ASH BENNINGTON: Welcome to Real Vision. I'm Ash Bennington. Today, we're very excited to host this important
debate about the nature of money. We're going to touch on Austrian economics
modern monetary theory. This is going to be the Thrilla in Manila
for macro. I feel incredibly fortunate to be hosting
this conversation. It takes me back to my days running Nouriel
Roubini's macroeconomics [?], we have to absolutely fantastic guests, Mike Green, Chief Strategist
and Portfolio Manager at Simplify Asset Management, and Peter Schiff, Chief Economist and Market
Strategist at Euro Pacific Capital. Welcome to you both. PETER SCHIFF: Well, thanks for hosting this
debate. Happy to take part. MIKE GREEN: Thanks, Ash. Always a pleasure to be here. ASH BENNINGTON: Before we get started, I need
to do a quick shout out to one of our subscribers, Liam Cosgrave at Citywide Property Management
in the Bay Area, that's San Francisco for international viewers. Liam was interested in this topic and reached
out to both of you and he set up this conversation. We're very happy to have you here on Real
Vision having this, and thank you very much, Liam Cosgrave. PETER SCHIFF: Yeah, persistence pays off for
that guy. ASH BENNINGTON: Absolutely. By the way, as a note to our subscribers,
we'd love to hear from you. We love to have these conversations. Jump in if you have some ideas. If you have someone you know that you'd like
to get on Real Vision, reach out to us, we'd love to chat about it. Mike, to exactly that point, the nature of
money, are you an MMT guy? MIKE GREEN: I define MMT as what I call descriptive
and not proscriptive. It is an accurate description of the way the
monetary system works today, and it doesn't tell us what to do but it tells us how the
system works. From my perspective, to ignore how the system
works is foolish. We accept it, and then we decide what the
best way to use it is. From my perspective, the underlying character
that we are in today, we have a social good in the form of money that is primarily designed
for one purpose and one purpose only, to cancel obligations, whether those are taxes, or private
liabilities between two counterparties, where that's governed and administered by the state
and the legal system, that's what money is, is that which cancels debt. ASH BENNINGTON: A very crisp description there,
Mike. Peter, over to you. I know your background, very different, obviously,
coming from the Austrian side. Most people identify you with gold, tell us
about what your definition of money is and why it's so significant in your worldview. PETER SCHIFF: Yeah, well, first of all, I
might agree that the way the system is currently operating is what is making MMT popular. The problem is the system is not working. It's working for the government, but it's
not working for the economy. It's not working for the people. That's the problem that Austrian economists
understand and just to give you a cliff notes of what Austrian School is versus other schools
of economic thought, Keynesianism being probably the most
popular right now, but Austrians put the emphasis for economic growth on savings and production,
not spending and consumption. They look at all fiscal and monetary policy
that is trying to stimulate demand as being misguided, and actually counterproductive,
because they put the cart before the horse. Now, a lot of that stimulus comes in the form
of money. Hey, let's just print up money so that people
can spend it and that's going to grow the economy. The Austrians don't see any value added by
just printing fiat currency. Because when you print money, you don't increase
the supply of goods and services to buy with that money. All that really you have is inflation, you
just have more money chasing whatever supply of goods --- JASON ZIEMIANSKI: What we're showing you here
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to realvision.com, and see what you think. We look forward to seeing you there. PETER SCHIFF: increase the supply of goods
and services to buy with that money. All that really you have is inflation, you
just have more money chasing whatever supply of goods and services exists and so prices
go up. What money really is, is a way to facilitate
trade. It is that improvement on barter, so before
money was invented, if you were a chair maker and you wanted a pair of shoes, you had to
find a guy that made shoes that you liked, who also wanted your chairs. It was a very inefficient way to transact
business. When somebody realized, hey, wait a minute
gold is a very good commodity that we can trade in because it's easily divisible, it's
portable, it's value is stored, all gold is the same. You don't have to worry about your chair being
different or your shoes being different. Every ounce of gold is exactly the same, and
even if you yourself don't need the gold because you're not a jeweler, you're not making anything
with gold, somebody will. Of course, gold was a luxury good. Most people like to have things made out of
gold, whether it was jewelry, or other ways they were adorning their houses with it, or
whatever they had, gold was inlaid in a lot of goods. Everybody would want gold, whether you needed
or not. Using money, as opposed to barter was a big
improvement and of course, since Austrians look at economic growth as a function of capital
investment, which is only financed out of savings, you want to have money that you can
save, and it will store its value. When you're using gold as money, it's an ideal
mechanism for saving and so if you have more savings in an economy, you have more capital
investment, and then you have more economic growth. ASH BENNINGTON: Mike, it's interesting, because
you guys both framed this in very different ways. I didn't hear any direct disagreement. In terms of Peter's view about the supply
side and production, rather than something that comes from the demand side and consumption,
what are your thoughts about that? MIKE GREEN: I think part of the challenge,
and again, it goes back to how does the system actually work and what are the complaints? We can spend our time worrying that the current
system does not place appropriate limits on what the government does to stimulate. By the way, I actually agree that the way
the government spends money or the manner in which stimulus is provided can have a huge
impact but the idea that somehow or another, we need to go back to a system that derives
the value of money as a commodity or a barter or that the limitation needs to be the physical
dynamics, in my opinion, actually hurts our process. It requires us to move backwards to an extraordinary
degree in a manner that is unproductive. The way I would ultimately-- where I would
significantly disagree with Peter is I do think that governments can actually
positively influence outcomes. We've seen this in areas that have good governance,
like Singapore. We've seen this in areas that have bad governance,
many emerging markets that have failed to emerge, point to Zimbabwe for example. Those poor decisions in terms of how to spend
the resources of the state or how to allocate the resources of the state in support of the
private sector are really what the complaints are on. The rise of the Austrian School was largely
a byproduct of the work of Karl Menger in 1871 and the incipient collapse of the Austrian
economy following the Founders crash in 1871. It was built on the idea the government had
overreached and that the money had been spent in the wrong way. I don't necessarily disagree that sometimes
governments will improperly spend money, but I don't think the limitation is some commodity
function. PETER SCHIFF: Yeah, well, a couple of points
I want to make. First of all, on Singapore, there's an old
saying, I don't know if it's an old saying, I think it was Thomas Jefferson, maybe I'm
wrong but the government that governs best governs least. That's pretty much the success of Singapore,
or any country that has limited government is the less involvement the government has
in the economy, the more prosperity the economy enjoys. That is the secret of places like Singapore,
or like Hong Kong in that government was small. That was also a reason that the US prospered
during the 19th century. In fact, and this is a point where I take
exception, I think that you can't even argue, but I think the most prosperous period in
US history where living standards for the average American rose the most was probably
the period between the end of the Civil War, and let's say, the beginning of the First
World War, around that time period, and during that time period, you had phenomenal economic
growth, you have the whole transformation of the US economy through the Industrial Revolution
from a largely farm-based economy, but manufacturing economy. You have the invention of all sorts of goods
that previously never even existed. People's lives really got transformed, and
their living standards. That was also the purest gold standard up
until the beginning of the Federal Reserve. That was the purest gold standard the US ever
enjoyed and that was the most prosperous period in US history. Having gold as money was not an impediment
to economic growth. In fact, it helped foster economic growth. Despite all that rapid economic growth, and
also at the same time, America was absorbing millions and millions of immigrants including
all four of my grandparents who came to America during that period from Eastern Europe, lots
of people were coming here and the gold standard worked beautifully. More people coming, more goods and services
being produced, and consumer prices declined during that period. With all that economic growth, we didn't see
consumer prices going up, we saw consumer prices going down, we saw the value of savings
going up. I don't see how you can say that it would
be a step backwards to return to a monetary system that enjoyed so much success compared
to what we have now. The complete collapse and we go from boom
to bust to boom to bust, but we've basically hollowed out the entire US economy. Under this fiat system, we've gotten from
the world's biggest creditor to the world's biggest debtor. The standard of living of average Americans
has been destroyed by government. Now, a middle class family, you have two people
barely making a living. Whereas prior to that, one person could have
a job and support an entire family and have savings. I think that it's not a step backwards, it's
progress to go back to what used to work rather than continue what's failed. MIKE GREEN: Unfortunately, I'm going to have
to point out that that's coincidence as compared to causative so the same time period that
you were referring from roughly 1870 until 1920, it was also the invention of modern
sanitization. We decided that we were going to start boiling
instruments the doctors used to facilitate giving birth, we decided to introduce antibiotic,
not antibiotics, the antiviral components under Louis Pasteur and so bacteria was identified. That time period is the same time period that's
described so eloquently in Upton Sinclair's work highlighting how challenging that was
for the average American that they were stuck in the emerging factories and slaving away
as compared to having the idea of independent freedom. PETER SCHIFF: Remember, they weren't stuck
in those factories, they took those jobs voluntarily, because they were better than the alternatives,
which was working on the farm. A lot of people came here from Europe to take
those jobs. What you're describing was a worldwide phenomenon. The thing is, why did America succeed so much
more than the rest of the world? It was because we succeeded in limiting government,
we had more economic freedom in the United States. That's why people came here. It was to escape bigger governments in their
own countries to enjoy the freedom and the prosperity that went along with it here in
the United States. MIKE GREEN: Peter, I'm sorry, but that's just
historically inaccurate. You're absolutely correct that there was a
large scale immigration from Europe and elsewhere into the United States, but that was simply
because the United States had far greater land per capita available. The resources that exists in the United States,
having not been populated from time immemorial, or more accurately depopulated by smallpox,
freed up resources that allowed the capital labor ratio in the United States to be far
greater than anywhere else in the world. PETER SCHIFF: Well, they had plenty of land,
and like Russia. Look, it wasn't the land. It was the combination of limited government. If you have big government, it doesn't matter
how much land you have. You need freedom. Freedom is the key ingredient. That's what people wanted. That was a source of our prosperity. We didn't have taxes back then. We didn't have income taxes. We didn't have Social Security taxes, we didn't
have a Federal Reserve, we didn't have minimum wage, we didn't have any of the labor laws. We had a free economy, and that's what produced
our prosperity, not the fact that we had land, there's land all over the world. MIKE GREEN: It's just historically inaccurate,
but-- PETER SCHIFF: Well, it's not inaccurate but
anyway, let's disagree to disagree and go to a different topic. ASH BENNINGTON: I'm curious, with the past
as prologue here, I'm very curious to hear how each of you define the real world problems
that we're experiencing right now. One of the most extraordinary things to me
about the time that we live in is the incredible agreement we see on the political left and
on the political right, whether you listen to AOC and the squad on the one hand, or Steve
Bannon and Breitbart on the other, there's this extraordinary agreement about how American
workers right now are really suffering the hollowing out of the industrial base, the
extraordinary inflation in education and health care costs, and of course, in inequality across
the board. Many will point to Central Bank policy and
the absolute tear that US equity markets have been on while workers have just not participated
in that. How do you each define the problems that we
see right now? PETER SCHIFF: Well, it's ironic that you have
people like AOC and the left complaining about the problems that they themselves created. College tuition would not be so expensive,
but for government aid to education both subsidized guaranteed student loans and direct student
loans, that's why the prices have gone up. The same thing with health care. The free market would bring healthcare costs
down. It's government involvement. That is the reason health care so expensive. The biggest problem with the US economy is
all of the malinvestment, which is a Keynesian term, but it's the result of the artificial
suppression of interest rates that has screwed up our capital structure to the point where
the US is not really manufacturing, because we don't have the savings and investment to
sustain that. Of course, we have excess regulation that
helps make our manufacturing less competitive, but these artificial interest rates and government
spending have created a bubble economy that is based on consumption and spending. In order to run a consumption based economy,
somebody has to produce all the goods that we're consuming, and that is falling largely
on the rest of the world, a lot of emerging market economies like China. We run these enormous trade deficits so that
we can consume things that we did not produce and everybody has the service sector jobs,
and we have this enormous government and it's this giant bubble economy that's sustained
by the artificial suppression of interest rates which continues to exacerbate these
underlying economic imbalances that ultimately are going to need to be corrected with a major
economic collapse. Part of the Austrian School is understanding
that a lot of these economic booms are the problem. They are created by government. When they bust, that is the free market trying
to fix the problems that were created during the artificial booms but then the government
steps up and tries to mitigate the recessions even though the recession is the cure that
we need but we never really cure the problems because we get government intervention to
try to make the problems worse. We've been doing that for so long that the
problems are now so big, that I think the next downturn from a monetary perspective
could be a fatal one and we end up with a hyperinflation situation, which will be catastrophic. ASH BENNINGTON: Mike, I want to give you a
chance to respond directly to Peter, of course, but also, if you'd like to take this opportunity
to talk about how you see the problems that are facing the country and
the global economy right now, I'd really be curious to hear you sketch that out from your
perspective as well. MIKE GREEN: I think that there's a lot of
similarities in the way that we would diagnose the problem. I agree that we have an intervention as the
Federal Reserve that has decided that they cannot allow a financial crisis to emerge. They have become progressively more aggressive
in terms of their reaction function, rapidly cutting interest rates supporting through
QE or other processes. Whether that is what's the cause of our current
boom, and I would broadly look at the environment and say, as you know, I have very different
views of what's causing much higher equity prices, for example, what's causing asset
prices, by and large to respond. I think the Fed's reaction function of providing
a bond that rises in price when disaster occurs, so lowering interest rates in response to
financial crises, creates a diversifying asset that actually hedges your portfolio with positive
returns encourages leverage in the system. That will come to an end. I think Peter and I are in agreement on that. In terms of the underlying characterization
that today's world is that much worse than times in the past, I just don't actually agree
with that. I think, understandably, many people are frustrated
by their inability to participate in the economic system to the extent to which their parents
did, etc., but I would largely tie that back to the fundamental mistakes that we're making
in terms of the treatment of capital in our society. Again, going back to the 19th century, the
critical input was not actually whether we had minimal amounts of government or maximum
amounts of government. The critical input was that the United States
attracted extraordinary amounts of human capital in the form of Peter's grandparents, or half
of my grandparents, individuals who chose to be here and chose to work and put their
resources to use. Raising that human capital component is what
we need to do. Unfortunately, I think that the government
can play a role in that. We can choose to stop subsidizing retirement
and protecting the financial assets, as we have done and instead choose to devote those
resources to educating our children and encouraging household formation so that people can get
busy in the economy creating value. PETER SCHIFF: Right, but remember, those things
will happen on their own. When my parents' grandparents came here, they
didn't speak English, but nobody educated them. They educated themselves. There was no welfare. There were no caseworkers. Nobody helped them. They had to help themselves to the extent
that they could rely on other family members who had moved here before them. Yes, you had that, but everybody was self-reliant. We were a nation of rugged individuals, and
that's why we succeeded and prospered. We need to recreate that environment again. The problem today with immigration isn't that
immigrants are coming, it's why they're coming. A lot of them are coming to be on welfare,
to get government benefits, take away those benefits, let people come here to work and
have opportunity and we want all the people we can. The problem is now that we've become a welfare
state, instead of getting people coming here that want to work, sometimes we're getting
people here that just want to be on the dole, although I don't want to belittle the fact
that there are a lot of people who are coming here who are actually working, and they're
taking jobs that Americans won't take, because they get a better deal for the government
to not work, and they work illegally and they do a lot of the things that we take for granted. MIKE GREEN: I just fundamentally would highlight
that, yes, you are correct. The US was built in the 19th century and rugged
individualists who are willing to pick up and separate themselves from familial ties
for the opportunity of a better life in a different place. We can't recreate that. That's one of the challenges that we face. We have expanded within our borders, we have
filled out most of the land that is available, we are in a situation in which the growth
in the United States via immigration is a fraction of the levels that it's been historically. Clearly, they're not being attracted here
by the desire to live off the dole, because lots and lots of people would have the interest
in doing that. What we actually are creating is a situation
in which it is increasingly difficult for a family to choose to have children, to have
adequate housing, to educate those children properly, etc. I agree that many of the interactions that
we have with the government harm us in that process, but the least of the concerns that
I have in that is whether the dollar is backed by gold. PETER SCHIFF: Well, one of the reasons the
government has been able to so undermine our productivity and lower our standard of living
was because we haven't been on a gold standard, because the gold standard imposes discipline
on the government, because in order for the government to spend money, it must first collect
the gold, it has to have gold. If the people have it, it has to raise taxes,
but once you go to this fiat based system, and the government could just print whatever
it wants and spend that, now the government is free to interfere to a much greater degree
in the economy. Now, it's not that we get all that government
for free, because they print money. No, they're stealing our purchasing power. It's called inflation, the cost of living
is going up because the government is making everything more expensive by printing money. It doesn't necessarily mean that prices went
up because a lot of times, they're simply negating prices that would have gone down. Because before we had all this fiat money,
when we had real money, prices went down every year. Things got cheaper. The cost of living went down and that's a
great thing, because that meant people had higher living standards. When you go to a fiat system, and the government
keeps printing money, the average American is robbed of the benefit of a reduction in
his cost of living. You don't have a higher standard of living. If we could reimpose monetary and fiscal discipline
on the US government, then the government would stay smaller, and the economy could
grow larger. MIKE GREEN: Yeah, again, I think we're just
at an impasse here, because I don't think we're operating off of the same sets of facts. If I compare living standards today to living
standards in 1973, one, I can't do an accurate comparison, in part because the goods, the
purchasing good basket is very different today than it was in 1973, and radically different
than it was in 1870. When I'm actually saying that the standard
of living is "lower" today versus sometime in the past, we live longer, in general, we're
healthier, our children survived to maturity in a way they
never did before. There's no way you can turn around and telling
me that living standards were dramatically better in the 19th century. PETER SCHIFF: I'm not making that argument,
because I'm not going to deny the progress that we've had from technology and all that. What I would point out is that had we maintained
the same degree of economic th th
freedom in the 20 century that we enjoyed in the 19 , we would have a far higher standard
of living than we do today. Because you have to look at the trajectory
and extrapolate where we would be. I wonder how many products didn't get invented
because government regulation interfered with it. We would be a much more prosperous society. What I want to go back, let's say to the 19th
century, I don't want to give up 21st century technology or innovation, I just want to go
back to the 19th century freedom. I want to shrink government back down to the
size it was back then. It's not a big interference in the economy. I want to unchain people from government. I don't want people that have to pay income
taxes. I don't want people to keep books and records. I don't want people have to pay Social Security
taxes. I want to free people up to save for their
own retirement, not rely on a government Ponzi scheme. If we could go back to 19th century freedom,
and still maintain 21st century ingenuity or whatever the progress was, then we will
have a much more prosperous society and a lot of the problems that people have now are
going to go away because capitalism will solve those problems. Capitalism can't solve them now because government
is in the way. ASH BENNINGTON: Talking about solving those
problems, now that we've mapped out in detail what both of you see as the challenges that
we face, what would the solution set that each of you think about specifically look
like? PETER SCHIFF: Well, to me, the solution is
to stop centrally planning interest rates, the Federal Reserve needs to let the market
set interest rates just like the market sets the price of everything. The market should set the price of money,
not a group of individuals in Washington, DC. It's like a Soviet Politburo deciding how
much bread should cost. Well, if the government just price fixes something,
it's not going to get the right price, and there's going to be a shortage, there's going
to be a surplus and so we have to store the economy. Because interest is so low, nobody saves. Because interest is so low, you have all this
debt. We don't have enough savings, we have too
much borrowing. That's the big problem in the US economy. Interest rates have to be allowed to rise
and now people will save more and borrow less. But when interest rates rise, asset prices
are going to have to fall and we're going to have to deal with the consequences of falling
asset prices and a lot of the bankruptcies that that's going to entail because a lot
of people have levered up to the hilt, thanks to artificially low interest rates. When interest rates are allowed to rise, they're
going to be defaulting, lenders are going to lose them, and we're going to have to go
through a protracted period of downtime to correct all these imbalances. Then we need the government to free up resources
back to the private sector, we need massive cuts in government spending so that those
resources can be freed up to the private sector to be used more productively. There
are free market solutions, but we can't get to where we want to be from where we are now
without going through some problems. Just like if you're high on drugs, and you
want to be sober, you're going to have to kick the habit and go through withdrawal. That period of time isn't pleasant but it's
worth it based on what awaits you on the other side. I'm willing to go through a tough economic
downturn knowing what awaits us on the other side of the downturn once we can restore a
balance to it and have a healthy economy, but we're not doing that. To bring it to the MMT, the problem is, you've
got all these people now, who believe that, hey, it doesn't matter, deficits don't matter,
we can have whatever we want, all we have to do is print money. As long as we borrow in our own currency,
we never have to default because we can always print. If we continue to go in that direction and
instead of going back to sound money, we just print even more funny money, and we keep interest
rates depressed indefinitely because we're afraid of economic reality, that's what leads
to a hyperinflationary nightmare. That is what the people in MMT overlook, is
that, yes, a central bank can print all the money it wants, but it can't give that money
purchasing power. At the end of the day, it's not how much money
you have, but what you can buy with it. If you print too much money, you can't buy
anything with it, because nobody will accept it. MIKE GREEN: I just have to push there for
a second. Peter, you highlight the idea that we're going
to liberate interest rates, and theoretically, they're going to rise in response to the reduction
of the artificial downward pressure, that's going to lead to corporate bankruptcies, personal
bankruptcies, etc. What happens to those individuals? PETER SCHIFF: Well, it's better than having
hyperinflation but in most cases, let's say, I took out a loan from the bank to buy a house,
and interest rates go up and real estate prices crash, well, is the bank really going to foreclose? What do they want with the house? Everybody else is in the same boat that I'm
in. What would most likely happen is the banks
are going to write down the mortgage and you don't necessarily have to leave or even if
you had to leave, you can rent the place. MIKE GREEN: In order to rent a place, I need
to actually have a credit report that says I'm not a bad credit. PETER SCHIFF: No, no. Well, look, but if a lot of other people have
are in the same situation, I'm a landlord, if all my potential tenants have just gone
through the same downturn, well, who am I going to rent to? Like my father lived through and he's telling
me stories about the Great Depression. You have to hear from the people who experienced
it, but the free market, people work things out. If they didn't have money to shop, it was
like, okay, pay me when you have it. The landlord, I can't pay the rent. Okay, well, let me know when you got it, because
it was like so many people were in the same problem that if, well, I'm going to kick out
my current tenant, well, who am I going to replace him with? The free market has a way of sorting a lot
of this stuff out. We would have been much better off had the
US government stayed out of the housing bust of 2008. Of course, they caused the crisis by keeping
interest rates artificially low and subsidizing mortgages but even though they caused the
crisis, they could have let the free market sort it out, rather than inflate a bigger
bubble. The idea that we can't face economic reality
because it's too painful, and so we're going to keep on printing money to delay the day
of reckoning, at the end of the day, what ends up happening is far worse than what would
have happened if we just bit the bullet sooner and dealt with it. To delay it and only exacerbate the problem,
that's the worst thing. That's what we've been doing. That's why the crisis that we're headed for
is now going to be so much worse than the one we would have experienced it had we experienced
it sooner. ASH BENNINGTON: Mike, let me ask you this. How do we know that Peter is not right about
this? Obviously, it's an unpopular message. It gets into the Andrew Mellon quote from
the Hoover administration, liquidate labor, liquidate stocks, liquidate the farmers, it's
never a popular message. How do we know that there's not some kernel
of truth in this, this idea that you effectively have an economy that is running on Federal
Reserve policy that's been goosed by the Central Bank, you have bad debts that never get written
off, and the system never has the opportunity to purge it. Not saying I agree, but how do we know that
that's not the case? It's a counterfactual, how can we know that
that's not true? MIKE GREEN: Well, one, it is a counterfactual. The second component is like everything, it
has any well- established meme, it has a kernel of truth to it. We are misallocating resources. There are better ways to do what we're doing. What I would argue that Peter is missing in
that transition is he and I are both wealthy. We have resources and reserves that we can
rely on in that period of transition and like many plutocrats throughout history, we will
take advantage of that opportunity to cheaply snap up properties as I did in the aftermath
of 2008. I'm sure Peter did as well. Alright, so we will become more powerful because
of that relative dynamic. I'm actually speaking against my own interest
and saying, no, part of the reason why you kick the can down the road is because you're
actually waiting for the fundamental innovation that can occur if you continue to employ individuals,
if you continue to give them the opportunity to participate economically in a system that
they could be randomly ejected from in the chaos that Peter is highlighting. PETER SCHIFF: To me, that's more like the
Bernie Madoff style of just, hey, if I do it long enough, maybe a miracle will happen. Eventually, I'll somehow be able to pay everybody. The longer you run a Ponzi scheme, it doesn't
come closer to working, it just becomes a bigger and bigger loss for all the participants
involved. I think people are being enriched now. The monetary policies that are being used
to delay the day of reckoning are enriching a lot of people as they're impoverishing others,
and we're about to see a very substantial increase in the cost of living in the United
States. Consumer prices are going to rise in the years
ahead in an order of magnitude that we've never experienced in the United States. These higher prices are going to impact the
middle class and the poor far more than they impact the rich. If we allowed for a deflation, that would
benefit the lower class, and that would actually hurt a lot of the rich who were overleveraged
in assets. We need to let these asset prices go down
and you have a lot of poor people that don't own any assets at all. In fact, they want to buy assets. The best way for them to buy assets is to
let the price come down. Now, those assets will become affordable. ASH BENNINGTON: Peter, to argue that the converse
of the point I just made, the reason that we have Keynesian economics in the first place
is the view of the total failure of some of the things that happened in the Great Depression
when you have systems that simply failed to be able to restart themselves. There's hysteresis in the system, you have
productive labor, you have productive capital, you have productive equipment and machinery
that just gets taken off the table. The system breaks down. There are failures in free markets as there
are failures in government. What do you say to this notion that the reason
that we developed Keynesian economics in the first place for all its imperfections was
because of the failures of free markets to address precisely the problems that you described? PETER SCHIFF: Well, that's just a common misperception
of history. You see what happened during the 1930s is
we didn't allow capitalism to work. What happened was when the Federal Reserve
inflated the stock market bubble in the latter part of the 1920s, and they did that by artificially
suppressing interest rates to try to help the British pound, which was losing value
against the dollar, and so we suppressed interest rates and we already had a booming stock market,
real estate market, and the Fed basically threw some gasoline on that fire with rate
cuts that really sent asset prices into bubble territory. When that bubble popped in 1929, the Hoover
administration did not want to liquidate the farmer, liquidate the banker. That was advice that he rejected, and Hoover
became a very interventionist president trying to stimulate the economy, mitigate the downturn. That was a sharp departure from what had happened
in the Depression that started in 1920. Nobody knows about that Depression, because
it was over very quickly but it began with an even sharper economic downturn than the
Great Depression. Because then, the Federal Reserve printed
a lot of money during World War I and they had a turn off the presses and tighten policy,
that sparked a big downturn in 1920 but the government in that case, did nothing to stimulate
the economy. In fact, the government actually cut spending
during that massive economic downturn, and it was over very quickly and then we had the
roaring 20s, but Hoover did not do what Coolidge did. Hoover interfered in the economy, and he prevented
a recovery from happening. Interestingly enough, when Roosevelt ran,
he pointed out those problems. He actually ran to say, hey, I'm going to
balance the budget. Look at these big deficits that Hoover is
running, we're going to balance the budget. He actually ran against the intervention as
policies of Hoover and then all he did when he got elected was expand those policies into
the New Deal. The reason we had a Great Depression was because
we did not allow the free market to work. It's because of Keynesian economic policies
that we had the Depression. We didn't actually get out of the Great Depression
until we ended the Second World War and we finally started to reduce government spending,
although it is certainly was a lot bigger than when the Depression
started. Everybody who looks back at the Great Depression,
and says, hey, that's a failure of capitalism. That's why we need Keynesianism. No. The Great Depression only happened because
of Keynesianism. Had we had a capitalist free market approach
to that Depression, it would have been over as quickly as the Depression of 1920. Again, by the way, the Federal Reserve started
in 1913, so we had that Great Depression with the Federal Reserve. Prior to the Federal Reserve, we didn't have
anything like that as far as severity. The Federal Reserve helped exacerbate the
problem as well. MIKE GREEN: There's an element of truth to
what Peter's saying. There is no question that Hoover was an intervention
as president who tried to stop many of the activities that we're broadly referring to
here, the dynamic in terms of the collapse, but the fundamental change that it continued
to occur throughout the 1920s and 1930s, it's not that the Federal Reserve cut interest
rates and caused a bubble. It was exactly as we're seeing today, we had
financial innovation in the form of unit investment trusts that deployed leverage to the purchase
of equity prices and drove prices dramatically higher. It was not a story of the Federal Reserve
stepping in, we had a housing collapse in 1925, 1927, they started the process of rotating
people into financial assets, away from real asset speculation in the rest of the economy,
the farming community had already begun to collapse in the 1920s. This was not a time period where the Federal
Reserve created a boom by trying to defend the--
PETER SCHIFF: Remember, even Alan Greenspan and in fact, a lot of my original understanding
of the Depression came from reading Alan Greenspan and Alan Greenspan was the longest serving
chairman of the Federal Reserve and he blamed the stock market bubble of the 1920s on the
Fed policy, it specifically blames the Fed and says that their policies spilled over
into asset bubbles in stocks and real estate. Here you have somebody who chairs the Federal
Reserve blaming that institution for that bubble and for the crash that resulted, but
Greenspan didn't think the mistake that the Fed made was raising interest rates, it was
cutting them too much in the first place. Then of course, ironically, he made the same
mistakes when he was Fed Chairman. ASH BENNINGTON: I think both Chairs Bernanke
and Greenspan agreed, though, that the failure to act in the 1930s to cut rates farther and
increased liquidity, in their view, was an exacerbating factor for the continuation of
the Great Depression, particularly after 1937. PETER SCHIFF: Well, Greenspan certainly didn't
think that. Bernanke probably does, but not Greenspan. When he was Fed Chairman, he conveniently
got amnesia about a lot of stuff. Once he left his position, he started to remember
a lot of what he pretends that he forgot, but he is an Austrian. He was an Ayn Rand free market guy and so,
I think that if you had a private conversation with Greenspan about the Great Depression
and even about the Financial Crisis, there would be very little where his opinion would
differ from mine. ASH BENNINGTON: They actually knew each other
quite well. PETER SCHIFF: Yeah, they did. MIKE GREEN: We're talking Greenspan and Ayn
Rand? PETER SCHIFF: Ayn Rand, yeah. MIKE GREEN: Look, I would just highlight that
Peter is relying on the analysis by a Federal Reserve Chairman that he thinks are not worth
anything today, to highlight that that's the cause of what happened that they've appropriately
identified. I don't think that's true. I just don't think that's true. I think financial "innovation", and I use
air quotes around that, was the primary driver of the dynamics of the 1920s and the 1930s. PETER SCHIFF: Innovation is not a bad thing. Innovation is not a problem. MIKE GREEN: I can innovate by going out and
saying, hey, guess what, I'm going to offer 100% returns
on investment vehicles. That's called fraud. ASH BENNINGTON: You can also innovate by introducing
100 to one leverage in a system that-- PETER SCHIFF: A lot of that is impossible,
but for the Fed backstopping the market, there's a lot more reckless risk taking. Why do you think-- look, all the banks now,
the deposits are guaranteed, so nobody gives a damn what the bank does with their money
because the government has guaranteed all the deposits. If we didn't have government guaranteed bank
deposits, then people would be more cautious about which financial institution they deposit
their money in. If the financial institutions would have competitive
pressures to not speculate, but when no one gives a damn about risk, then everybody just
goes for return and we have all this leverage now unprecedented because of all the government
guarantees and backstops and subsidies, we had some of that, but to a much lesser degree. If you look at all of the money that was lost
in all of the banks that failed during the Great Depression, without any FDIC insurance,
I think the total amount of bank deposits that was lost throughout the Great Depression
was less than 2%. Americans are going to lose more than 2% of
their bank deposits this year through inflation. Because remember, during the 1930s, the money
that was in the bank gain value. We had big reductions in prices during the
1930s, so money gained purchasing power. Right now, our money's purchasing power is
being destroyed. You get no interest on your bank deposits
while inflation is eroding away their purchasing power every year. ASH BENNINGTON: Peter, I'm curious what your
thoughts are about the Hyman Minsky model that talks about debt deflation, and the risks
that occur when debts begin to rise faster than earning power. PETER SCHIFF: Well, obviously, if the reason
that-- or one of the reasons that the Federal Reserve is artificially depressing interest
rates is because it recognizes the enormity of the debt that everybody is
carrying. The individuals, corporations, the US government,
the only reason a lot of debtors can continue to service the debt is because the payments
are so low. We found out during the housing crisis, when
you take out a teaser rate on your mortgage, when the teaser rate matures, a lot of people
can't pay the mortgage, but a lot of people didn't care because they figured, well, the
house price is going to go up and so I'll refinance or I'll sell at a profit. When you have a lot of debt, the interest
rate is very important but even to the point where if the debt gets so large, that even
at such low interest rates, you can't afford to make the payments. During the housing bubble, a lot of people
would point out all this home equity because I kept saying we have too much debt. They would say, yes, but look at all the home
equity and I would always come back and say, well, the home equity is temporary, the debt
is permanent until it's defaulted on. You may have a lot of equity in your house,
but what happens if the market price of your house goes down, all that equity is gone,
but the debt is still there. What the Fed is trying to do is keep us from
insolvency by artificially suppressing rates, but by artificially suppressing rates, they
allow the insolvent to go even deeper into debt. Ultimately, when they do go bankrupt because
it's going to happen just by the law of numbers, when we all do go broke, it's a much bigger
crisis because we've accumulated far more debt. ASH BENNINGTON: Mike, I want you to have an
opportunity to debate here on the affirmative. You've been very descriptive in your analysis
of the historical function of the way markets have worked. I'm curious if we were to see someday Chairman
Green at the Fed, what's your prescriptive analysis for what this economy needs? MIKE GREEN: Ironically, this is where I think
that the frustration comes because I agree with some of what Peter is saying. It is very clear that the Fed has been captured
by the need to protect asset prices. But that's a very different statement than
saying that the Fed is artificially suppressing interest rates and driving all the behavior
that we're seeing. We have fundamental problems in the setup
of our society right now, where we have actually chosen to abrogate our responsibilities to
many of the individuals in our society. I would suggest Peter's suggestion that we
just allow ourselves to liquidate stocks, liquidate labor, liquidate the farmers, etc.
as the right prescription is just a further abrogation of that. The elites, unfortunately, of which I happen
to be one, Peter is one as well, have by and large checked out of the system and their
need to actually contribute back into it. We've chosen to create conditions, and it's
interesting to see the Biden administration begin to move in the direction of saying we
need to normalize tax rates so that corporations are not able to shop their tax rates all over
the world. We are creating conditions in the United States
where we are choosing to apply debt structures to decisions like student loans, or student
education that is just fundamentally a mistake. That's an investment in human capital that
should be treated as equity at the societal level. We can choose how we decide to allocate that
and reward it but ultimately, we need to encourage the free market and this is, again, to Peter's
point, to provide us with those solutions. Allow private sector individuals to subsidize
and pay for colleges and differentiate between somebody who's getting an engineering degree
and somebody who's doing an underwater basket weaving degree from East Bumblefuck University. The underlying characteristic is to allow
the return of the private sector, but to cushion that process and to encourage the fundamental
investment and innovation of the human capital and more importantly, actually, I would argue
at the energy level, that increases the resources that are available. That's what you need to do. It's a labor capital ratio, you can do one
of two things, you can increase the quantity of capital that is ultimately available, and
that can be in the form of better health, better human capital in the form of education,
it can be in the form of improved infrastructure, etc., that facilitates the creation of the
opportunities that allow us to get out of this. PETER SCHIFF: Yes, I 100% agree, but the best
way, or probably the only way to achieve that is through a free market. The government just has to get out of the
way to allow all that to happen. The free market allocates capital. It allocates labor. The government can't do it because there is
no profit motive to guide it. There is no pricing structure. The government has no way of knowing if what
it's doing is adding value or subtracting value, but the free market does, individuals
will pursue their own self-interest in a free market and people will get the education that
they need. Entrepreneurs will find ways of providing
it for a fee in competition with other entrepreneurs, but right now, we have the government erecting
all sorts of barriers to the things that you want. What we just need is to take down those barriers
so that the free market could do what the free market does best. What the government is supposed to do is simply
protect our lives, liberty and property. That's what it's supposed to do. It's not supposed to interfere to try to improve
our lives. It's simply supposed to protect our rights. MIKE GREEN: Unfortunately, I think that's--
again, we agree in a broader prescription but the mechanics of what you're describing,
Peter, are really, really hard to achieve. Does the government protect me against Google? Does the government action against Google? PETER SCHIFF: Google can't force you to use
their search engine. How's Google going to hurt you? MIKE GREEN: Peter, that is simply not true. That is simply not true. The world that we inhabit, in order for me
to be a productive member of our society, I have to use these services. I have to use electricity for my local utility,
I have to access the internet. I have to use searching. PETER SCHIFF: Right, but to worry about Google
and say, hey, we need this big, strong, powerful government to protect me from Google, the
big threat to your liberty and freedom is the government, not Google. If we had less government, we probably have
more search engines. If we had fewer barriers to entry, if we had
no corporate income tax at all, if we got rid of a lot of these rules or regulations,
we'd have a much more competitive free market and you would probably have more search engines. Now, of course, there are other ones, you
don't have to search with Google. There are other ones that you can use. Maybe you think Google is the best one, and
so that's why you use it, but Google doesn't even charge you. It's free. How are you complaining about something you're
getting for free? ASH BENNINGTON: Well, Peter, one of the questions
that occurs is the formation of monopolies in free markets. You could imagine, for example, a system where
you have to apply to a job through LinkedIn. If LinkedIn becomes the de facto monopoly,
is there a role, hypothetically, for government to play in regulating that market so there
is competition? PETER SCHIFF: History shows that generally
when there's a monopoly, it's because the government grants it. The same thing for cartels. Governments are great at selling monopolies
and then punishing people who compete with the entity to which they granted that privileged
position. To the extent that somebody achieves a monopoly
without any government protection, if somebody achieves a monopoly, maybe go back to John
D. Rockefeller, Standard Oil, to the extent that somebody achieves a monopoly by just
providing the best product at such a cheap price that nobody can compete, there's nothing
wrong with that. If you go back to the breakup of Standard
Oil, it wasn't Standard Oil's customers that were complaining, it was the competitors that
couldn't do as good a job. They were the ones that were complaining so
we busted up Standard Oil not to benefit the consumers, but to benefit their less efficient
competitors. No, I would have put my faith in a free market
to regulate competition, because whenever the government gets involved, it screws things
up. ASH BENNINGTON: So, you think that legislation,
Sherman Antitrust Act, Clayton Antitrust Act, things you do not agree with? PETER SCHIFF: Right. I think both acts should be repealed. The trust busting all that stuff, Teddy Roosevelt,
I think it was all a mistake, it was part of that whole populace movement that was a
step backwards for the United States. We lost freedom and it set us on the wrong
path. You think about all these businesses like
an example, I remember when Hollywood video I think in Blockbuster or something like that,
these two video stores and a lot of people watching this probably don't even know what
a video store is, because they never had to go to the store or rent a video. The US government blocked this merger, because
they said, well, you're going to have a monopoly in VCR rental. We can't allow you guys to monopolize, and
both companies, they ended up going bankrupt, because they were so struggling to survive
but they were trying to merge to get some economies of scale, but the government is
worried that somebody is going to monopolize an industry that a decade later didn't even
exist, because it got put out of business by Netflix or the internet. You have all this, at one time, the government
tried to break up General Motors. Oh, GM, you're going to have a monopoly on
cars. Think about all the automobile companies in
the world, and they wanted to break up General Motors? General Motors barely survived all this competition,
competition from Japan. This is all a farce, and it simply runs up
the cost. We should get rid of all this antitrust department,
we don't even need it. Companies want to merge, let them merge. Freedom is the best thing that we have, and
it leads to the highest living standards. If two companies want to combine because they're
going to be more efficient, let them combine. If they try to jack their prices up, well,
somebody is going to come in and compete. That's the beauty of capitalism. If somebody is earning an unwarranted monopoly
property for profit, well, money is going to
be raised competitors are going to be there, and those monopoly profits will be competed
away. It's only when the government erect barriers
to entry that the monopolist can maintain those excess profits. MIKE GREEN: That's again, you're now hearing
the idea that's effectively saying, hey, if we just create a free for all system, it's
going to work out great. I would highlight in the 1930s that Alcoa
which at the time was controlled by the DuPont family had the global monopoly on aluminum
production. Faced with the risks of World War II and the
clear rearmament of Germany, the United States went to Alcoa and said, you need to build
factories in the United States, you need to increase the capacity of aluminum because
we critically see this as a critical raw material that's going to be used in any future conflict. The response from the private sector was get
stuffed. Alcoa said we're not going to do it. We have plenty of capacity. We don't want to give up our additional production
capacity, and we have factories in Germany of all places that can serve the global demand
for aluminum. PETER SCHIFF: Well, I remember. I read the Alcoa case years and years ago,
but one of the things that I remember when the government went against Alcoa, again,
it was their competitors that were so upset at how low their prices were, like how good
they were and how cheap they were. They said nobody can possibly compete with
them, because they're just too good. We need to break them up because they're so
efficient, we can't possibly compete. To say that back then, America was a manufacturing
powerhouse. We flooded the world with low cost, high quality
manufactured goods. With all this antitrust and all the labor
unions and all the regulation, look at us now. Everything we used to make, we now import. Entire industries that we invented, consumer
electronics, all that stuff, we used to make all the cameras, we used to make all the television
sets in America. No, they didn't make them in Japan, they didn't
make them in Korea. We made everything here. Now, we don't make anything anymore. Back then, before they broke up Alcoa, so
to say, oh, they were moving stuff abroad, we had huge productive facilities here. Again, it's all these politicians, they want
to pretend that they're there to benefit the public, oh, we're going to do this. You're going to end up with lower aluminum
prices or lower telephone prices, we got to break up AT&T or whatever we're breaking up. At the end of the day, it's the free market
that delivers low prices, the government delivers high prices. As I said, look at education, look at health
care, look at the areas of the economy where the US government is most involved and that's
where you see the greatest increase in cost. If you look at areas of the economy where
the government has limited involvement, that's where you see improvements in quality and
reductions in price. ASH BENNINGTON: Mike, I want to give you a
chance to respond but also, as part of that, in the context of what we're talking about,
we've obviously gone a little bit to a different direction here with the broader role of government
about intervention, about what is optimal for creating markets and economies that are
most efficient, but you mentioned and you touched on Google. I'm curious about as you think about
this in the context of a very much 21st century digital economy, what is the role of government,
if any, in mediating these markets and creating level playing fields and intervening is in
your view? MIKE GREEN: Well, from my standpoint, part
of the underlying dynamic is that there have been a number of rulings along the way that
have given late 19th century, for example, the granting of corporate personhood, which
has been expanded dramatically. That creates the potential and the clear opportunity
for the regulatory capture that is really what Peter is describing. The current situation as it exists is it becomes
impossible. The reason why the competitors were the ones
complaining in the anti-monopoly cases, is because the risk for somebody trying to create
an aluminum facility, which requires a large upfront capital expenditure and an expectation
of some ability to maintain supply contracts was simply that the DuPont family or Alcoa
was going to cut prices. They react to it by cutting prices? Are customers going to complain? No. Does the competitor go out of business? Are they incapable of receiving funding in
the face of that type of competition? Absolutely. Is there a role to think about it beyond just
the single period dynamic? I absolutely think that is the case. People tend to think about evolution, and
I've said this elsewhere, people tend to think about evolution as progress. That's not correct. That's not what it is. Evolution is fitness within a regime. Large entities have the capacity to capture
regulators and capture a system and preserve a regime to which they are best suited preventing
a competition from coming in. PETER SCHIFF: Absolutely. Look, I'm in the brokerage industry, where
we're regulated by FINRA, and there's so much barriers to entry. In fact, many brokerage firms were driven
out of business, small ones, because they couldn't afford to stay in business. I ultimately had to sell my broker dealer
in part because I wasn't big enough to cover the much higher economies of scale needed
to cover my regulatory bill on an annual basis. The government drove a lot of people out of
the business. All this licensing for occupations, it's all
designed to limit the supply of a particular profession, thereby driving up its price. If we didn't have governments requiring people
to join particular organizations or to possess particular licenses, we'd have far more competition
and consumers would have a lot more choice. You'd have lower prices. One of the reasons to that a company like
Google can be so powerful is because its stock price is so high. Why is its stock price so high? Because interest rates are so low? Why is it harder for small companies to compete? Because there's no money for them to get from
the banking system because they can't sell bonds into the bond market. There's no real savings to finance smaller
startups, the money has to come from these VCs who get all this money from debt. When you have a company like Google that can
buy up its competitors with its inflated stock prices, that's one of the reasons it gets
bigger and bigger. You introduce sound money, you let interest
rates go up, and then you see those stock prices come crashing down then you're going
to have more competition in the market, and maybe there'll be more search engines for
you to choose from. MIKE GREEN: Again, this is part of the challenge
is that Peter and I just have a different diagnosis of what's underpinning the much
higher stock prices for companies like Google, etc. From my standpoint, it is very similar to
the 1920s that is ultimately tied to a "financial innovation" that we are seeing the dynamics
that I've articulated and have used to accurately forecast many of these phenomenon for years. We're seeing that play out in markets, and
the pushback-- PETER SCHIFF: You think interest rates have
nothing to do with it? You think, let's say if the Fed Funds Rate
was 8% now, instead of 25 basis point, you think the price of Google would be the same
as it is right now? MIKE GREEN: Well, first of all, I think if
the Fed Funds Rate were at 8%, that would have been set by politicians as compared to
regulators as compared to-- PETER SCHIFF: No, no, a free market. If you take the Federal--
MIKE GREEN: Let's just clarify, the Fed Funds Rate is not a market determined measure and
never will be a market determined measure. It is specifically the price that the Fed
is actually setting for-- PETER SCHIFF: Right, but if the Fed stops
setting it and allowed the market to discover it, the Fed doesn't have to expand its balance
sheet. If the Fed had maintained its balance sheet
at the same level it was before COVID, wherever we had gotten it down to, maybe it was 3.5
trillion. Now, it's 8 trillion. Had the Fed not expanded his balance sheet
and not bought any US Treasurys, any mortgage backed securities, where do you think interest
rates would be right now? MIKE GREEN: Probably negative. PETER SCHIFF: How could they be negative? The Fed was loaning all that money. The loans would have had to originate from
the private sector. You had the federal government interfering
in the bond market, buying up bonds to suppress yields to artificially prop up bond prices. If you think about interest rates as a price,
a borrowed money. Price is determined by supply and demand. If you have a country where hardly anybody
is saving, and everybody is borrowing, you should have high interest rates. Low interest rates should come about when
you have a lot of savings, but not a lot of people borrowing. That's a free market. What we have in America, nobody's saving and
everybody borrowing, interest rates need to be high. Of course, when you look at the government,
when the government had a $1 trillion debt versus now that it's 30 trillion, as you have
more debt, you are a greater credit risk. If you have more debt, there is a greater
likelihood that you won't repay or in the case of the government, that you will inflate
instead of repaying but in either case, as governments have more debt, the market demands
a higher rate of interest to loan that government money. Given all of the debt that we have, and the
dearth of savings, we should have very high interest rates. We should have historically high interest
rates. Instead, we have the lowest interest rates
in the history of the world. That is not a free market. That is all the result of government intervention. You have to know as a
portfolio manager that a stock represents the discounted value of its future earnings
and the discount is a function of the interest rate. By definition, the higher interest rates are,
the lower the present value of those future earnings becomes. The reason stocks are so expensive is because
interest rates are so low. You let interest rates go up, and stocks have
to go down. MIKE GREEN: Let's be very careful here in
defining what we mean by interest rates. You referred earlier to the Fed Funds Rate,
which is the cost of borrowing for the US government. PETER SCHIFF: Well, that's influencing the
cost that corporations are paying. You look at the rates-- MIKE GREEN: It influences
it, Peter, but it is not the determinant. There's also a credit spread. PETER SCHIFF: Yes, and those spreads are historically
low. Look at the [?]--
MIKE GREEN: Correct. The corporate credit spread, the private sector
credit spread is low because of the Fed intervention. That's not the question that you asked, you
asked me what interest rates would be doing. The question of interest rates refers to risk
free government bonds. PETER SCHIFF: Well, I mean a price occurs
for everybody. MIKE GREEN: No, I understand what you're saying,
Peter, but that's actually exactly the point. Had the Fed not intervened, what would the
demand be for riskless assets or safe assets relative to speculative assets? The demand would be extraordinarily high because
so many businesses had failed, the supply of debt would effectively become nonexistent
because the government wouldn't have stepped in to support the private sector with the
large issuance of increased debt or increased deficit spending. The supply of bonds would be lower, the demand
would be dramatically higher and interest rates would be lower for the government. They'd be dramatically higher for the private
sector, and you'd have tons of businesses that failed, you'd have tons of individuals
that were incapable-- PETER SCHIFF: Right, and stock prices would
be lower. MIKE GREEN: And stock prices would be lower,
but the interest rate, the Federal Reserve's interest rate
would be lower, possibly negative. PETER SCHIFF: Well, I don't mean to say that
it would be negative, I don't see how it goes there unless you have the artificially suppress--
MIKE GREEN: Enough demand relative to supply. PETER SCHIFF: Personally, I don't think so
because what I think would have happened is we would have had a far more protracted recession
and the US government would have had been in an even worse fiscal position that it's
in now and it may have started defaulting on its debts, and probably defaults on US
Treasurys, because absent the Fed, the US government probably would have defaulted. I don't think that would necessarily argue
for lower interest rates as people now are trying to unload what they thought was a risk
free asset, but now is not a risk free asset, because the government can't pay its interest,
because the only reason it could pay its interest is because the Federal Reserve is supplying
the money. Without the Federal Reserve, they couldn't
do it. But of course, our policies, the policies
that we pursued in the aftermath of COVID-19 was the opposite of what Austrian economics
would have called for. Because during COVID, people stopped working,
people stopped producing, so we made less stuff. The proper monetary policy was to contract
the money supply, so that the money supply would go down along with the production of
goods and services. In fact, that is exactly why the Federal Reserve
was created to provide an elastic money supply, which meant when the economy was expanding,
the money supply expanded, and when the economy was contracting, the money supply contracted. What we did is in the face of a contracting
economy, we massively expanded the money supply. There's no way the Federal Reserve ever would
have been created if anybody realized that's such a harebrained scheme would ever be tried. We are now going to experience the consequences
in that in soaring consumer prices, because we basically increased demand as supply was
going down and so now, we're going to have this huge imbalance. We have all this money, but nothing to buy,
and prices are going to go ballistic. MIKE GREEN: I think that's going to be interesting
to see. The same forecasts were made in the aftermath
of the Global Financial Crisis, we certainly did not see that. PETER SCHIFF: I know, I made them, I made
them, and I agree that I was premature. Some events transpired that I didn't forecast
but I don't think I was wrong. I think we're going to experience that inflation
in a much worse way now that we're going to have to include this new round. I think that did lull policymakers into a
false sense of complacency that, hey, we got away with it before, we printed all this money,
and we didn't have massive price inflation. That means we can print even more money now,
and we're going to have the same benign result. I think they're completely wrong and I'm already
experiencing that just in my personal life, and I get emails all the time about prices
just going ballistic, and you can't get stuff. There's so many things that I've ordered that
I'm waiting for, waiting months and months and months, and I can't get stuff because
there's nothing there. Because the supply isn't there. People are experiencing this all over the
country. It's not just a supply of goods that isn't
there, the supply of labor isn't there, either. With all these unemployed workers, businesses
can't even hire people because they don't want the jobs, because the government made
them a better deal. Stay home, and we're going to give you more
money than you'll get if you return to work. MIKE GREEN: Is that your forecast then that
this time, we will see soaring prices? PETER SCHIFF: Yes, we will. I think that last time, the government probably
mitigated a healthy decline in prices. Following the 2008 financial crisis, prices
may have declined, but for all the inflation that the government created, but part of the
inflationary forces were held at bay by our trade deficits, and because the dollar actually
rose. Something that I was not expecting, although
the dollar was at an all-time record low in 2008. We did get a big rise in the dollar, and that
helped mitigate the diminishment of its purchasing power, even though we printed more of them. I think we're headed for a dollar collapse,
and that's going to exacerbate the problem. Then ultimately, a lot of the inflation that
we exported is going to come back to us as a lot of our trading partners try to cash
in their US Treasurys to buy real goods and services in the United States. Not only are we going to be dealing with all
the money the Fed is printing, but we're going to be dealing with all the money that we exported
that's now going to come back to America bidding up the same goods and services. Yes, I think we're going to see an incredible--
the Fed is there saying that what we're seeing now is transitory. This reminds me of the mortgage crisis in
the early days when I was short subprime and we saw these subprime problems and Ben Bernanke
said don't worry about subprime, it's contained. Well, yeah. Like it was contained to the planet. All the mortgages were infected, but the Fed
pretended that we had nothing to worry about because it was contained. Well, now they're saying, don't worry about
these price increases you're seeing in producer goods, in consumer goods, in imports, in exports,
because it's transitory. We don't have to worry about it. Well, we do have to worry about it. It's just as transitory as the subprime problem
was contained. MIKE GREEN: I would just highlight that they
said the same thing to us about price increases in commodities in 2008, and they were correct. PETER SCHIFF: Well, in 2008, remember, when
the Financial Crisis started, commodity prices were at record highs. Remember, oil was $140 a barrel of oil back
in 2008. When the crisis happened, commodities went
down, the dollar went up. Gold was at an all-time record high, it had
gone up from $270 an ounce to $1000, and the emerging markets, if you look at where the
emerging markets were in 2008, they were on a tear. They killed the US market from 2000 to 2008. We're going into this crisis, or we'd started
it, it's the mirror image. To me, the markets heading into the current
environment look a lot more like they did in 2000 at the peak of the dot-com bubble
than they did at the peak of the housing bubble. That ushered in a period the declining dollar,
rising commodity prices, and an outperformance of emerging markets over developed, foreign
markets over domestic. I think that the US economy today is in far
worse shape than it was in the year 2000. The imbalances are much bigger, the deaths
are much bigger, and so I think the dollar decline that we had from 2000 to 2008, which
took the dollar index down to about 70 to an all-time record low. I think this is going to be a much bigger
decline, and we're not going to be saved by another financial crisis. The next crisis is going to be a US dollar
crisis and a sovereign debt crisis. The dollar is going to be the epicenter of
the crisis that's coming, and that's going to exacerbate the pressure on consumer prices. ASH BENNINGTON: We should probably also mention
that we have far greater intervention now than we did in 2008-2009 vintage. We obviously have the 13(3) programs, we have
the Fed buying ETFs, corporate debt, and in addition to that, a significant fiscal stimulus. Mike, how do you bake that into the equation
in addition to what's happened to the Federal Funds Rate remaining incredibly accommodative
for many years? MIKE GREEN: Again, I would highlight that
when you talk about the Federal Funds Rate remaining incredibly accommodative, it becomes
relative to what? Alright, we are one of the few developed nations
around the world that actually has positive interest rates as compared to negative interest
rates. I tend to think that the negative interest
rates are not stimulative, that they're actually contractionary. They're a form of--
PETER SCHIFF: But they're not positive in a real sense. It's only a nominal sense. Real rates are negative. MIKE GREEN: Yeah, so this is part of where
we just disagree. I don't think that real versus nominal matters
in the way that you think it does. PETER SCHIFF: Of course, it does. MIKE GREEN: No, it doesn't. PETER SCHIFF: Are you saying it's irrelevant
how much inflation there is? ASH BENNINGTON: Let's explain to people what
that means, just so they understand the context. MIKE GREEN: The difference between real and
nominal rates as people respond to it or report it is the dynamic of what is your inflation
rate? So, typically using the reported CPI or the
PCE. The difference between the interest rate that
you have minus that inflation rate is what gives you the "real rate". That inflation level is an abstraction. It's an approximation. It is the estimated inflation rate for wage
earners in the United States, if you're using the CPI, it is the deflationary or the inflationary
measure for the entire economy if you're using the PCE on the household side. There's a lot of disputes and debates around
what's the correct way to calculate it but what I can assure you is that Peter's inflation
rate is different than my inflation rate, which is different than my children's inflation
rate. Every single one of us experiences a different
"real rate" relative to standard nominal rate. PETER SCHIFF: What you're really talking,
though, is not our individual inflation rates, but our individual cost of living, because
inflation by definition is the expansion of the money supply. The Fed is expanding the money supply, the
Fed is inflating at the same rate for everybody. It's just how that inflation affects individuals
is going to be different. Another aspect of these government measures
is I don't think they adequately reflect the true increase in the cost of living for anybody. I think they've been deliberately designed
to understate how high or how much prices are rising. As a lender, it makes a big difference to
me. If I'm going to loan you money, let's say
I'm going to loan somebody $1,000 and if they're going to pay me back in a year, and I think
that $1,000 is going to buy me $900 worth of goods and services, I'm not going to loan
that, I'm not going to make that loan unless the interest rate is over 10% because I'm
not making a loan to lose purchasing power. I have to charge the borrower a high enough
rate of interest to compensate me for how much purchasing power my money loses between
the time I make the loan and the time I get paid back. It doesn't even matter what the government
claims my cost of living is, what matters is what it actually is, and am I going to
make a loan given those dynamics? If I'm not going to get paid back more than
I loaned in real terms, I'm not going to make the loan. There's another point I forgot to make that
I want to make about the difference between now and 2000. In 2000, we had the Chinese lending us a lot
of money. We had the Russians, we had the Japanese,
we had the whole world willing to loan us money. The world doesn't want to loan us any money
anymore, they actually want to get paid back on the loans they've already made. In addition, back in 2000, Social Security
still had a surplus. The US government was able to borrow from
the so-called Social Security trust funds. Right now, Social Security is in a huge deficit. Social Security is competing with the US Treasury
at selling US Treasurys. There are no buyers anymore. There's only sellers, the only buyer is the
Federal Reserve, so the amount of inflation, debt money printing, in order to monetize
all these debts is much greater now than it was back then. That's another reason that we're going to
get a collapse in the dollar this time, and we're going to see the big increases in consumer
prices that eluded us the last time. MIKE GREEN: Again, we're talking what's going
to happen into the future. My view is much more sanguine than Peter's. I think that the description of inflation
as the inflation of the money supply presumes that the velocity of money stays constant. That's not the definition of inflation, the
definition of inflation is a rise in the general price level. PETER SCHIFF: Well, that's the definition
now because we decided to change it. If you go back to a Webster's dictionary,
even as late as the 1970s, early 1980s, and you look up the word inflation, and it will
say to expand, i.e., money supply, that's what it was. Early definitions didn't even mention prices. Eventually, they started to define inflation
as an expansion of the money supply that leads to an increase in prices. If you look at the word inflate, it literally
means to expand. You cannot expand prices. Prices go up, they go down. What you're expanding is money supply, that's
what's being inflated. Deflation is a contraction. Balloons expand when you fill them with air. What expands? Money supply expands and contracts, prices
rise and fall, so price is going up but not inflation. Of course, the reason the government tried
to redefine inflation as rising prices is because during the 1970s, when we had a lot
of inflation and prices were going up, the government wanted to blame the public for
the inflation. They wanted to blame greedy businessmen, they
wanted to blame OPEC, they wanted to blame unions. They wanted to redefine inflation is rising
prices, because the government's not rising the prices, it's the private sector that's
making prices go up. Gerald Ford comes up with a whip inflation
now button, as if the people have control over inflation. The Federal Reserve creates the inflation,
not the public. The public simply responds to that inflation. If money loses value, then prices have to
go up in order to receive the same monetary purchasing power in exchange for goods and
services. ASH BENNINGTON: This is Milton Friedman's
famous quote, inflation is everywhere and always a monetary phenomenon. MIKE GREEN: That's not actually his quote. That's part of the problem is that he doesn't
actually say that inflation is always and everywhere a monetary phenomenon. He says that inflation is always and everywhere
a monetary phenomenon, in the sense that, and there's an entire part of that sentence
that everybody forgets, because it's not as pithy and it's not as catchy. If you expand the money supply in the context
of an economy that is up against constraints, yes, you will end up with inflation. If you decide to subsidize purchasing power
because there is a shortage of currency, you will absolutely get inflation. This is what happens in Zimbabwe. This is what happens in Venezuela. You see a collapse in the supply, and you'll
see a dramatic expansion in the consumption in nominal terms. I'm not disagreeing with that dynamic. The question is, are we facing that world
today? Has the government actually stepped in and
smoothed to the process to minimize the disruption to human capital? PETER SCHIFF: This is what people overlook. Let's assume there is a lot of this excess
capacity that we have, let's assume there is unemployment and unutilized resources. That's the environment where people say, oh,
we can print money, now we're not going to have inflation. Oh, yes, we are because the printing of money
is the inflation, but prices might not rise during that environment, but what the government
is doing is preventing prices from falling. Because if there is excess capacity, the best
solution is to let prices fall. That's what the government is preventing. If the government prints more money, creates
inflation, and the result of that is that prices are higher than they otherwise would
have been absent that inflation, then it's the same effect. The government is distorting the price structure. They are in creating inflation, and the result
is higher prices than what those prices would have been absent that inflation. If the government prevents prices from falling
when they shouldn't be falling, they're doing damage. ASH BENNINGTON: Well, important context from
both of you, and it is never as simple as a pithy quote, but one of the great things
about markets about economics is there's a scoreboard here. As we come closer to the end of this conversation,
I'm curious to get a view from each of you to give us a little bit of a context for what
it would look like if the thesis that you're propounding right now is correct. In other words, what do you expect to happen? What should we be looking for in order to
understand if the thesis that you've presented is fulfilled? PETER SCHIFF: Well, for me, I think if you're
looking at the markets, you need to really look at the foreign exchange markets, look
at the bond markets, and look at gold. I think when you start to see long term interest
rates rising, at the same time, you see the dollar falling and gold going up. When we break from this idea that rising bond
yields are good for the dollar and bad for gold, when you start to see bonds falling
as a reflection of a need to get rid of dollars, and to get out of US dollar assets because
of the inflation that is now a building and being recognized by the markets, I think that's
the beginning of the end. The problem is things are going to unravel
very quickly, and so that's my advice to people. What I've already done is that, look, this
is going to be a huge collapse of the value of the dollar. A lot of people are going to lose a tremendous
amount of wealth as a result of this. There's going to be people that are going
to be enriched by this. Since we have no ability to stop this from
happening, we just want to position ourselves as best we can personally, individually to
be on the receiving end of the transfer, rather than the losing it. That's why I own a lot of foreign assets,
I own a lot of equities in foreign countries that pay good dividends in currencies that
I think are going to appreciate. I have money invested in the emerging markets
that I think will benefit from a weak dollar, as they consume more of what they produce,
rather than exporting it to the United States. I have a lot of investments that are resource
related, whether it's metals, precious, or industrial, agriculture, energy. I think the emerging world is going to need
a lot more resources, and they're going to be rich enough to afford them. I think you're going to see a big change. I think the US dollar is going to cease to
be the world's reserve currency. I think the American standard of living is
going to move down appreciably, it's going to look very different here in the United
States. There are a lot of wildcards politically on
how much worse we may make it. By how much further down the Road to Serfdom
we travel with this big move left. Certainly, a worst case scenario is hyperinflation
and where we completely destroy the value of the dollar. I certainly hope we don't end up there, but
that's the road that we're on unless we take a detour. People need to be very cautious, and they
need to have a portfolio that really reflects the way the world is going to look and not
the way it has been looking. ASH BENNINGTON: That's a very clear scenario,
rising rates, depreciating dollar, rising gold prices, and bullish EM. Mike, as you think about this from your side,
what does the world look like if your thesis continues to unfold? MIKE GREEN: The core of my thesis plays back
to some of the very simple dynamics we have in components of demographics, etc. We've seen global population growth, particularly
for the developed world, but increasingly for the developing world. The emerging markets all over the planet are
actually seeing their population growth collapse. They're seeing their birth rates fall. They're seeing their populations, in most
cases, contract. That's not a world that's bullish for commodities,
just simply is not. It could lead to the scenario that Peter is
talking about that you have continued activist governments to try to keep prices from falling
too much, but a world of population declines is not one that sees rising prices in
terms of commodities, certainly not on a relative basis. Again, I've brought up the point that in the
past to Real Vision viewers that the right way to think about commodity prices as relative
to gold, I would anticipate that if I'm looking out five years from now, that oil prices are
lower in gold terms, that the price of the vast majority of goods are lower in gold terms. Do I know what's going to happen to their
nominal price? Do I know what's going to happen to the gold
price? That's a harder one to know. There's risks to gold itself that it faces
demonetization and loss of that traditional protection that may prevent it from providing
the protection that Peter thinks it does. As I look at the emerging markets, emerging
markets, we go back to the to the tail end of the time period that Peter highlighted,
the period right before World War I, among the wealthiest countries in the world were
those in the emerging markets, the Argentinas and Venezuelas, etc. Periods of disruption in which the developed
world comes under pressure are not good for emerging markets. They tend to give rise to even worse forms
of government. I would suggest we're seeing that. We're seeing fleeing from Venezuela. We're seeing fleeing from Argentina, etc. These are not stable regimes, and I would
extend that into many of the areas in Asia that have "flourished". We've just seen a coup in Myanmar, etc. Africa is facing extraordinary challenges
for a variety of reasons as well. Can that change? Could we have fundamental innovation that
changes these characteristics? Possibly. I don't see the world that Peter see is I
actually see a world in which, yes, things could get bad for a variety of reasons but
the US is relatively well positioned in that scenario. PETER SCHIFF: I think we're extremely poorly
positioned, but I do agree, I do anticipate that prices will fall in terms of gold. I think capital prices, stocks, real estate
will fall more in terms of gold than commodity prices. Yes, I expect all prices, I expect a big deflation
of this big bubble, but measured against gold. Now, in terms of other fiat currencies, I
think prices are going to go up for pretty much everything, maybe even stocks and real
estate will continue to go up. If we destroy the dollar completely, of course,
prices are going to go up. The reason that I think that you're going
to see this dynamic in commodities is I think that the purchasing power is going to be transferred. I think Americans in the future are going
to consume a lot less, and a lot of the emerging market consumers are going to be consuming
a lot more. Now, if you look at the basket of goods that
they're likely to consume, I think there's going to be more resource intensive consumption
going on in those markets than in the United States. I think that they're going to be buying more
of those things. Let's say all of a sudden, there's a lot more
demand for cars in places like China, well, you need a lot of raw material. Americans, we scrap a car to get another car,
everybody already has two cars but you got people in China that have no cars, they got
bicycles. There's a lot of raw materials that are going
to be used that now a lot of Chinese are going to are going to have cars that don't have
cars today. I think that the way the world is going to
look in the future, there will be more demand for commodities from populations that are
not demanding as many. America right now is a very huge slice of
global consumption, but a much smaller slice of global production. When American consumption is brought back
in line with its production, that's going to free up a lot of resources for the rest
of the world, and they're going to consume those resources and so you're going to see
different relative price structures. Yeah, in terms of gold, I expect prices to
come down. That's why I own a lot of gold in particular,
that's why I own a lot of gold stocks, because I think those stocks are going to become very
valuable, because I think ultimately, the cost of the gold that they're mining is going
to-- or the gold rather that they're mining is going to go up in price faster than the
cost of mining it. The raw materials, the labor, the energy costs
that go into bringing gold out of the ground. I think a lot of these gold companies where
you have a lot of resources in the ground that the market currently values at zero because
they think it's too expensive to extract them, I think relatively soon, all of those resources
are going to have tremendous value. When you buy these gold mining stocks right
now, you're getting those resources for free. ASH BENNINGTON: I have to say, amid you guys
agreeing on a number of issues, and obviously some significant disagreements as well, but
some interesting context for agreement. I have to ask, I'd be remiss if I didn't and
I get yelled at on Twitter if I didn't, because on the RV Crypto guy, we've had this tremendous
debate. I'm curious because you are probably two of
the three most prominent cryptocurrency Bitcoin skeptics in the world right now. If we had Nouriel Roubini here, we'd have
all three of you on screen at the same time. I'm curious you guys have a broad agreement
about this skepticism around Bitcoin and cryptocurrency. What are your thoughts there? PETER SCHIFF: Well, I'm not even skeptical. I know it's not going to work. If I was skeptical, there'd be some doubt
in my mind. Maybe it'll work, maybe it won't. Look, Bitcoin is a fad. Bitcoin, they call them a cryptocurrency,
but it's not a currency. It's not money and it's not even a currency. The dollar is a fiat currency. It's not money. Gold was money. The dollar is a fiat currency. It used to be a legitimate currency when it
was backed by real money, gold, but now it's backed by nothing, but it's a fiat currency
but at least it's a currency. Bitcoin is not a currency it's not used as
a medium of exchange really or a unit of account. It's just used for speculation, but it's not
an investment asset like real estate, doesn't pay rent, it's not a stock, it doesn't pay
dividends, it's not a bond, it doesn't pay interest. It's not even a commodity, because you can't
use it for anything. What it really is, is a collectible token. Right now, you have a bunch of people collecting
Bitcoin. Why are they collecting Bitcoin? Well, for the same reason that people collected
Beanie Babies, because the price was going up, and they thought the price would keep
going up. But you know what, there's 21 million Bitcoins,
and they're all exactly the same. To me, they don't seem very scarce, they seem
very abundant. I don't think these Bitcoin collections are
going to be worth anything when the music stops. People had told me that when the bubble burst
in Beanie Babies, they were able to use the beanie babies to insulate their homes. They can shove them in there between the walls,
and they made good insulation. You can't do anything with a Bitcoin. Once nobody wants your Bitcoin, it's completely
worthless. Intrinsically, it's worthless right now, but
there's a market value because there's some fool willing to buy it. Why is a fool willing to buy Bitcoin? Because he assumes there's a greater fool
who's going to pay even more money in the future, whether he understands that dynamic
or not, that is exactly what's going on. I personally think the Bitcoin bubble will
pop before the dollar bubble. We may have a cryptocurrency crisis before
we have dollar crisis. MIKE GREEN: Again, areas of agreement and
disagreement. I'm not particularly negative on cryptography
and the development of digital forms of currency, I think it's inevitable. I tend to lean towards the dynamic that we
will see CBDCs emerge as compared to private sector solutions, but we will see some of
the innovation that's occurring in the crypto space, for example, tokenization of securities
is, in my opinion, ultimately inevitable. The ability to embed a much more complex and
a much more robust feature set than can happen with an electronic CUSIP, for example, is
something people have heard me talk about over and over again. My problem is very specifically as it relates
to Bitcoin in the speculation in the asset class that it is some form of a store of value
that will preserve itself for an extended period of time. I think it's being misrepresented to the public. I think that the deregulation or the lack
of regulation in the space is leading to the type of speculation that's the opposite of
what Peter has hypothesized, you see constant claims for 100% APR, or APYs that people assume
are actually the equivalent of interest rates. They're not. They're effectively short volatility speculative
positions that involve the sale of options. Volatility is something I tend to know a little
bit about, so these are not yields in the classic sense. They're not a central entity that is paying
you a fixed rate of interest as people tend to think it is. It is a true risk position in a speculative
asset that, in my opinion, is being misrepresented to you. PETER SCHIFF: Yeah, I agree with you completely
on the fact that there may well be some very practical applications to cryptography, to
digitizing and using the blockchain to represent ownership of real assets and make it more
convenient to have title and to transfer that. That's all great, but that's got nothing to
do with Bitcoin. Bitcoin is belief that that particular digital
token is going to be worth millions of dollars someday. I know, people, it's like a religion. My son's been indoctrinated into the cult. He's completely delusional. Now, he's got an excuse. He's only 18, but you've got a lot of older
people that don't really have an excuse. Although some of the people that are out there
to me, they're just pumping and dumping. This has been a huge marketing success for
the people who got in early and who continue to pump this thing so that they can get out
and cash out and make a bunch of money selling what amounts to digital snake oil. MIKE GREEN: Yeah, I tend to agree on the marketing
aspect of Bitcoin and the prospects for Bitcoin itself. I understand the motivation. One of them is what Peter just referred to,
that the older generation doesn't have it and the younger generation does, and so it
is perceived that this is one of the ways to effectuate a wealth transfer that needs
to occur. I think it's unlikely to be successful. I can't express the same surety that Peter
has, but from the standpoint of a market participant, it's not an area that I think is worthy of
speculation in the way it's being pursued today. ASH BENNINGTON: Forget this. Bitcoin bringing us together, Mike Green and
Peter Schiff having a passionate agreement. Gentlemen, this has been a very long, detailed
debate. We've touched on a lot of different areas,
we've gone deep into them, explain the context, the philosophy, the pragmatic implications,
the history, the data, it's been an incredibly rich debate and conversation. How would you like to leave this with our
audience? What final thoughts would you like to leave
them with? Peter, first to you. PETER SCHIFF: Again, if you focus on where
we agree, at least as far as building an investment thesis, we both agree that the price of gold
is going to go up, and so owning gold makes a lot of sense. If you are somebody who is worried about fiat
currencies, like a lot of people in the crypto community are, that is part of the motivation
of getting into them is escaping inflation, having an inflation hedge and a store of value. To the extent that you really want that, you
don't have to reinvent the wheel. You can actually buy real money if you don't
like government fiat, and that is gold. As an investor, if we both agree that the
price of gold is going to rise relative to other commodities, such as energy, oil is
one of the important cost factors other than labor, mining is very energy intensive. To the extent that gold becomes more valuable
rather than the energy required to get it out of the ground, all that flows through
to the bottom line profits of gold mining companies. I think we can probably all agree that gold
mining stocks look like goodbyes at this level, they pay very good dividends right now in
the majors, more than you can get certainly from the US government or from most stocks
in the S&P 500, and you've got a lot of earnings growth there. I think people can take away from this, regardless
of where you come down, hey, maybe we should buy some gold stocks. I would suggest people do that. By the way, I do manage a gold fund. The Euro Pacific Capital Gold Fund. In fact, I don't manage it myself. It's managed by Adrian Day is the portfolio
manager. I own the fund through Euro Pacific Asset
Management, people can buy the fund at any of the discount brokerage houses out there,
no load, or they can work directly with one of my representatives at Euro Pacific Asset
Management or Euro Pacific Capital. ASH BENNINGTON: Mike, final thoughts from
you. What would you like to leave the viewers with
after this very detailed conversation? MIKE GREEN: We have had a very long, very
detailed conversation. Unfortunately, I do have to clarify that last
point. I think that gold will rise relative to commodities,
I'm not as convinced that it is a no-brainer to rise against the US dollar, at least not
over an interim period. There is a fantastic monetary premium that
is embedded in gold, you can see this simply by looking at the price of gold relative to
silver, for example, which historically, and in terms of presence in the Earth's crust
has a ratio of about 17 to one. That's where we got the initial monetization
under the bimetallic standard, is their representation in nature. We've demonetized silver. Today, that ratio is around 67, down from
north of 100 a year ago. That component, I just would caveat that you
want to be careful in thinking about gold, because there's a very real risk that it continues
to retreat in terms of importance. PETER SCHIFF: Or the price of silver could
rise, which I'm more bullish on silver than I am on gold. Maybe silver stocks is where we agree. MIKE GREEN: The point that I would continue
to highlight to people is that when you look into the past, you're going to get the answers
from the past. If we look forward in terms of what's happening,
I would actually say the opposite. I think that humanity is going to continue
to flourish, I think that we're going to continue to have innovation, and that we should make
the investments in human capital. That includes investments in yourself to understand
these dynamics, so that you're better positioned to go forward. What does that translate to in terms of your
immediate investment opportunities? Look, I've talked endlessly about the dynamics
of the influence of financial innovation, things like passive investing, and how that
impacts markets. I agree that we will eventually have significant
financial stress associated with the terrible choices that we're making, and we are making
some really bad choices, but the answer to that is not to abandon the system. I would just encourage people to think for
yourself, take the opportunity to digest the information that we've shared, and position
yourself appropriately. PETER SCHIFF: Again, this system I want to
abandon is the one we have now. I want to reembrace capitalism, which is a
system that we're supposed to have, but we've infected it with socialism. I agree, we need to make these investments. Capital investments, investments in human
capital, but the government is incapable of making them. It is a free market, the private sector that
makes those investments and we're not making those investments now because the government
has crowded then out. The government is depriving the free market
of too many resources, whether it does it directly through taxation, or indirectly through
borrowing and inflation. We need to shrink the government, free up
those resources, liberate them back to the private sector, so we can make those investments
that we both agreed need to be made. MIKE GREEN: Yeah, I think we have to be very
careful in defining government. At this point in the United States government
is of the people and "for the people". That doesn't have to be the case. We see different systems in different places. Protecting that democracy, protecting that
government that is designed to facilitate the pursuit of life, liberty, and happiness
is something that I think we should take very, very seriously. Unfortunately, I think if Peter's prescriptions
were followed, that you would ultimately end up with totalitarian systems far faster than
the current structure we have. PETER SCHIFF: I hope not, or I don't think
so, but I'm not really concerned about protecting democracy. I want to restore the Republic. It's democracy that's been a big threat to
the Republic. It's the constant need to buy votes that is
what's driving and motivating politicians to screw up the economy. If we had less democracy, we have more freedom,
that's what the founding fathers understood. That's why they established America as a Republic. They built in a lot of constitutional safeguards
against what they regarded as the tyranny of the majority, of mobacracy. The problem is, over time, those safeguards
have been torn down and so the protections that the founding fathers put in place are
no longer there, and we need to resurrect them. We need to have a court that's willing to
enforce the constitution rather than ignore it. MIKE GREEN: And now, we do end on a point
of agreement. ASH BENNINGTON: Well, we came for a great
debate, and did we ever get one or two very different views of the world, philosophical,
technocratic, and mechanic. Just a wonderful conversation all around. Thank you both so very much for joining us today.
Correct title: Peter Schiff educates Michael Green on economics.