And the deficit is equal to the expenditure minus income, expenditure minus taxes, revenue.
So the government can't, if you want a deficit of 100 billion, the government can do it two ways,
two polar opposites, two polar methods of doing it.
Either spend 100 billion dollars more, or take in 100 billion dollars less.
In other words, if the budget is, if now expenditures are 600 billion,
So let's say, and tax revenue is $600 billion, if you want a $100 billion deficit, you can either increase this to $700, or you can cut this to $500.
This brings a political element to the picture.
Left-wing Canadians tend to always be in favor of increasing government expenditure anyway.
So they do it now on the cover of helping the economy, increasing spending, lifting the thing up to the employment line.
So that's what you can do with Opsfor. Let's take a little grid here.
Keynesians, liberals, and servalers. During depressions, liberals may favor increasing government spending.
Servers will tend to be in favor of tax cuts.
So you're leaving more money for people and so forth.
Some of us cut taxes.
During inflationary periods, if you want a surplus of $100 billion,
or now, of course, a lesser deficit, if you're up here now,
if you want a surplus of $100 billion, you can either increase taxes
The way you can cut expenditure is to 500 billion.
Conservatives tend to favor cutting expenditures during inflation.
And liberals of course favor tax increases, if you are anyway.
So, if you had really heroic, extreme free market, or whatever you want to call it, Keynesians,
And they were in power, they would then cut taxes, during the pressures they would cut taxes very heavily and then during inflation they cut spending very heavily and you get that eventually as sort of a zero budget, sort of by accident.
This of course never happens, there are no conservative Keynesians who hold this view.
Liberal Keynesians tend to sort of ride, you know, tend to sort of be dominant, so you have spending going up in the depression, matched by taxes going up in inflation, which means that government spending is always going up relative to the private sector, not by accident.
So, in the course of what you have is, you have conservative, you have liberal, you have moderates. The moderates, in fact, are a little mix of both.
Cut a little, increase a little spending, cut a little taxes, or whatever.
Nobody ever cuts government spending, ever. I mean, it hasn't been done, in America, it hasn't been done since the first two years of the
Eisenhower administration. Ever since then. Nobody even talks about cutting government spending. Reagan, when he talked about cutting government spending,
and what it really meant was cutting the rate of growth of government spending, a very different concept.
So this is out, this is now for Boehm, I'm sick of it.
So now we have, now the question is how do you maneuver if you have a depression?
So they're moderates, you do a little mix of both.
So the conservative came to people who want to have a little bit more of a tax cut
compared to a little bit more of a spending increase.
And you have a general mishmash, came to you mishmash somewhere in the middle.
This was a picture in the mid-1970s when something cataclysmic happened to the K&K movement.
Namely, remember the old picture, you have a business cycle of inflation and depression,
if it's a depression you pump in spending, if it's an inflation you get spending.
What do you do if you have both at the same time?
What do you do if you have inflation and an depression at the same time?
Now called stagflation, inflationary recession.
This appeared for the first time, well appeared in the 30s but nobody recognized it
because we're in a big depression anyway, there's a big inflation within it
but the first time it appeared in its current phenomenon was a very small amount
I believe the depression in 1957-58
and there was a big depression, there was a big unemployment except for a separate macro season
prices were always going down in all previous depressions
and creeped up a little bit, didn't go up a lot, like in 74, 75, but they crept up, it's very unusual, it's not supposed to happen
and I remember one of my favorite anecdotes about this is that I studied under Arthur Burns, Columbia
Burns is a conservative Keynesian, a moderate conservative Keynesian, that's what he described with me
went to Washington to be head of the Council of Economic Advisors in the Eisenhower administration
and the return of the Florida Nixon to the most inflationary Federal Reserve person in history, I think.
Tolkien constantly attacking inflation all the time he was there, thereby establishing a sound money reputation.
Anyway, he comes back after four years as administration, he gives a Keynesian lecture about what to do with the same stuff I've been telling you here,
except without the attack on it.
So I asked him a question. I said, well, Professor Byrd, there's now a situation where there's unemployment, depression, recession, and yet prices are going up. What do we do about that?
He said, well, it's not going to last long, three months with the over and all, which was true. I said, okay, but what happens if, supposing sometime in the future this happens again?
We have even more stuff. We have a big recession, et cetera, and prices are going up even faster. And he stopped for a while. Have you ever heard him speak? He speaks like W.C. Field without the humor.
And he said, well, in that case, in that case, we'll all have to resign.
Now, it happened in 73, 75, it happened in 79, 81.
Of course, nobody ever resigns.
I mean, he didn't resign, nobody else resigned.
And that's one of my laws, I have a bunch of sociological laws, Rothbard's law, one of which is nobody ever resigns.
And once in a while, of course, the law is broken, but it's not very often.
So, this is increasingly true, and we now have a situation in 1973-75 where we have a big recession and prices were going up by 14% a year or so.
And, what do you do? Well, KZs are a big problem. They don't resign, they don't stop being KZs, they become very low-key about being KZs, they're very confused.
And so what you do is, if you have a situation where you're supposed to put on the accelerator and the pressure and take off and put on a brake, boom, you have both at the same time, you sort of do both, you do both rapidly alternating, hoping something works.
And close your eyes when something works.
So, the result is that Keynesians are in a total state of confusion and they don't know what to do at this point.
At this point, we have a big deficit, that's supposed to be inflationary. On the other hand, we just had a recession.
And, well, should we do that? On the other hand, we have inflation, we don't want to heat that up. Total chaos, intellectual chaos in Keynesians.
So that's, I haven't really, okay, I really should stop talking at this point, but that's really, I haven't explained the Federal Recession yet.
I'll do that when the book clears up. Anybody have any comments on this? Any questions, comments? Any converted Keynesians that come out and confess?
I thought James Watson, there weren't any Democrats and Republicans, they were just liberals and they weren't Americans.
Do you think he's going to resign, James Watson?
I have no idea.
Did he get the shot in the foot award?
I think it was very funny, I thought it was hilarious.
I read this article and in fact there was a picture of Secretary Shultz going,
Do you really say that beside the army general that said we're sending in war troops into Vietnam?
Oh, let him know. But there's something about James Watt who said, I guess in my administration we have equal opportunity employment.
We've got a few Italians, we've got a few Jews, a few cripples.
That was, I thought it was Butz, wasn't it?
No, that was Watt.
It was Watt.
It was Watt?
He was a Jewish guy, he went and paralyzed a lot of people.
Yeah, yeah, yeah, no, no, no.
By the way, excuse me, we're looking for a Jew with a paralyzed arm.
The way he said it, my wife saw him on television, I was teaching that day, Watts said it, the way he said it was very funny, he was speaking for the Chamber of Commerce or something, he said, he had his new commission on coal leasing on an onset, he said, it's very balanced, we've got three Democrats and two Republicans, one black, one woman, two Jews and a cripple, cutting it off, I said, hilarious.
Are you going to be talking about the banks and the equity crisis and that sort of thing?
Equity crisis?
Or the debt crisis?
Oh, God.
I don't know how you're going to stop.
I'll take this time for a minute.
There's actually one more question.
You know how a bank can keep a certain amount of its cash in order to loan a rest out?
And by doing a plan of bookkeeping, it manages to multiply the money by the fact of wherever
it wants.
You know how a bank can keep a certain amount of its cash to reserve and loan the rest out?
And by doing a clever bookkeeping, it manages to multiply the money by the fact of wherever it wants.
So like 20% reserve and it multiplies it by 5.
Shouldn't that cost a 500% increase in the money supply?
How come physicals run away from inflation?
Well, because of the inflation, the question of how much is done, you know, hasn't been done enough to run away yet, except in places where there have been no inflation, Germany, Hungary and so forth and so on.
They're a lot, it's a, you know, we stop when?
Well, I think, actually, just about any topic could take all night.
Yeah, okay, shut up.
If you can answer, generally, some questions and then refer them to reading materials, that's fine.
So the mystery of banking solves the whole banking question.
It explains it, actually it's the first one that really explains it, but what happens is
money and banking textbooks will explain it, except they have the wrong point of view on it.
My only little pamphlet, most hard money people have the right point of view, they don't explain it in detail.
I combine explaining in detail with our money analysis.
Basically it's that, it functions something like warehouse receipts.
For some obscure reason, common law or statute law warehousing was mixed up.
For example, until 10 years ago, Chicago grain elevators, which are the grain warehouses for wheat and so forth,
people deposit grain in the warehouses and leave it for a while and so on and pick it up.
And the grain warehouses began to speculate in the depositors' customers' wheat.
It's very much as if you're depositing something in a warehouse and somebody takes it out and lends it out,
expecting you won't pick it up for a while.
And they were doing this systematically. They were making money and the other guys, they were charging the grains, the wheat people,
money for depositing, and then they'd take it out and lend it out.
And it was not illegal, they found it was maybe illegal, it's called imbezzlement, I think it is.
And then it became a no-no and that was the end of that.
However, the case of banks, which were originally money warehouses where people put gold on the deposit
and left it there, so the banks began to do the same thing.
And the case came up, early 19th century England, a classic case about
If you deposit something, is it a debt or is it a bailment?
Bailment being a legal term for...
For example, if I leave something at some point, a safety deposit box would be a bailment.
I leave it there, it's supposed to be there, damn it, it's not there on it.
I come for it, somebody has to pay, somebody's a crook.
So is a bank deposit a bailment or is it a loan?
and he was argued about it for it, the judge unfortunately ruled it was a loan.
Although he admitted, this is truly a legal situation ever since, so it's a peculiar kind of loan
because you have to sort of keep it on hand and you're not really paying the guy and he thinks it's there all the time
so it's a very confused decision of the judge.
Ever since that fractional reserve banking has been legal, where you can issue warehouse receipts to non-existent money,
And I just go and lend them out, and hope that you won't get caught,
or hope that people won't call for redemption, in which case you go back,
you don't go to jail, you only go back from it.
So that was a key legal difference.
Did it happen before then with the creation of the Bank of England?
Well, the Bank of England did it on a massive scale, but there weren't that many other banks for that.
So it was the Bank of England that started it?
That's right.
So it was before that decision?
Yeah, the decision came much later.
For some reason, nobody really,
it didn't go to the courts until,
until early 1915 or something.
I don't know why.
Why didn't it take it to the courts?
Probably because there were no bankruptcies.
Oh.
Yeah.
If there weren't any bankruptcies,
why would anyone complain?
Well, the Bank of England went bankrupt
at the very beginning.
Bank of England went bankrupt about two years after
they got started, and the government then stepped in
and said, you can suspend species payments.
You don't have to pay your debt,
or you're, you can continue,
You can enforce the debts on your debts and your debtors, but you don't have to pay the debt.
They did this several times, systematically, every time a bank went out in the hawk.
So finally they confirmed monopoly of the bank, only the bank issued bank notes,
50 mile radius of London, stuff like that.
Anyway, the thing is, the fractional reserve banking doesn't last very long if it's a free banking system.
If you have a real free market of banking, you can't do very much, even with this legal problem.
Say I set up a Rothbard bank, and I start issuing fake warehouse receipts, why not, and lend them out. Who will buy them?
Also, if I have a couple of clients and I lend them this money, Rothbard dollar notes or something, the deal in gold,
pretty soon my borrower is going to spend his money on something else and give the notes to somebody else to buy something with,
and the other guy is not going to be a Rothbard bank client, he'll be a client of some other bank.
The other bank pulls upon me for redemption, I ain't got the money, I'm gonna go bankrupt.
This check, this free market check on fractional reserve banking is pretty powerful.
So the fractional reserve banking never really got started in a real inflationary manner
until the central bank comes in, the bank of England, the Federal Reserve Bank, bank of France, etc.
and generates, pops up the whole system, it's like a government cartel, it's like a compulsory cartel.
It is a compulsory cartel.
Allowing the banks to inflate uniformly so no one bank gets in the public.
And, so anyway, the racketeering part of this is that the Federal Reserve System, for example,
was sold to the United States on the basis of checking the excessive tendency of private banks to inflate.
Actually, the reason is just the opposite. The private banks that couldn't inflate got together and got the government to pass this law
so the Federal Reserve Bank could engage in a carnalized inflation.
It's just like an antitrust law, the same sort of stuff all over again.
And the Federal Reserve in the United States and the Bank of Canada here or whatever, it essentially puts money in a different sophisticated way.
And actually, plain simple fact, it puts the money, and the whole money supply pyramid is upward.
And it's still doing it, despite a little talk about checking inflation and that sort of stuff.
But in fact that business about banks going bankrupt, there was one in Britain that
brings in a lot of money and went under. And the other banks bailed it out because they
needed people. When was that?
Well once in a while, in the United States too, there were really crooked, crooked, crooked
banks. I mean they just walk off the assets, okay. Or they lend money, very unsound loans,
they lend money to people who go bankrupt or something like that. They can go under and
and they're big on lap of the Federal Reserve or the Federal Deposit Insurance and all that, but it's very isolated.
And what I'm talking about is a real bank run where everybody says, in other words, I'd be interested in this sort of thing.
People were talking to Paul the other day about private action, sort of like agorac action.
One agorac action I'd like to see is a mass run of banks.
Everybody cashes in, okay, we don't like banks anymore, we insist on cash.
This requires a lot of headaches.
They could get around it, but there are a lot of original turmoils, they have to adjust, I mean, the Federal Reserve and the House and the House will just print the money and give it to the banks, but they have a lot of institutional problems with it, they have to act fast, they have a lot of headaches.
What they do in cases like that though is declare a bank hold of these one way, but they simply, the government simply locks the doors on that bank and won't allow people to take money.
which is partially what happened with the trust company, yeah, the Rosenbergs.
When the depository wanted the money, the government just said,
I'm sorry, you can't get it for any amount of time.
In fact, certain people who wanted to get their money out
were not allowed to do it at all.
There would have been different associates of the previous owners.
So it's like suspicious species.
Yeah, I mean, the banks are legalized thieves,
just as governments are legalized thieves.
and government simply comes in and says, I'm sorry, you can't take your money back from the thief.
There's also an interesting law which was passed during 1932, the last free banking, before the federal deposit insurance came in, so it locked the whole thing up.
A lot of bank failures, runs on banks. The Republican administration personally blamed it on the communists.
It's because the communists are out there on Bolsheviks, they're undermining the silence of the banking system.
Injecting fear and suspicion in the hearts of the public and the banks.
They didn't need communists to inject fear and suspicion in the banks for collapsing all over the place.
Second of all, they said that it passed a law making it illegal to spread rumors that a bank is unsound.
Or a bank must.
Yeah, except it's on the books.
Oh my god.
They like them apples.
The Canadian government did something similar, Trudeau passed an order, when there was a cartel about the uranium price, cartels were illegal in Canada, so Trudeau passed an order in council making it illegal to talk about the illegal activities of the Canadian government.
In 1977, he passed an order in council that was illegal for any Canadian to talk about the uranium cartel, which was illegal at the time.
That's still in existence.
I don't know if that's still in existence.
Tell me what law is there.
Turn that man in.
He's illegal.
I'm not going to sit in the same room as a film criminal.
The standard conservative doctrine is, if it's on the books, you've got to enforce it.
It might not like the law, but you have to enforce it to the health if it's on the books, right?
So that man is there to protect the public.
I mean, what would we think if all these people went around talking about the fact that the government can do things right?
I should, I should, why, I mean, this is like a two-minute series of sum up a whole bunch of literature, of what the Austrian business cycle theory is, and what the explanation of all this, of what your intercession is, that's a one-minute statement, you can read it in my American Great Depression, or in Hayek's Arthurian Trade Cycle, Human Action.
Basically it is, this is one of the things wrong with the Feminites, the Feminites say, yes, yes, excessive banking expansion, money supply causes inflation.
They don't see any other problems with inflation, it's only the prices go up and down and people can't calculate as well.
Actually what happens with inflation through the banking system is that it messes up the whole production structure.
Interest rates are distorted, production is distorted, and what you have is an excessive investment in capital goods,
and of course things called higher orders of production, machine tools, construction, cement, things like that.
And not enough of investment in consumer goods. You have a distortion of this production structure.
Usually there's a lattice where everything clears and clicks and so forth.
Because the government inflates, lends money and the banks inflate the rest of the government,
lend money to businessmen, businessmen then expand unnecessarily, as if there were a lot of savings to invest in.
And as soon as the inflation stops, as soon as the monetary inflation stops, this is revealed by processes I can't go into, as soon as you stop pumping in more money, these construction companies, capital industries start making severe losses, they know their over expansions are revealed.
The recession then becomes necessary and healthy in order to wash out these malinvestments,
to liquidate these unsound investments and get back in a proper proportion.
So the resources are shifted back to consumer goods unless the excess amount of investment goods are eliminated.
So recession then becomes the inevitable, unfortunate, but necessary and inevitable consequence of the boom,
and a healthy consequence of the boom.
The boom is the problem, the recession is the correction.
This is, of course, totally post-Lakhanian doctrine, which you have to, and Friedman
doctrine, you have to pump in, do something in a correct recession.
So, this means that the Austrian policy conclusion provided from that is, if there's an inflation,
stop inflating, there will be a recession.
The thing about recession, let the recession do its healthy work fast and get it over with,
so we can have a recovery.
Let these resources shift back to the proper free market level.
The more you try to hold up the recession and delay it, the more you try to interfere
The fear whether to keep wage rates up, bail out, unsound companies and so forth, the more
you prolong the recession, you're converting it into a chronic depression, the more you're
delaying the recovery.
So the choice then becomes, after the inflation boom, the choice becomes a quick, sharp, sort
of surgical cut, and the recovery is on, or a chronic depression continues on and on.
And what happened in the 1930s is Herbert Hoover, far from being a great apostle of
laissez-faire, was the first big new dealer.
He was the same. His policy was the same as Roosevelt's, except a lower degree.
So as soon as the recession hit, the stock market crash hit, he immediately intervened in all these new deal legislations.
Bailing out bankrupt firms, keeping wage rates up, keeping prices up, et cetera, et cetera.
Pumping in more credit, lowering interest rates, the whole business, public works projects.
What this did was it delayed the recession, prolonged it, and Roosevelt of course intensified it.
You have a 11-year depression. So something which would have been like a nine-month recession
has been converted into a chronic, seemingly permanent depression. And capitalism, the free market, gets the blame for it.
Instead of the government intervention which creates it, it's the free market which is, of course, loving the blame.
And those conservatives still keep maintaining, despite all the evidence, Hoover was a very laissez-faire person, of course,
digging their own grave on this because they're holding up somebody that everybody else thinks belongs in pressure.
The difference between recession and depression is simply in how long it lasts.
Yeah, it's no longer how intense it is. It's big. It's a depression. It's more mild to recession.
Actually, the word depression has now been outlawed by economists. They don't use it. It's too depressing.
In the old days, people didn't talk about depression. They talked about mild depression and severe depression.
And then the pressure stopped being used as a bad PR, so now it's recession, a big recession, you know, since it's full of semantics.
It's become a correction.
Correct, yeah. Sometimes, back in the 60s, they started talking about, they started saying, maybe there are no recessions anymore either, maybe they're just sideways corrections, or whatever.
That was too euphemistic.
What do you call that technical direction? Technical direction, right?
Well, this is the... That's it?
Should we have a general evaluation by people on my page?