WEBVTT NOTE The Culture of Debt and Despair 1 00:00:00.000 --> 00:00:15.600 I put myself first on the program, not just to get it out of the way, but I have such an uplifting talk today about debt and despair that I thought I would get the, I would set the tone for today's conference. 2 00:00:15.600 --> 00:00:28.740 It's both the causes of economic crisis. Ludwig von Mises explained that easy money or the result of politically lowered interest rates succeeds in bringing about a booming business, 3 00:00:28.740 --> 00:00:36.400 but that this prosperity is artificial, that it cannot last and it must lead ultimately to a slump. 4 00:00:36.400 --> 00:00:45.460 Now we've heard this before, anybody who's familiar with the Austrian business cycle is aware that first entrepreneurs borrow at these reduced rates 5 00:00:45.460 --> 00:00:54.780 and the entrepreneur assumes that the cost structure for the project will remain the same as it was before the credit expansion. 6 00:00:54.780 --> 00:01:00.220 But as credit is expanded, factors of production are bid to higher and higher prices. 7 00:01:00.220 --> 00:01:08.620 Wages go up, material prices go up, and the entrepreneur just keeps borrowing because the banks are eager to lend the easy money. 8 00:01:08.620 --> 00:01:12.140 And this is what we've seen through the past few years. 9 00:01:12.140 --> 00:01:16.500 Prices and wage rates continue to boom, wrote Mises. 10 00:01:16.500 --> 00:01:22.700 Everyone feels happy and is convinced that now finally mankind has overcome forever. 11 00:01:22.700 --> 00:01:28.700 The Gloomy State of Scarcity and Reached Everlasting Prosperity." 12 00:01:28.700 --> 00:01:34.300 Well, Mises explained that, in fact, all of this amazing wealth is really quite fragile. 13 00:01:34.300 --> 00:01:39.060 It's a castle built on sands of illusion and that it cannot last. 14 00:01:39.060 --> 00:01:46.180 There is no means to substitute banknotes and deposits for non-existing capital goods. 15 00:01:46.180 --> 00:01:51.900 The artificial boom brought about by cheap money creates the illusion that certain projects 16 00:01:51.900 --> 00:01:58.300 will be profitable for entrepreneurs, and in turn the jobs created will be secure. 17 00:01:58.300 --> 00:02:05.100 We often talk about these investors who invest with cheap money during the boom. 18 00:02:05.100 --> 00:02:09.660 They invest and this money is turned into malinvestments. 19 00:02:09.660 --> 00:02:16.100 Ultimately the malinvestments are revealed, the values drop, the debt still remains, 20 00:02:16.100 --> 00:02:19.140 and of course the entrepreneur goes broke. 21 00:02:19.140 --> 00:02:25.820 But as the investor, entrepreneur and businessman are fooled by the low interest rates and the potential for profit, 22 00:02:25.820 --> 00:02:28.140 so is the average wage earner. 23 00:02:28.140 --> 00:02:32.580 Not only is capital misdirected into malinvestments during the boom, 24 00:02:32.580 --> 00:02:37.140 but labor and consumer confidence is misdirected as well. 25 00:02:37.140 --> 00:02:42.420 How many people quit their jobs to day trade during the stock boom in the 1990s? 26 00:02:42.420 --> 00:02:45.620 How many people went to work selling real estate during the boom? 27 00:02:45.620 --> 00:02:55.220 Las Vegas, where I spent 22 years, at the height of the boom, one in every 100 people in Vegas had a real estate license. 28 00:02:55.220 --> 00:02:59.020 How many people have been lured into the financial services industry? 29 00:02:59.020 --> 00:03:05.220 Money management firms still report that they're receiving the same number of applications for entry-level jobs, 30 00:03:05.220 --> 00:03:09.420 even though we've had a big, huge bust in that industry. 31 00:03:09.420 --> 00:03:16.420 But the financial sector was 45% of the earnings of the S&P 500 back in 2006. 32 00:03:16.420 --> 00:03:20.520 So motivated college students were just following the money. 33 00:03:20.520 --> 00:03:26.120 That's how they directed their studies and those are the jobs they're pursuing. 34 00:03:26.120 --> 00:03:35.320 But much of the earnings by those financial firms was the debt that was paid not only by corporations and business, 35 00:03:35.320 --> 00:03:40.320 but individuals as well, many of whom worked in that same financial industry, 36 00:03:40.320 --> 00:03:44.020 an industry that with the help of government creates this illusion, 37 00:03:44.020 --> 00:03:48.520 this illusion of wealth and prosperity that Mises spoke about. 38 00:03:48.520 --> 00:03:54.720 And as employees believe this illusion, illusory prosperity will last forever, 39 00:03:54.720 --> 00:03:59.120 they take on debt because getting the money is easy during a boom. 40 00:03:59.120 --> 00:04:04.520 This fiat inflation gives individuals the opportunity to borrow. 41 00:04:04.520 --> 00:04:07.360 Professor Guido Hulsman writes, 42 00:04:07.360 --> 00:04:10.640 The mere fact that such credit is offered at all 43 00:04:10.640 --> 00:04:13.160 incites some people to go into debt 44 00:04:13.160 --> 00:04:15.960 who would otherwise have chosen not to do so. 45 00:04:15.960 --> 00:04:18.440 But easy credit becomes nearly irresistible 46 00:04:18.440 --> 00:04:23.840 in connection with another typical consequence of inflation, 47 00:04:23.840 --> 00:04:27.560 namely, the constantly rising price level. 48 00:04:27.560 --> 00:04:31.200 Back in 1980, the head of Bank of America's credit card division, 49 00:04:31.200 --> 00:04:35.000 Kenneth Larkin gave a speech quoting two USC scholars. 50 00:04:35.000 --> 00:04:41.200 These scholars believed that people born between 1956 and 1975 51 00:04:41.200 --> 00:04:46.200 would have completely different values, such as, number one, 52 00:04:46.200 --> 00:04:49.400 it doesn't pay to save for a rainy day. 53 00:04:49.400 --> 00:04:53.000 Number two, buy now, not later. 54 00:04:53.000 --> 00:04:59.300 Prices will invariably go up and the purchasing power of your dollar will invariably go down. 55 00:04:59.300 --> 00:05:05.780 Number three, stretch your financial obligations over as long a period of time as possible. 56 00:05:05.780 --> 00:05:09.820 Number four, borrowing improves your credit rating. 57 00:05:09.820 --> 00:05:15.900 Number five, pay your bills as late as you can without jeopardizing your credit rating. 58 00:05:15.900 --> 00:05:19.420 Now these truly are the lessons of inflation. 59 00:05:19.420 --> 00:05:26.660 Joseph Nosura wrote that in a great book about the credit card industry called A Piece of the Action. 60 00:05:26.660 --> 00:05:36.160 So it's, if in the early decades of the century, it was impossible for a working man or a woman to secure a loan from a legitimate lender, 61 00:05:36.160 --> 00:05:40.360 in the 80s, he or she could hardly refuse one. 62 00:05:40.360 --> 00:05:48.600 Jim Grant wrote, the descendants of the clientele of the loan sharks became the valued credit members of leading banks. 63 00:05:48.600 --> 00:05:55.820 In the 1980s, the home equity loan proliferated, personal bankruptcy lost its stigma. 64 00:05:55.820 --> 00:06:09.660 As credit card executive John Decker explained, to make credit card lending profitable, you find people who get into debt, stay in debt, and always pay the minimum balance on time. 65 00:06:09.660 --> 00:06:18.780 So household debt reached 13.8 trillion dollars in 2007, with 10.5 trillion of that being mortgage debt. 66 00:06:18.780 --> 00:06:24.220 The leading edge of the baby boomers turned 30 years of age in the late 1970s, 67 00:06:24.220 --> 00:06:28.780 just as the usage of debt became, began to accelerate. 68 00:06:28.780 --> 00:06:35.420 Debt took off like a rocket ship after 9-11, with the President urging Americans to spend, 69 00:06:35.420 --> 00:06:40.300 and then Fed Chair Alan Greenspan lowering interest rates to 1%. 70 00:06:40.300 --> 00:06:43.100 Imagine a low Fed funds rate like 1%. 71 00:06:43.100 --> 00:06:47.500 See, we have a Fed funds rate of, what, a quarter percent or less now. 72 00:06:47.500 --> 00:06:54.300 At the time, Dallas Fed Governor Robert McTeer told the Chamber of Commerce in Richardson, Texas, 73 00:06:54.300 --> 00:07:03.740 if we all go out and just join hands and buy an SUV, everything will be all right, preferably a navigator. 74 00:07:03.740 --> 00:07:07.500 And at the time, Bill Bonner and Addison Wiggin wrote, 75 00:07:07.500 --> 00:07:15.740 thrift came to be seen as an enemy of the state, almost as diabolical as Osama Bin Laden. 76 00:07:15.740 --> 00:07:25.620 Later McTeer commented that Americans have been doing something that's probably irrational from the point of view of the individual consumer 77 00:07:25.620 --> 00:07:30.820 because they all need to be saving more, saving for retirement, saving for college and all that. 78 00:07:30.820 --> 00:07:36.260 But we'd be in bad trouble if they started doing the rational thing all of a sudden. 79 00:07:36.260 --> 00:07:41.300 We're happy they're spending. We wish that they didn't run up a lot of debt doing it. 80 00:07:41.300 --> 00:07:51.100 But the problem was it's that the money supply has grown a hundred since 1980 has grown four hundred and sixty percent. 81 00:07:51.100 --> 00:07:54.940 Meantime, the median family income has barely budged. 82 00:07:54.940 --> 00:08:02.160 So running up the debt has been the only way for patriotic Americans to keep on spending. 83 00:08:02.160 --> 00:08:09.380 Personal savings rate fell from 11 percent in 1980 to a negative one percent in 2007. 84 00:08:09.380 --> 00:08:18.780 Of course, it's rebounded into positive territory, which has analysts on the TV fretting about Keynes' paradox of thrift and nonsense like that. 85 00:08:18.780 --> 00:08:23.740 But in the wake of 9-11, consumer confidence was supremely confident. 86 00:08:23.740 --> 00:08:28.040 That fall, consumer confidence took its biggest jump in more than a decade. 87 00:08:28.040 --> 00:08:31.380 Consumers kept buying and buying on credit. 88 00:08:31.380 --> 00:08:38.180 And for the credit card companies, they put the power of plastic in most everybody's hands. 89 00:08:38.180 --> 00:08:44.220 But for those who didn't have a credit card, well, the payday loan business was there for them. 90 00:08:44.220 --> 00:08:50.500 Now, I don't know if anybody in the room frequents payday loan lenders. 91 00:08:50.500 --> 00:08:54.860 I'm going to assume not many, but this is kind of the way it works. 92 00:08:54.860 --> 00:08:59.140 If you want to borrow 400 bucks for two weeks because your car breaks down, 93 00:08:59.140 --> 00:09:06.140 you would write the payday lender a check for $460, post-dated check for the day you get paid. 94 00:09:06.140 --> 00:09:11.140 When the two weeks rolls around, if you want to pay the loan off, then they would cash the check, 95 00:09:11.140 --> 00:09:18.900 and you paid 60 bucks on the 400, which is annual percentage rate of a smooth 390 percent. 96 00:09:18.900 --> 00:09:22.380 Now, if you can't pay it off, you would flip the loan. 97 00:09:22.380 --> 00:09:30.780 You would write a new check for another 460, or you would give the lender $60, 98 00:09:30.780 --> 00:09:33.740 write a new check for 460 and start this all over again. 99 00:09:33.740 --> 00:09:39.140 And of course, states weigh in on this, states, state governments, local governments hate 100 00:09:39.140 --> 00:09:46.220 payday lenders and so they're subject to numerous laws that are growing every day. 101 00:09:46.220 --> 00:09:55.500 But most payday lenders have somewhere between, you know, the 390 percent rate that I mentioned 102 00:09:55.500 --> 00:10:01.140 or a 650 percent annual percentage rate in some cases. 103 00:10:01.140 --> 00:10:08.100 And plenty of people are going to payday lenders. According to the Dallas Morning News, 2008, 104 00:10:08.100 --> 00:10:14.300 the U.S.'s largest payday lender, Advanced America, made $4.2 billion in payday loans. 105 00:10:14.300 --> 00:10:22.220 And they charged $676 million in interest and fees. Cash America, a pawn shop operator 106 00:10:22.220 --> 00:10:28.440 and payday lender based in Fort Worth, recorded income of $81 million last year, income that's 107 00:10:28.440 --> 00:10:35.720 has grown 132% in the last four years, total revenue of $1.3 billion, so plenty of people 108 00:10:35.720 --> 00:10:42.360 are going to payday loans to try to catch up, but as I said, local politicians hate these 109 00:10:42.360 --> 00:10:49.520 payday lenders, but they don't realize that the real villain here is the inflation-making 110 00:10:49.520 --> 00:10:50.520 Federal Reserve. 111 00:10:50.520 --> 00:10:56.860 But really the largest source of debt is mortgage debt for home purchases, until recently, home 112 00:10:56.860 --> 00:11:00.100 Home ownership was only a dream for most Americans. 113 00:11:00.100 --> 00:11:05.140 From 1900 to 1940, fewer than half of all Americans owned their homes. 114 00:11:05.140 --> 00:11:10.500 Home ownership rates in fact fell in the first three, three of the first four decades of 115 00:11:10.500 --> 00:11:12.540 the 20th century. 116 00:11:12.540 --> 00:11:18.100 Whereas young people today, they have a job, halfway stable source income, they're immediately 117 00:11:18.100 --> 00:11:20.780 going to take out a mortgage and go buy. 118 00:11:20.780 --> 00:11:26.620 Their great grandfather might still have accumulated savings for 30 years and then bought his 119 00:11:26.620 --> 00:11:33.940 House. But today two-thirds of America's own their home because as Thomas Segru 120 00:11:33.940 --> 00:11:39.580 says we are a nation of homeowners and home speculators because of Uncle Sam. 121 00:11:39.580 --> 00:11:45.660 For 1929 the government paid very little role in the housing market other than 122 00:11:45.660 --> 00:11:50.780 mortgage interest being made tax deductible in the 1913 Federal Tax Code. 123 00:11:50.780 --> 00:11:56.500 In fact having a mortgage was a case for stigma. Mortgages were hard to come by 124 00:11:56.500 --> 00:12:10.500 The interest rates were high with lenders, lenders wanted 50% down and on top of that the interest rates were high and the term of these loans were very, were very short, they were only three to five years. 125 00:12:10.500 --> 00:12:19.500 So there are typically only two types of homeowners at the time, the wealthy who paid cash and working folks who built their own homes. 126 00:12:19.500 --> 00:12:26.060 The Segru pointed out even the richest rented because they had better places to invest than the volatile housing market. 127 00:12:26.060 --> 00:12:30.340 But that all changed with the Depression as a lot of things changed with the Depression. 128 00:12:30.340 --> 00:12:38.500 New housing starts had fallen and Herbert Hoover, contrary to what you may read, he didn't sit idly by. 129 00:12:38.500 --> 00:12:47.100 He signed the Federal Home Loan Bank Act in 1932 and was the first of many interventions in the housing market. 130 00:12:47.100 --> 00:12:52.380 In his first 100 days, FDR introduced the Homeowners Loan Act, 131 00:12:52.380 --> 00:13:14.560 which would extend relief to homeowners who couldn't pay their mortgages 132 00:13:17.100 --> 00:13:23.300 With them, they'll take ownership of the home and you can pay them rent and stay there. 133 00:13:23.300 --> 00:13:27.660 We see various programs that are very much the same. 134 00:13:27.660 --> 00:13:34.740 Now this Homeowners Loan Act actually was geared for poor and middle class homeowners. 135 00:13:34.740 --> 00:13:43.540 The top loan was only $20,000, but that's the equivalent of $317,000 today. 136 00:13:43.540 --> 00:13:49.540 So it did capture, it captured a number of homeowners at the time. 137 00:13:49.540 --> 00:13:56.040 But then four years later the big creation was made and that was the Fannie Mae, 138 00:13:56.040 --> 00:14:01.040 Federal National Mortgage Association, it created a secondary market for mortgages 139 00:14:01.040 --> 00:14:09.040 and it was given the mandate to help make home ownership more available throughout the United States. 140 00:14:09.040 --> 00:14:12.440 Now these programs boosted home ownership in a hurry. 141 00:14:12.440 --> 00:14:16.240 1950, 55% of people owned their own home. 142 00:14:16.240 --> 00:14:20.340 By 1970, home ownership was 63%. 143 00:14:20.340 --> 00:14:25.640 But beginning in 1992, Congress pushed Fannie Mae and Freddie Mac 144 00:14:25.640 --> 00:14:32.940 to increase their purchases of mortgages to low and moderate income borrowers. 145 00:14:32.940 --> 00:14:36.740 For 1996, the Department of Housing and Urban Development 146 00:14:36.740 --> 00:14:46.280 gave Fannie and Freddie an explicit target, 42% of their mortgage financing had to go to borrowers with income below the median for their area. 147 00:14:46.280 --> 00:14:53.540 That target increased to 50% in 2000 and 52% in 2005. 148 00:14:53.540 --> 00:14:59.340 Then Fannie Mises launched its American Dream in 2000, American Dream Commitment. 149 00:14:59.340 --> 00:15:08.660 I was to provide $2 trillion private capital for 18 million underserved Americans to own or rent a home by the end of the decade. 150 00:15:08.660 --> 00:15:17.900 In 04, Fanny expanded the American dream, pledging to help 6 million families become first-time homeowners over the next decade. 151 00:15:17.900 --> 00:15:22.300 Well, what this is, is really a social engineering experiment. 152 00:15:22.300 --> 00:15:28.380 Because the thought at the time was one fact, one survey said that consumer finances found that 153 00:15:28.380 --> 00:15:33.780 Low-income homeowners had a net worth 12 times that of renters at the same income level. 154 00:15:33.780 --> 00:15:39.060 Other studies found that children of homeowners are more likely to graduate from high school and college. 155 00:15:39.060 --> 00:15:43.220 And they are more likely to go on and own a home of their own. 156 00:15:43.220 --> 00:15:50.460 Also, there was research that showed that homeownership keeps communities attractive, safe, and vital, 157 00:15:50.460 --> 00:15:54.820 generating higher property values and other economic activity. 158 00:15:54.820 --> 00:15:57.860 So, voila, we need to make everybody a homeowner. 159 00:15:57.860 --> 00:15:59.860 and everything will work out better. 160 00:15:59.860 --> 00:16:03.860 This is like the studies that show that college graduates make more money. 161 00:16:03.860 --> 00:16:06.860 So we need to make everybody a college graduate. 162 00:16:06.860 --> 00:16:07.860 So they'll make more money. 163 00:16:07.860 --> 00:16:10.860 Well, of course, not everybody can be a college graduate. 164 00:16:10.860 --> 00:16:12.860 Not everybody can be a homeowner. 165 00:16:12.860 --> 00:16:14.860 But President Bush did his part. 166 00:16:14.860 --> 00:16:22.860 December 16, 2003, he signed a law, the American Dream Down Payment Act, 2003, 167 00:16:22.860 --> 00:16:26.860 helped approximately 40,000 families a year with their down payment. 168 00:16:26.860 --> 00:16:32.620 and further strengthen America's housing market is what they said. It complemented 169 00:16:32.620 --> 00:16:37.940 the president's aggressive housing agenda announced to dismantle the 170 00:16:37.940 --> 00:16:44.260 barriers to home ownership and putting down payment down was well it was a it 171 00:16:44.260 --> 00:16:48.860 was a barrier. So the Bush administration said at the time the strong housing 172 00:16:48.860 --> 00:16:53.340 market is beneficial for communities across the nation. So the whole down 173 00:16:53.340 --> 00:17:03.780 The non-payment idea was very much passe, and because of that, from 1997 to 2005, the average price of a home in the United States doubled. 174 00:17:03.780 --> 00:17:08.120 And with this doubling, the subprime mortgage market was born and nurtured. 175 00:17:08.120 --> 00:17:16.660 Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. 176 00:17:16.660 --> 00:17:23.560 Without the implicit government guarantee of the GSEs, it's unlikely that the subprime market would have taken off. 177 00:17:23.560 --> 00:17:37.660 Home ownership jumped from 64% in 1994 to 69% in 2004 because of the increased loans to low-income, high-risk borrowers. 178 00:17:37.660 --> 00:17:43.460 Both Bill Clinton and George Bush trumpeted the rise in ownership as it occurred. 179 00:17:43.460 --> 00:17:46.360 Well, what's the result of all this? 180 00:17:46.360 --> 00:17:50.880 According to a new report from First American Logic, 181 00:17:50.880 --> 00:17:55.320 nearly a third of all mortgages are now underwater. 182 00:17:55.320 --> 00:17:59.020 Of course, by underwater, we mean the amount of the mortgage 183 00:17:59.020 --> 00:18:01.720 is more than the amount of the value of the home. 184 00:18:01.720 --> 00:18:05.760 A new Deutsche Bank report predicts that by 2011, 185 00:18:05.760 --> 00:18:10.760 48% of all mortgaged Americans will be underwater. 186 00:18:11.240 --> 00:18:14.240 But underwater is no problem for Fannie and Freddie. 187 00:18:14.240 --> 00:18:24.440 In July, the two GSEs received regulatory approval to refinance mortgages at loan-to-value ratios as high as 125%. 188 00:18:24.440 --> 00:18:28.840 Remember when Alan Greenspan said, go out and get that adjustable rate mortgage? 189 00:18:28.840 --> 00:18:40.400 Well, now the government has, in the words of Grant's interest rate observer, blessed, subsidized and institutionalized the state of underwater home ownership. 190 00:18:40.400 --> 00:18:47.760 But the GSEs can modify all they want, doesn't mean that distressed homeowners can or will pay. 191 00:18:47.760 --> 00:18:56.280 According to mortgage metrics report published by the Comptroller of the Currency and the Office of Thrift Supervision, 192 00:18:56.280 --> 00:19:05.480 28% of all modified loans were 60 days delinquent within 60 days of their modification. 193 00:19:05.480 --> 00:19:35.480 Now what that means is that more than one in four people who modify their loans because they can't pay under the original terms don't make a single payment after they modify and as analyst David Rosenberg explains now that lenders have started to respond to their record high delinquency rates by rationing credit a mad scramble for cash is occurring to replace loans food stamp usage is up 22% year-over-year pawn shop business is up nearly 40% and there's a tidal wave about 194 00:19:35.480 --> 00:19:44.480 and allocations for social security disability benefits that were not explained alone by workplace mishaps. 195 00:19:44.480 --> 00:19:47.480 It's the lost generation, Business Week says. 196 00:19:47.480 --> 00:19:54.480 Unemployment nationwide is now 10.2 percent, but for young people it's 18 percent. 197 00:19:54.480 --> 00:20:03.480 And for those of you who follow John Williams, shadowstats.com, his alternative unemployment rate is 22 percent. 198 00:20:03.480 --> 00:20:09.780 Now, John Williams tracks unemployment the way unemployment used to be tracked before the Clinton years, 199 00:20:09.780 --> 00:20:12.480 where they changed the way some people were counted. 200 00:20:12.480 --> 00:20:17.080 So, John Williams may yet have the most accurate measure of unemployment. 201 00:20:17.080 --> 00:20:24.380 Foreclosure crisis affected nearly 938,000 properties in the last quarter. 202 00:20:24.380 --> 00:20:29.080 That was up from 890 properties the prior three months. 203 00:20:29.080 --> 00:20:39.880 That puts us on a rate to hit 3.5 million foreclosures this year, up from 2.3 million foreclosures last year. 204 00:20:39.880 --> 00:20:48.760 Personal bankruptcies rose steadily from 300,000 per year in the early 1980s to peak at over 2 million in 2005. 205 00:20:48.760 --> 00:20:58.280 The reason they peaked in 05, bankruptcy laws were changed in 06, but now we're starting to see more and more bankruptcies. 206 00:20:58.280 --> 00:21:02.280 In fact, over a million people filed for personal bankruptcy in 2008. 207 00:21:02.280 --> 00:21:07.180 That number has already been surpassed through the first nine months of this year. 208 00:21:07.180 --> 00:21:13.380 Now, as Hans-Hermann Hoppe pointed out in his wonderful book, Democracy, the God that Failed, 209 00:21:13.380 --> 00:21:17.680 it is savers that initiate the process of civilization. 210 00:21:17.680 --> 00:21:23.980 By generating a tendency toward a fall in time preference, he and those that exchange with him, 211 00:21:23.980 --> 00:21:31.140 Quote, matures from childhood to adulthood and from barbarism to civilization. 212 00:21:31.140 --> 00:21:34.220 Well instead, what we have now is the reverse. 213 00:21:34.220 --> 00:21:43.420 The debt accumulation of government, business and individuals reverses progress and is leading to barbarism. 214 00:21:43.420 --> 00:21:53.900 Professor Holzman explains, the net effect of the recent surge in household debt is therefore to throw entire populations into financial dependency. 215 00:21:53.900 --> 00:22:06.900 The moral implications are clear. Towering debts are incompatible with financial self-reliance and thus they tend to weaken self-reliance also in all other spheres. 216 00:22:06.900 --> 00:22:19.900 The debt-ridden individual eventually adopts the habit of turning to others for help rather than maturing into an economic and moral anchor of his family and of his wider community. 217 00:22:19.900 --> 00:22:25.900 Wishful thinking and submissiveness replace soberness and independent judgment. 218 00:22:25.900 --> 00:22:31.900 And what about the many cases in which families can no longer shoulder the debt load? 219 00:22:31.900 --> 00:22:41.900 Then the result is either despair or alternatively scorn for all standards of financial sanity. 220 00:22:41.900 --> 00:22:48.900 The constant creation of fiat money, instead of encouraging savings and thrift, 221 00:22:48.900 --> 00:22:53.860 has created personal fiscal insolvency on a massive scale. 222 00:22:53.860 --> 00:22:59.460 And this fiscal insolvency now threatens to lead this country 223 00:22:59.460 --> 00:23:03.380 and the entire world to moral insolvency. 224 00:23:04.380 --> 00:23:06.380 Thank you very much.