Episode Transcript
Speaker 0 00:00:00 Welcome to Morals and Markets. Uh, glad to see everyone here tonight. Uh, with that being said, tonight we'll be discussing the nefarious purpose of central banking. And, uh, with that, I hand things off to you, Richard Scott.
Speaker 1 00:00:15 Thank you. And, uh, so good to see, uh, Nikhil in the audience and Gura in the audience, my students at Duke from, uh, not too far back. Uh, okay, here's my topic. Hi, great to see you all. Uh, we do this quarterly at the Atlas Society, and I'm glad to do this topic, uh, uh, which I've been researching for, uh, probably more than 30, 40 years now. And some of the resources I sent you reflect that. Now, let me just read from the, uh, succinct, uh, abstract that I gave out for morals or markets tonight. Here's what I wrote. Central banking is not as most economists claim, a benign institution that ensures our economic and financial wellbeing. It is central planning applied to money and banking. Lemme repeat that. Central banking is central planning applied to money and banking. And as such, it proliferates status regimes.
Speaker 1 00:01:13 We can talk about what status means to the detriment of liberty and prosperity. That's my short intro. As usual. This is a 90 minute program, but I will, uh, give introductory remarks for about 20 to 25 minutes, and then I'll open it up to comments, criticisms, objections, and, uh, I'm looking forward to that. Now, I, I was somewhat hesitant to use the word nefarious <laugh>. Most economists don't speak about moral issues like this. Nefarious means, if you look it up, evil, not just evil, but, uh, criminal. And, and here's my favorite part, organized in some way, as in organized crime. And actually that's part of my theme tonight, that central banking is a very deliberate, organized, intentional, bad thing. <laugh>, I'll, I'll elaborate, but I can't tell you how much this is different from any kind of conversation you'll get today from an economist or a strategist or a even a policymaker.
Speaker 1 00:02:26 What are they gonna talk about? What, what does the Fed gonna lower interest rates or raise interest rates? You know, is the Fed gonna increase the money supply or decrease the money supply? And, you know, is the E C B gonna do this or that? Is someone gonna monetize this tonight? Notice the premise underlying all of that a premise. I'm gonna question tonight. 'cause no one ever does this. So let's try it at least once. In a blue moon. Their premise, central banking is perfectly legitimate. And, uh, sometimes central bankers misbehave. But let's try to get them to misbehave to, to behave better. Um, Keynesian say this, monetarists say this to their great credit, Austrians usually do not say this. They question the whole system and the way I am. So here's a radical, take radical meaning go to the root, radical meaning question the system.
Speaker 1 00:03:27 And there's really, really, really good reason to question this system. What is this system? What is central banking? And not to be too abstract about it, the central banks we know of today are the Federal Reserve, the Bank of Japan, the Bank of England, the Europe, the, uh, E C P, the European Central Bank. Um, my theme tonight will be that these are, uh, nefarious institutions. That they are complicit in robbing us of our financial autonomy. That's 0.1. Our finance, our economic prosperity, certainly our political liberty. These are pet institutions, pet banks, favored, privileged cro, if you will. Institutions that basically enable and fund out of control states fiscally, profligate states, if you will, states that cannot, will not 'cause they're smart tax people to the full extent of the spending. Why? 'cause they would be tax revolts because they wouldn't win at the polls.
Speaker 1 00:04:51 So there are only three ways to finance government, and we do have a gargantuan increase in government over the last, at least since oh eight. But even going further back, you can tax people, you can borrow the money, or you can print the money. And it's central banks that uniquely facilitate the latter to, if you don't want to tax people, if you promise them goodies, if you place Santa Claus but don't want to tax them, or what actually happens, they tax the 1% or the 10%, the ones who can easily be outvoted by the 99%, by the 90%. Um, this is the way to do it. You need an institution that can facilitate the monetization of debt. We can talk about what that means, or the printing of money. And it doesn't matter whether it's physical, fiat paper money or digital. That's what central banking does. That's what central banking is. What I want to go through before I go to the q and a is something about the origins of central banks. Almost nobody goes back and looks and says, when did these things begin? Why did they begin? They're fixated on what are they doing now and what will they do over the coming quarter? Very myopic, right? But I think it's important to understand this history 'cause it tells us something about the essentials of this institution.
Speaker 1 00:06:24 Now, some of the readings I offered, uh, Scott mentioned at the outset, thank you, Scott. There's a kind of readings that go with this. You don't have to be that studious about it. I know my former students will be that studious about it. They will read every page of every word I ever wrote. No, I'm, I'm joking there. I'm not kidding there. But here's part of what I offered, and this kind of reveals how old I am in 1990. Oh my gosh, 33 years ago I wrote a book called Breaking the Banks Central Banking Problems and Free Banking Solutions. It was written at a time when the banks were failing across the board in the us And I did a history of money and banking in the us and those of you who don't know, we haven't had central banking in the us. We didn't have it until 1913.
Speaker 1 00:07:16 So one obvious question becomes, how the hell did the United States survive? Not just survive, but flourish and prosper for 120 years before <laugh> 1913? Because the best growth rates, the most stupendous achievements, the greatest innovations, the Gilded Age, as Mark Twain derogatorily called it all occurred prior to 1913, prior to central banking, prior to the income tax, which also came in the same year, federal income tax as the Federal Reserve in 1913, some other system was in place, a freer system, a system, what I call free banking with some defects, but free banking on a gold standard. Um, so my point in breaking the banks was that central banking quite apart from the claim that it ensures sound, money, low inflation, a smooth business cycle, safer banks across the board. It does the opposite. It erodes the financial condition of the banking system. It makes banks reckless and weak. Uh, we know about things like bailouts, which people hate, but they think it's part of capitalism. It's not part of capitalism. It's part of central banking. It's part of central planning in money and banking.
Speaker 1 00:08:43 Uh, I also wrote a couple years later, um, banking without the two big to fail doctrines. So I've given you a link to that as well. That was 1992. My God, a long time ago. I wrote that only eight years after the doctrine was introduced. When was it introduced? In 1984 when continental Illinois went bankrupt. And instead of it, well, I should say insolvent, and instead of just letting it go bankrupt, the Federal Reserve and the F D I C bailed it out. And they named a doctrine called Too Big to Fail. What was the doctrine that some banks are so big, so important, so systemically important, that if they were to fail, there'd be a cascade of failures that must be prevented? Well, this sounds like a Ponzi scheme. Sounds like a pyramid, sounds like some, why would one bank be the linchpin for the entire system?
Speaker 1 00:09:40 Only under central banking? Only under that system would there be so much attention paid to one bank and the claim that it would bring down the entire system. That's not what a decentralized capitalist money and banking system would deliver. But we've had that system and that doctrine ever since I was arguing against it as far back as 1992. If you know that in the past year alone, Silicon Valley Bank and Signature Bank and Republic Bank, and what, there's another one in there, all were bailed out because they were considered, quote, too big to fail. And in the process of being bailed out, the F D I C, federal Deposit Insurance Corporation, also part of central banking was extended almost without limit. Basically, there is no bank now, whatever size that the government would not bail out, that isn't capitalism, that isn't free banking. That isn't the gold standard.
Speaker 1 00:10:34 Clearly not 1993. Now we're going on 30 years ago I wrote about the collapse of deposit insurance and the case for abolition. I wanted the F D I C abolished 30 years ago when F D R signed the legislation in 1934 to have deposit insurance. And why, then, why in the middle of the Great Depression, 'cause the Federal Reserve has so wrecked the monetary and banking system that one third of all US banks failed. While instead of concluding that we shouldn't have central banking, instead of concluding that they said the US should not have gone off the gold standard or threatened to do so, which caused a run on the banks. Instead, they put the taxpayers up and, uh, the credit wordiness of the taxpayers and the treasury behind deposit insurance and F D R while signing the bill said, I regret to say that this is gonna put a premium on bad banking.
Speaker 1 00:11:31 It's going to subsidize reckless banking. I'm elaborating a little bit here. He was right. That's exactly what happened. The F D I C actually went bust in 1993. That's why I wrote the essay at the time. It's gone bust. It's revealed, it's utter moral and economic bankruptcy. Let's put it out of its misery. Let's put an end to deposit insurance. Let's ratchet down that coverage, which at the time, by the way, was only a hundred thousand per account. I wanted it to step down over five years from a hundred to 80 to 60 to 40 ton nothing. So that banks would be on their own and would be compelled by their own profit motive to be responsible. Instead, they've expanded the F D I C. Now, as I said, the coverage is unlimited, but after the oh eight crisis, they increased F D I C coverage to 275,000 per deposit per account.
Speaker 1 00:12:30 Now, really, what I think you should most read, if you only read some of what I put out there tonight, is two essays I wrote a decade ago, 2013 on the centennial of the Fed. I thought I would celebrate the Fed by talking about how terrible it was and how it should be dismantled. And in two essays. And the objective standard, which I've given you tonight, links to those, they were both called the end of Central Banking, uh, in two parts. Now, the first part by end, I had two meanings. The first one, the end of central banking, was on the purpose of central banking. In other words, what's the end or the goal of central banking? That was part one and part two by end I meant terminate the end of central banking. Namely, how do we dismantle this thing safely, uh, quickly and in a pro freedom way?
Speaker 1 00:13:30 So let me just quickly summarize some of the themes in each of those. The first one, the purpose of central banking. I go through the history, a lot of empirics in here of every cen major central bank that's ever been established. And the main famous one, of course, is the Bank of England in 1694, the Federal Reserve in 1913. But the bulk of the central banks that we have today were established roughly between 1870 and 1940, the latest one, bank of Canada, 1935. Couple of others after that, why that 70 year period? If you know your history, if you know political economy, you know that between 1870 and 1940, there was a gargantuan increase in the size, scope and power of government in the Western world, but also elsewhere. And from the Bunes Bank being started in 1875 to the Bank of Canada in 1935, these banks were established in part to finance, government, and facilitate government borrowing.
Speaker 1 00:14:44 Why is that important? Because in the textbooks, and even today, if you ask why central banking, why is government, in other words, in control of money, credit, interest rates, bank regulation, deciding whether to bail out of banks or not, the standard refrain you'll get is free markets failed. The gold standard failed. There's not enough gold government was fixing market failure. Government was smoothing the business cycle. Government was fighting inflation. We hear all this stuff now, it's all lies. None of that is true central banking. The history show, even by advocates of central banking, by the way, which I cite in these pieces, invariably, was started by government trying to get control of the banking system for its own fiscal purposes. Meaning for its own power, to issue money and borrow money. And again, as I said at the outset, largely to sidestep and escape the necessity of taxing people status.
Speaker 1 00:15:54 By statism, by the way, by the way, I mean a system that puts the state above the individual that caress nothing about the individual rights, let alone the monetary rights of individuals cares nothing about freedom, puts the state above everything. Collectivism is a philosophy that undergirds this, but that is really what's underlying any kind of centralization politically. And central banking actually is really well named. It should always come to mind when you hear central banking that it's centralized. It's like central planning applied to money in banking. Now, if you're old enough to remember, central planning absolutely fell apart as a model, as an ideal. When the Soviet Union fell apart and the Berlin Wall fell between 89 and 91, unfortunately, that was not a conclusion. A conclusion from economists was not that capitalism is morally and eco economically superior. That should have been their conclusion.
Speaker 1 00:16:51 That wasn't their conclusion. Their conclusion was simply that central planning seems not to work. Central planning seems to fail. Hayek and MEUs had said it 70, 60 years earlier. Ayn Rand had said it, Milton Friedman had said it. Others had said it, inconsistently or not. But the point is, on my theory, central banking succeeds enormously. It's a smashing success. Anytime you ask whether an institution fails or succeeds, you have to ask what is its purpose? If it's purpose, in the case of central banking is to ensure sound, money, sound banking, and a secure financial system, it fails miserably. But my contention is it does so because that's not its aim at all. That is a rus that is what economists claim it's trying to do, but it's actual purpose is to finance propagate government. And governments can be pro by prolate. I mean spending beyond its means.
Speaker 1 00:17:47 And governments will do this when obviously during war, some wars are legitimate. I'm not saying government borrowing is never legitimate, but when it's beyond all reason, when it's excessive, when it's punitive, and when it's not just supporting war. But in recent decades, what supporting transfers, supporting the redistributive state, supporting the welfare state, I'm willing to combine both of them and call it the welfare warfare state. At any rate, these are states that violate individual rights, spend money without limit, don't dare tax people to the full extent of that, and therefore have to turn to borrowing. And then when the borrowing gets out of control, turn to their pet central bank to print the difference. This is why we went off the gold standard in stages. We'd been on the gold standard Britain, America and, and actually 60 countries in World War I before it began.
Speaker 1 00:18:44 60 countries were on the gold standard. The performance in the century. Before World War I was enormously positive for any country that was on the gold standard for any country that respected property rights, for any country that kept tax rates low and avoided pr, punitive taxation, that was all abandoned in World War I. But in stages, we went off the gold standard again in 33, causing the Great Depression in part, went off the gold standard finally and permanently about 52 years ago, 1971. So the monetary system today has no connection, whatever to gold, no objective link, whatever. Uh, and this is what central banks must do, that's what they're required to do. They need to be, uh, completely arbitrary, have what's called complete discretion, no rules, no monetarist rules, no Keynesian rules, no rules for the monetary rulers. These are rulers without rules, completely arbitrary.
Speaker 1 00:19:46 That is why you see central banking completely outta control. In a way, it's a handmaiden. It's not the main cause of the problem, but it's a handmaiden of status regimes. I have a few more minutes, so let me try to end positively. Uh, but building on the same theme, if I'm right, that central banking is central planning applied to money and banking, and we've somehow questioned central planning, but not central banking, there's a big disconnect there. And economists and political economists generally are guilty beyond imagining for not pointing this out, for not stressing this, for just accepting the status quo and saying everything central banks do is just fine. And everything they do is coming in and saving the day for when free markets go badly. None of them, very few of them will say that central banks are the cause of the financial, the bad banking, the various other things that occur.
Speaker 1 00:20:47 They're unwilling to say that I think pri primarily because they're either ignorant of the history when we didn't have central banking and things went well. But some of it might be they know damn well what the history is. And they have no interest in defor defending capitalism. They have no interest in defending free banking and the gold standard, the positive system that existed prior to central banking. They love statism and therefore they're gonna love their central bank. Even if the Central bank misbehaves. In the second part of my essay, the end of Central Banking, I give what I think no one else has ever done in the history of political economy, a detailed step-by-step account of how to return to free banking and the gold standard. Now, I know Bitcoin, people out there will say, I am clinging to an old barbaric relic. They'll talk like Keynesians and call me the shiny rock guy.
Speaker 1 00:21:42 But, um, uh, it's an argument actually, if we're just dismantling central banking safely, quickly, without causing a financial crisis. And it goes step by step. And the point is the following couple points. One, it is not a technical issue. It's ideological. The issue is not how do we safely dismantle this ticking time bomb. Ticking time bomb is not actually the best metaphor here. It's a, it's a cancer really eating out at our freedom and our prosperity central banking. So, so the doctor coming in has to figure out how do we excise this cancer and how do we do it without killing the patient? That's what I do in this second part. And that's what I did real originally in breaking the banks chapter nine of the 1990 book showed how to dismantle the Fed 33 years ago. No one's done that, and it's expanded itself since then.
Speaker 1 00:22:37 But I revisit this theme in the 2013 essay. It is possible to do it, but here's the key thing to stress. Unless there's an ideological move toward capitalism, unless there's a more ideological, philosophical, political move toward having more limited government, it's not gonna be possible to dismantle central banking and fiat paper money. They're in place precisely to finance outrageous unlimited government. So these things have to be done in tandem. It's not enough to say, put the fed on the gold standard, or, uh, what did Ron Paul say? And the Fed, you can end the Fed, but if you don't end the welfare state and you don't end the warfare state, there's gonna be some means by which the government is looking to pay for that, which it can't support on a gold standard. So I say this in Gold and Liberty, a book I wrote in 1995.
Speaker 1 00:23:34 The reason I stress gold and liberty is I said, you need political liberty to go hand in hand with a gold-based objective free banking system. And, uh, that's a big task. I, there's no doubt about it. But, uh, what I'm saying is you can't just give a technical fix to a problem that's fundamentally philosophical and economic and political. But it is important also to be able to say, here is a plan. The barrier to getting there is not that it can't be done, it's actually the easiest part is how to dismantle the Fed. That could be done in six months. We could return to free banking in the gold standard at six months without having a financial crisis. What's the barrier? The barrier is nobody wants, for the most part, nobody wants to limit the size and scope and power of the government today. And therefore no one really substantially wants to limit the financing source for that unlimited government, which is central banking. So I'll draw a line there. I think I'm 25 minutes into it, Scott, and, uh, take comments and questions. Thanks everyone for forbearing. Great.
Speaker 0 00:24:43 Yeah. Uh, feel free to raise your hand if you've got questions. Um, you know, before, um, I get to Nikia, I just wanted to ask real quick, what about the argument that, um, you know, we're just, we're, uh, a more mature economy and as economies get more mature, it's uh, almost natural to have a central bank. It's just natural evolution.
Speaker 1 00:25:08 Yeah, I mean the, the, the maturity argument is kind of anthropomorphizing economies. People are born, they're, uh, infants, then they're adolescents, they're in, they're adults, then they mature and then they die. And, uh, so the whole maturity argument, I think counts on this kind of idea of an anthropomorphizing economies. That that is not what a capitalist economy is. It's an ongoing entity and, uh, it needs vibrancy. It needs, uh, cultivation. And, uh, Scott, I know this is not your view, I just wanna say, but it is a common view. Thanks for voicing it. I think it's just an excuse for saying, uh, we need central banking that, you know, the juvenile system was this barbaric relic. And Kane's very cleverly used the word barbarism. 'cause the idea was, well, the more civilized approach would be to have, you know, fiat paper money with floating exchange rates, <laugh>.
Speaker 1 00:26:07 And actually the most civilized, most advanced, most humane monetary system ever developed was the gold standard. The fact that we don't have it today doesn't mean we're more mature. It means we've become completely juvenile. We've become com completely barbaric. We've gone back to almost, not quite, but almost we're getting there. Barter, barter the system of trading goods against goods without money. That is how much statism has wrecked money in banking. Uh, we have, when I said there were 60 countries on the gold standard in 1913, that amounts to saying we had a global money. We had 60 countries basically admitting that gold was money and that their currencies should be defined in terms of that entity. Now what do we have today? We have 90 different currencies all floating every minute against each other. It would be like a yardstick every minute, uh, changing its definition. That is the sign of barbarism. Not maturity, but it's a good, it's a good question, Scott.
Speaker 2 00:27:11 Good. Uh, go ahead Al. Thank you
Speaker 1 00:27:13 For joining.
Speaker 2 00:27:15 You have to unmute. Hi, Dr. Salzman. Uh, nice to see you.
Speaker 1 00:27:19 Great to see you again.
Speaker 2 00:27:20 Um, so my question is, so Garve and I were actually talking, I have two, but I'll actually ask the first one. Now, Garvin and I were talking about this a couple of days ago. Yeah. But, um, James Carville, you know, the Democrat strategist team once said, if I could be born as anything, I wouldn't be born as president. I wouldn't be born as a, I'd come back as a bond market. A bond
Speaker 1 00:27:35 Market, yeah.
Speaker 2 00:27:36 <laugh>, I'd be very, nobody can intimidate me. And my question is, why haven't, and we were talking about this 'cause Eddie Ardini had had, uh, recently said that he thinks bond market vigilantism is coming back. Why hasn't spending, in your opinion, been constrained by this? If that's the, you know, reason why we're using central banks? What's the fundamental mechanism? Why long-term rates are not keeping these guys in check, not just in America, but even in emerging markets where sometimes the a little more
Speaker 1 00:27:59 Volatile? That's a really good question. And for those of you who don't know the background, carve was I think a Clinton advisor in the nineties. Yeah. And, uh, he's, he, he identified the bond market because Clinton, uh, and his, uh, treasury secretary, which I think was Reuben, right? Robert Ruben from Wall Street, and they were very attuned to the idea of interest rates are I met, are important, and interest rates on government debt are important. And they didn't wanna repeat what the Carter administration had done, which was to not only, uh, uh, uh, endorse going off the gold standard, which was Nixon's fault, but they had bond rates at 15, 16%. And when the government is borrowing a lot, and at that rate interest expense, because a big part of the budget. Anyway, long story short, you're absolutely right, Nikhil, the concern was, let's be concerned as public finance people about what the bond market thinks, what we're doing.
Speaker 1 00:28:54 So if the government is borrowing a lot and or turning to the Fed to print a lot of money, we do have to be concerned about whether inflation goes up, whether interest rates go up, because that, again, that'll bust the budget and won't, we won't be able to do our welfare warfare spending. Uh, now I think what the question you're asking, which is a really good one, Quiel, is why would it be the case? Because it's, it is somewhat of a paradox that the government is spending and borrowing and printing almost without limit. And yet, and yet, <laugh> interest rates and inflation are not anywhere near what they were in the seventies. I mean, they've come up, we know that we've, they've risen, they've come up a lot in the last, uh, couple of years or so, but now they're starting to come down again.
Speaker 1 00:29:38 And I think that is an interesting paradox. I've written about it. But, but here's what I would suggest. I think what's happening is, you and I know from Austrian theory that the government can't just with a magic wand, keep interest rates and inflation low. That if they're printing money and printing debt at a point, at some point they have to go up. But I think what's happened is they've created an artificial demand for the dollar and bonds. And how would you do that? If you think of yourself as an investor, think to yourself, I could put my money in the stock market. I could put my money even in corporate bonds. The point is, you're making a vote for the free market. You're making the mo a vote for entrepreneurial activity. But if instead you say to yourself, I don't really trust that part, I don't really trust the private sector.
Speaker 1 00:30:27 I'm fearful actually, and I'm risk averse actually, and so I'm gonna buy government bonds that would actually lower interest rates all else equal, right? No matter how many bonds they issued, if people were buying them and scarfing them up and demanding them, you could keep interest rates low. And, but the problem is that is not a very entrepreneurial, vibrant economy. That is an economy where the money is being printed and people are turning around and buying government bonds. It's the kind of economy that Japan has, right? Where massive increase in government debt and massive increase in buying of that government debt. But they've stagnated for 30 years, and I think the US is starting to stagnate as well. But, but, but Quiel, you're a smart guy, so I'm gonna put it to you. And Gura, do you have a better theory than I do? You might, you might have a better theory than I do, because I've also pushed back against the modern monetary theorists. You know, you know what they'll say? They say the same thing. They'll say, Hey, hey, the government can issue money and debt almost without limit and without deleterious effects, meaning without higher inflation and higher bond yields. And for a while it seemed like they were right. And it's a paradox, right? So what's the counter, what would you say, Nikhil?
Speaker 2 00:31:44 So I think, um, my, my my view has been part of it is very similar to yours in that there is certainly a degree of artificial, um, artificial demand created in the sense of that the government is marketing something as a risk-free asset. Which by the way, nobody else is allowed to do without going to jail, can market anything as a risk-free asset. Um, well, virtually risk-free is how they say it. But I think that's part of it. And I think the, um, another part of it is also that through various, um, you know, I don't know my fed plumbings as well as I used to, but, um, we've traditionally kept reserves at banks at artificially high levels, which in turn has absorbed a lot of base money increases. And as a result of that, you've been able to keep ra uh, inflation rates fairly calm unless, you know, when things get extreme, then that's gonna pour into the market, and then you're gonna have to start pushing rates up to pay people. Um, I think that's a part of it, but I think certainly there's a little bit of mystery, like I said, particularly with like emerging markets. You don't have those, those kind of dynamics at the same level. You'd almost think maybe some implicit bailouts by the US government, again funded by treasuries and whatnot. But it's an interesting, it's an interesting topic, no doubt.
Speaker 1 00:32:48 Great. And, um, yeah,
Speaker 3 00:32:51 Yeah. I
Speaker 1 00:32:51 Would The other, oh,
Speaker 3 00:32:52 Sorry, go ahead.
Speaker 1 00:32:53 No. Okay. Who's next? Uh, Clark, go ahead. Clark your hand up.
Speaker 0 00:32:59 Yeah, I w was starting to respond. I didn't
Speaker 1 00:33:02 Oh, good. Yeah. Alright. You're in charge, Scott, I'm sorry. Go,
Speaker 0 00:33:05 Go ahead. You wanna unmute real quick and then we'll go to Clark after that?
Speaker 3 00:33:14 Yeah. Hi. Hi, Dr. Salzman. Long time.
Speaker 1 00:33:17 Yeah. How you doing?
Speaker 3 00:33:19 Good. So what do you think,
Speaker 1 00:33:21 What do you think? We,
Speaker 3 00:33:23 I think, um, I would echo a lot of what Nikhil said. I would say there are a lot of small mechanisms that tie into the, the, the whole marketing of a risk-free asset thing. I mean, for instance, uh, you know, Basel regulations actually require banks to, uh, keep a certain percentage of their portfolio in high quality liquid assets, which are basically government bonds. Yeah. So all of this money that was created through quantitative easing has basically found its way into government bonds through one way or another, which is a massive sum of money. And that's, I think, no doubt, sort of keeping the long end of the, the yield curve depressed.
Speaker 1 00:33:59 Yeah, that's a really good point. There are regulatory requirements, especially when banks become undercapitalized, which is one of my themes in breaking the banks, that over time central banking erodes the financial condition of the private banking system. But part of that is banks get away withholding much slimmer capital reserves. Why? Either they'll get bailouts if they fail, or the deposit insurance itself, um, is a source of funding that's non, uh, capital based. But yes, part of the way they get around this is, uh, well, if they buy government securities, you know, instead of holding corporate loans, they don't have to keep as much capital. The reg, you know, this gora the regulators tell 'em that. So yes, there are behind the scenes like artificial motivations to hold government debt, which is very clever. It's very clever on the part of the regulator, the regulators compose as, uh, advocates of safe and sound banking.
Speaker 1 00:34:57 But what they're really saying is, the way you get safe and sound banking is you have to buy government bonds, which are safe and sound, really. So then, as Meas has put it years ago, the banking system becomes a sub-department of the treasury. The banking system loses its private, uh, uh, uh, uh, features. This, this had to happen, by the way, is one of my themes is it had to happen once you took away from the private banking system the, uh, right to issue currency convertible into gold. They took that away when they started the central bank, right? But then the central bank, the Fed, said, well, you can still lend money. You can still lend money, and we won't, and we won't interfere with that. But they've gradually interfered with that, right? And then they've interfered with the management of the balance sheet, and they've interfered with even how CEOs are paid at banks, uh, ever since oh eight.
Speaker 1 00:35:49 So the private banking system is going away in the United States. It's, it is disappearing gradually. It's being eroded gradually, it's being taken over by the government. And it had to be that way because once they take over money, they have to take over banking 'cause money and banking are inextricably linked. So, uh, you actually see economists out there today advocating that everyone have their deposits at the Fed, that there be no private banks anymore. And I've had separate sessions on, um, central Bank digital currencies, uh, crypto. As much as I love crypto, this is gonna be something that the government as a status re regimes would want to take over. Just as they took over the gold standard system and made gold holdings illegal. They're gonna do the same thing. I think with Bitcoin and cryptocurrency. They're gonna be highly motivated to make those holdings illegal and to take them over and monopolize them themselves so they can use 'em for status purposes. So that's another reason why we need to push back and not only advocate liberty and capitalism, but a totally private, uh, money and banking system.
Speaker 0 00:37:01 Great. Uh, we've got Clark next. We also have, uh, mark in the chat, uh, that we can go to after that. Clark, thanks for your patience.
Speaker 4 00:37:12 Sure. Thank you, uh, for doing this, God and Richard. And, um, yeah, I really, uh, am enjoying this. Richard. I I have a question though. Um, how do we approach, uh, those of us, uh, those of us who, who feel we have a whole lot in common with those on the libertarian, right? Um, on this issue of central banking, when I listen to podcasts, uh, by, by, you know, people on the libertarian, right? You almost get the impression that it's, you know, central banking is almost a, a conspiracy that's probably too strong a word, but in listening to, to these guys, you, you don't, and maybe even Ron Paul, I would probably even include him in there. You would think that, you know, <laugh> that, you know, uh, uh, Jerome Powell and, uh, Janet Yellen and Ben Bernanke and all of them completely understand Meese and Hayek and, uh, Friedman and, and and Salzman, and they know what they're doing and they're just kind of lying.
Speaker 4 00:38:15 But I've always thought that was an odd argument. It's almost like, you know, they know they're gonna cause a a, a recession and they'll profit from it, and then at the right moment they'll pull out their investments out. And so, so, you know, and, and again, I now, as you, you mentioned before, Ron, Paul wants to get rid of, you know, he wants to audit and then end the Fed, which is great, and replace it with the sound money. But how do, how do we address that really? I mean, I'm obviously your works, Richard, but, but I mean, how should we address that whole notion that somehow <laugh> these guys that running the things that, that the Fed, I mean, they really don't understand Meese and Hayek and, and Salzman, do they?
Speaker 1 00:38:56 Well, that's a good question. I would say, Clark, that's a really good point. I've noticed the same thing. There's two major differences I have with the Libertarian, uh, right, uh, treatment of this whole topic. Now, the first one would be, you can clearly tell from my assessment, I'm not really conspiracy theorist. I wouldn't say it's conspiracy. I'm just naming, you know, the origins of central banking. This is how it started. This is what's perpetuating it. I don't think it's a conspiracy. I think it's obvious to me. I think it's obvious even to defenders with central banking. Their view would just be, yeah, we like this. You know, we like the idea that central banking supports profligate government 'cause they believe in Prolate government. But I think the major difference is, here it is, I'm saying it's an alliance between central banks and the government. That is an obvious that, that to me is so obvious that the Treasury and the Fed and the Congress are all in on it together.
Speaker 1 00:39:55 But I don't, there's nothing mysterious about that or magical. The libertarian view is it's an alliance between central banking and Wall Street. That is to me, so sad. I, I understand. I was on Wall Street for many years, so believe me, I hate the Wall Street types who want bailouts. I hate them more than anyone. I'm against bailouts. I, I understand Occupy <laugh>, occupy Wall Street from 2011. But there's something about the libertarian and the conspiracy view that says, you know, this is really a cabal between central banking and Wall Street. And I hate to say it, sometimes they bring in Jewish bankers and the, you know, illuminate and blah, blah, blah, blah, blah. And that's just not true. I mean, I think Wall Street, big banks, if you will, big finance, have contributed to this problem only to the extent they too advocate stateism.
Speaker 1 00:40:54 And they do. Lots of people think mistakenly that just because you're rich, you're gonna be pro capitalist, or just because you're a bank, you're gonna be pro capitalist. Or just because you work on Wall Street, you're gonna be pro capitalist. My experience was most people in finance, most rich people, most people on Wall Street are Democrats and, and F D R types, uh, interventionists. They're not free marketers. And that's a Marxist myth. The Marxist myth is that your ideology reflects your bank account. That's not true. George Soro, George Soros is a perfect example of this. A multimillionaire and anti-capitalist. So the, so that's the first thing that has to be questioned. Now, here's the second thing, which I think most people don't think of. Libertarians, do not want reform plans. My part two of my essay is a reform plan. I actually give a step by step method, which the government has to take to dismantle, uh, safely and quickly central banking.
Speaker 1 00:41:57 And I <laugh>, I, believe me, I have met many libertarians who say to me, Salzman, you can't do that. You're a central planner. They, they think, by me proposing a plan to dismantle central banking is central planning. And as a result, nothing is done. There are many libertarians you'll see who will critique properly, they'll critique the current system. But if you ask them, what do we do about it? They'll say nothing, just, uh, end the system or something. And it ends in nothing. So, um, I think that's another difficult. So, so the two things, if you think about it, Clark, I'm saying one, they identify the wrong alliance. The alliance is not central banking and Wall Street, it's Central banking and Washington. And the second thing, um, they're reluctant to come up with, um, methods and plans to dismantle. By the way, this isn't true.
Speaker 1 00:42:55 This is true not just of central banking. I've seen the same thing in the welfare state, social security. I've offered plans to safely and quickly dismantle these, uh, welfare state functions. And many friends of mine on the libertarian right, will say that it's improper to do that because it's, it, it smells to them too much like central planning. And I believe if, if we got stateism, which I think we did largely by reform methods, by plans and schemes, I I'll say scheme, because they're bad and they're status, um, that's how we got them. People proposed plans. The, the, the Communist Manifesto itself has 10 planks in it, eight of which I think have been adopted by the United States of how to, uh, impose statism on a free market. And unless the free market side comes up with reform plans, I mean detailed ones, I don't just mean, and the Fed, I mean, show me how, what is step one? What is step two? What is step three? And, uh, unless we have those, we're not going to get a capitalist solution to these problems. That's too long an answer, Clark. I'm sorry. But does that help? Is that what you're asking? Yeah. Is that what you're getting at about the libertarian side? You seem dissatisfied Yes. With what they're doing.
Speaker 4 00:44:15 Absolutely. I mean, it's, it, it really, and maybe if I could just add one quick point, it's of course, yeah. They, they don't seem to think ideas, uh, themselves, you know, good ideas, uh, valid ideas, maybe replace, uh, invalid ideas. Instead, it's people, evil people, like, you know, and you know, obviously, you know, Jerome Powell is not a moral giant, uh, in, in our universe, but, but it's almost as if, you know, it doesn't matter what your ideas are, we'll just point these things out and we'll get rid of the Fed. And, and, you know, we all agree on, you know, it's the old idea that somehow we all agree on the same ends. Well, of course, that's, that's, that's absolutely not true.
Speaker 1 00:45:02 Yeah, really good point. Hi, to his credit, Hayek in the road to Serfdom has a chapter called, uh, why The Worst Get On Top. So, but, but his argument, which was a really good one, was, well, there's certain systems, uh, status systems which are so stupid and brutal and barbaric that they're gonna attract stupid and barbaric people. And, uh, but at least he made a systematic argument, a a systemic argument, get rid of this system and you won't attract really bad people. You're absolutely right. There's someone like Powell, you know, it's not like Powell is Hitler or, or Stalin, but just think of it, the, the man is a non-entity and, and he's a lawyer to boot not against lawyers here. But isn't it interesting that the head of the central planning monetary agency in the United States is a lawyer? How, how the fuck did that happen?
Speaker 1 00:45:58 I mean, it's unbelievable. So even if you believe in central planning, which I don't, um, why would they put a lawyer in charge of a monetary agency? Uh, it's, it's unbelievable. But it, but it shows you how arbitrary they are, how reckless they are. They don't really care. They don't, and that was, by the way, Trump's appointment not, that wasn't Biden, that was Trump. Uh, I don't know if he appointed him. He, he reappointed him at least. But yeah. Um, they're not even good at central planning, let alone, but the whole system has to be rejected. I think Clark, I think that's your point. Good question.
Speaker 0 00:46:35 I'm gonna get to, uh, Mark's written question real quick and then we'll go to the three raised hands. Uh, mark asks, uh, John Ney of real clear Markets, and Forbes writes, the influence of central bankers on the free flow of capital and economic growth is overrated. Yeah. Any comment?
Speaker 1 00:46:56 I do, John's a good friend of mine, and I admire and respect John a lot. I really do. Unless you're reading John Tamny, you're not really up on political economy these days. And also a true blue supply sider in the Art Laffer, uh, tradition. Here's where John and I differ. It's interesting. John, uh, kind of has the view that central banking, and it actually has a broader view on central planning, generally is innocuous. By innocuous, I mean, has no deleterious effect. Now why, why does he come to this view? It's actually a very benevolent pro capitalist view. If I interpret John correctly, and he may disagree with me, but I, I've talked to him enough about this, I think this is his view. His view is that entrepreneurs, bankers and others are so brilliant and so, uh, astute that they can sidestep and offset and immunize themselves from central planning.
Speaker 1 00:47:58 And therefore, central planning is innocuous <laugh>, the therefore, whatever the Fed does, what whatever the F D C does, you know, you name it, John's view is, it's irrelevant. And I don't agree with that. I, I think I endorse the idea that entrepreneurs are brilliant, that markets are smart and governments are stupid. That, that <laugh> that I totally agree with. But the main difference I think here is that I think political power is the power of coercion and economic power is the power of creation. And when coercion stolt defies creation, it's unavoidable. I mean, you can evade it. You know, part of the Laffer Curve and part of even Atlas shrugged is Atlas shrugs. What does that mean? That the best and the brightest do, uh, shrugged, meaning they sidestep, evade, flee capital flight, uh, to some degree. But I don't think there's, I don't think there's no degree that you can't escape.
Speaker 1 00:49:04 You can't entirely escape statism, you can't entirely escape punitive tax code. You can't entirely immunize yourself from fed policy. John wrote something recently saying the, something I focus on very closely, the inverted yield curve, a structure of interest rates caused, I think largely by the Fed, which is a great reliable signal of recessions. And it's a perfect track record. I mean, it's a, in the inverted yield curve, has forecasted all eight recessions in the last 60 years without a false signal. Now, to me, as an economic financial forecaster, I pay close attention to that kind of success rate. And, and yet no economist I know of coming up against me will go there. And, and it's amazing 'cause you would think that economists would race to and herald a perfect forecasting record. Well, John, John wrote an essay recently saying, that's true, but so what?
Speaker 1 00:50:03 It might not work next time. And that's true, namely that it forecasts recessions. But so what, it's not important to forecast recessions because recessions are always followed by recoveries. See, so, so it's, so he's right in the sense that recessions do follow are followed by recoveries, but it, it shows you the, the benevolence and the optimism of John Tamny, where his view is who the, who the hell caress, whether the the Fed causes recessions or not, who the hell cares whether recessions occur or not. Um, there'll always be a brighter day. Capitalism will win out. It's a kind of, I'm not sure quite how to characterize it. I'm learning from John. I always learn from John. I hope he learns from me. But it is a kind of interesting, I think, overly benevolent take on the relationship between political policies and economic results. Uh, I hope that helps. Um, who asked that question? That was a good question. That was Mark
Speaker 0 00:51:02 In the chat.
Speaker 1 00:51:03 Uh, mark ey. Yeah, so Mark, mark, keep following John Tamy and uh, 'cause he's always a good, uh, counter to what I'm arguing, but he and I are in the same camp. We're in the same pro capitalist, pro entrepreneur, Laffer Curve, pro supply side, uh, part of the spectrum. And I think the debates between those who agree on so much are sometimes much more interesting than debates between people who are, uh, completely on the other side of the spectrum.
Speaker 0 00:51:37 Yeah, it sounds very much Richard. Sounds like there may be a place for a good natured debate on some of those finer points.
Speaker 1 00:51:43 Yeah. Mark, did you want Mark? I see Mark there. Do you have a follow up mark?
Speaker 5 00:51:50 Um, no, I didn't wanna follow up except to say I, yeah, I'm very happy with your comments. Here is exactly what I was hoping and
Speaker 1 00:51:59 Okay. I would
Speaker 5 00:51:59 Hear, and I am, uh, have been following him lately, and I'm very interested in his, in his opinions.
Speaker 1 00:52:06 Yeah.
Speaker 0 00:52:07 Great. Uh, well, Jason, thank you very much for your patience. Go ahead and unmute
Speaker 6 00:52:18 My hand. My picture moved. There you go. I did. Can you hear me? Yeah,
Speaker 1 00:52:22 I, I can.
Speaker 6 00:52:23 Good to see you. It's been a while. Yeah.
Speaker 1 00:52:24 Great. Great to see you, Jason.
Speaker 6 00:52:27 I think you've already partially answered my question. I don't know if you're aware, Binance is a big platform for, uh, cryptocurrency exchange crypto. Yeah. They stopped allowing, uh, conversion in the US dollars. Right? You can't go back from crypto back to US dollars because of some s e C filing. And I looked at it, I read the filing, I'm going to, this is an awfully ambiguous manipulation of what's considered running a racket because they, the term racket's getting very, very loose. And I thought, hmm, yeah, it, it's just, it's highly suspect. It's on par with what you, you kind of already alluded to that they're gonna start cracking down on this because they don't, it's undermining their value. Um, I, I suspect, and this, and tell me your opinion on this Gen Z and the, the next, a lot of the younger guys just throughout the world could give two poops back over the dollars. They only deal with crypto anyway. So I think it's increasingly gonna be that. Is that gonna, do you see that becoming an increasing, um, problem, I guess, or, or, um, area of, of, of conflict or, or crackdown? I mean, 'cause you gotta, you got a generation that actually would rather transact on the cryptocurrency anyway. Not, not even by the way, with, with dollars.
Speaker 1 00:53:26 Now, believe me, having inter interacted with Duke students who were experts in this, and I ha I sponsored a, uh, co-sponsored for one of my students at Duke, a brilliant fellow named Jack Riesel, a whole course on crypto and Bitcoin. I became convinced of having studied it that Bitcoin is a legitimate cryptocurrency, but the whole space, uh, o other than Bitcoin, a lot of the space is speculative and probably unsustainable. But I wouldn't, uh, dismiss the whole crypto space because of that. What I worry about is seeing the history of the government want, wanting to disable gold-based money and free banking for the reasons that I name. If I'm right about that, then they'll want to do the same thing to crypto. They'll, they'll not want it to a viable competitor to fiat money. They'll want to undermine it. And if they aren't undermining it yet, it's only because it has not developed the kind of, you know, substantial presence that it wants.
Speaker 1 00:54:32 So, um, for a really good book on this, I recommend Larry White just came out with a book, Lawrence White at G M U, called Better Money. And Larry goes through crypto versus Fiat versus Gold. And he and I are both free banking and gold standard guys. But we're also respectful of, and kind of loving the whole Bitcoin thing because it does, uh, offer an alternative to fiat money. I actually hate calling it fiat money 'cause it's not really money. I call it fiat token, uh, a mere token, uh, opposition. But, uh, Larry defends, uh, Bitcoin and the gold standard against fiat money. But you, Binance is making a mistake. I think you're right, Jason Binance, which finances in part and facilitates the exchange of crypto, made a mistake by doing this, by not by severing the link between the dollar and crypto. I think that's a mistake, uh, for those of you who are interested in the whole F T X scandal. Um, F T X and Effective Ultras, and I have done a separate session on that, morals and markets, and that guy I think is about to go to, uh, court over this, right? The legal case against, uh, Bankman Freed, um, and yeah, free.
Speaker 7 00:55:49 I thought they were shut down. Yeah.
Speaker 1 00:55:52 And also, I'm looking here in, uh, December of last year for Morals and Markets. We had a whole session on Central Bank digital currencies. So if you go to the Atlas Society and just search by prior morals and markets, um, there is something on Central Bank digital currencies that I did. And just prior to that, the economics and Politics of Cryptocurrency, that was me interviewing my Duke student, Jack Kriesel, who's brilliant on this. So, so that's late 20 22, 2 in a row on crypto. Those of you wanna investigate that. Good one. Uh, great. Thank you very much. Thanks, Jason. Thank you, Jason Nikhil.
Speaker 2 00:56:35 Yeah. Um, so, uh, thanks, thanks again for, uh, letting me go. Um, so I, I, I, on, on Jason's comments, i, I, I did a little bit of work on this. I wrote a book chapter with Will Luther on, uh, cryptocurrencies, and I actually Larry White's book, I was taking his class at Mason when he was writing it, so I had a chance to read a lot of the early
Speaker 1 00:56:53 Maths. Yes. Right, right. And,
Speaker 2 00:56:55 Um, so my, my, my thing, and this actually ties into the question I had, so my thing was whether or not it violates the regression theorem or any of that stuff is I think, secondary here. Right? I think the issue with cryptocurrency, and the issue with one of your proposal stock Salzman is that, uh, it's, it's fundamentally if cryptocurrency doesn't have much of a fundamental value outside of, you know, a non-monetary use, it's hard to build those stock and flow dynamics which allow for sort of a loosely elastic base money, which is necessary in a free banking system. And this is where it ties into, I think you wrote this in gold and liberty where, or even breaking the banks where you mentioned a gold price level target Yeah. As a, um, as a step toward, yeah. Uh, ending the Fed. Yeah. And the, my, my question to you, Dr.
Speaker 2 00:57:34 Salzman is, is related to all this, is how do you, how do you ensure a gold price level target? Well, either you can, in terms of the aggregate, some people say it stabilizes price level like Dow Gin and White say it stabilizes the nominal income gold. But at the end of the day, if you stabilize that and there's no monetary base of gold that's being used, how do you ensure a stock and flow that keeps, um, that, that that essentially allows the elasticity of money to remain at, you know, efficient levels in a market sense?
Speaker 1 00:58:02 The short answer is it's almost impossible, <laugh>. So because, uh, the interim, the interim step, you're absolutely right. Nikhil, one of the interim steps I recommended, if we can't dis <laugh>, if we can't dismantle central banking, uh, in the way I suggested in Golden in, uh, uh, breaking the banks is a gold price rule. And, uh, that would mean the central bank, okay, I hate to say this, but it's a, it's the central bank. I wrote this for the Cato Journal, by the way, Cato, if you go Salzman Gold Price Rule, Cato Journal, you'll get this from 2021, I think. Um, I said, listen, short of getting rid of the Fed, uh, but better than the Fed just issuing money without limit the gold price rule. So Nikhil, you know what this is, I, I think what you're saying is the gold price rule wouldn't work unless gold is actually redistributed through into the banking system or that the Fed actually has gold. Unless
Speaker 2 00:59:04 It's redeemable. Because its not
Speaker 1 00:59:06 Redeemable. Yeah, yeah.
Speaker 2 00:59:07 You don't have a base money that it's, you don't have a monetary use.
Speaker 1 00:59:10 I mean, that's my preference. But in the Cato Journal essay, I was challenged with the idea of can you give us something in an intermediate way, <laugh> that makes money, that makes the dollar more objective than it is now, but isn't quite the gold standard and isn't quite the fiat system. So I was reluctant to do it because what I recommended was a hybrid. And I know, you know, it's a hybrid, but I think all you're saying is something I would endorse, namely, but Salzman, that isn't really the full <laugh> free market gold reserve basis. Yes, I know it isn't. I'm trying, I know it isn't, but I'm wondering whether this intermediate system could be used as a transition. I'm trying to look for a way to get back to sanity and, but it's a hybrid, but I admit it's a hybrid system, but I admit, but I'm also saying it's better than the current system. Would you not, would you agree with that?
Speaker 2 01:00:09 Well, I would say maybe it's better than the current system and definitely the case <crosstalk>, and,
Speaker 1 01:00:12 But let me, let me not, I'm sorry to interrupt Nikhil but I think also the contribution there. And you know, George and Larry, I think my contribution always also was I was pushing against my friends and my dear colleagues, Celgene and White saying, I agree with you guys. We need some objective money, but it can't be a Federal Reserve manipulating interest rates. Mm-hmm. <affirmative> to get to a gold price. It has to be the Federal Reserve buying and selling gold in a narrow range period. And that's all they do. They do nothing else. They don't manipulate interest rates, they don't do anything else. And I thought, this is a, this is such a restricted central bank that, um, not even cel and white would put up with it. <laugh>, you know what, so go ahead. I'm sorry, but
Speaker 2 01:01:00 My, my, my question here is though, so if we go, let's go back to Cel and white though. CEL White 94, you had how the medical hand handle money, 94, free banking and monetary control by cel, you had, uh, all of its currency and competition in 89. Yeah. Um, all these assays, the fundamental point is that a free banking system on a gold standard would lead to stabilization of nominal income, monetary equilibrium. And you assume that velocity is stable. You take even Kevin Dowd's argument that it would lead to stabilization of inflation. Why not just say you're for a nominal income stable, uh, 0% nominal income growth. Yeah, yeah. Or 0% inflation or sumner's, uh, N G D P futures idea or, um, uh, Kevin Dowd's C p I futures idea. Because if the government can create a market for treasuries, I sincerely do believe they can create a market, a li a fairly liquid market for C P I or N G D P futures. Trust me, hedge funds would love to trade that <laugh> if it was liquid enough.
Speaker 1 01:01:49 Yeah. My short answer to that is, everything you named that you named like three or four things was different nominal G D P targeting of that. My short answer is all those strike me as too much central bank activism necessary to do it. Mm-hmm. <affirmative>, and I want, I want as minimal in the interim Central Bank activism as possible. If I say to them, Hey, hey Jerome Powell, you know what you do, you do every day? You wake up and you make sure the gold price is, uh, $1,500 and then go to bed and leave it alone. And to me, everything else from Sumner to Sumter and all these others are require two activists, a federal reserve. I want them so inactive that the day after they are inactive, we, uh, abolish them. But, but Nikhil, uh, I can't yet. You really have retained your analytic powers, my gosh. To the point and, you know, all this detail, so great. Oh, okay. We need to, we need to talk. That's the first thing I've concluded from this. We need to talk. Absolutely. Yeah. Okay, my friend. Alright, great. Get together in dur. Where are you now, physically? Where are you in Washington? I'm in Connecticut, so I'm working. I'm here. Yeah. Alright. I either come to Connecticut or you come here. We have to Absolutely. Alright. Absolutely. Dr. Ss. Okay. Great. Great. Uh, Peter, thank you for your patience.
Speaker 8 01:03:16 Hi, can you hear me? Yes,
Speaker 1 01:03:18 I can. Peter. Yeah. Good to hear from you, Peter.
Speaker 8 01:03:20 Hi, Richard. Yeah, I have a question, um, as to, uh, any views that you might have on the objective importance of a global reserve currency. Uh, we know that of course, before the dollar became the global reserve currency, that was the British pound, right? And we know that investors and trade, you know, for efficiency reasons, uh, it's much easier to settle daily or monthly, yearly, you know, using a, a standard currency. But it occurs to me that really to become a global conser, uh, uh, reserve courtesy, you need, uh, objective factors, not just efficiency. You need, uh, a a currency that's backed by productiveness, by backed by the rule of law. Uh, so where I'm going here is, isn't it possible that just those factors in reality could displace the dollar, could solve a lot of this problem? Uh, I know this week the bricks are having their 15th annual leadership summit.
Speaker 8 01:04:28 Yeah, yeah. Uh, there's 67 countries invited. They've been at this for the last, again, 15 years. Yeah. But, uh, they've got Xi Jinping, they've got Putin by video, uh, because, uh, I guess he's, he'll be arrested if he leaves <laugh>, uh, Russia. They've got Modi of India, a number of others. They're gonna talk about membership. But the word is, they're also gonna talk about a new multilateral bricks current. And of course, Putin has already been at this, uh, backing the ruble with gold. Uh, my understanding is that Russia has the greatest, uh, reserves of gold in the world. And of course, they also have phenomenal reserves in on the productive side in minerals and oil. So isn't it possible, I mean, I I hear conservatives alarmed, uh, in Congress and elsewhere that, my gosh, the dollar is gonna lose its reserve status. How terrible. Well, I mean, why do you, do you want, you know, continuing exorbitant privilege just to print? Uh, or do you really wanna resolve things, get this objective, in which case, presumably, could we even have gold as a reserve, not a currency, but all currencies related to gold. So just on a global scale, um, would you speak to any of that, the importance of a reserve currency, the, the possibility of the bricks just blowing this whole issue out of the water, including the Fed?
Speaker 1 01:05:57 Really good question, Peter. And, uh, your knowledge of the history here and the, the dynamics are really sound really amazing. I would put it this way. In human history, the only, and I know you know this, Peter, the only objective reserve currency, if you will, I hate to use that word, but a let's say asset that has ever been converged upon globally, you're interested in the global aspects of it, is gold. It's the only asset, uh, historically humanly that, that individuals freely have converged upon as the central global money. That's why, uh, I think one of the most amazing features I, I named earlier is on the verge of World War I, on the classical gold standard 60 countries. And the major ones probably representing something like 90% of G D P we're on the gold standard. Now, think of what this means. Most people don't even know what this means today.
Speaker 1 01:06:57 It means that 60 currencies, some called Frank, some called pounds, some com dollar were convertible into gold at a fixed rate, meaning all the exchange rates were fixed, and international trade and calculations and capital flows and everything could rely on this fixed standard. It would be like saying, I know every day that a yard will be three feet. That's what the gold standard meant. It meant that every currency in effect was the same currency. That's unbelievable. An amazing, probably unprecedented. I can think of no other, uh, significant integration on a global scale that ever occurred except on the gold standard. Okay, so we know all that went away. I think you're right to bring up the bricks because since 1971, when the world went off the gold standard, and since then there's been no objective central standard to which all currencies could conform. Um, no one has really tried to put together anything like what occurred prior to World War I.
Speaker 1 01:08:05 Now the bricks, for those of you who don't know, means Brazil, it's an acronym. Brazil, Russia, India, China, and South Africa. Now why the bricks? This acronym was, uh, named I think by some Wall Street guy 20 years ago. But all he tried to show was that if you combine these, uh, economies, they're a, um, formidable competitor, if you will, to the G seven. Now, 25 years ago, the bricks were 25% of the G seven. Today they're equivalent to the G seven, the G seven being US, Britain, Italy, France, Germany, Canada, the usual suspects. So the bricks have risen as a share of the total G d P of the world. And what's more interesting, as Peter points out, is they are meeting now and part of their agenda is <laugh>. Now get this, whether they should put all their currencies on the gold standard, that is unbelievable or they don't quite say the gold standard.
Speaker 1 01:09:09 They say some kind of commodity independent. This is what Peter's getting at. Objective. Objective meaning it's not open to the personal subjective discretion of the monetary planners. It's an independent objective outside, if you will, standard to which the monetary authority must conform. That is amazing. That has not happened in 52 years. Now, what's odd, Peter, as you must know, <laugh>, is these are not really free market economies. <laugh>, <laugh>, maybe India more than the others. And, and yet they seem to recognize the value and the importance that this might have. And, uh, I'm encouraged by it. I don't know what will come of it at I'm, I'm not sure exactly that that's what you're asking, but you're also right to note, and most people do not know this, but that after the Soviet, uh, uh, Soviets, I'm sorry, after the Russians faced economic sanctions from the West in February, 2022 because of the Ukraine invasion, uh, most people do not know this, but because of that, the Russians went on the gold standard.
Speaker 1 01:10:22 The ruble is on a semi gold standard. And they did this because they were worried that they would lose capital inflows, uh, due to the sanctions. And their assets were frozen abroad, basically stolen by the US and elsewhere. And, uh, so they said, well, since we have gold, we have plenty of gold, and the ruble might crash in value because we're being isolated. They were very smart at the Central Bank of Russia to say, okay, we're on the gold standard now. And the ruble retained its value and the Russians in many ways are smarter, apparently about the gold standard than the United States is. 'cause they said, we're not going to let the ruble decline. We're not going to allow this isolation of us. Now whether you agree with their invasion or not is irrelevant. The point is, this is an interesting, this was an interesting public finance choice on the part of the Bank of Russia to do this.
Speaker 1 01:11:19 And um, one of the things they also did was they said to people, if you want to buy our stuff, the stuff we export to you, including energy, you must pay us in gold <laugh>. That's, in many ways, that's brilliant. That was an brilliant move on the part of the Russians. And it's one of the reasons the ruble has retained its value since the invasion. And one of the reasons the us uh, Russian economy has held up despite the invasion. And, uh, to the extent Russia is making that argument with the, in the bricks meeting, the bricks will see this as an argument for stabilizing their currencies. I think it's also the most important thing to me would be what China says. And, and India, I care about China and India, maybe less so Brazil, but if China and India say to themselves, you know what?
Speaker 1 01:12:09 Our currencies would be very valuable if they were somehow tied to gold and more than that, we would totally displace the dollar in about 10 years. I think that's exactly what would happen. The US dollar would lose its reserve status, I would guess in about a decade. If the bricks, if at least three of the five bricks went on the gold standard and the result in the US would be hyperinflation. The only reason the dollar is not hyperinflated right now is because there's a demand for it. It's a reserve currency. It's like the British pound a hundred years ago. It's still something that people value. But if these competitors say, our currencies are based on gold and yours isn't, the US will lose its status. And, and by losing its reserve status, that means other countries, other central banks will not demand dollars. They won't wanna hold dollars. And in a environment where US dollar production is cascading massively increasing, right? We have a tripling of the money supply in the last five years. Um, all else equal economics tells us that massive increase in the supply, but a lessening of the demand will lower the value of the dollar.
Speaker 1 01:13:27 What do you think, Peter? What's your deal?
Speaker 8 01:13:29 Excellent. Yeah, thank you. I two other facts just quickly. Yeah. Uh, I understand that Russia is getting skittish about accepting Rues from India.
Speaker 1 01:13:38 Why? Because,
Speaker 8 01:13:39 Uh, the rupe is printed and, uh, Russia is exporting oil, which is real, genuine, objective produced, uh, value. So Russia, I think understands the leverage they have. Yeah. And the other one, if, if, if, if it's a question on this or it's a thought, um, in the seventies, the US went to Saudi and we said, okay, look, we'll make you a deal. If you will price sell oil only in dollars, then we will protect you. We'll give you all those f sixteens and tanks and everything, which we've been doing for 50 years. Yeah. Well now the Saudis are showing up at the bricks. They've applied for membership. I understand They
Speaker 1 01:14:23 Are, yes.
Speaker 8 01:14:23 So, uh, basically their Saudis are saying, well, to hell that deal, we'll take Russia and China's protection instead. Thank you very much. And maybe we'll take a gold back currency over the dollar. So it could well be someday in the future. Historians looking back that it was only that deal that prolonged the dollars, uh, uh, pro or the government's pracy for the last quarter century or so because of oil.
Speaker 1 01:14:53 Oh, that's brilliant Peter. And in retrospect, if this happened also people would say when Saudi Arabia joined the bricks, that was the end of the dollar. Yeah. Because it's no small thing for the oil markets globally to be priced in dollars. And if the Soviet, if the, uh, I keep saying the Soviets, if the Saudis finally say no, uh, that alone is removing a prop for the dollar. The dollar is propped up in part because it's the currency used for trading oil globally. But you're absolutely right. That came out of the Bretton Woods breakup. People don't know this, but when the oil price tripled in the seventies, people thought OPEC monopoly power is increasing the, no, that's not what happened. What they Saudis said was, what OPEC said was, since you guys went off the gold standard, uh, we're not idiots. We're not gonna take the same amount of dollars for the oil of barrels of oil we're selling, we're gonna demand higher, more dollars. 'cause you debase the dollar and that was the cause of the rise in the oil price. You know, it had been something like $2 and 65 cents for 14 years in a row. Guess why? 'cause the dollar was on the gold standard under Bretton woods, um, than the barrel of oil is what today? 90, 88, 90. It is that way because the dollar's worth less, not because OPEC is a greedy monopoly. Really good question, Peter. Um, good stuff, Peter. Thank you.
Speaker 8 01:16:31 Thank you.
Speaker 0 01:16:32 Thank you. Um, just looking at the global scene, I mean, we saw just how the EU has tried to give, uh, Brexit such a hard time. Um, you know, uh, if if practically if someone tried leaving the global central banking system, wouldn't the other economies try to crash their, their economy to, to teach them a lesson for leaving the global order?
Speaker 1 01:16:58 Um, possibly. Yeah, that's true. That's one of the reasons central banking survives. I mean, in part, it survives because if you buck the system, uh, you're out of the system, it hurts you in some way. That's true. Right? Um, that's the only way I would answer that. I mean, the, the, the background of this also, people should realize, um, God, how much things have deteriorated in 20 years, 30 years. There was something called Central Bank Independence, if you know the political economy literature, C B I C B I, uh, after the Soviets fell in 1991, c b i, central Bank Independence became a watchword in political economy. And the argument was independent of what the idea was, central banks are only legitimate if they're independent of their treasuries, their treasury departments, their finance ministers meaning what? That they didn't monetize debt that they didn't inflate whenever the government wanted them to.
Speaker 1 01:18:02 And it's so interesting because after the Soviet Union collapsed, and again, it was this 10, it was this, uh, not quite full embrace of capitalism, which would've meant, let's go back to the gold standard and get rid of central banks. No, they were clinging, clinging, clinging these monetary planners to, well, even though central planning has failed, can we still retain central banking <laugh>? And and their their argument was, yeah, if it's independent of the Treasury, we're not gonna put 'em on the gold standard, but we're gonna ask them not to monetize debt. And if they don't monetize debt, then they can have an inflation target. And if they have an inflation target, even the idea of an inflation target, think of that inflation is a debasement of money. Inflation is an increase in the cost of living. And they, and these monetary central planners, their view was, let's, let's rob people, you know, only 2% a year.
Speaker 1 01:18:59 Not, not 5% a year, but it was still robbery nonetheless, right? It was still, central banks should still de base the money, but only at 2% a year. But it, but regardless, that was their plan. Their plan was we're gonna somehow keep these central banks behaving and not totally monetizing government debt. When did that completely go out the window? Around nine 11, around 2008, around Covid. There's been like four or five cases, right, where the Central Bank said, we need to print money without limit to hell with independence. We need to monetize all this government debt to, to bail out the world and save the world. And I mean, it's just now central banking is completely off the rails, completely arbitrary, completely prostituted. All the central bankers of the world now are complete monetary whores. They're prostitutes. They're just sitting there. They're doing, they're doing the bidding of any propagate stupid finance minister that calls them up and says, print money for us.
Speaker 1 01:20:05 It's disgusting. It's so far away from the nineties, which was only Central Bank independence. It wasn't even a return to the gold standard. And they can't, they couldn't even maintain that. So Central Bank Independence, c b I is a joke now in political economy. People laugh when they say, what whatever happened to Central Bank Independence at these political economists Just laugh in derision. That's long gone. But are they critical of central banking as a result? Are they opposed to the whorehouse, which is central banking now? No, not in the least. Not in the least. They su they support it. They herald it.
Speaker 0 01:20:41 Greenspan stepped down, I think in 2006. Was he a check on the system?
Speaker 1 01:20:46 Not really. I mean, his performance was not as bad as Volcker, but not as good as the gold standard. I, when he left, he was in the, he was the head of the Fed for I think 18 years. That's a long time. I figured out that he was there longer than half the kings of England. But <laugh>. But the other thing I did when he left is I thought, well, here's a guy who was on record in the mid sixties for being for the gold standard and being against central banking. So I remember at the time when he left in oh six, and he had come in in 2000, uh, uh, 19, uh, 87 under Reagan. Um, I went and compared 18 years under the gold standard and the gold standard, even under Bretton Woods, which is a diluted form of it. Uh, the performance was better than under Greenspan.
Speaker 1 01:21:37 Greenspan's real evil, I think was not just when he was at the Fed. He did nothing to promote even research on the gold standard or even anything suggesting a gold price rule. So he, he dissipated any reputation he had prior to being at the Fed for advocating any kind of sound money. He didn't advocate sound money when he was there. And, and people talked about things like the green pan, the Greenspan standard, which they couldn't quite define. So by the time he left, you know, it was this idiosyncratic thing where, well, Greenspan, whatever he did was, you know, Greenspan esque and everything. Well, that's not objective money. That's not the gold standard. That's not what Alan Greenspan himself advocated when he was an ally of Ayn Rand in the sixties. Uh, but more than that, um, remember when the financial crisis occurred a couple years after he left? Uh, he blamed it on free markets, just outrageous. 'cause he himself at the Fed was responsible in part for the financial crisis of oh eight, um, by manipulating interest rates up and down and, and, uh, other things. So greenspan's an entirely different issue. I'll, I'll, I'll have an entire session on Greenspan for those who care about it and sometime in the future, but I'll leave it at that for now.
Speaker 0 01:22:58 How about the argument that, uh, JP Morgan had been a, um, central bank and it was upon his death that they just felt the Federal Reserve was the next step?
Speaker 1 01:23:12 Well, he did die in 1913, which interestingly is the same year as the Fed was formed, but I would classify it this way. First of all, he's an absolute financial giant. He is the Midas Mulligan. If you know, Midas Mulligan's, the hero banker in Atlas Ra, EIN Rand's, Atlas Shrug, JP Morgan to me, and maybe Andrew Mellon both classify as the closest thing to Midas Mulligan real financial heroes, real amazing, uh, achievers of finance in American free market capitalism, and both achieved their, uh, success prior to the Federal Reserve, uh, gaining power. But it, it is true, Scott, that prior to the Fed that, uh, Morgan's bank was so credible and so conservative and so substantial that yes, it was able to step up during certain, uh, liquidity crises and stabilize the system. Now, to me, that doesn't mean it's a central bank because they had no political power.
Speaker 1 01:24:18 They had no, you know, power to issue currency without limit. They had no fiat money power. They were simply an economic powerhouse because they were so well managed. So that's okay with me. I think that's, that's a part of a capitalist system where in any sector, some co some companies are going to be more credible, dominant in the good sense and, uh, financially have the financial wherewithal to support the industry. You have to remember also that the financial crisis that were occurring under Morgan's time, 1880, say to 1914 or so, were largely caused by government. So Morgan was coming in and fixing and stabilizing, uh, problems that were being caused by the government, which is amazing.
Speaker 0 01:25:10 Yeah. Uh, there was a lot of that going on. I mean, that's one of the arguments that, you know, there were some short, sharp panics in the 19th century, 1893. Uh, the golds tried, uh, you know, cornering the silver market in the 1870s and that that is part of historically the rationale here for why we needed central banks to stop that from happening. Not that it stopped periodic recessions. So <laugh>, I guess I answered my own question.
Speaker 1 01:25:49 Others?
Speaker 0 01:25:54 Well, um, this has been a great session. I wanna thank everyone for attending Morals and Markets, uh, this evening. These conversations are very enlightening. I also wanna thank Richard for so graciously hosting the event for us each quarter. We're grateful to have him as one of our senior scholars here at the Atlas Society. If you're looking for other ways to get involved with our work, please check out atlas society.org/events. And if you'd like to be involved in making sure we can continue all that we do here at TAs, please consider giving a tax deductible donation at Atlas Society, uh, dot org slash donate. And I did put a link to your Cato article in the meeting chat.
Speaker 1 01:26:38 Great.
Speaker 0 01:26:39 So great. Thank you very much and, uh, we appreciated you all joining us for this session.
Speaker 1 01:26:45 Scott, thank you so much. And thanks all for the great questions. Nikhil, others, Peter, Jason, thanks so much. Take care. Thank you, Dr. Salzman. Have a wonderful, take care. See you later. Thank
Speaker 0 01:26:55 You.
