WEBVTT NOTE The Future of the Dollar 1 00:00:00.000 --> 00:00:09.000 Hans Hoppe mentioned to me after my first talk that, like the international monetary system, my writing on the board was chaotic. 2 00:00:09.000 --> 00:00:16.000 So I'll try to be a little more careful. I'll try to coordinate my writing on the board, 3 00:00:16.000 --> 00:00:23.000 just as world governments claim that they can coordinate their exchange rate policies. 4 00:00:23.000 --> 00:00:25.500 Well, there will be two aspects to my talk. 5 00:00:25.500 --> 00:00:33.500 The first will be, what is the likely development of the dollar in the next few years? 6 00:00:33.500 --> 00:00:41.000 And to understand that, we have to look back at what has occurred in the last 10 or 15 years, back to the early 80s. 7 00:00:41.000 --> 00:00:45.000 And secondly, what should we hope for? 8 00:00:45.000 --> 00:00:50.500 In other words, what should we desire the future of the dollar to be? 9 00:00:50.500 --> 00:01:00.500 Should we desire it to be something like the Keynesian Dream, which every once in a while crops up, this whole idea of a global fiat currency? 10 00:01:00.500 --> 00:01:04.500 Or should we push for the good old-fashioned gold standard? 11 00:01:04.500 --> 00:01:10.500 Let me start with what has occurred with the dollar in the 1980s and the 1990s. 12 00:01:10.500 --> 00:01:19.500 And here you'll find that the system has existed in the current state in the last 15 years 13 00:01:19.500 --> 00:01:26.500 because of an obscuring of the effects of the Fed's inflation. 14 00:01:26.500 --> 00:01:35.500 Austrian economists, alone among modern macroeconomists, understand that the effects of increasing the money supply 15 00:01:35.500 --> 00:01:44.900 are many more and are manifold when you compare it to just a rise in the price level. 16 00:01:44.900 --> 00:01:52.500 In other words, most economists see as the only significant effect of an increase in the money supply, a rise in general prices. 17 00:01:52.500 --> 00:01:59.500 But as Austrians point out that there are effects in other markets, in capital markets, in foreign exchange markets, 18 00:01:59.500 --> 00:02:05.500 and that it's these effects which bring about an instability in the economy. 19 00:02:05.500 --> 00:02:15.500 But unfortunately, when inflation is not manifested in that very visible rise in prices which we did have in the late 70s, 20 00:02:15.500 --> 00:02:22.500 people tend to believe that, well, there's no inflation going on and things are pretty much under control. 21 00:02:22.500 --> 00:02:26.500 Well, let me talk a little bit about the 1980s. 22 00:02:26.500 --> 00:02:33.340 In 1982, we were in the depths of an inflationary recession, sometimes called a stagflation. 23 00:02:33.340 --> 00:02:41.300 That summer, Mexico threatened to default on international loans, and then pretty quickly 24 00:02:41.300 --> 00:02:44.580 after Mexico, the same was true of Brazil. 25 00:02:44.580 --> 00:02:54.220 In order to bail out Mexico, Brazil, and indirectly the large Wall Street banks, who were heavily 26 00:02:54.220 --> 00:02:59.220 The Fed began to inflate the money supply at a very rapid rate. 27 00:02:59.220 --> 00:03:09.220 We had a very rapid rate of inflation that continued pretty much from 1982 through 1987, with a pause in 1984. 28 00:03:09.220 --> 00:03:19.220 The money supply figure that I favor, that was developed by Murray Rothbard and myself, which we call the true money supply or TMS, 29 00:03:19.220 --> 00:03:28.220 increased from 84% through 87% at about 14% per year, a very rapid rate. 30 00:03:28.220 --> 00:03:32.220 Yet, we didn't get a lot of price inflation. 31 00:03:32.220 --> 00:03:39.220 Consumers did not see the price of consumer goods skyrocketing as they had in the late 70s. 32 00:03:39.220 --> 00:03:45.220 So people believed Reagan when he said that, President Reagan, when he said that inflation was under control. 33 00:03:45.220 --> 00:03:51.380 Control. But in fact, there were other effects occurring that were to culminate in the crash 34 00:03:51.380 --> 00:03:58.180 of 1987. First of all, let me just mention that the CPI, which is the Consumer Price 35 00:03:58.180 --> 00:04:04.560 Index, increased at a relatively slow rate, at two or three percent, despite the fact 36 00:04:04.560 --> 00:04:09.860 that the money supply was increasing at double digit rates. Okay, why was this? Well, there 37 00:04:09.860 --> 00:04:15.140 were a number of effects, or a number of reasons for this. Let me just mention them. For example, 38 00:04:15.140 --> 00:04:23.140 The price of the dollar appreciated, that is, the value of the dollar in world markets had gone up, making the dollar much more expensive. 39 00:04:23.140 --> 00:04:30.140 If you turn that around, that meant that with one dollar we could buy a lot more of foreign currency and therefore a lot more of foreign goods. 40 00:04:30.140 --> 00:04:41.140 So the price of our imports stayed fairly low. They didn't increase at a very rapid rate because of the appreciation of the dollar that continued until about 1985. 41 00:04:41.140 --> 00:04:48.580 We also found that there was a technological advance in the production of food products 42 00:04:48.580 --> 00:04:50.700 that spread to third world countries. 43 00:04:50.700 --> 00:04:54.900 So the price of food products did not increase at rapid rates. 44 00:04:54.900 --> 00:04:57.380 OPEC collapsed, if you recall, in 1986. 45 00:04:57.380 --> 00:05:01.980 The price of oil plummeted from $35 a barrel down to $12 or so. 46 00:05:01.980 --> 00:05:04.980 The International Tin Cartel broke apart. 47 00:05:04.980 --> 00:05:10.980 This led to, again, or this reinforced the low rate of increase in commodity prices. 48 00:05:10.980 --> 00:05:20.980 Also, the US dollar began to be used, to leak out of the country, to be used in underground economies throughout the world. 49 00:05:20.980 --> 00:05:27.980 Citizens of Argentina, of Israel, of Eastern European countries were beginning to use the dollar in transactions. 50 00:05:27.980 --> 00:05:29.980 So the demand for dollars was going up. 51 00:05:29.980 --> 00:05:36.380 When the demand for a currency goes up, prices stated in that currency begin to fall. 52 00:05:36.380 --> 00:05:39.380 People hold more money, they're not spending it as quickly. 53 00:05:39.380 --> 00:05:43.680 So Americans weren't, so in the world economy dollars were not being spent as quickly, 54 00:05:43.680 --> 00:05:47.380 because more and more people were holding dollars throughout the world economy. 55 00:05:47.380 --> 00:05:52.680 They were also holding dollars in order to buy U.S. securities. 56 00:05:52.680 --> 00:05:57.580 Japanese, Western Europeans were investing heavily in U.S. government debt, 57 00:05:57.580 --> 00:05:59.480 and in order to do that they needed dollars. 58 00:05:59.480 --> 00:06:05.580 So to make a long story short, prices of goods didn't increase very rapidly in this period. 59 00:06:05.580 --> 00:06:13.480 So most economists claim that the Reagan administration have been victorious over inflation. 60 00:06:13.480 --> 00:06:15.680 Some claim that that would eventually lead to a recession, 61 00:06:15.680 --> 00:06:22.980 but those who supported Reagan claim that this was just another one of his victories. 62 00:06:22.980 --> 00:06:26.880 But on other markets, we saw the evidence of inflation. 63 00:06:26.880 --> 00:06:30.880 For example, capital goods markets. 64 00:06:30.880 --> 00:06:35.680 When the Fed increases the money supply, 65 00:06:35.680 --> 00:06:38.680 they do so by increasing bank reserves. 66 00:06:38.680 --> 00:06:41.480 Out of thin air, they create more money for banks to loan out. 67 00:06:41.480 --> 00:06:46.680 As banks increase the supply of their loans, interest rates drop. 68 00:06:46.680 --> 00:06:48.880 When businesses borrow this money at the lower interest rates, 69 00:06:48.880 --> 00:06:50.680 they begin to invest in capital goods, 70 00:06:50.680 --> 00:06:53.280 and that drives the price of capital goods up. 71 00:06:53.280 --> 00:06:54.880 Now, what are firms? 72 00:06:54.880 --> 00:06:56.680 Firms that are listed on the stock market 73 00:06:56.680 --> 00:06:59.680 are nothing but aggregates of these capital goods. 74 00:06:59.680 --> 00:07:06.180 So, the value of a firm depends on the value of the capital goods that it owns. 75 00:07:06.180 --> 00:07:10.880 As the prices went up of capital goods, stock prices began to go up. 76 00:07:10.880 --> 00:07:17.680 Also remember, the price of a capital good depends on the flow of income from that capital good in the future. 77 00:07:17.680 --> 00:07:23.680 That flow of income is discounted by the interest rate to give you a present value for that capital good. 78 00:07:23.680 --> 00:07:27.380 The lower the interest rate, the higher the value of that capital good. 79 00:07:27.380 --> 00:07:33.420 So with low interest rates and a greater demand for capital goods, we began to get a stock market boom. 80 00:07:33.420 --> 00:07:48.540 So from 1982 to May of 1987, we had an increase of August of 1987, we had an increase of 214%. 81 00:07:48.540 --> 00:07:53.780 The Standard and Poor's Index of 400 industrial stocks, in effect, tripled. 82 00:07:53.780 --> 00:07:58.180 So while consumer goods prices were rising at very low rates, stock prices were tripling. 83 00:07:58.180 --> 00:08:02.380 That should have told people something. 84 00:08:02.380 --> 00:08:08.420 We also began to get effects in the bond market, that is, interest rates began to decline. 85 00:08:08.420 --> 00:08:16.500 As the banks, with their newly created credit, impinged on the credit markets, interest rates were pushed down. 86 00:08:16.500 --> 00:08:28.200 For example, the 30-day commercial paper rate fell by about 3% between March of 1985 and January of 1987. 87 00:08:28.200 --> 00:08:40.700 Corporate bonds fell from about 12.5% in mid-1985 down to about 8% in 1987, and the prime rate tumbled by about 3% during that time. 88 00:08:40.700 --> 00:08:50.000 So, we saw capital markets were being affected by the inflation, something that most people didn't catch. 89 00:08:50.000 --> 00:08:58.300 Finally, the foreign exchange market also was affected by the increase in the money supply. 90 00:08:58.300 --> 00:09:09.900 The dollar from 1985 until about May of 1987 lost 77% of its value against the German mark. 91 00:09:09.900 --> 00:09:17.900 In other words, it used to cost 31 cents in 85 to buy a German market, it now costs in 87.55 cents. 92 00:09:17.900 --> 00:09:22.900 And also, in the case of the yen, the dollar lost 75% of its value against the yen. 93 00:09:22.900 --> 00:09:27.900 Or, to put it another way, the price of the yen increased by about 75%. 94 00:09:27.900 --> 00:09:34.900 Now, part of the impetus to this inflation was that in 1985, the value of the dollar had reached a very high level, 95 00:09:34.900 --> 00:09:38.900 which meant that American goods were very expensive in foreign countries. 96 00:09:38.900 --> 00:09:47.900 American exporters began to lobby hard to get tariffs and other types of protection against foreign goods. 97 00:09:47.900 --> 00:09:58.900 In order to divert this sort of lobbying, the US government decided to coordinate its foreign exchange policies with foreign governments. 98 00:09:58.900 --> 00:10:01.900 That is, to push down the value of the dollar. 99 00:10:01.900 --> 00:10:18.900 And there was an agreement called the Plaza Agreement in which the G7, that is a group of seven industrial nations, Italy, Canada, Great Britain, the US and so on, got together and decided upon a concerted effort to drive the value of the dollar down. 100 00:10:18.900 --> 00:10:21.900 So this was another reason for the inflation. 101 00:10:21.900 --> 00:10:38.900 By early 1987, however, the dollar was dropping like a rock and capital flight was threatening, that is, foreign investors began to worry that their investments in the United States, in terms of their own currency, were depreciating rapidly. 102 00:10:38.900 --> 00:10:48.900 So once these expectations took place, there was a threat that panic could spread on foreign exchange markets and that the dollar would be dumped. 103 00:10:48.900 --> 00:10:52.900 were being dumped, and people began selling the dollar off very rapidly in exchange for other goods, 104 00:10:52.900 --> 00:10:55.900 which would cause the depreciation to even accelerate, 105 00:10:55.900 --> 00:10:59.900 in which cases people were pulling their capital out of the United States, 106 00:10:59.900 --> 00:11:01.900 you'd find skyrocketing interest rates. 107 00:11:01.900 --> 00:11:05.900 So at that point, the Federal Reserve system stepped on the brakes, 108 00:11:05.900 --> 00:11:09.900 and the money supply began to increase much less rapidly. 109 00:11:09.900 --> 00:11:14.900 Then there was a few spurts in that spring of inflation, 110 00:11:14.900 --> 00:11:23.300 But then by the summer, we actually began to get a sustained deflation of the money supply. 111 00:11:23.300 --> 00:11:30.000 That is, the amount of currency and deposits in circulation in the United States actually turned negative. 112 00:11:30.000 --> 00:11:33.300 It actually began to decline for about three months running. 113 00:11:33.300 --> 00:11:43.800 By June, the bond market began to believe that the Fed was serious about the policy of restraining inflation. 114 00:11:43.800 --> 00:11:52.800 So we began to get interest rates creeping up from June through August and then onward to October. 115 00:11:52.800 --> 00:12:01.800 For example, the AAA bond rate rose from about 8.5% in five months all the way up to about 10.75%. 116 00:12:01.800 --> 00:12:06.800 And the prime rate went from 7.5% up to about 9.25%. 117 00:12:06.800 --> 00:12:13.800 Now what this meant was that suddenly there was a much higher rate of return on bonds than there was on stocks. 118 00:12:13.800 --> 00:12:19.800 The stock market continued to move upward until about August. 119 00:12:19.800 --> 00:12:26.800 In August, the stock market began to believe that the Fed was serious about its disinflationary policy. 120 00:12:26.800 --> 00:12:31.800 At that point, the stock market peaked. It then waffled. 121 00:12:31.800 --> 00:12:45.800 In mid-October, Secretary of State Baker began to bash the Germans for not inflating their money supply more quickly, which meant that the U.S. was really desperate now. 122 00:12:45.800 --> 00:12:55.800 They wanted to be able to increase the money supply, but if they did so, they were fearful that the dollar would start dropping again, so they were pushing other nations to do so. 123 00:12:55.800 --> 00:13:05.800 In any case, at that point, the stock market realized that the jig was up, that we weren't going to get a lot of inflation right away, and we had a collapse. 124 00:13:05.800 --> 00:13:10.800 We had a collapse of the stock market, we had a black Friday all over again, or it was a black Monday all over again. 125 00:13:10.800 --> 00:13:14.800 We had a big drop on Friday and then the big collapse on Monday. 126 00:13:14.800 --> 00:13:19.800 So we had a boom and a bust, or rather a boom and the beginnings of a bust. 127 00:13:19.800 --> 00:13:24.800 The beginnings of a bust. We had the beginnings of a bust in the financial markets. 128 00:13:24.800 --> 00:13:29.800 And this was completely missed by mainstream economists. 129 00:13:29.800 --> 00:13:34.800 They immediately began calling for the Fed to add liquidity, quote unquote, to the system, 130 00:13:34.800 --> 00:13:39.800 to pump in new money, to pump up financial markets. 131 00:13:39.800 --> 00:13:46.800 And the Fed acceded to this and a recession was avoided in 1987. 132 00:13:46.800 --> 00:14:10.800 and we had some inflation in 1987 and 1988 but once again in 1988 or at the end of 1988 the Fed began to turn deflationary again, 1989, 1990, the rate of growth of the money supply, at least the TMS figure was negative and what we got was the recession of 1990, 1991. 133 00:14:10.800 --> 00:14:15.800 Now, let me just talk a little bit about the 90s. 134 00:14:15.800 --> 00:14:27.800 People have been worrying from about 1991 or so, 1992, about when inflation is going to break out, right? 135 00:14:27.800 --> 00:14:35.800 Consumer prices have not been increasing at very high rates, and yet the money supply has been increasing very, very, very rapidly. 136 00:14:35.800 --> 00:14:46.800 But even last year, and even into 1995, there's been talk of this re-emergence of inflation. 137 00:14:46.800 --> 00:14:50.800 And people in the last few months finally believe that inflation might be dead. 138 00:14:50.800 --> 00:14:55.800 Well, the point is, the inflationary boom was, and we all missed it. 139 00:14:55.800 --> 00:14:58.800 The inflationary boom, or the mainstream economists missed it. 140 00:14:58.800 --> 00:15:03.800 The inflationary boom of the 1990s occurred from 1991 through 1993. 141 00:15:03.800 --> 00:15:09.860 Just to give you an example, the money supply increased at 10% per year in 1991, 142 00:15:09.860 --> 00:15:19.240 at almost 13% per year in 1992, and about 7% in 1993, very rapid rates of inflation. 143 00:15:19.240 --> 00:15:23.360 For various reasons, again having to do with the good side of the economy, 144 00:15:23.360 --> 00:15:26.900 what's happening to the prices of various goods on the world markets, 145 00:15:26.900 --> 00:15:34.800 We didn't see this in the form of rapid rates of increase in the consumer price index. 146 00:15:34.800 --> 00:15:43.200 However, we did see a rapid decline in interest rates, even long-term rates came down over that period. 147 00:15:43.200 --> 00:15:53.300 So we also saw a stock market boom during that period, and we saw the U.S. dollar collapsing during that period. 148 00:15:53.300 --> 00:16:00.900 So, inflation reared its head again in real estate markets, stock markets, bond markets, and so on. 149 00:16:00.900 --> 00:16:05.400 But it was conspicuously absent from the consumer goods markets, 150 00:16:05.400 --> 00:16:10.600 which is what, again, most mainstream macroeconomists focus on. 151 00:16:10.600 --> 00:16:15.000 Now, in 1998 and 1994, the rate of growth of the money supply was actually negative, 152 00:16:15.000 --> 00:16:22.500 whether you look at M1 or TMS, which I prefer, which is a much broader measure of the money supply. 153 00:16:22.500 --> 00:16:31.900 It includes currency, it includes demand deposits, it includes savings deposits, it includes savings bonds and a few other elements. 154 00:16:31.900 --> 00:16:45.700 And in 1995, the first half of 1995, the first six months, M1 has shrunk by about near 1% and the TMS figure has shrunk by about 4.5%. 155 00:16:45.700 --> 00:16:53.020 So, from the perspective of Austrian economics, we would expect, if this policy isn't reversed, 156 00:16:53.020 --> 00:16:55.060 a recession, not an inflation. 157 00:16:55.060 --> 00:16:58.500 There might be some catching up of prices because of the rapid rate of increase of the 158 00:16:58.500 --> 00:17:05.940 money supply in the early 90s, but we can expect recession to take hold if the Fed doesn't 159 00:17:05.940 --> 00:17:12.980 reverse its policy, and that's very open-ended and I'm not trying to predict, but the point 160 00:17:12.980 --> 00:17:23.980 The point is that we have begun to see various elements of recession hitting in the auto industry and in other industries. 161 00:17:23.980 --> 00:17:30.980 So the future of the dollar depends, as we should have learned by now, on what the Fed is going to do, 162 00:17:30.980 --> 00:17:40.980 on how enthusiastically Alan Greenspan is going to support President Clinton's campaign for re-election. 163 00:17:40.980 --> 00:17:50.980 Clinton, or as any incumbent president would, wants a monetary policy that's going to make sure that there is prosperity going into the election. 164 00:17:50.980 --> 00:17:55.980 Certainly in the last year before the election, you want a prosperous economy to be able to point to. 165 00:17:55.980 --> 00:17:59.980 So what's going to happen to the dollar depends on an Alan Greenspan. 166 00:17:59.980 --> 00:18:03.980 It's a Greenspan standard. 167 00:18:03.980 --> 00:18:07.980 Now what should we hope for? What should we want? 168 00:18:07.980 --> 00:18:15.780 Should we accede to this system in which the actions of a few men and women who are not 169 00:18:15.780 --> 00:18:22.180 accountable to Congress determines the value of our money, and not just the value in terms 170 00:18:22.180 --> 00:18:29.100 of the price level, but what happens in all of our markets, real estate, bond markets, 171 00:18:29.100 --> 00:18:31.140 stock markets and so on? 172 00:18:31.140 --> 00:18:39.060 The enormous power exercised by the Fed is the essence of the Fed's function. 173 00:18:39.060 --> 00:18:43.380 In other words, the essence of the Fed is to create inflation. 174 00:18:43.380 --> 00:18:46.140 You have to keep in mind the fact that the Fed does not fight inflation. 175 00:18:46.140 --> 00:18:53.520 It's absurd when they claim that, well, certain governors of the Fed are inflation hawks. 176 00:18:53.520 --> 00:18:55.580 They rabidly oppose inflation. 177 00:18:55.580 --> 00:18:57.260 That's nonsense. 178 00:18:57.260 --> 00:19:03.820 The Fed is the source of inflation in today's American economy. 179 00:19:03.820 --> 00:19:07.420 The Fed and no one else can create inflation. 180 00:19:07.420 --> 00:19:14.940 Now the monetarists would ask the Fed to use its power wisely, prudently, to increase the 181 00:19:14.940 --> 00:19:21.700 money supply at relatively low rates so that prices remain fairly stable. 182 00:19:21.700 --> 00:19:31.780 Even if the Fed listened to this council, it would still not bring about an optimal or 183 00:19:31.780 --> 00:19:36.800 an efficient operation of our economy, because the Fed's actions, as I pointed out, have 184 00:19:36.800 --> 00:19:42.620 effects in other markets, no matter how slowly the rate of increase in the money supply. 185 00:19:42.620 --> 00:19:48.360 When the Fed increases bank reserves, which then allow banks to increase their loans, 186 00:19:48.360 --> 00:19:55.960 They inevitably bring about a fall in interest rates, and that fall in interest rates stimulates 187 00:19:55.960 --> 00:20:02.160 businesses to invest in areas where they would not have at true free market interest rates. 188 00:20:02.160 --> 00:20:05.400 Interest rates that reflected people's savings preferences. 189 00:20:05.400 --> 00:20:11.800 So you're going to still have this sort of instability in the economy, whether or not 190 00:20:11.800 --> 00:20:13.840 the monetarist's advice is followed. 191 00:20:13.840 --> 00:20:15.920 And it's very unlikely that it will be followed. 192 00:20:15.920 --> 00:20:21.920 There will always be a reason to depart from this rule of increasing the money supply at low rates. 193 00:20:21.920 --> 00:20:28.920 That is, for example, bailing out Mexico, as we did, as Lew Rockwell pointed out. 194 00:20:28.920 --> 00:20:31.920 That results in an increase in the U.S. money supply. 195 00:20:31.920 --> 00:20:33.920 It's an emergency situation. 196 00:20:33.920 --> 00:20:39.920 There will be pressure on the Fed to engage in this sort of activity to prevent the failure of U.S. banks. 197 00:20:39.920 --> 00:20:42.920 So they would depart from the rule very naturally. 198 00:20:45.920 --> 00:20:56.620 We also have the element that I spoke about earlier today, that of exchange rates varying in ways that injure some areas, some sectors of the economy, 199 00:20:56.620 --> 00:21:03.820 and which brings pressure to bear then on the Fed and on the government to do something about the instability of exchange rates. 200 00:21:03.820 --> 00:21:13.620 In fact, since early 1995, before the value of the dollar began to firm up and depreciate, 201 00:21:13.620 --> 00:21:19.660 The Clinton administration used the depreciating dollar as a weapon against Japan. 202 00:21:19.660 --> 00:21:24.260 Not only did we not do anything about the depreciating dollar to firm up its value, 203 00:21:24.260 --> 00:21:30.820 but it was actually welcomed by the Clinton administration because it made our goods cheaper. 204 00:21:30.820 --> 00:21:36.420 When our dollar is cheaper, our goods are cheaper and it made foreign imports more expensive. 205 00:21:36.420 --> 00:21:42.340 So with the Japanese economy still in a recession, their auto industry was very sensitive to 206 00:21:42.340 --> 00:21:48.140 to the fact that the high prices of Japanese autos in the United States, because our dollars bought so little, 207 00:21:48.140 --> 00:21:54.740 will cause a further decline of profits for these Japanese companies. 208 00:21:54.740 --> 00:22:01.040 Right, so it's clear that not many people want to continue in the system that we have today. 209 00:22:01.040 --> 00:22:08.540 What are the alternatives? There are two alternatives that really haven't been tried. 210 00:22:08.540 --> 00:22:23.540 Global Fiat Currency, and we might call it the 100% gold standard, which Professor Rothbard, when he was alive, so vigorously propounded. 211 00:22:23.540 --> 00:22:35.540 Let me just say a few words about the global fiat currency. As I mentioned earlier today, this was the dream of John Maynard Keynes. 212 00:22:35.540 --> 00:22:39.540 When exchange rates fluctuate against one another, as they do now, 213 00:22:39.540 --> 00:22:43.540 some countries will find that they're inflating more quickly than other countries. 214 00:22:43.540 --> 00:22:46.540 That is, their policies are not coordinated. 215 00:22:46.540 --> 00:22:51.540 And when that's the case, the values of those more inflationary currencies will be going down. 216 00:22:51.540 --> 00:22:56.540 Now, there are some reasons for preferring that on the part of governments. 217 00:22:56.540 --> 00:22:58.540 That is, it helps their exports and so on. 218 00:22:58.540 --> 00:23:03.540 But when exchange rates fall too rapidly or depreciate too rapidly, 219 00:23:03.540 --> 00:23:33.540 If you look at it too rapidly, it brings up the specter of capital flowing out of your country, of foreigners and your residents pulling capital out, as happened to Mexico in late 1994 and 1995, in which case your currency goes into free fall, the value just plummets, and there's a self-reinforcement, that is, more people flee from your capital markets and your interest rates skyrocket. So to avoid this, I mean, this is really the one virtue of fluctuating exchange rates, 220 00:23:33.540 --> 00:23:40.620 Inflationists to some extent, within very wide limits, have their hands tied regarding 221 00:23:40.620 --> 00:23:45.220 how much inflation they can indulge in, because they're fearful, they're always fearful that 222 00:23:45.220 --> 00:23:47.220 their currencies could go into free fall. 223 00:23:47.220 --> 00:23:55.700 Well, Keynesians, seeing this and being inflationists to the core, want to coordinate policies. 224 00:23:55.700 --> 00:24:00.080 That is, they want all countries to inflate at the same rate, and the way to bring that 225 00:24:00.080 --> 00:24:08.080 What I'm talking about is to have one central bank issuing some sort of paper reserves to the rest of the world. 226 00:24:08.080 --> 00:24:14.080 Keynes, as I mentioned this morning, called it a Bancor. He wanted the name of this world currency to be Bancor. 227 00:24:14.080 --> 00:24:20.080 From bank, gold, or is the Latin for gold. 228 00:24:20.080 --> 00:24:32.080 and the American negotiator wanted UNITA and recently the British magazine The Economist came up with the term Phoenix, okay? 229 00:24:32.080 --> 00:24:40.080 Fiat currency rises from its own ashes, okay? As quickly as it destroys itself, it re-emerges. 230 00:24:40.080 --> 00:24:51.080 Whatever it's called, what would happen is basically that you would have a world bank printing up these reserve currency units 231 00:24:51.080 --> 00:24:57.080 and then allocating them to the various countries, central banks of the world. 232 00:24:57.080 --> 00:25:01.080 And those central banks would then use them as reserves to back their own currencies. 233 00:25:01.080 --> 00:25:04.080 So their own currencies would then inflate on top of the paper currencies. 234 00:25:04.080 --> 00:25:09.080 There would be no problem of losing reserves from one country to the next. 235 00:25:09.080 --> 00:25:18.580 All countries will be able to pile or pyramid their currencies on top of these paper currencies, which are elastic. 236 00:25:18.580 --> 00:25:27.080 If one country has problems, balance of payments problems, these reserves can be printed up and can be lent to that country. 237 00:25:27.080 --> 00:25:38.080 So this would be a lender of last resort. You wouldn't have to worry about the U.S. trying to court the ire of its taxpayers by bailing out Mexico. 238 00:25:38.080 --> 00:25:45.080 So now you would simply have the bailout occur through a technical operation brought about by some world bureaucracy. 239 00:25:47.080 --> 00:25:49.080 I don't think we want that. 240 00:25:52.080 --> 00:25:54.080 The Keynesian dream is bankrupt. 241 00:25:54.080 --> 00:26:01.080 I don't think it will ever be implemented because of national rivalries, national jealousies. 242 00:26:01.080 --> 00:26:09.080 The closest we've ever gotten to it, as I said, was the Bretton Woods system, and that collapsed. 243 00:26:09.080 --> 00:26:13.080 So I'm not worried that this is our future. 244 00:26:13.080 --> 00:26:18.080 Though, again, trends can change, ideology can change. 245 00:26:18.080 --> 00:26:24.080 There isn't as much of a push for this right now as there was a few years ago. 246 00:26:24.080 --> 00:26:29.080 What about the other solution? 247 00:26:29.080 --> 00:26:37.080 This is what I would consider to be a utopian solution, but in some sense, I know this is an oxymoron, a practical utopian solution. 248 00:26:37.080 --> 00:26:48.080 Practical in the sense that it's within our grasp and that it will present us with a monetary system that allows our economy to operate efficiently, 249 00:26:48.080 --> 00:26:51.080 as efficiently as is possible in a world of uncertainty. 250 00:26:51.080 --> 00:26:58.080 It's not to say that entrepreneurs will not make mistakes under this monetary system, but they will be able to calculate. 251 00:26:58.080 --> 00:27:08.080 They'll be able to calculate without any diversion from artificial interference with interest rates. 252 00:27:08.080 --> 00:27:11.080 They'll be able to calculate their revenues and their costs. 253 00:27:11.080 --> 00:27:14.080 So production will be efficient in that sense. 254 00:27:14.080 --> 00:27:18.080 Let me just talk about how we might go back to this system. 255 00:27:18.080 --> 00:27:25.080 You have, most of you probably have seen Murray Rothbard's pamphlet, The Case Against the Fed. 256 00:27:25.080 --> 00:27:41.080 There he has a plan to go back to the gold standard, but truly only a plan to go back to a classical gold standard under which there still exists fractional reserve banking, though it does involve the abolition of the Fed. 257 00:27:41.080 --> 00:27:51.080 In earlier work, The Mystery of Banking, Professor Rothbard talked about a plan to reinstitute a 100% gold standard, 258 00:27:51.080 --> 00:27:57.080 Meaning that not only do we denationalize money, separate it from the state, separate it from the US government, 259 00:27:57.080 --> 00:28:03.080 but also in one fell swoop get rid of the fractional reserve banking system. 260 00:28:03.080 --> 00:28:08.080 Let's look at how we go about this. 261 00:28:08.080 --> 00:28:24.080 Right now, there is approximately 260 million ounces of gold that is owned by the Fed. 262 00:28:24.080 --> 00:28:27.080 It's held by the Treasury, but it's owned by the Fed. 263 00:28:27.080 --> 00:28:29.080 Actually, most of it is not in Fort Knox. 264 00:28:29.080 --> 00:28:34.080 Most of it is actually, I'm sorry, million ounces, not dollars. 265 00:28:34.080 --> 00:28:39.080 Most of it is in the New York Federal Reserve Bank. 266 00:28:39.080 --> 00:28:48.080 Now, if we take a definition of the money supply, that includes currency, that is the paper Fed notes that we all use, 267 00:28:48.080 --> 00:28:54.080 plus demand deposits, that is our checking accounts at regular commercial banks, 268 00:28:54.080 --> 00:29:00.080 plus other checkable deposits, that is checking accounts at savings and loans and so on, 269 00:29:00.080 --> 00:29:07.080 We find that there's approximately $1.134 trillion in this definition of the money supply. 270 00:29:09.080 --> 00:29:18.080 Now, if we were to continue to value gold at its old official price of $42, which is what it's on the books for now, 271 00:29:18.080 --> 00:29:25.080 that would give us nowhere near a value of gold that was sufficient to back up all currency and checkable deposits. 272 00:29:25.080 --> 00:29:31.080 But we don't have to be stuck with this. We don't have to feel that we're tied into this value of gold, this price of gold. 273 00:29:31.080 --> 00:29:44.080 It's arbitrary. If it ever meant anything in the past, the government has inflated the money supply so much that this historical price of gold is simply irrelevant to today's circumstances. 274 00:29:44.080 --> 00:30:14.080 So, the first step that Murray- 275 00:30:14.080 --> 00:30:33.080 10% reserves, approximately, yeah, right, in other words, all you would do would be to divide 260 million into 1.134 trillion and it would come up with approximately $4363. 276 00:30:33.080 --> 00:30:43.080 Now let's avoid the transition, let me just abstract the transition problems for a moment, it is per ounce, let's just step back for a moment. 277 00:30:43.080 --> 00:30:49.080 Preliminary to doing this, you would want the Fed to stop increasing the money supply. 278 00:30:49.080 --> 00:30:58.080 To do that, you would restrict the Fed from ever again purchasing any government securities. 279 00:30:58.080 --> 00:31:05.080 The Fed increases the money supply by printing up reserves and purchasing government securities with them. 280 00:31:05.080 --> 00:31:15.080 Basically, by writing a check on itself and buying government bonds from bond dealers or from the banks. 281 00:31:15.080 --> 00:31:22.080 Prevent them from ever doing that again and you have in effect prevented them from ever creating reserves of the banking system. 282 00:31:22.080 --> 00:31:27.080 Now they can also increase the money supply by lowering the reserve requirement. 283 00:31:27.080 --> 00:31:35.080 It's approximately 10%. That is, banks must hold about 10% reserves for every dollar of deposits. 284 00:31:35.080 --> 00:31:38.080 Which means, again, I don't want to get into the technical end of it. 285 00:31:38.080 --> 00:31:43.080 It means that the banking system can, for every dollar of new reserves created by the Fed, 286 00:31:43.080 --> 00:31:47.080 it can create 10 new dollars of checking account money. 287 00:31:47.080 --> 00:31:51.080 You can prevent, you can freeze the reserve requirements. 288 00:31:51.080 --> 00:31:56.080 And finally, the Fed can also lend money to the banks through discounting, discount operations, 289 00:31:56.080 --> 00:32:03.080 What you can do is you can make that unprofitable by raising the discount rate above the market rate, above the prime rate. 290 00:32:03.080 --> 00:32:07.080 Make it a penalty rate as it was originally conceived to be. 291 00:32:07.080 --> 00:32:15.080 In which case you would basically freeze what we call the monetary base, the amount of bank reserves in the system plus the amount of currency. 292 00:32:15.080 --> 00:32:19.080 And you would effectively then freeze M1. 293 00:32:19.080 --> 00:32:32.080 Now, the Fed has a lot of assets, the biggest component of which is all the government bonds that it owns and which you and I have to pay interest on. 294 00:32:32.080 --> 00:32:40.080 What happens to that interest? The interest that the Fed earns on those bonds, which is purchased by simply writing checks on itself, creating reserves out of thin air, 295 00:32:40.080 --> 00:32:53.080 That money goes to fund the cushy salaries of the Fed bureaucrats and to fund their very plush plan. 296 00:32:53.080 --> 00:33:03.080 The rest goes to the U.S. Treasury. We can just cancel those bonds. Just get rid of it. Just write them off. 297 00:33:03.080 --> 00:33:09.080 And we can then proceed to liquidate the Fed. 298 00:33:09.080 --> 00:33:19.080 That is, the Fed would then have to distribute the gold for the reserves that are held by the banking system in exchange for currency. 299 00:33:19.080 --> 00:33:24.960 for Currency. So the Fed notes would all be turned in for at the rate of one four 300 00:33:24.960 --> 00:33:36.560 thousand three hundred sixty third ounce per dollar. Okay, four hundred, basically 301 00:33:36.560 --> 00:33:43.320 one fourth forty three hundredth ounce per dollar. Then people would have, then 302 00:33:43.320 --> 00:33:46.880 we would have this score to the gold. People will have gold in their hands. 303 00:33:46.880 --> 00:33:52.880 Initially you might want some agency of government to mint these coins. 304 00:33:52.880 --> 00:33:58.880 But after that, certainly they can be minted by private firms. 305 00:33:58.880 --> 00:34:01.880 So you would have gold coins in circulation. 306 00:34:01.880 --> 00:34:04.880 Now what would people do with these gold coins? 307 00:34:04.880 --> 00:34:07.880 They could then deposit them in banks, 308 00:34:07.880 --> 00:34:11.880 with the requirement that if they're deposited in checking accounts, 309 00:34:11.880 --> 00:34:19.800 Well then the banks must hold the full amount of gold to back up the dollars issued. 310 00:34:19.800 --> 00:34:30.920 So if for every $4,300 of banknotes, private banknotes now, Chase Manhattan, First National 311 00:34:30.920 --> 00:34:35.640 Bank, for every $4,300 worth of banknotes, they would have to have on hand one ounce 312 00:34:35.640 --> 00:34:37.480 of gold. 313 00:34:37.480 --> 00:34:43.600 For every $4,300 worth of checking deposits that are deposited with them, they must hold 314 00:34:43.600 --> 00:34:45.480 a full ounce of gold. 315 00:34:45.480 --> 00:34:49.040 So you would get 100% banking. 316 00:34:49.040 --> 00:34:54.120 Now there's something else that has to be noted here. 317 00:34:54.120 --> 00:35:01.280 We have a lot of savings deposits at banks, which can be withdrawn at any moment in time. 318 00:35:01.280 --> 00:35:05.040 They're pretty much like checking deposits in that people can redeem their savings deposits 319 00:35:05.040 --> 00:35:14.040 bank deposits instantaneously. Right now, their reserves, or the legal reserves of savings deposits are zero. 320 00:35:14.040 --> 00:35:18.040 The banks don't hold much reserves for savings deposits. 321 00:35:18.040 --> 00:35:26.040 You might want to insist that these savings deposits be transformed into certificates of deposit. 322 00:35:26.040 --> 00:35:30.040 That is, people can no longer instantaneously withdraw them. 323 00:35:30.040 --> 00:35:39.040 They must now wait 30 days or 60 days. The bank can negotiate for higher rates of interest for longer periods of time. 324 00:35:39.040 --> 00:35:46.040 In any case, the bank would now then be divided into two parts. 325 00:35:46.040 --> 00:35:55.040 On the one hand, there would be a deposit department, which would hold 100% reserves against the liabilities, against the checking deposit money. 326 00:35:55.040 --> 00:36:00.040 And on the other hand, you would have a loan department. 327 00:36:00.040 --> 00:36:01.040 If people wanted... 328 00:36:01.040 --> 00:36:06.040 Now, in the case of checking deposits, we would no longer earn interest on our checking deposits. 329 00:36:06.040 --> 00:36:14.040 In fact, you'd have to pay a small fee to have your gold stored in these banks. 330 00:36:14.040 --> 00:36:20.040 On the other hand, if you wish to earn interest, the bank would be free to offer certificates of deposit. 331 00:36:20.040 --> 00:36:28.320 would be free to accept your deposits for periods of 30 days, 60 days, 2 years, 5 years, 332 00:36:28.320 --> 00:36:38.400 with the explicit contractual obligation that they will redeem them only at maturity. 333 00:36:38.400 --> 00:36:47.520 So then, based on this time profile of certificates of deposit, they could make loans of longer 334 00:36:47.520 --> 00:36:49.280 or shorter duration. 335 00:36:49.280 --> 00:36:51.560 And now this would not be inflationary. 336 00:36:51.560 --> 00:36:56.080 In other words, if you were to purchase a certificate of deposit for a full year from 337 00:36:56.080 --> 00:37:00.960 a bank, a one-year certificate of deposit, the money that you invested would no longer 338 00:37:00.960 --> 00:37:05.020 be accessible to you at all. 339 00:37:05.020 --> 00:37:09.480 The money would be transferred from your cash balance, from your money holdings to the money 340 00:37:09.480 --> 00:37:13.360 holdings of the business firm that borrowed that money. 341 00:37:13.360 --> 00:37:19.080 In other words, these transactions would no longer have an effect on the interest rate. 342 00:37:19.080 --> 00:37:21.480 They would not drive the interest rate down. 343 00:37:21.480 --> 00:37:27.880 Certificates of deposits would express people's true preferences for saving. 344 00:37:27.880 --> 00:37:33.540 So the interest rate that emerged on this credit market, from which you have barred 345 00:37:33.540 --> 00:37:43.240 the expansion through multiple expansion of bank credit, those markets would reflect people's 346 00:37:43.240 --> 00:37:47.040 true time preferences, we call in Austrian economics their time preferences, the degree 347 00:37:47.040 --> 00:37:50.040 free to which they're willing to postpone their present consumption. 348 00:37:50.040 --> 00:37:53.040 And the interest rate would then be a genuine interest rate. 349 00:37:53.040 --> 00:38:00.040 So you would no longer have the cause of business cycles operating on these markets. 350 00:38:00.040 --> 00:38:08.040 Also banks and other institutions would be free to offer money market mutual funds. 351 00:38:08.040 --> 00:38:13.040 People who want more liquid investments than certificates of deposit 352 00:38:13.040 --> 00:38:19.280 might wish to invest their saved funds, or a portion of their saved funds, in money market mutual funds. 353 00:38:19.280 --> 00:38:30.280 Money market mutual funds are typically invested by the fund manager in short-term, high-grade corporate debt, 354 00:38:30.280 --> 00:38:37.880 such as commercial paper, in short-term government securities, and so on. 355 00:38:37.880 --> 00:38:47.880 Now, during the chaos of the 1980s, not one money market mutual fund went bankrupt, and yet they were not insured. 356 00:38:47.880 --> 00:38:52.880 Well, why was that? Well, it was precisely because they were not insured. 357 00:38:52.880 --> 00:38:57.880 Without insurance, they were very, very careful about where they were investing. 358 00:38:57.880 --> 00:39:02.880 They didn't take large risks for high returns. 359 00:39:02.880 --> 00:39:10.880 Customers didn't see the FDIC sign and therefore didn't blindly trust these institutions. 360 00:39:10.880 --> 00:39:16.880 They read the prospectus and they were very careful about choosing money market mutual funds. 361 00:39:16.880 --> 00:39:22.880 In the last few years there have been one or two, or maybe even more, a handful of money market mutual funds 362 00:39:22.880 --> 00:39:30.880 that were unable to pay out the full investments of their shareholders, but the fund managers bailed them out. 363 00:39:30.880 --> 00:39:33.880 In other words, they were privately bailed out by the funds themselves. 364 00:39:33.880 --> 00:39:41.880 A money market mutual fund does not guarantee you, by the way, that your principal will be paid back. 365 00:39:41.880 --> 00:39:47.880 In other words, unlike a bank deposit, it's not a right, when you buy a money market mutual fund share, 366 00:39:47.880 --> 00:39:50.880 you do not own a right to a fixed amount of currency. 367 00:39:50.880 --> 00:39:58.880 If you invest $10,000, what you own is a certain portion of the asset portfolio, 368 00:39:58.880 --> 00:40:06.380 portfolio, a certain proportion of the various commercial paper investments and so on. 369 00:40:06.380 --> 00:40:11.900 So that if they lose money, then that is reflected in your interest return and possibly in your 370 00:40:11.900 --> 00:40:13.540 principal. 371 00:40:13.540 --> 00:40:20.180 One firm, Money Market Mutual Fund, that was liquidated, the only one I know that didn't 372 00:40:20.180 --> 00:40:26.940 pay off the full $1 on its shares, paid off something like 94 cents, something like that. 373 00:40:26.940 --> 00:40:30.820 So these would be available, they'd be fairly safe, there'd be sort of an intermediate 374 00:40:30.820 --> 00:40:37.980 between a certificate of deposit and an investment in a checking deposit, and they would also 375 00:40:37.980 --> 00:40:46.700 serve to transfer savings from consumers, consumer savers to business firms. 376 00:40:46.700 --> 00:40:50.940 So we would have a thriving capital market, in other words, having a 100% gold standard 377 00:40:50.940 --> 00:40:58.780 Professor Rothbard does not cut off banks as financial intermediaries. 378 00:40:58.780 --> 00:41:01.140 They would still operate as financial intermediaries. 379 00:41:01.140 --> 00:41:10.660 But they would have to be sure to match the maturities of their assets and their liabilities. 380 00:41:10.660 --> 00:41:14.560 If you promise to have something available instantaneously whenever someone writes out 381 00:41:14.560 --> 00:41:20.340 a check, then you must actually have it available under this system. 382 00:41:20.340 --> 00:41:41.340 Now, Professor Rothbard also put forward another plan which would involve a lower price of gold and that plan was basically only to increase the price of gold so as to back up only Fed liabilities, the Federal Reserve system's liabilities, basically the currency plus reserves, the bank's reserves. 383 00:41:41.340 --> 00:41:47.740 The bank's reserves are only 10%, as I said before, of their checkable deposits and demand deposits. 384 00:41:47.740 --> 00:41:55.940 So, the total here, instead of 1.134 trillion, is around 400 billion. 385 00:41:55.940 --> 00:42:04.240 Now, if you divide that by the 260 million ounces of gold, the price that is required is much lower. 386 00:42:04.240 --> 00:42:07.640 I think it's in the last chapter of that case against the Fed book. 387 00:42:07.640 --> 00:42:14.040 I know, it's about $1,500. Yeah, okay, let's say it's $1,500. Okay, $1,500 per ounce. 388 00:42:14.040 --> 00:42:19.940 But then you'd be left with a system in which, and I can't believe that he would be serious about this, 389 00:42:19.940 --> 00:42:28.340 or wouldn't see that people would now notice that the Fed was no longer a lender of last resort. 390 00:42:28.340 --> 00:42:33.540 The Fed was liquidated. There was no possibility of creating new reserves. 391 00:42:33.540 --> 00:42:39.260 Also, of course, we would phase out and federal deposit insurance. 392 00:42:39.260 --> 00:42:42.260 So I would see bank runs occurring in the system pretty quickly. 393 00:42:42.260 --> 00:42:45.900 In other words, the amount of gold would be 400 billion 394 00:42:45.900 --> 00:42:51.180 and the amount of instantaneously redeemable liabilities of the banking system 395 00:42:51.180 --> 00:42:53.460 are up here around over a trillion. 396 00:42:53.460 --> 00:42:58.740 And it would turn out that any sort of an initial shock to the system 397 00:42:58.740 --> 00:43:01.140 could very well result in a panic 398 00:43:01.140 --> 00:43:05.780 that brings about a collapse of the system, 399 00:43:05.780 --> 00:43:09.580 so that people will only succeed in pulling out $400 billion. 400 00:43:09.580 --> 00:43:12.140 So we would have a massive deflation. 401 00:43:12.140 --> 00:43:14.460 Well, maybe that's what Murray's looking forward to. 402 00:43:14.460 --> 00:43:19.780 Obviously, high price of gold, given current economic relations. 403 00:43:19.780 --> 00:43:26.380 And what would happen would be that we would get a once and for all inflation of our money supply, 404 00:43:26.380 --> 00:43:29.260 as all gold was drawn to the United States, 405 00:43:29.260 --> 00:43:39.260 Unless other countries also tied on. But as people rushed, think about it, on the market, gold, they can only get $350 for gold, right? That's the market price. 406 00:43:39.260 --> 00:43:45.260 Okay, now if you bring it to the U.S. banking system, you can get $4,000, whatever it is. 407 00:43:45.260 --> 00:43:53.260 The gold is going to flow into, yes, right. I don't really care, I don't care if it's a once-in-a-full inflation like that. 408 00:43:53.260 --> 00:43:59.260 It doesn't occur through the credit markets. It doesn't distort the interest rate. 409 00:43:59.260 --> 00:44:06.260 If inflation ever could be benign, this would be the most benign. 410 00:44:06.260 --> 00:44:08.260 Yeah, that's true. I'm not denying any of that. 411 00:44:08.260 --> 00:44:13.260 Yes. Yeah, it's going to go. It could very well go way up. 412 00:44:13.260 --> 00:44:19.260 But what I think is that as the U.S. progresses towards this system, I think other countries will tie on. 413 00:44:19.260 --> 00:44:26.760 The demand for gold will increase, and so the market price will begin to rise towards this price. 414 00:44:26.760 --> 00:44:33.760 A lot of thought still has to be devoted to some sort of transition plan, 415 00:44:33.760 --> 00:44:40.760 but I think it's worth devoting that thought to establishing a money that will potentially become a global currency 416 00:44:40.760 --> 00:44:45.760 and a stable and non-inflatable global currency. 417 00:44:45.760 --> 00:44:48.760 I'll stop here and take any questions. We have about five minutes. 418 00:44:48.760 --> 00:44:49.760 Yes. 419 00:44:49.760 --> 00:44:53.760 It's going to trigger a series of inflation all over the world. 420 00:44:53.760 --> 00:44:56.760 The first thing actually is say you went gold and bought silver. 421 00:44:56.760 --> 00:44:59.760 Silver is going to move up to some sort of a ratio. 422 00:44:59.760 --> 00:45:02.760 You're going to sell silver back and play more copper. 423 00:45:02.760 --> 00:45:05.760 Right, I'm not denying that. 424 00:45:05.760 --> 00:45:08.760 Prices will rise. 425 00:45:08.760 --> 00:45:17.760 If you go back at this high gold price, dollar prices in the world economy will rise as the number of... 426 00:45:17.760 --> 00:45:23.760 Yeah, but it's almost a change in denomination rather than a true deflation. 427 00:45:23.760 --> 00:45:27.760 Okay, you're defining the dollar as much less gold. 428 00:45:27.760 --> 00:45:31.760 Yeah, you'd have a problem with debtors and creditors. 429 00:45:31.760 --> 00:45:39.760 Again, it has to be a lot of thought put into any sort of transition plan at such a high gold price. 430 00:45:39.760 --> 00:45:44.760 But I think the alternative is some sort of massive deflation. 431 00:45:44.760 --> 00:45:45.760 Inflation. 432 00:45:45.760 --> 00:45:46.260 Thanks.