WEBVTT NOTE The Failure of "Stimulus" Policies 1 00:00:00.000 --> 00:00:05.120 I'm going to be talking about the failure of stimulus policies and this one before lunch. 2 00:00:05.120 --> 00:00:07.560 And specifically, I'm going to break it up into two things. 3 00:00:07.560 --> 00:00:11.600 I'm going to talk about first monetary stimulus and then fiscal stimulus. 4 00:00:11.600 --> 00:00:15.820 So that terminology, for those of you who don't know, monetary is what the name suggests. 5 00:00:15.820 --> 00:00:21.240 It means having the Federal Reserve somehow try to stimulate the economy, either through 6 00:00:21.240 --> 00:00:26.680 lowering interest rates conventionally the way it would be framed or now with this quantitative 7 00:00:26.680 --> 00:00:27.680 of Easing. 8 00:00:27.680 --> 00:00:30.160 That just means pumping more money into the system. 9 00:00:30.160 --> 00:00:34.240 So it's actually, let me just make sure you understand, those are actually just two different 10 00:00:34.240 --> 00:00:36.380 ways of describing the same philosophy, okay? 11 00:00:36.380 --> 00:00:42.600 So even years ago, like when Alan Greenspan was going to try to stimulate the economy, 12 00:00:42.600 --> 00:00:47.320 the press would say, oh, the Federal Reserve today lowered interest rates by 50 basis points 13 00:00:47.320 --> 00:00:50.960 or something, you know, from five down to 4.5 percent. 14 00:00:50.960 --> 00:00:55.440 The way that would happen is they would create money and inject it into the loan market, 15 00:00:55.440 --> 00:00:59.760 All right, so they would just create new dollars, add them to the supply of dollars, and so 16 00:00:59.760 --> 00:01:01.960 that would lower the price of borrowing money. 17 00:01:01.960 --> 00:01:07.720 All right, so that's, now with this quantitative easing, the real, the main difference in terms 18 00:01:07.720 --> 00:01:13.360 of the press reporting is now, since interest rates are already budding up against 0 percent, 19 00:01:13.360 --> 00:01:17.080 they're not talking about changes in the interest rate, they're talking about, well, how much 20 00:01:17.080 --> 00:01:20.080 money is actually now being dumped into the system, okay? 21 00:01:20.080 --> 00:01:25.040 But the two techniques were always the same, the way the Fed lowers interest rates is by 22 00:01:25.040 --> 00:01:55.040 The Theory of Money and Credit 23 00:01:55.040 --> 00:01:59.120 You understand there is a school of thought that thinks like this and if the Austrians are right 24 00:01:59.720 --> 00:02:04.880 Then what the Federal Reserve is doing now is the exact opposite thing it should be doing, right? 25 00:02:04.880 --> 00:02:10.000 It's just making it worse. It's setting us up for another bigger crash. Okay, so it's important to realize 26 00:02:10.960 --> 00:02:15.560 Because you might get the sense when you read like the financial press. It'll say stuff like 27 00:02:16.440 --> 00:02:21.240 You know despite the feds efforts at helping, you know, so far the economy is still luggish or you know 28 00:02:21.240 --> 00:02:24.800 The feds pumped in more medicine, but if the Austrians are right, you know 29 00:02:24.800 --> 00:02:30.800 The article should read, because the Fed has been doing so much, that's why the economy lingers in the recession. 30 00:02:30.800 --> 00:02:36.800 Or because of all the poison the Fed is pumping into the economy, that's why things are still so awful. 31 00:02:36.800 --> 00:02:44.800 I think the reporters there think they're being very neutral and they're not picking winners and losers and they're just not being ideological. 32 00:02:44.800 --> 00:02:52.800 But the very phrasing they use when they talk about what the Fed is doing betrays a belief in monetary stimulus. 33 00:02:52.800 --> 00:03:12.800 The Theory of Money and Credit 34 00:03:12.800 --> 00:03:21.800 This, his book, The Theory of Money and Credit that came out in 1912, that was the one that really laid out this Austrian theory of the business cycle that I'm going to summarize for you. 35 00:03:21.800 --> 00:03:30.800 And then his student, Hayek, who actually won the Nobel Prize in 74 for his work on what we now call Austrian business cycle theory. 36 00:03:30.800 --> 00:03:35.800 And his big book, his seminal work on that was Prices and Production, which came out in 31. 37 00:03:35.800 --> 00:03:41.960 31. So Hayek, just historically, just to give you some context, Hayek was the guy that went 38 00:03:41.960 --> 00:03:46.380 toe-to-toe with John Maynard Keynes during the 30s about what should governments and 39 00:03:46.380 --> 00:03:51.500 central banks be doing to get us out of this great depression that's gripped the world. 40 00:03:51.500 --> 00:03:56.960 And obviously, Keynes won the argument, right? The Austrians think Keynes was wrong and Hayek 41 00:03:56.960 --> 00:04:01.080 was right, but in terms of what did governments and central banks end up doing and what did 42 00:04:01.080 --> 00:04:07.400 Professional Economists, which economist did they think won the day? 43 00:04:07.400 --> 00:04:11.800 They obviously picked Keynes over Hayek. 44 00:04:11.800 --> 00:04:18.520 Okay, so I don't know if you can see it with this podium in the way, but this quote from 45 00:04:18.520 --> 00:04:23.220 Hayek says, before we can even ask how things might go wrong, we must first explain how 46 00:04:23.220 --> 00:04:25.500 they could ever go right. 47 00:04:25.500 --> 00:04:31.260 and so that's what I'm going to do is walk you through the Austrian view of just a normal 48 00:04:31.260 --> 00:04:34.900 economy that's growing over time because I think we all know that when there are these 49 00:04:34.900 --> 00:04:40.020 crises, economies tend to grow and so just I want to walk you through the Austrian view 50 00:04:40.020 --> 00:04:45.500 of what specific, what regulates that or how does that all work out? You know, how is it 51 00:04:45.500 --> 00:04:50.700 that people build the right amount of factories so that output expands so that consumers when 52 00:04:50.700 --> 00:04:53.420 they go to the store, that stuff is just magically sitting there on the shelves, right? That's 53 00:04:53.420 --> 00:04:58.900 It's a very complicated thing, and there's not some central planner explaining, okay, 54 00:04:58.900 --> 00:05:01.580 we've got this much investment, so let's put it over here, and let's put it over here, 55 00:05:01.580 --> 00:05:02.580 and let's put it over here. 56 00:05:02.580 --> 00:05:05.620 It just sort of all happens spontaneously, and so I just want to walk you through the 57 00:05:05.620 --> 00:05:13.340 Austrian view of what in an actual market economy sort of coordinates all that complicated 58 00:05:13.340 --> 00:05:19.340 issue, and once you see how it works properly, Hayek's point is, once we see how it works, 59 00:05:19.340 --> 00:05:24.340 And then we can start to figure out what happens to make it get screwed up as we know it occasionally 60 00:05:24.340 --> 00:05:26.340 gets screwed up. 61 00:05:26.340 --> 00:05:32.940 Alright, so the main, the central point of this is that for the Austrians, prices act 62 00:05:32.940 --> 00:05:42.640 as signals and in particular, interest rates are certain prices and they coordinate things 63 00:05:42.640 --> 00:05:43.640 through time. 64 00:05:43.640 --> 00:05:46.500 And this is going to make more sense as I go through the presentation, but just keep 65 00:05:46.500 --> 00:05:56.500 In general, in the Austrian view, market prices mean something. It communicates information. 66 00:05:56.500 --> 00:06:07.500 It's a way that human beings communicate with each other. You can call someone on the phone, but also in the Austrian view, market prices act as signals. 67 00:06:07.500 --> 00:06:15.500 Just to give you an example that Hayek used to use, he would say suppose there's a copper mine in Africa that collapses. 68 00:06:15.500 --> 00:06:23.500 And so that the output of copper from that mine is interrupted for a few weeks while they're digging the mine out and getting the people and so forth. 69 00:06:23.500 --> 00:06:28.500 He said, well what happens, obviously speculators see that, they push up the price of copper. 70 00:06:28.500 --> 00:06:33.500 So in the world market, the price of copper immediately jumps up because there's an interruption in output. 71 00:06:33.500 --> 00:06:43.500 And so then what happens, every business around the world that uses copper sees the spot price jump up and they economize on it, they react to it, depending on their business. 72 00:06:43.500 --> 00:06:47.420 on their business. Some businesses, if they have a lot of substitutes, things they can 73 00:06:47.420 --> 00:06:51.140 use instead of copper, they'll switch out of it. They'll, you know, not buy as much 74 00:06:51.140 --> 00:06:55.700 copper and switch to something else. Businesses that, no, they need to use copper and whatever 75 00:06:55.700 --> 00:06:59.220 it is they're doing, nothing else will really work, well, they're going to still buy copper. 76 00:06:59.220 --> 00:07:06.180 So over the entire globe, because of that collapse in the copper mine, you have producers, 77 00:07:06.180 --> 00:07:10.660 everybody who uses copper around the world economizes on it, cuts back on how much copper 78 00:07:40.660 --> 00:08:03.660 The Austrian view of how prices help regulate things and why it is that you just take it 79 00:08:03.660 --> 00:08:06.980 for granted, you go to the store and there's all kinds of stuff on the shelves, when if 80 00:08:06.980 --> 00:08:10.700 When you think about it, that's a really complicated process, that everything that's on the store 81 00:08:10.700 --> 00:08:15.320 and the shelf took years to develop, took all sorts of tools, thousands, perhaps millions 82 00:08:15.320 --> 00:08:20.020 of people indirectly contributed to the production of that thing, and you just take it for granted. 83 00:08:20.020 --> 00:08:25.120 It's a very, it's almost jaw-dropping when you picture how complicated a modern global 84 00:08:25.120 --> 00:08:31.060 economy is, and the Austrian point is that prices help regulate that. 85 00:08:31.060 --> 00:08:36.220 So specifically, interest rates are themselves prices, the price of borrowing money, and 86 00:08:36.220 --> 00:08:48.220 and the Austrian say that their special function is they coordinate things over time, and we'll see that in a minute, but already you can see the Austrians here are different from most other schools of thought. 87 00:08:48.220 --> 00:09:00.220 So as an Austrian economist, when I'm writing an op-ed in the newspaper about, oh Bernanke, this is before interest rates got down to zero basically, but Bernanke was lower in interest rates, 88 00:09:00.220 --> 00:09:13.220 And I would write op-eds saying, no, look, interest rates mean something. The fact that with the collapse of Lehman Brothers and whatever, if interest rates on certain types of corporate commercial paper went up, that meant something. 89 00:09:13.220 --> 00:09:20.220 It was because people were panicked and now they weren't sure if these corporations were going to be able to pay them back. So that was a price that meant something. 90 00:09:20.220 --> 00:09:28.220 And the Fed's not doing anybody any favors by coming in and printing money and pushing those interest rates back down, you know, providing liquidity. 91 00:09:28.220 --> 00:09:31.620 That's not actually solving the problem. It wasn't that people were panicked because, 92 00:09:31.620 --> 00:09:35.020 oh, there's not enough dollars to go around. They were panicked because of some real news 93 00:09:35.020 --> 00:09:38.620 that came out, that, oh my gosh, did you guys make all these loans in the housing sector 94 00:09:38.620 --> 00:09:42.620 and now these people can't pay you back? That's why interest rates were going up. 95 00:09:42.620 --> 00:09:47.580 So that really means something, and all you're doing is deadening that signal. You're just 96 00:09:47.580 --> 00:09:51.420 preventing people from being able to communicate with each other if the Fed comes in and says, 97 00:09:51.420 --> 00:09:54.780 well, I don't like that interest rate. I'm going to push it down to zero. That's just 98 00:09:54.780 --> 00:10:00.060 falsifying the information that's trying to be conveyed okay so let me walk you 99 00:10:00.060 --> 00:10:05.540 through the sort of simplistic animation just to give you the general idea so 100 00:10:05.540 --> 00:10:09.900 again what I'm showing you right now is the Austrian view of how is it in a 101 00:10:09.900 --> 00:10:15.980 regular economy nothing special going on people save more that frees up 102 00:10:15.980 --> 00:10:22.220 resources for investment and that's how economic output is able to expand year 103 00:10:52.220 --> 00:10:59.220 So they disappeared here and they come down here. So the idea is the family has a certain income, it's spending less on going out to eat, and it's putting more in the bank. 104 00:10:59.220 --> 00:11:09.220 Okay, so their paycheck is the same, and the husband and wife just sit down and they say, I think we should really start saving up more, so we gotta, let's not go out to eat so much. 105 00:11:09.220 --> 00:11:20.220 So that's what happens from their point of view. Well, now what happens, the bank has more money to lend out because there's more savings, so the interest rate falls. 106 00:11:20.220 --> 00:11:42.260 In the grand scheme of things, what happened is the money that the family was originally 107 00:11:42.260 --> 00:11:49.260 The Austrian stress is that it's not just a mere matter of spending. There are real changes in the physical structure of the economy that gets set into motion because of these changes in where the dollars are going. 108 00:12:12.260 --> 00:12:18.700 So, specifically, in the first year, what I'm trying to show here, this sort of goofy 109 00:12:18.700 --> 00:12:24.180 picture is that fewer resources are going into this restaurant because people are spending 110 00:12:24.180 --> 00:12:25.180 less of them. 111 00:12:25.180 --> 00:12:26.780 So they actually have to lay workers off. 112 00:12:26.780 --> 00:12:33.780 They buy fewer hamburger buns and they don't open up a new chain, for example, because 113 00:12:33.780 --> 00:12:35.500 they're going to see their sales plummet, right? 114 00:12:35.500 --> 00:12:38.860 The people who own this restaurant are going to be thinking, oh man, business is awful 115 00:12:38.860 --> 00:12:41.720 because all these families stop going out to eat so much. 116 00:12:41.720 --> 00:12:46.840 So that frees up workers and raw materials. This is supposed to be iron ore. So I did 117 00:12:46.840 --> 00:12:55.120 a Google image search of that, but I realize you don't know what that looks like. So the 118 00:12:55.120 --> 00:12:59.080 point is, it's not just that the factory has more dollar bills, it's that there's actually 119 00:12:59.080 --> 00:13:04.320 more resources that are freed up. There's unemployed workers, right, that the restaurant 120 00:13:04.320 --> 00:13:21.320 The idea in the Austrian view is what the economy's scarce resources are going into got changed instead of channeling stuff into restaurants now that gets re-diverted 121 00:13:21.320 --> 00:13:32.320 and so more stuff is going into factories and making drill presses and 18-wheelers as opposed to making super value meals and plasma screen TVs. 122 00:13:32.320 --> 00:13:40.160 Okay, so, the idea is, that means in the next year now, there's more hammers, more equipment being made. 123 00:13:40.160 --> 00:13:47.440 Alright, obviously this is a stylized example, but the idea is, it's not just a question of every year, what's total output, 124 00:13:47.440 --> 00:13:51.760 as like a mainstream economist might talk about, and say, oh, did GDP go up this year or not? 125 00:13:51.760 --> 00:13:58.160 The Austrians break that down, and they say, no, it matters in terms of economic growth, what the economy's producing. 126 00:13:58.160 --> 00:14:05.840 If it's producing burgers and plasma screen TVs, well that's good. We'll take more of them. If 127 00:14:05.840 --> 00:14:09.200 Martians just showed up and started handing out plasma screen TVs, we'd be richer. That's true. 128 00:14:09.760 --> 00:14:14.560 But that wouldn't help us grow in the future. Whereas if the economy is cranking out this sort 129 00:14:14.560 --> 00:14:20.480 of stuff, well then that's real output today. So the GDP figure is higher. But what that means 130 00:14:20.480 --> 00:14:24.160 is workers are going to be more productive in the future because they have more tools to work with. 131 00:14:24.160 --> 00:14:31.560 and so then finally in year three now the restaurant can actually make more food 132 00:14:31.560 --> 00:14:38.480 even though it has fewer workers in it okay and the households have more money 133 00:14:38.480 --> 00:14:44.280 now so even if the household is saving a higher fraction of its income now its 134 00:14:44.280 --> 00:14:47.880 total income is higher than it was before and so it might actually be going 135 00:14:47.880 --> 00:14:51.580 out to eat you know they might get more restaurant meals now because they've 136 00:14:51.580 --> 00:15:21.580 The big picture here in case you got lost, just using a silly, stylized example, is that a household, if it starts saving, in the short term it cuts its consumption, you don't get to go out to eat as much, you start putting more money in the bank, but then that starts growing and your income starts going up because now you're not just getting your paycheck, you're also getting the interest you're earning off of your savings, and so after a while, even if you're still saving that higher fraction, 137 00:15:21.580 --> 00:15:25.580 The amount you get to go spend on fun stuff can actually be bigger. 138 00:15:25.580 --> 00:15:29.580 In the real world, it probably wouldn't catch up in year three, but I'm just doing the stylized example. 139 00:15:29.580 --> 00:15:33.580 All right, so you understand from your own personal finances how that works. 140 00:15:33.580 --> 00:15:38.580 That if you're really disciplined and you save a lot early on in your career, 141 00:15:38.580 --> 00:15:43.580 you know 20 years down the road, your income is going to be a lot higher than it otherwise would have been. 142 00:15:43.580 --> 00:15:49.580 And what I'm trying to get you to see here is the Austrians explain that it's not just a matter of dollars and cents. 143 00:15:49.580 --> 00:15:59.980 Physically speaking, how can it be that if everyone saves a lot, that down the road, we can all be richer, it's because the economy changes the composition of output. 144 00:15:59.980 --> 00:16:07.180 When people save more, that tends to lower interest rates, that leads to more investment, and it changes what it is that businesses produce. 145 00:16:07.180 --> 00:16:17.480 They start producing stuff like this instead of direct consumer goods, producing this instead of producing Ferraris, makes us, makes workers more productive down the road, 146 00:16:17.480 --> 00:16:34.280 Okay, so that's the basic Austrian story of how interest rates coordinate things through time. 147 00:16:34.280 --> 00:16:41.080 Let me just give you one little example of this because I know some of you are in business and this might crystallize it for you. 148 00:16:41.080 --> 00:16:51.080 Specifically, what happens, the Austrians say interest rates affect long-term projects more than short-term ones. 149 00:16:51.080 --> 00:16:57.080 So, if you are a, let's say you're a real estate developer and you're looking at this project, you say, 150 00:16:57.080 --> 00:17:05.080 okay, we can spend a million dollars, buy this little parcel of land, hire a construction team and build an apartment building. 151 00:17:05.080 --> 00:17:10.080 And I think if we rent out all the units with the going market rates that we project and so forth 152 00:17:10.080 --> 00:17:17.080 on net every year above our expenses of the utilities and property taxes and so forth, we'll pull in a hundred grand a year 153 00:17:17.080 --> 00:17:20.080 indefinitely, you know, after the maintenance costs and everything like that. 154 00:17:20.080 --> 00:17:26.080 So the question is, do we want to spend a million dollars upfront to acquire this property and build it 155 00:17:26.080 --> 00:17:34.080 and then earn a perpetual stream of a hundred thousand dollars in net revenue indefinitely going into the future? 156 00:17:34.080 --> 00:17:39.080 Well, if you know business, you know that's not enough information. You need to know what's the interest rate, right? 157 00:17:39.080 --> 00:17:46.080 Because if the interest rate's 15% and I could just put that in a bank, you know, earning 15% on a CD, 158 00:17:46.080 --> 00:17:50.080 I would be stupid to spend a million dollars to earn a stream of $100,000 payments 159 00:17:50.080 --> 00:17:54.080 because that's only a 10% return on my money and it's also risky. 160 00:17:54.080 --> 00:18:03.080 Whereas if the bank's only offering me 3%, well then maybe I do want to put my money in this project and earn 10% a year if my numbers are right. 161 00:18:03.080 --> 00:18:04.080 My numbers are right. 162 00:18:04.080 --> 00:18:08.880 Okay, so you see how interest rates there, the lower the interest rate that you earn 163 00:18:08.880 --> 00:18:12.680 elsewhere in the economy, the more like you are to do this particular project. 164 00:18:12.680 --> 00:18:19.080 Whereas if you're, let's say your neighbor has a big barn that he wants you to paint. 165 00:18:19.080 --> 00:18:22.840 And he says, hey, I'll give you $1,000 if you paint this thing. 166 00:18:22.840 --> 00:18:25.960 And so you've got to figure out, okay, well, how much paint would I have to buy? 167 00:18:25.960 --> 00:18:28.180 Would I hire someone to help me do it or would I do it myself? 168 00:18:28.180 --> 00:18:30.360 How many hours of my labor would it take? 169 00:18:30.360 --> 00:18:34.360 And you've got to figure out, is it worth it to take this project for $1,000? 170 00:18:34.360 --> 00:18:37.360 You're probably not going to say, well, wait a minute, what's the interest rate? 171 00:18:37.360 --> 00:18:41.360 Because you're going to knock that thing out in a week or two, your money's not going to be tied up. 172 00:18:41.360 --> 00:18:43.360 It doesn't really matter what the interest rate is. 173 00:18:43.360 --> 00:18:50.360 It's just a question of, is the $1,000 worth my expenses and my time? 174 00:18:50.360 --> 00:18:56.360 So the point with those two different examples, the idea is lowering interest rates 175 00:18:56.360 --> 00:19:02.240 This makes long-term projects appear more attractive, whereas it doesn't really stimulate 176 00:19:02.240 --> 00:19:09.320 short-term projects all that much one way or the other. 177 00:19:09.320 --> 00:19:14.680 So now, going back to the other example of the people, the households saving money, lowers 178 00:19:14.680 --> 00:19:19.340 interest rates, the factory borrows more and expands. 179 00:19:19.340 --> 00:19:24.980 What happens if the reason the interest rate dropped from 10% to 5%, what if it's not because 180 00:19:24.980 --> 00:19:28.180 is the families are cutting back on going out to eat, but what if it's just because 181 00:19:28.180 --> 00:19:32.420 the Fed creates money out of thin air and dumps it in the credit market? And that's 182 00:19:32.420 --> 00:19:38.780 why the interest rate dropped. Well then, you guys should say that blows up a bubble. 183 00:19:38.780 --> 00:19:47.380 So it's intuitively what happens is the Fed is messing up those signals. Back in the original 184 00:19:47.380 --> 00:19:52.700 example when everything worked out, when it was all coordinated, the families stopped 185 00:19:52.700 --> 00:19:59.700 the Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit 186 00:20:22.700 --> 00:20:29.700 The Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit 187 00:20:52.700 --> 00:20:56.140 you have some sectors shrinking and other ones expanding 188 00:20:56.140 --> 00:20:59.340 so that they just develop more tools and over time they grow because of 189 00:20:59.340 --> 00:21:03.100 productivity increases under the artificial boom the Fed 190 00:21:03.100 --> 00:21:06.060 lowers interest rates starts throwing money around so to speak 191 00:21:06.060 --> 00:21:09.660 and everybody feels rich and everyone's spending more 192 00:21:09.660 --> 00:21:13.900 and so it looks like good times are here but that's physically unsustainable 193 00:21:13.900 --> 00:21:18.540 right because there's not more savings going around it can't possibly work 194 00:21:18.540 --> 00:21:22.380 that the restaurants start opening up new chains 195 00:21:22.380 --> 00:21:52.380 and, or new locations, while the factories are building more lines, if there's not more stuff to go around, there's not more savings, right, the Fed doesn't create more drill presses just by printing up dollar bills, okay, so that's the Austrian view that it's unsustainable, and because the modern economy is so complex, you can go a few years with this illusion of prosperity, but then ultimately something's got to give, okay, now, 196 00:21:52.380 --> 00:22:01.980 This story I'm telling you, a lot of people say, okay, that sounds nice in theory, but how do we know that what you guys are talking about is valid? 197 00:22:01.980 --> 00:22:09.080 Well, this doesn't prove it, of course, but let me just show you that Austrians did predict the housing bubble in progress. 198 00:22:09.080 --> 00:22:17.680 So here's a quote, higher interest rates should trigger, so someone talking about during the housing boom, you're saying at some point, 199 00:22:17.680 --> 00:22:22.680 Higher interest rates should trigger a reversal in the housing market and expose the fallacies of the new paradigm. 200 00:22:22.680 --> 00:22:27.680 This exposure will hurt homeowners and the larger problem could hit the American taxpayer, 201 00:22:27.680 --> 00:22:31.680 who could be forced to bail out the banks and government-sponsored mortgage guarantors. 202 00:22:31.680 --> 00:22:37.680 Okay, so that was Austrian economist Mark Thornton, who actually works in the same building as James down in Alabama there. 203 00:22:37.680 --> 00:22:40.680 And he said that back in June of 04. 204 00:22:40.680 --> 00:23:09.680 Green Span's Artificial Monetary Stimulus has sown the seeds of a contraction that will hit by Q2 of 08. The concerns of an asset bubble in real estate and to a lesser extent the stock market are entirely justified. 205 00:23:10.680 --> 00:23:16.040 So that's something that I said in a forecast for a bank, and I said that in July of 07. 206 00:23:16.040 --> 00:23:18.920 So I wasn't as prescient as Mark Thornton was. 207 00:23:18.920 --> 00:23:22.880 I didn't see the danger as early on as he did. 208 00:23:22.880 --> 00:23:28.640 But by July of 07, I was looking at things, and I realized, holy cow, the Fed has pumped 209 00:23:28.640 --> 00:23:33.080 up this bubble, and it's going to burst, and it's going to be bad. 210 00:23:33.080 --> 00:23:40.360 So this is showing that Austrian economists, using their theory, did see this coming before 211 00:23:40.360 --> 00:23:45.040 a lot of other economists did okay so just give you an example what made me 212 00:23:45.040 --> 00:23:47.680 come up with that what was one of the charts that I looked at that made me 213 00:23:47.680 --> 00:23:53.620 alarmed it was the green span had cut inflation adjusted rates to lows not 214 00:23:53.620 --> 00:23:57.640 seen since the 70s so this is the the federal funds rate that's the interest 215 00:23:57.640 --> 00:24:00.760 rate that banks charge each other for overnight loans that's not not a big 216 00:24:00.760 --> 00:24:04.800 deal what it is but it's the target interest rate that the Fed uses and this 217 00:24:04.800 --> 00:24:14.160 The word real just means I adjusted it for inflation, okay, so you see, so this is 01 218 00:24:14.160 --> 00:24:19.380 right here, so this was right after the dot com crash and then the 9-11 attacks, Greenspan 219 00:24:19.380 --> 00:24:25.000 starts cutting interest rates way down, and so this is like negative 2%, so I'm saying 220 00:24:25.000 --> 00:24:33.720 here at this level, interest rates were like 1%, but the inflation rate was 3%. 221 00:24:33.720 --> 00:24:39.720 In terms of the purchasing power, if you let your money out, you got back negative two percent a year later. 222 00:24:39.720 --> 00:24:42.720 That's what this means here, once you take into account inflation. 223 00:24:42.720 --> 00:24:49.720 And so you see that it hadn't been that low since the late 70s. 224 00:24:49.720 --> 00:24:58.720 So the way I was analyzing it, as I was saying, Greenspan made capital artificially cheap to a level. 225 00:24:58.720 --> 00:25:02.720 He provided stimulus, so to speak, to a level we hadn't seen since back then. 226 00:25:02.720 --> 00:25:09.640 And of course, 8182 recession was awful. And so I wrote an article saying the worst recession 227 00:25:09.640 --> 00:25:16.960 in 25 years, question mark, with this graph, arguing in late 07 that I think that we're 228 00:25:16.960 --> 00:25:20.880 in store for what's going to be the worst recession in at least 25 years, again, using 229 00:25:20.880 --> 00:25:27.580 Austrian business cycle theory, just saying the amount of phony, low interest rate stimulus 230 00:25:27.580 --> 00:25:56.580 The question is, what do I see as the natural rate of interest? Do you mean, like, if the Fed weren't tinkering, what would it be? I don't really know, to be honest with you. And that's part of the problem why Austrians don't want there to be a central bank. We don't know. 231 00:25:56.580 --> 00:26:26.580 It's like if Castro asked me how many shopping malls would there be if there was a free market because I want to mimic that I don't know that you have to liberalize your economy and see what happens so I think they'd be higher than zero so I think people would charge someone to borrow their money if it weren't for the Fed doing what it's doing but I don't know what it would be and also I think you would see differences like treasury interest rates would probably still be lower than normal just because they're perceived as safe whereas I think certain corporate you know commercial 232 00:26:26.580 --> 00:26:36.580 the Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit 233 00:26:56.580 --> 00:26:59.580 The Federal Government in terms of its taxing and spending. 234 00:26:59.580 --> 00:27:08.580 So when you talk about fiscal stimulus, what people mean is the government either spending more and or taxing less. 235 00:27:08.580 --> 00:27:11.580 That's the way they're going to try to stimulate the economy. 236 00:27:11.580 --> 00:27:18.580 I don't have a problem with tax cuts per se, so when I say here that I'm going to be criticizing fiscal stimulus, 237 00:27:18.580 --> 00:27:23.580 what I mean is the government running deficits by borrowing and spending more money. 238 00:27:23.580 --> 00:27:53.580 And so there's clearly a presumption that that helps. And the issue was just, you know, do we want to run the debt? But most commentators, you read the financial press, see the guys on CNBC, just take it for granted that if the government borrows a billion dollars and spends it, that's good. And that the only danger is, well, gee, if they run the debt too much, but they just take it for granted that government spending money per se is good for the economy. So the obvious Austrian rebuttal of that is, wait a minute, it's not 239 00:27:53.580 --> 00:27:54.580 Creating More Resources 240 00:27:54.580 --> 00:27:58.900 The government just borrows a billion dollars from the private sector and spends it. 241 00:27:58.900 --> 00:28:01.080 It's not that that spending is manna from heaven. 242 00:28:01.080 --> 00:28:03.120 That came from the private sector. 243 00:28:03.120 --> 00:28:07.880 And so why is it that we assume if politicians are directing where resources go, that's more 244 00:28:07.880 --> 00:28:11.580 efficient than if people in the private sector are doing it, right, just as a prima facie 245 00:28:11.580 --> 00:28:14.520 case of leaving resources in the private sector. 246 00:28:14.520 --> 00:28:18.840 So that's sort of the intuitive response. 247 00:28:18.840 --> 00:28:25.600 Now it's just to give you some more empirical evidence of this Austrian view that well no, 248 00:28:25.600 --> 00:28:29.400 big government spending doesn't help an economy that's depressed. 249 00:28:29.400 --> 00:28:31.320 Some of you may have heard about this. 250 00:28:31.320 --> 00:28:37.900 This is taken from, so these things are added, but these blue curves in the with recovery 251 00:28:37.900 --> 00:28:48.760 plan without, this was taken from the program developed by Obama's economics team. 252 00:28:48.760 --> 00:28:58.760 So when Obama first came into office, January of, what was it, 2009, unemployment at that time was 7% in change. 253 00:28:58.760 --> 00:29:05.260 Okay, so this, I see, 2009, first quarter, they came in, unemployment had just broken 7% and it was obviously rising. 254 00:29:05.260 --> 00:29:12.260 So if you try to remember, think back, we were clearly in a recession, remember, it was in the September of 2008 when the world was ending 255 00:29:12.260 --> 00:29:17.260 and Paulson Bush's Treasury Secretary said, hey, I need $700 billion, the world's going to end. 256 00:29:17.260 --> 00:29:47.260 and uh and so that that was going on and then Obama comes into office and says hey we need this huge stimulus plan and first they asked for a trillion but then they backed off and it ended up being I think 787 billion was the official price tag so this this projection here was put out by Obama's team to sort of show Americans why we need this thing you know yeah it sounds like 780 billion dollars a lot of money but we need it because look if we put this recovery plan into place this stimulus package unemployment is going to keep 257 00:29:47.260 --> 00:29:50.300 Keep going up, don't get us wrong, but it's not going to break 8% and it's going to come 258 00:29:50.300 --> 00:29:51.300 back down. 259 00:29:51.300 --> 00:29:54.700 And they were warning Americans, they said, if we don't, if you don't let us borrow this 260 00:29:54.700 --> 00:30:00.900 $787 billion and spend it and ramp up the deficit like those Republican conservatives are telling 261 00:30:00.900 --> 00:30:05.300 you, you better be careful because unemployment might, it might even break 9%. 262 00:30:05.300 --> 00:30:08.440 So that's what they were warning Americans and saying, you don't want that, do you? 263 00:30:08.440 --> 00:30:10.380 So of course people said, oh no, we don't want that. 264 00:30:10.380 --> 00:30:14.100 So they passed the stimulus and what happened is unemployment broke 10% with the stimulus. 265 00:30:14.100 --> 00:30:29.100 So again, in case I lost some of you, unemployment went up much higher than the scary scenario the administration economists were warning people saying if you don't give us this big deficit spending package, 266 00:30:29.100 --> 00:30:36.100 unemployment left to its own devices might get a little bit above 9% down the road and that's so awful you can't imagine that, right? 267 00:30:36.100 --> 00:30:40.100 So let's let us borrow and spend this money to keep unemployment from breaking 8%. 268 00:30:40.100 --> 00:30:44.580 and of course unemployment went up much higher than that and it's it even went 269 00:30:44.580 --> 00:30:49.420 higher out of this I couldn't find a chart showing the the latest version 270 00:30:49.420 --> 00:30:52.420 yeah 271 00:31:10.100 --> 00:31:32.100 This is a pretty neat chart, but all it proves is that they have no credibility in projecting. It doesn't really speak to with or without a recovery plan, unless there's a source that's a little bit more credible with projecting. 272 00:31:32.100 --> 00:32:02.060 Well, let me put it, there are, well, let me put it this way, 273 00:32:02.060 --> 00:32:12.060 What I'm trying to show with this, though, is that the issue is not, aha, they called it wrong, what a bunch of idiots. 274 00:32:12.060 --> 00:32:21.060 My point is, what would the world look like if Keynesian stimulus deficit spending was a bad thing or were a bad thing? 275 00:32:21.060 --> 00:32:23.060 It would look like this, right? 276 00:32:23.060 --> 00:32:28.060 Because what happened in retrospect, it's not that Christina Romer, who was in charge of this team, 277 00:32:28.060 --> 00:32:32.060 She didn't say, oh my gosh, we made a mistake, we shouldn't have borrowed and spent that money. 278 00:32:32.060 --> 00:32:37.060 We made things worse because we took resources from the private sector and we spent it on government boondoggles. 279 00:32:37.060 --> 00:32:43.060 That's not what they said. They said, no, it still is good that we did that because the economy was worse than we realized. 280 00:32:43.060 --> 00:32:51.060 And so the way ex post, they justify the stimulus is they're going to say, yeah, we made a mistake, we admit, you know, nobody's perfect. 281 00:32:51.060 --> 00:32:56.060 The economy was worse than we realized. So in reality, since this red line was what really happened, 282 00:33:26.060 --> 00:33:56.060 You'll get this sick, but you'll start to recover. If we do nothing and just let this fester three months from now, you might be this sick, and then you go ahead and do it, and you end up sicker than he promised you, and even then when he said it would have happened if you did nothing, by itself, that doesn't mean he's wrong. He could just say, sorry, we misdiagnosed you up front three months ago. You had the cancer spread a lot more than we realized at the time, and it's a good thing we did the chemotherapy because you would be dead right now if we hadn't intervened when we did. This doesn't prove it, but my point is just 283 00:33:56.060 --> 00:34:03.420 to try to bolster the support for these sort of intuitive things I'm saying about government 284 00:34:03.420 --> 00:34:08.060 spending versus leaving resources in the private sector that the world looks just as it would 285 00:34:08.060 --> 00:34:10.780 look like if the Austrians were right going through all these debates. 286 00:34:10.780 --> 00:34:16.140 I'll give you some more examples. 287 00:34:16.140 --> 00:34:20.340 There are plenty of, you probably wouldn't realize this from reading the financial press, 288 00:34:20.340 --> 00:34:26.020 there are plenty of examples of countries that had bad economies and then their governments 289 00:34:26.020 --> 00:34:31.780 cut their spending and then the economies came out of it, right, even though that sounds 290 00:34:31.780 --> 00:34:32.780 heretical. 291 00:34:32.780 --> 00:34:33.780 The people say, no, that's crazy. 292 00:34:33.780 --> 00:34:37.280 Everybody knows the way a government helps an economy is to spend more money. 293 00:34:37.280 --> 00:34:41.580 But no, there's plenty of historical examples and this isn't stuff that the Heritage Foundation 294 00:34:41.580 --> 00:34:42.580 cooked up. 295 00:34:42.580 --> 00:34:46.660 This is coming from a European Central Bank analysis based on some papers out of Harvard 296 00:34:46.660 --> 00:34:47.660 and some other places, right? 297 00:34:47.660 --> 00:34:49.380 So this is mainstream stuff. 298 00:34:49.380 --> 00:34:51.580 I delved into this for an op-ed. 299 00:34:51.580 --> 00:34:55.420 The best example I could look at was Finland because unfortunately some of these countries, 300 00:34:55.420 --> 00:34:59.620 When they implemented what they call austerity, they cut their spending and they jacked up 301 00:34:59.620 --> 00:35:02.180 taxes in order to bring down their deficit. 302 00:35:02.180 --> 00:35:07.460 So there, it's not a clean test of what Eisenaustria would recommend the U.S. government does. 303 00:35:07.460 --> 00:35:13.100 But Finland was a pretty good one in terms of, if you want to call anything an experiment. 304 00:35:13.100 --> 00:35:15.060 So I'm just running through what happened with them. 305 00:35:15.060 --> 00:35:19.320 So from 93 to 97, their deficit averaged 5.2% of their economy. 306 00:35:19.320 --> 00:35:22.220 So their central government's deficit was that big. 307 00:35:22.220 --> 00:35:23.500 So that's pretty big. 308 00:35:23.500 --> 00:35:32.500 Just to give you an idea, under the first Bush administration, the deficit was like, the highest it got was like about 3.8% of U.S. GDP. 309 00:35:32.500 --> 00:35:37.500 So a lot of people say, George Bush cut taxes on rich people and started two wars, ramped the debt. 310 00:35:37.500 --> 00:35:41.500 Well, Finland's deficits were much bigger than under the first Bush administration. 311 00:35:41.500 --> 00:35:47.500 And then from 1998 to 2002, they implemented this austerity and they had government surpluses. 312 00:35:47.500 --> 00:35:50.500 So they were paying down their debt for these four years. 313 00:35:50.500 --> 00:35:54.500 for these four years. I'm just showing you there's a sharp turnaround. The year 1998 is when they flipped. 314 00:35:54.500 --> 00:36:00.500 So, 97 was the last year of deficits. 98 was the first year of surpluses. I'm just giving you, showing you the pattern here. 315 00:36:00.500 --> 00:36:04.500 That's a fairly significant change in their policy. 316 00:36:04.500 --> 00:36:10.500 And specifically, what they did is they cut their spending. 317 00:36:10.500 --> 00:36:16.500 So, in 97, their government spending was this size of their economy. In 1998, one year later, it dropped to that. 318 00:36:16.500 --> 00:36:26.500 So what happened is they cut their spending a little bit in terms of absolute numbers and then their economy grew so that as a share of their economy the government was taking much less. 319 00:36:26.500 --> 00:36:35.500 Okay, so that's a, if you don't know these numbers then this means nothing to you, but that's actually a huge drop for a one year change, right? 320 00:36:35.500 --> 00:36:42.500 In terms of, you know, when they're talking about right now in DC tinkering with budget projections to try to get the deficit under control. 321 00:36:42.500 --> 00:36:47.500 This is a huge, huge drop for one year in terms of how much is the government spending. 322 00:36:47.500 --> 00:36:51.500 And yet, this is what ended up happening. 323 00:36:51.500 --> 00:36:56.500 So 1997, Finland's unemployment rate was 12.7% and their economy grew about 2%. 324 00:36:56.500 --> 00:36:59.500 So in other words, their GDP growth was 2% that year. 325 00:36:59.500 --> 00:37:05.500 So you would think with these sort of savage budget cuts in terms of the Keynesian worldview, 326 00:37:05.500 --> 00:37:09.500 and look it, their unemployment rate was 12.7%, that's not a healthy economy. 327 00:37:09.500 --> 00:37:39.500 The last thing in the world you want to do is have this happen, that you're going to plunge yourself, unemployment's going to shoot up, you're going to go into recession, but no, one year later, when they implemented this, unemployment dropped, and their economy grew a lot faster than it did the previous year, okay, so again, there's countless, well not countless, there's several examples of unemployment in the last year. 328 00:37:39.500 --> 00:37:46.500 The Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit 329 00:38:09.500 --> 00:38:19.500 and what examples are there if you say okay well do we have cases where governments ramped up their spending and that's how they got out of the doldrums 330 00:38:19.500 --> 00:38:27.500 and people will give some examples they'll give you the US under the first few years of FDR and I've already talked about why that was a little problematic 331 00:38:27.500 --> 00:38:36.500 they'll give you US during World War II and I've talked about why that's not really a great example and surprisingly they will cite our recent experience 332 00:38:36.500 --> 00:38:40.500 They will point to the Obama stimulus and say, that proves stimulus works. 333 00:38:40.500 --> 00:38:44.500 So that's why I went over that earlier chart, is I want to show you their mentality. 334 00:38:44.500 --> 00:38:47.500 That doesn't mean, whatever happens, they're always right, 335 00:38:47.500 --> 00:38:51.500 because they just ex post say, well gee, the economy was worse than we thought it was. 336 00:38:51.500 --> 00:38:57.500 Okay, so in their mind, the reason we just saw stimulus in action being successful, 337 00:38:57.500 --> 00:39:02.500 is they're saying, well no, we ran our models, and we think we saved or created 3 million jobs. 338 00:39:02.500 --> 00:39:12.500 And so you don't want, you want 3 million jobs to disappear? That's a good thing we had that stimulus. So the point is, their models, they always end up being right because the assumptions are built right into the model. 339 00:39:12.500 --> 00:39:27.500 That by definition, in the way their computer models work in their simulations, government spending per se creates jobs. Okay, so what I'm trying to get across here is that when you argue, when an Austrian is arguing with these mainstream Keynesian guys, 340 00:39:27.500 --> 00:39:31.460 The Keynesian guys think they're being really empirical even though like I say 341 00:39:31.460 --> 00:39:34.580 when you ask them, well give me examples of when your stuff has worked because I 342 00:39:34.580 --> 00:39:39.500 have plenty of examples when my policy works, they'll say stuff like that when 343 00:39:39.500 --> 00:39:42.940 in my book that's prima facie evidence that their policy failed miserably, that 344 00:39:42.940 --> 00:39:48.220 unemployment went up way higher than they said it would. Okay so that's the 345 00:39:48.220 --> 00:39:52.980 and what are we doing on time here? I guess maybe I'll take time for just one 346 00:39:52.980 --> 00:39:55.980 If there are two questions, then it's lunch time. 347 00:39:55.980 --> 00:40:11.980 What are the assets of Obama's group in terms of this around the natural cycle of things before the number of 2012 elections? 348 00:40:11.980 --> 00:40:12.980 You think he will? 349 00:40:12.980 --> 00:40:15.980 Well, if you didn't get it, you're going to be... 350 00:40:15.980 --> 00:40:18.980 You got to have a bunch of rough mechanics, and you'll be good as well. 351 00:40:18.980 --> 00:40:22.980 But I just have a theory about this guy, and I've heard it some time. 352 00:40:22.980 --> 00:40:26.980 Particularly, somehow, they used to rob him. 353 00:40:26.980 --> 00:40:33.980 Sure. Well, I was, yeah, before having just come off doing my depression book when people were asking about Obama. 354 00:40:33.980 --> 00:40:37.980 And this is when he first came in. Because he... I mean, I'll be honest. 355 00:40:37.980 --> 00:40:41.980 I wanted him to win over McCain just because I thought they were basically going to do the same stuff. 356 00:40:41.980 --> 00:41:11.980 and I don't want free market ideology getting blamed for all the crap that was going to happen right and so I was glad at least you know this is clear cut no we got a big government guy in there and so all this stuff is you know could be laid at his feet and also I thought if I have to listen to some guy talk for four years I'd rather listen to Obama than McCain but but now he's starting to annoy me so it's and I and I do think but I was thinking back then so this is when you know Obama was still really hot commodity and everything and I was telling 357 00:41:11.980 --> 00:41:21.420 and the economy was horrible under him. 358 00:41:21.420 --> 00:41:24.580 So don't just assume, like if they can just spin it and make it look like, well no, it's 359 00:41:24.580 --> 00:41:25.580 not my fault. 360 00:41:25.580 --> 00:41:28.840 It's those fat cats on Wall Street or whatever. 361 00:41:28.840 --> 00:41:30.660 So I think you're right. 362 00:41:30.660 --> 00:41:36.100 And if there's a terrorist attack three months before the election, people might just defer 363 00:41:36.100 --> 00:41:39.340 to whoever's in office because they don't want to change horses midstream. 364 00:41:39.340 --> 00:41:40.900 Who knows what's going to happen? 365 00:41:40.900 --> 00:41:46.060 So you are right, though, and that's the thing with these recoveries. I mean, if economies 366 00:41:46.060 --> 00:41:50.340 recover on their own, so even if people just sat back and did nothing, eventually you would 367 00:41:50.340 --> 00:41:56.500 get out of the recession. And so it's, but it's funny in terms of, and I say this not 368 00:41:56.500 --> 00:42:01.020 to be melodramatic, but I meant it literally, that if you would ask me five years ago, come 369 00:42:01.020 --> 00:42:05.500 up with a plan to absolutely cripple the U.S. economy and just leave it stagnant for ten 370 00:42:05.500 --> 00:42:09.140 years, I don't think I could have done a better job than they've done, right? You know, threatening 371 00:42:09.140 --> 00:42:14.980 Taxi, Healthcare, Cap and Trade, you can't drill offshore, but now you can, but now you 372 00:42:14.980 --> 00:42:20.620 can't, right, and I mean just all these things, and then with the Federal Reserve just creating 373 00:42:20.620 --> 00:42:25.500 trillions of dollars and loaning them out to people behind closed doors, I mean, so 374 00:42:25.500 --> 00:42:29.820 people are actually now literally afraid that the dollar might not be around in 10 years, 375 00:42:29.820 --> 00:42:35.220 and other countries are actually talking about getting rid of the, so what I'm saying, you're 376 00:42:35.220 --> 00:42:38.780 They're right, in general, if this had just been a run-of-the-mill housing bubble and 377 00:42:38.780 --> 00:42:43.420 collapse and the government had done nothing, it just would have recovered on its own. But 378 00:42:43.420 --> 00:42:48.440 with all the stuff they keep doing, they just keep perpetuating. And there's conspiracy 379 00:42:48.440 --> 00:42:52.740 theorists, of course, who say they're doing that on purpose. They want, in order for them 380 00:42:52.740 --> 00:42:57.580 to get more power, they need people to feel vulnerable and not know what the heck to do. 381 00:42:57.580 --> 00:43:01.500 People now are rushing into hedge funds several months ago because there's no interest, there's 382 00:43:01.500 --> 00:43:04.700 no yield anymore. What can I do? I want to give my money to these hedge funds. They're 383 00:43:34.700 --> 00:43:38.700 And just let things ride. You're right, I think by the election we'd start coming out of it. 384 00:43:38.700 --> 00:43:44.700 But so far, it's like every time things pick up, they just come up with some new thing. 385 00:43:44.700 --> 00:43:49.700 Okay, maybe one more question and then it'll be time for lunch. 386 00:43:49.700 --> 00:43:51.700 Anyone? 387 00:43:51.700 --> 00:43:53.700 This is maybe more monetary policy. 388 00:43:53.700 --> 00:43:58.700 I've heard Greenspan said that we didn't have inflation during his era, 389 00:43:58.700 --> 00:44:07.700 in the most recent era, because China was over-saving, something to that effect. Any comments on that? 390 00:44:28.700 --> 00:44:58.700 I did an article on that at Mises.org, I can send it to you later if you want, but there's a few problems, one of them is that the global savings rate was much higher during the 90s for a certain stretch than it was during the housing bubble years, so if the idea is the world is just saving too much and that's why interest rates got pushed down here and Greenspan had nothing to do with it, it's just the numbers don't add up. In other words, why didn't it happen earlier? 391 00:44:58.700 --> 00:45:13.700 If you look at mortgage rates, they were going down. If the international savings story were correct, you would think that, okay, so mortgage rates came way down, that fueled our housing bubble, then mortgage rates started coming up, and that's when the bubble burst. 392 00:45:13.700 --> 00:45:26.700 That's one of the slides that I skipped there. Do I actually have that? Let me show you. 393 00:45:26.700 --> 00:45:56.700 Okay, yeah, this is why I skipped. Let me just show you this. So, this is a 30, the blue line is a 30-year mortgage rate, and this red line is the home price index, the yearly increase, so you can see, mortgage rates were, they peaked in 01, and then they came way down, just as Greenspan was doing all his stuff, and that's also when home prices, I mean this is here, at the peak, there was a period where home prices were going up at a 20% annualized rate, the index. 394 00:46:26.700 --> 00:46:31.660 in the market was because people in China are saving so much you would think that 395 00:46:31.660 --> 00:46:34.860 as it's falling here savings rates would be going up and then as it starts coming 396 00:46:34.860 --> 00:46:37.820 up their savings rates would be going down right that would be the explanation 397 00:46:37.820 --> 00:46:42.860 but no through this whole period throughout this whole period here the 398 00:46:42.860 --> 00:46:48.340 global savings rate went up so as our housing bubble boomed and then busted 399 00:46:48.340 --> 00:46:53.140 throughout that whole period global savings was increasing so to me and like 400 00:46:53.140 --> 00:46:58.540 I say global savings was higher in the 90s than it was during this period when it fueled 401 00:46:58.540 --> 00:47:03.140 the biggest housing bubble in U.S. history. So just the numbers and the directions don't 402 00:47:03.140 --> 00:47:08.140 really make sense to me. Yeah, if they had moved symmetrically and if global savings 403 00:47:08.140 --> 00:47:12.540 in this period were higher than they had been in 50 years, maybe it would make sense. But 404 00:47:12.540 --> 00:47:18.500 to me, just the numbers, the story doesn't really make sense. Intuitively, that's bad 405 00:47:18.500 --> 00:47:21.800 because people are saving more. That doesn't make any sense to me. Our economy was brought 406 00:47:21.800 --> 00:47:24.120 to its needs because people are saving and lending us too much money.