The Great Deformation

0:00Well, good morning, and Lew, I want to thank you for buying so many books. You are now my number two salesman, right behind Paul Krugman. I think you intended to help, I'm quite sure that he didn't. Anyway, I do appreciate everybody's coming out this morning to hear about this, but I And I don't want to step on my own book, but I do want to give a slight warning that if you're listening to the audible book while you're driving, be careful. It has generated several cases of road rage already, so just keep that in mind.

0:48I've actually been on the road now, so to speak, on the book tour for six weeks and And I've been very much looking forward to this morning because so far the book has been denounced by the left and the right and Republicans and Democrats and Keynesians and monitors and supply-siders and Wall Street and K Street and the military industrial complex and the neocons and the social cons and the just cons. And for all of you who haven't focused on all of those, the just cons are about everybody and the other categories are taken into account. But I know there are some people who don't buy all those theories, all those ideologies and I think a few of you are here today and I'm very appreciative of the fact that you came out.

1:41Now, I think it's fair enough that there have been so many brickbats thrown at my book from from so many points on the political compass, because I do describe what has evolved over decades. This is kind of a revision of history as ending up in a crony capitalist dystopia, in which capitalism is being eroded and undermined and basically disabled, and in which political democracy no longer really functions in any viable sense. more or less a money-driven crony interest group, history-driven system. So I can understand why there were so many negative reactions, but I do think when Professor Paul Krugman responded to my book, he went over the top a little bit.

2:33As you know, he is the self-annointed and self-appointed tribune of all matters correct, and all correctness in economic matters. But when he said that my book was the raving of a cranky old man, I thought that that was really a little too much. It even aroused my 85-year-old mother, who, upon reading his blog, which was entitled Cranky Old Man, she shot back an email saying, doesn't he know? Actually, you were a cranky young man, too. You apparently never got over it. But apparently there are a lot of cranky people in America because the day that his blog appeared, which was about the second or third day after the book was released, it shot right up to the top of the list. I was amazed. Right up the Amazon list and there were only a couple of things that stopped it. Two diet books and Something called The Walking Dead, which I understand is some kind of horror novel.

3:39But I was very pleased that he was so willing to help because the very first week when the book came out, it ended up number four on the New York Times bestseller list. Now I'm not saying that to boast or to give any benefit to the New York Times. As a matter of fact, the bad side of this is they're still debating whether it was number four in the fiction or the non-fiction category. They haven't yet decided and that debate may go on for a while. But speaking of fiction, that's really what the fundamental purpose of the book was and that is to kind of debunk and expose all the status myths and errors and nostrums and ideologies which drive governance in America today and in our entire system.

4:31And naturally, it took me a lot of space to do that because there was so much to correct. And as I got deep into it, I had to go farther back in history in order to unravel all of this and get to the bottom. So what I would like to do today is maybe, rather than drag you through the whole book because that would take more time than we have. Just kick off a few of the key kind of themes or propositions that I developed in the book, and then I really would, before we have to get to the book signing and all of that, like to take questions and get some kind of dialogue going here this morning. I started with what I call the Blackberry Panic because the reason I actually wrote the book was in September 2008, I was so outraged when I saw a Republican administration panic, enact against the wishes of most of even the Republican members of the House and Senate, TARP, support

5:37the Federal Reserve as it got out all of its monetary fire hoses and essentially flood Wall Street with massive amounts of money, the bailouts of AIG and all of the Wall Street firms and the banks and GM and so forth. I thought that that was really a Rubicon and that either everything we believe about free markets and fiscal rectitude and all the rest of it is wrong or the facts that they were Adducing are Wrong. And so what I've tried to do in the book is lay out and tick off one by one the arguments that were made and then the answers that I think are pretty persuasive that suggest all of this was unnecessary and it started us down a path which will be very difficult to reverse.

6:32Now, the biggest event in that period, as you remember, is the AIG bailout. And what I try to show in the book is that the $180 billion that went to AIG was really not necessary. That the problem was in the holding company that had written the so-called credit default swap insurance. The holding company was actually based in London for that matter. It had no liquidity and as a result, had AIG been forced to go into bankruptcy, the credit default swaps at the holding company would have been total losses. The banks who bought that insurance would have suffered the loss, but if you look at the numbers I've laid out, you will see that it was basically absorbable by the banking system.

7:27There were 20 large banks, including a lot of big European banks like Barclays and Sachsen, Deutsche Bank, as well as the big US banks, that had bought the credit default swaps. But between them, they had $20 trillion worth of balance sheet. And if you look at the loss exposure on the credit default swaps, it's in the range of $60 billion. And so therefore we're talking about less than 1% of the balance sheet of the huge global banks that had bought the CDS in order to basically arbitrage the banking regulations. And by that I mean they were buying all kinds of CDOs and sub-securitized subprime debt and so forth, but when you bought the CDS, which was triple A, you were able to magically can really transform your toxic assets, your high yielding CDOs, CDOs squared and all the rest of it into AAA credits, therefore you didn't have to put any post under the Basel regulations, any equity on your balance sheet, you could harvest the nice income that was yielded by these securities and get essentially an infinite rate of return.

8:48So, it was a good game, but it was a bad bet, because the insurance was no good. It was written by a holding company that didn't have liquidity. The holding company, AIG, was massive. On its consolidated balance sheet, it had hundreds of billions of equity. But the thing was, that equity was buried in all the insurance subsidiaries. And that's the part that was never made clear to the public. And so the case was made over and over that we have millions of people who are going to lose their retirement annuities or we have tens of millions of people that are going to lose their property and casualty coverage and so forth. But the truth was all of that insurance was written by the subsidiaries which were legally separate entities, almost all of them protected by state insurance commissions that had capital standards that had dividend stoppers, meaning you couldn't take the cash out, you couldn't take the equity out in order to meet margin calls or other payoffs for the CDS upstairs.

9:56So therefore, AIG was not a contagious economic disease that was going to pollute the entire financial system of the world and take everything down in some kind of financial black hole. As a matter of fact, if they had put AIG into bankruptcy, and I think this one is important because it then started the ball rolling, had they put AIG into bankruptcy, all of the insurance subsidiaries would have been seized or protected by their capital standards and their regulatory commissions at the state level for good or ill, they're there. And the idea that somehow this whole thing was going to unwind, that hundreds of billions

11:09World, AIG up until then was considered the gold standard of the financial system and therefore to see that AIG was suddenly without warning in an almost in the equivalent of a nanosecond a few days suddenly on the verge of collapse and insolvency was a shock to the system and therefore it opened everyone's mind so to speak, particularly in Washington to the idea that everything is falling apart. We've been hit by some comment from deep space that has polluted our entire financial system with organisms, so to speak, that are dangerous and we can't understand.

11:55And so therefore, the dominoes fell one after another once the AIG bailout was established as the predicate. Pretty soon they were saying things and people were believing things that weren't even remotely true. The next thing that happened after AIG, the shock, the utter shock of AIG, was the argument was made that the money funds were also unwinding and going into a great collapse. Now what I lay out in my book is that at that time there were 3.8 trillion of money funds outstanding, Funding, so that's a big number and had there been some kind of huge run on the money market funds, that could have been a catastrophic problem, I'll admit to that.

12:41But when you looked at the numbers, what it showed is that half of that huge, huge number, the 3.8 trillion, half of it consisted of so-called government funds that had no commercial paper that had no other risky paper in those funds, so that when the Lehman failure occurred and one of the big money funds broke the buck, I think some of you remember that, that had nothing to do with half of that whole industry. There was no Lehman paper or any other toxic paper or any other risky commercial paper and so forth in the 1.8 trillion government fund part of it.

13:27Now here's the part that they didn't tell you. The other 1.8 trillion was basically in funds that held government paper, bank paper, and a small amount of commercial paper, including Lehman. And what happened during the crisis is that the prime funds, this is the other $1.8 trillion, had a drain quickly of about $400 billion, but what they didn't tell you was that almost all of that drain out of the prime funds, which occurred because people wondered, well if there's leaving paper in here, what else is in here? Most all of it went across the street in the same money market fund families to the government only funds.

14:20In other words, people hit the send button and move massive amounts of money, $400 billion roughly, to government only funds. It didn't go into a black hole. It wasn't a classic run on the market. It wasn't going to take anything down. It was a rational adjustment when investors realized that what they had been told all these years about prime funds, that they were money good, 100 cents on the dollar, was a marketing exaggeration that wasn't true. So therefore, if you remember at the time, we had all of this notion that this great $3.8 trillion industry was coming unraveled, it was going to stimulate a contagion that to get the entire financial system basically wasn't true.

15:12They waived the $400 billion number at congressmen who were lined up like sheep in these meetings in order to get the votes on TARP and to get the sanction for what the Fed was doing. But in the end of the day, less than $60 billion of that $3.8 trillion actually left the money fund industry. It just moved from column A to column B, and even the 60 billion that left mainly went into Treasury paper and into bank CDs. So again, that was the second big event, and the whole scary story told at the time was that as the money market funds unraveled, the commercial paper industry would collapse. Pretty soon, payrolls couldn't be met, ATMs would go dark, all the rest of that.

16:01Now, the third thing they said at the time was that the banking system on Main Street would be the next to fall. In other words, we were going to have runs on the entire banking system. And my argument, which I lay out pretty well, I think, in the book, is that the runs were entirely in the canyons of Wall Street, in the wholesale funding markets, and by that I mean the repo market, the unsecured commercial paper. The last gambling houses standing were basically Goldman, Morgan Stanley because by then Lehman was gone, Bear Stearns was gone, Bank of America was picking up Merrill Lynch and so forth. And so the point was made or the argument was made that this was going to spread in and some kind of crescendo to the entire Main Street banking system.

16:57Well, again, you have to look at the facts. And when I did the analysis and went through all the facts, what I found was that at that moment in time, that week of September 15, 2008, the banking system had something like $12 trillion of assets. But if you sort it through class by class, you find out that less than $100 billion of Securitized Mortgages, the so-called toxic paper, CDOs, CDOs squared, mortgage-backed securities of one type or another, was in the Main Street banking system. Most of that paper was actually on the balance sheet of Wall Street banks or in hedge funds or had been distributed out to institutional investors around the world.

17:47And so again, the idea that we were going to have huge retail runs on the banking system just doesn't hold up. The facts aren't there and as I try to lay it out, it wouldn't have happened. So overall, a huge mistake I think was made and that was kind of a Rubicon in terms of where we're going with a banking, a Federal Reserve system that's totally out of control, and the fiscal situation that really is getting more desperate by the day, with the rules of free markets more or less set aside. All of it, I think, turned in a very bad direction in those moments or weeks during the Blackberry panic.

18:36Now, Bernanke did say at the time, and this is what I think put the fear into the whole The Great Depression 2.0

19:11The economy was structured differently and would not have plunged into a downward spiral that couldn't be stopped. 90% of personal income was coming from transfer payments or government salaries or the private service industry in the United States. That was not going to plunge into a huge process of inventory liquidation because, as a matter of fact, In fact, the facts show that in the first nine months it went in the opposite direction. Transfer payments went up enormously, automatically. Government salaries obviously were not cut. The layoffs were significant in the private service industry, but it didn't collapse like manufacturing and tradable goods and industrial economy does when you have a huge decline like we had in 1930.

20:06So I have some facts in the book, again, which compare what happened in the early 30s with what happened in 2008, and it's rather startling. In the early 30s, we were a massive predator export power, a huge industrial manufacturing economy, so that when the post-29 collapse came, the economy had inventories, massive Inventories, which you have in manufacturing, equal to about 35% of GDP. Inventories were liquidated over the next three years to the tune of about 50% of the starting point, and therefore there was a massive hunk taken out of the economy, about 17% of GDP, as a result of the industrial export economy, and ag economy at that time, which is also a big exporter liquidating in response to the collapse that occurred worldwide not just as a result of 1929.

21:07And so that started a process in which everything declined dramatically. Personal consumption spending back then in the 30-32 timeframe dropped by 20% as a result of Wages Collapsing and Activity Collapsing in the Industrial Economy. Well, you can go through all of it and you compare to what happened in 2008 and you can see that it was totally a false alarm. In 2008, obviously, the Hoovervilles that happened 80 years ago were in China. They weren't here. The great export power and industrial system of the world was in China, not the United States. So, when our economy went into adjustment after the Lehman crisis, inventory liquidation amounted to 2% of GDP, not 17%, a huge difference.

22:04The decline in personal consumption spending in real terms in the first nine months was about 2%, not 20%, and you can go through all the different numbers which are laid out in my book. And the point is, Bernanke was looking in a rear-view mirror at what happened in 1930-32, assumed inappropriately that it was going to happen this time, and then pulled out all the stops, spread the panic as the great scholar of the Great Depression all around Washington. He was given credit, unfortunately, for being a scholar of the Great Depression. and, in fact, I tried to lay out in the book that he wasn't, he's simply Xerox, Milton Friedman's erroneous theory of how it all came about.

22:52And so, again, when you overlay that onto the panic that was going on in the canyons of Wall Street, Great Depression 2.0 lurking around the corner, the meltdown that was going on in Wall Street that would have burned itself out on its own, in my view, In my view, spreading to the rest of the economy and the main street banking system and so forth, you got a scenario that was totally inaccurate in terms of what the facts of life were. But it lives with us indefinitely because people still believe that somehow the system is so exposed to systemic risk, to these outbreaks of contagion that we no longer can observe in the old rules, the old rules about free markets and the right to succeed or fail, and that losses need to be absorbed privately as well as gains.

23:54The idea that we ought to basically pay our bills in this country fiscally has been lost as well because the job of the government has now become to prop up the entire financial System because of these systemic weaknesses and so forth that allegedly were revealed in the Blackberry Panic of 2008. So I spent a fair amount of time on that in the book and I wanted to talk about it as kind of an opening way to get at the book today because I think that's where everything went in the wrong direction.

24:40And we now have a process going on in Washington where both parties have become reconciled to the necessity of all this, and therefore I think we no longer have any kind of honest competition of ideas left in the system. What we have is crony capitalism, what we have is some kind of temporizing process. If you look at the solution that came out of that whole crisis, Dodd-Frank, you realize that that's an exercise in pure regulatory petty-foggery. It is not going to change anything. It'll keep the lawyers and the accountants and the consultants busy for years to come.

25:26But it doesn't address what went wrong at the central bank. It doesn't address what really happened in the Blackberry Panic of 2008. So those are a few thoughts that I wanted to launch here this morning. There's a lot more obviously in the book, but why don't I stop at that and try to respond to questions that may relate to what I've just said or anything else that goes back to the 1930s. Mr. Stockman, I have a daughter following your footsteps who is an aide to a congressman.

26:13She said to me the other day, she said, daddy, the law is only there until you need it. How do you think the evisceration of the rule of law needs to be bankruptcy and GM, etc., how does that play out going forward?

26:51Diplome, that GM couldn't have gone into bankruptcy the normal way is so much urban myth, urban legend. And I point out in the book that in the quarter that they filed, you know, their 10Q, the quarter before the bailout in the fall of 2008, GM had $150 billion worth of assets on their balance sheet. Now some of them were worth less than a hundred cents on the dollar, but in that were massively

27:51to the Pension Benefit Guarantee Corporation. There was $50 billion worth of bank loans in debt. They would have gone to the back of the line. There was $30 or $40 billion worth of unfunded medical, a retiree medical benefits. They would have gone to the back of the line. So the point that I try to lay out in the book is the argument that GM couldn't get a dip loan that would be secured by all of those assets was really incredible. It wasn't true, and yet it was the excuse that, frankly, Paulson made to bail out GM in December 2008. Now, as a result of that, essentially what happened is we turned a big industry in the United States into a political food fight as to where the automotive production is going to occur, either south of the Mason-Dixon line or north.

28:50In other words, there wasn't going to be a shortage of cars. There was enormous excess capacity, particularly in the transplant auto assembly plants in Alabama and Tennessee and Kentucky and Mississippi and South Dakota and South Carolina, Georgia and so forth. The issue was, were those cars demanded by the economy once the economies settled down, Were they going to be produced in these new efficient transplant operations, where the weighted average cost, fully loaded cost, I should say, of employees was about $60,000 a year? Or were they going to be made in the broken-down, run-down UAW undermined plants in Ohio, Michigan and Wisconsin that paid $100,000 a year?

29:43That's all it was about. And if you go through all the facts, and I've laid them out pretty well, I think, in the book, essentially what the bailout did was move 40,000 jobs from the transplant auto belt in the south, and also which happened to be red states in the electoral college, and move them to the blue states and the auto plants that were rescued in Ohio, Michigan, in Michigan and a few other places in the Rust Belt. Now that's what happened, and when you have the power of government, when you have the power of the state being used to move jobs in this manner for no justifiable reason except who has the most political clout, and in this case from right to work states to union states, It's just another indication of how far we've drifted from a workable system.

30:46Now what I worry is that since they were able to overcome the bankruptcy predicate, and that's what should have happened to GM and Chrysler, in that crisis, where are we going to be when you have the next crisis and the next crisis and the next crisis? The precedents are all there. And what happens is they will argue that it's so big, and the consequences are so great, that we have to basically throw out the rule of law and implement instead kind of discretionary seat of the pants, subjectively driven use of political power, and that's exactly what happened in the auto bailout. Even though the Wall Street bailout I think was horrible, it shouldn't have happened.

31:33Those firms that would have gone down could have been reorganized, they'd probably be a lot more prudent operators today. But I think the GM case was even worse because it has left the myth, which gets repeated over and over and you heard it in the last campaign, that the automobile industry was saved, that a million jobs were on the line heading for some kind of economic black hole, and that government broke the rules but it was necessary in a desperate circumstance to deal with what would have been otherwise an Armageddon scenario. Now that is really what the received wisdom is today, that's what the current incumbent of the White House was saying on the campaign trail in 2012 and none of it is remotely true.

32:29The auto industry wasn't going to collapse. It's a question of where the production was going to occur. And yet today, we have now revived and reestablished a bailout predicate and interventionist predicate that is far more powerful than anything that existed even in the 1990s or the 1980s or 1970s when we did some of the earlier smaller bailouts. So again that's why I call our system crony capitalism because it is based on arbitrary discretionary and panic use of state power to alter outcomes that do not allow the market to work and as a result you get enormous moral hazard obviously and you get an economic system that becomes less and less productive and flexible over time.

33:29over here.

33:59Isn't it possible, as Robert Manuel said, never let a good crisis go to waste, that that was their goal to begin with?

34:29The Theory of Money and Credit and what makes capitalism work, why you need free market pricing in the financial markets and in all other markets for that matter, and why you can't just constantly throw the state its treasury and the taxpayers in the breach if you expect to have a solvent and viable and sustainable system over time.

35:21So I think basically the opportunism of our political system caught up with us in 2008, and unfortunately it was the conservative party that failed in the largest sense of the word because they were supposed to be the guardian of fiscal rectitude. The Republicans in a competitive democracy like we have, have the job of hard labor on on the oars of fiscal rectitude and telling the public sometimes there's going to be pain, sometimes there's going to be dislocation, sometimes we have to say no, we can't manage daily economic life through the instruments and agencies of the state.

36:10Now that's what the Republican Party was required to do in 2008. They didn't do that because by then they had appointed Greenspan and after that Bernanke. They had put basically Keynesian money, you know, money bankers, central bankers in charge of our economy. They had bought the myth that the Fed somehow was making all of this prosperity possible through its deft maneuvering in the financial markets and management of interest rates and so forth. and the whole thing was a gigantic error that created serial bubbles and when the great bubble finally broke in 2007 and 2008 they couldn't recognize how they had gotten to that point and you had a Wall Street guy sitting on the third floor of the Treasury who basically panicked. I've said that actually if you To look at it, it appears that the reason we had the bailouts and TARP and all of that madness is the occupiers were in control.

37:20But the occupiers that I'm talking about were the people occupying the third floor of the Treasury, who mostly came from Goldman Sachs, who did not have a large view of public policy but simply a narrow, short-run view, looking at their blackberries of where the stock price of Goldman or the S&P 500 index or the Russell 2000 or any of the other ones that were trending down at the moment. And it is a powerful lesson because I am now convinced that Washington basically is driven by the stock market. They will not do anything by way of reimposing sound policy or reestablishing fiscal rectitude or changing the mandate of the Fed because there will be such a vicious sell-off in all of these artificially inflated markets so fast that it will scare them into retreat even if they wanted to do something different.

38:24That's clearly what the lesson of the second TARP vote is. The first time they voted it down, as you remember, in the House, the market dropped 600 points that day, and it wasn't even that day. The market was dropping as you watch the time on the voting clock tick off. And so therefore, we now have essentially a governance process that is driven by fast money traders and trading robots on Wall Street. And if you think that's a rational system, if you think that's survivable and viable and Stable, then you're dreaming about something that couldn't be true in the real world.

39:10But that's where we are. The whole system has now become hostage to the gambling halls that have been created by the Fed and the puts and the easy money and the manipulation of the yield curve and so forth. and the syndrome of deformations that stem from a rogue central bank. Over here. Can you speak more to your concept of how the policies of the Federal Reserve are going to result in a subsidy to the wealth transfer to Wall Street Bank? Yeah, yeah. The question was about the Federal Reserve and what we call interest repression or financial repression.

39:57Obviously, we know that the Fed has not repealed the law of supply and demand, and we know that the Fed is now buying six, seven, eight billion of securities, mostly government treasury paper but some mortgage-backed securities every day, that that is fundamentally distorting pricing and undermining price discovery in the financial markets. And so therefore, none of the interest rates that you see or the price of money are real Free Market Prices. They're essentially rigged, administered prices set by the Fed as a result of the huge presence in the market every day absorbing this enormous amount of paper. It would not be remotely the case in my judgment today that you would have a five-year interest rate on the, I mean an interest rate on the five-year treasury at 80 basis points or that And even the 10-year, which is trading at about 1.95 today, would be remotely there.

40:58That isn't a market price, that is a pegged, rigged price set by the Fed because of the enormous purchase they're making, something like half of all the flow in the middle part of the yield curve. So therefore, if you start with the fact that the Fed has put the overnight rate at zero, the Funds Rate, put it there or established it there in December 2008 and has promised to keep it there until mid-2015 and that is then heavily intervening along the rest of the yield curve. You have basically a pricing system in the government market and in related fixed income in the markets that reflect the intentions and the purposes of the Fed and not the result of the market.

41:50Now, one of those things is to drive the yield on about eight billion or eight trillion worth of deposits in the United States, bank deposits, down to close to zero. On a six-month CD today, I guess it's something like 40 basis points or maybe not even that. And as a result of that, I believe the Fed policy, this financial repression, the rigging of the yield curve and all interest rates that I've talked about, causes the depositors of America, the savers of America to be deprived of two to three hundred basis points worth the normal interest that would come in a market where prices or interest rates were being set by supply and demand for savings and borrowing in the free market.

42:39Now if you do the math on that, you will see that that adds up to about a 300 to 400 billion dollar transfer from depositors and savers in the banking system to the banks. And this is basically how the banks have gotten well. All of that then gets booked as net income and retained earnings and their balance sheets get better. But it's all come out of the hides of savers in America and depositors that would never happen on the free market. And so the simple way to look at it, I think, is to ask yourself, if you put... That's really a fiscal transfer. That's not monetary policy. That's a fiscal transfer. And if you put that up to a vote in the Congress, it wouldn't even get to the floor.

43:28I mean it would be laughed out of the committee rooms because there's no way that the public in America would condone transferring three to four hundred billion a year from savers who want to keep liquid, who want to only put money in safe accounts and don't want to speculate in the stock market or buy a junk bond fund or the rest of it. That wouldn't have a chance of approval. And yet, the 12 members of the Fed Open Market Committee, what I call the Monetary Politburo of the United States, basically has decided that in its wisdom, it is going to make the economy work better, grow faster, become more prosperous by driving you as a depositor out the risk curve, as they say, to use their clinical terms.

44:22But what they're really saying is, we want you to take another dive. I've already had three market crashes since the turn of the century, but we want you back into the risk assets, the Russell 2000 high-yield bond fund or something, because that will ignite a wealth effect, and as soon as we can get everybody thinking they're wealthier, then they'll spend more money and the economy will start working better. I mean, it is a terrible doctrine. It is a terrible abuse of power that the Fed is undertaking and at the heart of it is this huge transfer that goes to your question of wealth arbitrarily from the deposit and savings classes of America to the banking system and it is only a small part to be truthful of the and the deformations that come from the rogue central bank that we have operating in this country today and, frankly, around the world.

45:27They're all doing the same thing, copying the same policies. This is more of a big picture question. At this point, it seems abundantly clear that national sovereignty, in fact, seems to substitute the interests of the international bank. And nowhere does this manifest itself more clearly than what's going on in the EU. with its desperate attempt to sustain a broken monetary system revolving around the euro to the detriment of began sovereign interests. I guess, the power revenue just identified here in the United States as the place during TARC, shoots you stupidly identified, smacks at the same coercion, whereby the goal is to have the elected government take a backseat in the monetary interest.

46:22Here's my question. Do you think it's possible that this was a manufactured financial meltdown? It was an attempt by sponsors of visionaries of the New World Order, high up in the decision-making chain, to facilitate the eventual creation of a single-world currency into one-world government? I don't expect a conspiracy theory, but one really has to start to wonder what between what's happening in the ECB, the Federal Reserve, the Bank of Japan, the Bank of England, I mean, it really is down to the point where our world is controlled by monetary interests and no longer collective government and sovereign interests. Is this something that is being done deliberately?

47:17or there is a conspiracy. I would rather think stupidity is contagious and as we look at all the central banks of the world they're all doing the same thing. The Bank of England is a disgrace. I mean this is where allegedly sound central banking started and for a while it did follow the rules. There was a gold standard. It did work for 200 years but now when you look at the rate that they're expanding their balance sheet in the doctrine they're following, it's the The Stooges, the Stooges could be lawguys being directed to be lawguys.

48:46in France and in the southern tier, most of those banks are only there because they're only still solvent because of sovereign support. The governments are running out of balance sheet, running out of capacity to borrow in honest capital markets, and so everything is being pushed into the venue of central banks. So we have a world economy, roughly 70 or 80 trillion of total GDP, as they measure today, being run by eight or nine central banks who are in a race to the bottom, all doing the same thing. I would say the people's printing press of China, as I call their central bank, has created money even more rapidly over 10 or 15 years than the Fed has, pegging their currency to keep their mercantilist export model working and in the process buying dollars in order to keep their currency pegged and taking in to their vaults massive amounts of treasury paper and government or mortgage backed security paper in the process.

49:57So, you can see that in the numbers, which are quite startling. By the year 2000, before this really got bad, I mean, Greenspan led the charge and pretty soon everybody was in line. But in the year 2000, all of the central banks of the world had combined footings of about $2 trillion, combined balance sheets. Today it is $15 trillion and it's growing by $2.5 trillion a year. If you look at the quantitative easing of Japan, the United States, the Bank of England, the ECB and the growth of the balance sheet in China, that's what's going on. So there is no honest pricing left anywhere in the world, money, fast money, hot money Money is flowing back and forth chasing currencies, chasing trades, chasing momentum until it stops and then it moves in another direction.

50:57This is a very dangerous, unstable system and I don't think it was created by a conspiracy because that could be exposed. I think it was created by stupidity and that's hard to uproot. That's the problem. Meditating, possibility, regret, chaos, being taken advantage of by ire, or good everyone. Give a book to spoke about the future of paper currencies, dollar, euro, and British pound. Is there a chance that we revert to a gold standard or maybe a bitcoin as a new monetary system? Uncharted Waters, if you would have asked people in 1995, do you think the central banks of the world could be in this fantastic race to the bottom, this massive daily balance sheet expansion, you know, vacuuming up most of the sovereign debt and a lot of related.

52:01If you would have asked people in 1995, is this likely, I don't think one out of a hundred people would have, I mean experts, would have thought it possible. So today we're there. There is no precedent. You can talk about your other country hyperinflations in history, but what happened in Argentina, you know, or what happened in Zimbabwe, or what happened in Weimar Republic, Germany, is such a small, limited, historically contained episode that it really doesn't tell us a lot about what happens when there are nine Out-of-control central banks in this fantastic money printing spree and balance sheet expansion that's underway.

52:49So as a result of that, I don't know where the system is going, whether it's going to bitcoins or gold or who knows what. I just don't think this system is sustainable much longer. This is really now in the late stages of a highly dangerous and unstable process, and there is going to be some kind of major monetary collapse disorder breakdown that will require, if we're not going to go back to the caves, will require a major reconstitution of the and the financial system and the banking systems of the world.

53:37How that gets done, I don't think any of us have a clue. We might have ideas of what should be done and maybe this is a chance to restore sound money and go back to a gold standard or go back to very narrow, limited purpose central banks. But when you have a collapse of the magnitude that is indicated by the momentum underway, I think it's very hard to predict how it comes out. Now people say, well, what should we do here? One of the simple ideas that I keep proposing, as I've gone around on this, is why don't we at least go back to the central bank that Carter Glass had in mind in 1914 when the Fed was created.

54:24And basically that was a banker's bank. It only operated through a discount window. In other words, there was no open market committee. It was not legal for the original Federal Reserve to even buy or own government securities. It couldn't target anything, not M1, not M2, not the unemployment rate or the inflation rate or the number of housing starts, or the Russell 2000, which is what Bernanke wants to target, or the number of jobs created per month, which is what Evans, one of the other Central Bank Governors Wants to Target. There was no targeting of anything. GDP and economic expansion occurred on the free market and the outcome was what it was. That's what people believed before 1920. And the role of the central bank was simply to take collateral based on commercial paper that represented real economic activity, inventory or receivables in the Process Collection and loan against that at a discount or a penalty rate to banks that wanted to liquefy some of their collateral in order to meet depositor demands.

55:40Now that kind of expansion or contraction of reserves in the banking system would be driven would be driven by the banking system, would be driven by real business activity and not by a pilot bureau of planners sitting in the Eccles building saying we think we need to notch up GDP growth from 3.1% to 3.3% next quarter or boost the housing starts from a million to a million to... None of this would have occurred, none of this targeting and therefore central planning of the GDP and all of its elements would have occurred under the idea of the glass bank, the banker's bank, the discount window philosophy.

56:31The discount window would have been driven by free market interest rates. So if there was a lot of speculation and borrowing going on in the market, interest rates would The Discount Window would offer liquidity to banks, but at this rising market rate, it could even be double digits, and add a penalty above that only on good collateral. That was a version of the central bank, if you're going to have one, that would have avoided this massive disaster that we're in today. Now, the reason I bring it up is simply if you want something practical, if you want some way to back off this enormous disaster that we're drifting into now, at least reviving the idea of what the original banker's bank model was like might be a starting point for with a debate because it would illuminate, it would expose the fact that today we basically have a central bank running the economy through the crude tools of the interest rate management, yield curve management, the various puts and all the other things that they're doing.

57:55Okay, thank you.