Raw footage of Peter Schiff interview from The Housing Bubble and The Bigger Bubble docs

it played a role I mean it wasn't the principal factor but it was part of the problem but you know the more immediate cause and you know the the stronger causes I mean you have to go back even further but the most proximate cause of the financial crisis was the consequence of the economic stimulus that was implemented in the first term of the Bush presidency and it continued on during the second term but what happened is when the stock market bubble burst rather than simply allowing the recession to run its natural calls of course for political reasons the government came in and tried to artificially stimulate the economy and they succeeded they stimulated the company economy by creating a housing bubble they stimulated it by causing Americans to buy things that they couldn't afford and so we ran up huge trade deficits as a result of the imaginary wealth that was you know people thought they had because of home equity and you know when that bubble burst you know we had a bigger crisis but the community with me Investment Act I mean that was a small part of it I say the the lion's share of the cause was number one the Fed the Fed brought interest rates down to 1% left them there for years and then raised rates very very slowly so that rates were very low for an extended period of time and that enabled rampant real estate speculation because real estate has bought on leverage and when Americans are buying properties they're buying the monthly payment and by keeping the interest rates down they artificially suppress the monthly payments making people you're giving homebuyers the ability to afford a larger home or to pay more money for a home than they could have paid had it been more expensive to borrow the money and also with the advent of things like interest-only mortgages that made it even easier because people were only paying the interest and so the low interest rate was a primary factor and we also had things called teaser up rates a lot of the subprime in fact all of the subprime mortgages are mobile were adjustable-rate I mean the word 30-year fixed-rate subprime and subprime loans a lot of them were these two and 28 where you had a teaser rate for two years and then you reset for the remaining 28 and the teaser rate was very very low because the Federal Reserve kept interest rates so low and so that's what enabled the rampant speculation when you combine that with government guarantees from entities like Fannie Mae Freddie Mac the FHA that meant that the lenders really didn't even care if the borrowers repay the loans as long as they met qualifications to be guaranteed by Fannie or Freddie that's all they cared about and I think there was a lot of fraud and corruption in the process because you had all these mortgage originators that knew that if they could get a loan to qualify for FHA it wouldn't be on their books and so if it ultimately went bad they didn't care and I don't think the agencies really did enough to make sure that the loans that they were guaranteeing actually met what their standards were but also part of the problem with the FHA and I mean with Fannie and Freddie is every time real estate prices went up they would simply increase the limits for which they would guarantee mortgages so instead of holding firm and being an anchor keeping prices down they kept upping the limits and that enabled prices to really rise in fact I saw an interview I think was on CNBC with the chairman of I think it was it was a Fannie Mae but I remember when they first decided and this is you know long after the horses had left the barn that on a going-forward basis they were going to make sure that the mortgages that they guaranteed that the borrowers could afford the entire mortgage not just the teaser rate and what that meant was that Fannie was guaranteeing mortgages simply based on the ability of the borrower to afford the initial low even if they had no evidence that they can afford the higher payments and when the host asked the boat you know what would you do that I mean how could you guarantee a mortgage when the guy obviously can't make the payment shouldn't you've been doing that all along and what his answer was and I thought we couldn't believe that he said this he said well people were making a lot of money speculating in real estate and we didn't want to tell them that they couldn't do that in other words they didn't want to rain on the parade they and they felt that well as long as real estate prices are rising who cares if they could afford the payments five years from now because they'll sell it by then or they'll refinance it and so they were guaranteeing these mortgages it wasn't until real estate prices started to fall that the bubble already burst that they started thinking about this but if the if Fannie and Freddie never existed private private industry wouldn't have done that private industry would have been concerned about the ability of the borrowers to repay the loan especially if it was on their books if it was their asset but it wasn't their asset now I you know you look at a lot of the subprime Fannie and Freddie didn't guarantee the subprime mortgages but Fannie and Freddie were the largest buyers of subprime and so the originators knew that they could sell a lot of their subprime paper to Freddie and Fannie they were helping make the market they were helping to generate demand for this paper that was one of the reasons that they were able to create it and of course yes as damadian as the mania grew as real estate prices rose as people just believed that they would go up forever eventually the private sector did come in and securitize these subprime markets without government guarantees and that's where you had all this these gimmicks at Wall Street but a lot of that had to do with the fact that there was so much cheap money around the reason there was so much demand for mortgage paper was because the Fed had interest rates so low and Americans were running these massive trade deficits foreigners were recycling them so they were looking for a place to put their dollars and Wall Street created it in these structured mortgage products and you know the rating agencies slapped you know high credit ratings on them without really doing their homework and that again is also a function of government because only you know Moody's or sp these companies are government a lot licensed and rating agencies that aren't approved by the government really they can't write the paper because the the buyers aren't allowed to buy it so that was also part of government but all of this happened because the the government didn't let the market function the government didn't want a more severe recession in in 2001 or 2002 and so we artificially stimulated the economy it we created a housing bubble that never would have existed absent that government stimulus particularly the monetary stimulus but also you had to have the the the guaranteed mortgages you had that moral hazard if the government wasn't guaranteeing mortgages lenders would have been much more they would have scrutinized these loans a lot harder because they would have borne the risk but when the government bears the risk nobody cares and of course you know part of the problems was also in the banks the banks were are participating in this but you have to remember that banks are working with deposits that are FDIC or taxpayer guaranteed so the minute you have the government coming into the banking system and guaranteeing depositors that they can't lose money then the banks will take a lot of risks with those deposits because the depositor mainly wants higher interest rates he wants lower costs on his checking account he doesn't care how much risk the bank has to expose the deposit base to in order to you know bring in those those returns because you know if the bank fails who cares the government bails them out the banks know this the bank know that their depositors don't give a damn about how much risk they take and so they take a lot of risk they take a lot more risks than they would take if the government hadn't come in and guaranteed the deposits in the first place if there was no government guaranteed bank accounts bank deposits then depositors would be very concerned about what the banks do with their money and there would be real competition for safety banks would not just advertise that they have the highest yields or the the cheapest ATM fees they would avert a we got the best portfolio we have the highest quality of assets your money is safe you know there so we would have that so it was all the combination of the ways that government interfered and you know the reason that I was able to forecast this years in advance is I I saw the housing bubble I understood it I understood how government policy was fueling it and more importantly I understood how bad it would be when it came to an end because I knew that the whole banking sector was built on this phony collateral and that once real estate prices went down a lot of the lending institutions would be insolvent I also knew that a lot of our phony GDP growth was based on consumption that was driven by home equity extractions that was driven by the wealth effect that was driven by the fact that people thought they didn't have to save because they owned a house and so the money they would have saved they just spent it and so all this consumption was being driven by this housing bubble and a lot of employment was a direct function of the housing bubble whether it was home building selling homes remodeling homes people buy new furniture for their new homes all of this activity was taking place as a direct function of the real estate bubble and I knew that when the real estate bubble burst all that would come to an end and so I knew that you'd have a lot of people that would be unemployed and then how they gonna pay their mortgages and so I saw this perfect storm of falling home prices rising unemployment bank failures and I and I knew as this happened one of the reasons that lenders were so willing to lend money on real estate was because the prices kept going up and they assumed they would keep going up but the minute the lenders started to get worried well they were gonna lend anymore they were gonna tighten up their lending standards they would want bigger down payments and that would further pull the rug out from under the real estate market I knew there were a lot of speculators in the market people that were buying houses not to live in them but to flip them and and as soon as they stopped going up they wouldn't want those houses they would also all the speculators would become sellers I knew there are a lot of renters who have been suckered into the real estate market as a renter myself a lot of agents tried to you know sucker meet it but a lot of people were buying houses not because they wanted them but because they wanted to get rich and they thought that they would do it by buying a house they thought they were throwing money away on rent and so they bought houses and once they realized that the house wasn't going up they wouldn't want it anymore and especially when a lot of people were buying houses with no down payments I wrote articles for years on how risky this was not for the buyer or the borrower like a lot of people thought I said no the risk was on the lender because the lender was getting no down payment the lender had no collateral that meant the borrower could walk if the property went down the borrower could just mail in the keys instead of making a payment and that's exactly what they did people were able to make very risky bets with banks money where taxpayer money as it turned out and if you give people an opportunity to gamble with no downside they're gonna do it and I saw this going on I knew this was hot gonna happen I knew would end badly and and more important I knew that when the housing bubble burst and banks failed including Fannie and Freddie when I wrote crash proof the original that came out in February of oh seven I wrote that Fannie and Freddie would go bankrupt I knew that was going to happen I also speculated that the government would bail them Alice and that would be the wrong thing to do it would be better if they let them fail but of course they they did the wrong thing which is typical for government but not only did I forecast that the bubble would burst and we have this financial crisis and banking crisis and I said we'd have the worst recession since the Great Depression because I knew we would have massive unemployment I also knew the states were going to be in trouble because I knew that state budgets had been ratcheted up during the boom years they had increased spending assuming that the tax revenues associated with real estate were going to continue and I knew that when the bubble burst and everybody lost their jobs that the state budgets would be Iraq and I knew the federal budget I predicted in crass proof that we would get budget deficits that would exceed one trillion dollars a year I mean they were I mean no one had heard of anything anywhere near that when I wrote that book but of course that happened and but what I said was not only would we have this big bubble that would burst but that the government would once again repeat them stakes of 2001 and 2002 and that's precisely what we did we stimulated again we learn nothing from that experience Ben Bernanke is more reckless than Alan Greenspan President Obama is more reckless than President Bush we have a greater dose of monetary stimulus and fiscal stimulus which means we're doing even more damage to the underlying economy and the collapse that is going to result from this round of stimulus is going to be much worse than what we experienced in 2008 I think by by a magnitude of you know greater than two I mean it's gonna be a lot worse and people think that the economy is recovering it's not recovering at all the economy has gotten worse we've gotten deeper into debt we have greater economic on bat imbalances now we've moved a lot of the losses from the public sector to them from the private sector to the public sector but the economy is more addicted than ever to cheap money and it's not just the banking system but the federal government I mean the deficits now the national debt is enormous and the only reason that the federal government can make the payments is because the rates are so low the only reason a lot of the bailed out financial institutions are solvent is because they can borrow so cheaply from the Fed but all of this has adverse consequences you can see it in commodity prices going higher agriculture prices and energy high prices look at the precious metals look at what's happening all around the world you're having food riots I mean that we are creating massive inflation to try to pay for this thing over meanwhile instead of addressing the the fundamental imbalances that underlie our economy which is you know insufficient savings and investments too much consumption too much borrowing and spending a to larger percentage of our workforce in a government certain services in finance and education and health care not enough people working in manufacturing in mining in in oil and gas in agriculture instead of allowing our capital and our labor to be reallocated in a more efficient way so that we can produce the goods that we need we keep the cow the capital and labor allocated poor so we don't produce the things that we need which means we have to run bigger and bigger trade deficits to import what they don't predict we don't produce and we keep expanding the sectors of the economy that need to contract we inhibit the acceptors and the sectors that need to grow and we're digging ourselves in a deeper hole and I think that we are approaching the next crisis because where we are right now is the stimulus is wearing off so the hangover is setting in the economy is starting to contract I think we're headed back into recession now the Fed is saying it's about to stop the quantitative easing over the summer that it's about to raise interest rates well how are they going to start tightening as the economy moves in the recession because if they tighten don't push it over the edge I mean we'll be in a deeper recession I think they're gonna change course I think this is all Bluff that they're gonna have to come back with another round of stimulus and I think this time it'll be lethal I think the amount of stimulus that would be required to combat what's coming would be an overdose with the economy would literally overdose on government stimulus and that is a collapse of the dollar collapse the bond market runaway inflation that's what's coming you know what a lot of people will talk about you know how we almost averted disaster that it was gonna be terrible in 2008 well if it really was that bad does anybody do you really believe that it's the problems been solved by government that just printing a bunch of money that bailing out entities that should have failed that somehow this averted Armageddon I don't think so all we've done is buy some time but by doing that we made it worse that's very expensive to buy at two or three years because now not only we're gonna have to deal with the problems that we had in 2008 but all the problems that have now been piled on top of those problems as a result of what the government did to postpone the pain certainly the government has been subsidizing the decision to buy over the decision to rent and that tax deduction distorts the market and causes people to buy that absent that deduction they might have chosen to rent and I think to the extent that the government uses the tax code to alter decisions is a mistake and we want the tax code to be neutral we want people to make decisions on should they buy or should they rent based on the economics not based on the tax code and I think this is also particularly problematic when people lose their jobs because a lot of people who decide to buy instead of rent when they make the calculation of how much they save based on the deduction the assumption is they have a job so let's say somebody is deciding between a mortgage payment of 1500 and a rent of a thousand and maybe after deductions there their mortgage there their mortgage payment is the equivalent I'm just making these numbers up but let's say it's like $900 and now they say oh it's $100 a month cheaper because of this tax deduction and and then they buy and maybe that doesn't count maintenance and property taxes and whatever else but the problem what happens if they lose their job now the mortgage doesn't cost them nine hundred it cost them fifteen hundred because they you don't have a tax deduction because you have no income to deduct your mortgage payment from so it really exacerbates the downward pressure on home prices and foreclosures when a lot of people who bought homes are you know now can't afford to pay them because they don't have the fifteen hundred they would have been easier if they were renting and of course if you're renting and you're unemployed you know it's not nearly it doesn't really affect the housing market I mean it may be it affects your landlord if you can't pay your rent and maybe you just move and you rent something less expensive but there isn't a house that's going to foreclosure but the government is you know encouraged homeownership for a long time on based on some dubious analysis they believe that we're better off having homeowners and renters and you know I don't think the government should make that decision I think the market should make that decision and I certainly don't think that people who are renting should be taxed to subsidize people who are buying so we definitely need to get rid of that incentive by getting rid of the home mortgage deduction now that doesn't mean I want to raise taxes I don't so what we could do is we could figure out how much that home mortgage deduction is worth right how much does the Treasury lose in taxes based on that deduction and then when we eliminate the deduction let's lower the rate so that it's revenue neutral so that we're not sending the government any more money we're just not distorting the market so therefore the average American instead of getting a deduction for buying a house he'll just have more take-home pay every month and now he can decide without any interference does he want to use that higher income because now he's paying less taxes does he want to use his additional income to buy a house without a tax deduction or to rent and then we'd have you know prices for both houses and rents reflecting market forces not artificial manipulation based on the tax code well I think the government has interfered repeatedly to keep interest rates lower than they otherwise would be absent that interference and they're doing that for obvious reasons because there are certain factions that favor and low interest rates you know principally people who want to borrow money they want to borrow cheap so Americans are living beyond their means they're financing that with debt and so home buyers and people get in car loans they want low interest rates you know the government the government is in debt we're running huge deficits we have a 14 plus trillion to our national debt the government wants low interest rates to be able to service that that wall street the banks they want low interest rates because they want to finance all their speculation and it's a lot easier to do that when the money is cheap if you have to pay more for the money then it's harder to make a profit and these guys are using a tremendous amount of leverage and leverage gets a lot more expensive with higher interest rates so you have a lot of factions on Wall Street on Main Street that want low interest rates but nobody talked thinks about what are the consequences there are winners well who are losers right because it's a zero-sum game if somebody is benefiting because they're paying low interest rates somebody is suffering because they're earning low interest rates and what we're doing is we're destroying savings we're destroying the ability of pension funds or you know insurance companies to actually generate returns for their investors for that to make claims to their customers we're undermining the credibility of our banking system we're destroying you know the elderly people who are living on fixed incomes they're getting zero percent on their CDs we're destroying the incentive to save not only are we encouraging people to borrow but we're punishing people who say because the interest rates are now so low that after you pay taxes on it you're way behind the rate of inflation so any money you decide not to spend is just money you lose so instead of a penny saved is a penny earned it's a penny saved is you know a fraction of a penny lost and so people don't want to do that so we're screwed up the economy or so causing economic decisions resources to be allocated in ways that are not you know are going to be damaging because interest rates are too low and but we're investing as if we have a huge pool of savings to support these low interest rates when we don't so we're having all sorts of malinvestments there's all sorts of damage being done in the US economy because rates are set so low I mean if you think about it interest rates should reflect a balance between the supply and demand for credit in the economy and the supplies should come from savings money that individuals have decided to forego consumption and set this aside for future consumption and now they have a pool of savings that they can load out and then the the borrower's would be businesses or you know government or consumers or students whoever wants to borrow that money and in America everybody is borrowing and hardly anybody is saving so if you have all sorts of demand and minimal supply you would expect the price to be very high but it's not it's very low and you know if the government allowed interest rates to rise to where they should be then the market would bring along a realignment because rates would be so high that would discourage people from borrowing it would be so high a lot of people would want to save and then that would correct the imbalances in our economy where we'd have more savings and less borrowing and then gradually over time interest rates would start working our way lower but we don't do that we keep interest rates artificially low and the longer we do that the bigger these imbalances grow and the more painful and problematic it is when there's finally a collapse and there's got to be a collapse there's no way to just to prevent it from happening but unfortunately there is a way to delay it from happening and that is what the government is doing they're delaying it because the politicians just care about what happens before the next election and if there's a way to delay the pain even if it means it makes it worse they're gonna do it every time but at some point you run out of time there simply is no way to kick the can down the road you've gotten to the end of the road and I think that's where we are and I think this next this next economic downturn is going to be the last because if the Fed tries to stimulate us as I said earlier we will die of an overdose and if they don't stimulate then we're going to get the real recession and it'll be much worse than what we would have had in 2001 and even a lot worse than what we had in 2008 sure I mean fracture is our banking can't exist I think the key is to have banks where you don't have government insured deposits and I think you ideally you want to have real money that's you know backed by gold not just fiat but in a free market banking system where depositors do not have government insurance you will still have fracture reserve banking but not to the extent that we have today because bankers will have to judge between the profits that they can make by loaning out more than their deposits versus the risk to their institution should there be a run on the bank and they have insufficient reserves to pay to pay off their depositors so you would have the free market would set a an ideal rate and banks that did it right would be rewarded I think you know you're gonna have some fractures or banking and I think it's fine to the extent that it evolves in a real free market the problem is now we don't have a free market we have government guaranteeing all these bank accounts which enables far more leverage to be in the system than would ever exist in a free market yeah well there were I mean look you know they're your thing but they weren't as bad as the Great Depression and you know that's the first one that happened you know with paper money that's the first one that happened with the Keynesian remedies being applied you know so I think that the the downturns that we had back then were not as bad as what we've experienced you know in the 1930s or even what we've just experienced here in in in the 2008-2009 period and I think it's nothing compared to what we're gonna have now what well I can say is that the the price of the fact that we didn't have that many severe downturns you know post let's say in 1987 we had a stock market crash but even then so post we had a pretty bad recession in 2001 2002 but between you know at the end of that recession up until 2008 we never really had any kind of severe downturn we have some mild downturns and but I would say that the price of that the reason that we did that is because the Federal Reserve constantly took action that postponed the pain but we're about to live through the consequences of those actions so to say hey this was a great success because we didn't have any really bad recessions during that period well it's premature to come to that conclusion because of all of a sudden we're we know we end up being something worse than the Great Depression as the ultimate payback that you really can't say that that was a successful policy well table which talks about that the Great Depression that wasn't all the time you know we we created a lot of money the Federal Reserve was brand new in 1913 and in 1917 the Federal Reserve Act was amended to enable the Federal Reserve to hold US Treasuries because the government wanted to finance World War one by issuing debt and it did and a lot of that debt ended up on the books the Fed but the money supply was growing to finance the war and so that created a problem and when the war ended and they tightened up we had an economic contraction the the good news was the government was not able to take any action and and therefore the problems corrected themselves before the government had a chance to intervene had the government intervened more rapidly the Great Depression of 2012 might actually or 2020 might be in the history books but because the government did nothing the market corrected the problems in a much more efficient in rapid manner and the economy moved forward problem is the Federal Reserve didn't learn its lesson it was too loose during particularly the latter half of the 1920s and you know we had easy money interest rates were too low once again I think a lot of it had to do with the desire of the US bankers to help out the Great Britain and to help prop up the pound by keeping the dollar weaker and ultimately when the Fed looked to mark mop up all that liquidity and and tighten you know by then of course there had been a huge speculum and bubble built up in the stock market a real estate market and when the Fed went to drain liquidity and tighten the market that collapsed but again instead of doing nothing Hoover decided to come to the aid with his version of bailouts and stimulus and and so instead of getting a free market solution like we had in 1920 we got government solutions and we had the beginning of the Great Depression then you know Roosevelt came in and you know up the ante he just basically took the Hoover plan and and and made it bigger he expanded it and so the depression lasted through the end of the Second World War I'd say the depression didn't really end until the war ended and so government dramatically cut back on its spending and allowed resources to go back to the private sector that's when we started to see economic growth well they're wrong I'm at the end of the war is what brought us out of the depression I mean if we were still fighting World War two we would probably still be in a depression I mean it was spending tremendous amounts of resources fighting a war is not good for the economy maybe it's good for the people who are making the weapons but it's not good for everybody else I mean you know life on the homefront during the war time was was pretty sparse I mean everything was rationed it was very difficult to get anything and a lot of people were in the workforce who would prefer not to have been you had a lot of women working in factories you know they didn't want to be there but their husbands were fighting a war and they were there making weapons they weren't making things that they can consume so all of them all the work that we were doing during the war it wasn't producing consumer goods we were making bombs and tanks and and munitions I mean other this benefited America I mean it better than benefited us to the extent that we had to defeat the Nazis but we would have been better off if there were no Nazis to defeat if Adolf Hitler had never come into power if we'd never had to fight World War two clearly the economy would have had more resources to devote to civilian purposes which would have contributed to rising standard of living instead we had to devote those resources to fighting a war well that ultimately laid the foundation for the u.s. dollar you know becoming the reserve currency and that is really the the source you asked earlier in the interview you know what we're you know what caused the crisis I said the immediate cause was the stimulus in the 99th in 2001 or 2002 but there but if you go back to the original cause you can probably point to that that Bretton Woods Agreement where the world went off the gold standard and went on the dollar standard granted the dollar was backed by gold in fact it was renewable in gold if it wasn't then the world would not have bought into this and of course America was the aute we own like 90 percent of the world's gold I forgot the exact amount we were the world's biggest exporter you know manufactured goods we were the world's biggest creditor nation so it made it made sense you could see the argument for the dollar as the reserve currency the problem is you can't trust politicians and even though we promised to pay gold ultimately we reneged on that promise in 1971 when Nixon basically defaulted and we went off the gold standard and because what happened is we basically created too many dollars during the 1960's to fund the war on poverty the Great Society the Vietnam War the mission to the moon all sorts of stuff and we never could have funded that had we had to pay for it with gold but we were able to print money now theoretically there was supposed to be gold backing it up but there wasn't and people around the world charged the ball in France you know you know questioned our ability to make good on these notes with gold and they there was a gold drain and rather than raining in our excess spending and maybe devaluing the dollar somewhat we we just default it and the dollar lost a tremendous amount of its purchasing power during the 1970s as a result when the dollar got clobbered against the deutsche mark against the yen against the Swiss franc that's when you saw the incredible price increases of the 1970s oil went from $3 a barrel at $3 a barrel all these price increases were not the result of OPEC you know putting on the screws to us it was the result of the dollar seeking value because we printed too many of them and and and abandoned the gold standard and so prices were simply adjusting upwards to a depreciated dollar I mean when we were buying oil we were paying in 1970 we were paying for it in gold but in starting in 1971 we were paying for it in paper well OPEC wasn't gonna sell us oil at the same price for paper as when they were getting gold so you know it wasn't really prices going up it was a value of our money going down but then even though the dollar was you know revalued substantially lower the dollars stopped falling really around 1980 and it did go lower over gradually but not it didn't collapse and it had plenty of rallies between 1980 and even the present so the dollar pretty much went into trading rings where it was trending lower but not at the trajectory of 1972 to 1978 but the world accepted the dollar during that period of time Dook the same way it accepted it when we when it was backed by gold and when that happened that basically gave us a license to print because now we were able to print all this money with no gold behind it and the world didn't care the world started accumulating massive reserves of dollars if they actually had value when they have none and the ability to export dollars to basically write cheques that nobody cashes to buy all sorts of merchandise and all sorts of resources from the rest of the world and not pay for not pay for it with exports with really we don't have to produce the goods to pay for the goods that everybody sends us this really enabled our economy to go off on this tangent it enabled massive growth of government massive growth of the service sector it enabled the basic you know a collapse of our industry of our manufacturing and of course you know that was also what's the word I'm looking for the that was also the result of you know government regulation and taxes and mandates that made it so costly and risky and expensive to employ people in the manufacturing sector in this country and also you can throw in the influence of labor unions so there are a lot of other factors that were destroying or undermining our manufacturing but rather than having to reduce our consumption in line with our decreasing production which might have brought brought about some type of regulatory or tax change to stop it from happening we were able to replace the goods that we were in producing by buying the goods that the Japanese were producing or that the Chinese are producing and we were able to pay for them without producing anything just by printing money because the dollar is the reserve currency and they were willing to accumulate it but the problem is the world is now you know a hemorrhaging dollars they've got so many of them and they're having to print up so much of their own money to buy them up that inflation is now a global problem but it's all emanating from the United States we're sporting it all around the world we've infected the entire economy with inflation and you have countries around the world looking for ways of dealing with it but it's never going to work as long as they have the dollar as the reserve currency it's not until they they dump the dollar that they're gonna be able to deal with their own inflation problems because as long as they're printing money they're gonna happen prices are gonna rise and as long as the dollars the reserve currency they're gonna have to keep pretty money because they have to keep buying up all the dollars that we're sending them but when they come to their senses and stop buying our currency and stop buying our bonds they'll solve their inflation problem but our inflation problem is gonna kick into a whole new gear because now all the money that we're printing is going to come back and prices are going to go ballistic for Americans because we no longer have the ability to produce many of the goods that we import and all we're gonna have is paper you know people think all America you know the world needs America to buy their goods no they don't they need us like a whole net they can buy their own goods in fact they'd be better off if they bought their own goods because then they'd have them instead they just got our paper you know what's really gonna be a problem is what Americans have a bunch of money in their pocket but you can't buy anything with it that's a problem you know because you know if you could produce then you can consume if you can't produce you're in trouble and right now we're consuming without producing because we've suckered the rest of the world and in giving us their production for pieces of paper so they go without things and they have stacks of our money and we have all sorts of stuff but when that comes to an end there the rest the world's going to keep their products and it consumed their products and enjoy those products and those resources and we're going to be stuck with the paper and nothing to buy oh it's absolutely inevitable the question is when I mean the longer they wait the worse that's going to be the more problems we're gonna be created and there's no doubt in my mind that we will abuse this privilege until we no longer have it we are not going to take the steps necessary to preserve the dollars role as a reserve currency because they're too politically damaging to the incumbents it would involve higher interest rates it would involve letting companies fail it would involve letting banks fail it would be involving letting depositors and investors lose money it would involve letting real estate prices come down it would involve laying off a lot of government workers it would involve cuts to Social Security Medicare no politician wants to do that so we're not going to do it and that will ultimately do it once we have the real crisis after the dollar loses the status when the currency collapses rates skyrocket prices skyrocket the whole country is imploding and they're rioting in the streets and now the politicians realize that well they're gonna get they're not going to get reelected no matter what so only at that point might they level with the American public and do the right thing well we are seeing it I mean you know people are experiencing it when they shop when they go to the grocery store when they go to the the gas station you see it and and the problem is also that the inflation's effect on prices the inflation is the expansion of the money supply the effect is that prices go up there's a lag you know it takes it takes time for the higher prices to work their way you know up the chain up the food chain to the end consumer and we're seeing that I mean it's happening and the prices are rising now the government's measure the CPI is not reflecting I don't think the severity of the price increases that we've already seen and I think that's by design if you remember the Boscombe Commission in 1990s changed the methodology for computing the CPI and the reason they gave for doing it was that they said that all these years the CPI had been overstating inflation therefore it was giving a number that was too big and they were gonna fix it and they were gonna fix it so that the number would be smaller well I'd say they broke it and it's like they broke the thermometer and now it doesn't you you might have a hundred and four fever but it you know it reads 98.6 and that's by design and so instead of having this static basket of goods and you simply compare that basket to see how a more much more expensive it is you don't have that static basket the basket changes the components change their weightings change the government uses hedonics they use substitution geometric pricing all sorts of gimmicks to supposedly fix what was wrong with the CPI well they didn't fix it they they created a situation where they can create a bunch of inflation but then the CPI doesn't reveal it which is what the government wants the government wants to create inflation but it doesn't want people to realize how bad it is because if they fight the inflation they're gonna have to raise rates they don't want to do that so they'd rather pretend there's no inflation but the public knows inflation they feel it and at some point though the price increases are going to be so enormous and so alarming that you know people are gonna see through this straight it's gonna be sure nonsense people will look at this distilled CPI and they laugh because prices are going to be going up you know it mind-boggling rates well I think I think that you know GDP is not the best method for determining whether or not an economy is is growing in the sense that is it more productive are the residents enjoying a rising standard of living I don't think GDP really reflects that problem too with GDP is your your your looking at what we're spending what the government is spending what consumers are spending and because the government is spending more money doesn't mean that we're wealthier because consumers are spending more money especially if that money is borrowed what if you know it doesn't factor in that we have to pay it back so if we all borrow a lot of money and spend it that means that GDP goes up but at the expense of the GDP going down at some point in the future when we have to pay the money back plus interest and I think a lot of things are counted in GDP that don't make us better off I mean the fact that we have a lot of lawyers all these legal bills increase our GDP but are we better off because we have so much so many laws and so many lawsuits and all this regulatory compliance cost we'd be better off without it but the fact is that we are not subtracting that from the GDP we're adding it to the GDP the money that we spend on health care now people would rather not get sick and so you know it but if you get sicker and you have to spend more money on medicine that increases the GDP would I mean wouldn't we be better off if nobody was getting sick and we didn't have to spend money what about all the money we spend on prisons I mean why is that no because we're locking people off we have more prison guards wouldn't it be better if people weren't committing crimes and so we didn't have to put them in jail so a lot of things you get under you get a big earthquake and you know the cost of cleaning up the mess as a GDP and then when you replace what was destroyed that adds to the GDP but are we really better off because we had that earthquake and we had a beat rebuild what we already had so you know it's really not the best measure I think there's also a lot of double counting I think you know when a farmer grows the food you know that's part of the GDP when and then when someone goes to the supermarket and buys the food while you're counting it again so you know and I think there's a lot of monkeying around with the numbers I think the way the government uses hedonics to understate the CPI I think it uses the same methodology to overstate the GDP so I think there's a lot of manipulation on the part of the government to get an inflated GDP value and of course I the minute you understate inflation you automatically overstate the GDP growth because the GDP growth is always they always use the deflator to take out inflation to get the real number and if you're under estimating inflation by definition you're going to be overestimating growth and I think what's really important if you want to really look at the u.s. GDP I think you got to look at what percentage of our GDP is really wealth producing activity versus just consumption related you know a services and if you look at the real real industry mining you know manufacturing oil and gas agriculture construction you know stuff you're really making things if you add all those things that is the smallest percentage of our GDP ever it's tiny and and so a lot of our GDP is fluff it's all spending it's all finance it's the and all of that can evaporate very quickly when the dollar goes down and interest rates go up and so when people say oh the u.s. you know our debt to GDP is not that bad although it's pretty high they'll point to other countries where it's worse but if you look at our debt as a percentage of the wealth producing components of our GDP it is off the chart and our GDP can can contract dramatically in an economic downturn where rates are rising and you know consumption is shut off and the service sector includes you know the GDP collapses the death doesn't go away the debt is still there and that means now the debt is a much bigger by a proponent portion of the GDP and in my scenario interest rates also rise and so now not only is the debt a much larger percentage of GDP but the cost of servicing it is much higher because rates have gone up well how you going to get the money to service the debt when your GDP just imploded and the only place you're going to get the money is from the Fed and that's you know that's where the massive inflation comes well we don't need more regulation we have too much regulation we need less regulation to say that the financial crisis happened because there wasn't enough regulation it's just absurd if that's the case why didn't government warn us about the crisis saying we need more regulation I mean the fact the matter is I knew that it was the regulation the abundance of regulation that was causing the problem because the regulation itself was distorting the free market did we have some minimal deregulation yes did that deregulation contribute to the problem only to the extent that we didn't do it enough you know we removed some regulation that was there to counteract the damage being done by different regulation and the problem is we eliminated the counterbalancing regulation without eliminating the initial regulation that the second regulation was there to counterbalance so to say oh we had the problem because we deregulated know we didn't deregulate enough but meanwhile there was massive regulation still in the financial services industry and it's grown dramatically I mean I operate in that industry and the amount of regulation that I have in my Broker Dealer and I'm not running a bank I can only imagine that but in my Broker Dealer it's off the charts I mean there is no way given the amount of regulation in this industry I never could have got into the business when I did and I started my company and about 96 and you know it's you know what is this fifteen years later there's no way I could do it if the regulations that exist today existed that then I couldn't I would have had to work for a big firm there's no way I could have started my own firm I couldn't have afforded it I mean I couldn't not understood the regulations let alone even afford that the the army of compliance people necessary to abide by them but so to say there wasn't enough regulation financial services banking brokerage is probably the most highly regulated industry in the United States yes they got rid of a few regulations but they left you know but millions are you know whatever how many they are and and to say that well because they got rid of a couple it's deregulation as the causes nonsense if market forces were there it was government regulation that inhibited the free market forces that would have prevented of the financial crisis from happening because you wouldn't have had all that risk-taking if market disciplined that had been allowed to operate but the government came in and and took away all the natural free market checks well Iceland had a lot of problems I don't think it was because of a lack of regulation there was a lot of hot money that went into iceland and iiii i think that i mean i didn't have any money invested there and i was I really wasn't that I didn't study the situation that much because I I didn't have any money invested in Iceland at all so I wasn't involved in it but I knew that there was a lot they had very high interest rates and there's a lot hot money there and but I wouldn't argue that it was because if they would have had more regulation that they would have avoided the problems I mean look at all the regulations we had and look at the problems we have I think that an example for Ireland is that I think that they were allowed you know there was a real collapse there they didn't get a bailout in Ireland in Iceland and I think you know they've been dealing with the problems that much more effectively than countries let's say you know that had even smaller problems like Ireland or Greece that are being bailed out by by Europe I think that they should have looked at Iceland as an example of look let's not interfere and let's you know let's really have real market-based solutions to these problems instead of you know bailouts and an artificial problems only that we're making a lot of the same mistakes that the Japanese made trying to artificially resist market forces trying to repair the damage done by bubble you know they had cheap money they had malinvestments they had a property bubble they had a stock market bubble that burst and rather than allowing the necessary and painful adjustments to take place Japanese politicians repeatedly intervened and interfered and the efforts generally focused on trying to prop up exports mainland to the United States so it's focused on ways to suppress the value of the yen and that was the zero interest rate policy and massive it occurred the intervention so that Americans could keep buying Japanese products that they really couldn't afford and in this monetary policy in this stimulus prevented the Japanese economy from rebalancing and restructuring in a healthy way and and so they've dragged this process on for a long long time and now the government has taken on a tremendous amount of debt that the Japanese are going to have to repay and this is a complete failure of this Keynesian model of government stimulus and trying to inhibit market forces yet we're following the same model the problem is the Japanese started in a position of strength we're starting in a position of weakness they had tremendous domestic savings we don't we have huge external liabilities the Japanese had and still do have substantial trade surpluses we have huge trade deficits Japan is I think now it's the second largest creditor nation to China we are the world's largest debtor nation so you know I think that we're gonna suffer more deeply from following the Japanese policies and then Japan Japan was borrowing money from itself we're borrowing money from Japan we're borrowing money from China we're borrowing it for the rest of the world and we're borrowing it to consume the Japanese still have trade surpluses we are we are squandering this money on consumption and so we're not making the necessary investments to grow our productivity to make our economy more productive and more efficient you know other economies are becoming more productive and more efficient all we're doing is spending money well you know I think we're I think the big issue we're facing is I mean is this country going to survive as a republic or now a democratic republic with some semblance of the free market we've certainly distorted the vision of our founders dramatically but still I mean we're you know we're not a scent completely centrally planned economy there are still a lot of elements of capitalism operating beneath the surface even though government certainly makes it a lot less efficient than it would otherwise be but to the extent to which we have infused sowed capitalism with socialism and we've had a lot of problems the purveyors of that socialism have been able to successfully blame capitalism for the problems that they created by interfering with it and in the financial crisis of 2008 politicians were very successful at blaming capitalism using Wall Street as the poster boy even though there was very little capitalism on Wall Street in fact that's probably where there's the least amount because you have all this cooperation with this federal government in the Federal Reserve and it's very little capitalism it's statism and corporatism but in central planning but the politicians were able to vilify capitalism and and justify big government programs to you know rain in the damage and rein in the excesses and so the government got bigger the Federal Reserve got more power instead of surrendering the power it had which would have been a good thing it got additional power to do now more damage and the concern for me is when this greater crisis hits well we finally completely write the obituary for capitalism in America I mean because it's gonna be really really bad and what we say look we just got to scrap it completely and we need a totally centrally planned economy no run by Barack Obama or somebody like him who makes all the decisions and Congress decides you know who works where you know what gets produced who consumes you know who does what job I mean are we gonna embark on that model because of how bad things get or what we finally correctly understand that it is government interference that is responsible and will we rien race the free market a lazy faire capitalism sound money that was you know given to us by our founders and that was responsible for America becoming the wealthiest country in the world in the first place we became very successful following that blueprint will we go back in that direction that is what I hope but my fear is that we move in the other direction which would be you know a disaster because then if we do that in order to get back to real capitalism it may require at a violent revolution at some point in the distant future so I certainly hope we don't go in that direction but we are certainly going to approach that fork in that road it's unfortunate but things are gonna get really really bad in this country and you know I'm out there you know I do my radio show writing books I'm trying to inform as many people as possible so that they know who's to blame the crazy thing is all the people who said everything was great in 2007 2006 the economy had never been better everything was fantastic they couldn't see this train wreck coming even though it was staring them in the face they're the people who are still in charge they're the ones who are fixing the economy when they don't understand why it broke in fact they broke it and they're trying to fix it by doing more of what broke it in the first place so it really is amazing to me and hopefully this time they'll be completely discredited instead of giving even more power to do the ultimate damage well I mean I don't know all the mechanics of it but I mean you know you just do it I mean they're basically obviously the price of gold is gonna have to be readjusted given but the monetary base is now but we have gold I mean at least I hope we have gold and for Knox so the government could set some kind of ratio legally between the the amount of money in circulation and the goal that we have in Fort Knox and that would obviously require a major devaluation of the dollar because right now officially the docking of gold is $42 an ounce I mean doesn't even reflect the market today because Gold's around 1,500 let alone what it would have to be to go back to a gold standard but we can do it and then once we did that then the money supply would no longer be able to grow it can only grow to the extent that we've got more gold and you know we could get more gold how would the government more bolt well you know they'd have to get it they have to raise taxes and they'd have to take gold from the people who you know who are earning it just and you know we'd get more gold mining and and and people would take the gold and bring it to you know the government would be able to take that gold in buy it with tax money and then it would issue could issued new bills based on the fact that it acquired more gold from the mines that were producing in it so the supply of gold could grow and you know maybe it would grow by 2% a year or something like that so the money supply would grow by you know roughly the same amount but then all of a sudden the governor would have to live with whether this means the deficits would stop because if the government doesn't raise taxes it doesn't have gold to spend so it can't spend and it would force fiscal responsibility on on Washington it would once again you know savers would know that they have real value it would encourage savings it would you know it would do wonders for the economy it would empower the free market and it would disempower a government and that's what we want but are we getting how are we going to get there I think eventually we will because I think there is no alternative because fiat money doesn't work and so eventually we're gonna have to go back to what works but you know and the longer it takes us to acknowledge that the the more pain we're gonna have to in or as a society well I mean deflation look deflation is you know is is the cure for what errors of L's us it's not it's not negative I mean first of all only in you know government you know Orwellian world you know Twilight Zone of economics is it a bad thing when things become more affordable and less expensive it would it be a terrible thing if college tuitions went down instead of up would it be a terrible thing if when you got your health insurance a prick premium it was lower than it was the year before everybody would be happy about that everybody likes the sale people want to go to stores when they're reducing their prices stores don't advertise hey we're charging an extra ten percent today you know rush on in and buy you know lower prices are a good thing and we experienced that with cell phones we experience it with computers with television sets they're getting better and they're getting cheaper every year yet the industries are thriving so uh our falling prices hurting the cellphone industry are they hurting consumer electronics no in fact they're helping because buy prices coming down they get more customers a lot more people can afford plasma TVs when they're under a thousand dollars then they were ten thousand dollars you know the reason that so many people have cell phones today I remember the first cell phone that came out you know back in the 1880s it was thousands of dollars you know and just to use it it cost a fortune to make a call so only really rich people you know you have it with your private plane and your chauffeur-driven limousine you had a car you know a car phone but now you know I mean look there are people that are collecting welfare that have cell phones right they have a lot more customers now because the prices came down prices coming down or a good thing prices fell in America from 1800 to 1900 for a hundred years prices were declining you know I when you if people talk to their you know to their grandparents now or the great-grandparents and they'll tell you stories about hey I remember when penny candy was a penny and I went to the movies for a dime and I can't believe how expensive things are well in 1900 when kids were talking to their grandparents it was the opposite their grandparents said you know how expensive that was when I was a kid oh it's after now you're lucky you know so we we didn't always have inflation inflation is a gift or curse of paper money of the Federal Reserve we went through the Industrial Revolution right the most prosperous period of American history the Industrial Revolution between the period of the Civil War and the the first world war where we we grew our standard living at a faster pace than ever we migrated people from the farms to the cities we absorbed immigrants from all around the world all the inventions of industrialization that the assembly line you know everything that we did I mean all the consumer goods that were created automobiles airplanes you know um telephones you know indoor plumbing you know washing machines dishwashers vacuums typewriters I mean every all this stuff that was invented during the Industrial Revolution and we had this huge increase in our standard living we had inflation prices were falling it didn't hit but that in fact it was a benefit it was the reward right prices went down so you can afford more things your standard living rose the enemies of deflation the government doesn't want deflation because if deflation hurts debtors well the government's the world's biggest debtor they can't afford deflation how are they going to pay back the national debt if money gains value so the government wants deflation of course if prices deflate and wages deflate that means the government loses tax revenues people fall into lower tax brackets you see ultimately if if your cost of living goes down by 50% and your wages go down by 40% you're better off you're better off making less money if prices go down right so that would be good deflation you make less money but the but the prices go down even more and so you have more purchasing power but the government hates that because now if you make less money you're in a lower tax bracket right and so the government can't stand the government wise people they want inflation they want people going into higher tax brackets so government fights deflation because deflation is bad for government but it's good for the private sector you know and and you know so the government creates I think this artificial boogeyman of deflation so it can do what it really wants to do is create inflation and then it can tell us that inflation is a good thing because we've been saved from the pestilence of deflation and you hear that all right hey we dodged a bullet you know the Fed is fighting deflation why do they have to fight that they're fighting my cost of living going down they're fighting my ability to buy gasoline cheaper to buy food cheaper you know I don't need protection from cheap food and cheap gasoline and cheap healthcare and cheaper I want those things you know but what I don't want is for my cost to go up and that's what happens with the government crazy inflation yeah I think I think God Thomas has used that analogy to basically it's it's very simple explanation of how the business cycle and the mistakes that are made because of the false signals sent to the market by the government and I gave the example of let's say a circus comes to town and it's a small town and so there's obviously a lot of people in the circus and all of a sudden all the people that work at the circus start eating in a local restaurant now the owner of that restaurant he sees all this new demand he's got a lot of customers he didn't have before and he misinterprets that he thinks well gee you know I this is great I need to expand and he maybe he rents additional space and expands he maybe he rents the space next door and builds a bigger restaurant he hires additional waitresses to take because she's got a lot more customers now and for a while everything is great because the people in the circus are coming to the restaurant well then all of a sudden you know it's time to move on they pull up their steaks and they all take off and now the demand is right back to where it was the circus is God but now the business is expanded he's got too much capacity he's got extra space he doesn't need he's got waitresses and Busboys he doesn't need he's got dish what is he gonna do he made a mistake he misinterpreted that increase in demand as being a permanent increase and he made changes based on that misinterpretation of what was happening now what does he have to do well now he's got a you know he's got rents he's got to get released some of his property he's got to lay off some of his workers yes this is bad news for the people who are losing their jobs maybe it's bad news for the landlord who's not getting his rent but it's necessary because now he's got to correct the problems he's got he's got too many people standing around doing nothing because there's nobody eating in the restaurant they need to do something productive they need to apply their labor in a more efficient manner he was allocated improperly based on this entrepreneurs bad decisions based on this signals that he got and that's the good thing now the government would say oh no we can't allow this recession we need to keep those waitresses in place you can't lay these people off we need to give you stimulus money so that you can keep a bigger staff and you actually need so you can keep using space that you don't need space that may be you know a hardware store we're going that we do need but now we have a bigger restaurant than we can actually support and maybe the people who are being taxed so that they can stay working in the restaurant but what are meant what are they not doing you know what's going what's not happening because they're where they shouldn't be we need you need to allow that process and so that happens I said you know the Federal Reserve you know it's like the circus coming to town there's all this phony demand they print all this money if people gonna spend it and a lot of it came from home equity extractions and the wealth effect and then you have all these shopping centers that develop to service all this demand and all these finance companies to finance all this consumer credit and you know but all of a sudden you know it's gone and then you've got this whole infrastructure that's been built up that was phony because Americans we're spending beyond our means we don't really there isn't this demand we really can't spend all this money because we don't produce we're consuming all these goods that we don't produce so it is not legitimate demand it is phony demand it is emanating from the monetary policy the Federal Reserve and the economy has now very mal invested we've made all sorts of bad decisions and mistakes on what businesses to fund where our capital is where our labor is and we know when the circus leaves town it's going to be a complete disaster and the fact that the government is trying to continue these mal investments and these bad allocations all that does is delay the cure it delays are putting our resources our land labor and capital back in a sustainable efficient manner and but you know that the adjustment process is that painful process that the politicians want to prevent because they want to get reelected and they don't get reelected by leveling with the public about how bad things are gonna have to get in the short run they get reelected by promising quick solution and the only quick solutions are the ones that make the problems worse you

Channel: Jimmy Morrison

Views: 65,428

Rating: 4.9108281 out of 5

Keywords: the, panic, of, 2008, interview, peter, schiff, tom, woods, jimmy, morrison, tyler, whitney, recession, depression, world, war, ii, keynesian, austrian, free, market, small, limited, government, federal, reserve, interest, rates, community, reinvestment, act, fannie, mae, freddie, mac, housing, crisis, film, feature, documentary, behind, scenes, economy, jobs

Id: OQr5clFsZMU

Length: 70min 31sec (4231 seconds)

Published: Fri Jun 17 2011