WEBVTT NOTE Speaker Panel 1 00:00:00.000 --> 00:00:06.000 Ladies and gentlemen, we can start this. You can ask a question of an individual or of the panel. 2 00:00:06.000 --> 00:00:10.000 So I apologize for this light. I hope I see everybody. 3 00:00:10.000 --> 00:00:14.000 First question? Yes, stand up and ask your question. 4 00:00:14.000 --> 00:00:25.000 So in Austrian business cycle theory, it says that the central bank causes the boom by inflating, lowering interest rates. 5 00:00:25.000 --> 00:00:29.360 and, you know, like Pavlovian dogs, we go out. 6 00:00:29.360 --> 00:00:34.360 Consumers spend, business managers invest, bankers lend 7 00:00:34.360 --> 00:00:39.360 and so here we are in quantitative easing number N 8 00:00:39.440 --> 00:00:42.000 to infinity and beyond. 9 00:00:42.000 --> 00:00:46.320 And is this the boom that we're gonna get out of it 10 00:00:46.320 --> 00:00:50.060 or is that massive pile of money in excess reserves 11 00:00:50.060 --> 00:00:52.060 some kind of evidence that, you know, 12 00:00:52.060 --> 00:01:06.080 There are a lot of excess reserves in the banking system, but there has been a rapid 13 00:01:06.080 --> 00:01:15.340 run-up in the money supply, both M2 and MZM, two of the official Fed measurements. 14 00:01:15.340 --> 00:01:21.540 You certainly see a boom in commodities and you're going to see it intensify in the future. 15 00:01:21.540 --> 00:01:27.580 At some point, there's talk that the Fed may withdraw that 0.25% interest that they're 16 00:01:27.580 --> 00:01:34.000 paying on unused reserves, so that will flood the economy even more with reserves. 17 00:01:34.000 --> 00:01:36.900 And just one point, the Austrian business cycle doesn't say that the central bank lowers 18 00:01:36.900 --> 00:01:37.900 interest rates. 19 00:01:37.900 --> 00:01:40.480 I mean, the central bank doesn't control interest rates. 20 00:01:40.480 --> 00:01:45.580 What it does do is create reserves out of thin air, and in the process of lending them 21 00:01:45.580 --> 00:01:50.180 out, there's an excess supply of excess reserves on the market, and interest rates fall as 22 00:01:50.180 --> 00:02:20.180 Well, my take is that we've really, you know, we've done this for so long that I think the ability of the government to create an artificial boom has been diminished and now requires so much stimulus because we're so addicted to it and, you know, the bigger the economy gets, at least, or the phony economy, the more stimulus that you need to give it another shot. It's just like any other addiction. I guess you build up a tolerance. 23 00:02:20.180 --> 00:02:25.180 And if you're a drug addict and if you keep taking the same drug, you need more and more of it. 24 00:02:25.180 --> 00:02:32.180 I mean, if you look at how muted the phony recovery we got as a result of the bailouts this time, 25 00:02:32.180 --> 00:02:34.180 we had record amounts of stimulus. 26 00:02:34.180 --> 00:02:40.180 We had more stimulus under Bernanke than we had under Greenspan, yet we barely moved the needle. 27 00:02:40.180 --> 00:02:43.180 I mean, we didn't even get the unemployment rate to come below 8%. 28 00:02:43.180 --> 00:02:45.180 In fact, it's really 15%. 29 00:02:45.180 --> 00:02:49.180 Economic growth, the GDP numbers couldn't even really pierce two for very long. 30 00:02:49.180 --> 00:02:53.860 and we're already on the cusp of another recession I mean the Fed knew that if it 31 00:02:53.860 --> 00:02:57.940 didn't come up with even more stimulus we would be back in recession but now 32 00:02:57.940 --> 00:03:02.320 since you know the problem is so much bigger the debt is so much larger you 33 00:03:02.320 --> 00:03:05.860 need that much of a dose and again you know you get a smaller and smaller 34 00:03:05.860 --> 00:03:10.340 reaction and I think we're at the point of overdose I'm at the point where we're 35 00:03:10.340 --> 00:03:15.220 gonna die from all this stimulus it's just not gonna work anymore the world's 36 00:03:15.220 --> 00:03:20.220 Well, it's not going to hold our paper, and it's just that we've reached the end of the road. 37 00:03:20.220 --> 00:03:27.220 I mean, I don't know how many feet we got left, but I think it falls apart within the next several years, maybe within the next several months. 38 00:03:27.220 --> 00:03:38.220 I mean, you can't pinpoint these things, but I think the world is going through these sovereign debt crises, and we're probably next on the list. 39 00:03:38.220 --> 00:03:43.220 Well, and I think you can make a case that another bubble has been created. 40 00:03:43.220 --> 00:03:51.220 All the time we talk about record number of people on food stamps while we've had unemployment rates from 10 to maybe down to 8. 41 00:03:51.220 --> 00:03:53.220 The real economy hadn't done anything. 42 00:03:53.220 --> 00:03:57.220 Stock markets more than doubled since March of 2009. 43 00:03:57.220 --> 00:04:01.220 Junk bond funds have record inflows. 44 00:04:01.220 --> 00:04:07.220 House prices, as Peter mentioned in his speech, have not been allowed to correct for a number of reasons, 45 00:04:37.220 --> 00:04:43.120 up, what pops that bubble in an Austrian sense, I don't know what it will be, but this has 46 00:04:43.120 --> 00:04:47.120 been bubble after bubble after bubble. 47 00:04:47.120 --> 00:04:53.340 For mainstream economists, the boom is good and the bust is bad. 48 00:04:53.340 --> 00:04:55.860 For Austrian economists, it's just about the reverse. 49 00:04:55.860 --> 00:05:00.900 The boom is bad because it's misallocating resources and the bust is good because it's 50 00:05:00.900 --> 00:05:05.220 reallocating resources, liquidating investments that never should have been made in the higher 51 00:05:05.220 --> 00:05:26.220 The problem that I think both Peters especially is stressed and others of us also mention is that what we're now doing is keeping, it's too big to fail, Detroit should have been busted, the financial sector should have been busted in the bust, and we're not allowing it to go. 52 00:05:26.220 --> 00:05:38.220 So we're just continuing the process of the bust, and it's not being solved. It's just continuing and continuing and continuing. 53 00:05:38.220 --> 00:05:40.220 Next question. 54 00:05:40.220 --> 00:05:46.220 Hi, Sam Baker. I work with Transnational Research in New Jersey. 55 00:05:46.220 --> 00:05:58.220 My question has to do with the issue of what potentially replaces a central bank Federal Reserve system, if we do have a crack-up, 56 00:05:58.220 --> 00:06:04.220 and the idea of sound money and market money where you don't have a government monopoly. 57 00:06:04.220 --> 00:06:15.220 I'm wondering, is such a system realistic or is this just an idealized concept that we can think about 58 00:06:15.220 --> 00:06:45.120 All right, I'll take this, but if I screw it up badly, I got Joe waiting in reserve here, whom I just volunteered for this, and he smiles nervously as I say that. 59 00:06:45.120 --> 00:06:56.120 Well, the Austrian view of money is that it always emerges on the market to begin with. 60 00:06:56.120 --> 00:07:03.120 So it's not like we're imagining some scenario that's some wild speculation that could never occur in reality. 61 00:07:03.120 --> 00:07:09.120 Money always emerges originally on the market because the money that's chosen, the thing that's chosen, 62 00:07:09.120 --> 00:07:13.120 is the most highly marketable or saleable commodity. 63 00:07:13.120 --> 00:07:17.480 for other reasons, people like gold for whatever reason, whatever the thing happens to be, 64 00:07:17.480 --> 00:07:22.560 and that becomes the most saleable commodity. Now the paper money that the government issues 65 00:07:22.560 --> 00:07:26.400 is not a saleable commodity period, so it couldn't possibly be the most marketable 66 00:07:26.400 --> 00:07:32.960 commodity, so it couldn't come about in this way whereby through barter gradually a common 67 00:07:32.960 --> 00:07:39.300 medium of exchange emerges. It would never come out that way because no one has any previous 68 00:07:39.300 --> 00:07:42.340 use value for pieces of paper with politicians on them. 69 00:07:42.340 --> 00:07:44.380 So it could not emerge that way. 70 00:07:44.380 --> 00:07:49.580 So the money emerges on the market, out of the barter system, and there are other reasons 71 00:07:49.580 --> 00:07:50.580 too it couldn't emerge. 72 00:07:50.580 --> 00:07:54.900 What we have now, the government version of money couldn't emerge because you couldn't 73 00:07:54.900 --> 00:07:59.500 do any reckoning with paper money that was just forced on you out of nothing. 74 00:07:59.500 --> 00:08:04.360 The gold that comes out of a barter system brings with it a previously existing array 75 00:08:04.360 --> 00:08:05.940 of barter prices. 76 00:08:05.940 --> 00:08:13.940 You remember that one unit of gold bought you ten hats, and five pounds of bananas, and so you know what it's worth. 77 00:08:13.940 --> 00:08:18.940 But if I just say, here are five woods, now go use them in exchange, how would you know? 78 00:08:18.940 --> 00:08:21.940 Is five woods worth a fur coat? Is it worth a gumball? 79 00:08:21.940 --> 00:08:23.940 You wouldn't know. You couldn't use it. 80 00:08:23.940 --> 00:08:25.940 So it has to emerge this way. 81 00:08:25.940 --> 00:08:29.940 Now, when we realize that, then suddenly it doesn't seem like something out of Mars 82 00:08:29.940 --> 00:08:33.940 to suggest that it's possible to imagine a monetary system without the government involved in it 83 00:08:33.940 --> 00:08:36.740 because the government is the latecomer in the process. 84 00:08:36.740 --> 00:08:38.740 The government will then come along 85 00:08:38.740 --> 00:08:40.260 and with a beautiful contribution 86 00:08:40.260 --> 00:08:42.460 of What Has Government Done to Our Money by Murray Rothbard 87 00:08:42.460 --> 00:08:43.860 is that in a short little book, 88 00:08:43.860 --> 00:08:46.180 he goes through step by step 89 00:08:46.180 --> 00:08:49.060 exactly how the government takes this 90 00:08:49.060 --> 00:08:52.180 and then first it'll, you know, it monopolizes the mint 91 00:08:52.180 --> 00:08:55.820 or it gives the money a particular national name 92 00:08:55.820 --> 00:08:58.540 so you begin to think of it as really a dollar 93 00:08:58.540 --> 00:09:00.900 rather than as a unit of gold and little by little 94 00:09:00.900 --> 00:09:03.880 then it will finally take the gold backing away. 95 00:09:03.880 --> 00:09:08.640 It's this whole process. What we sort of want to do is reverse that process. Just take these steps back. 96 00:09:08.640 --> 00:09:13.800 Now whether that's possible to do politically is a separate question. 97 00:09:13.800 --> 00:09:20.480 But theoretically there's nothing wrong with this model. 98 00:09:20.480 --> 00:09:25.240 Yeah, I like to turn that kind of question around a little bit and suggest that 99 00:09:25.240 --> 00:09:29.800 everything we know both from economic theory and from history is 100 00:09:29.800 --> 00:09:35.640 You know, the belief that we could have a government controlled fiat paper money standard 101 00:09:35.640 --> 00:09:39.920 that would be managed in a way that gives us economic prosperity. 102 00:09:39.920 --> 00:09:44.960 That is completely naive, it's fanciful, it's pie in the sky, it's unrealistic. 103 00:09:44.960 --> 00:09:50.240 Instead, the view that given the gold standard isn't perfect, there are resource costs and 104 00:09:50.240 --> 00:09:55.000 so on, as was mentioned by Tom, but these are trivial compared to the costs of a fiat 105 00:09:55.000 --> 00:09:56.000 system. 106 00:09:56.000 --> 00:10:05.000 I have to disagree with Tom Woods in a very limited sense. Murray used the same example. He said who would take 10 Rothbards? 107 00:10:05.000 --> 00:10:15.000 And I used to raise my hand and say, I'll take them, I'll take them. I tell you, if I had 10 Rothbards right now, they'd be worth $30,000. 108 00:10:15.000 --> 00:10:19.000 Murray used the same example. He said, who would take 10 Rothbards? 109 00:10:19.000 --> 00:10:23.000 And I used to raise my hand and say, I'll take them, I'll take them. 110 00:10:23.000 --> 00:10:27.000 I tell you, if I had 10 Rothbards right now, they'd be worth thousands of dollars. 111 00:10:27.000 --> 00:10:31.000 And one day, if you're lucky enough to get 10 Woods's out of Tom, 112 00:10:31.000 --> 00:10:35.000 on a piece of paper, it'll be worth thousands of dollars. 113 00:10:35.000 --> 00:10:39.000 But obviously I agree with the substance of what Tom was saying. I just had to add that in. 114 00:10:39.000 --> 00:10:43.000 I interpreted this question a little bit differently. 115 00:10:43.000 --> 00:10:46.680 The way I interpret it was not how the money would work, but how would banking work. 116 00:10:46.680 --> 00:10:50.280 And the way I would see how banking would work is there'd be two kinds of banks, or 117 00:10:50.280 --> 00:10:52.880 each bank would have two kinds of businesses. 118 00:10:52.880 --> 00:10:54.400 One would be demand deposits. 119 00:10:54.400 --> 00:10:58.840 So you deposit a demand deposit of $100 in the bank, and it just keeps it. 120 00:10:58.840 --> 00:11:01.520 It doesn't lend it out to anyone else. 121 00:11:01.520 --> 00:11:04.760 Somebody during the break was saying, how would you like a fractional reserve parking 122 00:11:04.760 --> 00:11:08.400 lot where they use your car when you're not using it? 123 00:11:08.400 --> 00:11:11.160 Okay, so one thing would be a demand deposit, and they just keep it. 124 00:11:11.160 --> 00:11:41.160 The other would be a time deposit, and here what Joe Salerno said is actually perfectly correct, namely you would have this time dimension, in other words, if somebody wants to lend the bank a time deposit for one year, well then you find someone who wants to borrow it for one year, so the bank is sort of an intermediary, sort of a tailor, I mean a tailor cuts cloth to suit or makes a big cloth out of small cloth, so what the time deposit bank would be is just a tailorivid 125 00:11:41.160 --> 00:11:45.120 to tailor borrowers and lenders, and there, it wouldn't be a demand deposit, you just 126 00:11:45.120 --> 00:11:48.840 can't come back to the bank and say, I want my money now, because you lent it to them 127 00:11:48.840 --> 00:11:53.720 for, you know, six years or 20 years or whatever it was in the case of a mortgage. 128 00:11:53.720 --> 00:11:54.720 Next question. 129 00:11:54.720 --> 00:11:55.720 Yes. 130 00:11:55.720 --> 00:11:58.920 Brian Greenberg, WNJC Radio New Jersey. 131 00:11:58.920 --> 00:12:02.440 Peter was a guest on my show during his quest for a Senate in Connecticut. 132 00:12:02.440 --> 00:12:06.680 Unfortunately, I couldn't get my listeners to vote for you due to voter ID, but we did 133 00:12:06.680 --> 00:12:08.480 support you. 134 00:12:08.480 --> 00:12:16.880 Anyway, I want to talk about the $64 trillion derivative question, two-part. One is, how 135 00:12:16.880 --> 00:12:22.680 does that impact in what's coming down the pike? And two, in the Dodd-Frank bill, I understand 136 00:12:22.680 --> 00:12:27.320 there are regulations that are going to require the big banks to increase their collateral 137 00:12:27.320 --> 00:12:33.360 on the next year, which will require them to buy U.S. Treasuries, which I sense will 138 00:12:33.360 --> 00:12:46.760 Well, first of all, I mean, you know, more regulation is the last thing that the financial 139 00:12:46.760 --> 00:12:47.760 service industry needs. 140 00:12:47.760 --> 00:12:53.160 I mean, I run a regulated broker-dealer and asset management firm, and my regulatory costs 141 00:12:53.160 --> 00:12:58.080 have skyrocketed over the last decade, including during the years where the housing bubble 142 00:12:58.080 --> 00:13:00.020 was inflating. 143 00:13:00.020 --> 00:13:06.500 So the problem in finance is too much government, not too little. And Dodd-Frank is not going 144 00:13:06.500 --> 00:13:12.180 to prevent the next crisis from happening. It's going to happen anyway. In fact, maybe 145 00:13:12.180 --> 00:13:17.320 Dodd-Frank only makes the next crisis worse. In fact, I think really it codifies too big 146 00:13:17.320 --> 00:13:23.380 to fail. I mean, all the too big to fail banks are now much, much bigger than they were before 147 00:13:23.380 --> 00:13:27.060 we labeled them too big to fail. And in fact, that's why they got bigger. It's the moral 148 00:13:27.060 --> 00:13:57.060 I mean banks that should have failed now grew instead and banks that should have grown and attracted deposits maybe went out of business and maybe they ended up getting bought out by the too big to fail banks because they couldn't compete and so it's kind of like a reverse Darwinism where we get the survival of the unfittest because it's the unfit, they get the government guarantees and now the more solvent banks can't compete because they're not on a level footing anymore. Who's going to put money in a bank that's too small, that could 149 00:13:57.060 --> 00:14:00.060 I want to put my money in the bank that can't fail. 150 00:14:00.060 --> 00:14:06.060 But the banks that can't fail are the ones that have the worst balance sheets, the ones that are making the worst loans. 151 00:14:06.060 --> 00:14:10.060 That's not going to stop the next crisis at all. 152 00:14:10.060 --> 00:14:16.060 Are there any mandates in there that banks buy treasuries? 153 00:14:16.060 --> 00:14:18.060 I know a lot of banks are buying treasuries. 154 00:14:18.060 --> 00:14:25.060 A lot of the regulators are looking at their collateral, and a lot of them have no choice but to buy treasuries. 155 00:14:25.060 --> 00:14:32.060 And the way it works is they borrow the money from the Fed and they loan it back to the Treasury and they make the spread and they lever themselves up. 156 00:14:32.060 --> 00:14:38.060 And when people say, well, you know, the banks aren't lending any money, sure they are. They're lending it all to the government. 157 00:14:38.060 --> 00:14:45.060 You know, it's crowding out and the government just blows the money. It doesn't go into increasing our productive capacity. 158 00:14:45.060 --> 00:14:54.060 And, you know, so small businesses can't get credit. I mean, big corporations, they can access the bond market or the bank, you know, they can go to the discount window. 159 00:14:54.060 --> 00:15:00.060 But when they get money, they don't use it productively. They just gamble with it. They speculate with it, you know. 160 00:15:00.060 --> 00:15:08.060 And as far as your first question on derivatives, I mean, yeah, I mean, the problem with derivatives is all the counterparty risk. 161 00:15:08.060 --> 00:15:17.060 And that so many people are buying insurance and the counterparty is not going to be able to pay when the policies are cashed in. 162 00:15:17.060 --> 00:15:22.060 That's what happened with the credit default swap. That's what happened to a lot of people that were buying these mortgages. 163 00:15:22.060 --> 00:15:26.780 Well, they just bought insurance, so they thought they had it covered, but they didn't bother to look at the insurance company. 164 00:15:26.780 --> 00:15:32.380 How are they going to pay? You know, the idea is that, well, the insurance company just assumed that the mortgages wouldn't default, 165 00:15:32.380 --> 00:15:38.140 so it was great business, right? You just, you collect money selling insurance, so you think no one's ever going to put in a claim. 166 00:15:38.580 --> 00:15:43.980 So the problem with derivatives is the counterparty, and I think that is going to happen. I think that there's probably a lot of 167 00:15:44.980 --> 00:15:49.380 derivatives in the bond market. I think a lot of people in bonds think they have their positions hedged. 168 00:15:49.380 --> 00:15:57.380 Well, what happens when the other side of the transaction has all these claims, it doesn't have the capital to pay. 169 00:15:57.380 --> 00:16:02.380 You probably have a lot of portfolios, a lot of people have insurance, so there is tremendous counterparty risk. 170 00:16:02.380 --> 00:16:05.380 It's there. It's all part of the problem. 171 00:16:05.380 --> 00:16:12.380 And if the government wasn't there with the moral hazard and the Bernanke put, we wouldn't have these risks. 172 00:16:12.380 --> 00:16:17.380 People would be more worried. But no one cares now. Everybody figures the government has their back. 173 00:16:17.380 --> 00:16:26.380 So this crisis is coming and I don't think it necessarily starts in derivatives but the derivatives will exacerbate it as it unfolds. 174 00:16:26.380 --> 00:16:36.380 Thanks. Just a follow up to that question on the derivatives market and a subsequent related point. 175 00:16:36.380 --> 00:16:43.380 There's definitely a shortage of collateral in the markets when you have a blowing out of credit spreads 176 00:16:43.380 --> 00:16:47.380 and the acceptable collateral in the derivatives markets are treasuries in cash, right? 177 00:16:47.380 --> 00:16:54.380 So what we saw in 2008 was in part a knee-jerk reaction of buying of treasuries to satisfy exactly what you're talking about, 178 00:16:54.380 --> 00:16:57.380 which is the counterparty risk. That hasn't been solved. 179 00:16:57.380 --> 00:17:02.380 But secondarily, when you look at the forecast that interest rates are going to go up, 180 00:17:02.380 --> 00:17:07.380 leaving aside the derivatives question, the Fed itself is levered 51 to 1 with a duration of 8. 181 00:17:07.380 --> 00:17:11.380 If interest rates go up even a little bit, the Fed becomes insolvent. 182 00:17:11.380 --> 00:17:15.380 How do you think, structurally, they can let interest rates go up? 183 00:17:15.380 --> 00:17:21.380 Well, you know, one of the interesting things that was done recently at the Fed is they had a change in the law. 184 00:17:21.380 --> 00:17:25.380 And basically, the Fed put the Treasury on the hook for any losses. 185 00:17:25.380 --> 00:17:33.380 So basically, when interest rates go up and all these 30-year mortgages and bonds that the Fed is holding collapse, 186 00:17:33.380 --> 00:17:36.380 the Treasury has to reimburse the Fed. 187 00:17:36.380 --> 00:17:39.380 But of course, where are they going to get the money? Well, I guess they'll get it from the Fed. 188 00:17:39.380 --> 00:17:44.980 So, the whole thing is just a shell game to hide the fact that there's absolutely nothing behind our money. 189 00:17:44.980 --> 00:17:49.580 It's all a big Ponzi scheme, but that's also why the Fed can never shrink their balance sheet. 190 00:17:49.580 --> 00:17:53.180 The Fed keeps saying, you know, we can shrink the balance sheet. 191 00:17:53.180 --> 00:17:59.380 In fact, in Ben Bernanke's press conference, Ben Bernanke denied that when the Fed prints money and buys bonds, 192 00:17:59.380 --> 00:18:01.580 it's the same thing as it's spending. 193 00:18:01.580 --> 00:18:04.980 He said, it's not like spending because we're not buying stuff, we're buying bonds. 194 00:18:04.980 --> 00:18:07.780 Well, you're still spending, you're buying something, you're spending. 195 00:18:07.780 --> 00:18:15.780 But the fact that they choose to buy bonds doesn't mean they're not spending, but then Bernanke said, because whatever we buy, we're going to turn around and sell. 196 00:18:15.780 --> 00:18:21.780 To who? I mean, you need a buyer. The Fed's the only buyer. Who else would be dumb enough to buy? 197 00:18:21.780 --> 00:18:24.780 I mean, the Fed doesn't care, because it just creates the money. 198 00:18:24.780 --> 00:18:31.780 So, you know, the Fed is, it's an illusion that there's an exit strategy. There is no exit strategy. They just have to buy forever. 199 00:18:31.780 --> 00:18:35.780 Because the minute they stop buying, the price of what they buy is going to implode. 200 00:18:35.780 --> 00:19:05.780 And then that's it. And then they have these huge losses. That's why the balance sheet has to grow and grow and grow, especially when you figure, look at all the mortgages. What are they buying now? They're going to buy mortgages. Who's going to want those mortgages? Nobody's going to want them. Because the minute the Fed stops buying them, the real estate prices are going to fall, and the mortgages are worthless. And then, of course, they're at super low rates. Who's going to want these low mortgages when interest rates go up? So the whole thing is just this gigantic shell game. 201 00:19:05.780 --> 00:19:18.780 I hope that we don't notice what's going on, and, you know, when they write the history books about, you know, this period of time, I mean, you know, elementary school kids are going to look back on disbelief, like, how could this, how could people have been so stupid? 202 00:19:18.780 --> 00:19:26.780 It's almost like if somebody wrote a fiction novel about this, nobody would believe it, right? Who could believe that this could happen? 203 00:19:26.780 --> 00:19:56.780 Yeah, I wanted to paint a little picture to ask a question. So in the context that I have a question about banking reform and with well over half the world's assets held in offshore entities and offshore zero tax jurisdictions and things and with the, like in the US to start a bank you need $100 million and jump through all these hoops and there's a lot of regulations like you guys are talking about but you could go to a little island and start a bank with a million dollars and often times you see these banks 204 00:19:56.780 --> 00:20:03.380 banks create all these derivative complex products like in their offshore branches. 205 00:20:03.380 --> 00:20:10.860 So my question is how do you approach banking reform in that kind of environment of the 206 00:20:10.860 --> 00:20:14.660 world financial system as it is like that? 207 00:20:14.660 --> 00:20:19.960 I think the core problem, as I said, was fractional reserve banking. 208 00:20:19.960 --> 00:20:26.740 Who cares if people take risks and come up with these financial innovations that may 209 00:20:26.740 --> 00:20:31.580 May or May Not be Viable on the Market. If you don't have fractional reserve banking 210 00:20:31.580 --> 00:20:37.940 involved, the collapse and losses that will result from taking these bad and prudent risks 211 00:20:37.940 --> 00:20:43.220 and so on won't affect the money supply. In other words, you'll have demand deposits 212 00:20:43.220 --> 00:20:47.660 that are fully backed. The people that will get involved in these types of financial innovations 213 00:20:47.660 --> 00:20:53.660 will be people that are pretty savvy, with no bailout guarantee from the Fed, with no 214 00:20:53.660 --> 00:21:13.660 This is for Professor Block. You said that increased inflation of money supply would result in more unemployment. But as far as I can see, because all the jobs which currently do not exist, because of all the unemployment caused by the minimum wage laws, wouldn't they create more unemployment? 215 00:21:13.660 --> 00:21:20.140 But as far as I can see, because all the jobs which currently do not exist, because all 216 00:21:20.140 --> 00:21:25.180 the unemployment caused by the minimum wage laws, wouldn't they clear up if you increase 217 00:21:25.180 --> 00:21:26.340 the money supply? 218 00:21:26.340 --> 00:21:33.500 If you have inflation, wouldn't there be more jobs, at least in short run, which were earlier 219 00:21:33.500 --> 00:21:35.580 not feasible because of minimum wage laws? 220 00:21:35.580 --> 00:21:42.540 Because minimum wage laws remain, minimum wages remain as they are, wouldn't increasing 221 00:21:42.540 --> 00:21:45.380 Money Supply Result and More Employment? 222 00:21:45.380 --> 00:21:51.180 Well yes, I think if I said the opposite I must have misspoke. 223 00:21:51.180 --> 00:21:57.920 Certainly during the boom times we get more employment, we get less leisure and more employment, 224 00:21:57.920 --> 00:21:58.920 we get more productivity. 225 00:21:58.920 --> 00:22:04.380 The problem is that it's not in, it's not sustainable, it's not in the right places. 226 00:22:04.380 --> 00:22:09.380 With a lower interest rate than the optimal or the market or the originary interest rate, 227 00:22:09.380 --> 00:22:16.380 We get investments in heavy industry that are not justified by the saving and savings decisions of the people. 228 00:22:16.380 --> 00:22:21.380 So if I said that, I misspoke, I apologize for it. Certainly there will be more jobs. 229 00:22:21.380 --> 00:22:27.380 But as Henry Hazlitt is always telling us, we don't want more jobs. What we want is more productivity. 230 00:22:27.380 --> 00:22:32.380 Jobs are a pain in the neck. Jobs are a cost. We waste labor resources on jobs. 231 00:22:32.380 --> 00:22:38.380 The ideal situation, someone was talking about post-scarcity, I forget who was talking about that, 232 00:22:38.380 --> 00:23:08.380 but the ideal situation is to have no scarcity and no jobs and just have stuff like you want a 16-ounce drink, take that Mayor Bloomberg and it just sort of starts dripping in the mouth, so I think I agree with you and certainly I agree with you about the minimum wage law, you know the reductio there is if it's such a great thing why don't we raise it a bit to a thousand an hour or something and then only Peter Schiff will be employed. 233 00:23:08.380 --> 00:23:38.380 If I'm understanding the question correctly, what I think he means is that given that the minimum wage is not a market phenomenon, right, it's a statutory thing and all employers have to abide by it, is there one silver lining to inflation, namely that given that the minimum wage is expressed in dollar terms, if we create all this money, then it's like having no minimum wage anymore and wouldn't that at least, this would create real jobs that we would want to create. Obviously there'd be other problems, I think that's... 234 00:23:38.380 --> 00:23:47.380 I was having a little debate with my professor at Columbia at the time, Gary Becker, and Gary Becker was saying one of the benefits of inflation is that it reduces the real value of the minimum wage. 235 00:23:47.380 --> 00:23:54.380 And I said, yes, yes, you're right, but can't we do better than that? Namely, can't we get rid of the minimum wage? 236 00:23:54.380 --> 00:24:00.380 And then I started saying, well, we ought to put people in jail who were responsible for passing the minimum wage in the first place. 237 00:24:00.380 --> 00:24:06.380 And then he started looking at me as if I was a little weird, but I was under the influence of Murray Rothbard, so that was my... 238 00:24:10.380 --> 00:24:15.380 Yeah, whenever you have a surplus of anything, it means the price is too high, right? 239 00:24:15.380 --> 00:24:20.380 I mean, you have a lot of people who can't find jobs because the price is too high. Nobody wants to buy their labor. 240 00:24:20.380 --> 00:24:27.380 And one of the reasons for that is the minimum wage. But of course, it's not just the minimum wage, because that's not all you have to pay. 241 00:24:27.380 --> 00:24:32.660 When you hire somebody, you gotta pay payroll taxes, workman's comp, you also take on other 242 00:24:32.660 --> 00:24:36.940 legal liabilities like maybe your employee's gonna sue you if they're not happy one day 243 00:24:36.940 --> 00:24:41.080 because maybe they don't feel they have the right work environment or maybe somebody made 244 00:24:41.080 --> 00:24:45.580 an off-color comment and they took offense to it or maybe you just have to fire them 245 00:24:45.580 --> 00:24:47.540 and then they wanna sue you because they claim. 246 00:24:47.540 --> 00:24:51.580 So there's a lot of risks associated with hiring people beyond what you actually pay 247 00:24:51.580 --> 00:24:54.340 the worker. 248 00:24:54.340 --> 00:24:59.000 But yeah, I mean, people look at this idea, the Phillips Curve, that there's some kind 249 00:24:59.000 --> 00:25:06.480 of trade-off between inflation and unemployment. There's not. But since wages because of government 250 00:25:06.480 --> 00:25:12.200 regulations tend to be sticky coming down, and they don't adjust going down when there's 251 00:25:12.200 --> 00:25:18.060 a surplus of unemployed people, that you can lower wages by creating inflation. And it's 252 00:25:18.060 --> 00:25:22.380 not the inflation that creates the jobs, it's the fact that the price of labor is coming 253 00:25:52.380 --> 00:25:55.420 and New Taxes and Health Care and things like that. 254 00:25:55.420 --> 00:25:58.740 So the cost of becoming an employer is rising. 255 00:25:58.740 --> 00:26:00.520 And just because you can get the employee 256 00:26:00.520 --> 00:26:02.080 a little bit cheaper doesn't mean 257 00:26:02.080 --> 00:26:03.900 that your labor costs are actually falling. 258 00:26:03.900 --> 00:26:06.740 Your labor costs are actually rising. 259 00:26:06.740 --> 00:26:11.740 And you also have to compete with the government benefits. 260 00:26:13.180 --> 00:26:18.020 And even if the minimum wage is lower, 261 00:26:18.020 --> 00:26:21.580 will somebody take the job if they have a better deal 262 00:26:21.580 --> 00:26:51.580 from the Government because they're not going to make them do anything for the money, they just collect it, and so, I mean, maybe you can hire somebody off the books, but I guess if you're hiring them off the books, then the minimum wage probably doesn't matter, if it's all cash under the table, but what's more likely going to happen is that they're going to end up raising the minimum wage, you know, oh, there's a lot of inflation, we've got to raise the minimum wage, and so they'll end up doing that, but yeah, it's amazing that people can look at this massive amount of unemployment, 263 00:26:51.580 --> 00:26:56.860 not figure out that it means that the price of labor is too high and you know I got this 264 00:26:56.860 --> 00:27:02.260 argument on my radio show with some left-wing labor guy you know trying to say that you 265 00:27:02.260 --> 00:27:07.260 know about the teacher strike that we need higher wages and you know I tried to put him 266 00:27:07.260 --> 00:27:11.440 in a position of an employee of an employer because he's probably never hired anybody 267 00:27:11.440 --> 00:27:14.540 but I said look you know where do you get your haircut you know do you do it yourself 268 00:27:14.540 --> 00:27:18.180 or do you go to a barber he said why go to a barber that's okay what do you pay for 269 00:27:18.180 --> 00:27:25.180 What if the barber wants to raise his price to $50 a haircut? Are you going to stay there? 270 00:27:25.180 --> 00:27:29.180 Or are you going to go someplace else? I said, because you're employing him to cut your hair. 271 00:27:29.180 --> 00:27:32.180 And he tries to say, well, I'm not really his employer, I'm his customer. 272 00:27:32.180 --> 00:27:38.180 Well, you're hiring. You know, when I buy my employees' labor, I'm the customer. They're selling me labor. 273 00:27:38.180 --> 00:27:40.180 If they want to charge too much, I'm not going to pay them. 274 00:27:40.180 --> 00:27:44.180 He was like, well, you should just pay whatever the union wants. 275 00:27:44.180 --> 00:28:03.180 Just a small footnote to that. This very kind of argument was offered by John Maynard Keynes in The General Theory. Part of his reasoning that market participants are generally not clever enough to understand the difference between nominal prices and wages and real prices and wages. 276 00:28:03.180 --> 00:28:13.180 I think you have his reasoning that market participants are generally not clever enough to understand the difference between nominal prices and wages and real prices and wages. 277 00:28:13.180 --> 00:28:22.180 Kane said in a period of high unemployment, if it would improve the labor market, not just for minimum wage workers, but for all types of other types of labor too, 278 00:28:22.180 --> 00:28:30.180 to have real wages go down, but yet unions will not agree to nominal wage cuts, then you just inflate the problem away. 279 00:28:30.180 --> 00:28:40.180 We effectively reduce real wages through inflation and somehow the unions are, you know, not able to see through this and will perfectly go along with this inflation. 280 00:28:40.180 --> 00:28:50.180 Same thing with the minimum wage. I mean, of course, interest groups would lobby for an increase in the minimum wage and it wouldn't be long before it would keep up with inflation. 281 00:28:50.180 --> 00:28:57.180 One more thing I didn't mention too is, you know, labor is not the only cost the business have. You create inflation, your raw material costs go up. 282 00:28:57.180 --> 00:29:01.780 go up. Ultimately, if there's more inflation, the cost of capital goes up. A lot of American 283 00:29:01.780 --> 00:29:06.500 companies that maybe make things, they import all the components. All your imported components 284 00:29:06.500 --> 00:29:11.060 cost more money. So, inflation can actually undermine the competitors. There's a business. 285 00:29:11.060 --> 00:29:14.260 In fact, there are probably a lot of businesses that say, look, I'd like to hire more people, 286 00:29:14.260 --> 00:29:16.180 but my fuel bills are too high. I can't afford it. 287 00:29:16.180 --> 00:29:22.580 All right. One more thing on this. I'm sorry. I just can't resist. But on the wages being 288 00:29:52.580 --> 00:29:57.180 So all of you who came to the conference today, thanks to our wonderful donors, thanks to 289 00:29:57.180 --> 00:30:01.180 our wonderful speakers, and we hope to be back in New York again, so thank you.