11/18/08 – Robert Prechter – The Scott Horton Show

All right, y'all, welcome back to the show, Antiwar Radio, Chaos 92.7 FM in Austin, Texas, streaming live worldwide on the internet at chaosradioaustin.org and at antiwar.com slash radio.
I'd like to introduce our first guest.
It's Robert R. Pretcher, Jr.
He's the publisher of the Elliott Wave Theorist, president of Elliott Wave International, and executive director of the Socionomics Institute.
Welcome to the show.
Thanks.
Glad to be here.
Well, I'm very happy to have you on the air here.
A friend of the show, Dennis, recommended you to me, and I've been doing a little bit of research.
I admit I'm kind of a newbie here, but I am intrigued by this whole premise of the Elliott Wave.
I was wondering if maybe we could start off.
If you could tell us about Ralph Elliott and kind of the basics, where this guy came up with the Elliott Wave theory and what exactly it means for us.
Well, Elliott was a researcher in the 1930s and 40s.
He discovered a pattern in stock prices, which is essentially a fractal.
In modern times, we've discovered fractals throughout nature.
I think what's going on is that societies, human societies, are part of nature and they tend to ebb and flow, tend to expand and contract along this fractal pattern, and it's a series of waves upward and downward.
If that's true, it has implications, and this is where I've taken his ideas a little further.
If there's a natural progression of social mood that makes people want to buy stocks and invest in companies, do other things such as buy certain types of fashions or listen to certain types of music, it also probably affects the way they deal with economic trends and political trends, and that is what eventually gets us to your radio network.
I think there's a natural ebb and flow in social psychology that makes people either more prone toward friendliness with their national neighbors or unfriendliness, and when the trend is up, you tend to see more peace agreements and you tend to see a lot more cooperation among states, and when trends are down, you tend to see the conflicts arise.
Sometimes they're localized between, for example, management and unions or between different religious sects, but when things get serious and the downtrends extend, they can break out in wars.
It seems on its face as though, in this theory, you're kind of making a lot of things not count kind of off the bat.
If everything is just reduced to social mood, what about new research and development or September 11th attacks or external events and those kinds of things?
Well, you're 100% right.
In causality terms, those things are irrelevant because they're all results, not causes.
A good example is the 9-11 attack.
Do you know that the mood was declining for 18 months?
The S&P was down from March 2000 all the way down into September in 2001 when the attacks occurred, and it lost a tremendous amount of value.
That said, mood was collapsing, and in fact, we said in advance, this is going to lead to serious conflicts.
By the time we reached the bottom in 2002, Congress was allowing the President to go to war, and on the test of the lows in March 2003, when our mood was absolutely at its lowest point during that entire time, the United States Army attacked Iraq.
So we can predict when people are going to go to war, and exactly where that happens, that is due to the kind of things you just brought up.
In a chaotic social situation, sometimes minor events will dictate where that aggression is expressed.
Okay, I see what you're saying.
So in a large sense, in the largest sense, we were due for something big to happen to somebody somewhere, but I guess it almost sounds like it takes the responsibility away.
Those planes didn't come from nowhere.
There were Khalid Sheikh Mohammed and Ramzi bin al-Shibh and their friends conspired to do this thing, and they did it.
So it wasn't like a bunch of hippies sat around visualizing an attack, and then it came.
True, and that's true of every war, isn't it?
Somebody has to make the decision, somebody has to issue the order, somebody has to be in a frame of mind, some sort of mood and intellectual frame of mind, in order to carry out the mission.
And what we found is that in times when the social mood is in an uptrend, particularly in the late part of an uptrend, people are not inclined to do this sort of thing.
But if you can get a group of a half a dozen or a dozen people together and agree to commit suicide to carry out a mission to kill as many people as possible, it tends to be at times when social mood is very negative.
Now, don't forget, these organizations also ran on money.
They tended to get more money when the mood turned down, because people said, look, I want to support these guys, I'm angry, I want the United States to pay.
So a lot of money had to go into that as well.
It's a social movement, it's not just individuals.
Individuals, of course, are part of society, and there are things that individuals do carry out.
I mean, we couldn't, for example, predict which people would volunteer to do this, but we can say the odds begin to grow in a social sense for conflicts when these things begin to happen.
Now, we can talk about what individuals can do about these social forces, but you can't change the mood that that's a given.
But you can approach this with a little bit of intelligence and realize that during certain periods we won't have to worry about wars, and in other periods we will, and we should refrain from rushing into these situations simply because everybody's annoyed.
I mean, Iraq is a perfect example.
America was so upset that it gave George Bush a 91% approval rating as soon as he started attacking people, and he attacked the wrong people.
Al-Qaeda didn't even operate out of Iraq, and they didn't have weapons of mass destruction.
It was a ridiculous act, and all done, I think, pretty clearly out of just an annoyed mood, not really any sort of intelligence.
People wanted to express their anger, and they did.
Yeah.
Not a great one.
A lot of the American people let him do it.
Yeah, exactly.
In fact, they were in favor of it.
Sure.
And a lot of that came from being misled, but not really, because he had the mood behind him.
He could have marched into Canada.
Sure.
Yeah.
And, of course, we all have our anecdotes of trying to explain to people that, no, Iraq didn't do that.
Why would anybody be opposed to this war if Iraq had been the ones who did the attack?
Man, that's not what this is about.
And they didn't want to hear it.
No, no.
They absolutely didn't.
And after our mood improved, and we got into 2006, 2007, and so on, people kind of started sobering up and looking at the fact and saying, well, shoot, you know, Saddam, in fact, was an enemy of the most militant of Islam, and he was keeping them down, and he had no participation in the attacks at all.
Now, it seems sort of like, are we talking kind of a chicken and egg thing about attitude and behavior?
You know, I remember learning in social psychology class that attitude follows behavior much more than the other way around.
And I guess, really, you're arguing the opposite, that really the attitude is what comes first.
Right.
Exactly.
Where do social movements come from?
You know, people say, well, you know, when there's a war on, and everybody's blowing up cities, people get fearful and depressed.
And my question is, where the heck did the war come from?
I mean, they act as if it's an asteroid, you know, coming from nowhere.
Wars take years of development.
They have to take a huge portion of society has to agree with the idea, or at least support the idea, and that takes years of depressed mood to bring that about.
And every major war, going back as far as we've been able to study, has been the result of a period of declining mood.
And war isn't the only thing that comes out of this.
You also get all sorts of other types of behavior, such as pulling, you know, people get more conservative in business, and guess what?
You end up in a recession or a depression.
People change the kind of music they listen to, they change the way they dress, they don't dress with, you know, in bull markets, they tend to dress with more color, more daring, and in bear markets, they're more conservative, dresses get longer, colors get muted.
So this mood is expressed in thousands of ways.
And war is one of them.
And if people were enlightened about that, I think they might refrain sometimes from going to war.
Well, it also seems like, well, you don't sound like you're trying to argue for the innocence of any individuals who, you know, make bad decisions and ought to be responsible for them.
Oh, not at all.
Not at all.
It's like, you know, it's like alcoholism.
It's a disease, but the people who engage in bad acts when they're inebriated or dry and unhappy, still their responsibility as individuals to deal with.
Yeah.
Well, so, you know, I'm not much of an economist.
I'm more of an anti-war guy, but I guess most of the economics that I'm exposed to is from the Austrian school, the Ludwig von Mises Institute, and those guys, Ron Paul Economics.
And you know, a lot of what they have to say is that it's the central bank and the artificially low interest rates that they set, the artificially low reserve ratios that they set, that creates with this artificial amount of easy bank credit expansion, all this new money.
That's what creates the bubbles.
And of course, you know, I don't know whether the mood comes first or not.
You can see how that would certainly accentuate a good mood if people are riding on top of a big bubble going on.
But I mean, ultimately, we do have government agents with police power over the interest rates who are deciding these things.
It seems like the mood that, you know, I better start wearing dark colors and saving my money is just a recognition that the bubble popped and it's time for the adjustment to come.
Oh, man.
There's so many ways to answer this.
Well, go ahead.
We've got plenty of time.
The Fed obviously is, it doesn't create the money, it offers the money, and then people borrow it.
And what happens is when the mood is expansive, people are borrowing their heads off because of these artificially low interest rates.
But obviously the Fed isn't creating it because look what's happened in the last six months or a year.
We've had an absolute collapse in outstanding credit.
The Fed is doing everything in its power to buy up these crummy mortgages and trade them for, you know, good debt and putting them on their own balance sheets.
They're trying to fight deflation as hard as they can, and they're losing.
So obviously the mood is trumping and swamping and overwhelming everything the central bank is trying to do.
And that's why the subtitle of my book, I have a book out called Conquer the Crash, and the subtitle is How to Survive and Prosper in a Deflationary Depression.
And I wrote the book in 2002 when everybody in all schools of economics said the Fed can inflate at will and keep any bubble going as long as it wants.
And I said no, that's going to fail.
Now let's get to a more fundamental question.
Does anybody ever ask where does the Fed come from?
In other words, this country went without a central bank ever since the days of Andrew Jackson all the way up to 1913.
It was an alliance between the Morgans and the Rockefellers and the national government.
Well there were people pushing for a national bank, a central bank the whole way.
Society never embraced it and never allowed it, and finally in 1913, after a number of years of bear market, by the way, they finally succumbed and let this horrible institution come into being.
And once that happened, it facilitated the financial expression of the ebullient mood that began in 1933 and didn't end until 2007.
I mean, that's a very long period of an uptrend.
We had something similar in the 1800s, but this was the last in a series, and you tend to get central banking at those periods.
Another great example is the South Sea Bubble.
We had central banks in France doing the Mississippi Scheme and the South Sea Bubble in 1719, 1720.
Those led to massive collapses, but during the boom, everything looked good.
And this time we've had a multi-decade boom.
The whole thing is over.
We're in a deflationary period, and unfortunately this is going to lead to times of war because we're in the downside of the social mood cycle.
Right.
You know, a lot of people, including myself, I guess, have been hoping that the economic downturn would somehow restrict the ability of the empire and maybe the ruling elite would have to realize that they just can't occupy the whole world forever, that we just can't afford it.
But really, historically, this is the time when government starts drafting everybody and send them off to war to keep the unemployment numbers down.
Well, we kind of get a little of both.
In the collapse after the South Sea Bubble, actually it was quite a peaceful period because a lot of governments in Europe got in touch with each other and said, look, we're all broke, we're all in debt, the country's in ruins, let's try to figure this out and work this out.
And there was actually a pretty peaceful time.
It's usually the second go-round, the second decline, and in our pattern theory, there are usually two legs down in a bear market, and that's when people get angry enough to start fighting each other.
So to me, the real risk is going to be a couple of decades out.
But in the meantime, you're right.
I think, though, that your hopes may, in a small way, actually come out on the favorable side.
Oh, thanks.
Yeah.
As the government loses its ability to borrow, and as tax receipts fall when we head into these more difficult times, I think simply by becoming more and more insolvent, they're going to be pulling troops in from these, what, hundred-and-something countries around the world that we've got people stationed in?
And it's all very expensive, and eventually, you know, it's just like when the Roman Empire finally said, okay, we need to pull out of Britain.
They started there and began to implode from that point.
I think we're going to go through something similar.
And as the Von Mises people say quite accurately, the kind of situation we have with monopoly money, the Federal Reserve System is a very convenient way for the government to wage war without taxing directly.
They tax indirectly, which is just another aspect of the immorality of the whole thing.
Right.
Now, well, let me ask you this, though.
So if it was good mood times, but we didn't have a central bank that could set interest rates artificially low like that, the free market would not have created these massive bubbles that the Fed created since, say, oh, I don't know, 99 or what have you.
No, that's not really true.
There have been plenty of bubbles at times in history when credit was lent out by private banks.
There were land booms and crashes all during the 19th century.
And without a central bank, you know, the banks in existence would certainly get together and figure out ways of taking their deposits and lending them out multiple times, and depositors would be thrilled because they're getting a greater return.
But here's the big, big thing, and my big argument is that anyone as an individual who wanted to be prudent in a money-based system, we don't have a money-based system, we have an IOU debt-based system.
If we had a money-based system, then you as an individual or I as an individual could just go to our warehouse and say, don't lend out my money.
All I want you to do is hold on to my gold.
I'm not participating in this bubble.
And a fair number of people could just sit on the sidelines and watch it happen, and when it collapsed, they wouldn't get hurt.
Now they wouldn't be making the interest that everybody else was making during the bubble times, but private institutions are perfectly capable of creating booms and busts.
What's wrong with the Fed is that it puts the onus of the bubble and the payment for the bubble onto innocent people.
It puts it on the people who save their money, you know, they suffer inflation through their whole lives, and then it puts it on borrowers who don't know any better, who lose everything during the collapse, and that's what's happening to people right now.
They all ended up buying stocks that were ridiculously priced on many different measures, but mostly because of inflation, and now they're losing in a deflation, and then everybody ends up broke, and that's the shame of it.
Yeah, it takes what really amounts to, well, like you said, banks will try to come together and create these Ponzi schemes and what have you, but only with the Fed can you really institutionalize it and make it this big and permanent and get this many people involved on it.
Yeah, it forces them to be involved, yeah, exactly.
Yeah, J. Edward Griffin, title, I guess, chapter three or four of his book, The Creature from Jekyll Island, he said, the name of the game is bailout, that that's what it's really all about is, you know, where a bank could commit fraud, but they might have to be held responsible for that.
The Fed says, okay, everybody commit fraud, it's cool, we have the ultimate backstop for all your fraud.
It's worse than that.
If you have banks that have not committed any fraud, we have some safe banks in this country, not too many, but a few, then the government creates the FDIC, and they tax all the healthy banks to shore up the crummy banks, thereby weakening the healthy banks.
I mean, it's a horrible thing, it's like sucking blood out of somebody who's alive to put it into a dead body.
It's just a disaster.
All right, now, so here's the thing.
I like all this social science and moods and bubbles, and these things are interesting to me, but then you get all mathematics, and you're saying that all this social psychology can be reduced to some kind of equation, and to me that sounds like a pretty, like a behaviorist sort of B.F.
Skinner kind of argument.
This is what people do and will do and when and so forth, and all these predictions that kind of, you know, if all human social behavior fits on some algorithm or something, then what happened to free will?
How's, you know, any sort of allowance for regular cognitive decision making on an individual level fit into this?
Well, that's a good question.
First of all, we haven't, nobody has reduced anything to an equation, that's what economists do.
I don't do that.
What we say is that there is a robust fractal that ...
Well explain that, because I'm an idiot at math.
Fractals are those cool looking pictured things that hang on the wall.
All right, a tree is a fractal.
If you said to someone, there are certain rules of tree growth.
For example, the branch that comes out of the trunk is not going to be wider in diameter than the trunk.
That's a rule of tree growth.
There are some guidelines, too, that aren't rules.
For example, branches tend to point more toward the sky than toward the ground.
Now, there are some exceptions to that, but it's a good guideline.
They tend to fill out to cover the entire 3D area of the tree with leaves and so on.
So you're just trying to describe a tree to a person who's never seen one, it's not really that easy of a thing to do.
And if someone said, let's reduce it to mathematics, that's not as easy as well, because what you don't know is how long each branch will be, how long each twig will be, how exactly how thick it'll be.
So the robust part of this is that there's a lot of variation in what can happen.
It's not a formula, it's not a strict thing, but there are waves of optimism and pessimism that people go through socially, and I think they are a natural part of human society.
But that absolutely does not remove any of the moral responsibility, culpability, or whatever you want to say, from individuals, because people can participate in a crowd in a certain way, or refuse to participate in a crowd in a certain way.
Ultimately, acts that people undertake are their own individual responsibility.
An individual, in fact, can learn the wave principle, as many people have done, and learn this thing called socionomics, which is the idea that societies have these mood swings, and operate not only apart from them to a great degree, but you can turn around and make money from this.
If you know that you're in a 10-year period of expansive mood, well, you can invest in the stock market, and you can start a business, and you can do all kinds of things.
And if you know you're in a downtrend, that's why I wrote that book in 2002, and I said there's a big downtrend coming, get on the right side, get out of all your investments, get into the safest cash equivalents you can, start thinking of what businesses will do well in a downtrend.
So as an individual, you do not have to be part of the herd.
You can get outside of that.
So the individual still has all the responsibility for his or her own actions, according to the way I see this theory and what it means.
As little as I know about this, I've got to say it kind of rings true that I've always sort of thought individuals are bright, but you put them all together in a group and all of a sudden, well, they just surrender their will to each other, basically, you know?
Yeah, there's a famous quote about that.
Individuals taking one at a time are reasonably intelligent, but put them in a group and they're all blockheads.
Yeah, blockheads, that's a good one.
I like that.
Yeah, I learned that especially driving a cab for years, that you can talk to pretty much anybody and they can be a genius, you know what I mean?
But boy, put them together in a group, and like you said, they'll give George Bush a 91% approval rating and a blank check to murder anyone in the world that he feels like.
Right, or they'll buy stocks that are yielding 1% or 0% and have already gone up 500 times in value, or 500% in value, and tell you it's a perfectly reasonable thing to do.
Obviously, that is not a person who is thinking for himself.
He's looking around at everyone else, or everybody else is doing it.
I guess I'll send such and such fund my money.
So when they abdicate their individual rational brain, and they say, well, I'm not going to bother to think, I'm going to go with the crowd, that's when they have abdicated to the crowd, and that's why you end up with these trends.
But again, it takes an individual, as Ayn Rand said, your first choice is whether or not to think, and if you give that one up, well, you're still culpable for having made that choice.
Right.
Yeah, I think that's a Rush lyric, too, right?
If you choose not to decide, you still made your decision.
And this goes along kind of with Chris Hedges' article at Truthdig, America the Illiterate.
I don't know if you saw this, but it's about how these, and he has all those statistics here, the massive numbers of American adults who either can't or just won't read and make these decisions themselves.
Rather than going from facts, they go from basically what their impression is of what they think everybody else thinks, and if everybody else thought that one, then that's probably right.
Well, that's why the politicians love democracy, because all they have to do is be good actors and get the majority of the people to go along with their charisma or their personality or whatever.
They can get away with murder.
They can take half the product of the entire nation and waste it and spend it on whatever they want to help their own careers.
I think the kings of the olden days tended to peak out around 10 or 15 percent of what they would take from people.
So yeah, people love to abdicate, and particularly to leaders, which is a very dangerous thing.
And I think the portion of the brain, the primitive portion of the brain that essentially participates in social mood is also the primitive portion that chooses leaders and acts on territorial imperatives and that sort of thing.
A lot of things that might have been helpful way back in evolution somewhere, but can lead to very dangerous results in the modern world.
So now, say for example you take, I don't know, a number of people who are interested in scuba diving or George Bush's poll numbers or some kind of just ridiculous topic from left field, can you just plug in your five-step wave or whatever and it fits?
Yeah.
In fact, when Bush got elected, we were saying, look, we're heading into a bear market.
He's going to be a very unpopular president by the time this is over.
The last time we had anything like this was Nixon and Carter.
I was thinking we were close to the Hoover point, but that is approaching now.
And if you track the real value of stock shares from July of 1999 when they peaked out, in other words, stocks priced in terms of gold, which is real money, it's down 78%.
And George Bush's popularity pretty much went straight downhill along with it, with some rallies along the way for various things like attacking Iraq.
But otherwise, he ended up being the least popular president on record, right in line with the decline in social mood.
And I guess you've already seen the figures on consumer confidence.
They're also the lowest recorded.
So all that stuff's in perfect gear with declining social mood.
And that's why he got kicked out in this election.
Is that how it was in the Truman years?
I mean, I guess the way we think of it now is that people were sick and tired of the Korean War and they wanted Ike to come in and end it.
But Truman, I mean, this has been the battle, right?
Can Bush actually go lower on the approval rating scale than Harry Newcomb Truman?
That's right.
Well, a couple of things about Truman.
On our form theory, the bear market in mood was an affair called a triangle.
Started in 1929.
The low point was 1932 in July.
That was the exact month, by the way, of the peak in Hitler's popularity in Germany, which was before he took power.
Then there was a couple of steps up and down.
It finally ended in 1949.
That was the end of this big sideways corrective pattern from the roaring 20s.
So Harry Truman took over during those years in the 40s and into the 50s.
And of course, at the end of a social mood period, you tend to get a war.
And we had the Korean War.
It was the smaller one because the final move in a triangle is the smallest move.
And because he was in there at the end of this social mood corrective period or bear market period, he had a low popularity rating.
He also was happy to nuke Japan and get the Korean War going and everything else.
Typical end of cycle sort of activity.
Oddly, he's sort of been rehabilitated ever since then.
But at the time, yeah, people didn't like him, and that's the same thing here with George Bush.
The only thing I think this time around is Bush thinks he's going to be rehabilitated by history.
I don't think so.
Yeah, I don't think so either.
Well, so where exactly do we fit on this little chart now, and what can you predict for the next four or eight years under the Barack Obama presidency?
Well, I've been saying this decline is going to devastate several presidencies because it doesn't appear...
It appears it's going to last at least another two years, probably about eight.
So I think the next two presidents, you know, Nixon got kicked out because we were in the biggest bear market since the 40s in his second term, and he finally had to resign.
Jimmy Carter took over in the rest of the 70s, and we were still in a bear market.
He ended up being widely disliked, and Reagan came in and wiped him out in the next election.
So I think Obama's going to have a horrible time as president.
He might have a honeymoon for six months, I don't know, but I think it'll be very similar to Bush, which is basically a downtrend virtually the entire time with minor recoveries.
However, we are further into the bear market now, so now you're seeing the results show up.
You know, it takes a while for a decline in mood to turn into a recession or a depression.
We've only started this recession a few months ago.
I think it's got a lot more to go.
So Obama will be in not only during declining mood, but also during a period when the results of that declining mood are really showing up in the economy.
The economy's going to get much worse while he's in office, and they won't blame him initially, but by the time it's over, they will.
All right, well, so what if it had been Ron?
What if it had been Ron Paul and he got up and he told the American people, we're not going to do a thing to bail out anybody, and you know what, wages need to go down and bad investments need to go bankrupt, and we need to let the free market operate.
I'm going to sit here and do nothing.
I'm going to take a pay cut for how little I'm doing.
That was what he said in his campaign.
I actually believe it.
How do you like that?
And so it sort of seems like maybe that would affect the mood and make it worse rather than being sound economics, letting all the bad investments shake out so that people can get back to work on, you know, with efficient use of resources.
It sort of sounds like under your theory, maybe that would only make things worse rather than being the quicker, better solution.
No, no, those would be great programs, but you started by saying if Ron Paul, well, obviously Ron Paul was not elected, and the people are not ready to elect anyone with a very strongly radical free market philosophy at this point, and they absolutely won't be until the bottom.
We didn't have the American Revolution until almost 60 years of a bear market had been going on in English stock prices, so the mood was really, really low in the 1770s.
And that's why, you know, finally people took up their arms.
We had a war, and they were willing to entertain incredibly radical solutions such as let's fight the crown of England, you know, that basically owns these colonies.
Now, you're not going to get a Ron Paul elected when social mood is near the top or halfway down.
People just want to kind of stay the course.
They're very moderate in their views, and they'll switch from Democrat to Republican, but they're not going to switch to a Whig or a Libertarian.
Those kinds of social moods is in total control of that sort of thing.
You know, Ronald Reagan, when he ran in 76, they called him Ronald Ray Gunn, and they said, oh, he's going to blow up the world, and nobody wanted to touch him, but by the time things had gone bad for an entire decade, in 1980 rolled around, they finally said, all right, you know, we're ready to go radical.
Let's get this guy.
Same thing with Roosevelt, 1932.
So you wouldn't argue, you wouldn't argue at all the common conventional wisdom that that's what's happened with Obama, that basically, because I like to think that if it hadn't have been for that smooth talk and, you know, I'm going to do everything for you kind of thing, if it had just been, you know, Joe Biden or some regular Democrat politician, that perhaps it could have been Ron.
That said, you know, that guy sucked away with all his talk of change.
He sucked away all the people who should have been the Ron Paul supporters.
Well, no, no.
Sadly, Ron Paul had no balls chance.
He only had, you know, he might have gotten 1% of the vote or something.
That's just the way it is with Libertarian candidates right now.
But you know, their day will come when everything is, you know, rubble will have authoritarians on one side saying we need to go 100% communist, socialist, fascist, whatever.
And then we'll have people on the other side not saying, no, we need to dismantle the government, get back the Articles of Confederation and start cutting from there.
So you're saying then that Barack Obama doesn't really represent the change at all in the hype.
He represents the more or less stay the course status quo in the reality.
Yeah, he's basically a moderate socialist.
We've had a number of them in office since Woodrow Wilson.
And of course, his programs are going to be horrible.
You know, most of George Bush's programs are horrible.
That's just the way politics go.
But the key was that people wanted the incumbent out.
And I wrote a piece, gosh, I don't know, 10 years ago, and I said the way socionomics works when you get into a situation of declining social mood, when it's gone down far enough, it doesn't matter what the incumbent's philosophy of politics is, and it doesn't matter what the challenger's philosophy is.
People will simply change from one to the other.
They want to get rid of the incumbent or the incumbent party.
Now, here's a perfect example to show how this works.
In this country, we had a Republican, I won't say conservative, that's quite hardly the word only in some areas.
And we had a declining social mood, and people said, we want to get him out of here.
And the smart candidate kept using the word change, okay?
We want change, change, change.
And people finally said, yeah, we want change because we don't feel good.
Let's kick this guy out.
It must be his fault.
What happened in New Zealand?
We've had nine years of a leftist sort of candidate, a Green Party sort of prime minister.
And so what happened in the election that occurred, I think it was nine days after the United States election, New Zealand held an election, and guess what the guy ran on?
He ran on a program of change, but he's a conservative.
He's a financial guy.
He's against, he wants to turn back all of the Green sort of initiatives they did.
You know, 100% of the opposite of Obama, but they wanted change.
You know, their social mood is down just like ours is, so they kick out the incumbent and they get a new person in.
The actual politics are irrelevant.
Wow.
Well, I mean, they're to the re-election, but not to the country, obviously.
Yeah, this gets back to, like, the part of me that wants to reject this is just how hopeless any measure of actual truth is, that we're so bound by impression and mood that the facts are irrelevant.
People don't hate Bush because he's a torturer.
They hate him because their stock thing went down and he happens to be the one in charge.
Yeah, they left his, what was it called, Homeland Security Act, which basically took away I don't know how many freedoms.
It's a horrible thing.
And then, you know, in China, in the late 40s, people were upset and they're low in social mood.
They let Mao come in, for crying out loud, because they wanted change.
I mean, how horrible was that?
He ended up killing 35 million Chinese.
Yeah, wow.
Well, we were lucky in America, because when we hit our nadir of social mood in the late 1700s, we had a revolution that was inspired by John Locke.
Well, you talked about the deflation that we're in now.
And I guess, you know, with any recession, automatically, people are going to stop taking out loans and things like that in a lot of places.
So you'll have short-term deflation, at least.
But I think the Austrians are saying that with all this bailout and all the extra pushing on a string that the Fed is trying to do and creating all this credit, trying to prop up the bubble, that it's going to lead to long-term inflation.
Do you agree with that?
Well, Ludwig von Mises didn't agree with it.
In 1929, he was offered a job with Credit Anstalt, a bank, and he turned it down.
He said, there's a big bust coming, and I don't want to be associated with it.
Now, I don't know why those people who study him so well are convinced that the Fed is invincible, it can create all the inflation it wants.
And I wrote a book, when I wrote my book called Conquer the Crash, I said, I'm disagreeing with the monetarists out of Chicago, with the Keynesians, with the Austrians, with the objectivists, everybody who says the Fed can do anything it wants with the money supply.
Now, so here, commodities have crashed.
They're down 50 to 70 percent.
Gold and silver mining stocks are down 70 to 78 percent, depending on the index you're looking at.
Credit is collapsing all over the place.
What do I know that somebody else doesn't know?
The only thing I'm trying to point out is, we don't have a cash-based system.
If you're a South American country with no credit system at all, you can print all the money you want, or if you're in Uganda or whatever, you just turn on the machine and you print these bills, and then you get hyperinflation, such as Germany had in 1923.
But this system is based on and has created nothing but a massive inverted pyramid of IOUs.
There's something like 50 or 100 trillion dollars worth, depending on what you add into the picture.
That is now subject to the downturn in social mood, and when that happens, credit simply collapses and disappears.
We've already seen subprime mortgages that apparently were worth $500,000, suddenly worth zero.
That's the disappearance of credit, and our total supply is not just money, it's money plus credit.
Now, the Fed is inflating like crazy, it's expanding the money supply, but the credit supply is crashing faster than the money supply is expanding, and that's why we're having deflation.
I'm not well-versed in this enough to really even try to represent their views very well, but I know that when I talked with Mark Thornton last week, and that's what he called it, pushing on a string that they can try to inflate, it's not working.
We have to have a recession, the market is demanding a recession, and the Fed can try to inflate, but it's not going to work in terms of actually propping up the bubbles and not letting them actually crash.
The bonds are going to crash anyway, but he's just saying it's going to kill the value of the dollar, because they're still flooding the currency with new money.
Well, the government, it is going to hurt the value of the dollar eventually, but obviously it hasn't yet, because the T-bill earns 1%.
So the marketplace doesn't even demand that the government pay more than 1%, they're perfectly happy even with this new trillion, two to four trillion dollars worth of new debt that the Fed and the government have guaranteed.
But eventually, there will come a point when the bond markets start to say, well, yeah, you can keep borrowing if you want from me, but now I want 2%.
Now I want 4%, now I want 10%, now I want 20%, now I want 40%.
And when that day comes, you know, I'm going to be telling my people, okay, you can cover your shorts now, and you can get out of your T-bills, because I think earning 50% a year is very nice, but this can't continue, and it's time to buy gold.
But until then, the dollar is king, everybody is trying to pay their debts, and to pay those debts, they have to sell stuff.
So they sell stocks, they sell commodities, they even sell gold and silver.
It's amazing, but we have a fiat-based money system, and that means, by law, you have to use the dollar as your money.
And when you owe dollars, you have to get them, and the way to get them is to sell stuff, because everything else is just credit.
People don't want that.
Yeah.
Wow.
Well, if I ever had any money, I sure have learned a lot about all this investment stuff.
I guess I can make some more out of it.
Yeah.
Well, good luck.
And tell me a little about your network.
Oh, well, we're just a little pirate radio station here in Austin, Texas, and then we podcast the archives from antiwar.com.
Okay.
Great.
Yep.
So I don't know if there's anybody with any money in the audience to actually apply your advice and practice, but it could be, I guess.
I think there are all kinds of philosophies of economics and politics, but I think that ultimately, socionomics is one of the most promising for intelligent people to realize why wars are occurring.
They're not for all the reasons and excuses that the politicians are giving you.
They're for much more primitive and less respectable reasons.
And once you realize what's going on, you might have some eloquent spokesman saying, you know, this is folly that we're going into it.
But you cannot repeal social mood trends, and you probably can't repeal the cycles of history that have come naturally out of them.
But as individuals, anybody listening on your radio station, including yourself, you can always look around and say, you know what, it's 1939 in Poland, I'm getting the hell out of here.
Or 1938, you know?
Yeah, I keep thinking that more and more, getting the hell out of here.
I can even picture sort of the bird's eye view of me in a little boat paddling west from California, just hoping to find another new world somewhere.
Well, there are safer places.
You know, the whole world never blows up at once sociologically.
So if you keep your eyes open as an individual, this is an incredibly valuable thing to have in your life, I think.
You can't, you know, people always say, well, why don't you go, you know, speak before Congress?
And I just chuckle on it, but I'm not going to be able to change what they're going to do.
They're listening to their constituents, and that's it.
Yeah, they're all incapable of learning anything from anybody.
Well, I think they're very, very clever, because they figured out a way, you know, to take half what everybody makes and have people not shoot them or complain.
It's unbelievable.
So they're very clever.
People who say Congress is stupid or something are just wrong.
They're very clever.
But unfortunately, it's not good.
You know, the net result is very bad for people, and war is one of those results.
Yeah, well, you know, Time Magazine says it's time for the new New Deal.
They photoshopped Barack Obama's head onto FDR's body.
We're going to have a whole new round of government investment and all these kinds of New Deal programs they're saying.
Yeah, they're all going to be a horror.
And sadly, the Bush administration handed them all kinds of new entitlements that the government didn't have before that, such as spying on people and all that stuff that they didn't have before.
So that makes socialism even easier.
Yeah.
And more dangerous.
Yep, exactly.
All right.
Hey, listen, I really appreciate your time on the show today.
This has been very interesting.
All right, Scott.
And you had some terrific questions.
I mean, you got deeper than most people.
Yeah, well, I try.
All right.
All right.
Thanks a lot.
You too.
All right, everybody.
I'm Scott Norton.
You're a publisher of the Elliott Wave Theorist, president of Elliott Wave International, executive director of the Socionomics Institute.
And the website is ElliottWave.com, this is Anti-War Radio.
And we'll be right back after this.