Peter Schiff - The Fed Unspun: The Other Side of the Story

[Music] well thanks everybody for coming here today and for all the people who are listening to the live stream the impetus for this event here in Washington DC is Ben Bernanke chairman the Federal Reserve has just finished a four-part lectures here series at George Washington University how many people who are here were participate in that lecture series by show of hands all right few of you know apparently it was sponsored by the Economics Department but they had that wrong see they really should have sponsored his lecture through the drama department because everything you said was just pure fantasy I think it was Ben Bernanke's distorted view of what actually happened so what I wanted to do is set the record straight and actually speak about the facts not only the facts of the financial crisis and the feds key role in causing it and inflating the housing bubble but go back to the beginning the Federal Reserve's formation because Ben Bernanke basically presented a completely revisionist view of history not only recent history that we just lived through but the history of the formation of the Fed and most importantly the Great Depression and an interesting thing is Ben Bernanke fancies himself as a student of the Great Depression but based on his presentation if he was my student he would have gotten an F he doesn't understand anything about the Great Depression and he doesn't say understand anything about the the financial crisis or the depression that either were in or we're heading for so what I want to do is I want to start off where Bernanke I got a bunch of his slides not all of his slides because there's too many we can't get them all into an hour so we picked up some of the slides and I'm going to put those slides up here and then just comment on them and when I'm finished with all the slides I'll talk about whatever I couldn't address with the slides until you know the hour was up so he started off by talking about why do we have the central bank and why was it creative course was created in 1913 and according to Ben Bernanke we needed this Federal Reserve because before the Federal we didn't have any stability in a banking system we had constant booms and busts and he talked about he talked about some of the more famous panics that happened in the 19th century and he said that we needed the Federal Reserve in order to to do this in fact he talked about the banks as inherently being unstable in that they could be subjected to a run because banks would take in deposits and they would loan them out and what might happen to a bank if depositors wanted their money but they couldn't get it because the banks had loaned it out and so the whole idea is they'd have this lender of last resort that would be there and that would make sure we didn't have bank runs and we didn't have all these panics and so that's why we had the Federal Reserve now what Ben Bernanke really didn't discuss is that the record of stability was better before we had the Fed than with in fact the biggest busts and booms happened with the Federal Reserve not without the Federal Reserve and we weren't having constant runs on banks before we had a Federal Reserve yes we did have bank failures in the Great Depression I don't to get into the feds role and the government's role in creating that you know in a minute but even with all of the bank failures in the Great Depression only about 2% of deposits were actually lost so is very small amount of deposits I mean we lose more than 2% of the value of our deposits every year now to inflation so this is just a myth and in fact banks are just like any other business absent government intervention banks are going to compete with one another based on reputation banks don't want to run they don't want their customers worried about their deposits so there is competition banks are going to hold adequate reserves so that their customers are not concerned and so that they can meet whatever demands might be placed upon them this is what happens in a free market the banker decides how many how much reserves am I going to keep what am I going to loan out what happens is when the government comes in with the FDIC and they have the Federal Reserve as this lender of last resort now the banks have no market-based incentives to be prudent it doesn't matter they'll loan out as much as the government will let them because now there's no concern because their customers know that the government stands behind the deposits so it's instability by interjecting that moral hazard by bringing a Fed in there and the FDIC you actually destabilize the banking system because you removed all of the market safeguards that would have protected the banks the banks would have kept adequate reserves because they have they knew their depositors would want that but now with the defending the FDIC we have a lot more lending and a lot more risk taking on the part of the banks because the government has come in and created this moral hazard and created a situation where bank customers no longer care about the solvency of the banks that is a big problem so in fact the Fed created the exact opposite of what Bernanke said as he went into the creation the Federal Reserve he talked about the the limitations of the gold standard because of course prior to the Federal Reserve we were on a gold standard although when we created the Federal Reserve we didn't leave the gold standard we were still on the gold standard in fact Federal Reserve notes how to be backed 40 percent by gold and the notes were still redeemable you know so we were on a gold standard exist that we had the Federal Reserve issuing notes backed by gold as opposed to maybe independent banks that were issuing their own notes that were backed by gold so we didn't let leave the gold standard you can say we modified it a bit but Ben Bernanke was very critical the gold standard and his main criticism was that it took away the flexibility of government and bankers to try to micromanage the economy from Washington well that's not what's wrong with it that's it this greatest virtue is that it stops people from bent like Ben Bernanke or Alan Greenspan from destroying the economy the whole idea that central bankers know more than the free market that they know what interest rates should be you know we have interest rates in America that are not set by the free market in a gold standard interest rates are set in the market in the system we have now we have central planners like in the old Politburo in the Soviet Union that sit around and try to guess what the appropriate rate of interest should be and then they set that rate and that's what we do now where does ben bernanke have interest rates Eddie's price fixed them at practically zero the biggest problem with the US economy is that interest rates are too low the Fed is distorting the economy with these low interest rates none of this would happen under a gold standard we get the right interest rate because the price would be set in the free market and you know that interest rates are too low because nobody is saving we have all this debt and we have and we have no savings because rates are too low the market would bring rates up higher rates would encourage savings would discourage borrowing and consumption and we go back into equilibrium but the Federal Reserve is there if the gold standard was there this couldn't happen another problem is with the deficits gold limits the ability of the federal of the government to spend beyond its means but with a Federal Reserve that's going to buy up government bonds and monetize the debt now they call it QE but this allows the government to be fiscally irresponsible Gold would rein in excess government spending but with the Federal Reserve there is nothing to rein in excess government spending and that's why the government is able to spend so much so that it was the strength of gold that Bernanke is actually criticism because Bernanke wants that power he actually believes and based on the evidence I don't know how he can believe this because the guy's never got anything right in his life but somehow he thinks he's so much smarter and so he thinks were better off letting him make all these decisions than letting these decisions be made in the free market with real money which was gold and of course we were in the gold standard the founding fathers put us on the gold standard and we really stayed on the gold standard in one form or another all the way until 1971 so to say that we went off the gold standard when we brought the Federal Reserve in is not the case but we certainly changed it a bit so here's where now he gets into the great depression okay and this is where Ben Bernanke really really you know goes off the deep end in his historical account of the Great Depression but before I even talk about the Great Depression I want to talk about the depression that Bernanke didn't even mention because it doesn't fit into his narrative and that's the one we had in nineteen twenty now while people don't know about this depression because it was over very quickly but it began for the same reasons that the Depression of 1929 began right we had a stock market that collapsed in 1920 stock market dropped by about 40 percent one year the Dow the GDP collapsed by 17 percent in a single year 17 percent and unemployment skyrocketed from 4 percent to 12 percent in one year and why did this happen well world war 1 started in 1917 the Federal Reserve was created in 1913 when we entered the war court know the war didn't start in 1917 that's when we entered it when we entered the war the government wanted to help pay for the war by borrowing money and it wanted to borrow from the Fed but there was a problem you see the original Federal Reserve Act it prohibited the Federal Reserve from owning any US Treasuries and that made a lot of sense because they didn't want the Federal Reserve to own Treasuries because they didn't want it to be an engine of inflation they didn't want the Federal Reserve to lend money to the government or buy government bonds so it wasn't allowed to do it so they went in and they amended the Act to allow for it which shows you how dangerous this was it was love classic you get the camels nose under the tent so they put it in with that restriction and then late and then a few years later they took it away and it's also entering an interesting bit of trivia when they did that that's when they first came up with the idea of the debt ceiling now we're always talking about the debt ceiling now well that's when it started when the Federal Reserve was given the power to buy bonds for Treasury bonds people were concerned well this could be very dangerous this could really lead to a lot of debt so they decided to put a limit on how much debt the Treasury could have now that they made it easier for the Treasury to borrow of course the problem was you could raise the ceiling which they've done every time they've gone near it but so we amended the Federal Reserve Act and the Federal Reserve bought a bunch of Treasuries and how do they do that they printed money so the monetary spigots were opened up at that time and it destabilized you know to cheat money when the war ended they turn the spigots off and then we had a bus we had a we had a little boom created by the Fed and then we had a bust and in fact before I even talk about this I want to just spend a few minutes on the business cycle because that's another thing that Ben Bernanke doesn't understand the the recessions are not the problems the booms are the problems the recessions are the cures see the government creates a phony boom by keeping interest rates too low by creating too much money and you get a misallocation of resources land labor and capital and and what happens is you have now investments you make mistakes and then eventually the bubble bursts and you have a recession and that is the time where the market is trying to fix the mistakes that were made during the boom the problem is when the Fed looks at the recession it doesn't see that as the cure it sees that as the problem and it tries to cure it with more of the same monetary stimulus that created the prior boom and so it interferes with the markets attempt to restructure the economy and it makes bigger problems and we're going to get into that later in this discussion but so to go back to the 19th 1920 so the Fed turns off the monetary spigot and we get this huge class stock market crashes GDP crashes unemployment skyrockets and the President Warren Harding okay what are we gonna do well he had a Secretary of Commerce Herbert Hoover Herbert Hoover was like oh no this is terrible we need massive government stimulus and he probably didn't use the word stimulus but that's you know what he would have said today he said the government needs to intervene we need to stimulate the economy you know we need we the government has to help we can't go through this this is such a bad downturn we can't let the market do this we need decisive intervention by the government and Harding was oh no no we don't need that we need the opposite and what did Harding do in response to this downturn he slashed government spending despite this huge declines seventeen percent drop in GDP twelve percent unemployment he cut government spending right the exact opposite of what the Keynesian say you have to do and what did the Fed do absolutely nothing the Fed didn't cut rates it didn't ease and what happened as a result of doing nothing well within a year the unemployment rate was cut in half in two years it was below 3% it went from four 12% to under 3% in two years the stock market fully recovered everything it lost problem solved the governor didn't do a thing now let's talk about the depression that Ben Bernanke wants to talk about and of course it's also important to note that this happened with the Fed this huge decline happened with the Fed not before but now let's talk about the next depression the crash 1929 but also I got to talk about one thing that Ben Bernanke didn't talk about he talked about the crash in a stock market and the Great Depression but he didn't talk about why why we had a crash well the reason we had a crash is because we had a phony boom that preceded that crash and why did we have that well that was because of the Federal Reserve the Federal Reserve had interest rates too low for the second half of the 1920s and they printed too much money now why did they do that well first there was a little bit of an economic downturn in 1927 that the Fed wanted to you know lean against was stimulus so they tried to fight a contraction with cheap money that's a very familiar story now but also you had a problem in in the UK where there was a run on the British Pound the British were losing gold they were on a gold standard too and they had their interest rates too low as a result they were losing gold to the United States people were getting out of the pound of the dollar and so in order to make the dollar less attractive relative to the pound they flooded the market with with liquidity to try to drive down US rates to try to stop the drain of gold out of Britain and all of that liquidity went right into the stock market you look at a chart look at stocks and I actually have a fact I have this chart here somewhere but you know I don't want to fast forward it because I want to talk about something first I'll show you that chart when I get to it but the stock market just took off right now in late 1928 Benjamin strong who was the head of the New York branch of the Federal Reserve died and he was the big proponent of this cheap money he was buddies with a guy over there in the UK and so when he died the Federal Reserve recognized that there's a huge bubble they made a big mistake and they started they raised rates which is what they should have done and then the stock market bubble burst in 1929 just like it did just like this and a stock dropped sharply you know and we started a depression just like the depression in 1920 except this time it's different this time the the Secretary of Commerce Herbert Hoover is now the president and now he can do all the things that he wanted to do in 1920 but that Warren Harding was smart enough not to let him do here is a quote a famous quote from Andrew Mellon who was the Secretary of Treasury under Hoover liquidate labor liquidate stocks liquidate the farmers liquidate real estate write liquidation is theory right now Byrne Ben Bernanke is presenting this as if that is what we did but this is exactly what we did not do this is what Andrew Mellon wanted Hoover to do and Hoover said no and Hoover against that advice was the most interventionist president in history I mean maybe he would be the modern equivalent right now of George Bush and the way he originally reacted to the financial crisis and in fact when Hoover ran for re-election at his nomination for a second term and you can look at his speech he bragged about the fact that he refused to listen to to mail it and that he did all this unprecedented stimulus and it was all that stimulus that got in the way of the recovery had Hoover actually done what Ben Bernanke accused him of doing there wouldn't have been a Great Depression and there would have been nothing for him to study or apparently not study and it would have been over and the interesting thing is and this is where the parallels really get big Roosevelt ran against Hoover because he was too spending too much he said elect mean I'll balance the budget he promised change he said this guy Hoover is a reckless spender he's running up the deficits elect me and I'm going to cut spending and balance the budget that is how Roosevelt ran right like Obama change but when he won what did he do he took Hoover's policies and called it the New Deal and expanded him he took the exact same policies and made it bigger right which is what Obama has done he's taken he's taken Bush's policies and just expanded them and so the Great Depression was not caused for the reasons that Ben Bernanke in fact Ben Bernanke his only criticism of the Fed is that they tightened too much right they tightened too much in 1931 or 1932 he doesn't criticize him at all for being too loose during the 1920s he says they were too tight in the 1930s and even his predecessor even Alan Greenspan admits that the Federal Reserve caused the stock market bubble in the 1920s he says that he wrote that that it was the feds easy-money policy that inflated that bubble and the mistake was not raising interest rates it was that they lowered them and according to Ben Bernanke if the Fed adjust kept printing and printing and printing that things would have been better no they wouldn't have they would have been worse that Ben Bernanke was in charge who knows we might still be in that depression but his policy prescription is the exact opposite and he didn't learn any lessons at all from the Great Depression that's why he's repeating all these mistakes ok then he went over the period of the 1960s and a-19 said we're here he gets it right a little bit where he talks about monetary policy being too easy and the inflation rate was about 13% but look we're even easier now than we were the 1960s the question is why is inflation not 13% now like it was then when the answer is well it probably is it's just that we're measuring it differently you know I had this conversation with Paul Volcker just got a couple weeks ago kind of you know behind the scenes because I said to Paul Volcker I said you know how do you feel having overreacted the way you did to in phony to the inflation that didn't exist back in the 1970s and I said what are you talking I said well if we have the CPI today back then if we had the same methodology for calculating it you would have seen that there was no inflation in the 1970s either and therefore there was no need for you to raise interest rate so high but he was right in that yes the Fed was too easy during the 1960s and during the 1960s that's soda seed for the 1970s but the problem is we printed all this money so we didn't get the big stock market crash during the 1970s that we had during the 1930s in terms of dollars but we did in terms of gold if you look at the decline in real terms the stock market was worth about 20 ounces of gold in 1929 it bottomed out at about 1 ounce of gold in 1932 in 1966 the Dow was worth over 20 ounces of gold and by 1980 it was one ounce of gold so we have the same collapse it just happened in gold terms not paper terms because the Federal Reserve printed so much money which is the reason that prices rose so much during that period of time that's why oil prices went from $3 a barrel to $30 a barrel and that's why oil prices are rising today it's not because of Iran it's because of the Fed it's because the Fed is printing up all this money the price of oil is going up in dollars it's not going down in terms of real money you can still buy a gallon of gasoline for less money that it costs in the 1950s in 1950s you can buy a gallon of gasoline for a quarter today you can buy a gallon of gasoline it costs less than a quarter but you have to have the same quarter yep have a quarter made of silver so he was a little bit more accurate about this period of time why was - why was my okay okay here's the here's the Sharpe the chart I wanted to show you of the stock market here you can see that drop right down like that's the depression 1921 you can see that 40% drop in the stock market and then it immediately recovered and if you look at the big ballistic move in the stock market in the late like 1927 on that's all that money all that cheap money that the Fed put into the system send stocks up into the stratosphere and then when they took the cheap money away the market collapsed and that and that started the Great Depression but what really made it great was Hoover and Roosevelt interfering and and not allowing the market to correct all the MAL investments that were made during during that period of time right now to go from the sublime to the ridiculous it's Ben Bernanke's discussion of the housing bubble all right now ben bernanke and i get is talking about the housing bubble and according to Ben Bernanke and you can see you know the Chara housing prices where they go ballistic and it's maybe it's in that the later slide but I'm just going to talk about our service slices Ben Bernanke says that there are some people out there who believe for some crazy reason that the feds low interest rate had something to do with the housing bubble right now of course I don't think the Fed had something to do with the housing bubble I mean if the housing bubble was a baby the Fed fathered it and and and raised it and nurtured it I mean it defend created it right it wasn't that they had something to do with it they had everything to do with it now Ben Bernanke claims that all the evidence shows that the feds policies had nothing to do with the housing bubble well I don't know what evidence he's looking at right but all the evidence shows the opposite the Court of Federal Reserve the Fed had nothing to do with the housing bubble now before I even discuss point by point his ridiculous arguments think about the credit the feds credibility on the housing bubble in 2004 all right this is pretty serious into the bubble in 2004 the Federal Reserve Bank of New York put out an intricate detailed study because they wanted to study whether or not there was a housing bubble bubble so they put out a huge study and they came back and the conclusion of the Federal Reserve was there is no evidence of a housing bubble now when this thing came out I was shocked I'm like what is no evidence what are they blind and I was you could read all the stuff I was writing back in 2004 I published it I sent it out to hundreds of reporters I gave them all the evidence that the Fed was ignoring of a housing bubble and to me at the time there was so much evidence of a bubble it was so obvious that I thought how could they possibly miss it and I started to think you know maybe this is just pure like propaganda I mean the Fed is so concerned about the housing bubble and they know people are figuring it out that they're trying to you know they're trying to lie to us so that we don't know about it because the Fed wanted to maintain the cheap money in 2004 and but if they knew there was a housing bubble and it was being fueled by the cheap it money they would have to raise interest rates they didn't want to raise interest rates so they had to pretend there was no housing bubble that needed to burst so they trumped up this phony study but those are the only two explanations either the study is phony and it was deliberately designed to be used as PR even though the Fed knew there was a housing bubble or the Fed is completely incompetent and they couldn't figure it out even though it was the biggest bubble in our history but not only the Fed itself couldn't figure it out Ben Bernanke you can go and look even on YouTube there's you know the YouTube video peter schiff was right which has some of my TV appearances from you know 2006 and seven well there's another video not as many people have seen it it's called Ben Bernanke was wrong and I didn't do this one but it has ben bernanke going on CNBC a few times in 2005 and 2006 specifically saying there's no housing bubble it doesn't exist right that the housing prices are supported by solid fundamentals and then Ben Bernanke went on to say even if housing prices go down it's not going to have any impact on employment this is what this guy said so let's get this straight a guy who not only couldn't see the housing bubble even at its peak in fact even after it burst he still denied it existed this is the guy that's telling us that the Fed didn't cause it well if he didn't see it how does he know maybe he caused it by accident but PETA obviously doesn't understand it unless he's lying about and of course if he's lying then he has no credibility anyway because he's just saying it but he asks if he actually believes what he's saying well how can we trust them he obviously has a lousy track record in fact the guy knows so little about the housing market that even after the the subprime crisis hit what did Ben Bernanke say don't worry about it it's contained it's contained a subprime he still didn't get it even that late in the game with all the evidence he was completely clueless I mean either that or it was he was just giving out disinformation but either he has no credibility or he has no competence you got to figure out which one it is but those are the only choices so given the fact that Ben Bernanke didn't see that crisis coming he got no credibility as to offering an explanation contrast that to me I wrote dozens of articles from 2004 to 2007 detailing in specifics exactly why there was a housing bubble all the evidence of the bubble why was being created and what was going to happen after it burst and the reason that I knew this and again I'm not the only one there other people that knew it and the reason I knew it is because I understood how his policy was creating it the housing bubble was a function of the cheap money that was fueling it now yes did it didn't it wasn't only the Fed it was the Fed and Freddie and Fannie and the FHA and you know it was the government guaranteed mortgages combined with the cheap money that did it right it wasn't just the Fed but the Fed was the principal actor and then government through their sponsored enterprises was secondary but that's it but it's coincidence interesting too that not only does Ben Bernanke completely dissolve absolve the Fed from any responsibility he also completely absolved Fannie and Freddie according to Ben Bernanke it's all Wall Street's fault that another dude it's like yeah had nothing with him right Wall Street got drunk right according to George Bush yet the bartender doesn't want to take any responsibility for littering everybody up and then he lets Freddie and Fannie off the hook to here's his evidence that suggests otherwise okay first he says that the United Kingdom had a housing boom during the 20s despite tighter monetary policy the United States yes it was not as loose as the United States but it wasn't tight they had cheap money all around the world that's what Ben Bernanke doesn't get we had the reserve currency we had interest rates too low so the whole world followed in our bad example that's why real estate prices were rising globally because money was cheap everywhere it wasn't just cheap in America it was cheap everywhere but it was cheaper here and the difference is the UK didn't have Fannie and Freddie in the FHA and we did and so there was a huge difference here size of the bubble change the mortgage rate during the boom years seem to be far too small to account for what not I mean the change in the mortgage rate was enormous especially when you consider the fact that people were able to get adjustable rate mortgages see Ben Bernanke doesn't seem to understand that would fueled the housing bubble wasn't a 30-year fixed-rate mortgage it was the teaser rate on a two and twenty eight arm and where did that teaser rate come from it was a gift from the Fed the Fed lowered interest rates down to one percent and that brought those teaser rates down and here is the real thing that Ben Bernanke doesn't understand about Freddie and Fannie Freddie and Fannie were the leaders in the charge to lower lending standards what Freddie and Fannie decided to do for their conforming loans because they have to guarantee the loans and there is a certain income standard that Fannie and Freddie said if you want to borrow a certain amount of money your income has to be a certain percentage of your mortgage payments right now what Fannie and Freddie decided to do was fixed that qualification to the teaser rate not to the reset rates so let's say somebody applied for a mortgage where for the first two years the interest rate was 3% and then it jumped up to 7% and maybe that meant that for the first two years the monthly payments were $500 and then they jumped up to $1500 right the Fed was going to Fannie and Freddie we're going to guarantee that mortgage based on the borrower's ability to pay the 500 a month they didn't care if the 1500 a month exceeded his monthly income they didn't care they simply were guaranteeing mortgages based on the teaser rate that's why these things became so so popular because you could borrow well beyond your ability to pay back the loan because the government was going to guarantee the mortgage anyway so the government got the housing bubble going with cheap money and low lending standards from Fannie and Freddie only at the end did the private sector come in with the securitization market of subprime but only because Fannie and Freddie were the biggest customers for Wall Street Fannie and Freddie bought half the paper that Wall Street securitized without that big buyer they wouldn't have secured ties at all and without Fannie and Freddie buying it other people would have been too scared to buy it but since Fannie and Freddie put their good government seal of approval on Hollis other other people were buying but to say that Wall Street created the problem and it wasn't Freddie and Fannie is it's ridiculous Freddie and Fannie was right at the center of this thing here here is where he really goes off the deep end - he says timing housing prices began to pick up in the late 1990s before the monetary policy began easing and so therefore it couldn't have been the result of their policy plus it kept going up after they tightened in 2004 all right now here here's what happened if you look at a chart of housing prices and in the stock market they really started going up you know in the second half of the 1990s and and real estate prices really began their ascent in 1996 97 ish that's when the housing bubble started but it's not as if the cheap money policies started in 2001 the cheap money is what fueled the entire stock market bubble that burst in 2000 the Fed under alan greenspan kept interest rates too low for the entire decade particularly the second half of the 1990s every time there was a problem in the world long-term capital management you know russian debt contagion orange county went bankrupt you know y2k concerned whatever happened Greenspan was there in fact he was so friendly to Wall Street they had Wall Street came up an it with a name the Greenspan put nothing can go wrong because Greenspan's got your back so we had all this cheap money a lot of it went into the stock market but some of it went into the real estate market so the real estate bubble began in the 1990s as a consequence of the feds cheap money but it was obscured by the larger bubble in the stock market and in fact the stock market bubble was helping to fuel the real estate bubble because people were taking their stock market gains and using it to put a down payment on a house in fact a lot of people who were buying houses were cashing out options because they worked at a dot-com company and they became overnight millionaires and they went and bought a house because I remember I got married in in 2000 and I was ok the stock market is going to crash I number my wife at the time wanted me to buy a house I said I'm not going to buy a house because the stock market is going to crash and then real estate prices are going to come down - we'll wait for the dip and then we'll buy and of course I was right the stock market crashed but the real estate market did it so when the real estate bubble burst and the Fed immediately did the wrong thing again by slashing interest rates down to 1% they didn't really reflect the bursted Nasdaq bubble but they perpetuated and accelerate the smaller bubble in real estate and they really lit a fire under the real estate bubble so real estate prices began to rise even more after the feds last rates but that doesn't mean that the Fed wasn't responsible for getting it going prior to that by having rates too cheap when they when they produced a housing bubble now had the Fed not stimulated the economy in 2001 with cutting interest rates to 1% the real estate bubble would have been would have been sniffed in its infancy real-estate prices would have come down right then they would have reversed those gains from 2006 from 1996 to 2000 we would have had a deeper recession but we never would've had a housing bubble we never would have had the financial crisis of 2008 that was the the withdrawal from the Fed stimulus in OH 1 now when when Ben Bernanke says we started raising interest rates in 2004 but real estate prices kept rising well they rose for two more years the peak was in 2006 the problem wasn't that they raised them is that they raised them too slowly they raised them at one quarter point increments that wasn't enough in fact I wrote an op-ed it was either in 2004 or 2005 but he goes oh 4 in the Orange County Register it was called a tender trap of adjustment mortgages and in that op-ed I said the Fed is raising rates too slowly it needs to raise them aggressively the longer they wait for aggressive rate hikes I said the more people who are going to be lured into this tender trap of adjustable rate mortgages these tiny increases kept the party going and in fact as rates were going up it accelerated the demand for houses because people wanted to buy before the race went even higher so everybody was rushing in to buy and lock in these teaser rates so they can buy these houses had the Fed been aggressive had we not went in a measured pace Ed Alan Greenspan not raised rates 1/4 of a point every couple of months had he just taken them up two or three hundred basis points moved him up he would have nipped it in the bud but you know it's one or two things is is there's one or two possibilities alan greenspan at the time knew that the phony recovery was built on this housing bubble and he didn't want to prick it and so he was very careful to raise rates very slowly so as not to prick the housing bubble to keep it going for political reasons or he was totally oblivious it had no idea that there was a housing bubble but obviously if the Fed had known there was a housing bubble and they were acting responsibly they wouldn't have raised rates by a quarter of a point they would have been far more aggressive but the fact of the matter is they were too slow and they perpetuated this bubble think about all the adjustment rate mortgages that were taken out between 2004 and 2006 all the worst paper was originated at that period of time all the stuff that Willy went bankrupt and it was because even though rates were 1% so he went to one and a quarter one and a half one in three quarters to those rates were still ridiculously low and so the Fed did this and the reason that I was able to figure this out so easily and again the person who introduced me mentioned my my speech in front of the Mortgage Bankers Association just go to youtube and type in Peter Schiff mortgage bankers and and listen to what I was saying in 2006 I said the same stuff in 2005 and then listen to what Ben Bernanke was saying and determine who has credibility I mean how did I know all this stuff was going to happen because I understood how the feds policy was distorting the market how was creating a bubble in their housing market I understood how the entire economy was dependent on that bubble on the spending of phony real estate wealth I knew how leverage the banking structure center section sector was - this phony collateral I knew that when the bubble burst the banks would fail Fannie and Freddie would go bankrupt and I also knew more importantly that the government would once again do the wrong thing and the Fed would do the wrong thing repeat their mistakes of 2001 which is exactly what they did this is a slide that wasn't in his presentation but anyway so what did did Ben Bernanke learn from the mistakes of Alan Greenspan no he repeated them by lowering rates to 1% we inflated a week we really inflated this huge real-estate bubble that the Fed began to inflate when rates were too low in the 1990s the defense from his mistakes no we're our interest rates today they're at zero they're even lower than they were at any point in the greenspan term and he's kept them there for years and he's promising to keep them there for years more so you got to ask yourself if the Fed did so much damage with a monetary policy that's not nearly as reckless as the one that we have now imagine what is in store for the US economy when we get to hang over when this stimulus wears off and think about the Keynesian stimulus that we got from from Bush with those budget deficits the Obama deficits dwarfed the bush deficits so unfortunately just like the the housing bubbles the bursting of the housing bubble had more dire consequences than the bursting of the stock market bubble the bursting of this next bubble which I have described as a government bubble you can see that in the bond market in the foreign exchange market when this bubble bursts it's going to be much more disastrous see people think the US economy is recovering well they made the same mistake during the housing bubble the Fed confused the housing bubble with a legitimate recovery it's making the same mistake now we're not recovering we're just spending ourselves into a deeper hole we're spending more borrowed money and we're counting the spending as a growing economy all that's growing is our debt and remember when we had this housing bubble Ben Bernanke said it didn't exist well now it's saying the same thing about inflation the Fed is saying there's no inflation there's no evidence inflation even though you can see the inflation everywhere well there is inflation just like there was a housing bubble at the Fed didn't see there's inflation that the Fed doesn't see and eventually interest rates are going to have to rise dramatically and when they do just like when they rose on the mortgage markets and all the subprime buyers couldn't afford to pay their mortgages when the rates reset the US government can't afford to pay interest on the national debt that's now enormous when the rates go up homeowners are going to be in trouble when they're adjustable rate mortgages go up the banks are going to collapse again bigger than the last time when rates go up in their lateral evaporates and you know their income turns into losses so unfortunately rather than saving us like Ben Bernanke's version of history the Fed created the problem they made it worse and now we're in for a much greater catastrophe because of the Federal Reserve and you know I got this chart up here Ben Bernanke tried to talk about you know what a great job the Federal Reserve has done how much better off we are with a Federal Reserve than without the Federal Reserve well here's this chart and you can see 1913 right there this is prices this is what happened to prices so without the Federal Reserve prices were falling this is an index a CPI index where 100 and this is created by the Fed 1967 is a hundred so you can see here at about 1800 you know you're around close to 40 and by 1900 you're closer to 20 right so consumer prices were lower in 1900 than they were in 1800 that sound money that means money gained value over that 100 year period of time money gained purchasing power without the Federal Reserve because what did we have we had deflation for over a hundred years now according to the Fed deflation is the worst thing that you can possibly have well the 19th century by anyway you want to measure it was a more prosperous century than the 20th we had much more economic growth living standards rose at a higher pace during that century then during the 20th century and it happened with a gold standard without a central bank and it happened with with deflation now get the government thinks deflation is is is is is some kind of you know pestilence that they've got to protect us from it's not it is the reward of free capitalism it is the way the average man benefits from capitalism is that the cost of living goes down and his standard of living goes up so the government makes these phony arguments they say well if we have the flay ssin nobody will buy anything because prices will be falling and so the whole economy will seize up because people will be waiting for lower prices and so nobody will buy well that's complete hogwash I mean people buy cell phones all the time people buy laptop computers people buy plasma TVs the price keeps going down and they keep buying in fact the reason that people are buying is precisely because the prices are going down it's falling prices that created them in the first cellphone that came out probably was about $2,000 very few people bought it because it was so expensive and then if you wanted to make a call it was really expensive what created demand for cell phones the price came down and as the price came down people bought it and the companies made more money see the other argument against deflation is that well the businesses will fail because they won't be able to make any profits with falling prices they make more profits with falling prices because their costs are falling and with lower prices you get more volume there the cellphone companies are making a lot more money selling millions of cellphones at 50 or 100 bucks apiece than they were when they sold a few thousand a couple of thousand dollars apiece it's happened with everything you know any guy that owns a retail outlet knows that if you want to motivate your customers you have a sale you buy you know so this is this is this is all cover the Fed wants to create inflation so in order to create an environment where inflation is considered good the government has to first say that the opposite of inflation deflation is bad see and effect and then Bernanke claims that the goal of the Fed is price stability well that was their goal they failed miserably see look at the record before the Fed and look at prices going through the roof now this chart only goes up to 1975 I got another one but look at how prices are skyrocketing once we get the Federal Reserve and also one a point out people want to say that you couldn't make any money Oh businesses can't make money under deflation right the greatest American fortunes were accumulated in the nineteenth century not the 20th century if you want to look at the 30 richest Americans of all time self-made adjusted for inflation only three out of 33 were born after the Civil War the other 27 were born before the Civil War and of those three there's only one who was born after the Second World War so people were able to make a tremendous amount of money in a deflationary involvement environment and in making that money they created the American middle class people were emigrating from all around the world to participate in this economic miracle of freedom of sound money and the government was tiny you know in 1900 the government at all levels state federal and local spent 3% of the GNP that's it 3% today that number is better than 40% the government is more than ten times bigger as a percentage of the economy but that's why the economy is not as productive as it was that's why we can't create wealth the way we did back then and how did the government get so big what enabled the government to grow that big I would argue it's the federal reserve without the federal reserve they never could have pulled it off which is why they wanted the federal reserve here is this chart right that shows prices till today so here we have this is sick that index that is that 638 I mean look at that thing going ballistic now you know if we can come back in a couple of years and put this chart up there wouldn't even be enough room in this building we'd have that we'd have to bore a hole through the ceiling to going to show you where that chart is going to go because the Fed is on the verge now of destroying the dollar here's another chart of consumer prices 1913 at 2030 I mean really this graphically I mean this is without the Fed that's price stability does that look like price stability to you I mean that's your definition of stability I mean going up like that in fact the Fed is now saying it's actually admitting that its goal now is not price stability right now its goal is inflation of at least two percent a year so that we don't accidentally fall into deflation well you got to be you got luck this is a really scary thought this is what we got when the feds goal was stable prices imagine what that line looks like when it says its goal is inflation right I mean it's gonna be worse because if you really want stable prices stable in my def in my mind stable is like this right well that would mean some year's prices go up and then some years they go down and that's how you get stability even if prices go up 2% a year that's a lot of inflation over time stable prices is not 2% up every year stable is stable right so now we didn't have say prices we had escalating prices and now they're going to escalate even more and so where are we now because I got a few minutes and you know what are these big mistakes so where are we now the Fed has got interest rates at zero it is ignoring all of the damage being done structurally to the US economy just like ignore the housing bubble the trade deficit is once again skyrocket current account deficit government deficits are exploding and the Fed is sitting there with his foot on the gas monetizing all his debt because the Fed is afraid to allow the economy to restructure because of the short-term pain that that would involve but when we abun not in 2008 what if we had not bailed everybody out right and let the chips fall let some banks fail let the markets restructure wouldn't that be better than piling on trillions and trillions of dollars of additional debt to grow the financial sector to grow the government sectors the sectors that are already bloated and too big meanwhile the sectors that we need to attract resources manufacturing you know mining wealth production you know continue to atrophy would have been better to take the medicine would have been even better to swallow that medicine in 2001 had George Bush you know not let us down this path had he had he told the American public hey we had this huge stock market bubble during the 1990s we made a lot of mistakes we did a lot of foolish things now we're going to have to have a couple of tough years as we unwind those mistakes that we got under the Clinton presidency under a green spent yes but no we didn't do that but the problem is we've run out of time here this is a gigantic bubble that is bursting you can see all over Europe countries are now having to deal with their sovereign debt problems Greece is the one that's that we're all talking about but what is the difference between America and Greece because a few years ago Greece was just as broke as it is now but there wasn't a crisis and the reason there wasn't a crisis is because the Greeks could still borrow money even though they were broke even though they couldn't pay it back interest rates were still low at some point Greece's creditors got nervous and they didn't want to keep and that's when it hit the fan well the same thing is here we're just as broke we can't pay our bills either right that's why the Fed has to keep interest rates really low because if the Fed lets interest rates go up then just like Greece we have to default we have to restructure the US government cannot afford to keep its commitments if rates go up so the Fed keeps them down to prop up the government to prop up the banks but meanwhile that makes the problem bigger it makes the debt bigger and it means the burden is that much higher when he eventually has to raise right let rates rise and the longer he waits the higher the rates are going to have to go and and the bigger the damage now some people will argue well we're different than Greece because Greece can't print money and we can yeah that's why it's worse here because that's what we might do if we print money instead of defaulting if the Fed prints money indefinitely because it doesn't want to let interest rates go up because of the pain that that's going to bring in then we're going to have a currency crisis we're going to have potentially hyperinflation and the dollar will collapse and Ben Bernanke will have created something far worse than anything that we endured during during the Great Depression and you November when when we embarked on this crazy Keynesian experiment you know the government was tiny on Hoover's last budget was like four billion dollars and I think Roosevelt doubled the size of government to eat billion it was still relatively small and you know a lot of people say that well what really got us out of the Second World War wasn't um wasn't the who wasn't the New Deal it was the civil it was a second world war that fighting the war all that wartime spending is what got us out it's actually the exact opposite we got out of the depression in 1946 when all the wartime spending stopped yes a lot of people got jobs during the war but they were jobs in the army they were jobs in factories making bombs I mean these weren't jobs that were producing goods and services that Americans got to enjoy I mean time was tough in America during the war everything was rationed you could say that the worst part of the Depression was during the war it was after the war but we didn't have to waste all that money on war on soldiers building bombs when we had all those resources returned to the private sector when the government slash spending that's when the recovery really began now unfortunately that's not what we're looking at now we've got a Federal Reserve that's made policy mistake after policy mistake after policy mistake and it refuses to accept any responsibility for the damage it's done yet it continues to do it I think the Federal Reserve in contrast to what Ben Bernanke said is probably the single most dangerous institution in America and Ben Bernanke should be regarded as public enemy number one and you know I've seen him I testified before Congress and he'll even acknowledge when he's pressed that the most serious problem that we face as a nation is these big deficits and he keeps saying but this is not the feds fault and it's not up to the Fed he says that this is all political BS it's not political it is the feds fault how does Ben Bernanke think the government is getting away with all these deficits it's the Fed buying up all the bonds it's the Fed keeping interest rates artificially low if the Fed wasn't buying any bonds and it wasn't buying any mortgages and it led interest rates go up the government would have no choice spending would have to be slashed we would have to allow the economy to restructure the only reason that the politicians are not making the tough choices is because Ben Bernanke gives them an easy way out but what are the ultimate consequences that we are going to be faced with right when the music stops when the dollar crashes when the bond market crashes all of this is going to happen you know I just did a debate earlier today on CNN International on this austerity versus stimulus and people are saying you know look at look at how Europe is suffering with their austerity and we're doing much better under stimulus first of all they might have austerity there but it may be some a lot of it is the wrong kind and some of it is not all Stier enough so I don't want to hold Europe up as the poster boy of what to do right but they're making fewer mistakes than us but this is the point in this short-run stimulus always feels better right if you go if you're if you're a drug addict and you check in a rehab and as soon as you get there they give you drugs well yeah I mean that's great you're gonna have a lot more fun than the rehab center that sticks you in a room and makes you go cold turkey but a rehab sorry hab Center that's passing out drugs is not going to you know rehabilitation curing drug addiction right so that's what we've got right and even I even got a Paul Volcker that same cop to admit that he thinks well yes Paul Volcker said the problem in the US economy is that we have too much borrowing and too much consumption he admits that but then he supports the stimulus because according to Paul Paul Volcker well we need a little a little more of the hair of the dog that bit us as if more cheap money and more spending is going to solve the problem look it's like if you're overweight and if you're 300 pounds and and the doctor says like you got you weigh too much you're going to have a heart attack you need to go on a diet this solution isn't to first put on another hundred pounds because you don't want to just go cold turkey got all this and and then start losing weight you know after you're 100 if you're gonna if you're too fat at 300 it's even worse at 400 and it's going to be even harder to drop the pounds you got to drop them right now yeah maybe it changes your lifestyle maybe you don't like exercising maybe you don't like eating salads and all that kind of healthy stuff you want to eat junk food you want to lie on the couch but that doesn't get you healthy and right now everything we're doing as an economy thanks to the Federal Reserve stimulate Ben Bernanke right one of his brilliant statements he's said in these lectures the problem is we don't have enough demand we got too much demand right I mean you know you know the old expression shop till you drop we did it you know we don't need any more demand Ben Bernanke said the problem is households are not spending and borrowing as much as they did before the crisis of course they're not they're broke and the reason we had a crisis was because households were borrowing and spending too much and why were they doing that because the Federal Reserve made it so cheap that's why so we don't want to return to the conditions that created the problem we want to solve those conditions the only way the economy is going to be soft is going to is going to restructure and have lasting prosperity is if we do the exact opposite of what we did to create the problem that means we need less spending we need less borrowing we need higher interest rates the sooner the better we need interest rates to go up so savings go up consumption has to go down we have to invest more we have to produce more we have to export more we have to shrink our trade deficit we have to shrink our government we have to repeal all these rules and regulations that are making us uncompetitive instead we are doing the exact opposite of everything we need to do in fact if you wanted to create a blueprint to destroy America all you have to do is follow the current plan and the Federal Reserve is right at the forefront anyway now I know I'm at I'm at the exact 1 hour mark so I want to end my discussion and then open it up to questions from audience particularly from people who happen to have heard a Ben Bernanke's lecture and who might want to question me about the you know the differences in what we're saying yeah microphone first [Applause] my own here do I have the extra area on thanks for cramming 2 hours worth of information in the last 45 minutes I when you ask a question please quickly state your name and then ask a question don't give a speech since I have the microphone I'll ask the first question which is there's been a tremendous advance and kind of literacy about the role of the Federal Reserve and central banking and yet central banking remains pretty persistently popular throughout the world are there any examples of people stepping back away from that kind of centralizing ledge or where do you see the this proceeding next on a pragmatic point of view well I mean you see examples in the market I mean look at the price of gold when when central bankers were really held in high regard when people really trusted them people didn't buy gold I mean gold was languishing in the high 200s in 2000 people were very convinced that that gold was an ancient relic that we didn't need it anymore that we can trust the central bankers to keep a lid on on money creation to keep a lid on excess government so that was really the heyday you know the maestro Alan Greenspan people really you know worship them and then they had a lot of faith in in paper-money and central banks with gold at 1700 it's on it's been rising for 11 or 12 years in a row uh that confidence is is is evaporating and rightly so and so you can see that and all the central banks if you look at the UK look at the ECB look at the Bank of China look at the Bank of Japan everybody's got interest rates at zero or practically zero even Switzerland has got them down there uh and so there's no return on currencies everybody is printing money all these government's are hopelessly in debt they have two choices default or inflate those are their only two choices because paying their bills isn't even an option because they can't afford it so if they're going to either way you don't want to own their bonds because if they default you don't get your money back if they inflate you get your money back but you don't get your purchasing power back so people are buying gold we haven't yet seen it a national scale where a country has you know gone back on a gold standard I think that's going to happen I think central banks have gone from selling gold to buying gold I mean think about how stupid these central bankers are what were the central bankers doing in the late 1990s when gold was 250 to 300 hours an ounce they were all selling what a stupid thing for them to have done to sell their goal that those low prices so now they're buying it back but still if you look at how much gold central banks owned as a percentage of the gold that's out there it's at historically low levels and if you look at the reserves the percentage of gold as a reserve role in two currencies it's 90 some of the biggest countries like China that have three trillion reserves I forget what it is maybe 3% of those reserves are gold you know 97 percent of it is fiat paper and all these BRIC nations ever they're all way under owned so they're but they're moving now and they're moving in that direction to buying gold you can even see here in the United States various states are introducing legislation preparing for an alternative to the dollar trying to have gold circulate as legal tender within their states so you can see this and look at the price of oil I mean gasoline prices now four dollars a barrel these are record highs seasonally they're going to hit record highs this summer $5 $6 and in a couple years it might be 10 $20 it might be $100 who knows if they keep printing money prices are going to go up prices for everything are going to go up food clothing eventually even consumer electronics are not going to be able to to stop that tide so even if in real terms prices are going down because of efficiencies and economies of scale even those prices are going to start to rise because that's how much inflation is in the pipeline and is being created so as that happens you know people are going to lose confidence I think the dollar will lose its status as a reserve currency and that's you know really when it hits the fan questions I don't manage Christian I'm an intern Freedom Works and I was wondering what you make of the argument that has been put forth by people like Krugman as well as Bernanke and Greenspan that the housing bubble was a result of a savings glut that emerged from China and other East Asian Asian economies and was exported to America which push down bond rates and yeah effectively yeah I talked about putting the cart before the horse I was addressing this problem you know back you know back in in 2002 2003 2004 it wasn't the the global savings glut it was our trade deficits what happened was we were spending all this cheap money the Fed was creating all this money and putting it into the economy the real estate bubble was creating all this purchasing power that people were tapping into through home equity loans and what were they doing with the money that they extracted they were buying stuff and where was the stuff made in China and Japan and other countries and so we were exporting all of this currency but since we weren't manufacturing things to sell to the nations that we were buying from they had all this extra dollars and so what did they do with all these extra dollars they loaned them back to us in the form of buying Treasuries but ultimately the Treasury yields were so low that foreigners were not getting that good a return on these Treasuries and that created the demand for higher-yielding mortgage-backed securities but the problem was we had these enormous trade deficits that because the dollar was the reserve currency were being recycled into dollar denominated assets mortgage bonds Treasury bonds had the dollar instead been allowed to fall which it should have and these big surplus is not accumulated we wouldn't have had this but to blame our trade deficits on the rest of the world surpluses is again it's you know it's getting it in Reverse right and so they're looking at it but I talked about this at the problem and I said this was what was fueling the bubble because what would happen is we would run these big trade deficits as a result of all the stimulus and then our trading partners would recirc 'el recite recycle the money they earned back into our mortgage mark which would bring interest rates down even more which would create another wave of reef eyes and home equity extractions which we would then take to Walmart and buy more stuff to send more dollars abroad that would come right back and I said at the time and you can read it I described it in crash-proof I described this virtuous circle of how it worked but that it was going to go in Reverse once at first and in fact it's amazing that Europe never really blamed us for this financial crisis because how did Europe get all this bad paper we sold it to him we packaged it up and we sold our you know our junk bonds mortgages all around the world because we were borrowing money there was a glut of dollars from our trade surpluses but if the Fed didn't have interest rates down so low we wouldn't have been consuming more than we produce we would have had to save more right we would have had to have produced more we wouldn't have all these imbalances so you can say yes foreigners are partially to blame for not letting the dollar tank right they should have let the dollar collapse they should have said you know the dollar can't be the reserve currency anymore because it's not backed by gold you have all these trade deficits and they should have let the dollar sink instead foreign central bank's try to prop up the dollar and so to do that they are buying up all these dollars and then we were recirculating them back into these these pots but again you can't blame it you can say yes they're partially to blame for not letting the dollar tank but of course if they let the dollar tank then we would have a real crisis in America right now which we're going to have eventually and as far as I'm concerned the sooner the better I think that foreigners are not helping us by delaying the pain it's like you know a drug pusher giving you giving you you know free drugs yeah I mean you think he's doing you a favor until you know all of a sudden you don't get the free drugs anymore and that's what's happening now we're living above our means because of this but it's going to come to an abrupt end and it's going to be a very very painful process to try to restructure this economy after years and years and years of being able to consume based on printing money because that's going to stop well we have one question from the Facebook page before we move back upfront and that is how do you see the Federal Reserve being phased out of our economy well I don't know if it's going to be phased out of me to say but I think we should do at least is return the Federal Reserve to its original mission right don't let it buy government bonds you know let's bring it back to its initial limited function you know where the Federal Reserve notes are backed 100% by commercial paper and 40% by gold and let's have real money again and follow the Constitution but if we do that maybe we can gradually phase out the Fed but you know a lot of people think how can we go back to a gold standard and of course I don't think of it as going backwards to a gold standard I think it's going forwards to a gold standard because we went backwards to paper the founding fathers were forward-thinking they knew that paper money didn't work and so they were progressive they put us on a gold standard we forgot about that and we reverted to a failed system of fiat money so we need to advance again to to a gold standard but think about this we were able to take the country from a gold standard to a Fiat standard we went from a dollar backed by something to a dollar backed by nothing to me that seems like a harder transition to make than to go from a dollar back by nothing the one that's backed by something right does something that has real value there's just not a piece of paper where there's some limit on the ability to just create it out of thin air so I think it's I think it's a transition that's very doable and that it will ultimately happen you know right now I advise people you know don't wait for the official return of the gold standard buy your goal now because when we're on a gold standard it's gonna be a lot more expensive hello mr. Schiff yeah if my name is Byron Sanford if we implemented tax increases and spending cuts which European countries are doing right now what negative consequences do you see as a result of that well I see no negative consequences to spending cuts at all on tax hikes it would depend on the type of tax hikes that you're envisioning I mean I do think that it is better for the government to run on revenue than run on debt right so increasing revenue through taxation in general is better than increasing revenue through borrowing or printing so but I don't think the problem in America is that the government doesn't collect enough in taxes I think the problem is that it spends too much so I want to resolve these imbalances with radical and drastic reductions in government spending that is the best way to attack the problem but of course we need to let interest rates rise too until we get higher interest rates we're never going to get at these real structural imbalances because it's because of price fixing we need a market determined interest rate not a interest rate that's determined soviet-style you know by a central planning division to just picks an interest rate out of the sky but what's also important when it comes to taxation is that we need to reform the way the government collects taxes that's a key part even if we're going to collect more revenues which I would prefer not to do but if we're going to balance the budget through a combination of higher taxes and lower spending we need to reform the taxes so that the new taxes are coming off of consumption and spending not off of savings and investment in production so I don't want to tax people for working and investing I want to tax people for spending their money and yes you know people say well if you do that then the rich are going to get off the hook no they're not going to get off the hook the rich spend a lot of money I mean they're rich they buy a lot of expensive stuff so they can pay taxes but if a rich person earns a lot of money and doesn't spend it why shouldn't we tax that money because he's not enjoying it he's not spending it what is a rich person doing with the money he doesn't spend it's being invested it's growing the economy it's producing goods it's creating jobs so any money that the government takes from a wealthy person that that wealthy person wouldn't have spent directly diminishes economic growth it directly diminishes employment if you think that you create economic growth and create jobs by taking money away from entrepreneurs and business and giving it to politicians right a government and there is no historical evidence that that works in fact all the historical evidence is the opposite right when governments are in control of resources their squandered you don't get economic growth get you get widespread poverty so we want to leave wealth in the private sector so we can raise our living standards and create jobs and it all gets caught up in demagogues a well but the rich aren't paying taxes okay fine what are they doing with their money right they're investing it tax them when they spend it if you buy you know you buy something you pay a tax and and and so we need to move the tax code in that direction if we just do what Obama wants to do raise taxes on the rich is probably going to backfire I mean I mean I would fall into the category of rich and right now what are my taxes I'm paying 35% federal income tax plus 2.9 percent federal you know Medicare tax that's 38 percent of my money plus theta Connecticut seven percent factoring you know so that puts me over forty percent of my total income is because I've been up 19 plus ninety five ninety nine percent of my income is taxed at the marginal rate so that's over forty percent of my income right there and that doesn't count what I pay in property taxes sales taxes Social Security taxes corporate taxes all kinds of hidden taxes I'm already probably about 50 percent how much more my am I going to take are they going to take it up to 55 percent 60 percent you know how many people are even going to work under that type of this confiscatory rates of Taxation you know yeah and which means the government might end up getting nothing I mean it's better to get 20 percent of something than 70 percent of nothing and more importantly it's not only that what about the jobs that are destroyed or never created because the entrepreneurs don't have that capital to grow their businesses they sent it all the Washington so you know trying to tax people who are already overtaxed is not going to do it you know and meanwhile half the people in the country aren't even paying any income taxes yes they pay Social Security taxes but you know they think that raising income taxes doesn't cost them any money well maybe it cost them their job because they can't get a job because the capital needed to provide that job was sent to Washington instead so we need you know we created all that wealth I talked about the 19th century and all the wealth that was created Jordan income taxes at all nobody those wealthy men that created all these fortunes and grew this economy paid no federal income taxes they paid no state income taxes nothing so we need to move more towards that model of free in capitalism you know not try to continue this broken model do we have the questions from the Bernanke class crew here who wants to take their loan okay thank you mr. Schiff yeah my name is David Pomeroy I had a question for you about the gold standard and I was wondering some of the sharp the charts that you showed seemed to be shown a simplified version of the gold standards record in the 1800's having it smoothed out over the long term but don't show the wild short-term fluctuations which are in excess of 5% inflation and deflation yeah well I don't know what you can see from that from that slide but there were periods of time under a bowl standard where you saw that but it always coincided with a period of time where we kind of temporarily veered from it such as a civil war where we introduced for the first time greenbacks into circulation and we did have an inflation that that would that ran with the civil war when the war ended and the notes came out of circulation prices resumed so what you're looking at is a long term trend that was like this and yes there were there were there were bumps but you're looking at a hundred year chart to show the overall direction of prices which was down and you look at the chart of the twentieth century particularly the second half of the 20th century worio now you're looking at a movement like this so while that is true there were some pretty variable fluctuations in 1800s and while it was a long-term stable it wasn't short-term stable whereas now it is not long-term stable but it is more short-term I don't know how you can call it short-term stable if you if you consider stability going up every year I might the goal short term stability and I'm talking about is when it goes up 5% inflation and then down 5 percent deflation 2 years later so that's pretty pretty unstable compared to today's standards how is far during as far as I should for you is well is why are the short-term fluctuations more desirable than the long-term stability well I don't think we have stability I don't think creating perpetual inflation and as I said if you look at the economic experience of the 19th century look at the increase in living standards right during that period of time compared to today it was much stronger we produced more econom growth we raised living standards for more people higher even with whatever those short-term fluctuations were they were not nearly as problematic as what we've got now we've eviscerated the middle class that was was created with with limited government and sound money I mean now Americans are all in debt I mean the average American has a negative net worth now I mean he's he's broke I mean his share of the national debt Dwarfs whatever a minimal amount he has in savings or in home equity you know I mean so we the economy is struggling under the weight of all this government and central banking and we haven't even experienced the complete end result the real crisis the real day of reckoning from this experiment with fiat money that's not in our past yet that's in our future I mean it's going to get a whole lot worse and then a lot of people are going to see exactly the damage that has been done by by central bankers and government thank you very much for speaking we hope we all attended it um my question is returning to the gold standard as you mentioned no country right now is on the gold standard but you said that you think that in the future countries will go back to the gold standard yeah I mean when we left the gold standard in 1971 Richard Nixon said it was temporary that's what he said I mean it wasn't his intention so so just to finish the thought so looking back many many countries had been on the gold standard in the past and every single one of them has ended in the country going off the gold standard in the UK and in Germany and during the Great Depression was because they just ran out of gold well it didn't have enough gold to cover it so what makes you think that if a country were to return to the gold standard in the future they would be able to maintain it and just wouldn't end in them going off the gold snag as in every other circumstance in history yeah well the reason it's not that they run out of gold see they don't want to allow deflation they don't want to allow prices to adjust to the quantity of gold so yeah so politics that you don't run out so politicians don't like the gold standard for the very reasons that Bernanke laid out it prevents them from selling snake oil to their constituents in exchange for their votes the politicians want to pretend that they can spend money to solve problems the gold standard is in their way so it's the politicians that want to remove the gold standard ultimately its people that are going to want it back people want real money people want sound money now the last country that went off the gold standard was Switzerland I mean these day hold out the longest but one by one all the politicians followed our example we led the world off the gold standard we're probably going to lead them back not necessarily because we adopt the gold standard first but because we destroy the dollar in their reserves and they have to replace it with something and so once we've destroyed the dollar the question is what does the world do to replace it are they just going to take the euro are they going to take the yen the China the RMB or they can go back to the dollar remember the reason we were able to sell the world on the dollar as the reserve as opposed to gold because everybody was using gold and we said hey use the dollar instead of gold and basically what we said is we own all the gold we've got 90 plus percent of the world's gold anyway where'd we get all that gold we sold products and they paid in gold because they didn't have the products we they didn't manufacture like we did because they had bigger government's than we did so we had all the gold we were the world's biggest creditor nation we we had investments all around the world we had massive inflows from our foreign investments we were by far the wealthiest creditor nation and we said look hold dollars the dollar is as good as gold you don't need gold you've got the dollar you can have your gold whenever you want it just bring $35 to the Treasury and will hand you an ounce of gold in the meantime you can get paid interest on your dollars you don't get paid any interest on your gold so we convince the world based on the strength of our balance sheet based on a dollar being as good as gold to take the dollar as the reserve so when when when when this whole thing collapses the most likely thing is that we go back to the way it was before the dollar became the reserve currency not that we simply replace some lesser flawed fiat currency for the dollar yeah just when you said that the United States and all these foreign investments that had gold coming into the country inflows of gold during that during that period but we had income from our foreign investor IRA of course so if you kind of follow that to his conclusion which happened during the Great Depression if the dollar if the United States is so strong if any country is so strong that there's continuous inflows of gold into the United States eventually the United States will have all the gold nobody else will have any gold the Wow well and then end up off the gold standard no no because no because what's gonna then we're gonna have to start using our goal to buy some of their stuff and the gold will flow back out but you know it because both look if the world ran out of gold through threat eclis right well then we would just produce stuff for ourselves instead if we're gonna export something the world has to pay for it right you know so it isn't a problem the problem is the Fiat standard I mean gold standards have worked historically for hundreds of years I mean the founding fathers knew this these were smart guys they put us on a gold standard for a reason they studied history and unlike Ben Bernanke they not only understood it but learned from it and so they put us on a gold standard and and it served us very well we were a tiny country you know we were an afterthought to Europe in 1789 we were a few million people you know here in the new world yet we created a society in just a hundred year time period that we created a standard of living well beyond anything in Europe how did we do that we did that on a gold standard we did that with no government with a tiny government and freedom we were freer than all the Europe and so we prospered more than Europe you know we came in with this with this with with a Fiat standard you know we started in 1913 but we didn't really go off it until 1971 look at the disastrous result look at the collapse of the value of our money look at skyrocketing prices I mean look at before the Federal Reserve came into existence in America if you were a man in this country and you'd even have a high school degree you could get a job your wife could stay at home you do not she'd have to get a job you can support her you can have four kids right you can save for your retirement you can buy things you had a great standard of living now if you you know there's no way I mean you got the average man even with a with a master's degree his wife has a job and they have to delay even having one kid until they're in their late thirties because they can't afford to have them because they're drowning in debt and you know and even when they have kids what it's one or two kids and they're struggling and they have no savings and they're deep in debt so we have destroyed the middle class that freedom and the gold standard built and the Federal Reserve is a big reason for that just yeah my name's Troy Benson and I agree that onyx and geometric waiting these things have heavily skewed the CPI over the years and have changed really you know our view of inflation but given the amount of excess reserves that are now sitting on the balance sheets of mini fat financial institutions where basically this money isn't being lent out it's just being pent up in these financial institutions it's now exceeded trillions of dollars I mean do you think that eventually the Fed will try to intervene and try to force the banks to lend that money out well it is being it is being loaned out I mean the banks are buying bonds they're buying Treasuries they're buying mortgage-backed securities so the money is being loaned out the problem is it's not being loaned out in a productive manner it's not being loaned out to entrepreneurs to make capital investments to grow the economy it's financing trillion dollar budget deficits it's financing inflated housing prices that is the problem and yes you know this the way we measure inflation is all government you know propaganda and again just like Ben Bernanke denied there was a housing bubble even though it should have been plain as day now he denies there's inflation but when when the Boscombe Commission was convened back you know in the 1990s they had a stated goal according to that commission the CPI overstated inflation meaning that they thought the numbers were too high so they were going to fix the problem and they deliberately tried to find a way to get a lower number see it's not a conspiracy that's what they did and so they did all kinds of things so the number would be lower and now it is lower but it's not because inflation is lower it's because we're measuring it differently and of course you know the Federal Reserve all they like to look at is you know the personal consumption expenditure index which is the most irrelevant of all because really what that measures is survival not the cost of living it's the cost of surviving because there you know if the price of steak goes up so much that you can't afford steak anymore so you buy hamburger instead but hamburgers also gotten a lot more expensive but it's all you can afford even if the hamburger is more expensive than the state you used to buy the government's gazelle that's a price cut because look you're saving all this money cuz you're buying hamburger right then of course you know you can you can take the same art well what if the price of hamburger gets really expensive so I have to buy dog food right Arlo's there's no inflation because I'm still eating you know this you shake it your head so maybe you think I got something wrong yeah but that's that's how they do it for the personal consumption expenditure they do substitution oh yeah because you know the example you gave about substituting steak for for Hamburg actually they're in different different categories yeah like categories different universal steak and hamburger wouldn't be the same when there's a substitution it wouldn't be but they do substitute but if the price is something goes up they'll kick it out and they'll substitute something where the price thing goes up I mean the way the way we do is we have actually people who go into stores hmm and they actually go and look at that if the item is not there they look for another item that goes into that category and if it fits that category then we substitute yeah what about what about with hedonic because I often hear where the government is going to say when the price went up they're going to say well the quality went up and so they're claiming that the price went down but in my experience most of the things I'm buying I'm seeing the quality going down where they're substituting cheaper ingredients they're using lower quality inputs they're shrinking the size things like that and then they're doing that instead of raising the price is the government going in and saying gee you know you used to go to a restaurant and the restaurant used to charge you know ten dollars for the salad and now they still charge ten dollars but it's half the size right are they going and saying that's adult price double what's happening now is that we notice that producers and you know people who actually produce the products they're actually down side down sizing as you said they're downsizing on their products but we do raiser those changes in downsizing when we when we enter the prices it doesn't it does it certainly doesn't appear that may from the numbers I work in the collection part of the CNI so I really don't know what's gone on at the end of the because I talk to I talked to people who small business owners and business owners are usually you know they watch their prices their input costs very closely because they're trying to make a profit so they have to know what their consular and everybody that calls my radio show no matter what their business is they've got the same gripe my costs keep going up prices are going up and these are big increases and they're all businesses that are totally unrelated plus true I mean costs are going up but that whoa so why isn't that reflected well you have to understand that I mean a lot of people have this misconception and that exactly you know the most knowledge of person to CDI because you know I'm only 25 years old so I started working about two years ago there but the CPI measures the average change of a basket of course so it doesn't measure one specifically so but the basket is changing the basket isn't even static but the thing is the lost costs are prices they're the same thing yeah it just depends on your perspective but one person's cost is somebody else's price well they're not that they'll ask it that the CPI measures the hours of all the items included not only one I think that's why that's why that's why an employer might so that's the core when they take when they then they take energy and food out but you know the bottom line is see the problem is inflation is not rising prices inflation is an expansion of the money supply the government isn't even measuring prices they're measuring inflation rather they're measuring the effect of inflation but the fact that the Fed isn't creating inflation shouldn't even be debated quantitative easing is just the feds name for inflation they just don't want to call inflation inflation because then we'll know what it is so they call it quantitative easing because it sounds better than inflation but that's what it is I'm not censoring the Bureau of Labor says it a hard deadline I want to thank especially Peter Schiff Andrew ship as well Freedom Works Matt kibbe students for liberty and all of you for coming out here and having a robust discussion on the Federal Reserve and freedom damn it freedom [Applause] [Music] you [Music]

Channel: ReasonTV

Views: 291,406

Rating: 4.809413 out of 5

Keywords: peter schiff, ben bernanke, federal reserve, fed, reason reason.com reason, magazine reason, great depression, recession, housing, market, bubble, gold, standard, money, banking, Austrian, economist, economy

Id: zdB9I79BQRI

Length: 86min 32sec (5192 seconds)

Published: Wed Apr 04 2012