Alright y'all, welcome back to Anti-War Radio, I'm Scott Horton, it's Chaos Radio 92.7 FM in Austin, Texas.
We're streaming live from ChaosRadioAustin.org, AntiWar.com slash radio, and for the first hour of the show all this week from the Campaign for Liberty.
Welcome all you Ron Paulians to the audience today.
Alright so, that first hour all week will be on the financial crisis, and of course I always turn to the Austrian School Economists because, well I don't know about all their mathematics and everything, but I know they believe in liberty, and I know that they don't just oppose socialism for poor people, they oppose socialism for rich people too, it seems to be out of principle or, I don't know, intelligence or something, I don't know, but we can find out.
Both of these guys are from the Ludwig von Mises Institute, Mark Thornton and Robert Murphy runs the website FreeAdviceConsultingByRPM.com.
Welcome back to the show both of you.
Thanks for having us Scott.
Great to be with you Scott.
Alright guys, so I need some low down here, the audience needs some low down.
First of all, I have this short list from my friend Bob Bogus, put together just some of the crazy things that have happened in the last week or so.
Some of the most wild swings ever seen in gold and silver.
Lehman Brothers declares bankruptcy.
Government takeover of AIG, the largest insurance company.
Merrill Lynch taken over by Bank of America.
Russian stock markets halt trading for several days.
Primary fund money market went below a dollar.
Treasury rate went negative.
Fed accepts stocks as collateral.
Central banks inject $225 billion.
Treasury guarantees money market funds.
Government on shorting financial stocks.
Fed borrows $200 billion from Treasury and on and on.
Now it looks like in the news today they're saying that General Electric is going to be reclassified as a financial institution so that they can get bailed out.
I saw, well Dr. Ron Paul on TV, I'm really glad that they're interviewing him.
I guess it's because all the attention he got running for president, they're actually asking him about this.
And he's explaining that all this government intervention, he says, is only going to make matters worse.
On the other hand, gentlemen, George Bush, who doesn't usually get things right, but he says, listen, what we're doing is drastic, but inaction would be far, far worse.
So I guess if I could just get y'all to go wild, I'll shut up and let y'all talk about this.
What exactly, if there's important details of these things that people need to understand, and then sort of the larger view of what is with all this government intervention and what sort of negatives and positives are we looking at?
All these measures, not only are they huge transfers from individual investors who bet wrongly onto the backs of the taxpayers, but even the measures themselves are just going to make the situation worse.
That this isn't going to fix any of the incentives that led people to overinvest in housing.
This is actually now going to reward those big institutional investors who bet on the housing boom.
Because now they made all that money when the boom was going up, and now they're shifting the losses to the taxpayers.
And then even something like the ban on short selling, well that's actually going to exacerbate the problem, because if there are firms that issue what's called credit default swaps, that's basically insurance on the bonds of another firm, and the way those insuring firms hedge themselves is they short the stock in question, so that way if the share price plummets and then that firm defaults on its bonds, the person writing the insurance contract on that now is covered because they at least sold the stock short.
But now they don't have that hedging strategy because the government just banned it last week.
And so that ironically is going to make it harder now for people to get insurance on these bonds, and so they're less likely to lend money to the very firms who are in trouble.
All of these bailouts are basically immoral, they're unethical, they're going to be ineffective at addressing the problem, and they're actually going to be counterproductive as Bob says.
And so they're absolutely the wrong thing to do by any criteria, and we should expect that.
I mean these reforms, these adjustments, these bailouts are being conducted by the same people who caused the problem, and the same people who told us just weeks and months ago that everything was fine, you know, we're regulating all this, we're overseeing all this, the economy is strong.
So why should we trust the people who caused the problem in the first place, the Fed and Wall Street, you know, why should they be the ones?
They not only caused it, they had no idea that these problems were coming down the road.
They went to Bernanke and Paulson, went to Congress, and said basically you've got 48 hours before a complete financial meltdown.
Okay, 48 hours is not really a good time frame, I mean you should be giving economic advice that is long lasting and has some foresight to it, and it's really the Austrian economists that have been writing on Mises.org that have been explaining this problem, how it came about starting in 2003, and we've been chronicling it on Mises.org, exactly what the Fed has been causing, exactly what the cause was, and what the consequences were.
And so, you know, if you want to look for the right solution, you should at least start by going to the people who understood the problem from the very beginning, and basically were on the mark all the way through the housing bubble and the financial crisis that followed.
Well, I know that that's true because I remember seeing the stuff over the years, and of course I'm much more of a politics guy than an economist, but I've seen Ron Paul speeches going back for years and years on YouTube and in print at LewRockwell.com, and I've seen at Mises.org where you guys have written about this.
Now, I'm sorry, because I want to put off exactly how they caused it for a moment and stick with the right now, this terrible crisis, 48 hours, etc., etc.
Bob, Robert Murphy, when I talked to you on the show just last week, you explained to me how, okay Scott, say for example, you run a company and you're doing well.
It's a good company, you provide goods and services to people, it's a profitable venture for all kinds of reasons, but it could be that just because you have a bad week for various reasons, you really just need to get a pretty good loan right now, and you ought to be perfectly economically viable to pay the thing off later on, and that there could be a real problem with no one being willing to loan any money, even to good companies.
You could have good companies that haven't been doing all this short-sighted investing in all these bogus housing markets and so forth, still suffer.
So then I know what the Republican says from that.
He says, aha, Bob, so you admit it.
What we need to do is inject a bunch of new liquidity into the market.
Why isn't that right?
Well, for one thing, as Mark alluded to, every time Paulson or Bernanke does something yet even more unprecedented, or at least it hasn't been done since the Depression, it always is because, oh, well, we have to just avert this potential problem, and then the problem just comes back a week later, and now we've seen that even I just checked before calling in here, and right now the S&P is down over 2% and gold and silver up over 5% each, and this is after the plan that allegedly was going to save the world, and so these government measures are just pushing back the problem, and if you step back and try to get a big picture of what's going on, I mean, the reason these firms are afraid to lend to each other is there's basically a trillion plus in bad debt out there, but nobody's sure exactly who's holding it, and so banks don't want to lend to each other even overnight because they're afraid that that firm they're lending to is going to be one that actually held a lot of these mortgage-backed securities, and that's going to become public the next day, and so you have to ask yourself, okay, so put aside for the moment why were all these bad loans made in the first place, but now why is it that the banks can't even trust each other, and they don't know where it is, and I think a main reason is for the last 13 months, the government has been steadily increasing the measures to try to bail out the companies that are holding it, and those companies guessed correctly.
They said, you know, if we can just dribble out the bad news, eventually the government's going to come in and buy the stuff off of our books, and so let's just be as discreet as possible and not as forthcoming as possible in order just to postpone the inevitable, and then hopefully the government will take it off our hands, and that's what's happened, and so the reason the banks haven't been lending to each other is because the government set up a structure where it paid for you to be quiet about the bad debt you were holding.
Scott, these are just scare tactics on the part of Bernanke and Paulson and George Bush.
There are scare tactics to try to bail out their friends on Wall Street and to paper over the political problems and the political legacy of George Bush and their administration, so they're trying to scare the American people into thinking that these bailouts are actually going to have some benefit for that small business owner, that homeowner on Main Street, when nothing of the kind is in the works to help out the small person.
This is only geared to help the large Wall Street firms, the hedge funds, the investment banks, the people who own stock in those corporations.
It has nothing forthcoming.
I mean, they say, well, you know, we're going to take 80 percent share in AIG, and if the taxpayer puts up the money today, we might end up making a profit in the future.
Well, you know, and you could also play three-card Monty, and the chances of you winning are probably going to be better with three-card Monty than somehow the federal government turning a profit on buying and selling insurance stocks.
Right.
Okay, now, so tell me this, Mark Thornton, then.
If you were the Secretary of Treasury and Ron Paul was the Speaker of the House of Representatives and on like that, and the Austrian school economists were going to have their way and say, what we're going to do is nothing, what would happen?
Well, you'd see a lot of firms enter bankruptcy, and of course, in a bankruptcy, you still have the fiscal plant, you still have the labor there, and you have to sell off your assets in order to try to meet your liabilities.
Companies go out of business or they're purchased by other companies.
Of course, the price of that stock goes down probably to zero.
Bond holders take over.
There's already inset procedures, legal procedures, by which these bad assets can be taken care of.
And with Fannie and Freddie, the federal government can simply take, instead of conservatorship, where the federal government puts the taxpayer at risk, you just put into bankruptcy protection, you sell off the assets, you try to use that money to pay off the liabilities, and you bring Fannie and Freddie to an end.
I mean, they should have never been started in the first place.
The reason they became too important to fail or too big to fail is because we put government protection behind them, and what we should do right now is to bring an end to both of those institutions and sell off all their assets, try to divvy up those assets to meet their liabilities, and bring it to an end.
And that's the proper way, and that's what the market's been doing, and all of these bailouts have been stopping and preempting that process, and as Bob correctly points out, it creates a game whereby these companies try to encourage, you know, federal bailouts.
And so far, you know, the actual Secretary of the Treasurer is the former CEO of Goldman Sachs, and so he's in there looking out with his special team of Goldman Sachs employees, looking at the books of all these companies.
He's looking out for the best interest of Goldman Sachs and the related firms in that industry, whereas some other companies, like Lehman Brothers, just gets thrown under the carpet, basically, and is put out of business.
So yeah, Austrians would advocate letting the market solve this problem.
Okay, now, so what would that do to Main Street, though?
Because, you know, every goofball's got his 401K and his mutual fund and all that kind of thing, so you would have plenty of regular people who, I guess, made the bad decision of doing business with these people would have to go ahead and suffer, and that's the scare that is being used by the government, is telling everybody, you're going to lose your savings and your retirement if I don't bail out this guy with your money.
We're all going to lose.
I mean, there's already so many bad assets out there that, yeah, everybody's going to find out that part of their bond fund or part of their stock fund is being hit as a result of the housing bubble, but that's already taking place.
I mean, people have already lost 15% on the Dow Jones Industrial Average, so, you know, that's a given.
What is being added on to that average small person out there is trillions of dollars of money, taxpayer money, that's being used in this bailout.
So, you know, they're just making things worse than they already would be.
Okay, now, there's something else that's going on here.
Maybe I can get you to address this, Robert Murphy.
Deregulation, that's what the liberals call it.
You talked about how nobody knows, the banks don't even know who's holding all this bad debt and so forth.
Weren't these recent rule changes that said that the different banks can take all the mortgages that they sign with people and then they can bundle them into these weird packages and then they can sell those to these people who bundle all those together into these weird derivatives and who knows what until nobody even knows where this debt is at all anymore.
It's because of the wildcat free market gone out of control, right?
Well, yeah, that's certainly the charges being leveled.
But see, there's two basic ways, two approaches to preventing crises like this.
So one thing is to let people in the marketplace do whatever they want, but then if they lose money, if they screw up, then they go belly up and so they lose, you know, if they make a bad bet, then they lose that money and that's it, end of story.
Or you could say, no, we'll bail you out and, you know, if you really make a bad mistake, then we'll have the taxpayers, you know, cover your losses.
But then if we're going to give you that sort of protection, then obviously you can't just do whatever you want.
We have to regulate you and hold your hand and make sure you don't take on too big risks.
And so, you know, the idea that a bunch of politicians are going to oversee all of Wall Street and that the idea that we're trusting politicians to be financially responsible to make sure there's no shady bookkeeping going on, I mean, that's just so absurd to me.
I can't believe that people keep saying that, but that's what they're recommending.
And so, yeah, what won't work, what will lead to these crises is if the taxpayer pledges to bail these people out and then nobody overlooks them or the regulation is very light.
And that's what we've been doing.
So it's not at all a failure of the free market.
It's basically just economics at work saying if we're going to, you know, heads, you win tails, the taxpayer loses.
Of course, firms are going to make all kinds of wild investments.
You know, Scott, there are so many different regulatory bodies over the financial industry, over the stock market, over the mortgage industry, that it's not funny.
I mean, there's several overlapping layers of federal and state regulation already.
I can't think of anything that's done in finance that isn't regulated by at least one federal and state bureaucracy.
In 2005, Ben Bernanke, who was then vice chairman of the Federal Reserve, was head of a task force to look into the regulation of mortgage lending.
And he came to the conclusion on the basis of the study of that task force that not only was everything hunky-dory in the regulation of the mortgage industry, but it was better than ever.
And this is exactly at the same time that subprime loans were in their heyday and all of these other crazy loan products were, had already been introduced and were being used extensively in the marketplace.
And Ben Bernanke said everything was fine.
This is the person we're putting in charge of money and banking in the United States.
If I could just interject something, Scott, the problem here is it's not that all these people are just lying through their teeth.
I mean, some of them quite clearly are, but these mainstream economists, they don't have a good theory of the business cycle.
They don't have the Austrian theory of a capital structure.
So for them, they don't even consider the possibility that maybe low interest rates in the years 2001 through 2005 could have fueled an unsustainable boom in the housing sector.
And then now, I mean, resources really have been allocated to that, and now the losses have to occur, that it's not just some financial trickery.
I mean, there have been real resources that have been misallocated.
And so if you're a mainstream economist and you don't think like that and you're just looking at quarterly lag indicators about GDP growth and things like that and consumer spending and consumer confidence about the future, I mean, the stuff that happened back in 2003 is ancient history.
So you're not even looking back there to see what's causing the present crisis.
So on the one hand, I mean, I don't blame these mainstream economists for not seeing this coming because they were theoretically ill-equipped.
Right.
Okay.
So a couple of things there.
The first thing is, you know, to sum up, basically you're saying, hey, don't call it deregulation when there's 500 billion regulations and they repeal, you know, 50 of them or so that loosen the ability of corporations to make it easier for them to commit more kinds of fraud, but then we all still get stuck bailing them out and everything else.
That isn't deregulation.
You want to laissez-faire as laissez-faire a quasi-market economy as a quasi-market economy.
But don't call those second the first.
That's right.
Exactly.
And then beyond that, just the very idea that we could trust people like Barney Frank to be honest and regulating the markets is just laughable.
Right.
Now, see, that's the second thing is the ignorance.
See, this is actually something that I'm really kind of confused about because I read this Thomas Jefferson quote back in high school or something.
In fact, I think Justin Raimondo linked to it in his most recent article where he says, if the people ever let the banks control the creation of currency, they and the corporations that grow up around them will first buy inflation and then by deflation confiscate everything until the people find themselves homeless on the land their fathers conquered.
And I thought, wow, well, if that was what Hamilton was up to back then when Thomas Jefferson was criticizing him using that language, could it really be that in the 200 years since all the economists have forgotten that the obvious truth of this of creating new money and inflating and then deflating that the people at the top get to collect everybody else's property for pennies on the dollar and lure everybody into debt and then jack the interest rates up and foreclose on them and whatever?
Is this all a big conspiracy or is everybody up there really as dumb as Barney Frank?
Well, I'll jump in and maybe Mark has a different view, but it's not even I mean, I know you're being facetious a bit, but it's not even that Barney Frank is dumb.
It's more I'm saying that, you know, the idea that you're going to trust politicians to make sure there's honest bookkeeping going on and that, of course, they're going to take any given crisis and spin it to their advantage.
And as Mark was hinting at earlier, I mean, there are some people who are seriously thinking that, in a sense, Paulson is using this as a way to knock off Goldman's competitors.
I mean, there's only really two major investment banks standing from when the dust has cleared so far.
And is it just a coincidence that Goldman Sachs expertly navigated through this crisis?
Or maybe did it help that they had a former CEO as the one who was designing all these packages?
You know, Americans in the 18th and 19th century learned the hard lessons about money and banking in the Revolutionary War, during the First and Second Banks of the United States, during the Civil War.
They learned that, you know, you wanted a stable money, you want to coin gold and silver, coin money.
You didn't trust the banks because they had governmental privileges.
And, you know, as a result, they learned the hard money lessons the hard way.
And when you come into the 20th and 21st century, especially nowadays, you know, we've had the Federal Reserve almost a century.
We've had paper money unbacked by gold for over a quarter of a century.
And all the textbooks do not reflect hard money views.
They do not reflect Austrian economics whatsoever.
They make the basic assumptions that you have a central bank, that you have a controlled currency, that the central bank controls the interest rate, and all the rest.
And so these are fundamental assumptions for mainstream economists.
They have not been exposed to anything other than central banking, fiat money, fractional reserve banking, and anything that would hint of gold coin money, 100% reserve deposits, you know, things of that nature, no government privileges for banks.
You know, those are so foreign to these people that they really can't think in terms of that.
And that's why they continue to make these mistakes over and over again.
And they, you know, they resort to the old tenets of Irving Fisher about, you know, targeting the value of the dollar and, you know, targeting inflation rates and targeting, you know, all this kind of stuff mechanically, statistically, backward looking instead of forward looking.
And so they're basically in the dark on all this.
Yeah, see, that's really the interesting thing is watching Ron Paul on TV when his interviewer will ask him about Congress.
The poor old guy just rolls his eyes and just says, you know, nobody here understands.
They don't want to understand.
They know I've been right about this all along.
They still don't want to take my class, you know, listen to his speeches, pay attention to what he's trying to teach them, that he basically is in a land of ignorance up there on Capitol Hill.
Well, I think he's getting a lot more attention nowadays.
I mean, I've seen a lot of Ron Paul on the Internet and on TV during this financial crisis, and that's great to see.
I mean, it represents some hope that more and more people are going to understand the real cause of this problem and be exposed probably for the first time to the potential solutions for it.
All right.
I'm Scott Horton.
It's Antiwar Radio.
I'm talking with Robert Murphy and Mark Thornton about the economic crisis, and I'm going to go ahead and curse on the show and use the F word.
This is a fascist system we're moving into now, I see, because what's happening is the government, the national government itself, is becoming the number one stockholder on Wall Street, right?
Yeah, I think that's right, and in fact, I mean, at some point you might even say, well, you know, we've been under a fascist system by the technical term where the government allows nominal private ownership but really controls what people do with their alleged property, and now I wonder if we're actually just moving out towards the F word of socialism, where the government just literally owns the stuff outright.
I think you're right.
You know, this is federal ownership of many of the leading financial firms in the United States, and, you know, some people might reflect saying, well, you know, government ownership of the big Wall Street firms, is that really going to affect me?
But that's actually the worst area for the government to have ownership and control is in finance and the stock market, to be manipulating the stock market, the money supply, interest rates.
Those are the, cause the greatest disruptions in the economy, and they're also the things that can have the most negative impacts on the economy, and we don't, the average person doesn't necessarily see the connection between what goes on in Wall Street and what goes on in their hometown, but believe me, they are intimately related, and all of these takeovers and bailouts and conservatorships are going to have dramatic negative impacts on the American economy, and, you know, this is really a pivot point in American history in terms of America losing its leadership in financial markets around the globe, and also for the dollar, possibly losing its reserve currency status, which we've enjoyed for so long.
You know, foreigners are going to think twice about investing in the United States and about investing in the U.S. dollar from this point forward.
Well, this is something I just saw in the news on Lew Rockwell's blog, actually, is that the Chinese were saying, and I don't know exactly what their proposal was, but the essence of it was, we no longer feel safe being invested in the U.S. dollar.
That's right, and Russia has done something similar, there's lots of grumblings in the Middle East, and so these discussions and these contemplations are taking place across the globe about the risk involved in the U.S. dollar at this point, and the necessity.
You know, foreigners have felt it necessary to invest in the U.S. because we had the most developed and most liquid capital markets around the globe, and one of the largest and most developed economies in the world, so they felt it, you know, incumbent upon them to invest in the United States, to diversify into our economy and into our currency.
But now, under current conditions, they might invest in fire sales of our assets, but besides that they're not interested as much, certainly, going forward in investing in our economy, our government debt, and our dollar.
Well, that is one important point.
We saw Anheuser-Busch got sold, right, and it looks like foreigners are not just, you know, I guess it's a cliché, right, well, when the dollar's weak, at least that's good for exports, but in this case, they're coming in buying up all our supply.
Does that matter?
Should we be worried about that?
Foreign companies buying up all our property here?
It wouldn't matter.
I mean, we know the benefits of free trade, and the same applies for international capital flows, but it's more a symptom of the deeper problem, and so yes, if the reason foreigners are acquiring U.S. assets is just because we've been living beyond our means for several years, and now, you know, it's time for people to come in and start seizing our property because we can't service our debt anymore, which is basically what's happening here.
So no, that's certainly not a good sign.
Yeah, the year 2000, the dollar was strong.
We had a balanced budget, and we were looking forward to a tax cut.
All those things were good, but since that point, you know, with the war and so forth, and the budget out of control, runaway deficit spending, the dollar has gone down in value tremendously, and the foreign company would have never bought Budweiser if the dollar had been so weakened and put them into the position to be able to acquire Budweiser at a very deep discount because their currency had appreciated, our currency had depreciated, and so that's the reason they bought Budweiser, is it was just a good deal because our federal government had been so uneconomical and had been willing to see the dollar depreciate as we were borrowing money on a monumental scale.
All right, now, when you talk about the rest of the world deciding that, geez, maybe we don't want to consider the dollar as the reserve currency anymore and so forth, I've heard before, I guess Jim Rogers and I think Ron Paul I've heard explain that there's some kind of tipping point, that basically there are vaults, central bank vaults, all over the world full of U.S. currency, and whatever, I don't know if that's just all paper dollars or bonds or whatever all that makes up, but that at some point when the dollar gets so weak that it's just more attractive to instead go ahead with the yen or the euro or whatever, that there will be this tipping point where all those central banks panic and dump all their American dollars and basically then we're facing Weimar Germany, wheelbarrows full of dollars to buy a loaf of bread kind of inflation.
Right, to answer the technical point, a lot of times when people refer to how many dollars does the Chinese bank have, usually it's not actual green pieces of paper of currency, but it's bonds issued by the federal government, for example, so things that are claims to future payments of dollar bills, and so yes, there's plenty of central banks around the world that have boatloads of those, and you're right, it's sort of a game of chicken where a major player is afraid to, even if they think that the future for the dollar doesn't look good, they're afraid to dump those because they know they might in effect trigger a run on the dollar, and then their holdings will be virtually worthless, and so they're all sort of accumulating, but they're inventing these new things like sovereign wealth funds and so on, and part of the reason for that is to start getting away from investing just in U.S. treasuries and investing in other assets without it making an official stance of policy changes, saying, you know, we're going to pull back our investments in dollar assets.
And they also have invested in Fannie Mae and Freddie Mac financial assets as well, and some people attribute the takeover of Fannie and Freddie as a way of placating China and other central banks that hold so much of our paper that, you know, there's a symbol that we were, that the U.S. treasury is going to back up all this paper, and so, you know, there's a lot of it out there.
China has over a trillion, Japan has a lot, a lot of the Asian central banks have a great deal of federal government paper, and it's spread all over the place in the Middle East, and so we're spreading, we've spread our inflation, and they have so far felt like, well, they can't really sell it, because if they sell it, they're going to reduce its value, and so they'd be hurting themselves, but eventually, somebody's going to break in this cartel as all cartels break down, and, you know, and that's where the tipping point is.
We don't know where that is, because it really depends upon a small number of decision-makers and the constraints that they face, which we can't possibly know in advance.
And what's going to happen here is they have to be, they can read the financial papers as much as anybody else, and they know that so far, just in this bailout, the various measures, that the price tag on CNBC is $1.8 trillion, and so that's not, oh, potential losses if the real estate market falters, no, that's the actual outlays of taxpayer money that's being put on the line here, and, you know, at some point, the federal government's not going to be able to service that debt unless it just starts printing money like crazy through the Federal Reserve, and so either way, you're going to see interest rates go up, either because they fear a default or because the purchasing power of the dollar is going down.
So that's going to affect people on Main Street, whether or not you own shares in AIG, if your retirement all of a sudden is worth a lot less because now, all of a sudden, the dollar can only buy half of what it could three years ago, that's certainly going to affect the average person.
And, you know, both candidates for president from the major parties are talking about tax cuts.
They're not talking about tax increases.
They're not talking about spending cuts.
They're talking about spending increases on both sides of the aisle.
So, you know, investors in our government bonds are saying, boy, you know, they're really adding on to the national debt in leaps and in bounds besides just the regular government deficit and besides the annual expenditures on the war in Iraq.
Now we have all these financial bailouts which are papered over and, you know, our politicians are saying, without saying it, that we're going to inflate.
We're not going to tax our way out of this.
We're not going to cut spending to get out of this.
We're just basically going to try to paper over this problem.
Yeah.
It's funny.
I heard Rush Limbaugh complaining about Joe Biden saying that the richest people should have to pay more taxes or whatever.
And Rush Limbaugh was waxing libertarian and saying, hey, it's not your money.
But of course, it is the people who supported this policy and demanded this policy.
It is their money.
Why not tax them to death?
Yeah, well, Rush doesn't want his taxes to go up.
You know, he's the only one probably that's involved in that show that's in the type of income category that's going to get the Obama tax.
And that's not the support of the Democrats.
We're on the phone here with the Austrian economist.
But that is true that he's saying, Obama is saying he wants tax cuts for the middle class and to raise taxes only for people who make millions of dollars a year, right?
That's right.
And that never works.
Right.
Yeah.
It'll end up being a tax increase for all of us anyway.
Damn Democrats.
All right.
Now, here's something funny.
And this relates to something you were just saying, Mark, is the New York Times, I think today, the Wall Street bailout plan explained.
And I just like this.
I don't know if this is the actual original writer or this is the way the editor fixed it.
But it says it should be noted that neither party is solely responsible for whatever neglect led the country to the brink of disaster.
So I think what they meant to say was both parties are responsible for this.
As you just said, they only want to continue inflating.
They don't want to raise taxes or cut spending at all.
They only want to make the same problem worse.
But even there, it perpetuates the myth, because did you say it said for the neglect that led to this?
Oh, yeah.
Again, I'm going to sound like a regular sleep with a switch.
Uh-huh.
Yeah.
We had this free market was just running wild.
This is the thing that really gets me, because I hear the exact same narrative that I learned in history class about the Great Depression.
Well, you had this free market, laws, fair capitalism that ran wild.
And so the government had to come and smooth everything out and make everything OK.
But if that was 80 years ago, then how can they tell me that that's the same thing that's going on here, the laws, fair, free market, and we need the government to smooth out the problem?
Well, that's the whole thing.
That's what gets me so mad about when Republicans run on a free market platform, that the average person could be forgiven for thinking that we had laissez-faire the last seven and a half years, because that's what the so-called conservative supporting President Bush have been telling us, that, oh, we've got to go vote for him.
We don't want to have a tax and spend liberal in there like John Kerry.
That would be crazy.
We'd have huge deficits if Kerry got elected.
And then, of course, we have record deficits under the fiscally conservative George Bush and theory.
Yeah.
Scott, I was the assistant superintendent of banking in the state of Alabama.
And so I had inside knowledge about the regulatory process, at least for state banking.
But of course, you're also influenced by all the federal regulators.
You know, I really, after that experience, I can't think of anything other than the interior decorating of the bank itself that things where bankers actually have a laissez-faire authority to do something.
Everything that they do is regulated by multiple layers of regulation.
And even, of course, the money supply, interest rates, everything about it is dictated by the federal and state regulators.
And so to say that this is laissez-faire capitalism is just pure ignorance.
It just isn't the case.
Well, and it is the way it is because the bankers like it that way, right?
Whenever they want to fix prices, that's a crime unless they invite a congressman along or invite Ben Bernanke from the Federal Reserve along.
And then they can all be a criminal conspiracy all they want.
Well, sure, obviously, if you're holding billions of dollars in assets, mortgage-backed assets that no one in their right mind in the private sector wants to buy from you, and then Uncle Sam comes along and says, oh, we'll buy it from you in order to avert a crisis, you're going to be on board with that kind of plan.
You know, the great Murray Rothbard described the Federal Reserve as a cartel device, a cartel device for banks, so that banks could independently, you know, make more loans than was financially prudent.
And all the banks could basically simultaneously make more loans than was prudent.
But they would always have the Federal Reserve there to make sure nobody took too much advantage of it and to bail out the entire system once the bubble or the expansion or the boom came to an end, so as to protect the banks from losses and to help them make it through the difficult period.
So the Federal Reserve, this public-private partnership, is basically a cartel device that's for the benefit of bankers, particularly the big New York bankers, and is not really there to help the little guy, to help the average citizen.
And Rothbard's essay on this is available on Mises.org and, of course, all of the other books and pamphlets that have educated Bob and myself, you know, what has government done to our money, the case against the Federal Reserve, the case for 100% reserve gold standard, all of that's available for free on Mises.org.
Right.
And this is, you know, it's funny because I know that Ron Paul doesn't describe himself as an economist.
He's just a country doctor who knows a little bit about it, but he sure seems like he's an Austrian school economist on the same level as the rest of you guys, because, well, he sounds just like you guys.
I mean, he talks just like this and has for years.
Yeah, I like the joke that he knows a lot more about economics than I know about delivering babies.
I'm sure that's certainly true, Bob.
Well, you know, and he actually, because he's on the firing lines, he's on the front lines, he's in these committees and he's actually getting the details of it.
He's actually better informed about all of those details as well as, you know, the basic theoretical background that the Austrians supply, that he's actually better informed than a lot of us because he has that detailed information.
And, you know, he's been studying this about the Austrian school and, you know, the gold standard and all these issues since, you know, I was in diapers.
And, you know, and so I have no hesitation with saying that Dr. Ron Paul is an excellent economist and very well informed about the issues and specifically the problems that exist today and the types of reforms we need going forward.
All right.
Now, I hate to leave us so little time to really address this.
We only have about a minute, but I guess the real bottom line of the Austrian school is that the boom and bust cycle is not caused by capitalism.
It's caused by the manipulation of the currency that we all use in our capitalistic activities and that the idea that central banking would smooth those booms and bust outs is either a purposeful deceit or at least one made of ignorance and that what we really need is a free market and hard money, that central banking, again, deliberately or just by result is the biggest scam ever.
This is how the richest people transfer the wealth from those of us who work for a living to them, first through inflation and then by deflation, the artificially high interest rates and everything else when they fight their war against the inflation that they caused.
Am I right?
Is that basically it?
That's basically it.
And then once the boom has happened, I mean, those resources have been misdirected and you need to have a corrective period.
And so these efforts to ease the pain are only prolonging the crisis and making things worse.
There's no other theory that makes sense that can explain how the entire economy, in fact, the entire world economy can go in one direction and then in the boom phase and then everybody goes in the other direction, the bust phase.
The only thing that could possibly allow that to logically happen is a central bank that's controlling money and interest in a market economy.
So that's the only theory that makes any sense.
All right.
I want to thank you both very much for your time today.
It's Robert Murphy and Mark Thornton, both from the Ludwig von Mises Institute.
And also check out Bob Murphy's website, consultingbyrpm.com.
Thank you both so much for your time today on the show.
Thanks for having us, Scott.
Great to be with you.
