Sorry I'm late.
I had to stop by the Wax Museum again and give the finger to FDR.
We know Al-Qaeda, Zawahiri, is supporting the opposition in Syria.
Are we supporting Al-Qaeda in Syria?
It's a proud day for America.
And by that we've kicked Vietnam Syndrome once and for all.
Thank you very, very much.
I say it, I say it again.
You've been had.
You've been took.
You've been hoodwinked.
These witnesses are trying to simply deny things that just about everybody else accepts as fact.
He came, he saw us, he died.
But we ain't killing they army, but we killing them.
We be on CNN like Say Our Name been saying it three times.
The meeting of the largest armies in the history of the world.
Then there's going to be an invasion.
Alright, you guys, introducing Mike Swanson.
He wrote the book The War State, the great history of the rise of the military-industrial complex after World War II.
The War State.
And also he gives investment advice at Wall Street Window.
And yes, as you know, is a sponsor of this show.
But this is not an infomercial.
This is me interviewing him about this very interesting article that he wrote.
Hey, how's it going?
Oh, I'm doing great.
Yeah, it's been a while since we talked.
A very long while.
Yeah, probably maybe a year.
I don't know.
Well, you know.
That's good, though.
My thing is, I'm kind of interested in all this economic stuff, but at the same time, I don't really have any money.
So I spend everything I do make.
So I don't have that much of an interest in it in a way that a lot of people do.
But I am very interested and have been really my whole life.
But especially since I learned about Mises and all of that in the 1990s about the boom and the bust cycle.
And how the government central bank and their own monetization of debt.
But also their allowing of all the private banks in the Federal Reserve System to expand bank credit into the economy.
How that causes the boom and then necessarily then the bust.
And so I'm always looking for clues about where we are on that cycle.
I know that for starters here, Mike, whenever they say, and your article talks about this being the case right now.
But whenever in the 1990s they said, oh, it's a huge economic boom.
Or during the Bush years, oh, it's a huge economic boom.
And the way they're saying it right now didn't really feel like it to regular people.
The stock market is at an all-time high.
And if you had an IPO.com thingamajig that expanded, then you had more money on paper for a little while or whatever.
But for the most part, things seem to be just kind of plugging along.
But then the bust comes and the busts are very real.
Even if the times of the real prosperity seem like mostly an illusion.
But so anyway, what the hell is going on with that?
And where on the cycle are we now?
And what is the Federal Reserve doing to put us there?
Well, it's funny because one of the thoughts I had when I said we haven't talked in a long time, probably a year.
Or it could even be two years, is because it really doesn't feel to most people like much is really going on with the economy.
Or even the stock market in the sense that things don't seem to be changing.
And that's because we've been in this cycle now for nine years since 2009.
An upswing cycle.
An expansion in the economy.
A slow expansion.
A slow recovery.
A weak recovery.
Because as you mentioned, normal or regular people, I should say most people, don't feel it.
They don't see it in their paychecks.
Wages have barely gone up at all.
Although the stock market, of course, has.
And the bull market in the stock market really accelerated after Trump won.
And I can talk about that in a little bit.
But the main point I want to say is that we're so nine years into this.
And those last two cycles of 2000, which is really when I think both of us started to think about these things, or at least the late 90s.
And then the 2008 cycle.
Those two that we saw and experienced one way or the other were characterized by these rapid swings up and down.
The internet stocks, when I first got into trading, it was 1998.
They went straight up for two years and they collapsed.
And then real estate did the same thing.
And it shot up and then it dumped on people.
And then, of course, the whole stock market crashed.
And so these wild swings up and down are what we're used to.
And now we've been nine years into this swing, which is such a long period of time that I think most people at this point, I can tell you, they've fallen asleep when it comes to their investments.
The ratings for shows such as CNBC have collapsed so much that they don't even tell you what they are anymore.
So – but when that happens, the cycle is going to change at some point, and I think we're actually seeing or going to get towards the end of it.
And one thing that happened the last two times, and this is what the post I was talking about was tending at, is that when the Federal Reserve was on an interest rate hike cycle, such as Alan Greenspan was in 2000, and then he did the same thing again starting around 2003.
And Bernanke took over and raised rates into 2006.
But one thing that happened to them is there's something called the yield curve.
That's the low – the short-term bonds and then the long-term bonds.
So short-term can be the one-year treasury bond and long-term the 10-year.
And the Fed controls short-term interest rates.
When they announce, oh, we're raising rates like they did the other day, but they don't really control the long-term, which is traded all over the world.
And what will happen is if you're in an inflationary environment or a big expansion in the economy, the long-term rates tend to be higher.
So you could have like an 8% interest rate and then a 2% short-term interest rate.
And when the yield curve flattens, those two numbers get close together, and that's a sign that the bond market traders think that the next – the economy is slowing down.
And they're starting to look ahead to the day the Fed lowers rates.
So they're starting to trade their long-term bond yields and make them come down.
And then eventually the Fed will – they're basically saying there's going to be a recession and so forth.
And we're not at that point yet, but the yield curve is starting to flatten out.
What's funny though and what I was trying to suggest in the article is that when Greenspan was in charge of the Fed and this started to happen, he didn't come out and say, oh, the yield curve is flattening and this is a sign of coming trouble.
Instead, he came up with theories to try to explain why it didn't make any difference, didn't mean anything.
And Bernanke did the same exact thing.
If you can recall, in 2006, Bernanke was saying this doesn't mean anything.
It's got some strange thing to do.
Foreigners wanting to buy our bonds and there's this extra demand in real estate.
Falling prices don't matter.
We're going to have a soft landing.
In fact, that's a phrase Bernanke – I mean Greenspan used, soft landing, and of course it was a disaster.
Now, what's happening at the moment and what the article is anticipating is that the new Fed chairman, Jerome Powell, right before he got into – got picked by Trump, he was writing articles and saying things that were saying that we need to come up with a new way to understand unemployment numbers and their relationship to inflation.
And he – the reason why is because when the unemployment gets below 4 percent, the headline number, which it is now, the historical Fed doctrine is that creates inflation so that we need to be more aggressive on interest rate hikes.
But he doesn't want to do that because this yield curve isn't steepening.
It's narrowing.
So he needs to come up with a new theory at some point to pause interest rate hikes and ignore the low unemployment numbers.
And he's supposedly, according to the Wall Street Journal, the day he's gotten into that position back in February, he's spending almost every single morning ordering people to come up with a theory on this, and they haven't really been able to find one that's mathematical or you can really prove what's – Let me make sure I understand you right.
You're saying that what he really needs to do is raise interest rates, but he really doesn't want to do that.
And so that's why he's coming up with these excuses not to raise them?
That's what he's saying?
Yeah, he's raising them now, but he knows he's going to get to a point where he's going to want to stop.
I mean he's almost there.
When the Fed met, they projected two rate hikes.
In Murray Rothbard's – I guess it's just the money chapter in For a New Liberty.
I'm not a real economist.
I'm just kind of an amateur type.
So that's like the polemical entry level type boom and bust cycle chapter there.
And what he says in there is as soon as they start raising that federal funds rate, it's on.
And they always try to prick the bubble and let the air seep out, create this soft landing, but that never works.
It always pops.
And it's just a matter of time from when they start raising the federal funds rate and deflating because they're afraid of too much inflation that within whatever period of time, there's a crash coming, and it happens every single time.
Well, I don't want to say it happens every single time, but it's happened every single time in our lifetime.
So I mean I don't know about the 50s and the 1960s if I would say the same thing.
But it probably – the reason – I would say it didn't have – actually, I would say it didn't happen in the 50s and 60s.
But I would suggest the reason why is because we didn't have the massive bubble going into those rate hikes and those cycles that we've seen in our lifetime.
And that's a whole – I mean if you read the David Stockman book, it will explain the reason why.
I really want to read that.
But you mentioned the tax cuts too because that's really inflationary and stimulative for the economy as well.
So even if they're raising interest rates here and trying to tamp things down a little bit, then the tax cuts work in the other direction, right?
Yeah, and what's – one thing I should say about this cycle that's I think very worrisome is the last two cycles – well, the 2008 cycle, it was a banking crisis, right?
The banks had all these mortgage-backed securities and real estate was falling, and the securities became worthless, and that's what caused that crash.
But what happened was the Fed and the Treasury Department in the fall of 2008 began this program of buying the mortgages right off the banks and putting it on the Fed's balance sheet.
And the government basically bailed them out, and now the Fed balance sheet since then has exploded, and we've had multiple of these bond-buying programs since then.
The point is that's the big deficit, and so is the US government budget deficit, and they're bigger than – at least by numbers, they're bigger than they've ever been in history.
The Fed certainly balance sheet is the biggest ever in history.
But what I'm trying to suggest is that's the real – in the next downturn, that's going to be the next real problem.
I'm getting off track.
What was the question you actually asked me?
Oh, about tax cuts on the political level working against the central bank policy, which is trying to tamp this down.
Of course, but part of this too is, as you say in your article, which I didn't even name at the top of this interview because I forgot, it's at the Libertarian Institute, as well as WallStreetWindow.com.
Is today going to be the day that Jerome Powell brings a dovish surprise?
That's the article.
And you talk about in there how the unemployment numbers aren't really so low anyway, and of course, as we all know, it's the meanest cheat in the world to blame rising wages for inflation, when the rising wages – those are the people who are last on the chain to get a cost-of-living increase to make up for the depreciation in the value of the money that's caused by the actual inflation, monetary inflation by the government and the banks.
Somebody gets a raise for a quarter, and they go, oh no, that guy's causing inflation.
Well, that's what the dovish surprise is, the day he's going to come out and say wage inflation isn't really the problem that we've always said it is, and they're going to come up – to justify pausing, they'll come up with some theory of why wages are stagnant.
Now, I don't really – there's probably 20 reasons why they're stagnant, but the follow-up blog post I put with you is really kind of interesting because it's got the Labor Department's projections of the labor force over the next couple of years.
So, one of the theories that Powell's – they're exploring is an idea that one reason the wage inflation may not matter is they claim – or there's an argument that at some point, there's going to be a flood of workers into the workforce.
Now, what their predictions are is kind of sad, but it's not immigrants.
It's not younger people.
What they're projecting is that older people, over 55, are going to flood the workforce in about four years.
I haven't gone into this to figure out why they say that, but you can guess.
It's because they don't have retirement.
So – but the tax cuts are real – what they have done is – with the stock market is the biggest beneficiaries are, of course, corporate America.
I mean I can tell you – like I don't – I have a corporation, right, for my business, and it's an S-corp, and what Trump and Congress did with S-corps is they reduced the first $150,000 you make a little bit.
So I get a tax break, but the corporations have a bigger tax break than regular people do or small business people.
But what's more important is with the stock market is they've been using the bulk of that money to buy back their own shares.
And before – and everyone knew this was going to happen.
So when Trump got elected, the stock market rallied last year partly in anticipation of the day these tax cuts would be enacted.
And they get – it was kind of bullish for the stock market that it got put off and put off and put off.
And then finally they did it in January, and coincidence or not, that's been the last peak in the Dow so far in the S&P 500.
Wait, but their benefit in doing that is it just helps them prop up their – the company's stock prices for a little while?
Yeah, and they're doing this at – that's – You're saying they're taking the money that they save from the tax cut and almost uniformly they're buying their stock just to give themselves a bump?
Yeah, at least half the money.
But it's concentrated though to – it's – what this does, to give you an example, there's a stock – let's just read about this week, registration hardware.
This is a very extreme example.
This stock went up 30% in one day this week, and they borrowed massive amounts of money last year to do stock buybacks.
And they just came out with this earnings announcement, and they said their revenue shrank, but their earnings are up.
There was like 20% or 30%.
Their profits are up 20% or 30% per share.
And that's what Wall Street traders, what you see on the news, how much money we make per share.
Even though the revenue has dropped, their earnings per share has exploded.
And what the stock buybacks do is they soak – they take supply of stock off the market.
But they also enable companies to say, we're earning more per share.
Does that make sense to you, what I'm saying?
And that's what – if you watch CNBC and the company announces earnings, that's what they talk about, earnings per share, earnings per share.
They don't spend a lot of time talking about revenue and sales and that kind of business.
That's the difference between really studying and reading about it versus watching TV.
Well, but that's what traders do.
I mean, it's kind of crazy.
People just chase stock action and headlines.
If you're doing short-term trading, there's not enough time to do much thinking.
I guess not.
And then a lot of these hedge funds nowadays, they just have robots and computer programs that are doing the bulk of this stuff too.
Okay, but you know what?
All these rich guys, man, millionaires in every town, maybe they never heard of Mises.
But they've seen this boom and bust happen over and over again.
So doesn't everybody know it's coming and then doesn't that ameliorate it all?
Well, if you're talking about everybody, do you mean – You know, the markets overall.
It seems like – you know what?
I mean, I read Jekyll Island in high school, so what the hell?
I'm not a very good temperature taker of this thing, I guess.
You know, everybody remembers the dot-com boom and bust, and everybody remembers the housing boom and bust, and everybody knows that – well, certainly anybody who's got money to invest in anything knows about QE123 and God knows what, and all the recent inflation, and that in some of these markets or others, there's a crash over the hill, right?
Or not?
Yeah, everyone knows – Like now we're at the top of a permanent plateau.
Right, right.
Well, everybody knows there's a business cycle.
They know the stock market has bull and bear markets, and one day it's going to have a bear market.
But the problem is there's one mistake, and I made it, and that's why I can say this.
I've been doing this for a long time.
There's one mistake investors make that can lead to all the other mistakes, and that is if you are fully invested in one market, you lose your objectivity, and you just get caught up in the bubble and starting to believe it's real, or you just find rationalizations to keep believing it's going to go up no matter what.
And in the end, what most people really do in the financial markets – and when I say this, I mean individual investors, hedge fund managers, professionals, everybody – is if they get fully invested in one single thing, they just watch their balance, their account balance, and they'll hold and hold as long as it doesn't go down 20 percent.
Then they panic out and sell, and it's kind of – it's just a psychology thing.
But the problem is for professional traders, investors, and investment advisors, money managers, the people who are supposed to be the experts and so forth, they're kind of in a trap because if you're handling somebody's money and all they see is what the S&P 500 is doing every single day, if you were to sell and say, oh, I'm scared, I don't want my client to lose money, and you sell half their money out or all of it and put in something else or get cautious, and the market continues to go up, those people are going to get angry at you.
If you run a mutual fund, you're now lagging the market or a hedge fund, and you're going to lose assets.
So what I'm trying to suggest is people in the stock market are trapped.
They've got to outperform the market or at least match it, and if they fail, then they're going to lose their job.
So they're just trapped in these bubbles.
I can say myself right now when Trump won, I put everything at the moment.
Right after he won, I went 100 percent invested in the stock market, and then by the summer of last year, I started thinking, I don't care.
It's been nine years.
I don't care what this does going forward.
I'm going to start cashing out.
So I'm not really that invested in the stock market.
I've got 20 percent of my money in individual stocks.
I've got short positions, all kinds of stuff, but I'm lagging the market.
I wouldn't be able to do that if I was running a hedge fund or investment advisor, but I'm willing to do that.
I'll just tell myself, I don't care, but most people can't do that.
Right.
That's pretty much the same thing then.
It's the other side of the coin from what Bob Murphy is talking about with, or I guess this is just from Mises himself too, right?
With the higher order capital goods.
If you have a quarry, then during the boom times when all your competition are borrowing money to expand their operation, hire new employees, improve technology, buy more property to dig limestone out of, or whatever it is, then if you don't make all the same mistakes they're making at the same time, they're going to leave you behind in the short term, so you're not going to make it to say told you so in the long term, even if you know that this is exactly what happens to the higher order goods producers in the boom and bust cycle, that they're the ones who get stuck with their neck out the farthest, basically.
But like you're saying, yeah, but what are you going to do?
Because if you don't do that now, then you're going to pay sooner than later.
Yeah, that's what happens.
I talk to people, investing, trading, it's just what I do.
I've never heard anyone even say that kind of thing, like I'm doing this because I don't want to lag the market or whatever.
So I just think people find ways to rationalize this to themselves and then get caught up.
I'll tell you one other thing real quick is the Federal Reserve itself, a couple of years ago they released transcripts of all their meetings, and I went back and looked at the ones from 2008, and then when Nixon got off the gold standard, and there's been some books written about Alan Greenspan using these transcripts too, and what you discover is these people don't really know what's happening.
They're caught up in a bubble.
For example, when Nixon got off the gold standard, they had a Federal Reserve meeting the next day, and they're saying this is just going to happen for a couple of weeks.
So in the 2008 crash was quite remarkable because in the first couple of months of 2008, they knew there was a recession and they were cutting rates and reacting to it, but they were saying things in the meetings like our computer models are showing pockets of strength and looking at that and thinking that things will get better, and then when it did crash, the meetings, they're laughing about it and saying, I hope this works when they're talking about bailing out the banks.
It's just quite remarkable.
It's like that war state book, I wrote that using partly transcripts of Kennedy's National Security Council meetings and stuff, and there's a lot of drama, the Cuban Missile Crisis, but it's creepy or scary because you also see rigid thinking.
At the end of that crisis, they're expecting war to happen, the very last day, and Robert McNamara, who had been managing the blockade of Cuba instead of just going to war, by the very last day, he was giving up and thinking war is coming, and you see him caught in this bureaucratic type of thinking, and the Fed reads the same way, except that it wouldn't make an interesting book because these people are talking so boring, and out of mathematicians, it's just like, oh.
Right.
I get it, though, that if you really understand what they're talking about, that you could really mine that for a lot, and yeah, it's interesting, right?
I always think of that South Park episode where the guy is like, oh, problem, problem again, and they're just a bunch of goofballs.
They're the people of South Park, basically, in charge of the central bank.
I could see that.
You know what I mean?
They think they know what they're doing.
In fact, on that one, what they do is they have a big game board, and they cut the head off a chicken and let it run around in circles, and then wherever it dies is their policy.
Bank bailout or QE this or that or whatever.
But what they have done is, as you mentioned, Murray Rothbard saying, other Austrian economists, is that they, in our lifetime, every time this has happened, they get to that pause situation, which I think we'll be at by the end of the year, if not sooner, and then they pause, then they come up with these theories and think, well, everything will be okay, and they just hold on to that, and then stuff starts to, the stock market rolls over, the economy starts to tip into a recession, and they sit there, like frozen, and then go into total panic.
So there's a book called Greenspan's Bubbles that, if you want to read about, you see Fed transcripts.
That one, he edits the transcripts really well, and it's very interesting.
And it's about the 2000 bust, but what happened there is, it turned down, obviously, to everybody in August of that year, and they didn't lower rates until January, but in December, they went into a total panic, and then they thought, well, we'll lower rates at the next meeting on January 31st, and then they got so scared that they lowered them in an emergency meeting, the very first week of 2001.
So I assume what's going to happen is something similar in a year or two, where they'll be lowering rates again and panicking.
And then just delaying the inevitable again, yeah.
Yeah.
All right, Shaul, here's how to support the show.
Sign up for the RSS feeds so that you don't miss a show.
Libertarianinstitute.org or ScottHorton.org for those.
Also subscribe on YouTube, youtube.com slash ScottHortonShow.
And sign up at Patreon.
Anybody who donates a dollar or more per interview at patreon.com, you get two free audiobooks, and that can be including my book, narrated by me, Fool's Errand, Time to End the War in Afghanistan.
So help support that way.
Sign up at patreon.com slash Scott Horton Show.
And send in 50 bucks at ScottHorton.org slash donate.
You get a signed copy of the book, Fool's Errand, of the paperback there.
And anybody who donates $100, it used to be it takes two.
Now for any donation of $100, you get a lifetime subscription to listen and think libertarian audiobooks.
And there's already a whole bunch of them, and there will be more.
Lifetime subscription for any $100 donation to the Scott Horton Show from listen and think audio.
Or you can get a silver QR code commodity disc, which is a really cool currency.
A silver one ounce disc with a QR code tells you the instant spot price on there.
And just go to ScottHorton.org slash donate.
There's also PayPal for single donations, or you can sign up to do monthly donations on PayPal as well.
And take all different kinds of digital currencies, especially ZenCash.
ZenSystem.io for ZenCash.
And of course all the different kinds of bitcoins and etc. like that.
So check all that out at ScottHorton.org slash donate.
And hey, by the way, if you like this show, review it for me on iTunes, Stitcher, etc.
If you like the audiobook, it's now available on iTunes as well as audible.com.
So leave a good review on there if you like that, and help get that out.
Thanks.
Well, so hey, do you pay a lot of attention to M1, M2, M3 money supply type numbers?
And I don't know the difference between those things anyway.
Well, I used to, but I don't anymore because they took them away.
You know, I read that, that they had taken one or the other away, but I didn't know that they had just canceled those statistics altogether.
Yeah, they're gone.
So I think there's some websites that try to make their own calculation.
I don't know how they do it, but they try to make their own figures.
But they took them away when they started all these quantitative easing programs, basically.
Yeah, I could see that.
That's a hell of a line chart.
Well, so, you know, as an economist, I'm a great anti-war guy, right?
So in 2008, I was not reading Mises.org that much.
I mean, you know me, I love Mark Thornton and Bob Murphy and everybody, but I just wasn't spending that much time there.
But I was still spending a lot of time at LewRockwell.com.
And I know people have their problems with Gary North.
I guess I do, too.
But anyway, he was writing his monetary policy analysis daily.
And all that summer 2008, especially in July, August, into September, he was saying, look, everybody, you know, we're complaining all the time about inflation, inflation, inflation, but that's the overall policy.
That's our central bank's mindset.
What's going on right now?
Deflation, big time.
Look at these numbers.
And there's a major crash coming.
Get all your money out of everything.
And he was just saying that for, I don't know, seven weeks straight, leading right up to the crash.
Which, how's this for a thought experiment?
What if that crash had happened one year earlier, at the start, really right after Ron Paul's big money bomb, right when he was just making his big splash into the campaign?
Instead of, like, three weeks after he finally dropped out, and it was too late a year later, which is the way it played out.
But anyway, it just seemed like that, you know, Gary North, he really knows what he's talking about when it comes to his Mises and his bubbles popping.
And that was how he was keeping track, because he was looking at those numbers very carefully.
And that, that's what was about that recession and that 2008 situation.
That was one of the things that was truly shocking about it for people, was the economy really fell off a cliff starting in September 2008.
Until then, the stock market people were kind of like, oh, it'll come back, basically, and the Fed's lowering rates.
And I don't think, I mean, there was a recession, of course, in real estate.
But I can tell you, like, in September, the stock market completely fell off a cliff.
And I knew people who were car dealers.
They go to auto auctions to buy used cars.
And they told me that the price for used cars, they were telling me this in September, collapsed.
And they were scared, because they never saw anything like that happen.
And I had a, I know someone that lives in Greece, and Greece is a giant shipping port for the whole world.
And there's lots of, well, it's not the shipping port, it's important, it's, there's lots of fleets of ships that are based in Greece.
It's a, a lot of companies based there.
And this guy was sending me pictures of all the, of these ships of, fleets of ships, just stopped in the middle of the ocean, because they have no goods.
So the economy just froze all over the world.
And prices were collapsing.
There was real deflation.
And deflation is something that hadn't happened in the United States like that since, after, I guess you could say after World War II, for a short period of time, but really the Great Depression.
And what's interesting, I think, is, you know, I think there's very little inflation, really.
And this is, when you start talking about deflation, inflation in the financial world, this is, these are topics that people like to debate over and come up with and whatever.
But I, one of the, I really think there's very, I mean, oil prices have popped up a little bit this year, but commodity prices outside that, such as the agriculture commodities, they're still depressed.
They're at the lowest prices they've been in in like five or six years.
So I say this because I suspect that when there is the next downturn, it will be a deflationary downturn, at least at the start of it.
That'll probably panic the Fed because they know that deflation is what causes depressions.
That's what Bernanke was obsessed about.
Yeah.
Yeah, I mean, it seems pretty self-serving, but I guess they really do believe, right, that the big fake boom, that's the status quo.
It has to be.
And then, you know, that bust just comes for no reason.
And they refuse to accept that it's their fault in the first place.
I mean, I remember Bob Higgs, you know, explaining that when he says that, listen, they really started inflating, and they already had been through the roaring 20s, but they really ramped up the inflation starting in 1927 in order to prop up the British pound as a favor to the British.
And then that's what led to the stock market bubble and then the crash that began the Great Depression back then.
But when it comes to the history of how that played out, according to all mainstream economic thinking, history began the day of the crash.
And never mind who had built up the bubble on all that fake credit in the first place and where they got it all from, you know?
Well, I tell you, the Americans like Greenspan and Bernanke, both of them made statements, and Janet Yellen did too for that matter, that bubbles are bad, they're real, but we can't see them.
So that's their rationalization for not doing anything to stop it until it's too late.
However, we're now, I think, you know, by this point in time, Trump winning, the years after 2008, a lot of people know something has gone wrong.
I mean, we've all seen what's happened.
And interestingly enough, I got a book in front of my hand I read a year ago, but it's called The End of Alchemy, and it's written by the former governor of the Bank of England.
And he basically says in here, they made mistakes and didn't see it coming and we got to stop doing this.
But more importantly, he admits that this, what happened in those last two decades has created a disaster in Europe.
Now, all these countries such as Greece, Spain, Italy, have gone so much into debt and their economies are stagnant.
You're having the rise of populism in many of these countries.
We just had that in Italy.
But the same thing has basically happened in the United States.
I think that we've never fixed what's led to these crises.
And the result is Donald Trump was able to run and win by pointing out, hey, Clinton, you're getting money from Goldman Sachs.
The banks are crooked.
You're crooked, and so forth.
And he rode that wave into office.
So I think that's people, since the Trump election, the media on television is all focused on his personality.
And one side treating him like he's George Washington or something.
And the other side saying he's a Russian agent.
And it's kind of, I feel like it's nonsensical.
But in the end, neither side talking about what's really brought us to here.
If anything, I would say get the David Stottman book and I would trace it all to going off the gold standard, which was a result of us having this massive empire.
And this is the end game of it.
Okay, and so, well, and especially since, I mean, it's been like this all along, but especially since going off the gold standard, we've had all these different booms and busts, and we've been talking about the last few of them anyway.
So dot coms, this, and real estate, that.
And yet, I hear it said often, and I think by you reading the first article here that we're talking about, that it's different this time because the bubble is in government bonds.
But what difference does that really make?
That's like the final bubble.
I think even Stockman said there's one big bond bubble that all these other bubbles are like little soap bubbles on top of a bigger one kind of thing.
Well, I assume it's the final bubble, but, you know, but what it means is two things.
For investors in the stock market, particularly Americans, they tend to think, well, the smart thing to do is be diversified.
That's correct.
And then they diversify, though, by being like half their money in stocks, half their money in bonds because bond prices are tied to interest rates.
So historically, when the Fed lowers rates, bonds go up.
So if they've got half their money in bonds it does well.
But if you're in a bond bubble that's bursting, what's really going to happen is bonds are going to go in a bear market and the Fed will probably lower rates at first and make the bonds pop back up.
But foreigners around the world will sell the bonds and the bonds are going to fall in value and interest rates will go up while the stock market's going down and you're in a recession.
That wouldn't be the first phase but it would be like most of it.
So it would be a real disaster for most Americans to invest and that's all they got.
The solution is, I believe, own gold and silver.
Some people might say Bitcoin or something but I believe in gold and silver.
Now, for the rest of the economy, though, for real life, I fear that what this would play out like is the first initial bust part of this would be deflationary.
Prices would decline with the stock market and then the Fed would panic and start aggressively lowering rates and doing another bond buying program and that would create these following bond prices anyway.
They wouldn't be able to buy the bonds fast enough to stop foreigners from dumping it but the way it would play out in real life is there'd be lots of inflation.
So say this went on for three years, the first year, you probably wouldn't really feel it that much.
In fact, prices might drop.
You might think, oh, this is okay.
My gas price is cheaper.
But then the second and third year, there'd be lots of inflation.
I don't want to see like Argentina, Venezuela but 10%, 20% inflation maybe like what we saw in the 70s but worse.
I don't know what comes after that.
I'm not saying it's the end of the world or anything but I don't know what the rest of the century is going to mean for the US empire, for how our economy functions because and so forth.
If it's going to be like the 70s stagflation then that means that we're going to have a Volcker type war against it and a massive hike in interest rates to kill the inflation which hurts like hell too.
Yeah, you would think at some point that's probably how the thing would end is interest rates going up higher than we've ever seen since the Volcker period for sure.
And that's actually that they went up to over 20% and interestingly if you look when countries have these debt type crises typically like that 10-year bond I was speaking about it goes up to a 20% to 30% yield and then it ends.
So that's probably what will end up happening at some point in the next 10 years.
Yeah.
All right man, listen, it's been great talking with you again.
I wish I knew more about this so I could ask better questions but I still think I learned a lot.
Everybody go check out Mike's great articles at wallstreetwindow.com and now he's reposting stuff too at libertarianinstitute.org.
Is today going to be the day that Jerome Powell brings a dovish surprise?
That's one and then the follow-up is on the blog there about the market's reaction to FOMC decision muted but watch Silver.
Thanks Mike, appreciate it.
Yeah, good talking with you.
All right you guys and that's the show.
You know me, scotthorton.org youtube.com slash scotthorton show libertarianinstitute.org and buy my book and it's now available in audiobook as well Fool's Errand, Time to End the War in Afghanistan.
Hey, it's endorsed by Ron Paul and Daniel Ellsberg and Peter Van Buren and Matthew Ho and Daniel Davis and Anand Gopal and Patrick Coburn and Eric Margulies.
You'll like it.
Fool's Errand, Time to End the War in Afghanistan.
And follow me on Twitter at scotthortonshow.
Thanks guys.
