The Future of the Dollar

0:00Hans Hoppe mentioned to me after my first talk that, like the international monetary system, my writing on the board was chaotic. So I'll try to be a little more careful. I'll try to coordinate my writing on the board, just as world governments claim that they can coordinate their exchange rate policies. Well, there will be two aspects to my talk. The first will be, what is the likely development of the dollar in the next few years? And to understand that, we have to look back at what has occurred in the last 10 or 15 years, back to the early 80s. And secondly, what should we hope for?

0:45In other words, what should we desire the future of the dollar to be? Should we desire it to be something like the Keynesian Dream, which every once in a while crops up, this whole idea of a global fiat currency? Or should we push for the good old-fashioned gold standard? Let me start with what has occurred with the dollar in the 1980s and the 1990s. And here you'll find that the system has existed in the current state in the last 15 years because of an obscuring of the effects of the Fed's inflation. Austrian economists, alone among modern macroeconomists, understand that the effects of increasing the money supply are many more and are manifold when you compare it to just a rise in the price level.

1:44In other words, most economists see as the only significant effect of an increase in the money supply, a rise in general prices. But as Austrians point out that there are effects in other markets, in capital markets, in foreign exchange markets, and that it's these effects which bring about an instability in the economy. But unfortunately, when inflation is not manifested in that very visible rise in prices which we did have in the late 70s, people tend to believe that, well, there's no inflation going on and things are pretty much under control. Well, let me talk a little bit about the 1980s. In 1982, we were in the depths of an inflationary recession, sometimes called a stagflation.

2:33That summer, Mexico threatened to default on international loans, and then pretty quickly after Mexico, the same was true of Brazil. In order to bail out Mexico, Brazil, and indirectly the large Wall Street banks, who were heavily The Fed began to inflate the money supply at a very rapid rate. We had a very rapid rate of inflation that continued pretty much from 1982 through 1987, with a pause in 1984. The money supply figure that I favor, that was developed by Murray Rothbard and myself, which we call the true money supply or TMS, increased from 84% through 87% at about 14% per year, a very rapid rate.

3:28Yet, we didn't get a lot of price inflation. Consumers did not see the price of consumer goods skyrocketing as they had in the late 70s. So people believed Reagan when he said that, President Reagan, when he said that inflation was under control. Control. But in fact, there were other effects occurring that were to culminate in the crash of 1987. First of all, let me just mention that the CPI, which is the Consumer Price Index, increased at a relatively slow rate, at two or three percent, despite the fact that the money supply was increasing at double digit rates. Okay, why was this? Well, there were a number of effects, or a number of reasons for this. Let me just mention them. For example, The price of the dollar appreciated, that is, the value of the dollar in world markets had gone up, making the dollar much more expensive.

4:23If you turn that around, that meant that with one dollar we could buy a lot more of foreign currency and therefore a lot more of foreign goods. So the price of our imports stayed fairly low. They didn't increase at a very rapid rate because of the appreciation of the dollar that continued until about 1985. We also found that there was a technological advance in the production of food products that spread to third world countries. So the price of food products did not increase at rapid rates. OPEC collapsed, if you recall, in 1986. The price of oil plummeted from $35 a barrel down to $12 or so. The International Tin Cartel broke apart. This led to, again, or this reinforced the low rate of increase in commodity prices.

5:10Also, the US dollar began to be used, to leak out of the country, to be used in underground economies throughout the world. Citizens of Argentina, of Israel, of Eastern European countries were beginning to use the dollar in transactions. So the demand for dollars was going up. When the demand for a currency goes up, prices stated in that currency begin to fall. People hold more money, they're not spending it as quickly. So Americans weren't, so in the world economy dollars were not being spent as quickly, because more and more people were holding dollars throughout the world economy. They were also holding dollars in order to buy U.S. securities. Japanese, Western Europeans were investing heavily in U.S. government debt, and in order to do that they needed dollars.

5:59So to make a long story short, prices of goods didn't increase very rapidly in this period. So most economists claim that the Reagan administration have been victorious over inflation. Some claim that that would eventually lead to a recession, but those who supported Reagan claim that this was just another one of his victories. But on other markets, we saw the evidence of inflation. For example, capital goods markets. When the Fed increases the money supply, they do so by increasing bank reserves. Out of thin air, they create more money for banks to loan out. As banks increase the supply of their loans, interest rates drop.

6:46When businesses borrow this money at the lower interest rates, they begin to invest in capital goods, and that drives the price of capital goods up. Now, what are firms? Firms that are listed on the stock market are nothing but aggregates of these capital goods. So, the value of a firm depends on the value of the capital goods that it owns. As the prices went up of capital goods, stock prices began to go up. Also remember, the price of a capital good depends on the flow of income from that capital good in the future. That flow of income is discounted by the interest rate to give you a present value for that capital good. The lower the interest rate, the higher the value of that capital good. So with low interest rates and a greater demand for capital goods, we began to get a stock market boom.

7:33So from 1982 to May of 1987, we had an increase of August of 1987, we had an increase of 214%. The Standard and Poor's Index of 400 industrial stocks, in effect, tripled. So while consumer goods prices were rising at very low rates, stock prices were tripling. That should have told people something. We also began to get effects in the bond market, that is, interest rates began to decline. As the banks, with their newly created credit, impinged on the credit markets, interest rates were pushed down. For example, the 30-day commercial paper rate fell by about 3% between March of 1985 and January of 1987.

8:28Corporate bonds fell from about 12.5% in mid-1985 down to about 8% in 1987, and the prime rate tumbled by about 3% during that time. So, we saw capital markets were being affected by the inflation, something that most people didn't catch. Finally, the foreign exchange market also was affected by the increase in the money supply. The dollar from 1985 until about May of 1987 lost 77% of its value against the German mark. In other words, it used to cost 31 cents in 85 to buy a German market, it now costs in 87.55 cents.

9:17And also, in the case of the yen, the dollar lost 75% of its value against the yen. Or, to put it another way, the price of the yen increased by about 75%. Now, part of the impetus to this inflation was that in 1985, the value of the dollar had reached a very high level, which meant that American goods were very expensive in foreign countries. American exporters began to lobby hard to get tariffs and other types of protection against foreign goods. In order to divert this sort of lobbying, the US government decided to coordinate its foreign exchange policies with foreign governments. That is, to push down the value of the dollar. And there was an agreement called the Plaza Agreement in which the G7, that is a group of seven industrial nations, Italy, Canada, Great Britain, the US and so on, got together and decided upon a concerted effort to drive the value of the dollar down.

10:18So this was another reason for the inflation. By early 1987, however, the dollar was dropping like a rock and capital flight was threatening, that is, foreign investors began to worry that their investments in the United States, in terms of their own currency, were depreciating rapidly. So once these expectations took place, there was a threat that panic could spread on foreign exchange markets and that the dollar would be dumped. were being dumped, and people began selling the dollar off very rapidly in exchange for other goods, which would cause the depreciation to even accelerate, in which cases people were pulling their capital out of the United States, you'd find skyrocketing interest rates. So at that point, the Federal Reserve system stepped on the brakes, and the money supply began to increase much less rapidly.

11:09Then there was a few spurts in that spring of inflation, But then by the summer, we actually began to get a sustained deflation of the money supply. That is, the amount of currency and deposits in circulation in the United States actually turned negative. It actually began to decline for about three months running. By June, the bond market began to believe that the Fed was serious about the policy of restraining inflation. So we began to get interest rates creeping up from June through August and then onward to October. For example, the AAA bond rate rose from about 8.5% in five months all the way up to about 10.75%.

12:01And the prime rate went from 7.5% up to about 9.25%. Now what this meant was that suddenly there was a much higher rate of return on bonds than there was on stocks. The stock market continued to move upward until about August. In August, the stock market began to believe that the Fed was serious about its disinflationary policy. At that point, the stock market peaked. It then waffled. In mid-October, Secretary of State Baker began to bash the Germans for not inflating their money supply more quickly, which meant that the U.S. was really desperate now. They wanted to be able to increase the money supply, but if they did so, they were fearful that the dollar would start dropping again, so they were pushing other nations to do so.

12:55In any case, at that point, the stock market realized that the jig was up, that we weren't going to get a lot of inflation right away, and we had a collapse. We had a collapse of the stock market, we had a black Friday all over again, or it was a black Monday all over again. We had a big drop on Friday and then the big collapse on Monday. So we had a boom and a bust, or rather a boom and the beginnings of a bust. The beginnings of a bust. We had the beginnings of a bust in the financial markets. And this was completely missed by mainstream economists. They immediately began calling for the Fed to add liquidity, quote unquote, to the system, to pump in new money, to pump up financial markets. And the Fed acceded to this and a recession was avoided in 1987.

13:46and we had some inflation in 1987 and 1988 but once again in 1988 or at the end of 1988 the Fed began to turn deflationary again, 1989, 1990, the rate of growth of the money supply, at least the TMS figure was negative and what we got was the recession of 1990, 1991. Now, let me just talk a little bit about the 90s. People have been worrying from about 1991 or so, 1992, about when inflation is going to break out, right? Consumer prices have not been increasing at very high rates, and yet the money supply has been increasing very, very, very rapidly.

14:35But even last year, and even into 1995, there's been talk of this re-emergence of inflation. And people in the last few months finally believe that inflation might be dead. Well, the point is, the inflationary boom was, and we all missed it. The inflationary boom, or the mainstream economists missed it. The inflationary boom of the 1990s occurred from 1991 through 1993. Just to give you an example, the money supply increased at 10% per year in 1991, at almost 13% per year in 1992, and about 7% in 1993, very rapid rates of inflation. For various reasons, again having to do with the good side of the economy, what's happening to the prices of various goods on the world markets, We didn't see this in the form of rapid rates of increase in the consumer price index.

15:34However, we did see a rapid decline in interest rates, even long-term rates came down over that period. So we also saw a stock market boom during that period, and we saw the U.S. dollar collapsing during that period. So, inflation reared its head again in real estate markets, stock markets, bond markets, and so on. But it was conspicuously absent from the consumer goods markets, which is what, again, most mainstream macroeconomists focus on. Now, in 1998 and 1994, the rate of growth of the money supply was actually negative, whether you look at M1 or TMS, which I prefer, which is a much broader measure of the money supply.

16:22It includes currency, it includes demand deposits, it includes savings deposits, it includes savings bonds and a few other elements. And in 1995, the first half of 1995, the first six months, M1 has shrunk by about near 1% and the TMS figure has shrunk by about 4.5%. So, from the perspective of Austrian economics, we would expect, if this policy isn't reversed, a recession, not an inflation. There might be some catching up of prices because of the rapid rate of increase of the money supply in the early 90s, but we can expect recession to take hold if the Fed doesn't reverse its policy, and that's very open-ended and I'm not trying to predict, but the point The point is that we have begun to see various elements of recession hitting in the auto industry and in other industries.

17:23So the future of the dollar depends, as we should have learned by now, on what the Fed is going to do, on how enthusiastically Alan Greenspan is going to support President Clinton's campaign for re-election. Clinton, or as any incumbent president would, wants a monetary policy that's going to make sure that there is prosperity going into the election. Certainly in the last year before the election, you want a prosperous economy to be able to point to. So what's going to happen to the dollar depends on an Alan Greenspan. It's a Greenspan standard. Now what should we hope for? What should we want? Should we accede to this system in which the actions of a few men and women who are not accountable to Congress determines the value of our money, and not just the value in terms of the price level, but what happens in all of our markets, real estate, bond markets, stock markets and so on?

18:31The enormous power exercised by the Fed is the essence of the Fed's function. In other words, the essence of the Fed is to create inflation. You have to keep in mind the fact that the Fed does not fight inflation. It's absurd when they claim that, well, certain governors of the Fed are inflation hawks. They rabidly oppose inflation. That's nonsense. The Fed is the source of inflation in today's American economy. The Fed and no one else can create inflation. Now the monetarists would ask the Fed to use its power wisely, prudently, to increase the money supply at relatively low rates so that prices remain fairly stable.

19:21Even if the Fed listened to this council, it would still not bring about an optimal or an efficient operation of our economy, because the Fed's actions, as I pointed out, have effects in other markets, no matter how slowly the rate of increase in the money supply. When the Fed increases bank reserves, which then allow banks to increase their loans, They inevitably bring about a fall in interest rates, and that fall in interest rates stimulates businesses to invest in areas where they would not have at true free market interest rates. Interest rates that reflected people's savings preferences. So you're going to still have this sort of instability in the economy, whether or not the monetarist's advice is followed.

20:13And it's very unlikely that it will be followed. There will always be a reason to depart from this rule of increasing the money supply at low rates. That is, for example, bailing out Mexico, as we did, as Lew Rockwell pointed out. That results in an increase in the U.S. money supply. It's an emergency situation. There will be pressure on the Fed to engage in this sort of activity to prevent the failure of U.S. banks. So they would depart from the rule very naturally. We also have the element that I spoke about earlier today, that of exchange rates varying in ways that injure some areas, some sectors of the economy, and which brings pressure to bear then on the Fed and on the government to do something about the instability of exchange rates.

21:03In fact, since early 1995, before the value of the dollar began to firm up and depreciate, The Clinton administration used the depreciating dollar as a weapon against Japan. Not only did we not do anything about the depreciating dollar to firm up its value, but it was actually welcomed by the Clinton administration because it made our goods cheaper. When our dollar is cheaper, our goods are cheaper and it made foreign imports more expensive. So with the Japanese economy still in a recession, their auto industry was very sensitive to to the fact that the high prices of Japanese autos in the United States, because our dollars bought so little, will cause a further decline of profits for these Japanese companies.

21:54Right, so it's clear that not many people want to continue in the system that we have today. What are the alternatives? There are two alternatives that really haven't been tried. Global Fiat Currency, and we might call it the 100% gold standard, which Professor Rothbard, when he was alive, so vigorously propounded. Let me just say a few words about the global fiat currency. As I mentioned earlier today, this was the dream of John Maynard Keynes. When exchange rates fluctuate against one another, as they do now, some countries will find that they're inflating more quickly than other countries.

22:43That is, their policies are not coordinated. And when that's the case, the values of those more inflationary currencies will be going down. Now, there are some reasons for preferring that on the part of governments. That is, it helps their exports and so on. But when exchange rates fall too rapidly or depreciate too rapidly, If you look at it too rapidly, it brings up the specter of capital flowing out of your country, of foreigners and your residents pulling capital out, as happened to Mexico in late 1994 and 1995, in which case your currency goes into free fall, the value just plummets, and there's a self-reinforcement, that is, more people flee from your capital markets and your interest rates skyrocket. So to avoid this, I mean, this is really the one virtue of fluctuating exchange rates, Inflationists to some extent, within very wide limits, have their hands tied regarding how much inflation they can indulge in, because they're fearful, they're always fearful that their currencies could go into free fall.

23:47Well, Keynesians, seeing this and being inflationists to the core, want to coordinate policies. That is, they want all countries to inflate at the same rate, and the way to bring that What I'm talking about is to have one central bank issuing some sort of paper reserves to the rest of the world. Keynes, as I mentioned this morning, called it a Bancor. He wanted the name of this world currency to be Bancor. From bank, gold, or is the Latin for gold. and the American negotiator wanted UNITA and recently the British magazine The Economist came up with the term Phoenix, okay? Fiat currency rises from its own ashes, okay? As quickly as it destroys itself, it re-emerges.

24:40Whatever it's called, what would happen is basically that you would have a world bank printing up these reserve currency units and then allocating them to the various countries, central banks of the world. And those central banks would then use them as reserves to back their own currencies. So their own currencies would then inflate on top of the paper currencies. There would be no problem of losing reserves from one country to the next. All countries will be able to pile or pyramid their currencies on top of these paper currencies, which are elastic. If one country has problems, balance of payments problems, these reserves can be printed up and can be lent to that country.

25:27So this would be a lender of last resort. You wouldn't have to worry about the U.S. trying to court the ire of its taxpayers by bailing out Mexico. So now you would simply have the bailout occur through a technical operation brought about by some world bureaucracy. I don't think we want that. The Keynesian dream is bankrupt. I don't think it will ever be implemented because of national rivalries, national jealousies. The closest we've ever gotten to it, as I said, was the Bretton Woods system, and that collapsed. So I'm not worried that this is our future.

26:13Though, again, trends can change, ideology can change. There isn't as much of a push for this right now as there was a few years ago. What about the other solution? This is what I would consider to be a utopian solution, but in some sense, I know this is an oxymoron, a practical utopian solution. Practical in the sense that it's within our grasp and that it will present us with a monetary system that allows our economy to operate efficiently, as efficiently as is possible in a world of uncertainty. It's not to say that entrepreneurs will not make mistakes under this monetary system, but they will be able to calculate.

26:58They'll be able to calculate without any diversion from artificial interference with interest rates. They'll be able to calculate their revenues and their costs. So production will be efficient in that sense. Let me just talk about how we might go back to this system. You have, most of you probably have seen Murray Rothbard's pamphlet, The Case Against the Fed. There he has a plan to go back to the gold standard, but truly only a plan to go back to a classical gold standard under which there still exists fractional reserve banking, though it does involve the abolition of the Fed. In earlier work, The Mystery of Banking, Professor Rothbard talked about a plan to reinstitute a 100% gold standard, Meaning that not only do we denationalize money, separate it from the state, separate it from the US government, but also in one fell swoop get rid of the fractional reserve banking system.

28:03Let's look at how we go about this. Right now, there is approximately 260 million ounces of gold that is owned by the Fed. It's held by the Treasury, but it's owned by the Fed. Actually, most of it is not in Fort Knox. Most of it is actually, I'm sorry, million ounces, not dollars. Most of it is in the New York Federal Reserve Bank. Now, if we take a definition of the money supply, that includes currency, that is the paper Fed notes that we all use, plus demand deposits, that is our checking accounts at regular commercial banks, plus other checkable deposits, that is checking accounts at savings and loans and so on, We find that there's approximately $1.134 trillion in this definition of the money supply.

29:09Now, if we were to continue to value gold at its old official price of $42, which is what it's on the books for now, that would give us nowhere near a value of gold that was sufficient to back up all currency and checkable deposits. But we don't have to be stuck with this. We don't have to feel that we're tied into this value of gold, this price of gold. It's arbitrary. If it ever meant anything in the past, the government has inflated the money supply so much that this historical price of gold is simply irrelevant to today's circumstances. So, the first step that Murray- 10% reserves, approximately, yeah, right, in other words, all you would do would be to divide 260 million into 1.134 trillion and it would come up with approximately $4363.

30:33Now let's avoid the transition, let me just abstract the transition problems for a moment, it is per ounce, let's just step back for a moment. Preliminary to doing this, you would want the Fed to stop increasing the money supply. To do that, you would restrict the Fed from ever again purchasing any government securities. The Fed increases the money supply by printing up reserves and purchasing government securities with them. Basically, by writing a check on itself and buying government bonds from bond dealers or from the banks. Prevent them from ever doing that again and you have in effect prevented them from ever creating reserves of the banking system.

31:22Now they can also increase the money supply by lowering the reserve requirement. It's approximately 10%. That is, banks must hold about 10% reserves for every dollar of deposits. Which means, again, I don't want to get into the technical end of it. It means that the banking system can, for every dollar of new reserves created by the Fed, it can create 10 new dollars of checking account money. You can prevent, you can freeze the reserve requirements. And finally, the Fed can also lend money to the banks through discounting, discount operations, What you can do is you can make that unprofitable by raising the discount rate above the market rate, above the prime rate. Make it a penalty rate as it was originally conceived to be.

32:07In which case you would basically freeze what we call the monetary base, the amount of bank reserves in the system plus the amount of currency. And you would effectively then freeze M1. Now, the Fed has a lot of assets, the biggest component of which is all the government bonds that it owns and which you and I have to pay interest on. What happens to that interest? The interest that the Fed earns on those bonds, which is purchased by simply writing checks on itself, creating reserves out of thin air, That money goes to fund the cushy salaries of the Fed bureaucrats and to fund their very plush plan.

32:53The rest goes to the U.S. Treasury. We can just cancel those bonds. Just get rid of it. Just write them off. And we can then proceed to liquidate the Fed. That is, the Fed would then have to distribute the gold for the reserves that are held by the banking system in exchange for currency. for Currency. So the Fed notes would all be turned in for at the rate of one four thousand three hundred sixty third ounce per dollar. Okay, four hundred, basically one fourth forty three hundredth ounce per dollar. Then people would have, then we would have this score to the gold. People will have gold in their hands.

33:46Initially you might want some agency of government to mint these coins. But after that, certainly they can be minted by private firms. So you would have gold coins in circulation. Now what would people do with these gold coins? They could then deposit them in banks, with the requirement that if they're deposited in checking accounts, Well then the banks must hold the full amount of gold to back up the dollars issued. So if for every $4,300 of banknotes, private banknotes now, Chase Manhattan, First National Bank, for every $4,300 worth of banknotes, they would have to have on hand one ounce of gold.

34:37For every $4,300 worth of checking deposits that are deposited with them, they must hold a full ounce of gold. So you would get 100% banking. Now there's something else that has to be noted here. We have a lot of savings deposits at banks, which can be withdrawn at any moment in time. They're pretty much like checking deposits in that people can redeem their savings deposits bank deposits instantaneously. Right now, their reserves, or the legal reserves of savings deposits are zero. The banks don't hold much reserves for savings deposits. You might want to insist that these savings deposits be transformed into certificates of deposit.

35:26That is, people can no longer instantaneously withdraw them. They must now wait 30 days or 60 days. The bank can negotiate for higher rates of interest for longer periods of time. In any case, the bank would now then be divided into two parts. On the one hand, there would be a deposit department, which would hold 100% reserves against the liabilities, against the checking deposit money. And on the other hand, you would have a loan department. If people wanted... Now, in the case of checking deposits, we would no longer earn interest on our checking deposits. In fact, you'd have to pay a small fee to have your gold stored in these banks.

36:14On the other hand, if you wish to earn interest, the bank would be free to offer certificates of deposit. would be free to accept your deposits for periods of 30 days, 60 days, 2 years, 5 years, with the explicit contractual obligation that they will redeem them only at maturity. So then, based on this time profile of certificates of deposit, they could make loans of longer or shorter duration. And now this would not be inflationary. In other words, if you were to purchase a certificate of deposit for a full year from a bank, a one-year certificate of deposit, the money that you invested would no longer be accessible to you at all.

37:05The money would be transferred from your cash balance, from your money holdings to the money holdings of the business firm that borrowed that money. In other words, these transactions would no longer have an effect on the interest rate. They would not drive the interest rate down. Certificates of deposits would express people's true preferences for saving. So the interest rate that emerged on this credit market, from which you have barred the expansion through multiple expansion of bank credit, those markets would reflect people's true time preferences, we call in Austrian economics their time preferences, the degree free to which they're willing to postpone their present consumption.

37:50And the interest rate would then be a genuine interest rate. So you would no longer have the cause of business cycles operating on these markets. Also banks and other institutions would be free to offer money market mutual funds. People who want more liquid investments than certificates of deposit might wish to invest their saved funds, or a portion of their saved funds, in money market mutual funds. Money market mutual funds are typically invested by the fund manager in short-term, high-grade corporate debt, such as commercial paper, in short-term government securities, and so on.

38:37Now, during the chaos of the 1980s, not one money market mutual fund went bankrupt, and yet they were not insured. Well, why was that? Well, it was precisely because they were not insured. Without insurance, they were very, very careful about where they were investing. They didn't take large risks for high returns. Customers didn't see the FDIC sign and therefore didn't blindly trust these institutions. They read the prospectus and they were very careful about choosing money market mutual funds. In the last few years there have been one or two, or maybe even more, a handful of money market mutual funds that were unable to pay out the full investments of their shareholders, but the fund managers bailed them out.

39:30In other words, they were privately bailed out by the funds themselves. A money market mutual fund does not guarantee you, by the way, that your principal will be paid back. In other words, unlike a bank deposit, it's not a right, when you buy a money market mutual fund share, you do not own a right to a fixed amount of currency. If you invest $10,000, what you own is a certain portion of the asset portfolio, portfolio, a certain proportion of the various commercial paper investments and so on. So that if they lose money, then that is reflected in your interest return and possibly in your principal. One firm, Money Market Mutual Fund, that was liquidated, the only one I know that didn't pay off the full $1 on its shares, paid off something like 94 cents, something like that.

40:26So these would be available, they'd be fairly safe, there'd be sort of an intermediate between a certificate of deposit and an investment in a checking deposit, and they would also serve to transfer savings from consumers, consumer savers to business firms. So we would have a thriving capital market, in other words, having a 100% gold standard Professor Rothbard does not cut off banks as financial intermediaries. They would still operate as financial intermediaries. But they would have to be sure to match the maturities of their assets and their liabilities. If you promise to have something available instantaneously whenever someone writes out a check, then you must actually have it available under this system.

41:20Now, Professor Rothbard also put forward another plan which would involve a lower price of gold and that plan was basically only to increase the price of gold so as to back up only Fed liabilities, the Federal Reserve system's liabilities, basically the currency plus reserves, the bank's reserves. The bank's reserves are only 10%, as I said before, of their checkable deposits and demand deposits. So, the total here, instead of 1.134 trillion, is around 400 billion. Now, if you divide that by the 260 million ounces of gold, the price that is required is much lower. I think it's in the last chapter of that case against the Fed book.

42:07I know, it's about $1,500. Yeah, okay, let's say it's $1,500. Okay, $1,500 per ounce. But then you'd be left with a system in which, and I can't believe that he would be serious about this, or wouldn't see that people would now notice that the Fed was no longer a lender of last resort. The Fed was liquidated. There was no possibility of creating new reserves. Also, of course, we would phase out and federal deposit insurance. So I would see bank runs occurring in the system pretty quickly. In other words, the amount of gold would be 400 billion and the amount of instantaneously redeemable liabilities of the banking system are up here around over a trillion.

42:53And it would turn out that any sort of an initial shock to the system could very well result in a panic that brings about a collapse of the system, so that people will only succeed in pulling out $400 billion. So we would have a massive deflation. Well, maybe that's what Murray's looking forward to. Obviously, high price of gold, given current economic relations. And what would happen would be that we would get a once and for all inflation of our money supply, as all gold was drawn to the United States, Unless other countries also tied on. But as people rushed, think about it, on the market, gold, they can only get $350 for gold, right? That's the market price.

43:39Okay, now if you bring it to the U.S. banking system, you can get $4,000, whatever it is. The gold is going to flow into, yes, right. I don't really care, I don't care if it's a once-in-a-full inflation like that. It doesn't occur through the credit markets. It doesn't distort the interest rate. If inflation ever could be benign, this would be the most benign. Yeah, that's true. I'm not denying any of that. Yes. Yeah, it's going to go. It could very well go way up. But what I think is that as the U.S. progresses towards this system, I think other countries will tie on. The demand for gold will increase, and so the market price will begin to rise towards this price.

44:26A lot of thought still has to be devoted to some sort of transition plan, but I think it's worth devoting that thought to establishing a money that will potentially become a global currency and a stable and non-inflatable global currency. I'll stop here and take any questions. We have about five minutes. Yes. It's going to trigger a series of inflation all over the world. The first thing actually is say you went gold and bought silver. Silver is going to move up to some sort of a ratio. You're going to sell silver back and play more copper. Right, I'm not denying that. Prices will rise. If you go back at this high gold price, dollar prices in the world economy will rise as the number of...

45:17Yeah, but it's almost a change in denomination rather than a true deflation. Okay, you're defining the dollar as much less gold. Yeah, you'd have a problem with debtors and creditors. Again, it has to be a lot of thought put into any sort of transition plan at such a high gold price. But I think the alternative is some sort of massive deflation. Inflation. Thanks.