Why Central Bankers Are Liars

0:00Hi, I'm Scott Horton. This is my show, The Scott Horton Show. You can find my full interview archive, more than 2,800 interviews now, going back to 2003, at www.scotthorton.org. And you can follow me on Facebook, Twitter, and YouTube, at www.scotthortonshow. Up next, well, first guest, I should say, is the great Mark Thornton from the Ludwig von Mises Institute. Welcome back to the show. Mark, how are you doing? Hey, Scott. It's great to be with you here with the markets rocking and rolling. Yeah, boy, they're going up and down all over the dang place. Tell me this. Actually, before we get to that, tell me this about Mises Goes Global.

0:46It's incredible, almost 30 Mises Institutes and over 30 Misesian leaning organizations in all across the planet Earth right now, is that really true? It's amazing. And that's just in the what, the last five years or something? Yes, it's sending shivers down my body right now just thinking about it, that this Misesian movement that Lew Rockwell started 30 years ago is just in full bloom right now and there The Mises Institute is popping up all over the globe, Eastern Europe, Western Europe, now South Africa, South America, Brazil has a wonderful institute, Japan, China, it's really amazing.

1:31I just came across the Mises Institute of Missouri, so people are actually going down to the state level now and starting up their own organizations and they have their web pages and some of the foreign Mises Institutes do translations from our material into their languages as well as developing their own programs and conferences and republishing books in other languages. We're so excited to see the great works of Austrian economics being translated into Chinese in Russian and Guido Holzman's book of Mises, The Last Night of Liberalism was just translated into Russian. So it's just an amazing movement and most of the people who are watching the mainstream media and aren't listening to your show or going to mises.org, they're completely clueless of this revolutionary movement, an ideological revolution that's occurring under to their Feet, and it's the intellectual, scientific cutting edge of a revolution that's occurring everywhere around the world where Snowden is uncovering the NSA and there are riots and protests in Turkey and in Brazil and Argentina and people just gotta wake up

2:56and get away from the mainstream media and get other alternative sources of information Well, look, I mean, this is the whole thing about it. For the people who don't understand about the Austrian School, it's not that the country of Austria ever had an awesome free The School of Economics was founded by some Austrians, including Ludwig von Mises of course. But the point being that if you take, just very generally speaking, I mean even just your regular air conditioner repairman driving around out there, he's heard of the Keynesians, he knows that's basically the Democrats, right, and he knows about the monetarists, the Chicago School, those are the Reaganites, the supply-siders, the trickle-down economics guys.

3:57And then, you know, classical kind of capitalist economics from pre-20th century. They know that, you know, that kind of stuff exists, Adam Smith and whatever, but they figure, yeah, well, we've all moved on since then. They might not know about the Austrians. The Austrians, you, Mark, you guys are the ones who are the real free market guys. You guys make Milton Friedman look like a pink old commie or maybe a brown shirt fascist. Yes, well we took up the mantle, you know Carl Menger and von Boehm-Bawerk and Wieser and Mises and Hayek took up the mantle of classical economics and set about fixing some of the problems in their system like they had a labor theory of value and we fixed that with a subjective theory of value, we fixed the supply and demand model with marginal and opportunity cost, and so we fixed the classical paradigm of Adam Smith and David Hume and Ricardo, you know, they went down the wrong path on a lot of issues that the

5:01socialists and Marx, Karl Marx took advantage of, and so we fixed those things and, you know, so people who are interested in liberty, they're interested in freedom, they don't like the police state, they don't like Big Brother breathing down their necks, reading in the Austrian School of Economics and the Ludwig von Mises Institute,

5:47You know we've been, we're the oldest continuously existing school of economics and we're currently the smallest school of economics and as a matter of fact we almost became extinct in the early 80s and 70s but we're now the fastest growing school of economics and that's true in academia and it's true not just in the U.S. and it's true in business, entrepreneurs, It's true with high school and college students, it's the hottest thing, it's now the coolest thing in academia to be. Marxism isn't cool, Keynesianism isn't cool, none of these other intellectual movements are cool at all.

6:38They're seen as old school, they're seen as crony capitalism, and it's the Austrian School, It's Ron Paul, it's the freedom movement that is really the cool thing nowadays. As a matter of fact, Scott, you're going to find this funny, but we sell T-shirts at the Mises Institute and on our bookstore at Mises.org. Oh yeah, I'm a proud owner of the Enemy of the State with Murray Rothbard on it. Yeah, and actually I asked the bookstore manager if that was our most popular shirt, and he No, it's probably the second most popular shirt, but the most popular one is the one with the triangle of the Austrian business cycle theory with the stages of production and all the equations underneath it.

7:23Because that's seen as, you know, if you're wearing something like that, that is, apparently on campus, that is academically very cool. That's great. I thought that was funny. Look, Austrian School economics is a big complicated thing and covers a lot of ground as you mentioned. But that's the thing, that's why the Austrian School of Economics is such a big deal right now is because you guys were right during the last decade's giant housing bubble and you were right about the terrible popping and the terrible effect that was to come and and especially in the name, in the person of Dr. Ron Paul, who you mentioned, who's been calling out the housing bubble on the floor of the House of Representatives since at least the year 2000, and when he ran for president in 2007 and 8, and then of course again in 11 and 12, but in 07 and 08, the YouTubes of him explaining why not to build up a big housing bubble because you're just putting off the consequences we're doing, you're going to make matters worse here in coming a few years.

8:31A few years from now, those YouTubes just caught fire, I mean, they were more popular even than him warning against, you know, quite correctly warning, why not to invade Iraq. And people just went, wow, whatever it is this guy's reading, I want to hit. Oh yeah, you know, that's the great beauty of Austrian economics. It's holistic and it's not like you have to know every nook and cranny of Austrian economic theory. If you have a general understanding of Austrian economics and you're getting information written by Austrian economists on a regular basis, you have a very well-formed worldview, a very well-formed understanding of how the world operates. and as a consequence, you can get understanding about the consequences of foreign policy and you know the consequences in advance of monetary policy and taxation policy and the size of government and all these phenomenon that infect our world, you can understand those phenomenon, where they come from, what their effects are and ultimately what problems they cause in

9:44in our society in advance. And so that puts you at a much better perspective in terms of understanding the world and being comfortable with the world around you, where you're not being fooled, you're not being taken advantage of, you're not being just told one story after the next like, you know, we need $10 billion of national security agency to spy on our phone calls and our emails to to protect us from terrorism, okay? A lot of people, some people will actually buy that story, but you know, the Austrian economists are not gonna buy that story. They just see that as an invasion of privacy and a waste of money. And that's ultimately the way things will, you know, they'll be eventually revealed to people, but people who have an understanding of Austrian economics, such as yourself and myself, We're not, you know, fooled by the events in this world. And as a consequence, it's a much nicer perspective and worldview to come from. It's kind of irritating that, you know, there are all these problems and there are bad people out there in the world, but it's more comforting to know what's coming than to not know and be blindsided one time after the next.

10:59Right. All right. Well, so let's talk about what's coming or what's going on today here. The markets seem to be taking a big hit, but well, and we talked about this with Alan Butler a little bit on the show last week, too. Alan said that Greenspan's speech was, don't worry, I'm going to keep inflating. But everybody took it as though what he said was, yeah, I'm going to have to stop inflating here pretty soon. And they all panicked. And now they're all freaking out. Well, you know, central bankers are basically liars, so you never know exactly what they mean and if they mean what they say and say what they mean. You know, this downturn in the marketplace and in the stock market as well as the gold and commodity markets is not a big surprise to me.

11:48Actually, the only thing that really surprised me is that how Bernanke was able to actually to really pump up these markets to such high levels and to, I was fooled in this case because he went beyond the normal tools of monetary policy. He didn't just cut interest rates in the economy, he went well beyond the normal bounds of a central banker and he's changed the rules of the game and he's engaged in this quantitative easing infinite basically and was able to pump up markets to restart the housing bubble and things that we would have never thought of because if he had stayed within the normal bounds of monetary policy, this wouldn't have gotten so far out of control and markets would not have been blown up so high.

12:42He's under the impression, as well as Krugman and Greenspan, that if you pump up the stock market, that that will give people confidence, because central banking is a con game, essentially. And so they build up your confidence. So you feel free to not be prudent and save your money and invest your money properly, but to become imprudent and to spend all of your money and to invest your money into very riskier markets and risky assets and investments and so people who are say for example who are retired and you know they normally keep most of their money in fixed income investments and bonds and things of that nature and they've been pulled out of the safer investments because there's no return and they've been putting their money into riskier investments with Bernanke's game plan is to make people feel confident, get them to invest in riskier things and therefore somehow to jumpstart the economy in that way, to make them spend more and to put their money in bad investments.

14:05That's not the Austrian playbook at all. We believe in sound money, no inflation, the gold standard, not intervening in marketplaces like that, but to allow market price signals to determine investments and whether to spend or to save. And we think that saving money is actually the key ingredient to economic growth because when money is saved and not consumed, that frees up resources such as land, labor and Capital to go into sound investments in the future of the economy and so, you know, their playbook is a confidence game, our con game. Ours is the ageless wisdom of saving and investing in sound projects for future growth in the economy and I'm afraid that, you know, it's hard to imagine the negative consequences The Theory of Money and Credit is being done to who? If we, for their benefit, we assume their stupidity and ineptitude here.

15:42What they're really doing is they're holding a gun to grandma's head and they're saying, you cannot have a savings account lady. Close it down, put your money in the stock market and basically fill up the bag and then we'll take all the money out of the bag and leave you holding the bag. That's what's happening right now is all the regular people who are They're not stock market investor types who aren't savvy, who don't know about this stuff, who ought to have a bank account down at their local thrift. They can't. They're being forced to speculate because of the low interest rate. They're being forced to prop up this giant bubble. And then all the Goldman guys, everybody in downtown New York who actually knows what the hell they're doing here, they run away with all the freaking money. And then now here it is collapsing. Yeah, I mean, that's unfortunately, very unfortunate, but that's exactly the case, Scott. That's exactly what's going on here.

16:35So, I mean, the Marxists would even have a point here that this is kind of class war, isn't it? This is the billionaires deliberately using the state against the regular people. Or are they, do we really give them the benefit of the doubt that they believe in this Friedmanite commie nonsense? I cannot give them the benefit of the doubt, Scott. We're not in a free market society here, we're in a crony capitalist society where the crony capitalists basically control the government and they basically control the Federal Reserve, they control the regulators over financial markets. You know, Goldman Sachs has people that are highly placed people, you know, in the government, Geithner and Bernanke and Paulson, these are the people who were managing the crisis, and they managed it quite well for Goldman Sachs who didn't take a hit, got full money from their investment in AIG back.

17:35So if you've got people working for Goldman Sachs who then take over important government offices and then hand over basically money to the government, or Warren Buffett, for for example. I mean, he had huge investments in the big banks and then he comes out before the central bank makes an announcement and says, he fully expects the central bank, the Federal Reserve to do such and such or if they don't, then he expects a panic. So of course, the Fed goes along with what Warren Buffett says and bails out the banks and that ends up generating billions and billions of dollars for Warren Buffett and his Berkshire Hathaway Corporation, you know, to his benefit and then he turns around and he says we really need to soak it to the little guy, the small-time entrepreneur who doesn't have any connection with Washington D.C. and make them pay higher taxes and so I think it's just, it's an outrage and, you know, to the extent that these people know, they must know what they're doing.

18:46They're having direct government control, direct control over government policy and they're very influential throughout the Congress as well, of course, you know, most of the Congress receives large donations from all the various financial firms. And so, you know, you got to wonder, you know, who's running the government and who are they What are they running it for? Well, from my view, you know, this is a confidence game over the American public and that our economy and our government policy is controlled by crony capitalism and there's really no other way of looking at it. I mean, the faces are all there, the checks are all there, the policies are all there and, you know, the lineup of Goldman Sachs employees and other companies, I mean, Citibank and so forth.

19:35You know what the problem is though, is your argument, and it's mine too of course, is take the government away from these guys, force them to compete in the market and we'll see the comeuppance they've deserved all this time. But what that sounds like to everyone who doesn't already agree with it, is you're saying, turn the entire economy over to these same horrible bankers who've corrupted our government so bad. And you know what I mean Well, the larger point is not who controls government, but how much government controls. How much spending power does the government have? How much money do they take in taxes and other revenues, as well as borrowing?

20:24And so it's not so much the people who are in charge, it's what they're in charge of. And the government has got too many resources and too much power at its control, and this is precisely why these people want in on the control of all this money because it's to their benefit to do so. So the most important lesson to be learned is that we need to reduce the size and scope and power of government. All right. Now, when I talked with Alan Butler last week, he was saying, you know, all this talk about, Oh, yeah. China buys all our debt. Korea buys all our debt. Uh-uh. They're all selling more debt than they're buying, and the Fed is the only net buyer of American government debt at this point, and that means we are just completely screwed.

21:12I don't know when the real pain kicks in, if you're not already feeling it, but he was saying that this is just, this is one of the last signposts on the way to the crack-up boom here. Oh, yeah. I was a smart guy and he knows, you know, but it's not known on the street very well, but China has stopped purchasing on net US government debt for quite some time and they've been adding to their gold reserves in China to a very large extent. I mean, they've, in recent months, their purchases have more than doubled their traditional level of purchases of gold. The Federal Reserve has been adding to their gold holdings at their central bank, trying to diversify away from the US dollar so as the dollar depreciates, their gold holdings will appreciate and so they'll be in a more balanced position and it's not just China of course.

22:05Korea is doing it, Brazil is doing it, Germany has asked for its gold to be returned from the United States and so central banks around the world are on net purchasers of gold. are adding to their gold reserves. And with this recent decline in the price of gold, we've seen gold shops and gold markets around the world being flooded with new retail customers. And so while there was a fallout in the international markets for gold and the big gold holders and the liquidation of the GLD, ETF, that lower price has encouraged retail consumers to go out and buy bullion, to go out and buy gold coins and silver, junk silver, gold jewelry.

22:54India's been adding to its gold holdings as well, I should point that out. And so there's a mad rush into gold and I've been kind of expecting the price of gold to come down somewhere to $1,200 or maybe below that. You know, just as the way the market works is it's never in a straight line, it's never

23:47The opportunity to buy gold bullion, gold coins, silver, and gold jewelry as well, which is very popular in Asia, throughout Asia, and so, you know, that's a very interesting sign that, you know, the average people around the world are buying gold and are upset at their governments and their policies. Yeah. So, not that this is an investment advice show, but in other words, good times. There's been a big correction in the price of gold by now because it's going to keep going back up because, again, Bernanke, good motives are bad. He didn't know what to do except keep creating more and more bank credit, right? I mean, he's just going to inflate until the day he retires or gets kicked out of there.

24:34Well, Austrian economics is not exactly an investment advice vehicle. We cannot say anything in Austrian economics about the timing of something or its magnitude, how high is it going to go, how low is it going to go, when is it going to go high, when is it going to go low. But of course, I mean, the age-old advice of buy low and sell high always does apply. It's just a matter of how you implement that and how you maybe get yourself into in the markets slowly over time so that you're not putting all your money in one investment at one point in time, which gives you a psychological burn effect if you're wrong in your timing or you're wrong at the market that you're investing in or you're wrong at the price level that you're buying in.

25:25But ever since I was a teenager, I've encouraged people to invest some money in gold and silver. It's kind of the equivalent of a fire extinguisher. Every prudent homeowner has at least one fire extinguisher. Every prudent boat owner has at least one fire extinguisher on board, and not with the idea that they ever want to use it. So you invest in gold and silver not because it earns a dividend or not because you're going to become fabulously wealthy, but it's a protection advice if something goes wrong with the economy. It's the equivalent of the economy catching on fire. Gold and silver are sort of your fire extinguisher to help you out of tough times.

26:12You know, we're all out of time for this one, but at some point I'd like to talk with you about some of these other alternative currencies, the crypto currencies and stuff like that, see what you think of that. Would that be all right? I'd be happy to do that, Scott. Okay, good. I think that'd be a hell of an interesting conversation. This is the great Mark Thornton from the Ludwig von Mises Institute, and he wrote The Economics Economics of Prohibition, Tariffs, Blockades and Inflation, The Economics of the Civil War, The Quotable Mises, The Bastiat Collection, and an essay on Economic Theory. Obviously he edited a couple of those, didn't write them. Thanks very much for your time, Mark. Great talk to you. M-I-S-E-S dot O-R-G. Thank you very much, Scott. Thanks.