WEBVTT NOTE Where We Are, Where We Are Headed 1 00:00:00.000 --> 00:00:13.000 My topic is where we are and where we are headed and if one looks at the various recent indicators in the United States of America, 2 00:00:13.000 --> 00:00:22.000 it would appear, at least according to most experts, that monetary policy or lose monetary policy of Mr. Greensman appears to be working. 3 00:00:22.000 --> 00:00:23.000 That's what they're saying. 4 00:00:23.000 --> 00:00:29.080 saying that we had some good revival in the so-called purchasing management index, consumer 5 00:00:29.080 --> 00:00:36.000 confidence index appears to be strong according to the mainstream view and if one looks at the 6 00:00:36.000 --> 00:00:42.440 famous yield spread between the long term and short term interest rates shows quite a stronger 7 00:00:42.440 --> 00:00:50.840 rebound and then using appropriate legs so the argument goes it points to further revival in the 8 00:00:50.840 --> 00:00:58.920 Industrial Production. So it looks like as if everything is great and Mr. 9 00:00:58.920 --> 00:01:05.280 Greenspan has achieved this task. What I will be arguing today that it's not 10 00:01:05.280 --> 00:01:09.240 if there will be a recovery. It's got nothing to do with Mr. Greenspan as such 11 00:01:09.240 --> 00:01:16.640 and the critical element in all that is I believe is this something 12 00:01:16.640 --> 00:01:18.960 called the Pool of Funding. 13 00:01:18.960 --> 00:01:22.200 And before all this, I'll introduce this concept 14 00:01:22.200 --> 00:01:24.120 of Pool of Funding, which many of Austrians 15 00:01:24.120 --> 00:01:25.240 are familiar with that. 16 00:01:26.360 --> 00:01:27.880 Just like I would like to mention 17 00:01:27.880 --> 00:01:30.360 that the mainstream economics, 18 00:01:30.360 --> 00:01:32.840 and also some non-mainstreams, 19 00:01:32.840 --> 00:01:36.120 basically argue that the most important thing 20 00:01:36.120 --> 00:01:38.360 is to keep demand going. 21 00:01:38.360 --> 00:01:39.640 And the theory goes like that. 22 00:01:39.640 --> 00:01:42.040 All you do is push demand, 23 00:01:42.040 --> 00:01:44.600 either by lowering interest rates or pumping money, 24 00:01:44.600 --> 00:01:48.320 and ocus pocus preparacus jumps and you got recovery. 25 00:01:48.320 --> 00:01:52.440 And that's all you do is just boost the so-called demand. 26 00:01:52.440 --> 00:01:55.720 There are other parts saying all you do is just boost supply 27 00:01:55.720 --> 00:01:58.080 and things are also going to happen. 28 00:01:58.080 --> 00:02:01.600 None of them or very little been said 29 00:02:01.600 --> 00:02:03.240 as how this is gonna be funded. 30 00:02:03.240 --> 00:02:04.920 And that's why it's so important 31 00:02:04.920 --> 00:02:06.880 to use the issue of funding. 32 00:02:06.880 --> 00:02:10.200 This concept, although it might be abstraction, 33 00:02:10.200 --> 00:02:13.040 so the nice thing about the Austrian framework 34 00:02:13.040 --> 00:02:15.840 or von Boehm-Bawerk in particular, 35 00:02:15.840 --> 00:02:18.560 he has introduced so-called concretization 36 00:02:18.560 --> 00:02:19.840 of the abstraction. 37 00:02:19.840 --> 00:02:23.680 And this concretization could be presented 38 00:02:23.680 --> 00:02:24.840 by the following thing. 39 00:02:24.840 --> 00:02:26.600 For instance, imagine a baker here, 40 00:02:26.600 --> 00:02:28.300 he produces loaves of bread, 41 00:02:28.300 --> 00:02:30.720 and the loaves of bread, the bread that he is producing, 42 00:02:30.720 --> 00:02:33.040 it basically is finding that's his wealth. 43 00:02:33.040 --> 00:02:35.000 Now, what it does with this wealth, 44 00:02:35.000 --> 00:02:38.680 a portion of it is used in final direct consumption. 45 00:02:38.680 --> 00:02:41.280 You can see it basically consumes his bread, right? 46 00:02:41.280 --> 00:02:45.480 And the other portion is exchange of his bread, exchange for other goods like share. 47 00:02:45.480 --> 00:02:48.120 So all this we call consumption. 48 00:02:48.120 --> 00:02:52.520 And the other part of his bread, because it doesn't consume all his production, it basically 49 00:02:52.520 --> 00:02:58.040 uses to exchange for the services of various individuals who are producing various tools 50 00:02:58.040 --> 00:02:59.040 and machinery. 51 00:02:59.040 --> 00:03:04.040 Or he wants to upgrade his infrastructure, his bakery, he wants more ovens to be able 52 00:03:04.040 --> 00:03:05.500 to produce more breads. 53 00:03:05.500 --> 00:03:17.300 So he's saving, he's channeled here, and this bread, this means of sustenance, so to speak, or this funding, funds all that, and as a result of that now we can have much greater production, 54 00:03:17.300 --> 00:03:24.600 he can have much greater production of bread in the future, and this will enable him to consume more and also to save more. 55 00:03:24.600 --> 00:03:34.000 Now this element, this arrow here, basically when the part of bread which is channeled towards producing of all of the ovens, we call basically saving. 56 00:03:34.000 --> 00:03:40.040 And that's what saving is, to fund intermediate stages of production which ultimately culminates 57 00:03:40.040 --> 00:03:44.920 in capital goods and tools and machinery which enables to produce greater amount of final 58 00:03:44.920 --> 00:03:58.480 production. 59 00:03:58.480 --> 00:04:09.680 Now, the whole issue of pool of funding is of importance because it doesn't really, it 60 00:04:09.680 --> 00:04:18.120 makes an important point here that economics is not about consumption as such, it's not 61 00:04:18.120 --> 00:04:26.540 about production as such, it's actually about something greater than all that is to achieve 62 00:04:26.540 --> 00:04:44.540 to achieve the ultimate goal to maintain life and well-being of individuals, that's the ultimate objective of everybody and both consumption and production in the free market least operate in a tandem to achieve this ultimate goal which is the life and individual's well-being. 63 00:04:44.540 --> 00:04:53.300 So it's wrong, as far as I'm concerned, to argue that consumption is more important than production, or production is more important than consumption. 64 00:04:53.300 --> 00:05:03.300 In the free market, they all operate in tandem, in sync, and in fact you can see in this diagram that to produce the ultimate wealth, 65 00:05:03.300 --> 00:05:10.300 and this ultimate wealth are the final goods and services that are required to sustain our life and well-being, 66 00:05:10.300 --> 00:05:35.300 We basically, this foot plate, so to speak, this foot plate supports various individuals who are engaged in various stages of production, intermediate, or we call it higher stages, or lower stages, and ultimately the final stage here, which again, I cannot present it in this particular diagram, it gives us the final product which are here. 67 00:05:35.300 --> 00:05:48.300 In other words, the pool of funding here in the free market economy, so to speak, initially it's locked into the production of various intermediate goods and services 68 00:05:48.300 --> 00:05:57.300 and finally it's unlocked or released back in terms of the original amount which was invested plus more 69 00:05:57.300 --> 00:06:03.300 and that's really what economic growth is all about, the capital of funding is released all the time 70 00:06:03.300 --> 00:06:12.000 First, it's unlocked. This locking enables the creation of better infrastructure, and that's how economic growth is developing. 71 00:06:12.000 --> 00:06:16.300 That's what economic growth is all about, enlarging the pool of funding. 72 00:06:18.300 --> 00:06:29.800 Now, the problem, of course, erupts. Sorry, in a free market economy, the pool of funding by itself will be meaningless, 73 00:06:29.800 --> 00:06:44.800 or creation of funding will be very difficult without having money as such, which plays an important role of division of labor where people of various specialities can exchange various goods and services with each other. 74 00:06:44.800 --> 00:06:50.800 In other words, to promote their life and well-being, they can exchange things that they have got for things they prefer more. 75 00:06:50.800 --> 00:06:55.800 Naturally, how economic growth can take place, but money is necessary, money as a medium of exchange. 76 00:06:55.800 --> 00:07:00.240 works basically as somebody produces certain important thing exchanges this 77 00:07:00.240 --> 00:07:04.520 for money and then it can exchange money for something that they really wants so 78 00:07:04.520 --> 00:07:08.120 which means that with the help of money something can be exchanged for something 79 00:07:08.120 --> 00:07:12.280 else something for something the subject in other words consumption is funded 80 00:07:12.280 --> 00:07:17.400 fully funded by production or again production production first and then 81 00:07:17.400 --> 00:07:21.600 consumption second and in other words everything is perfectly matched the 82 00:07:21.600 --> 00:07:29.880 The problem erupts when monies get abused. We call it inflation. Inflation can be presented 83 00:07:29.880 --> 00:07:34.880 as just a monetary balloon. Money is printed out of thin air. You can see the expansion 84 00:07:34.880 --> 00:07:38.080 of money all the time. That's really what inflation is. It's got nothing to do with 85 00:07:38.080 --> 00:07:44.240 so-called price indices and various price deflators. Inflation is purely printing money, 86 00:07:44.240 --> 00:07:50.960 expansion of the balloon. And how printing money destroys things? Well, very simple. 87 00:07:50.960 --> 00:07:56.960 In a free market, unharmed economy, we have a perfect harmony between consumption and production. 88 00:07:56.960 --> 00:08:01.960 Consumption is fully measured by production, which in turn supports the production. 89 00:08:01.960 --> 00:08:05.960 Consumption supports production, and everything is perfectly in tandem. 90 00:08:05.960 --> 00:08:10.960 When money is created out of thin air, and imagine here a little Johnny counterfeiter, 91 00:08:10.960 --> 00:08:13.960 he basically printed money and sits and rests nicely now. 92 00:08:13.960 --> 00:08:17.960 What he does basically, he exchanges this counterfeit money for something, right? 93 00:08:17.960 --> 00:08:25.960 In other words, he produced absolutely nothing, and actually helps himself, consumes, it takes without giving back in return nothing. 94 00:08:25.960 --> 00:08:33.960 So what he did basically here, he exchanged nothing for something, or there was zero production, production of wealth, there was a lot of consumption of it. 95 00:08:33.960 --> 00:08:45.960 So basically this we call counterfeit, highway robbery, theft, if you want, embezzlement, any other word in English is accepted here, it's all basically amounts to stealing. 96 00:08:45.960 --> 00:09:15.960 And, but, ladies and gentlemen, the same practice is actually being conducted by central banks, I mean, there's no difference between the economic act of this particular little counterfeiter here and what the central bank does, what central bank or any monetary authority which engaged in printing money, they're basically engaged in creating exchange, setting in motion the exchange of nothing for something, which means the same thing, stealing. The only difference between the 97 00:09:15.960 --> 00:09:34.960 The notes or money which is created by the central bank and the counterfeiter, the central bank notes are called legal tender, the counterfeiter money is illegal tender, right, because it competes with the big monopolies here, but otherwise the economic effect is the same, they both steal from the wealth generators. 98 00:09:34.960 --> 00:09:42.960 Now, and how this theft, if you want, sets in motion business cycles, for instance. 99 00:09:42.960 --> 00:09:48.960 Very, very simple here. Once you start printing money, and that's what the central bank does, 100 00:09:48.960 --> 00:09:55.960 it will be this monetary printer will be accompanied by also artificial lowering of interest rates. 101 00:09:55.960 --> 00:10:02.960 And what will happen then, producers will start basically various activities, 102 00:10:02.960 --> 00:10:22.960 In other words, as I said before, there are various complex stages, many stages here before the final product is produced, but all the stages are in total harmony and sync. 103 00:10:22.960 --> 00:10:35.960 Now, all of a sudden, a businessman, once he observes lower interest rate, he basically responds to it and it tries to do certain things that this lower interest rate tells him. 104 00:10:35.960 --> 00:10:44.960 It tries to expand various capital projects, which ultimately ends up that they will be out of sync. 105 00:10:44.960 --> 00:10:51.960 In other words, far too little will be invested in the stages which are producing the final consumer goods. 106 00:10:51.960 --> 00:11:05.960 and hell of a lot will be invested in stages of production which are far remote like mining or iron, steel and various infrastructure which is completely removed. 107 00:11:05.960 --> 00:11:09.960 We cannot see it with naked eye. They're linked to final consumer goods. 108 00:11:09.960 --> 00:11:17.960 Or you can say that there are far too many fiber optic cables being produced, for instance, and far too little demand for it, right? 109 00:11:17.960 --> 00:11:23.960 in this regard, or you got very many highways and not enough trucks and not enough goods to ship all this, right? 110 00:11:23.960 --> 00:11:28.960 So that's really what develops the total situation of out of sync. I call it the pyramid, right? 111 00:11:28.960 --> 00:11:35.960 A useless pyramid in this regard. And bear in mind that this pyramid here got no linkage at all to the pool of funding. 112 00:11:35.960 --> 00:11:41.960 In other words, the funding in this case here have been locked and then unlocked back, 113 00:11:41.960 --> 00:11:46.960 released back to the initial pool and contributes to economic growth. 114 00:11:46.960 --> 00:11:55.960 It's been released, locked here, and stays locked, basically. It's never released back, this is a dead capital, so to speak, been destroyed. 115 00:11:55.960 --> 00:12:07.960 So what it does, it dilutes from the original pool of funding, and obviously it starts to weaken the wealth producers, because wealth producers now have less funding. 116 00:12:07.960 --> 00:12:12.960 It's important to mention the aspect of funding, every activity has to be funded. 117 00:12:12.960 --> 00:12:18.960 Even if you have nice tools, but if you don't have means of sustenance to support your stomach, you'll be dead, it won't work. 118 00:12:18.960 --> 00:12:21.960 Take Argentina, it's an extreme case, right? 119 00:12:21.960 --> 00:12:32.960 So, pool of funding is of utmost, and if the pool of funding is being destroyed or locked here, obviously the heart of economic activity will start to be affected. 120 00:12:32.960 --> 00:12:37.960 In the meantime, in terms of GDP and various economic activity indicators, all looks very good. 121 00:12:37.960 --> 00:12:52.960 The Central Bank gets very encouraged and says, well, our policy is working. Why is it still working? Because as long as the pool of funding still expands, things will appear to be fine as if things are going, as if we are very successful. 122 00:12:52.960 --> 00:12:59.960 And the success prompts the Central Bank to raise the balloon further, to pump even more money. 123 00:12:59.960 --> 00:13:09.360 And obviously, this forces further expansion in capital goods, which I would say could be depicted by more pyramids than pyramids, right? 124 00:13:09.360 --> 00:13:14.760 And all those pyramids require engagement of workers who are engaged in building these pyramids. 125 00:13:14.760 --> 00:13:21.360 They cannot just spring out of the blue. You have to have more workers. You have to feed them. You have to sustain them. 126 00:13:21.360 --> 00:13:26.560 And where all this comes from? It will come from this pool. 127 00:13:26.560 --> 00:13:44.160 And if all of a sudden we engage to a greater extent in distortions, and we distort this infrastructure to such an extent that the current structure will only enable you to produce a diminishing pool of funding vis-a-vis previous situations, we are in serious trouble. 128 00:13:44.160 --> 00:13:53.760 Now, as a rule, central banks, when they would observe that this monetary expansion would cause various unbearable symptoms, 129 00:13:53.760 --> 00:14:01.860 they basically would say, well, we have to do something against that, and they would cool off this thing, in other words, they would try to burst the bubble. 130 00:14:01.860 --> 00:14:09.760 And by bursting the bubble, the diversion of means of sustenance, of pool of funding, to those guys would be arrested for slowing down. 131 00:14:09.760 --> 00:14:39.760 Obviously, this creates unemployment because all those people are engaged here and spare capacity, so to speak, developed and everybody is crying, this is morally incorrect, you shouldn't do such a things, and what the Austrians are telling you, that's a good policy, those guys are really nutcases because they're talking nonsense, there's a lot of unemployment here and we've got to help those people, we cannot afford to have a recession. Now, obviously, after a while after the pressure, central bank succumbs to this pressure and starts 132 00:14:39.760 --> 00:14:45.760 and all it does basically it continues to weaken this pool of funding. 133 00:14:45.760 --> 00:14:49.760 A situation emerges, can emerge, and that's not always happens, but it can happen, 134 00:14:49.760 --> 00:14:54.760 it happened several times in history, when the pool of funding begins to shrink. 135 00:14:54.760 --> 00:14:59.760 Once it shrinks, that's what makes the distinction between recession and depression. 136 00:14:59.760 --> 00:15:05.760 Ladies and gentlemen, again, the recession and depression is not as such about so-called GDP, 137 00:15:05.760 --> 00:15:18.760 and the strength of GDP etc. basically by the fact that there was a lot of distortion caused by false monetary policy which caused those distortions in various stages of production 138 00:15:18.760 --> 00:15:30.760 and caused the structure of production to go out of sync which in turn caused the capital of funding to be locked and prevented the unlocking of the capital. 139 00:15:30.760 --> 00:15:36.260 All this thing, once it happens, and pool of funding begins to shrink, depression emerges, 140 00:15:36.260 --> 00:15:42.260 people of various importance, stature, screaming, we have to do something more, 141 00:15:42.260 --> 00:15:46.260 we have to print money on a massive scale, we have to help those people. 142 00:15:46.260 --> 00:15:50.260 Well, it all looks very good, but the one thing they have forgotten is that this thing shrinks. 143 00:15:50.260 --> 00:15:54.760 It doesn't matter what you do, you can hit your head, bash your head against a brick wall, 144 00:15:54.760 --> 00:15:59.760 it's not going to happen, it's going to help you, because the pool of funding is not going to grow. 145 00:15:59.760 --> 00:16:07.660 to grow the pool of funding, you have to stop the diversion of it, let the wealth generators gradually build it up until more wealth will set in 146 00:16:07.660 --> 00:16:16.860 and only then, perhaps, sometime in the future, we'll be able to absorb all the distortions that took place, some of them probably will never be able to be absorbed 147 00:16:16.860 --> 00:16:24.960 in other words, they are dead wood completely, pyramids, some of them, perhaps, sometime in the future we'll be able to bring them on board 148 00:16:24.960 --> 00:16:40.960 In the meantime, what needs to be done is perhaps to absorb all those individuals here, back here, but the process is very slow, requires a lot of time, that's the reason why Austrians or Misesians argue that you have to do absolutely nothing. 149 00:16:40.960 --> 00:16:52.960 Absolutely nothing means to do hell of a lot. Don't divert the real wealth, the real funding from wealth generation activity towards non-wealth generating activities. 150 00:16:52.960 --> 00:17:22.960 So to recap what I said, wealth or pool of funding basically supports wealth producers who in turn are adding further to the pool of funding and then of course if we have another class here or just class of parasites if you want, non-wealth generators, we're sitting here and as long as the percentage of wealth generators exceeds the percentage of wealth consumers, we basically still got a good situation 151 00:17:22.960 --> 00:17:29.960 more wealth is created because more is put in, vis-a-vis taken out, and we can continue to grow 152 00:17:29.960 --> 00:17:36.960 but once the balance moves in another direction, more non-wealth producers are emerging 153 00:17:36.960 --> 00:17:39.960 then we in serious trouble, we are in a depression 154 00:17:41.960 --> 00:17:46.960 now what I will argue today, first of all, that the outlook for the US economy 155 00:17:46.960 --> 00:17:50.960 there is a growing possibility that the so-called cyclical upturn 156 00:17:50.960 --> 00:17:56.800 and manufacturing has already begun, I would say, but again we'll discuss what it's all about. 157 00:17:56.800 --> 00:18:07.760 I'm suggesting that the Fed will continue to lower interest rates further and the strong rises in liquidity should provide support to stock and bond prices. 158 00:18:07.760 --> 00:18:19.320 Looking at the historical relationship between interest rates and the changes in the industrial production and taking into account that recessions are about liquidation of errors, 159 00:18:19.320 --> 00:18:25.300 I'm suggesting that the current recession has begun not in March 2001 but actually in 160 00:18:25.300 --> 00:18:31.860 June 2000, right, and this happened as a result of the fact that Fed has raised interest rates 161 00:18:31.860 --> 00:18:42.860 a year earlier from 5%, started to raise until May 2000 to 6.5%. This was the precursor, 162 00:18:42.860 --> 00:18:49.060 basically, it was set in motion, the current economic recession, if you want, but since 163 00:18:49.060 --> 00:18:56.080 January last year we had aggressive monetary loosening, which I'm suggesting set in motion 164 00:18:56.080 --> 00:19:02.740 the process of cyclical recovery in the industrial sector. 165 00:19:02.740 --> 00:19:08.700 Now cyclical recovery shouldn't be confused by some miracle or whatever, all it basically 166 00:19:08.700 --> 00:19:13.980 does is continue to further misallocation of resources, reshuffling of the existing pool 167 00:19:13.980 --> 00:19:14.980 of funding. 168 00:19:14.980 --> 00:19:17.120 It doesn't grow anything, it only destroys things. 169 00:19:17.120 --> 00:19:21.240 But we like this word cyclical because it creates illusion of recovery, so we say well 170 00:19:21.240 --> 00:19:27.760 central bank creates economic growth and economic growth can occur but not because of the central 171 00:19:27.760 --> 00:19:31.760 bank policies, because the pool of funding is still growing, because there's still enough 172 00:19:31.760 --> 00:19:37.440 wealth generators who are creating wealth in spite of bad policies of the central bank. 173 00:19:37.440 --> 00:19:45.060 Now the current policies in United States, and I'm arguing, might have set the possibility 174 00:19:45.060 --> 00:19:50.060 that the pool of funding could be in serious trouble. In fact, I would argue that United 175 00:19:50.060 --> 00:19:55.700 States might be following in the footpath of Japan. Look at the interest rate policy 176 00:19:55.700 --> 00:20:02.700 since the beginning of 80s. The policy was on a steady trend, the downtrend from 9.5% 177 00:20:02.700 --> 00:20:11.700 to current 1.75%. If you look at the monetary pumping, I have introduced here so-called 178 00:20:11.700 --> 00:20:41.700 the monetary injection if you want or money stock in relation to trend prior to 1980 prior to financial deregulation and you can see that the massive monetary explosion that took place in the United States and for that matter in other countries and in December in relation to trend the money AMS the Austrian definition of money was 80% above the above the historical trend and I'll skip it and if 179 00:20:41.700 --> 00:20:58.300 For every dollar of monetary printing, obviously it generates a dollar of the saving of wealth destructions, even on government data, with all the critique on it, and I'm just using for illustrative purposes only, shows a tremendous collapse basically. 180 00:20:58.300 --> 00:21:11.660 It doesn't suggest that this is the right measurement or whatever, it's just another Keynesian dump of formulation, how the whole thing is measured, but I just wanted to show for illustration purposes, even Keynesian measures are terrible. 181 00:21:11.660 --> 00:21:17.660 If you look at the indebtedness in the American economy, it's catastrophic. 182 00:21:17.660 --> 00:21:24.660 For instance, the household's liabilities to assets have risen to a record high now. 183 00:21:24.660 --> 00:21:32.660 In other words, the liabilities exceeding by a great margin the productiveness of assets. 184 00:21:32.660 --> 00:21:34.660 The assets are not growing enough. 185 00:21:34.660 --> 00:21:37.660 And the same applies also to the so-called corporate. 186 00:21:37.660 --> 00:22:07.660 corporate, you can see at record high, all this is basically atomic bomb, taking nuclear disaster, if you want, and this says to me something about the nature of the pool of funding, which could be in serious trouble, if you look at the consumer's real net worth, it's also in a very bad shape, in real terms, again, as far as one can calculate such a thing, so all in all, the likelihood that we are 187 00:22:07.660 --> 00:22:13.660 in a serious situation, as far as funding is concerned, is very high. 188 00:22:13.660 --> 00:22:22.660 Also taking into account that the investment-to-consumption ratio and trying again to relate it to the Austrian theory, 189 00:22:22.660 --> 00:22:26.660 which suggests that when you lower interest artificially, you create various pyramids. 190 00:22:26.660 --> 00:22:36.660 So instead of producing final consumer goods, you're producing far too little consumer goods in relation to capital goods production. 191 00:22:36.660 --> 00:22:42.660 The ratio of capital goods production to consumption goods is rising enormously. 192 00:22:42.660 --> 00:22:52.660 Historically, the ratio used to be 0.12. Now it's in the vicinity of 0.2, implying even using, again, the Keynesian data, national accounting, 193 00:22:52.660 --> 00:22:58.660 we are in serious trouble. It might take many years until those excesses will be cleaned up. 194 00:22:58.660 --> 00:23:05.660 So prior to that and before that, you can forget about having any meaningful recovery. It's not possible to have such a thing. 195 00:23:05.660 --> 00:23:09.660 You can have various so-called cycles if you want, etc. 196 00:23:09.660 --> 00:23:15.660 The question that I would like to ask here is how it's possible that America, 197 00:23:15.660 --> 00:23:19.660 America, which has been pursuing bad policies for so many years, 198 00:23:19.660 --> 00:23:23.660 continues to manage to produce good economic growth in terms of GDP, 199 00:23:23.660 --> 00:23:27.660 while other countries like Japan, which has been pursuing the same bad policies, 200 00:23:27.660 --> 00:23:30.660 suffering already for the last decade. 201 00:23:30.660 --> 00:23:47.460 Well, first of all, I would argue that both Japan and the United States, as you can see, 202 00:23:47.460 --> 00:23:54.860 both were pumping money in the same way. You can see the shape of it. Also, both were conducting 203 00:23:54.860 --> 00:23:59.860 and low-interest policies. The downtrend is exactly the same, more or less. 204 00:23:59.860 --> 00:24:04.860 So how come, again, the Japanese are in such a bad shape and the Americans are not? 205 00:24:04.860 --> 00:24:10.860 And here, of course, I would agree with the mainstream economics, but that's also what Austrians are saying, 206 00:24:10.860 --> 00:24:13.860 that the American pool of funding was held by the rest of the world. 207 00:24:13.860 --> 00:24:16.860 The rest of the world was supporting the American pool of funding. 208 00:24:16.860 --> 00:24:20.860 Now, you can see in terms of balance of payment in the United States, a massive deficit, 209 00:24:20.860 --> 00:24:25.420 Deficit, and you can see the Japanese balance of trade with the United States, what happened 210 00:24:25.420 --> 00:24:33.620 here. In short, what happened to Japan is very interesting, right? Their pool of funding 211 00:24:33.620 --> 00:24:38.260 was supporting their parasites here, some of the wealth producers, and there were very 212 00:24:38.260 --> 00:24:42.860 little left, and also a big portion of it went to the United States of America. But 213 00:24:42.860 --> 00:24:48.680 what they got in return for America, by giving America all the goods and services, they got 214 00:24:48.680 --> 00:25:03.680 Lot of treasury bonds. Now imagine Baker would exchange his bread for treasury bonds. So instead of supporting his infrastructure and funding his infrastructure of ovens, he would basically use his savings to buy treasury bonds. 215 00:25:03.680 --> 00:25:11.680 What would he get? Absolutely nothing, right? He would basically be buried with useless papers, so to speak, right? And his pool of funding would be suffering and shrinking. 216 00:25:11.680 --> 00:25:20.280 And that's basically what happened in Japan. Japan was, I would argue, and also other countries in the world, was impoverished, still impoverished by the American policies. 217 00:25:20.280 --> 00:25:28.780 Now how it happened? Very simple. American dollars can be printed. American dollars is an international medium of exchange. It's the only currency. 218 00:25:28.780 --> 00:25:37.180 And whenever Americans are printing money, what they're doing basically, they're in a position like any counterfeiter if you want, right? 219 00:25:37.180 --> 00:25:49.680 The first to buy any goods and services from the rest of the world and by doing this they're bidding up prices of other goods and services, denying other countries, if you want, to have access to this particular international pool. 220 00:25:49.680 --> 00:26:01.180 So as long as the international pool of funding is still there, even if the American pool of funding is not growing or in problems, America can continue to survive. 221 00:26:01.180 --> 00:26:31.180 but there are bad stories are coming that the world is also suffering now. Japan is in terrible shape, rest of the world is probably not going to be doing to do very well so this could could produce serious trouble for the American pool of funding and it's just to show you the amount of of treasury bonds held by foreigners right and you can see the percentage is just continues to grow further and further. Final notes I'll just put a little bit on the stock market. Stock market ladies and gentlemen 222 00:26:31.180 --> 00:26:35.180 is just a place where facts of reality is evaluated. 223 00:26:35.180 --> 00:26:38.180 Stock market does not create anything, right? 224 00:26:38.180 --> 00:26:44.180 And to Austrians, at least, it's a fallacy to say that falling in the stock market causes a recession. 225 00:26:44.180 --> 00:26:46.180 It doesn't cause anything of the sort. 226 00:26:46.180 --> 00:26:50.180 Stock market just evaluates things, evaluation. 227 00:26:50.180 --> 00:26:55.180 My perception on things cannot alter the facts of reality present, right? 228 00:26:55.180 --> 00:26:58.180 And these are facts, and that's what it is. 229 00:26:58.180 --> 00:27:03.220 As a result of lose monetary policy, my perception, my evaluation got distorted. 230 00:27:03.220 --> 00:27:06.900 Once monetary policy is tightening, I can see the reality much better. 231 00:27:06.900 --> 00:27:10.740 And that's really what the stock market is telling us. 232 00:27:10.740 --> 00:27:17.700 And whenever the pool of funding comes to serious trouble, and obviously this is manifested 233 00:27:17.700 --> 00:27:23.860 also by profits, I believe that sooner or later the reality has to hit also into the 234 00:27:23.860 --> 00:27:24.860 stock market. 235 00:27:24.860 --> 00:27:30.620 There is only one factor which might upset all this, and this is the so-called liquidity factor. 236 00:27:30.620 --> 00:27:34.140 Monetary pumping creates illusion of wealth. 237 00:27:34.140 --> 00:27:40.540 And you can see that, historically speaking, as the amount of liquidity gone up with certain lag, 238 00:27:40.540 --> 00:27:43.100 it would push the momentum in the stock market. 239 00:27:43.100 --> 00:27:46.140 So liquidity is very important, ladies and gentlemen. 240 00:27:46.140 --> 00:27:50.860 However, liquidity by itself cannot drive the market if the bottom line is not there. 241 00:27:50.860 --> 00:27:57.620 If the pool of funding is not there, eventually there will be divergence, massive divergence, and so-called pushing on the string takes place. 242 00:27:57.620 --> 00:28:07.060 Whether it's already emerging, I don't know, but all that I can suggest, it will not surprise me that this could be the case, definitely the case in Japan. 243 00:28:07.060 --> 00:28:14.540 A bond market, liquidity is very important, despite the fact that the underlying savings is not there, the bottom line is not there. 244 00:28:14.540 --> 00:28:24.880 But the fact that treasury bonds or government is perceived as a blue chip, as the riskless paper, is still there in the image. 245 00:28:24.880 --> 00:28:30.980 And as long as liquidity is there, it should benefit the bonds. So it appears to be still good. 246 00:28:30.980 --> 00:28:38.180 But the issue of the possibility of a credit crunch, very much there, despite of so-called liquidity, 247 00:28:38.180 --> 00:28:43.100 because what matters is the proper liquidity, the real funding. 248 00:28:43.100 --> 00:29:05.100 Finally, a few words about gold. I think gold suffered a lot. There is a good possibility now that the strong rebound in liquidity might bring certain light to gold and sometime, in a few months' time I would say, we could start seeing a certain recovery in gold. 249 00:29:05.100 --> 00:29:15.100 I believe it should happen, at least my monetary indicators for the first time in many years are turning a bit positive, bullish on gold. 250 00:29:15.100 --> 00:29:29.100 And various other commodities, I think that there could be certain illusory bottoming, but if the pool of funding is not there, I don't think we'll have a rebound as in gold or anything of the sort. 251 00:29:29.100 --> 00:29:37.100 So, who needs all various commodities? After all, various stages of production are exaggerated, particularly the longer stages. 252 00:29:37.100 --> 00:29:47.100 We've got far too many capital goods, and so I don't think there will be a great demand for various metals as such. 253 00:29:47.100 --> 00:30:03.100 And I think I'll stop here and just to conclude basically that if we'll have a recovery, so-called industrial production, it's basically just a false situation. 254 00:30:03.100 --> 00:30:16.100 The crux of the matter, what matters here is not GDP as such, but whether the means of sustenance are there, possibility of Argentina, it's unthinkable that it can happen in America, right? 255 00:30:16.100 --> 00:30:21.300 But think about also Argentina, it's very advanced, sophisticated countries, and what's happened? 256 00:30:21.300 --> 00:30:30.900 Run on banks, people cannot get their money because money was squandered, basically people's saving was destroyed by reckless policies. 257 00:30:30.900 --> 00:30:39.700 And important here to add here, when the people are holding money, they basically always believe that this money got certain backup. 258 00:30:39.700 --> 00:30:52.200 This again implies that somebody is producing goods, but that's not the case, and we got very ominous signs also in the United States of America. 259 00:30:52.200 --> 00:30:54.200 So here I'll stop, and thanks a lot.