"What About Money Causes Economic Crises?" with Peter Schiff - Ron Paul Money Lecture Series, Pt 3/3



good afternoon ladies and gentlemen I'm Lydia Mashburn policy director for Chairman Ron Paul Subcommittee on domestic monetary policy on behalf of the congressman in his office I'd like to thank you all from for coming to our concluding lecture in our afternoon tea series on the basic principles of money today's question is going to be what about money causes economic crises it's sort of the culmination of what our other lectures have led to our first lecture was what is money and then our second one was what is constitutional money in those two lectures our first lecture dr. Salerno very nicely laid out for us what money is that money is a commodity it is a market chosen commodity that serves the role of money and what the market needs money to do is it needs it to be recognizable they need to know that this is the same thing that they're able to trade in future they need to be able to divide it so that they can purchase large or small things they need it to be portable they need to take it with them cattle this money didn't work out very well because it's a little difficult to move them from one place to another and then one of the pinnacle faculties of money is that it has a stable value you need it to maintain the value for which you exchanged it for which then brought us to our second lecture where dr. vera talked to us about constitutional money the founding fathers wanted us to understand or wanted us to keep stable money and it had turned out that the market had chosen gold and silver to fulfill money because it filled all those other properties of divisibility portability recognition and staple value so they set up in the Constitution certain provisions to maintain what the market had chosen his money because they had already experienced through the Revolutionary War and and under the Articles of Confederation some terrible experiments with paper money where it did not retain its value because you could increase it at whim dr. Vieira sort of took us through I think roughly 200 years or more of history and showed how over time that stable value of money has eroded legally and got us to the point where we are today where we are now able to talk about what happens when your money loses its value so while it's terrible that over time your money does lose its value what's even worse or I don't know if it's even worse but it's not good is that it also can cause booms and busts in an economy it causes economic crises and that's what brings us to today's question what about money causes economic crises which is why I'm delighted to say that we have Peter Schiff to answer this question for us he's he's CEO and president of Euro Pacific Capital he's a financial analyst he's an author I think most importantly though at least to me is he was one of the few financial analysts to predict the collapse of the housing bubble everyone else was like housing prices have gone up they just keep going up it's never historically dropped and he said look it's it's going to collapse because it's not sustainable because he understood what it was about money that caused these bubbles in the economy and he knew it was going to collapse analysts running the gambit laughed at his face and when he was proven correct we're now left picking up the pieces but unfortunately we still are not understanding what it is that caused the crisis to begin with so our policy prescriptions are kind of off base in terms of dealing with the aftermath so I'm delighted to welcome and I hope you would join me in welcoming Peter Schiff thanks everybody for coming most of you are not here for the free desserts but all right let me talk a little bit about money man turn my phone off to see just in case somebody decides to call me and I'll just put on silent anyway everybody else I guess can do the same thing yeah what is one of the one of the roles of money is you just alluded to is that money needs to represent a store value and the reason that that's so important is because that facilitates savings right you're not going to save money if you anticipate that its value is going to erode over time so you need something that has a store value and the reason savings are so important in a market economy is because contrary to the conventional wisdom spending is not what grows the economy people who believe that are basically putting the cart before the horse what actually grows an economy is the opposite of spending it's under consumption it's savings it's the money we don't spend that makes the economy grow because when we don't spend it and it's saved that money is available to finance capital investments business expansion job creation all the things that grow the economy flow through from savings you know a popular refrain you know the Occupy Wall Street crowd when they say you know we the businesses don't create tap jobs you know we can attach the job creators they say no no the job creators are the consumers because they're the ones that are spending the money and they say well if there were no customers then there would be no businesses but of course what that theory overlooks is where do the consumers get the money right they get it from their jobs so you can't say that consumers create jobs when you need jobs to have consumers so it's the other way around and what gives the consumer purchasing power is his productivity right if everybody just had a job from the government and the government printed money and gave it to people that would you know there'd be no demand because would be no supply to be nothing to buy because nobody would be working what creates the purchasing power is the production and the production comes from productivity and what makes workers productive is capital its the tools and the equipment that they have if they were simply using their hands they couldn't produce nearly as much and all of that capital all of those tools are only here because of savings so savings are very important and also savings help determine the rate of interest because interest rates are a very important aspect of money because interest rates represent a price and like all prices they are determined by supply and demand the supply is all the savings the demand is all the people that want to borrow money whether it's businesses whether it's college students someone wants to buy a car the government everybody borrowing money is competing for this store of savings because for every money dollar borrowed somebody had to save that dollar somebody had to not consume it and put that dollar in savings so that somebody else could could spend it or invest it and so if you have a lot of savings right then you're going to have lower interest rates because the supply is going to be greater and what does that mean if there's a lot of savings what economic signals is not sending to the market if people are saving a lot of money what that says is that people prefer future consumption to current consumption because after all when you're saving money you're just deferring consumption every dollar you save is going to be spent eventually except you're not going to spend it today you want to spend it tomorrow and hopefully you'll spend the dollar tomorrow plus all the interest that you earned over time and and so it sends out signals that there's if there's a lot of savings that there's low interest rates and then of course the economy will react investments will be made based on the fact that consumption has been deferred to the future and also you know one of the reasons that people might save in a free market economy is in a free market economy contrary to again the conventional wisdom prices go down right the natural tendency in a free market is deflation prices go down prices went down for almost the entire history of the United States until the Federal Reserve you know our grandparents tell us stories about how cheap things were when they were a kid well their grandparents or their grandparents grandparents told the opposite stories how expensive things were when they were kidding how much cheaper they are now and the politicians try to tell us that no no inflation is a good thing money losing value is a good thing because the economy would collapse if prices weren't rising they try to make us feel that falling prices would be a disaster when of course it's the opposite falling prices are a reward for capitalism they make wages more valuable they make savings more valuable you know the idea the argument is that well if prices are falling nobody is going to buy anything they'll just be waiting for lower prices and of course that's absurd we all have cellphones you know we all have laptop computers we all have plasma TVs the prices for those items are falling all the time that doesn't stop people from buying them in fact it encourages people to buy them if cellphones were still as expensive as they were when they first came out nobody in this room would have one the reason that we buy them is because the prices are coming down so it's the exact opposite falling prices create demand it's not the other way around but that's another reason that people save if you save your money and money gains value you can buy more stuff in the future not only because you earned interest but because things got cheaper the money became more valuable so if you have a lot of savings you can have low interest rates if you don't have a lot of savings you're going to have high interest rates and the beauty of this is let's assume that there's not a lot of people saving money and a lot of people want to borrow money well you have a very limited supply you have a lot of demand what happens to price price goes up so interest rates go up higher interest rates discourage people from borrowing because it's more expensive and they encourage people to save and ultimately the market is going to create an equilibrium between savings and debt and you're going to have a market rate of interest and investments are going to be made capital projects are going to be made that can be adequately financed now the problem comes in now that we don't have real money and you don't know what that is now that we have fiat money or a money substitute the Fed can create money out of thin air now when they create money they don't actually create any value it's just they're just printing money so they diminish the the value of the money that already exists but also when the Fed creates money they do it in a way where they they buy up Treasuries and they also control short-term interest rates raise the cost of money to banks and when they do that the Federal Reserve can bring down interest rates and that has the effect of sending the same types of signals to the market that there's more savings because interest rates are low but people aren't saving their money there is no real change in time preference for money it's the same and so you send out this false economic signal to the market and and as a result of that false economic signal a lot of investments are made that really should not be made there's no real viability there but they're made because of these two false signals and I often joke you know when the housing bubble burst and one of the things that President Bush said at the time was he slained everything on Wall Street you know Wall Street Wall Street was drunk and they did a bunch of stupid things see of course yeah they weren't drunk but he never asked a question why you know where'd they get all that alcohol why were they drunk and they were drunk because the Fed liquored him up I mean Alan Greenspan kept interest rates very very low for a long period of time and just like anybody know if you're drunk you know you're going to do some stupid things while you're drunk you don't realize it until you sober up the following morning you know that you you know and and so this is what causes this business cycle right people think that the business cycle is just some flaw in capitalism just for some reason you know you we have these booms and busts and that's not the case these booms are caused by the MAL investments that are created in response to the Fed intervening in money supply where you have the Fed price fixing interest rates creating too much money and fueling these bubbles and one thing all of these bubbles have in common is debt a lot of them are financed by borrowing money particularly the housing market I mean obviously what made it possible for people to buy houses they couldn't afford other than Freddie and Fannie or the FHA that might have been you know guaranteeing the mortgages was the fact that the interest rates were so low when people buy houses in America they buy them based on the monthly payment and the monthly payments were a function of the mortgage rate and especially when you got an interest-only mortgage we're the only thing you're paying is the interest then the low interest rates really made it cheaper and when you had the Fed with interest rates at 1% and the banks are offering teaser rates based on those temporarily low interest rates people could really get in over their head so this was a function of money being too cheap instead of the market setting interest rates you had central government planners at the Fed picking and interest rate and why did they pick one that was so low well the reason is the politicians like the boom right they like it when people feel good when voters feel good because they're more likely to reelect the people who are in office if they feel good if they think they're getting rich in housing if they think they can get rich without working they're going to be happy especially if you're taxing them so much on what they earn if you can create the illusion that they're making money in the real estate market well then they're not going to be as upset at all the taxes they have to pay so the politicians like the boom in fact everybody thinks that the boom is what's good and then when the minute you have a recession what is what does Congress want to do what does the president want to do we need a stimulus we can't have this recession we need to stimulate the economy well they don't understand it is the stimulus is why we have a recession hey the stimulus is what caused the boom but the boom is the problem the boom is where all the mistakes are made the recession is where the mistakes are corrected right that's where the cure takes place so we need the recession now when people say we need the recession they'll try so you're heartless you you're happy that people are suffering it doesn't mean we're happy about it it just means it's necessary it's like if somebody checks into rehab because they're a drug addict and then they're going through withdrawal that doesn't mean that the rehab center is happy that the people are suffering through withdrawal they just know that if they want to get healthy and kick the habit that they're going to go through withdrawal that's just part of the cure you know if when you check into rehab every you started having withdrawal symptom they gave you drugs right you're not going to get cured you might be popular you might be a popular rehab center if you're giving off drugs to everybody but not because you're curing anybody and so what happens is the minute the the the narcotic of the cheap money begins to wear off right and we realize the mistakes that we made people like you know I can't believe I bought that condo you know I can't believe you know how do i buy that internet stock you don't see this when it's the mania but their interest rates eventually rise and the mistakes and so what happens during the recession is the market tries to correct all these imbalances because during the boom resources are miss allocated capital labor right is miss allocated in the housing bubble right too much capital went into building homes remodeling homes too many people were buying all sorts of furnishings for their homes buying cars based on home equity loans too many people working in the mortgage industry in the finance industry there were people had jobs where they shouldn't have gone because the whole idea behind an economy is to allocate the resources which include labor but capital and land in a way to maximize productivity to maximize our enjoyment in our utility from Union from these resources so that we can have a rising standard of living but if capital and labor and land are where they're not supposed to be right that you have to correct that and what does that mean what happens when the bubble bursts well people that made bad investments lose money people that have jobs that they shouldn't have you know they have to lose those jobs so they can get other jobs you see a lot of times in in Washington people don't differentiate between jobs they just think as long as people have a job it's okay right if somebody has a job digging a ditch and someone else has a job filling it back up as far as what watchings is concerned they're both employed but during employed doing what what do you have to show for the labor nothing you know you filled the hole in the ground you have exactly what you had before they started it is we don't want jobs because we want jobs jobs are not and ends jobs are a means what people want when they have a job is they want all the things that they can buy with their paychecks but you can only buy stuff as something something is produced so people have to be employed productively that's the key you know in the old Soviet Union now before it collapsed one of the things they used to brag about is that they had no unemployment they would tell their citizens look at these Americans they have all this unemployment but nobody in Russia is unemployed everybody worked for the government everybody had a job but you know they had to wait in line for six hours to buy some bread or whatever they because nobody was baking bread it was working for the government and so if no-one is producing anything then your salary doesn't have any value because that's just money you can print money all you want you know that's not the solution I mean a lot of people now talk about the fact that we don't have enough demand you hear all the Keynesian are saying the problem of the economy is that Americans are broke they have big mortgage dad they have car loans they have student loans so they don't have any money and so the government needs to print money so we can have more spending but if you're broke just adding money isn't going to change the circumstances because money in and of itself doesn't have any value at all it's a little piece of paper you know they're broke because they're loaded up with debt and they're not productive and more money is it going to change that or if the government does say well the people are broke so the government has to spend spend what if the people are broke the government is broke where does the government get the money doesn't get it from the moon you know it gives it from the people so the people are too broke to spend the government's too broke to spend because the government has to pass the tax them to get the money but one of the problems with the monetary system we have now is that people think well we don't have to tax them to get money we could just just print it and then we can spend that as if there are no adverse consequences to pretty money because that's a tax just like anything else except instead of taking your money away from you what that does is take the purchasing power away from your money so you don't you don't necessarily see the tax but feel the tax but you know when you go to the supermarket and groceries are more expensive where you go to the gas station and gasoline cost more money a lot of people don't make a connection they don't see that that's a tax especially when you have the government or the color The Economist blaming the high prices on a greedy oil company or on OPEC or on natural disasters bad weather on a flood so that's all it's not the government's fault you know and then you'll have the economists say look it's a good thing that the prices are going up because otherwise we might have deflation you know so this is you know this is the price that you have to pay to avoid deflation is you've got to pay higher prices so they don't make the connection so it lets the politicians off the hook because the public doesn't understand how all these benefits are being financed now the the other source of this big bubble of this big problem has to do with the US dollars role as the world's reserve currency I know up until the second world war all the countries were using gold everybody was on a gold standard including the United States and after the second world war we pretty much America pretty much had almost all the world's gold I am 90 percent or more than 90 percent of the world's gold was held by the US government and where did we get all that gold I mean we didn't mind it all we got it because people used it to buy the products that we produced and we're how do we produce all these products we produced him because we were the freest country in the world we had more capitalism and more freedom and as a result we were more productive and the world wanted the stuff that we produced yet they weren't productive enough to produce stuff for us so they had to give us their gold so we had all this gold and we went around to all the other countries and basically proposed a new monetary system and this was going to be where instead of foreign central banks backing up their currencies with gold they would back them up with a dollar and the dollar that was backed up by gold of course that's the only reason it made sense if the dollar was backed by nothing then we couldn't have conned the world into signing up for this arrangement but everybody knew the dollar was as good as gold and if you had $35 you one ounce of gold that was the deal we made with the world and what was in it for the world was if they held dollars they got interest if they held gold they had storage costs so it made sense hold the dollars run a dollar standard two dollars the reserve currency the dollars backed by gold America's the world's richest country they have the biggest trade surplus store the world's biggest creditor nation they've got all the gold good deal well it was a great deal for us because the minute we got that privilege we abused it because now all of a sudden we could pay for our imports by printing money now technically we were supposed to have the gold to back it up but that didn't stop the governor they just his line right they just wrote they wrote checks that they couldn't really cash assuming that people would just not care or not noticeable after the 1960s when we had you know the guns and butter economy the war on poverty the Great Society we went to the moon you know Vietnam all this stuff we were running big deficits and some of our creditors began to notice this and realize that you know we couldn't possibly have enough gold to back up these IOUs which is what the Federal Reserve notes were they were promises to pay real money the real money was the goal that the Fed had it you know in his inside vault so rather than acting responsibly rather than devaluing the dollar and allowing a deflation to occur and cutting government spending and and doing the right thing the politicians did the expedient thing but almost an unthinkable thing and they defaulted Nixon basically told our creditors we promise to give you gold for your dot for your Federal Reserve notes we're now going to give you nothing you know you can hold on a limb if you want but you're not going to get any gold and you know the world should have gone back on a gold standard at that point right but they didn't now they marked the dollar down rather dramatically the dollar was marked down by about two-thirds during the 1970s the deutsche mark you know in the 1970s began you can buy for deutsche marks for the dollar at the end you can get about a 1 and a half the swiss franc went from like 23 cents to 75 cents the and used to get 360 yen of the dollar later in the decade was down like 150 questions a lot lower now but that was a big drop during the 1970s oil prices went from $3 a barrel to $30 a barrel I mean that's why oil prices went up it wasn't because of the Arabs it was because of Nixon is because of what the government did was all the money we printed money lost value oil prices didn't go up at all but in terms of the you know it depreciated dollar oil went from $3 a barrel the $30 a barrel and you know both prices went up from 35 up to over 800 another thing happened to during the 1970s a lot of women came into the workforce and it wasn't because they were liberated in fact they were liberated before but as a result of all this inflation and all these taxes their husbands could no longer afford to support them so they had it they had to start working now our standard of living declined dramatically with the loss of purchasing power of the dollar and in fact you know I mentioned that oil I often use as an example I think I even used it in that congressional testimony when people say oh you know oil gasoline prices are so high now we're paying almost $4 a gallon these are you know record high prices say they're not they're actually lower than they were in the 1950s well how do you mean they're lower well you know if in back in 1950s or you could buy a gallon of gasoline for a quarter it's all caused 25 cents well if you know if you have a 1957 Chevy and you scoop around in the seat cushions and you find a quarter that was dropped there in 1957 you can still buy a gallon of gas with that quarter you get changed too because it doesn't cost that much it costs less because real money held its value the only reason that will is more expensive is because we're paying for it with depreciated dollars that um that is a problem before what was I talking about before I started talking about that I just lost my train of thought yeah okay so the standard of living went went down dramatically after the 1970s but even though the world marked down the dollar after it collapsed it stabilized it stabilized when Paul Volcker came in and interest rates went up to 20% Ronald Reagan came in promising the reduced government and lower regulations and cut government spending and that created some confidence in the dollar and it kind of stopped the hemorrhaging and the world then began to continue to function the dollar was still the reserve currency even though it was backed by nothing and that is the problem because the whole idea is if the deutsche mark wasn't backed by gold it was backed by the dollar that was backed by gold but if the dortch mark is backed by the dollar and the dollars backed by nothing than to do which mark is backed by nothing so that's when basically we you know embarked on this giant experiment that has failed every time it's ever been tried and fiat money the whole world is on this fiat money system but of course once the world knew the dollar was backed by nothing now it was so much easier for the government to run deficits it much easier than when they had to pretend it was backed by gold at least back then you know when Lyndon Johnson was doing this he had a worried that somebody might figure out what was going on but once we basically told the world you're going to get nothing for your dollars then there was no limit to how many we could print and that's when the US economy began this massive transformation from the world's biggest creditor to the world's biggest debtor from the world you know you know best you know biggest manufacturer of low-cost high quality stuff I mean although low-cost merchandise was made in America everything even even even though we paid the highest wages in the world if something was expensive if some was imported that meant it was expensive people used to brag about the fact that they can afford to buy imports if you bought imported products that meant you were rich because everything that was imported was was was expensive all the bargain-basement stuff was made here and it wasn't because we had low labor cost we had the highest labor cost in the world but our workers were the most productive because they had the most capital they had the most tools in the most equipment and our businesses had the fewest regulations so it was a free it was freedom that made us prosperous but all that changed and we began to live off the print press because when the dollar can be just printed out of thin air and the world is going to take it we can buy all these products from our trading partners for nothing you know when the Chinese are making things for Americans they need land labor and capital people have to work hard in factories to produce stuff what do we give them in return just some money that we ran off a printing press and what do they do with it nothing the kid they can't even spend it all they can do with it is loan it back to us and buy Treasuries and then what you know what our treasury is just more dollars and you know a lot of people again they can whew they confuse this they think that the Chinese are benefiting from this relationship they're not gaining at all we're benefitting right they get we get all this stuff and they get all the work well what good is the work without the stuff see we're trying to say well they get jobs so what the slaves that jobs when a good deal for the slaves you know these jobs are not a good deal for the Chinese if we get all the stuff that they produce right they're working the whole the whole idea behind exporting as not to create jobs it's really to eliminate jobs I mean the reason you export is to import something else because you want to consume and how do you consume as much as possible well if there's something that you can do really well that you can make more efficiently than somebody else rather than try to make everything you just make the things you make best and then you trade for the things that other people make better than you but the whole reason to export something is to you want to buy something else you don't export just so you can have a job that's what you're just wasting your labor now what happens when we trade with the rest of the world they send us stuff and what we basically say is you know whoa I got nothing for you but we you know I got an IOU you know you dollars you know we take the IOU and they take it because it's the reserve currency and maybe in the back of their mind or I guess in the front of their mind they figure that one day they can use it to buy something but meanwhile what are they going to buy what are we making every year we make less and less stuff that they want the stuff that the Chinese want to buy is all made in China I mean that's where the stuff that we want to buy is and but they this is this whole thing is maintained but now we have this entire bubble we have this entire phony economy that is now predicated on Americans borrowing money that they didn't save to buy products that they can't afford and didn't make and this whole thing is phony and all of our all of our economic policy is designed to sustain this nobody wants to allow it to be corrected because the correction happens in a recession we have a lot of problems the biggest problem in the u.s. economy is that interest rates are too low interest rates have to go up we're never going to have a recovery we're never going to have real economic growth we're never going to create productive jobs unless interest rates go up but that's going to be very painful because we're so overly indebted what's going to happen when interest rates go up banks are going to fail and they're not gonna be able to make that next time we can't bail them out what's going to happen to the housing market gonna go down more it needs to go down more that's part of the correction prices were too high they're still July what about the government what's going to happen when interest rates go up well the government is going to have to dramatically reduce spending in fact they might have that default on the on the bonds they've already sold because the the only reason the government can pay the interest on the debt is because the rates are really really low what happens when rates go up will they they can't afford we can no longer a no more afford to pay our ba re bonds back then the Greeks can you know for a while interest rates in Greece were at record lows and the Greeks had no problem but then interest rates went up and now you have a crisis the same thing is going to happen here now there are people that think well that'll never happen because interest rates are never going to rise well that's just impossible they have to rise you know what is the consequence of keeping interest rates artificially low we continue to screw up our economy instead of allowing market forces to correct the imbalances we make the imbalances bigger right the more we stimulate the economy with the toxin because that's what the stimulus is it's it's a toxic sedative and eventually you overdose on it right what is happening if we keep interest rates low nobody is going to save I mean who's going to save money that's depreciating in value and so you're going to destroy your savings you're going to destroy the ability of the economy to generate capital generate growth or or production you're going to create massive inflation now the government can lie about inflation for a while they can hide it behind these doctored up CPI numbers that are so you know you know you know mechanized or they so manipulated not there's a conspiracy but the formulas that they use to calculate prices going up are flawed they're deliberately engineered to get a loan number I mean that's how why they're there but of course when they're measuring prices they're not even measuring inflation they're measuring an effect of inflation but at some point the inflation is going to be so pronounced that it's in its effect on prices they're going to be so great that the government is not going to be able to pretend that it doesn't exist and then at that point interest rates are really going to have to rise and then it's all going to hit the fan and I said that's when the banks are going to fail and you know the next time the banks fail if the Fed is doing the right thing and raising rates that means not only do the banks fail not only do the bondholders lose money but the depositors lose money because if the government is having you know trouble paying its own debts how's it going to bail out the FDIC you know we're just gonna get that money it's this so there are tremendous losses all all we're doing now all of our policy is designed to postpone the day of reckoning beyond the next election that's all Congress cares about how can we get through 2012 without it you know hit the fan and they don't care that the policies that they're pursuing are just making all the problems worse and when we look at the economy people say oh the economy is growing look at the GDP economy is not growing we're spending more borrowed money that's not economic growth look at the debt in the last few years right since Obama has been president look how much the debt is skyrocketing it's grown by much more than the GDP so all this consumption has been financed with that it's not real prosperity it's phony it's like it's like looking at half of a balance sheet you're looking at the assets and you're ignoring all the liabilities or on an income statement you look at the income but you don't look at the expenses we are not better off because the GDP went up we're worse off where'd that money come from we borrowed it and what do we do with it we spent it on consumption we didn't invest it we don't have more plant equipment we blew it right we stood government spent it you know the bubble that we had as a result of the cheap money that the Fed created in the 1990s that inflated a stock market bubble when that bubble burst instead of letting the market correct the problem we deliberately gave us more stimulus and that created the housing bubble when that bubble burst instead of again sucking it up admitting that gee we really screwed up after the last bubble let's do the right thing now let's let the market run its course instead of doing that and taking a more painful recession which was now necessary because they didn't take our medicine the first time they did the same mistake and now they're inflating a government bubble the government bubble is bigger than the housing bubble it is bigger than the stock market bubble you know and it's going to burst it's no more sustainable than than the previous bubbles and you can see to the bond market you can see in the currency market but the real prices that's coming then I know we've been talking we'll take questions the real crisis is coming as a result of the fact that we no longer have sound money that we've been printing all this money and running all these huge imbalances is a sovereign debt crisis a collapse in the US government bond market a collapse in the dollar on a much grander scale than what we see playing out right now in Europe and if you remember when the housing bubble first began to crack and the signs showed up first in the subprime market all the experts everybody you know from the administration down to Wall Street was on television reassuring everybody not to worry that it was all contained it was just a subprime problem tiny little problem don't worry about it the market is sound of course at the time I was saying that that's not true it's not a subprime problem was a mortgage problem that we were just seeing the symptoms first in subprime but the symptoms were there and it wasn't even about contagion about spreading everybody was already sick it was just a question of time before the symptoms showed up well the same thing that's happening with sovereigns this is not an Italian problem or a Greek problem or an Irish problem it's a it's a debt problem and we've got more debt than Europe just because we can print money and we have the world's reserve currency doesn't mean that we're immune from these laws right now I think is when this is a time in history where the sovereigns are being held accountable you know just like the Italians or the Greeks have borrowed more money then their citizens can repay American American government has borrowed more money that Americans can possibly repay and you know we're not going to pay these the debts off by raising taxes on the 1% yeah I mean we can't even do it by raising taxes on the 99 percent as if we can even extract all that revenue you know it's going to have to come through a restructuring it's going to have to come through a default one way or another and there's two ways that that can happen we can legitimately default we can we can the Congress can level with its creditors and still if we're not going to pay a hundred cents on the dollar on these Treasuries it can level with people who are expecting a government pension or social security check and level with them and so the money is not there we can't pay you everything that we promised it we'll come up with some way of means testing it or doing something so that we can make do with less or they're going to inflate the currency into oblivion and it won't just be not worth the Continental it'll be not worth a Federal Reserve Note because one way or another the people who loan money to American are going to lose the savers are going to lose the creditors are going to lose either they're not going to get their money back or the money they get back isn't going to have much value but the problem is the longer we wait the worse is going to be for everybody and the more damage that we do to our underlying economy because the longer we allow these malinvestments to build up right the bigger the impact when they collapse and the harder it is to restore balance and part of that would be going back to sound money going back to a bold standard I'm confident that the world is gonna go back at a bolston the question is how much longer is going to take and how high is the price of gold going to be when that happens but if we go back on a gold standard then we will have discipline again in Congress because Congress won't be able to spend money unless they can extract it from the taxpayer they're not going to just be able to print money we're not going to run all these trade deficits if we want to import we're going to have to export if not we're going to have to settle our accounts with gold and if we can't mine the gold and so that is what's going to bring everything back into balance you know the longer we wait to do it the more mistakes we make in the interim the harder it's going to be and the real threat to our Liberty is that this real crisis that's coming and the economic collapse that's coming in the financial crisis is going to be much worse than the 2008 the problem is all these problems resolved from government they wrote they resolved from government government meddling in the economy all these distortions that the regulations and the subsidies and the money printing create but the government is very successful at blaming capitalism for the problems that it creates it mixes capitalism with socialism and then it causes a problem and they say you see capitalism doesn't work we need more government and then they get more government then we get more problems well this is going to be such an enormous problem that we might end up with total government you know and completely change the fabric of our country so I think it's very important that as many people in Congress as possible and that's where you guys can come in understand the root cause of these problems and it's not because we have too much freedom and too much capitalism but the reverse capitals doesn't work when government distorts it and interferes with it when it tries to micromanage it that's where all the problems come from the solutions are going to be in the market ok it's not going to be more government it's less government is rolling back all these rules and regulations that are distorting the market and returning is sound money and if we do that we're going to have real economic growth we're gonna have real prosperity we might have to you know suck it up and bear some pain and just like you know you could taste swallow some bitter tasting medicine it might not taste good but if it works you got to do it but you no denying that you're that you're sick or just exacerbating or covering up the symptoms while you get sicker is it's not the way to go but that's unfortunately what we're doing now anyway let me just open it up to to the questions yeah yeah yeah I mean obviously there's an there's an economic truism that you're gonna get more of what you subsidize or get less of what you tax I mean if you pay people not to work people are going to take you up on it you know I mean I did it myself I remember the one time in my life I collected unemployment benefits I did not look for a job