Economic Crisis: A Look Ahead

0:00Yeah, in the interest of brevity, buy gold. I will try to keep it brief because I know this is probably one panel where people really actually have questions they really need answered and want answered. In terms of optimism, I feel guilty for the pain and stuff that people have because I personally, I had an epiphany a few months ago. I was doing the bills and what not and I was really stressed out because here I am looking at the monetary base as Dr. North talked about. All these things haven't happened since the 30s. The Fed did not do what it's done with the base even back then. I mean, this is completely unprecedented in world history in terms of the United States Federal Reserve policy. I'm worried about that, about massive hyperinflation, but at the same time, I was worried looking at the debt that my household, because we bought a house, when people ask me for advice, I say, by the way, I bought a house right at the peak of the bubble.

0:54So, take what I say with a grain of salt. Of course, I'm very underwater at the point, but then it occurred to me, wait a minute, I can't simultaneously be worried about hyperinflation and my fixed-rate mortgage. So like I say, let it rain, Ben, come on, bring it on. I'm ready. I'm a consultant. I don't have a fixed-wage contract. I can go up to people, you want to cut my lawn and I'll teach you about rent control? So, as long as I keep making those mortgage payments, I think I'm fine. I'll have a nice house. I'll be worth a loaf of bread, but still. But seriously, you do need to focus and be consistent. I think probably many of you are worried about things that can't simultaneously occur. Just pick one really awful thing and worry about that.

1:42What I do want to focus though in terms of awful things to worry about, something that a lot of people are missing, I mean there is the fact just that the general hyperinflation that I think is coming as well in terms of price rises, but it's more than just that, it would be bad enough if Bernanke with his helicopter printed up a bunch of money and just handed it out to people and then prices went up, that would be bad. It would also be bad in terms of the government nationalizing things, like if the government nationalizes the car companies, you know, the joke I'm sure many of you have seen on YouTube about the Nancy Pelosi vehicle or Pelosi motors or whatever they called it. You know, it's funny and the same thing, but I think people are thinking, oh, so what would it mean if the government takes over the banks and runs them inefficiently? Like, all the checks will look the same and

2:27you know, there will be really stupid designs and things like it. No, that's not the issue. The issue is going to be what does the banking system do in a regular market economy? It allocates capital and so if that gets paralyzed or distorted, it's not going to be apparent right away. What's going to happen is, you know, over the years, the pipeline of production that, you know, original material factors of production, raw materials, nature's gifts, they enter a pipeline that might be 15 years long, and that workers work on these things as they move down the pipeline until the other end, finished goods shoot out. And that's what consumers buy from the shelves. So you start messing with that pipeline, as it were. It's not going to be immediately obvious how devastating that is. But right now, interest rates are basically zero. 0, in terms of certain markets, certain quotes, and what does that even mean?

3:14I was talking to Bill Barnett on the phone a few months ago, and he said, Bob, an industry of 0% means there's no scarcity, in a sense, that you can borrow something now and pay them back in 10,000 years. And my follow-up to him was, but there still is scarcity, right? So that kind of chuckled out a bill. So that doesn't work. The interest rates mean something and it really bothers me how people talk about, you know, oh, there's concern that this crisis might spread to the real economy, as if the banking sector is just, you know, this game people play. Over here we have the economy, but this is a bunch of guys playing Monopoly in the back room. And so, I mean, it really is scary. And again, it's, you know, you just think through what would that mean? How is it going to manifest? I mean, this, it's not like, oh, wow, we're going to have pain for the This is not going to fix itself even within several years, even if Ron Paul were to have won and he did everything right, it would have been bad for a long time just because of the stuff Bush and Paulson did right at the end there.

4:19That kind of thing is going to take a while to manifest. Just to give you a quick example, I might have the numbers off a little bit but I'm pretty sure AIG in the last quarter of 2008 lost $60 billion. $60,000. So if you look at the quarterly breakdown of its losses up till then, it was a few here and there, one here, two there, three there. And then after they got their initial rescue package, they all of a sudden lost 60 plus. And I think part of that was, I don't know this, but I think a lot of them just thought, okay, well, let's go for broke. Now that we know this isn't our money anymore, let's try to fix it so we can pay the government off. And they bet the wrong way in the last quarter and they lost 60. So they go back for more. All the banks that have been taken over, they're all probably doing things like that.

5:04That they're trying to fix it, now that they realize, okay, this isn't our money anymore, but if we happen to win the bet and pay them off, then actually we can get our companies back. And so, it's not good when the institution in our society is responsible for allocating capital to various industries, when all of a sudden that industry is now, it means nothing. The price reigning in that industry is now zero. What does that even mean? It doesn't mean anything. I think Mark Thornton reviewed Tom Wood's book and called it unhinged and that's really a good description. It's like now there's no allocation of capital at all going on in the world, in a sense, right? And so it's, this is not going to fix itself with even in a few years. I mean this is something fundamentally different and it's rather grim.

5:49Okay, have a good day.