Panel Discussion

0:00I guess we'll defer to the audience questions after about 15 minutes or so. I guess one thing we'd like to start about this morning is, you know, Doug French had a pretty interesting thesis about that we seem to be hardwired for manias, you know, the way that our brains work. And I'm just wondering if any of our panelists had any reactions to that. I mean, if we're kind of wired to get excited by speculating investments in gambling and short selling, why are we blending this all in the Federal Reserve?

0:46Does anybody have any response to Doug's talk this morning? Sure, I'll say a few words. I think it's important. The Austrians, they don't think that all you need to know about is the Federal Reserve and that's the end of the story. I mean, there are differences in each of the, you know, we talk about, we think the Fed was responsible for the dot-com bubble and then the housing bubble. Well, right there, obviously, to explain why did it happen that, why wasn't it a real estate bubble first and then a dot-com bubble, you know, so there's more in each particular recession than just low interest rates. That's at the end of the story. So by the same token, I know a lot of people are into the work of Minsky and others looking at herd behavior and things like that. And I think it's not like as an Austrian you have to say, oh, you're not allowed to even think about that stuff.

1:36But I think what the Austrians say is what is the necessary condition that allows these things to take off, that sure, even under normal circumstances in a pure free market, some businesses are going to fail and you could maybe say, oh yeah, those guys got cocky

2:19If any of the panelists have a comment, just hold up their hand and I'll call on them. Any other comments on Bob's comment? Well, let me move on to a provocative thing that Mark Faber said during his talk, which is they will never tighten, and so we should be expecting a real roller coaster. Did any of our other speakers today have a strong feeling about that or are they pretty much in agreement that that's the way it's going to be happening? I know the mood is that we are going to be on a roller coaster for the next few years as far as the eye can see, but is there any hope for optimism?

3:07I'll just mention that last night we were at a dinner with some people who were very well connected on Wall Street and one of them even employed an important former member of the The Fed, and the great message from him was the Fed is terrified because for the first time since 1913 there's actual interest in them, critical interest. People actually don't like the Fed, it used to be just a name on the bill in your pocket and now there are millions of Americans who are concerned about it. Some of them even realize they're being ripped off and the whole Ron Paul audit, the Fed movement has scared the heck out of them.

3:59So it's a small thing, but they realize they've only been able to operate as they've been able to operate sort of under cover as, who was it? Was it Chris who said they were the Godhead and the technocratic geniuses guiding us all? But once people understand again that it's a rip-off, they may have something to worry about. So I think that's a piece of good news. I had a third question before I turn it over to some of the audience questions, and what is it that we can actually do in this environment for safety? I know a lot of us are really in the position of just being average investors, and we've got 401k plans that we contribute to, and we may be thinking after hearing Mark Favre's brilliant talk that we might even want to move out of the country.

4:49So, some of us are considering that. I'm making reservations right now. Do you have any, I know Kevin and I had a discussion about this, about retirement vehicles and things like that. If there are any implications for over the last, especially in light of the activity over the last couple of weeks for the way that we may be planning our retirement or Planning for a Greater Degree of Safety. I'll say a few words. I think a problem is, and with the people in this room, this might not be as relevant for you, but I know a lot of times younger people like in their 20s and 30s ask this question. And I think one of the problems is they have in mind, well, I've got my income, that's because I work at this company.

5:39And then their question is, well, where do I put my money? And that's what they're thinking. And so I try to challenge them and say, it's true. You've got to worry about where to put your money, but also start coming up with different sources of income, so in case your company tanks and you get laid off, you don't just have to start applying for checks from Obama. And a lot of people, they don't think like that, and people say, well, what should I do? Well, I don't know. It depends what you're good at. I mean, whether it's walking dogs on the weekend or going around to garage sales and finding things and selling them on eBay or painting masterpieces and selling them. And I don't know what your forte is, but don't just think, well, here's my income, that's a fixed number, and then what do I do with it? And one thing in particular, when you're in business for yourself, like I've found, as

6:23I'm a consultant incorporated, one way you can make a lot more income is just stop sleeping. And if you just work all week, then, you know, so that's something I've cut out, in terms of what do I do with my time, well, stop sleeping so much, and there you go. So anyway, I don't have a specific recommendation, I would urge people not to just think that My job is my job, and then what do I do with it? Thanks for that advice, Bob. Kevin? Yeah. You know, the problem with a conference like this, and everybody is super negative, and you can't just, well, go out and buy gold. The problem is, look at the, I'll give you an example. 1998, the founders of Google, I mean, they were very young. And if they had gone to a conference like this, would they have just packed it up and left?

7:10I mean, you still have to think like an entrepreneur. There's still opportunities. I think you still have to be somewhat optimistic and think that way and not just stick your head in the sand. So, okay. I was just gonna add at a point to that that the government is a very stupid operation. I mean, it's not only that they don't attract the best people, but necessarily as an institution, it's very dumb. So it is, the market is constantly outrunning the government. The genius of entrepreneurs, of investors, and I see among young people so much more interested in our ideas than ever before. I think there actually is a lot of reason to hope and we don't, as is often been said, we don't get all the government we pay for, thank goodness. But I think the private economy and private genius gives us a lot to hope for versus the morons in Washington.

8:08Thank you. Mark, we had a couple of questions from audience members on whether you thought the EU was going to break up and really whether it mattered. Well, I'm not sure it will break up. I think first they'll try to save it for a while. Eventually maybe the Germans will leave and then the rest of the EU will not be worse I just like to mention until November 25th the whole world was very negative about the United States and the US dollar and it was a period of euro strength and then after November 25th I suppose that the euro began to discount in advance the problems that would occur in the peripheral countries of Europe and especially in Greece and so the euro weakened and now Now everybody is dead negative about the Eurozone and maybe the negative sentiment is somewhat overdone because Europe is still a relatively strong economy combined in terms of they don't have a large current account deficit. If you travel around the world you see European goods

9:22everywhere whereas you don't see that many American goods and the ones you see are goods In general, I'm not that negative about the Eurozone. Right now, the sentiment, especially on the euro, is extremely bearish and everybody thinks it will go to parity, maybe it won't happen. Six months from now, things look better. Of course, some countries like Spain, Portugal, Ireland, Greece, they do have problems and in the long run, all Western European countries will also have the unfunded liability problems the US will also have. So I mean, I don't know, it's a race or it's a contest of the least bad.

10:12I'm not sure who is the least bad, they're all about as bad, but I mean, I thought I Well, we'd like to open the questions up to the audience, and I believe we've got someone with a Microphone, if I'm not mistaken. So, where's Bill Lagner? Bill, give Bill the honor of the first question here if you, Bill is Kevin's partner at Bearing Asset. Knowing what happened with Lehman Brothers in the fall of 08 when that was kind of the first experiment of letting one of Wall Street's former chosen ones go and essentially a run on the System. Do we actually go into a period of time where we stop trying to prop up incredibly insolvent governments and actually go through some type of a default process?

11:24Is that directed toward any of the panel members? Would anybody like to take that on? Your question is about the Greek, the potential for any of the sovereign governments to start defaulting. I think that in the case of Greece, they didn't really bail out Greece because Greece is a minor player in the global economy and one could easily absorb the losses of Greece. But the problem is that French and German and also Italian banks, they had a lot of credit Exposure to Greece, and they had a lot of credit exposure to Spain, Italy and Ireland. And so if Greece fails, then the credit spreads on the other bonds and loans to Spain and other big countries widen and the problem could then snowball. That was the idea. But basically they didn't bail out Greece, they bailed themselves out. That I think will be with a pattern, as Lew remarked, it's governments that want to stay in power and postpone the hour of truth. So they basically bail themselves out with all kinds of monetization packages.

12:45In this context we should also be aware that dealing with a potential government default means that societies have basically to make a decision where the system is getting deflated – which would necessarily be the case if you get write-downs on government debt exposure in bank balance sheets or whether governments try to prop themselves up by issuing more money and credit. In the case of Europe at this juncture, the idea is that the financially stronger, supposedly stronger countries prop up the weaker countries and that of course means the transfer of economic resources from one country to the other. It's in breach of an essential pillar that basically institutionalizes the single currency area. You know, if you get a write down of government debt in bank's balance sheet, then it can easily happen that the equity capital of the banking system is gone. So if it is gone, then basically the government has to turn to the savers, the holders of bank liabilities in the form of savings and time deposits and

14:03bank debentures and they have to make a capital cut. And that of course is a deflationary effect, it's one strategy to get rid of let's say the debt problem, but it's a deflationary impact and the question is are governments is prepared to end a decade-long development of money and credit supply increases. At the moment, they try to prop themselves up by issuing ever-greater amounts of debt. For instance, the government of Germany is going to support the $700 billion support package for the single currency by around about 150 billion euro. That's around about 5% of GDP.

14:50It's a huge number and people hope that this guarantee is not going to entail a real cash payout but it shows you that at the moment the deflationary alternative is not really on the agenda and that would, you know, if governments continue the way they do at the moment, at the end of the day they have to print money. How confident are you in the central bank's ability to get the policy decisions right in their ability to inflate, and whether the bank regulators in Europe will be as draconian as the Fed was to the US banks in forcing them to raise capital?

15:36What's the chance of a policy mistake? Very high. I wouldn't hesitate to say that the chances are basically very high that policy mistakes are being made and they have been made in the past. And again, the question is, are we going to see a deflation of the system or attempts to inflate the system further and further? When you look at history, monetary history, and in particular Germany, I think, provides an insightful period, namely the period of 1923. You can see that if things are getting out of control, if, let's say, the distortions caused by fiat money come to the fore, namely by higher unemployment, by declines in production and people getting disparate, then printing more money is obviously the policy of the least resistance and I think that the danger is clearly there once you have adopted a fiat money system when you look at monetary history there's hardly any fiat money system which you know you know ended in in the paper currency being you know having a

16:49higher purchasing power than then at the start of the system yes actually I'd be I'd like to ask a question for the audience because there is this huge debate between the inflationists and the deflationists. Who among you thinks that the governments will succeed in inflating the system before it collapses and who thinks that it will collapse before they manage to inflate? So first, who believes that they can manage to inflate before Before the final collapse happens, and now who believes that they will fail to inflate? So all of you own long-term U.S. government bonds.

17:36I just wanted to add, so far our fiat money has been produced through the commercial banking system extending loans to private businesses, households and the government. The banking system is in pretty bad shape, equity capital has declined, so they cannot take as much risk as before, and maybe the stockholders of the banks, they're smart people, they do not want to get into this kind of business before the crisis. But the central bank can buy government bonds, they can monetize, and as Dr. Farber says, That is a route open to any government, to any central bank. If the political mindset is and the public opinion is in support of it, that more money improves our state of affairs, I have no doubt that they are going to succeed in increasing the money stock in the economy.

18:34What about you? I think right now there's sort of a trade-off where they are in the United States. Bernanke is always about six months behind what's actually happening. And so there we had that problem back in 2008 where it looked as though we were actually going to face deflation. But then after they, I don't know what they do to them in the stable and they dragged them out and then he was able to inflate ourselves into the nice stock market run. And now I have a feeling that we're heading into that period where he's gonna be behind and Deflation. But then he will catch up again. So we could be going through one of those valleys that it's going to look like we're heading into deflation, but in the end we will inflate.

19:25Yeah, if I could just jump in really quick. It's true that the Fed, and I've heard this argument that men don't know how hard the Fed pushes, they can't get the banks to lend because there's capital constraints and things like that.

20:39In support of what Robert said, back in 1923 in Germany, there was a natural limit to the increase in the money stock. At that time, they had paper notes and they started printing and there was then shortage of paper notes. And so they started printing, you know, numbers Next question, this gentleman right here on the aisle.

21:30I had a question for Lew. You had mentioned in your comments on freedom that our tradition comes from the British common law system. Can you give us a quick comment on your analysis of the original Articles of Confederation compared to the Constitution that we have now? Well, the Articles of Confederation was probably the closest thing to a libertarian government that's ever existed. And it's worth looking at. There were actually a number of presidents,

22:25The government that couldn't raise taxes without the consent of all the states. It was a government that was very difficult for it to get involved in wars, very difficult for it to do the things that we think of as a government doing. And so, of course, there was a movement by the Hamiltonians, Tom DiLorenzo's book on Hamilton is very good on this, how the Hamiltonians set out to try to duplicate the British mercantilist system without a king in this country through the Constitution, and they did. The Constitution, of course, was sold as a great freedom document, but at least as compared to the Articles of Confederation it was not. Hans Hoppe holds that every single adoption of a Constitution in human history has been the result of an increase in centralization and state power. So I take Hans' word for that. Certainly that was the case with the American Constitution.

23:13So even though it looks like a utopia of freedom to us today, no question the Articles was better, is better, but it was a huge restriction on the growth of the central government and there were people, Charles Beard in his famous book writes about this, there were people who stood to make vast amounts of money if the new government was going to redeem all the continentals and the state notes and so forth that have been issued during the war. They did. So, Governor Morris and all those guys made vast amounts of money from the Constitution. It won't surprise and Special Interest, The Articles of Confederation Far From Perfect, The Propaganda that we need into the Constitution to prevent state tariffs and state protectionism is just not true.

24:14I mean, you can only think of a primitive small economy like the economy of Massachusetts or Virginia or whatever in those days. Had they actually had protectionism, everybody would have starved, or at least they would have been, even by the 18th century standards, a very primitive barter level. So it was all propaganda. We didn't need a more centralized and More Powerful Government. Unfortunately, we got it. But take a look at the articles. Very interesting. This gentleman standing in the back. I live in Brazil part of the year, about half the year, and in the U.S. the other half of the year, and I'm kind of different. I actually served in the military and would take a little bit of umbrage with your comment about public service. I think it might do some people some good but one of the things I'd like a point I'd like to make is just that Brazil when it got its independence or took its independence it was a rather peaceful independence but they had all the separate states I think they have 27 states including a federal district which they modeled after us after they gave it up from Rio and and it's a very was in becoming less so a corrupt country but it was but one of the problems early on was is that each state had a

25:29Cardio, like in Argentina, and that cardio controlled the state. And if you go to the northeast where the Brazilian government first, or the Portuguese government first settled and started, that's where most of the corruption is. So you've got a kind of a, I might even say... Do you have a question, please? Well, the issue is, is that it doesn't always work the way we intellectuals think it's going of Work. Sometimes you get totalitarian codeos in these states, and they rule it for their own good, and they retard the growth of the country. And that's one of the reasons why Brazil was so retarded, and it's one of the reasons why all of South America is very retarded, is because... Okay. Well, that's what you get when you're a contrarian with contrarians.

26:15Lou, would you like to... Well, I appreciate that. I might just say, I don't know why public service is only service with the Parasite. Why is people being paid by money that's taken by force from others considered a public service, whereas entrepreneurs, business owners, investors, parents, clergy, all of private society, that's not public. Why is that not, that's real public service. That's a service that actually, that actually provides civilization. I'll just mention one quick thing about Brazil. It's a great country. I was amazed to find out when I was down there that the state of São Paulo fought a war of secession in the 1930s against the central government, against a tyrannical central government. They were defending a much more libertarian constitution. They lost that war, unfortunately. But in the south of Brazil, where all the Germans live, by the way, there's a huge amount of interest in decentralism, in even secessionism.

27:21of Hope for Brazil. Yes. If there is to be an Austrian revival, will it come primarily from the private sector or from academia? I guess I'll jump in. I was in academia briefly and I became partly disillusioned. First of all, I didn't get a real plush job somewhere, so I figured, well, these guys are crazy. I thought this was a plush job. Oh, well, that's when I left. That's when now I'm in the plush job, that's in the private sector. So it's really difficult in academia. I mean, it's partly a joke, but I mean, if you publish a journal article that takes four years to get published because the referees, they'll get the thing and sit on it for six months. And then you email them and say, oh yeah, I forgot about that. And it just takes forever. And then when it does get published, the five people in the world who really know that subject read it. So it's a very slow process. And

28:15the strategy is there that, okay, we're going to get Austrians and then we'll get them placed at a higher tier school than we used to have a generation ago and then they'll teach some students in maybe a hundred years from now, we'll have a few guys at MIT who are familiar with Hayek, right? And I'm not saying that to make fun of it, but I'm just saying if you think society's on the verge of collapse, that's not going to work. You know, I mean, there's going to be one world government before we get there. So, you know, there's people thinking that we got to do something else and go through the masses and talk to the business community. Yeah, I have something to say, because I was in academia as well, and I'm inherently a petitioner. I'm a little more bullish on it. I mean, I think looking out today and seeing 300 of you, many of you younger, I think you're going to dictate what the universities do.

29:03So, for example, within the next five years, I mean, I don't see Harvard putting on an Austrian economist onto their board, but you know, you get enough of their alumni who kick take into the fund every year demanding it, Harvard will react to it, Columbia will react to it, the bigger schools will react to it. So I think it is private enterprise and I think once it's demanded from you all, they'll do it. I mean, they'll come kicking and screaming, but once the funding goes away and those endowed chairs dry up and their lucrative research grants dry up, I mean, they're going to listen. So I do think it's going to be private market inspired and I think it's going to happen. I think we'll live to see it. I hope I do. I was going to say it's both, although I think it's intellectuals as well as the private economy.

29:50Whether it's, to what extent, it's the traditional university order, which is the same method of organization at the University of Paris in the 11th century, although a slightly lower level of faculty, I might say. So I think that we're going to see new sorts of academic organizations that are not the old-fashioned universities. We're seeing it already with online courses and online universities. There's a revolution going on. The universities, which have done so well ever since the GI bill through federal subsidies, are all in trouble. Not Harvard, but below the very top level. They're having trouble. They're having trouble getting students. They're in financial trouble and it's not going to help that Obama wants to spend more and more. The kids are realizing it doesn't make sense to go for four or five or six years to some school to to get a degree in liberal studies and come out with $100,000 in debt after having not earned anything for all those years. It doesn't make sense for a lot of people. So there's

30:51I think new academic institutions coming up. The Mises Institute is one. There are others. So I think the melding of intellectuals, privately based intellectuals and private business world is where the hope lies. Just to add one thing that I think that we're beyond the education bubble at this point and now it's in a state of collapse and you can see the absurdities of two-year-olds going to SAT camps and having to fill up six-year-olds with things for their resume in order to get into Harvard that when you reach that absurd state and the amount of money that's poured into it and with so little in return in turn, that we probably will see. I think that if there's a way to short it, I'd short Harvard. I have a feeling it will be insolvent within 10 years. Thanks a lot to Larry Summers and what he burdened it with. But even the top universities as the regarders of the top universities are going to have severe troubles. And the problem is they're not like a corporation

32:01that can restructure. They are so slow at doing anything, they are not going to be able to talk their professors out of getting free cookies after lunch every day. It's going to be impossible to restructure them. So it's going to be, I think, completely different in about 10 years, maybe a little bit longer, the education structure in the United States. We've got time for just a couple more questions. You guys can fight it out for one of them. Yeah, does anybody have an opinion about the IMF plans for a global currency? And how does that affect postponing or kicking the can down the road this time? I think it would be a bad idea.

32:46I second the motion. So I'd like to give David Tice the last question here, we're running out of time, and then I'm going to turn it over to you. Yes, I have a question for Mark. Mark, I've heard you speak on a number of occasions, and it seems like this is the most negative that you've been, and also you oriented your response to personal safety and geopolitical warfare, and I share those views, and I think a lot of investment guys underappreciate that. Where do you see a potential trouble spot and also do you think upheaval in China could lead to something? Well, I'm sorry to say I see trouble spots everywhere, but I mean the issue is I'm not that negative.

33:35I said I think we're in the end game and we're all doomed, but before we're all doomed, there's a lot of opportunity to make money. That's the good news. And it won't happen in the next 10 minutes. So, I mean, you just have to think long term that something doesn't add up and that the governments will try everything. And I mean, I agree fully with what Lew said today in his presentation. It's not about about governments, I've seen that now in Thailand, about governments trying to do something for the people, it's trying to do something for themselves because they've grown like a cancer in society and so their essential survival is at stake, so that will lead to conflicts and in terms of trouble spots, obviously Central Asia as I pointed out, then the relationship between the US and Japan has become more difficult. The Japanese were a strong ally of the United States in the Pacific and that led to tensions with China. Now I don't know whether like

34:55Australia they will become more China-centric or whether they will become more Russia-centric and so forth. But that is for sure a trouble spot. Then obviously the Chinese with their purchases of resources have become for many countries a larger export market than the United States. So they have a lot of political influence in Latin America, in Africa, in Central Asia, the Middle East and also Australasia. And that again leads to tensions with the Obama asked the Chinese to negotiate and tame down the North Koreans.

35:46Can you tell me how a country that can't even assemble bicycles can have nuclear power without the help of the Chinese? The North Koreans are a puppet of the Chinese, and they're used by the Chinese to ship weapons to wherever the Chinese want to ship them, but not under their own name. Like the Soviet Union always used the Bulgarians for the dirty jobs well documented in every James Bond movie. Thank you very much for that, Mark. This has been a real personal stimulus package for me. I don't know about the rest of you, but let's hear a round of applause for our speakers today.