Welcome back to Antiwar Radio Chaos 92.7 FM in Austin, Texas.
Our first guest today is Mark Thornton.
He's a senior fellow at the Ludwig von Mises Institute and book review editor of the Quarterly Journal of Austrian Economics.
He's the author of The Economics of Prohibition, Terrorists, Blockades and Inflation, The Economics of the Civil War, and The Quotable Mises.
Welcome to the show, Mark.
Hey, thanks, Scott.
It's great to be with you here today.
Well, and it's great to talk to you again.
I think it's been since the Revenge of the Sith came out that we spoke.
Yes, and the music was Star Wars music and that sort of thing, so we've got a different background music here today.
Yeah, I thought I'd go with some public enemy to bring you on here, and of course, I never was sure whether they were referring to themselves or to the state as actually the number one enemy of the public.
The lyrics could kind of indicate both ways, but yeah, in any case, so it's funny.
I was just thinking this morning that the first time I ever heard of the Ludwig von Mises Institute was when I finished reading The Creature from Jekyll Island by G. Edward Griffin, a second look at the Federal Reserve, and I turned to the back and there was your name endorsing the book, and it said scholar at the Ludwig von Mises Institute, and that was the first time I ever heard of Austrian economics, that kind of thing, and if I remember correctly, there's a chapter in that book which I thought should have been the name of the book.
I think it was chapter three or four, and it was called The Name of the Game is Bailout.
Oh, yes.
That the entire purpose of the central bank is to create funny money for the richest private criminals in America and for the government itself so that they can, I guess, do whatever they want with us and the rest of the people in the world.
Is that about it?
That's about it.
In fact, that's an excellent suggestion that he retitled that book and put it out again under that title because never has it been more appropriate than this day, this year of 2008.
The bailout is in full swing, you know, in the Federal Reserve and to a certain extent the U.S. Treasury coming to the aid and assistance of the financial crisis in the United States, But it's not the type of bailout that helps Scott Horton or Mark Thornton or your listeners or homeowners who are in distress or bank employees at your local bank.
It's a bailout of big New York City banks and financial institutions, the people that are holding all of this paper that the bailout is intended to help.
And if you look at these bailouts that we've seen along the way, the money has been going into the hands of those who are in control of the banking system and the Federal Reserve itself.
You know, Bear Stearns gets bailed out by being destroyed, given to J.P. Morgan, you know, the original stockholder in the Federal Reserve, who's, you know, one of the creators of the Federal Reserve System.
And the Fed gives J.P. Morgan $30 billion in order to buy up Bear Stearns at very low interest rates, guaranteed over 10 years.
Now who else could get a $30 billion loan at low interest rates, guaranteed by the Federal Reserve over a 10-year period?
It's just beyond me, you know, the idea that they're somehow helping Americans.
They're helping these big bankers.
And it's all clear if you look at these bailout packages in the fine print, who's being advantaged and who's just being left by the wayside.
Well, you know, they would argue, and I guess they would be dishonest, I don't know, explain, but I know they would say that, hey, listen, this is helping everybody.
If we let these big banks collapse, it'll bring down our whole financial system and it'll be horrible that we're sticking our fingers in the dike and keeping the thing from falling down.
No, I mean, if we let the whole thing melt down as economic rationality dictates, then the main losers would be these huge financial institutions.
And what would happen in the economy is that the prices of housing would, of course, come down, making housing more affordable.
Those who don't lose their homes, of course, don't lose anything.
They still have their homes.
But ultimately, these resources would get channeled back into the market and be a great benefit to the average American citizen in these big financial firms who are making million-dollar bonuses, in some case, billion-dollar cash bonuses at the end of the year.
Those are the guys who would get wiped out in this thing, whereas very little would change at the local level.
And as a matter of fact, I think if we had let this thing melt down starting late last year, I think we would have probably gone through all of the pain and all of the readjustment.
But by this time, it would be start working our way back up to financial stability and economic growth.
So the idea that they're protecting the little guy is completely bogus.
So the idea is sort of the recession as fever, to get rid of all the malinvestment and then start back healthy again.
Yes.
And that's why they always call these things corrections in the old days and panics, because they were short-lived financial adjustments where, you know, the people at the top of the economic totem pole would be knocked off.
And then all the resources in the economy would be repriced and readjusted.
And we would get back to a sustainable level from which economic growth could reemerge.
And so the correction is absolutely necessary.
And government programs can fight it.
They can attack it.
They can address it.
But ultimately, they only do two things.
They delay the inevitable correction, and they make it worse.
In total, they make us feel good along the way because our stock values are only coming down by 1% a day, and home prices are coming down 1% a month.
But ultimately, the overall amount of pain foisted upon us is much greater duration.
And the best example of that is Japan.
When Japan's bubble broke in the late 1980s, they attacked it vigorously with monetary policy, driving interest rates down to zero, flooding the market with money, public works projects, and government spending on an enormous scale, the government going into debt by an incredible amount.
And what happened was their economy stagnated for more than 10 years.
If they'd just let the consequences come, things would have worked out.
They'd have been growing again a lot sooner.
The guys at the top, though, they would lose their jobs.
The people who own and run these big banks and financial institutions, they would all be out.
The stockholders, all those people would be out.
They would be replaced.
All those bank buildings would eventually resume operations, and it would be a different set of characters there at the top.
But the real economy that you and I live in would experience a cleansing and a correction, and we would be better off, and the pain would be over with much quicker.
It's like as if you've got 10 cavities, and instead of the dentist taking care of you within one hour, he says, well, we'll do one a day for the next 10 weeks or the next 10 days.
So let's get the problem over with that the Federal Reserve has caused in the first place, and let's get back to prosperity, and let's punish those people at the top that were making all the money and were responsible for all this.
In addition to the Federal Reserve, in all the big banks in New York, they're sitting on the board of the New York Federal Reserve.
So I mean, they've got their fingers inside the puppet, and they're manipulating things for themselves.
And at the U.S. Treasury, of course, you've got the former CEO of Goldman Sachs.
Paulson, Hank Paulson, is the former CEO of Goldman Sachs.
So his bailouts and Bernanke's bailouts are directed towards keeping their friends and their companies in business and at the top.
Well, now, they teach in school that the purpose of the Fed is to smooth out the booms and busts, that it's natural in capitalism that you'll have this expansive cycle followed by a big bust, and that the purpose of the Fed is to, I don't know, put some guy in control of the steering wheel of the car so it doesn't go off in the ditch or whatever is how they call it, right?
To smooth this problem out.
Now, Griffin says in Jekyll Island that, well, boy, they sure do a horrible job of that.
Is it possible, perhaps, I guess I think he asked the question, is it possible that the purpose of the Fed is to create bigger booms and bigger busts, because that's the kind of thing that's in the interest of Goldman Sachs, that basically they're just lying and saying that their job is to smooth these things out?
Well, their job is not to create booms and busts per se.
The Fed is the generator of these booms and busts, but what they're in the business for is to provide a monopoly cartel for banks so that banks have more money to lend and make more money on loans, and also so that they can lend money, deposit money in the bank to make even more loans, so that the Fed permits all banks to operate on a fractional reserve basis so that banks don't have to hold demand deposits to redeem depositors' checks.
They can always rely on just holding a small amount to make change, and if they need any more money to meet depositors' demands, they can go to the Fed.
And so the Fed acts as this lender of last resort, but it's basically, it permits all banks to simultaneously lend out depositors' money that depositors think they have direct and ready access to, so that banks don't have to entice their depositors with higher interest rates to lock in their money in terms of bonds and CDs where they don't have access to it.
With fractional reserve banking, they can tell their depositors, hey, just bring your money in here, you can have access to it any time, we'll give you free checking, we'll give you a free debit card, we'll even pay you interest.
And so the Fed is this cartel device that allows banks to make many, many more loans than they otherwise would be able to under rational and legal systems where banks had to maintain their demand deposits in the banks themselves.
So this whole process means that banks have the ability to expand a large amount in terms of the loans they make, and therefore they can make more money.
The problem, of course, is that if the Federal Reserve doesn't, and ultimately it can't really know what interest rates to set, so that they create these booms and they create bubbles in areas of the economy, and those booms and bubbles that they create inevitably have to come undone.
And so you inevitably get the bust in the system.
There's no way that they can prevent that from happening, and that's why market economies have business cycles, is that the Fed can't really know the market monetary policy.
It has to make some sort of bureaucratic monetary policy, and therefore it inevitably makes mistakes, and this leads to a stream of errors on the part of investors and entrepreneurs and developers, because they're relying on the market interest rate to tell them what to do.
But the Fed, of course, is in there manipulating those interest rates, and therefore distorting the economy.
Well, you know, I read this article by E.J.
Dionne in Truthdig the other day, and he said that our current problems just prove the fallacy of free market, laissez-faire capitalism, and that even conservatives like Ben Bernanke realize that he needs to expand his power to regulate all kinds of things.
So the problem here is really deregulation, right?
Absolutely not.
I mean, the Federal Reserve is not a market institution at all.
Central banks are not market institutions.
They are government institutions, and they're the most dangerous of all institutions in that they combine the power of the state with incentives of the private sector.
And you know, that public-private partnership is actually the most dangerous thing for the free society because of that combination of incentives and government power.
And so the notion that the Fed and the financial markets are run by laissez-faire capitalism is a complete lie.
It's a complete outrage.
And the idea that we need more regulation is absolutely preposterous.
The number and levels of regulation on the financial institutions and markets in the United States and in many other countries is enormous.
I mean, every single financial institution has to comply with multiple agencies, with innumerable numbers of regulations, and an army of bureaucrats and regulators out there already.
And yet time and time again, these same regulations and these same regulators fail to protect markets.
And that record is enormous, and there's a long history of that.
And if you recount through time, you will find whether it's Enron with 11 different levels of regulators looking at its books on a regular basis, and yet one financial analyst said, hey, look it, I'm looking at the public books of this company, and I find that it's completely insolvent.
So the market took one look, found a problem, and quickly liquidated the company.
11 different layers of regulators were constantly looking at this company and found no problem, exposed, no error.
And so you can't rely on regulators, no matter how many different levels we put on.
They ultimately are incapable of doing it.
And whether it's the nature of regulation, whether it's the stupidity of the regulators or whatever the reason, we find that consistently regulation does not work, and actually more regulation and more different levels of regulators actually make things worse, like with the TSA.
But in 2005, Ben Bernanke, who was the vice chairman of the Fed at the time, and the person looking over the regulatory functions of the Fed, I quote him in one of my papers as saying that he has conducted a thorough investigation, spoken with all of the regulators, specifically about lending practices in the mortgage market, as well as other aspects of financial markets, and they were able to find no problems in terms of regulation and compliance and oversight.
And he said, as a matter of fact, that regulators report to him that things are now better than they have ever been in the entire past history of American financial regulation, that compliance and that oversight were more effective, more efficient, more thorough than they had ever been, and they, you know, they were saying things like technology and information systems and all that kind of stuff.
And this was precisely at the point where all of the new forms of mortgage lending had already been introduced and were already in effect, the no interest loans, the 100% loans, you know, interest only loans, subprime loans, all of that had already entered the marketplace and had become a significant factor in the marketplace.
And yet Ben Bernanke could report to regulators and Congress and the American public that not only was nothing wrong, but that things in regulation were better than ever.
So the idea that somehow more regulation could have prevented or solved this problem is absolutely ludicrous.
Yeah, it was really funny to see the argument.
Yet even a conservative like Ben Bernanke recognizes now that he must expand the Federal Reserve's regulatory powers over these and those other industries now.
Well, no, I mean, the idea that he's a conservative is preposterous.
He's not even hawkish on monetary policy.
As a matter of fact, he could be described as a dove.
Paul Krugman, who was on the faculty with him at Princeton University, was shocked to find out that he was actually a member of the Republican Party when he was nominated to the Fed.
So he has no conservative or free market inklings.
He's a monetarist, but that doesn't tell you anything.
And he's a monetarist with a very dangerous philosophical outlook because he believes first in terms of inflation targeting, which means inflation must be at or lower than a certain level, say 2%, but he also believes in the idea that if big financial firms were to fail, it would create a psychological effect on marketplaces and lead to real changes in the economy.
So he believes in this too-big-to-fail doctrine.
He believes that if a big institution were to fail, it would cause psychological impacts and, therefore, that these firms should be backed up no matter what the cost.
So he's committed to two policies, both of which are internally contradictory, but the overriding one of preventing market meltdowns and corrections and doing anything in his power to prevent it has led him to the position where instead of allowing this market correction to take place, he has used extraordinary powers of the Federal Reserve that have either seldom or never been used before.
And even this past week, he and Paulson have introduced the ideas of even going further than that of investing in Fannie Mae and Freddie Mac.
And so what Bernanke has done in a very short period of time, and again, it's because of his dangerous philosophical views on monetary policy, is that he has taken the Fed balance sheet and given that out to his friends in big banking in return for absorbing a lot of these bad subprime mortgage loan products.
And so he's taking us down a very dangerous road.
And if things don't turn rosy pretty soon, and he has to continue along this path, he's really mortgaging the future of the United States and engendering the possibility of hyperinflation in the United States and, of course, across the world.
Well, now, see, that was going to be, well, one of my next questions anyway here on the list.
I heard a thing on one of those NPR economic shows, Marketplace or something like that, and they did this whole half-hour thing about the housing crisis.
And one of the things that they talked about there, and their language was very careful, they said, you know, these things are very hard to measure, and there's different ways of going about trying to measure this.
But basically, if you average them out and all things being equal, you could argue that at the beginning of the century, there was roughly $35 trillion of liquid money, not wealth, but money floating around out there in the world, and that now it's $70 trillion, that they've doubled the supply of currency on Earth in eight years.
Is that right?
That's very plausible, you know, because in eight years' time, you're talking about increasing the money supply by less than 10%.
So just a 10% increase in the money supply, especially in the major economies, means that you could very easily get a doubling of the money supply during that short period of time.
And of course, the U.S. figures would certainly lead you to suspect that that's true.
It makes me wonder why I don't already have to have a wheelbarrow full of cash to buy a loaf of bread.
It seems like that's exactly the kind of thing that causes hyperinflation, like in between the wars, Germany, there.
Well, see, Scott, that's the advantage of modern technologies.
We won't have to carry wheelbarrows because we can just have, you know, zillions of dollars on our debit card.
There you go.
Like they do in Zimbabwe, where, you know, they have 2.2 million percent inflation in that economy.
Yeah, we'll just lop some zeros off, like the Mexicans do every once in a while.
Exactly.
I mean, the Fed can have the banking system just remove zeros from our banking accounts, and everybody will be, you know, working along just fine.
We'll start calling $100 bills ones.
$1 bill, when the Federal Reserve was founded, would be equivalent to a $100 bill today.
Whoa, is it really that much difference?
Oh, certainly, yeah.
Oh, certainly, yeah.
We've had about 90, you know, in the high 90s, change in the value of the dollar.
Some people say 95.
Some people say 99.
And, of course, if we had gold, if we continued to have a gold monetary system or a gold and silver monetary system, our money would actually appreciate over time, and we would receive the gains of productivity.
You know, the CPI and all that kind of stuff is reduced by a factor.
Even if it's calculated so-called correctly, it doesn't take into account technology.
And under a gold or silver monetary system, improvements in technology, which leads to lower prices, would mean that our salaries would buy ever more goods and services.
Like, you know, if you can imagine television sets and computers, how they both get better and cheaper over time, that's the kind of environment we would be living in across the board, in that almost all goods and services would continue to decrease in price over time.
Well, now, but that's what caused the Great Depression.
I learned it in school.
All the prices were too low, and government had to come in and make them higher.
Well, there's two different types of deflation.
One is the productivity type of deflation that I was just talking about, where, you know, companies become more efficient, they produce more, they sell at a lower price, and things get gradually better over time, a couple percent a year, and our money and our salaries and our savings buy more over time each year.
And then there's the other type of deflation, where there's a boom in the economy, there's a break in the economy with the stock market crashing and financial firms seizing up, and then a steep fall in the price of commodities across the board.
And that's a severe deflation, which is necessary, but it's engendered not by productivity, but by this financial bubble and bust that occurs in the economy.
And so, you know, we've even seen in modern times how, as we get into these bubbles, things like oil prices rise, you know, as the world economy heats up, oil prices rise because the supply is relatively inelastic, and then when the crash hits and the world economy starts to go into recession, that price of oil comes down rather noticeably.
Yeah, due to the drop in demand.
Right.
This is sort of something that we get with all economics, is the conflation of terms, where deflation here doesn't necessarily correspond to deflation there.
And it seems like when it's coming out of the mouths of these political master types, that it's always deliberate.
I can never get out of my head the image of Alan Greenspan up there testifying before the Congress that if wages continue to rise any more, it could cause inflation.
And I remember knowing at the time that he knew that he was a damn liar and that he knew that his job is causing inflation, and he knew that the people who work for hourly wages are the last people in our entire society to finally get a cost of living increase to make up for the inflation he caused, and then he wants to blame them for the rising prices.
Oh, yeah.
Well, you know, you're absolutely right.
I mean, the working man and woman, their wages are the last thing to catch up to what the Fed does at the beginning in financial markets.
And so those people in financial markets, they're making big bonuses and big stock gains and so on and so forth.
That money only slowly trickles through society, raising prices, and it only slowly gets down to the working man and woman in society.
So their wages are going up at the very end of all that.
And so they never get ahead as a result of inflation.
They only catch up slowly over time.
But, you know, the Fed is in the business of misdirection.
They're in the confidence game.
They're in the con game.
And so they're constantly misleading the American public and those in the American economy, whether it's manipulating interest rates or their public testimony.
And I wrote a short article for LewRockwell.com called Green Spam, in which I recommended that readers, due to Green Spam's testimony and his words before Congress with what they do with spam email in their email box, and that is to delete it, not look at it.
Because it's all misdirection.
It's misleading.
And it's designed to cover up the truth rather than to reveal any information.
And so they get into this game where the Fed is not the cause of any problems.
It's always people in the economy or maybe Congress is spending too much.
But the Fed never does anything wrong.
The Fed is only there to make things right, to come to the rescue, to bail out, you know, the banks, and to reduce interest rates and to spur the economy.
They're always talking about themselves in terms of the doctor who fixes things rather than the devil who actually messes things up and causes all sorts of problems in the economy.
And, you know, most working men and women out there, we don't really know that a lot of our problems are actually coming from the Federal Reserve itself.
But, you know, the housing bubble was caused by the Fed, rising inflation, oil prices, all rising costs in the economy, all of those problems, more unemployment, all of those things are started at the Federal Reserve.
But because there's this long chain of influences in the economy, there's no way to recognize that unless you have the Austrian economic theory of how all this takes place.
All right.
Now, when you talk about the misdirection and the manipulation of language and that kind of thing, I'm reminded of something I've heard a couple of times in the last couple of weeks.
Once from Ron Paul during the congressional questioning of these two, Paulson and Bernanke, and also Jim Rogers, the billionaire libertarian co-founder of the Quantum Fund.
He gets interviewed on these new shows a lot of times, and the YouTubes are often available at Lew Rockwell's blog there.
And I've seen both of those gentlemen who I trust their judgment on these things.
I know that they understand Austrian economics, and both of them have proven over time, and there are different ways how well they understand how these things work.
And both of them have said that what Paulson and Bernanke are doing while they're telling the cameras here in America that they want a strong dollar and they support a strong dollar, that they keep going to Asia in order to ask the central bankers over there to continue to weaken the dollar, that what they're really doing is deliberately debasing the currency and hurting it in the overseas exchanges and what have you.
But they never explain exactly how that is or what that means.
So I was wondering if you could help me out.
It's more deception.
You know, the Secretary of the Treasurer has never come out and said, well, what we need really is a weak dollar here.
And they really don't have much influence on the dollar except for this jaw-boning exercise that they go through at various points.
But they're telling the American markets and the American people that, yeah, we want this strong dollar, but their actions are actually directly the opposite of what they're telling the United States.
I mean, the Paulson delegation to China was specifically, I mean, their number one and practically their only goal was to get the Chinese to adopt their monetary policy so that the U.S. dollar would fall relative to the Chinese currency.
And, of course, we have control over Japan, and they really very often do what we tell them to do.
Given that our military is there and they don't have one, they usually comply.
So the dollar has gotten weaker.
It's gotten a lot weaker, and that shouldn't be too surprising.
But, you know, the index value of the dollar was like at 120 at the beginning of this decade.
And we haven't been that many years, and now it's in the low 70s, I guess it is.
And it looks like it's continuing to fall.
Of course, mirroring that is the rise in the price of gold and silver.
And, you know, the U.S. has been increasing the money supply and increasing its national debt at a very fast pace, as you already pointed out.
And this sends a signal to people around the world that the U.S. dollar is falling in value.
And all those currencies that have been linked to the dollar are experiencing very high rapid rates of inflation.
So we're not just creating inflation here in the U.S., but we're actually creating inflation in other countries around the world.
And, you know, there are several countries that have double-digit inflation.
And so we're engendering a worldwide inflationary process with our monetary policy.
And, frankly, the Fed and the Treasury and the U.S. government have sent no signals that they have any intention of turning that around, of behaving responsibly on our financial basis here in the United States, of balancing the budget and reducing the national debt.
No talk of that whatsoever.
We've just been promoting a soft dollar policy.
This helps U.S. exporters, but, of course, it has a crushing effect on American consumers.
The men and women who work in the United States and have to pay bills, in the latest report today, import prices into the United States.
If you don't include the price of oil, just the importing of other goods and services that we do from around the world went up 12.1%.
And so the prices of imports are now showing up on our shores at much higher levels, and that's directly attributable to the fall of the U.S. dollar.
That's the only reason why all those prices are going up.
And so as we go out to the stores, we go to the grocery store, we go to restaurants, what we find is consistently higher prices.
Every restaurant that you go in today, if you look at their menu three months ago, you'll notice that the prices are basically higher.
The same is true in the grocery store and any other kind of store, basically.
There's very few things that are holding the line except those goods that are in deep trouble, like housing and automobiles, which indicate a recession in the United States.
So inflation and recession are here and, unfortunately, here and alive and well, and it's just starting.
Well, and this is, it seems like the beginnings of what they used to call the stagflation, right, where we have inflation but the unemployment rate keeps growing anyway when Keynesian theory says that the opposite is supposed to be true.
Absolutely.
You know, in the unemployment data, we've had low unemployment rates for many years, and the unemployment rate is spiking up, and that usually does happen at the beginning of a recession.
You go along, everything's fine and dandy, and then all of a sudden you get a spike upwards, and then it starts to drift higher and higher and higher over time.
And so we've got that unemployment problem growing, and, of course, if you survey people, employees and employers, they're all, they're not looking to hire, they're looking to cut back.
And on the inflation front, of course, it doesn't take an economist.
As a matter of fact, you'd be better off if you weren't an economist.
You'd be better able to find the inflation.
And the combination of those two things is stagflation, and it's the hangover effect from a long period of monetary excess, of easy money.
And my only worry is not stagflation of the 1970s.
That's my best case scenario right now.
I think that the amount of trouble that Washington, D.C. has injected into our economic system and the moves that the Fed has made and the Treasury has made and the voice of Washington, D.C. has told us is that they're not even concerned about any of these problems.
They're just going to be willing to make them much worse and to further mortgage the future of the United States.
We already had the $60 trillion problem to begin with of unfunded liabilities, and now they're undermining the monetary system.
They're letting the national debt explode.
So things like inflation and unemployment could rise to levels never seen in the United States, certainly not since the Great Depression.
Now, I've been led to believe that there's something of a nightmare scenario that's been thought of as sort of the ultimate tipping point where the dollar becomes no longer, basically in a day or a couple of days, it loses its status as the world's reserve currency, meaning that one or two central bankers on the same morning decide that they're cranky and they've got all these depreciating dollars in their vaults and securities and so forth, and they decide that's it.
They're just going to dump them on the market, and that it could be that in a situation like that, other central bankers in the world would see it and say, oh, no, today's the day, and everybody would race to dump all their American dollars and securities and so forth on the market in order to not be the last guy holding the bag, and that then what that means is that all that money comes back here, and we're completely doomed, hyper, super-duper hyperinflation.
Yeah, I mean, that's a possibility, and it's a very scary possibility.
Right now, all these central bankers realize that if they were all to do that, they would all hurt each other in the sense that if they started to sell, the value of their remaining holdings would decline, and they would be worse off.
So there's kind of this unholy truce amongst foreign U.S. government bondholders, and, of course, they're also holding a lot of this Fannie Mae and Freddie Mac paper as well, and it's in the Middle East, it's in Asia, it's in Europe, it's all over the place.
Chinese hold like a trillion dollars of government paper, and they've been losing money on these investments, and they don't like that, and so they've got this problem that if they sell, they hurt the value of their remaining shares, and also if they sold, their currencies would change in value versus the U.S. dollar, and they wouldn't be able to export into the United States.
So that's been holding them off so far, but, I mean, the Chinese with a trillion, and the Japanese probably was close to that.
What you would see is that the value of the U.S. dollar would fall dramatically, and you would see the value of gold rise like a rocket into the sky, and you would see interest rates in the United States skyrocket as well, because as that paper comes in and there's nobody to buy it up, then the value of all those government bonds falls, and the interest rate on those bonds rises, and so all other interest rates in our economy would have to rise proportionately.
So it would be a devastating impact on the U.S. and world economies, and it's just this game that these central bankers are playing with us.
It's a very dangerous game, and there are no rules.
There's only these cockeyed incentives of central bankers to hold off, but we've worked ourselves into a hole here, and we've been borrowing from foreigners on a massive scale.
As they say, billions of dollars every week just to finance the Iraq war, but the amount of overall total borrowing is hundreds of billions of dollars every year, and it's all still out there, and it represents the ultimate threat to our way of life.
Mark, I know you're on a tight schedule.
Is there any way I can keep you until a quarter after here?
Yes.
Great.
I still have more questions, and particularly about what you just mentioned, war.
How much of this is about the war in the Middle East?
How much of the cost and economic trouble that we're looking at now is directly due to imperialism?
Well, the war in Iraq represents an expenditure of various estimates, say $2 to $3 billion.
It's probably much more than that when you consider all of the related costs, and one estimate has it that the budgetary impact so far has been $1 trillion, and that estimate is old, so it's at least $1 trillion, and then, of course, that doesn't include Afghanistan.
It doesn't include all of our troops overseas.
It doesn't include all the other types of miscellaneous spending that are necessary to maintain the empire, and, of course, that's what it's there for, is all this spending is in order to maintain an empire, but at base, the whole business that generates this is a way of making money for people, and this goes back to the very beginning of the state.
As we moved away from the monarch to the massive modern state, and where the king had less authority, the only remaining authority he had was war, and so the modern state would go to war in order to force the legislature and the people into taxation and national debt.
This money would then be spent on contractors, and the contractors would skim off money, and this is true of all the great military conflicts of Europe, which is why America started out as such a different animal, because they didn't want to be involved in this continuous warfare, taxation, debt, and so on, but now the United States is in the business of creating all this conflict, and raising all this money, and stationing all these troops, because there's so much money to be made along the way, in terms of providing provisions for these troops, and arming these troops, and transporting these troops, and refueling these troops, and so it's a humongous business in terms of the industrial, military, congressional complex, and it's basically a scam.
It's a scam on those who believe that the American way of life and the American empire are such great things, and it's just a bunch of baloney.
It's just a great way for the king, or in our case, President Bush, to force the legislature into providing money, which is then doled out to all his friends in the military-industrial complex, and that's all it's ever been.
That's all it is right now, and that's all it ever will be, and until people realize that it has nothing to do with patriotism, or the American way of life, and all that crap, and realize that it's just a con game that allows an executive to force a legislature to provide money from the people to dole out to his friends, then it's going to continue on.
All right, now, one other thing I was hoping you could clear up for me, and I know this is a real complicated subject, so I guess try to give me the shorthand version.
I'm interested in all the talk about the trade deficit.
I hate to mischaracterize the guy, but I believe I'm getting your colleague, Bob Murphy, right.
I think he told me something about trade deficit, trade schmethesit.
It doesn't mean anything.
What if you're buying goods and services from the town next door or the state next door?
You don't look at that as a trade deficit, so why should it matter?
If you buy something from China, they get your money, but you get the thing you bought.
So it's a good deal.
It's not a deficit at all.
Is that right?
Help me understand why everybody's so concerned about the trade deficit.
Well, at some level, the trade deficit is not a problem.
And Bob is right that at base, the trade deficit doesn't really matter.
It just means that if I have a trade deficit, that means I'm borrowing some money.
So I'm buying more goods than I'm selling goods, and I'm buying more goods because I'm borrowing some money.
And so that does happen.
It happens on an individual, local, regional, state, national, international way.
And so you have to look below the trade deficits and then look at what's causing them.
And what's causing our trade deficit over the last many years is the pension on the part of the federal government to borrow money.
And so it's the federal budget deficit and, of course, our national debt that has ballooned our trade deficit to such an extent.
And this means that the US government is borrowing a lot of money, but it's not borrowing it wholly or fully out of the US economy.
It's having to go overseas to places like China and places like Japan and elsewhere around the globe to get all this money.
So it's not the trade deficit per se that's the problem, but it's the reason that the trade deficit is there that it's the problem.
And, of course, the particular thing with China and the reason we have such a single, a large trade deficit relationship with China is because it has been willing to buy up all this government debt of the United States in order to keep their currency linked to the US currency to keep it low so that their ability to sell goods into the United States is enhanced.
And so we're using mercantilism.
They're using mercantilism.
Everybody's using mercantilism.
But that's the reason why we have such a large trade deficit, and the Chinese monetary policy is why we have such a particularly high trade deficit with China.
But Murphy's right.
At the basic level, there's no problem, but there really is a problem with the trade deficit.
And as the value of the dollar falls, we probably will expect that that trade deficit will probably lessen to a certain extent.
The bottom line is the difference between a company borrowing some money, an American company borrowing some money from a Chinese bank to buy some Chinese goods or something like that, is basically an entirely different animal than the US government and all their securities and bonds and national debt and that kind of thing.
Yeah, because if a company's borrowing machinery, it's buying machinery in order to produce goods, which it could then sell to pay back the loans.
But the US government is borrowing the money and then wasting it.
Yeah, killing people with it.
Very often killing people with it.
And so there's no way you can't make money off of killing people.
That doesn't produce goods and services, which you can then use to repay the debt.
And we're taking that money, we're sending our goods and services and our young men overseas to be destroyed and killed.
And so not only do we not create any productive resources, we're actually destroying future productivity by bringing steel over to Iraq and blowing it up in the form of a tank or killing a young man or woman over there.
And so it's a completely destructive process.
Well, and that really leads me to my last question, which is really more of a request.
Everyone to the left of whatever the supposed center is, believes that laissez-faire capitalism, and I guess most conservatives believe this to some degree or another, laissez-faire capitalism doesn't work.
It runs out of control and it destroys everything.
And we have to have this quasi-free market in order to keep everything cool.
And particularly, I think, from a liberal point of view, or even from a left point of view, libertarianism, the argument that the Mises Institute makes for complete laissez-faire is the rich white man's anarchy.
And I'd like for you to give me, I don't know, a minute and a half, as best you can, worth of, no, in fact, it's our $3 trillion empire, that's the rich white man's anarchy, and what we need is to sit market forces on these people.
Yeah, I mean, that's what I was trying to explain earlier.
When you get this public-private partnership, this mixed economy where you have government power and private incentives, that's when you have all this destruction.
That's when you have all this accumulation of unbelievable wealth in the hands of a few people.
When Wall Street hedge fund dealers are getting $2.3 billion bonuses, that's what you get with a mixed economy.
What the Austrians and the Mises Institute advocate is laissez-faire capitalism where there is no government power involved.
And this really is something that should appeal to the left because it takes away power from big corporations, and it levels the playing field between the small guy and the big guy because the small guy can't compete with big corporations when it comes to farm policy, when it comes to the tax code.
There's just no way to do it, and so every time government steps into something, it steps on the toes and fingers of the little business, the little farmer, the local proprietor, the local producer, and it helps.
These government interventions help the megacorporations, the big pharmaceuticals, the big oil companies.
They're all advantaged by these government interventions because they've got lawyers and accountants.
They've got lobbyists, and guess what?
The guy who owns the little local store, he doesn't have an accountant, a lawyer, and a lobbyist.
He's got none of that, and he can't read these federal regulations even if he's a college graduate and very intelligent.
So laissez-faire capitalism without government power levels the playing field.
I think it's the type of societies that liberals and people on the left, what they're looking for is what Austrians and Mises Institute type people are also looking for where you have a fair society because there is no government advantage built in that people can take advantage of.
And that's the real lesson is that the weakest among us aren't the ones who get to take advantage, which is the liberal belief or hope for the future.
It's always the most powerful who are the ones in charge anyway.
I thought you stated that case very well, and I'm sorry because we're all out of time.
We've got to get Ray McGovern on the show.
I really appreciate you coming on and sharing your insight with us.
Everybody, it's Mark Thornton, senior fellow at the Ludwig von Mises Institute.
That's M-I-S-E-S dot org.
He's the book review editor of the Quarterly Journal of Austrian Economics, the author of The Economics of Prohibition.
Ah, sometime I'd like to ask you about that.
Tariffs, blockades, and inflation, The Economics of the Civil War sounds like another great interview, and the quotable Ludwig von Mises.
Thank you very much for your time today, Mark.
Scott, it's been great to be with you here today.
I look forward to returning.
