, Mark?
Well, I'll start with an apology, Scott, because, you know, Austrian economists make a big deal about, you know, the interconnections between central banking and war.
And very often I come on your program and I fail to make that connection.
But it's the central bank that makes it possible for the empire to pay for the empire and to cover up the cost of the empire because it gives the government the ability to just print up money.
And so it's not surprising that the Federal Reserve was founded and put into effect right before we got into World War One.
And, you know, and then in 1971, we went off the gold standard because of the cost of the Vietnam War.
And so what we've seen since then is just a ratcheting, continuing process where the central bank makes it easy for the U.S. to pay for wars and to pay for the empire.
And, you know, basically it's been monetizing anywhere from a half a trillion to a trillion dollars of government expenditure, which is the same cost, the same monetary cost, of course, not in terms of lives, that we expend overseas on this empire.
So it's all very much interconnected.
But in addition to financing these wars in this empire and all these bases, you know, this increase in the money supply and the adjusting of interest rates by the Fed also causes the business cycle and it also causes inflation or the prices of goods to go up.
So all of this is very much connected, and your people are very important in terms of fighting the war part of it.
But we're all fighting that same battle against big government.
Yeah, I think, well, there's a lot of things go back over there.
But yeah, I think first premise would be that most people who aren't too educated about this kind of thing at all, just going by basic assumptions, TV understandings of the world, they figure that what the government spends is what they tax us.
And then, yeah, plus they borrow some from China, that kind of thing.
But without any kind, it's never explained really on TV, the process of how new money gets created, new bank credit gets created, and how government, you know, gets away with their biggest projects like the wars, you know, things along those lines.
I know from when I was a kid, I learned about inflation.
This is why it's a crime.
This one of my first lessons in supply and demand even was why it's a crime to counterfeit money.
Why can't I just print all my own money and buy all the wonderful things that I want or whatever?
Well, and the answer is because you'd be ripping off your neighbors by diluting the value of the money out there on the market, basically.
And that's why it's a crime is because it amounts to stealing.
It's the same thing.
And so as bad as that is, and people living with rising prices all the time, but then you add on top of that, I think what you mentioned there is the most important thing of all is the boom in the bus cycle.
And as you call it, it's the business cycle.
That's the official name of it.
And I'm not sure that there's no such thing as a business cycle.
But the one that we have, the boom in the bus that we have certainly seems to be engineered or result, not engineered deliberately, or I don't know, but certainly seems to be a result of all this bank credit expansion.
And that, you know, the boom part is fine, but the bust is just something else, Mark.
Oh, yeah, no doubt about it.
The central bank, the Fed, is the banker's bank.
Okay, so the big banks keep money with the Fed.
And what the Fed does is it buys government bonds from the banks.
And then it just puts money into their account at the Federal Reserve with electronic entries, just like, you know, when you cash your deposit your paycheck, it's an electronic entry into the bank.
And, you know, that's all fine and good.
But if the Fed is really buying up lots of government bonds and keeping interest rates real low, these banks have all this extra money at the Fed, they start lending it out into the economy.
And, you know, that sometimes come in the form of low interest rate mortgages, like in the 2000s.
And so people started buying up houses, people started building houses, the price of houses goes up.
And they ended up engineering this incredible housing bubble with all these, you know, derivatives and fancy financial products.
And they gave people the impression that housing prices were going to continue to rise forever.
But of course, those kinds of things never happen.
Things never go up constantly, forever.
And they settled the American people with all this incredible debt, and almost brought the financial system down completely.
And it's all basically the fault of the central bank, the Federal Reserve, and its outrageous, outlandish monetary policy, and controlling the interest rate to make people believe that there's this super prosperity going out there.
So we feel like the boom is the good part.
But that's actually when we're all making the mistakes of making investments in housing, and making investments in construction company, making investments in mortgage companies.
And, you know, so that's when all the we feel good, but that's when we're all making the same mistakes.
And those same mistakes are only revealed to us when the bust comes when the inevitable bust comes when there's too many houses to possibly justify the high housing prices.
And of course, the collapse in housing prices, and people going underwater with their mortgages, and having to default on their mortgages and being foreclosed by the banks and losing their home.
And so, you know, the end result is terrible for the American people.
And it's just, the Fed is the cause of that housing bubble, and it ruined a lot of Americans lives.
And they're up to no good once again, right?
All right.
Now, that's a great place to stop.
We'll be right back everybody with the great Mark Thornton from the Ludwig von Mises Institute at Mises.org.
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All right, you guys, welcome back to the show.
Mark Thornton, he called the last housing bubble back in 2005.
Him and Robert Blumen over there at the Mises Institute, they were the first on earth.
And we're talking about the boom and the bust.
And of course, started out talking about how it's all very necessary, this artificial bank credit expansion in order to fund the empire and it's unlimited expansion, apparently.
Sun never sets on it, that's for sure.
But Mark, when you're describing the period of artificial prosperity, like for example, during the last bubble, the last bubble, it seems to me like those times, the Bush years actually really sucked for most people.
I guess if you owned a house in a market where the value was going up all the time and you could keep refinancing it and cashing out and buying a new truck all the time and a granite countertop and all that crap, then maybe it felt like a kind of boost to those people, that segment of the economy.
But I don't remember the Bush years ever really seeming like there had been a recovery and a real kind of state of growth.
And for that matter, the 90s sure seemed more prosperous.
But I remember even in the 1990s going, well, yeah, but we got record bankruptcies and we've got all kinds of people suffering in a lot of ways.
We have price inflation in a lot of ways.
And so even this artificial prosperity that you talk about seems really pretty artificial.
And only the people who are really in on the game with the government are the ones who get the result of the boom.
And then we all still suffer the bust.
And they say real wages haven't gone up in 40 years or something.
It would seem like maybe that's part of why.
I don't know.
Yeah, it is a false prosperity.
There's no doubt about it.
Because that's what's going on right now, right?
TV is saying, well, this is the jobless recovery.
So right now we're in what?
Circa 2004.
Is that right?
Oh, yeah.
We're right back in it.
We're right back in the bubble.
And there's a lot of wealth redistribution that goes on because of the Fed's policy.
So it's really only the people who get this new money that are actually going to be prosperous.
It's only people who are already pre-positioned with the assets that are going to be the bubble that are going to prosper.
Everybody else is not going to be helped.
So that if you were just married, single couple looking for a house in a housing bubble, well, you would be at a great disadvantage.
You'd be buying in at inflated prices.
And then when the bust comes and you're not able to make your mortgage payment, then you're going to go bankrupt.
So there's winners and losers.
And overall, the economy is actually worse off over the stretch of the business cycle.
The economy is less well off.
We're destroying wealth in productive capacity by making all these bad investments.
And so it's only really in terms of the boom, there's really a minority of people who benefit.
And of course, the bankers tend to benefit from the boom and whatever industry that is getting this new money.
Back in the 2000s, or excuse me, in the 1990s, it was the tech industry that was getting all the resources.
They were getting access to new money.
And then after they collapsed, Bush started and Greenspan started to bubble up again with 1% federal funds rates.
And that was channeled into the housing industry by government policies, the Community Reinvestment Act, and a bunch of regulations and rules that favored housing over alternative investments.
And so a lot of people were ruined by the housing bubble.
A lot of people remained incredibly wealthy.
And the same is true for today.
Yeah, just the same thing over and over again.
All right now.
So what about, you know, I read sometimes and never mind a specific, you know, problems going on in Ukraine right now, for example, but just kind of in general, I read of people in Eastern Europe saying they missed the Soviet Union.
And I wonder whether it's okay for me to just go ahead and blame all of that on Alan Greenspan, Bill Clinton and George Bush, and their boom and bust cycles instead of saying, saying, good communism's gone, here's the free market, we gave them this sick, corrupt crony system based on our global dollar, right?
The world's only so big, and America's the center of it as far as finance and economics and everything else goes, or that's how it has been.
And so is that really right that it's America's fault that everybody in Eastern Europe has had such a bad time post communism instead of, you know, celebrating in the streets to this day?
Well, let's put it this way, we've had a negative effect on the development of the economies of Eastern Europe.
We've held them back in many respects.
But they have made progress.
I mean, many of the countries of the former Soviet Union have done better.
For example, Poland is, you know, an economic success story.
Its economy is growing at a very nice pace.
The Czech Republic has done well.
And so...
But is that bubble activity or is that real growth?
I think it's more growth.
And I think it's...
But it's always hard to tell because a lot of their success has been as a result of their economic connections with Germany, who has done extremely well relative to the rest of Europe, which has been screwed up by our central bank and dollar policy.
So I guess, you know, you just can't get away from the permeating effects of our central bank and our monetary system, which is, you know, it's the ruling monetary system of the world.
Our dollar is the reserve currency of central banks around the world.
And the dollar is the thing that is used to transact most international transactions.
And so this also relates to the empire and war is that the U.S. dollar gives us this special monopoly status that we can draw on and impact all these countries from around the world.
There's very few people who can get away from the influence that the dollar has.
And so even the BRIC countries, you know, as they expanded based on our monetary policy, but the change in our monetary policy could see, you know, their economies collapsing.
And that's why China and Russia, Brazil, South Africa and India are very concerned about what we have done and what we are currently doing.
And I think countries like China and India and, of course, Russia are pushing back now.
And all this business, this saber rattling in Ukraine may be in part the result of Putin and the Soviet Union being disgruntled about our special status in this world and about our ability to print our way out of problems.
Right.
Well, and by the way, I was going to ask you, Russia notwithstanding, what about this national debt that's now 17 trillion, I guess, counting on 18 trillion?
Can we go up to 38 trillion or 58 trillion?
Or, I mean, why not?
Can we keep going forever or not?
Oh, and we have no time to answer at all.
Sorry.
It's going to go up.
No doubt about it.
Yeah.
But can they just keep going forever or the laws of economics are going to come due, Mark?
The laws of economics will prevail.
And if they keep on pushing the debt up higher and higher, we're going to end up in a hyperinflationary economy that could break us in the long haul.
That's Mark Thornton at Mises.org.
Thanks so much, Mark.
Thank you, Scott.
Hey, all.
Scott here.
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