WEBVTT NOTE America's Bubble Economy 1 00:00:00.000 --> 00:00:05.000 Ladies and gentlemen, the stock market like Elizabeth Taylor in the Wall Street Journal 2 00:00:05.000 --> 00:00:10.720 is always the same yet always different. Every great cycle is like every other great cycle 3 00:00:10.720 --> 00:00:17.860 and yet every one is unique. I stand before you this morning as the world's leading authority 4 00:00:17.860 --> 00:00:21.440 – Lou did mention this in his very generous introduction – the world's leading authority 5 00:00:21.440 --> 00:00:29.440 in where stock prices are not going. They go up, I say down. One of these days we'll 6 00:00:29.440 --> 00:00:41.440 I'd like to talk today in the six hours that Lew has generously given me on the present-day speculative environment, 7 00:00:41.440 --> 00:00:49.440 what actually has brought it about, and in general, to try to shed some light on this, 8 00:00:49.440 --> 00:00:55.440 the greatest, lustiest, and most flummoxing moment in American financial history. 9 00:00:55.440 --> 00:01:18.440 I'd like also to review exactly how we got here and ask not least one question that on Wall Street never seems to be asked, namely what if any is the distinction between central banking as practiced by our Fed and central planning. 10 00:01:18.440 --> 00:01:24.440 If fixing the federal funds rate isn't price fixing, what might it be? 11 00:01:24.440 --> 00:01:35.440 And if, indeed, Alan Greenspan and company have discovered the precise rate to guarantee American financial prosperity, where did the Soviets go wrong? 12 00:01:35.440 --> 00:01:45.440 And how, if they have not done this, what accounts for this massive suspension of disbelief on the part of people who are almost worshipful of the Fed? 13 00:01:45.440 --> 00:01:51.940 In that context, I propose to talk about the parable of the World Wrestling Federation, which is going public. 14 00:01:51.940 --> 00:01:53.940 Any wrestling fans in the audience? 15 00:01:53.940 --> 00:01:55.940 All right, nobody's going to admit it. 16 00:01:55.940 --> 00:01:57.940 Okay. 17 00:01:59.940 --> 00:02:02.940 Now, to begin with, the speculative setting. 18 00:02:02.940 --> 00:02:06.940 You know, where to begin, I stand in awe, and one is profoundly humbled. 19 00:02:06.940 --> 00:02:12.940 If you're a practitioner in markets, every day brings a new humiliation, otherwise known as learning experience. 20 00:02:12.940 --> 00:02:37.940 People talk about a bubble, which to me connotes something feeble, insubstantial or flimsy, but it's hardly flimsy that since the beginning of 1998, the market value of the six biggest and most popular technology stocks has tripled, taking them up to 1.65 trillion, which as Jake LaMotte used to say, is a lot of money even when you say it fast. 21 00:02:37.940 --> 00:02:52.940 The increase in the valuation of these six, that is this 1.65 trillion, is greater than the entire US stock market capitalization as recently as 1982, at the beginning of the great Reagan bull market. 22 00:02:52.940 --> 00:02:58.940 In fact, since 1995, which is not so very long ago, 23 00:02:58.940 --> 00:03:08.940 the market capitalization of these same six stocks, Microsoft, Intel, Dell, Cisco, Lucent, 24 00:03:08.940 --> 00:03:18.940 the market capitalization of these same six has gone six-fold or something, maybe more than that. 25 00:03:18.940 --> 00:03:25.940 On one day recently, that is the 3rd of September, there was a bullish employment report released by the government. 26 00:03:25.940 --> 00:03:29.940 On this one day, these six appreciated in market terms by 63 billion, 27 00:03:29.940 --> 00:03:37.940 which was 10 billion more than the entire market cap of the 10 biggest tech stocks in 1990. 28 00:03:37.940 --> 00:03:41.940 So to recapitulate, on one day, September 3rd, 29 00:03:41.940 --> 00:03:49.340 There was a greater increment of market value added to 6 than existed for 10 in 1990. 30 00:03:49.340 --> 00:03:53.140 So when people talk about a levitation or a bubble, they really don't exaggerate. 31 00:03:53.140 --> 00:03:55.540 These things have never been seen before. 32 00:03:55.540 --> 00:04:03.940 A bull market of this order, a speculation, this mass of credit structure, quite this extended, 33 00:04:03.940 --> 00:04:05.940 I'll get into that later, has never before been seen. 34 00:04:05.940 --> 00:04:07.940 This is all new. 35 00:04:07.940 --> 00:04:13.940 It is an elemental force, and to be on the wrong side of it, as I say, is quite humbling. 36 00:04:13.940 --> 00:04:16.940 And I stand before you with many more questions and answers. 37 00:04:16.940 --> 00:04:26.940 Why? What has caused this? If we understand that, perhaps we can think more clearly about the future. 38 00:04:26.940 --> 00:04:39.940 It seems to me that the one evergreen answer offered to that question is that technology has delivered us into a new age. 39 00:04:39.940 --> 00:04:46.940 Cyclicality is no longer a feature of markets. We have reached a kind of permanent high plateau of prosperity. 40 00:04:46.940 --> 00:04:52.940 Stability is no longer this kind of will of the wisp. It is upon us. 41 00:04:52.940 --> 00:05:00.940 and its stability with a difference, that is, nothing at all stable about the national wealth that forever accretes. 42 00:05:05.940 --> 00:05:10.940 The Internet is a wonderful institution. Is it any more wonderful than electricity that preceded it? 43 00:05:12.940 --> 00:05:17.940 Thinking about technology, I have thought a bit about an invention 44 00:05:17.940 --> 00:05:23.940 without which the Mises Institute would not have been below the Mason-Dixon line. 45 00:05:23.940 --> 00:05:29.940 When Willis Haviland Carrier was awarded patent number 808897 46 00:05:29.940 --> 00:05:32.940 for an apparatus for treating air, this is 1906, 47 00:05:32.940 --> 00:05:40.940 little did he imagine of the consequences of what we would call air conditioning. 48 00:05:40.940 --> 00:05:46.940 And air conditioning, when you think about it, is a great parable of technology. 49 00:05:46.940 --> 00:05:53.940 has delivered innumerable benefits. It has made life from Bombay to Baltimore tolerable. 50 00:05:55.180 --> 00:06:02.180 It has infinitely expanded the wealth of the United States. It has changed migration patterns 51 00:06:03.220 --> 00:06:10.220 in the United States. It has delivered up to civilization Orlando and Las Vegas. It has 52 00:06:10.220 --> 00:06:14.220 It has given us the 12-month congressional session. 53 00:06:14.220 --> 00:06:21.220 Where would the institution of American statism have been without the air conditioner? 54 00:06:21.220 --> 00:06:28.220 There are debits and credits for every single technology. 55 00:06:28.220 --> 00:06:34.220 The Internet has facilitated the dissemination of American nuclear secrets around the world. 56 00:06:34.220 --> 00:06:39.220 It has given us, Lew Rockwell, not once a day, not twice a day, but many times a day. 57 00:06:39.220 --> 00:06:47.220 So what is the net of technological advance? It isn't just debt, it's not just credit, but there is a net, there's a net effect of technology. 58 00:06:47.220 --> 00:07:03.220 More than that, the bowls, the super bowls, the unconditional bowls on equities and on the internet and revolution have told us that in effect the progress is seamless, not cyclical. 59 00:07:03.220 --> 00:07:11.220 Is that so? If you look at the revolution in air condition, what you find is that it didn't work. 60 00:07:11.220 --> 00:07:20.220 In 1930, it didn't work commercially. In 1933, Carrier had to suspend production of its then revolutionary room air conditioner because no one was buying them. 61 00:07:20.220 --> 00:07:27.220 Ah, you will say that was a depression. Well, yes, I say it was a depression, but note that innovation did not forestall the depression. 62 00:07:27.220 --> 00:07:35.220 So those who would contend that a new age has been delivered by technology are arguing without facts. 63 00:07:35.220 --> 00:07:42.220 Electricity, coming into commercial application a hundred, say, years ago, produced, theoretically, 64 00:07:42.220 --> 00:07:48.220 doubled or tripled the workday, which I guess is a good thing. Was that not productivity? 65 00:07:48.220 --> 00:07:56.220 Of course it was. The automobile, and so forth and so on. All these things have immensely enriched human life, 66 00:07:56.220 --> 00:08:03.260 in Life, but they have not delivered us from what we know on Wall Street as ups and downs, 67 00:08:03.260 --> 00:08:07.700 to speak technically. 68 00:08:07.700 --> 00:08:14.700 So I submit to you that technology alone can't explain stock market valuations and stock 69 00:08:14.700 --> 00:08:21.340 market speculation that is literally unprecedented, I think, in all markets and in all countries. 70 00:08:21.340 --> 00:08:24.340 Perhaps Japan accepted ten years ago. 71 00:08:24.340 --> 00:08:28.300 So what then might explain this, and technology explains it in part, this is indeed an age 72 00:08:28.300 --> 00:08:31.860 of miracles. 73 00:08:31.860 --> 00:08:36.080 Life is ever so much easier than it had been only a generation ago, but that alone cannot 74 00:08:36.080 --> 00:08:43.020 explain what could be called, I think, fairly a bubble. 75 00:08:43.020 --> 00:08:52.080 Well there is another, a much more pedestrian observation we made about American financial 76 00:08:52.080 --> 00:08:57.440 Markets and the American Financial Prosperity, and that is that Wall Street has found a benefactor 77 00:08:57.440 --> 00:09:05.440 in the federal government. Federal subsidy of credit expansion is a very, very important 78 00:09:05.440 --> 00:09:15.560 element in this unique moment in American finance. The Federal Reserve system is institutionally 79 00:09:15.560 --> 00:09:20.520 as a bank and you can't examine its balance sheet, they publish it weekly, unaudited. 80 00:09:20.520 --> 00:09:24.000 Burt Ely, who will see to that one of these days. 81 00:09:24.000 --> 00:09:28.840 But if you add up the assets in the Fed and do a year-over-year check of its growth, the 82 00:09:28.840 --> 00:09:33.160 Fed has expanded its footings, its balance sheet, by almost 10 percent. 83 00:09:33.160 --> 00:09:35.640 Well, is the economy growing at 10 percent? 84 00:09:35.640 --> 00:09:38.200 Why is the Fed expanding its assets? 85 00:09:38.200 --> 00:09:42.120 Why is the Fed delivering this stimulus to an economy that shouldn't need it, right? 86 00:09:42.120 --> 00:09:43.680 I mean, this is a new age. 87 00:09:43.680 --> 00:09:49.600 So the Federal Reserve system is an author or a co-author of the financial underpinning 88 00:09:49.600 --> 00:09:54.600 to this Great Speculation. Then, too, there are the so-called government-sponsored enterprises, 89 00:09:54.600 --> 00:10:00.740 the handmaidens of the Fed, outfits that do a very brisk financial business that are beloved 90 00:10:00.740 --> 00:10:05.120 on Wall Street because they are what is known in the trade as a great account, but which 91 00:10:05.120 --> 00:10:13.240 also must be included on any list of financial benefactors to the American speculator. 92 00:10:13.240 --> 00:10:17.920 To pick one of the biggest, Fannie Mae, the Federal National Mortgage Association, Fannie 93 00:10:17.920 --> 00:10:22.920 The Fannie Mae expanded its balance sheet in the 12 months ending June 30th by about 25%. 94 00:10:22.920 --> 00:10:25.920 Its mortgage portfolio is up by about 40%. 95 00:10:25.920 --> 00:10:30.920 The Fannie Mae is not creating credit, but it's facilitating the creation of credit by other institutions. 96 00:10:30.920 --> 00:10:42.920 Ditto the home loan banking system, ditto Freddie Mac, which has just hired our former leader Newt Gingrich as a consultant. 97 00:10:42.920 --> 00:10:50.920 So, one important observation about our prosperity is that it is subsidized in part. 98 00:10:50.920 --> 00:10:55.920 Credit is expanding briskly, money supply is expanding briskly. 99 00:10:55.920 --> 00:11:03.920 The broadest measure of money supply, M3, has been growing by upwards of 9.5% or so over the past couple of years. 100 00:11:03.920 --> 00:11:11.920 So yes, there is, in fact, a great miracle being wrought in the business of production. 101 00:11:11.920 --> 00:11:17.920 But there is also terrific fuel being poured into the engine of speculation. 102 00:11:17.920 --> 00:11:24.920 And every great bull market has a proximate cause. It has a reason. 103 00:11:24.920 --> 00:11:29.920 I mean, people didn't imagine that the automobile did great things in the American economy in the 20s. 104 00:11:29.920 --> 00:11:34.920 People don't imagine now that the microchip has done wondrous things for the economy in the 90s. 105 00:11:34.920 --> 00:11:39.920 But there is more to it than innovation. 106 00:11:39.920 --> 00:11:48.100 I promised you at the start the parable of the World Wrestling Federation, and to tie 107 00:11:48.100 --> 00:11:55.400 this into the actions of our Federal Reserve Board. 108 00:11:55.400 --> 00:12:00.260 Thanks to the Internet, you can go online and do key word searches, and I suggest you 109 00:12:00.260 --> 00:12:05.840 might try the following experiment right in your own homes, as we've done at Grant's. 110 00:12:05.840 --> 00:12:17.080 Ask the computer, who knows so much, ask him, her, to find, to match the words, Greenspan 111 00:12:17.080 --> 00:12:22.680 and God. 112 00:12:22.680 --> 00:12:31.000 And as the bookend to this exercise, ask the same omniscient thing to match for gold 113 00:12:31.000 --> 00:12:33.000 and Nazi. 114 00:12:33.000 --> 00:12:38.000 Again, you will not come up empty-handed. 115 00:12:38.000 --> 00:12:58.000 The market collectively, individuals en masse have credited a Federal bureaucracy with powers of intuition, of knowledge and of foreknowledge that are unique in the history of the public sector. 116 00:12:58.000 --> 00:13:00.840 Alan Greenspan was once a fellow in a business suit 117 00:13:00.920 --> 00:13:03.080 trying to make a living by telling the future, 118 00:13:03.160 --> 00:13:04.960 and he didn't fill many rooms. 119 00:13:05.040 --> 00:13:08.600 He was a good economist, 120 00:13:08.680 --> 00:13:11.320 but he was an ordinary guy who got up in the morning and went to work. 121 00:13:11.400 --> 00:13:16.200 How did it happen that Alan Greenspan became omniscient? 122 00:13:16.280 --> 00:13:18.560 Can anyone pinpoint the moment? 123 00:13:18.640 --> 00:13:22.240 Was there a federal program in which you participated? 124 00:13:22.320 --> 00:13:26.800 Was there adult education? What caused this? 125 00:13:26.800 --> 00:13:43.800 How is it that federal employees meeting in committee can set the one interest rate ostensibly that brings us unchecked and no longer cyclical financial progress and 20% per year compounded rates of return in the stock market? 126 00:13:43.800 --> 00:13:48.200 Well, it's absurd when you talk about it, isn't it? 127 00:13:48.200 --> 00:13:49.200 It simply doesn't make sense. 128 00:13:49.200 --> 00:13:55.100 And I think that I could ask any political, any audience with any politics 129 00:13:55.100 --> 00:13:57.800 to imagine the implausibility. 130 00:13:57.800 --> 00:14:02.800 This is not merely a libertarian or Austrian perception. 131 00:14:02.800 --> 00:14:06.800 It simply doesn't make sense. 132 00:14:06.800 --> 00:14:10.600 The suspension of disbelief is one of the secret engines 133 00:14:10.600 --> 00:14:18.760 of American Speculative Prosperity. 134 00:14:18.760 --> 00:14:29.920 When Stone Cold Steve Austin meets the executioner and there is a double flying dropkick laid 135 00:14:29.920 --> 00:14:33.760 on him or somebody breaks a chair over Stone Cold and says, we don't think that somebody 136 00:14:33.760 --> 00:14:38.200 is going to the hospital really, do we? 137 00:14:38.200 --> 00:14:41.520 World Wrestling Fans, of whom there are millions in this country, suspend disbelief willingly 138 00:14:41.520 --> 00:14:46.200 for the pleasure of the entertainment. 139 00:14:46.200 --> 00:14:50.800 Now we find in the pending public offering of the World Wrestling Federation, the perfect 140 00:14:50.800 --> 00:14:58.840 parable of the Federal Reserve, Dow 11,000, and this moment in finance. 141 00:14:58.840 --> 00:15:03.560 A little like day trading or speculation by the public, the World Wrestling Federation 142 00:15:03.560 --> 00:15:08.160 has come from nowhere into ubiquity. 143 00:15:08.160 --> 00:15:12.420 Financial results of the past five years show revenues on average in the first three years 144 00:15:12.420 --> 00:15:15.260 of $85 million per year. 145 00:15:15.260 --> 00:15:19.460 Last year there were $250 million. 146 00:15:19.460 --> 00:15:25.540 World Wrestling lost money in two of the three years, 95 and 97, this first three years work 147 00:15:25.540 --> 00:15:26.700 period. 148 00:15:26.700 --> 00:15:31.620 It made $30 million or so last year. 149 00:15:31.620 --> 00:15:35.700 The Enderwright has proposed to capitalize this company at 150 times the average of the 150 00:15:35.700 --> 00:15:47.700 What do they mean by this? They mean to say that wrestling is no longer cyclical. They mean to tell us that it will continue as it has been for the past 12 months. 151 00:15:47.700 --> 00:15:59.700 They mean us to overlook the fact that wrestling, like so many other entertainments, has had its moments in the sunshine, its moments in the shade. 152 00:15:59.700 --> 00:16:07.700 Roddy Roddy Piper was not a centimillionaire on the strength of his performance. 153 00:16:07.700 --> 00:16:14.700 And presumably this issue will blow out the door like so many have because people are willingly suspending their disbelief. 154 00:16:14.700 --> 00:16:20.700 Now, I'm going to stop in a moment and I'd love to take a question or two if you have any. 155 00:16:20.700 --> 00:16:28.700 Again, I stand before you not as a dogmatic savant about markets. 156 00:16:28.700 --> 00:16:33.700 about markets. If you are in the business, you are necessarily humble. It's not something 157 00:16:33.700 --> 00:16:38.380 you have acquired on Sunday mornings. It is a very humbling business, this Wall Street 158 00:16:38.380 --> 00:16:48.340 business. But I do, so to contend is, I guess you will hear others contend that the market 159 00:16:48.340 --> 00:16:53.940 is wrong and that one's self is right is a very, very big and bold claim, especially 160 00:16:53.940 --> 00:17:00.580 in view of some of our track records, but that is in fact my conviction, and let me 161 00:17:00.580 --> 00:17:06.680 try to, in winding up, let me try to strike an Austrian theoretical note in the context 162 00:17:06.680 --> 00:17:13.680 of the present day market, in the present day bubble. One of the hot new books out in 163 00:17:13.680 --> 00:17:19.280 the stock market, and there are a myriad of them, is something called Dow 36,000. Two 164 00:17:19.280 --> 00:17:22.540 very smart people have written it, one is a James Glassman, nice guy, I know, he's 165 00:17:22.540 --> 00:17:38.540 The American Enterprise Institute, and they contend that the stock market has systematically been undervalued by Americans who have not seen that the risks of owning equities over a 20-year holding period are in fact paradoxically lower than the risks of owning government securities. 166 00:17:38.540 --> 00:17:44.540 It is their assertion that stocks ought to be three times higher on aggregate than they are now. 167 00:17:44.540 --> 00:17:52.940 And then they propose that any moment, a tripling of the market will begin. 168 00:17:52.940 --> 00:17:57.020 Now it seems to me that many arguments can be arrayed against this. 169 00:17:57.020 --> 00:18:01.260 In fact, we tried to do that in the issue of grants I think you have back there. 170 00:18:01.260 --> 00:18:06.620 But I think the central and most interesting fallacy from the point of an Austrian analysis 171 00:18:06.620 --> 00:18:22.620 is that these fellows don't see the market as something that, they don't see market action and market valuation as having consequences apart from a theoretical marker of one's own wealth. 172 00:18:22.620 --> 00:18:34.620 They don't see that if stocks were tripled, then people's behavior would change and that the architecture of the economy, as it were, would be corrupted. 173 00:18:34.620 --> 00:18:43.620 The easiest way, to me, of imagining what would happen, if they were right, is to say what would happen if real estate values tripled tomorrow? 174 00:18:43.620 --> 00:18:48.620 Well, people would build, right? They'd build and then build and then overbuild. 175 00:18:48.620 --> 00:18:56.620 There would be a massive credit expansion to finance the construction of real estate, now triple in value. 176 00:18:56.620 --> 00:19:00.620 Landlords, however, would have to fight to keep their tenants, right? 177 00:19:00.620 --> 00:19:04.620 Because the population of tenants wouldn't triple. 178 00:19:04.620 --> 00:19:08.620 So rents would come down, landlords would cut rents, profit margins would shrink, 179 00:19:08.620 --> 00:19:12.620 and at the end of this bubble, the real estate business would be worse off 180 00:19:12.620 --> 00:19:16.620 than it had been before values tripled. In other words, 181 00:19:16.620 --> 00:19:20.620 the change in the value of an asset class 182 00:19:20.620 --> 00:19:24.620 generates changes in the way people capitalize themselves and capitalize their businesses 183 00:19:24.620 --> 00:19:29.740 Businesses and the structure that the economy takes. It becomes much more capital intensive 184 00:19:29.740 --> 00:19:36.300 if you mark up the value of capital. And I will leave it to people much more knowledgeable 185 00:19:36.300 --> 00:19:44.740 about the theory of this than I to elaborate on that as the days go on. 186 00:19:44.740 --> 00:19:49.540 There is no quarreling with the result of the financial environment in which we are 187 00:19:49.540 --> 00:19:56.540 are privileged to live. It has been merely stupendous. But as the French say, the practice 188 00:19:56.540 --> 00:20:03.340 is fine, but what about the theory? So with that, I got a few minutes. I'd love to take 189 00:20:03.340 --> 00:20:06.340 a question or two. Yes, sir? 190 00:20:06.340 --> 00:20:17.340 The question is on this confection called the euro, the pan-european fiat currency. 191 00:20:17.340 --> 00:20:27.340 The United States dollar is the ivory soap of monetary brands. 192 00:20:27.340 --> 00:20:42.340 It has market share, it has everything that an advertising agency could want in a product the dollar possesses. 193 00:20:42.340 --> 00:20:48.340 It is virtually the monopoly money of the world. 194 00:20:48.340 --> 00:20:54.340 This has caused no end of irritation of people who don't live in the United States. 195 00:20:54.340 --> 00:20:59.700 If you remember back to the 60s and the 70s, the United States would rather high-handedly, periodically 196 00:20:59.700 --> 00:21:04.900 change the value of the dollar at the expense of the economies of continental Europe and Asia. 197 00:21:06.900 --> 00:21:13.540 So the impetus for the creation of a euro, this goes back to the snake and other monetary adventures 198 00:21:13.540 --> 00:21:20.180 in the 60s, the impetus for this was in good measure political. Europeans were tired of an 199 00:21:20.180 --> 00:21:26.780 an Imperial Dollar and wanted a bit of their own. Jacques Rouef, who was a very solid thinker 200 00:21:26.780 --> 00:21:33.500 about monetary matters, deplored in the 20s the Imperial British Pound and deplored in 201 00:21:33.500 --> 00:21:40.100 the 50s the Imperial American Dollar. And these pleadings were heard and Europe set 202 00:21:40.100 --> 00:21:44.720 to work to create a competitor currency. It wants to create a currency that will serve 203 00:21:44.720 --> 00:21:49.720 The Federal Reserve is a reserve unit for the world in competition with the dollar. 204 00:21:49.720 --> 00:21:53.720 Is the euro something that one should hold or would hold? 205 00:21:53.720 --> 00:21:57.720 I don't know. I have a blind spot in monetary matters. 206 00:21:57.720 --> 00:22:01.720 I should confess my own personal financial interests. 207 00:22:01.720 --> 00:22:06.720 I'm very bullish on small Japanese stocks because I think they're being given away, 208 00:22:06.720 --> 00:22:08.720 or have been given away. 209 00:22:08.720 --> 00:22:11.720 I'm very bullish on gold. The first idea is working. 210 00:22:11.720 --> 00:22:24.720 is hopeless. Gold is the dog of dogs. And if the bears think they're bearish on it and they're disgusted by it, they ought to talk to the bulls. 211 00:22:24.720 --> 00:22:36.720 I can't stand it anymore. But I buy it because I think that in a world of competitive evaluations, in a world of very insubstantial monetary systems, 212 00:22:36.720 --> 00:22:43.320 Goal will one day reclaim some measure of market share in this monetary marketplace. 213 00:22:43.320 --> 00:22:50.320 So I think that the euro is not the worst idea for Europe given the politics of the 214 00:22:51.320 --> 00:22:58.320 situation. I have absolutely no confidence that this band of bureaucrats in Europe will 215 00:22:58.320 --> 00:23:04.440 fix on the right quantity of money, the right credit arrangements, the right interest rate. 216 00:23:04.440 --> 00:23:07.940 I think they're doing things that are wrong that the Fed has done. 217 00:23:07.940 --> 00:23:09.360 It wasn't very well said. 218 00:23:09.360 --> 00:23:13.440 I think that they are making many of the same mistakes the Fed has made. 219 00:23:13.440 --> 00:23:18.180 But I think unless you see it in the context of political competition, you can't properly 220 00:23:18.180 --> 00:23:21.360 handicap the race. 221 00:23:21.360 --> 00:23:26.200 So I think that the Germans want a weak euro, the French, for reasons of prestige, want 222 00:23:26.200 --> 00:23:27.560 a strong euro. 223 00:23:27.560 --> 00:23:31.040 Everyone wants a euro that will compete with a dollar, and a part of me thinks that they 224 00:23:31.040 --> 00:23:33.040 ought to have that. 225 00:23:33.040 --> 00:23:52.400 This is the saddest story ever told. 226 00:23:52.400 --> 00:23:56.280 I'm trying to think of all the things that should have made gold go up and haven't. 227 00:23:56.280 --> 00:24:03.640 I'm thinking about the serial currency disaster of 1998. 228 00:24:03.640 --> 00:24:15.000 I'm thinking about the disestablishment of the Deutschmark, one of the few relative success stories in post-war fiat monetary annals. 229 00:24:15.000 --> 00:24:19.320 I'm thinking of the record and growing U.S. current account deficit. 230 00:24:19.320 --> 00:24:23.160 I'm thinking of stupendous institutionalized short positions by producers. 231 00:24:23.160 --> 00:24:28.080 I'm thinking about the stupid mispriced facilitation of that short selling by central banks through 232 00:24:28.080 --> 00:24:32.920 gold lending operations. None of this matters except to assure a new low in the bullion 233 00:24:32.920 --> 00:24:42.960 price. There is no market like a bear market. I own this stuff. I own mining shares. I will 234 00:24:42.960 --> 00:24:45.880 continue to own them. Some of the mining shares have done pretty well considering the gold 235 00:24:45.880 --> 00:24:52.960 price. The only thing I can say is that it acts miserably. It's not validating the bullish 236 00:24:52.960 --> 00:24:57.960 On the other hand, things often don't work, before they do work. 237 00:24:57.960 --> 00:25:02.960 In January of 1980, gold bullion spiked $850 an ounce. 238 00:25:02.960 --> 00:25:07.960 The United States was on the verge of a Weimar inflation. 239 00:25:07.960 --> 00:25:12.960 You could see it, you could read it in the marketplace. 240 00:25:12.960 --> 00:25:15.960 Well, nuts, it was not. 241 00:25:15.960 --> 00:25:18.960 You should have sold gold and bought bonds, right? 242 00:25:18.960 --> 00:25:20.960 Bonds were 9%. 243 00:25:20.960 --> 00:25:27.360 9%. Well, bonds proceeded to go to 15% after they should have gone down in yield. That's 244 00:25:27.360 --> 00:25:32.480 what lends the poetry and the majesty and the mystery to what we do in Walter. It never 245 00:25:32.480 --> 00:25:37.480 works. It's always flummoxing. You never get it in a good night's sleep if you're invested. 246 00:25:37.480 --> 00:25:48.200 So, well, it's not exactly true. The weekends are okay. So, I'm a firm believer in the ultimate 247 00:25:48.200 --> 00:26:02.200 I think the federal response would matter if they wanted to make that decision. 248 00:26:02.200 --> 00:26:06.200 I think the federal response would matter if they wanted to make that decision. 249 00:26:18.200 --> 00:26:25.200 is aggressively easy, meaning it will aggressively chop the one thing it can chop, the federal funds rate. 250 00:26:25.200 --> 00:26:31.200 It has done so every time it has had the pretext, and it doesn't always work. 251 00:26:31.200 --> 00:26:40.200 The Bank of Japan cut rates now to their zero, and it was a very long, it's been 10 years in that market. 252 00:26:40.200 --> 00:26:45.200 Interest rates were sensibly zero in this country during the 30s. 253 00:26:45.200 --> 00:26:56.200 But to answer your question, I do believe the Fed will aggressively intervene to reduce interest rates and to facilitate a credit expansion in the face of a very dramatic fall in stock prices. 254 00:26:56.200 --> 00:27:04.200 One and all, I thank you. I thank you for your indulgence with my hurricane-induced time and exit. Thank you.