Wreckonomics: While the People Sleep

0:00Look at all the people who believe in liberty.

0:09Actually, the dollar meltdown was called Reconomics. And I submitted the manuscript under that title. And people in the industry loved it. They go, Reconomics, that's a brilliant name. And so as soon as one of the major publishers bought it, they changed the name. So that's the way that works. Works. Anyway, thank you very much for having me here today, it is a joy to be in your presence. It is, I guess, the 50th anniversary of the inauguration of President Kennedy, and that's been on television lately, and it reminded me of that great line that Kennedy had at a state dinner when he had gathered together Nobel Prize winners from all over the Northern in Hemisphere.

0:58There has not been so much talent and knowledge in this room since Thomas Jefferson dined here alone. Speaking for myself, and I'm sure you will agree, it's so great to be in the presence this afternoon of Congressman Ron Paul and Lew Rockwell, of whom there are no more effective champions of liberty together in a room than since Thomas Jefferson died alone as well. So Doug French did a wonderful introduction or review for my book, and it was very thorough and very generous, and I treasured it a great deal, but then I got one I treasured even more the other day.

1:56Somebody sent to me from Indonesia, in the native language of Indonesia, so I flipped on that wonderful thing that blesses all our lives, Google Translator, and the final paragraphs Who would want to ride on a train called the Dollar Dead Express to a place called the Crack-Up Boom? Nobody I know! Which I thought pretty well summed up the entire book. Many of you know, maybe not all of you know, that the Crack-Up Boom is Ludwig von Mises' very evocative phrase The Money no longer has value. It's not that there was a freeze in Florida overnight and the price of oranges went up. It's money itself that's being destroyed and people become absolutely desperate to dis-hoard themselves of anything resembling cash.

2:51and so what do you have you have a garden rake I'll take it a broken fax machine sure I want that you know it's a Friend of mine many years ago a writer for a National Geographic magazine told me a horrifying story in 1975 during the the Marxist-Iendez inflation of being caught up in the middle of a riot over a tube of toothpaste The price of gold is a wonderful indicator to us. It always sets up shop at the crossroads of history. The price of gold is a referendum on the quantity and the quality of the money.

3:45of the U.S. Dollar, it's clearly telling us something, and yet the people persist in sleeping. Well, you know, the political classes, the governing classes are totally pleased to have the people sleeping, and the media are as well. Now, I spoke at the Mises event in April in Phoenix, and I brought to illustrate one of my points, I brought something that I had saved since my student years, and I wasn't

4:39We'd send off to the White House for one of these win buttons and then we'd whip inflation now. So I shoved it away in the garage and I brought it out for the Mises event in April in Phoenix for the Mises circle there. I didn't want to come to Houston empty handed. So now what do I have that is equally imbecilic? What do I have that's moronic or at least struck me so at the time and would be a collector's item a few years down the road? And I do not want to disappoint, so I brought you this. This is Time Magazine. 12 years ago, February 15th, 1999. And on here you have Robert Rubin, Murray Summers and Alan Greenspan. And the title of this puff piece is The Committee to Save the World, which, you know, brings to mind that old expression, who's going to save us from our committees that are saving us, right?

5:48So, you talk about, you know, how the government destroys wealth, how private wealth is destroyed, how the people are plundered, you could do a whole weekend seminar on each one of these guys one by one, and I don't have that much time, so I'll just say something quick and passing about each one of them. This is Robert Rubin, who was a former co-chairman of Goldman Sachs and a former Secretary of of the Treasury during the Clinton administration. And he did the dry run on what became the mortgage meltdown, bailouts, the Bush $700 billion bailout. He did the dry run on that in 1995. And the story went something like this.

6:34Mexico was on the verge of default. Now, Secretary Rubin couldn't let that happen, and so he got together with a bunch of other to figure out how can we stop Mexico from defaulting. What a terrible catastrophe for Mexico. Forget Mexico. What a terrible catastrophe for Goldman Sachs that we're up to their eyeballs in Mexican bonds. So collaborating, by the way, with the other man who would be president, Newt Gingrich, they came up with the idea of, they couldn't get it through Congress. They couldn't get a bailout through Congress at the time. So they came up with the idea of using the exchange stabilization fund to bail out Mexico, forget Mexico, to bail out all those bondholders, chief among them Goldman Sachs.

7:24So this is my way, a few months later as I'm pouring through the financial press, I notice that Goldman Sachs turned in its best quarter in the company's history a couple of months later. So that, now, I won't spend any more time on him because he's part of the committee to Save the World. But this is Larry Summers, also a former treasury secretary, just left, as I recall, the Obama administration fairly recently. He's kind of a mixed bag. But here's what's really, really interesting to me about Larry Summers. He is the nephew of the man who has sucked the life, the vitality out of the study of of Economics for Generations of American University Students.

8:12I know I didn't choose a major in economics after being confronted with his uncle. His uncle obsessed with this quantophrenia that passes for economics for so many university curricula, obsessed with the superior planning Power and Management Skills of the Soviet Union. His uncle is a great economist and textbook author, Paul Samuelson, who has plagued generations of students. And then, save the best for last, this is the maestro, part of the committee to save the world, right? So what can I tell you about the maestro that you don't already know?

9:00I don't want to retread old ground. He didn't see anything coming. He didn't see the recession of the early 90s. He didn't see the dot com bubble. He didn't see the housing bubble. Now, mortgage debt in this country under his chairmanship went from $1.8 trillion to $8 trillion. But he didn't see anything funny about that. So, oh, but this is what I wanted to tell you about. This last week's story came out from some staff economist, I guess, at the Federal Reserve, who was trying to call the chairmen's, the maestro's attention to the fact that there might be something brewing in the housing market in 2005.

9:47He said at a meeting, he said, you know, there's a show on cable television on the Discovery channel called flip this house but of course it was another warning that went went absolutely unheeded and and unnoted the committee to save the world what am i going to do next time i don't know it is it is it is my view that the severity of the calamity on whose The new doorstep we are upon is measurable in advance in a sense. We can tell how bad this thing will be by the cluelessness of the authorities as it approaches.

10:37And so if it's the dollar debt express, let me talk about the twin rails of that express, both fiscal policy, you know, what Congress and the executive do, the spending bills that What was so different just a year ago from our virtual insolvency today that they could pass an enormous new entitlement program? Was there something so different nine months ago when Obamacare passed? What we are going through in this country is not evident was the compounding of the debt not visible nine months ago and yet they passed it anyway and they passed it with the line that this program will pay for itself and of course you know the last big federal program that was going to pay for itself was the Iraq War so how has that worked out for us so far?

11:41But the reason I mention it is because the Republicans at the time, if you watch the How were the ads on television? The Republican National Committee was fighting Obamacare. How were they fighting it? Where were they staking their ground? Well, this is what the ads were about. They wanted a more effective health care program. They wanted to rethink the mechanics of the health care program. They wanted a bipartisan health care program. And virtually none of them, with the obvious exception, could even articulate an argument for a free market economy and a free market in healthcare. None of them could. And so now we look to these same people in our current circumstances and hope that they'll be capable of doing something different.

12:32But I will tell you that during the campaign, Congressman Boehner came out with a program The Pledge to America

13:10And I think it was September 22nd or 23rd. So I booked, I went to the treasury website and I bookmarked where we were, what the size of the visible federal debt was on that date. And I said, let's just see how many days pass before they roll up another $100 billion in debt. This is because this is the monumental cut the Republicans are going to make. Ladies and gentlemen, it was one week later. It was September 30th. It had taken seven days to move up $100 billion and that's where they were going to cut. And then the Heritage Foundation, The cost of the empire, right? The entire, not even, they didn't even touch it. Now, you're spending, you're spending a trillion dollars a year on this thing, between the war and, you know, all of these, this foreign meddling and foreign operations, right?

13:57Now, you're spending, you're spending a trillion dollars a year on this thing. Between the war and, you know, all of these foreign meddling and foreign operations and foreign aid and, you know, Hillary Clinton out there trying to steal the frequent flyer miles of diplomats at the U.N. and, you know, or seeking people to spy, apparently, if you read between the lines, spy on the sex life of some woman who's president of a country in South America. And I said, why doesn't she just get Linda Tripp if that's what she wants to do? So, but there's a trillion dollars a year. Can they cut it? And then you saw the Republicans said the other day, you know, oh, here's what we're going to do. We're going to do $250 billion over a whole bunch of different years.

14:44And they left the empire intact. But they did decide to come together to read the Constitution. Oh, I know, I know some of you think that shining the light on the Constitution is a good thing. But I tell you, it just, I thought it was painful for me. You know, it reminds me, really, you know what it is, it's words and not deeds. It's paper money instead of gold. It's all substitutes. It reminded me of the Christian admonition about the hypocrites that pray out in the streets to be seen and noted by other men.

15:30And they were advised to retreat into their closets and pull the door closed instead. And so no sooner had they finished reading the Constitution that they came out then with new initiatives and descriptions of what they were going to do that continued to ignore the Constitution. So, I tell you, this newfound dedication of the Republicans to the Constitution and fiscal conservatism is a very fleeting thing, it's very ephemeral, and the best example that I can give you about that begins in March of 1999. You had President Clinton announce a unilateral war on Yugoslavia, and he said, you know, with the bomb, we're going to start bombing, we're going to be bombing with NATO, In March, in April, Congress voted on a declaration of war on Yugoslavia, and it was defeated 427-2.

16:37The war continued, of course. There were 17 members of Congress that were miffed by this, and they decided to go to to the Federal Court about it. And so they sued the President of the United States in U.S. Federal Court and District Court for violation of Article 1, Section 8, Clause 11 about going to war without a declaration of war. That's the responsibility of the people's representatives. This is clearly a war. And so the U.S. District Court said that these members of Congress didn't have standing to sue. And the Appellate Court agreed, and the Supreme Court, of course, washed its hands of the whole issue. The point, though, is that three years later, of those seventeen congressmen, fifteen of them were Republicans, two were Democrats.

17:22So of the fifteen Republicans, there were twelve of them still left in Congress. And of those twelve, with one obvious exception, they all voted to hand off presidential responsibility, or congressional responsibility to declare war, Declare War to hand it off to President Bush so he could have the elective war in Iraq. So what happened to their dedication to Article 1, Section 8, Clause 11? It was certainly there when the Democrat was in office and what happened when the President was a Republican. So if you look at the fiscal rail on which the Dollar Debt Express is racing, there is is not frankly, there's not much hope. Now, let's look at the monetary rail, and things are really grim there. You had QE1. I mean, these euphemisms, aren't they great? You've got liquidity operations, tarping, deficit accommodating, quantitative easing. So you had QE1, which was a $1.7 trillion affair. Now, think about this. You had the money center The major banks, the big investment banks of America, had dazzled the American people

18:41for years with their fancy financial footwork and they'd earned themselves billions of dollars in fees and bonuses and stuff for all the profits they'd made. And then when they took a loss, wait a minute, wait a minute, did you ever get a dividend check for all the profits they were making those years? But when things went amiss, they shuffled all of that toxic paper onto the balance sheet of the Federal Reserve so that it could effectively be assimilated in time by the destruction of the purchasing power of the US dollar. So you've got all this stuff, I call it mystery meat because nobody really knows what it is but it's not worth anything, it's been moved off of their books, right, onto the books of the Federal Reserve. You know how that process works. The Fed creates the money that they buy those things with.

19:33They just create it in the morning. When they buy bonds, just trade your bonds, they just pay for it with money that didn't even exist. I mean, you think of China buying our bonds. At least China, when China buys our bonds, they give us real money. You know, they made things, real things, and they sold them to us and we paid them, and so they buy our bonds with that real money that they earned doing things. The Federal Reserve buys U.S. Treasury bonds or mystery meat off the books of the money center banks. They buy it with money that they just made up in the morning. They add these things as an asset to the balance sheet of the Federal Reserve. There's an offsetting liability and the liability, of course, is a deposit on the account of the financial

20:49System and in commercial activity. So before QE1 had even been assimilated in price increases, there are signs of commodity prices going up, you know about petroleum and you know about what's happened with gold, food riots elsewhere in the world, you know about food prices and all the things that I've recommended in the dollar meltdown, you know that all these things are starting to to Move, but before, before QE1 had even been digested, and that's going to be swallowing a pig, before that's done, they decided to double down with QE2. Now let me tell you something, the American people may be asleep, but they realized that there was something funny going on with these wealth transfers of $786 billion from Obama

22:11They had come together and in their activity they had kicked out of office 30, Senate and House, 30 members of Congress who had voted for Bush's $700 billion bailout. Not a bad Tuesday, right? Oh, they had expressed themselves. That was on Tuesday. On Wednesday, the Federal Reserve unilaterally announced QE2. The next day, just so you don't suffer any illusions about who's really in charge here. And QE2 is bigger than Obama's 786 and bigger than Bush's 700. It's effectively all together a $900 billion Wall Street bonanza, a bailout program.

22:59Debate? No. Referendum? No. Vote? No. Just so you know who's in charge. So, the signs are all about, if you look at the twin rails of the dollar debt express, there is nothing to slow the express train down as it nears the precipice. And we are seeing, the signals are apparent to us, I believe everywhere, we are seeing the end of the dollar's reserve standard around the world. We are seeing further criminal destruction, criminal scale destruction in the purchasing power of the U.S. dollar and probably the destruction of the entire capital markets in this country by the time they're done with this thing. So it really reminds me of the three little pigs in reverse.

23:49Here we were living with a sound gold monetary system. The American people in 1933 moved out of their brick house, their gold based monetary system, and they moved into a house of sticks, the gold exchange standard, and in 1971 the gold exchange standard closed.

24:25The dollar reserve standard 10 years ago, I was at the Watergate Hotel in Washington for the inauguration of President George W. Bush and doing my radio show there.

25:14I wasn't there because I was a fanboy. But the price of gasoline at the time was $1.47. I paid $3.19 in Scottsdale yesterday. The national debt was $5.7 trillion. Silver was $4.80 an ounce and gold was $2.77 ten years ago. In the intervening ten years we had seven increases of the national debt on Bush's watch and three on Obama's. Ten years, ten increases in the national debt. And some time back I put up a chart showing how you could correlate these increases in the national debt with the increase of the world price of gold. So I thought I'd take at least one In this room, everybody in this room holds dollars, not everybody in the world owns gold, But they missed the big ones, right? And they want to know, is gold in a bubble?

26:26Okay, let me explain it to you this way, in my view. During the dot-com bubble, you couldn't walk into a Starbucks, right? Without hearing people who had quit their jobs to become day traders, you know, were sharing their, you know, their penny stock tips and stuff. I mean, it was everywhere. That was a bubble. In the real estate bubble, Discovery Channel has a show called Flip This House. In Scottsdale where I live, every cocktail waitress in town was doing that, buying apartments that had been converted into condos in hopes of owning it for a month and then flipping it. I mean, that's a bubble. Is gold in a bubble? Let me tell you, gold is real money everywhere around the world and from time to time, governments go off if the real world doesn't.

27:45The largest producer now of gold. They encourage their people to own gold. Last week they launched a new international fund for their people to buy gold in places like American ETFs for the first time. They are the largest producer of gold. India, oh, they're very serious about growing their foreign exchange reserves, their gold-based foreign exchange reserves. India is the world's largest gold buyer. Somebody that is involved in that trade the other day said the demand from India is insatiable. The World Gold Council said price is no longer an object to the Indian gold market. So this is the metric that I want to leave you with as the dollar exchange standard breaks down. What replaces it? Well, it's already beginning to take place. India has just over 8% of its foreign exchange reserves. Actually, it's 0.2 percent of its foreign exchange reserves in gold. China has less than 2 percent. They have 1.7 percent. So I want you to understand the leverage that is involved in this thing.

28:54If China were to restore or to institute the same level of gold in its foreign exchange reserves, which now they're up to their eyeballs in things like U.S. dollars, if they were If they were to try to get to India's level of gold in their foreign exchange reserves, it would require all of the gold produced in the entire world for about two years. If Americans, on the brink of a currency breakdown, if Americans were to buy one ounce of gold per American citizen. One gold coin for every American when the currency breaks down. That would require all of the world's gold production, all of the new mining of gold from the globe for four years.

29:46So when somebody says there is a bubble, you know, you can say, fine, thanks very much. Glad to hear about it. Anyway, one more quick point and then I'll leave the podium. Time Magazine is a symbol of the big media and only the big media could do something like the committee to save the world. But I had an experience here in the last couple of months that was frankly astonishing to me. I did a couple of months, from the end of October, all of November, and December up until Christmastime, I did a national radio tour of doing interviews and stuff on national talk shows and local talk shows around the country for the release of the paperback version of my book, The Dollar Meltdown.

30:32And it was a virtual duplicate of the tour that I had done one year before with the release of The Hardback. But this time, something had changed, and I was astonished to see it. I went on a radio show in Oregon and I mentioned something in the course of describing the economy and paper money. I mentioned something about Professor Mises and the talk show host, mainstream station, big market in Oregon, the talk show host said, that Mises, he sure knew what he was talking about, didn't he? North Carolina, big radio station, big market, big audience in North Carolina. And the talk show host says to me, you know, Charles, I read your article on lewrockwell.com this morning.

31:20I did some neocon warmonger whack job in New York. And he graciously admitted that Congressman Paul has been dead on about everything he said about the economy and the Federal Reserve. I did a national, big national talk show host, a talk show in the middle of the night. The host said, you know, we're hearing a lot about Austrian economics. Tell me about Austrian economics. Now we've had a couple of friends in the media over the years that you could count, you'd go on their show and they'd want to talk about this stuff. These were all new people. And it was happening over and over and over again. So this is the result, I think, of the reach of this circle of friends, the Mises circle and all of those in this circle.

32:06It has been quite an incredible experience, and it is in my view time to press our advantage. There has never been a time like this in which we can take advantage of things beginning to break our way. Now, I'm not saying that we can stop it from getting any darker before the dawn. But we can press our advantage now to see that we emerge from this thing with a sound monetary system, that we don't move now into a house of paper that's painted to look like

33:02The blessings of liberty by helping this institution. The blessings of liberty which are prosperity, peace, opportunity, human dignity. There is no higher calling than that. Thank you very much.