Episode Transcript
Speaker 0 00:00:00 Thank you for joining us today. I'm Scott Schiff, along with, uh, senior Scholar Richard Salzman with the Atlas Society, doing an ask Me Anything. Uh, I've got questions from online sources, uh, but we encourage you to, uh, raise your hand if you have a question for Professor Salzman. We'll bring you up to the stage and, um, you know, I I, I'd be remiss if I didn't bring up, uh, the financial, uh, I don't know if you're, we're ready to call it a crisis yet. They seem to be working through it. Giving aid to First Republic Bank, I, you know, um, uh, thoughts on, on what's been going on on the market this past week.
Speaker 1 00:00:43 Well, I think these banks, uh, from silicon to signature First Republic, Silicon Valley Bank is 216 billion in assets. I think it's the 13th biggest signatures close behind. Uh, um, the first thing to say is it's just awful to have the government bailing them out. Now, I know we have a an F D I C and, uh, fed Federal Deposit Insurance Corporation, but, uh, that usually is supposed to cover just insured deposits, which is not all deposits, but they go ahead and bail out all depositors. Anyway, so, uh, I have long been on record for opposing, not only, uh, well central, central banking broadly, but even if you had a central bank, the idea of deposit insurance banks should be, uh, prudent and, uh, rational in their capital and liquidity policies. And, uh, if they go bust, they go bust, just put 'em out of business.
Speaker 1 00:01:39 And depositors should be aware of the quality of the banks, or lack thereof. So the idea that you immunize, uh, depositors from caring about the financial quality of their banks, uh, puts a premium on reckless banking. So that plus, now here's the big thing. Too big to fail. TB TF has been in place since 1984. Uh, those were old enough to remember. Uh, continental Illinois was bailed out in 1982, and it was the first time the US through the F D I C, uh, put up that doctrine called the Two Big to Fail Doctrine. No one really defined it objectively, but the idea was you can't let any big bank fail because there'll be contagion effects. In other words, the bigger the bank is, the more it'll be intertwined with other banks, with other depositors. So, you know, to hell with the small banks, that might go under.
Speaker 1 00:02:27 But if it was big, now, what would this do? It would promote bigness, it would promote banks just being big, being being big, meaning, you know, a bunch of loans, bunch of assets, not necessarily profitable, not necessarily having capital adequacy. So this whole arrangement, which is supposed to be for safety, right, we're gonna ensure the safety and soundness of banking, uh, are means of making it reckless and unsafe and insecure and increasingly taken over by the government. Um, uh, so anyway, a as early as 1992 at out of all places a Fed conference, I gave a talk against too big to fail. It was only eight years old then, but it now obviously is 40 years old. When the financial crisis occurred in 2008, uh, Barney Frank, uh, the Frank dod, bill Barney Frank from Massachusetts, and I forget Todd's first name from Connecticut, were two people who promoted recklessness through Fannie and Freddy Recklessness in mortgage lending, recklessness and subprime loan loans.
Speaker 1 00:03:28 So when that all happened, the dod Frank Bill of 2010 got rid of none of these, um, policies, including to big to fail. So, uh, that's, I don't want to go on too much about it, but I, I did find it ironic that Barney Frank, who's apparently still alive and still doing dastardly things, is involved himself with Signature Bank. So the guy probably made a fortune after the Dodd-Frank Bill 12 years ago, and these banks are all undiversified, they lend only to Silicon Valley tech companies, worst of all tech startups that are risky. And they had a standard bank run of, you know, once they got weak people drew their money out. So just the idea of undiversified banking, I mean, it's banking 1 0 1, so why are they undiversified? Why are they lending only in a small niche of the economy? Because the government will bail them out Anyway, terrible trend. We can talk later about whether there's broader, um, uh, implications of this, you know, whether it'll lead to a broader problem or whether it's a kind of canary in the coal mine signal. But I'll leave it at that for now.
Speaker 0 00:04:31 Yeah, good. Well, we've got people coming to the stage, so, uh, I will defer to them. Uh, jp thanks for joining us.
Speaker 2 00:04:41 Thank you, Scott. Um, so we were discussing as reasons why this whole tobacco thing happened, and, uh, we, we came to the conclusion that maybe the sheer of, of new debt from the overwhelming amount of money that was created, made such as this so greedy on getting their hands over in, in debt. And, and when, when the, the interest rates started to go up then and the supply ever increasing of debt, their new rate, which these bonds came out, were big advantage. All of a sudden, the money that they had invested wasn't as much, and they had to lost sell it at a loss.
Speaker 1 00:06:00 Is there a question? The question, jp, do you have a question? Yeah, yeah. What's the question?
Speaker 2 00:06:05 The question is, is, isn't it, isn't it a fact that then the, it seems like that is become some, some sort of like a junk food for banks in that they know that it is going to be bad for them, that, but they will binge on it, uh, knowing that they will pur it when with a bailout?
Speaker 1 00:06:32 Well, I already said they're gonna be reckless if they think there's a bailout, but, um, I, I would question your view that this is driven by greed. When you see bank failures and you see, I mean, even in the case of ftx, uh, the crypto fraud, um, you, it, it doesn't really make any logical sense to say that someone is greedy for losses. I mean, these are massive losses. You could be greedy for gains, but to take risks that are such that you also can have equivalent losses, no one's greedy to lose. So that makes no sense. So greed is not the root problem. If these banks were greedier, they wouldn't be outta business. Um, but they're clearly not competent bankers. You do get that in a system where you support bad banking. That's what the government policy is. Put it this way, if you're a sound reputable, competent bank, you know, like bb and t was under John e during the crisis, you're penalized.
Speaker 1 00:07:29 Uh, you try to not be reckless and the customers go elsewhere. So it's a penalty on, uh, prudent banking. Uh, the other thing I would say is you're, you're bringing up JP something a bit, a bit technical, but true. The other reason these banks went bust is they bought a bunch of government bonds. Now, typically government bonds are safe. So when they bought these, when they put their cash in, that, you know, instead of say Silicon Valley tech loans, anyone in on Wall Street might have said, well, that's a safe choice. You know, the treasury's not gonna default, but they forget that bonds can plunge in value when interest rates rise. That's just the math of bond pricing. And that's exactly what happened. But what does that mean? It only means that the people at Silicon Valley Bank had no idea how to forecast interest rates.
Speaker 1 00:08:14 So they're idiots. They're supposed to be financial experts, and they didn't know when the Federal Reserve raised interest rates that that was raised bond yields. And in the math of bond yields, that means bond prices plunge. So the value of not only of their Silicon Valley loans went down, their loan, the value of their loans of the government went down. So they're losers on every front, but, but you could see why superficially they'd say, well, this isn't a problem. We're putting our money in government bonds temporarily. Well, they lost a fortune on those as well.
Speaker 0 00:08:42 They at least had a great, uh, e s G program.
Speaker 1 00:08:45 Well, I had, yeah, <laugh> <laugh>. Yeah. And, and Silicon Valley Bank also gave 74 million to blm. So, okay. That was probably a good investment for them because they got, uh, you know, they got street cred. But that alone is a scandal. BLM is a fraud. BLM stole all the money and bought real estate for their, for the, you know, if you know that story. So yeah, they and other corporations have high FTX also had an i e high E S G score.
Speaker 0 00:09:17 All right. Well, uh, we'll explore that. Nathan, thanks, uh, for joining us.
Speaker 3 00:09:23 Well, thanks for letting me up. I appreciate it. I have a, my, I'm not sure if it's a dumb question, but you know, they said they're printing all this money, okay. And that causes inflation. I'm not getting any of that money. I'm not buying a new car or redoing my kitchen or anything like that. How in the hell when they spent trillions and trillions of dollars and it causes my price of eggs to go up or gas to go up? Yeah. What is the, where, where is that money going, <laugh>, because I'm not getting it. They said when they, during the covid, when they gave you the people money, you know, a thousand bucks or 1400 that caused inflation bullshit. Nobody went out and bought a new car with that. Yeah. So can you answer what, am I confused or am I just stupid?
Speaker 1 00:10:08 Yeah, you're, I I'm, I'm sorry to laugh, Nate. You're neither stupid nor confused. This is a really good question. First of all, you have inflation, right? It's a decline in the value of money caused by producing too much of it. Who produces too much of it? The government, they have a monopoly on money. They're at the sole cause of this. And, uh, why do they spend so much, uh, part of print, uh, print so much? I've said before that if you look at public finance, government spends a lot of money, and there's only a couple ways to finance that. Taxes, borrowing, printing, they don't want to tax cuz they'll be taxables. They can borrow, but the interest rates might start going up if they borrow too much. So then they turn to the Fed and they say, please print money. And I mean, it's literally that brazen. And, uh, well, the answer is, uh, I would put it this way, Nathan, I'm guessing, I don't know you personally, but you're in the same position I am. You're not on the doll. You're not getting subsidies. And so you're not gonna see any of this money. You're absolutely right. You're hardworking, you're trying to save your money, and, uh, you end up going to retail outlets and paying more because the value of money is less. And you are being built. You're,
Speaker 3 00:11:18 I'm not sure, I'm not sure I understand that. Because like, like you, like I said earlier, yeah. I mean, if I was getting thousands and thousands of dollars a year extra from the government so I could go out and buy a new car, right? Refurbish my kitchen, put solar on my house, or get a new car, new tires, I could see that. But big companies are getting this. It's not like affecting me. Cause I can go out and buy more groceries.
Speaker 1 00:11:39 Right, right. Well, that's the problem.
Speaker 3 00:11:41 I'm not buying more groceries because I have more
Speaker 1 00:11:43 Money. It's not that the money goes nowhere. You're absolutely right that they're spending the money either on, you know, cronies, uh, mostly, uh, you know, special interest groups, big business and stuff like that. Yes. And, and, but, you know, but also they sent everyone home. Remember they sent everyone home during Covid and said, here's a check in lieu of your job. So people got, now if you didn't, like I didn't, I don't, I don't recall getting any money for that, but I still played the higher prices. So those who don't get subsidies from the government, but still look out there and say, well I'm, the system's still based on dollars and I'm gonna pay more, uh, for the stuff I'm, uh, buying. Yes, you get ripped off. That is, that is an indirect way of the government taxing you. Uh, inflation is long been said. Inflation is the cruelest tax of all. Cuz it's not legislated, it isn't obvious where it's coming from. People tend to blame the price setters. They tend to blame the grocer and the gasoline, uh, you know, dealer for, for the higher prices, not realizing it's the government doing it. But that's a good question, Nathan. There's a disproportionate influence of the spending. It does go to cronies and not you. And then, but everyone pays the higher prices on retail and elsewhere.
Speaker 0 00:12:55 Good. Uh, thank you, uh, Clark, thanks for joining.
Speaker 4 00:13:00 Yes, thank you guys for doing this. And um, I have what I hope is not too much off on a tangent, but Richard, in, in a previous clubhouse, Richard, you mentioned, um, that you are not for a hundred percent gold or basically, I think, again, correct me if I'm wrong, you favor factional reserves? Well, I guess until I'm convinced otherwise, I'm basically 400% gold. Because, you know, gold is money. Money's gold. A man who makes a hundred thousand dollars a year, well, that would be, I'm assuming it was $20 an ounce. That would be literally 5,000 ounces of gold. You could see it, picture it. And so I guess again, if I haven't gone, if this isn't too much into the weeds, uh, what are the advantages of fractional reserve? I mean, after spending years convincing the American people, if we ever get to that point where, you know, money's gold go, or gold is money, you know, you can see it. It's not just, um, fiat thing that the government told us is worth so much. I mean, you know, you could actually see gold and see, you know, he's got twice as much gold. That's twice as much wealth. Uh, what are the advantages to fractional or reserve, uh, over a hundred percent gold If, if I haven't gone too far off on a tangent.
Speaker 1 00:14:10 No, that's fine, Clark. That's a good question. Uh, thanks. But for those who, uh, aren't familiar with the background, the broader question here is the government's role in the money and banking system. And the basic dichotomy would be a system of free banking on the gold standard. And then the alternative is central banking on what I call an arbitrary token. Fiat money standard is too nice a word for it, but that's what it is. Now, what Clark and I are talking about here is in the free market system where there is no central bank and the banks themselves are issuing money and of course taking deposits and lending all the usual things you'd have in banking. Uh, it was in the private banking section prior to the Federal Reserve being formed in 1913. Now, the sub-question within this is that Clark is talking about is some free market economists who are for the gold center like Rothbard.
Speaker 1 00:15:04 Uh, and others argue that even in a free market system, they claim it is fraudulent for a private bank not to keep all the gold in its vaults and 100% back the deposits. The other camp, again, this is within the free market camp, I'm in this other part. Free banking is the system that says, well, the banks are on the gold stand. They do promise and pledge to, uh, provide gold redeemable money, currency and checking accounts, but they don't promise to have all the gold sitting in the vault whenever people want it. Now, why they do inform the depositors of this. So it's not a fraud. It's not like they have stolen the money. Now, here's the key business point Clark. If you are just a bank that takes people's gold and holds it in a vault and you're, that means you can't lend it.
Speaker 1 00:15:58 So fractional reserves, meaning there's a fraction of gold backing the deposits is a lending bank. It's a bank that takes deposits, but lends out some of them. Not too many of them, of course, because then they'll have bank runs or they'll be insolvent. But, but it's totally a rationally self-interested profit motive bank. And if you didn't do that, you'd just be what's called a warehouse bank. You would be like, what today is called a safe deposit box. Now, if you open up a safe deposit box at JP Morgan or Chase, they'll charge you a fee. Right? Why? Because they promised to keep that thing in the box and never open it. You open it when you want. So they're gonna charge you a rental fee, they're gonna charge you an insurance fee, storage fee. Right? What the fractional banks did was they went to customers and they said, if you give us permission to lend out some of your gold, not only do you not have to pay us a fee anymore, we'll pay you an interest income.
Speaker 1 00:16:53 We'll, we'll take some of the interest we earn on lending, turn around and give it to you, and we'll make money on the difference. You could see why depositors would agree to that. This is what Rothbart and others in the Austrian camp didn't recognize, or they, I think they knew the history, but didn't quite put it this way. So there was no fraud and there was a rational self-interest in developing fractional uh, reserve banking for this reason. I hope that helps, but it's a bit technical. Does that help Clark or do you wanna follow up?
Speaker 4 00:17:21 Oh, no, that's, that's, that's great. So bottom line then, just to wrap up. Yeah. Basically then you could still in under free banking as you've described it. Yeah. Even with factual reserves, of course, a a a bank run could occur and that's what would basically, you know, quote unquote keep the bank honest. Yes, sir. The fear of of having a run.
Speaker 1 00:17:40 Yes. Yes. And when I wrote my histories of banking, I found that under the free banking period, the fraction was something like 30%. Now that's pretty high. That means there was 30% gold in the bank, in the vault backing the deposits. Now what do we have today? We still have fractional reserve banking today, only no gold standard. And the banks, uh, the, the vault cash is like less than 1%. So if you ask Silicon Valley Bank, again, no gold standard, just what do they have for vault cash? Fractional reserve was probably less than 1%. They had no money in the bank, literally. So that's reckless, that's reckless liquidity management, even in a fiat stand. Now, why do they do that? Because they can call up the Fed at any time and say, send cash. You couldn't do that in the free banking period. You had to be prudent, and they had prudent fractions. And if the fraction went down too much, of course that people would learn about it and run the bank. But running the bank itself was a disciplinary, uh, mechanism, you know, to make banks, uh, prudent. Great. Anyway, by the way, uh, who, those have won more on this. I'll just plug my books. Breaking the banks and the other one's called Golden Liberty. They both have sections on fra on exactly this issue. Fractional reserves versus 100% reserves. And you could get 'em at a i e r.org.
Speaker 0 00:18:56 Great. Um, alright, well let's give uh, Ron a chance. Uh, Ron, thanks for joining.
Speaker 5 00:19:06 Hello, I'm, I'm listening. I'm Tim, I'm enjoying the insights.
Speaker 0 00:19:12 Okay, great.
Speaker 1 00:19:13 Thanks Ron.
Speaker 0 00:19:15 All right, well let's go to L Presidente.
Speaker 6 00:19:20 Oh, man, I, uh, I missed coming into these rooms. Uh, shout out to, uh, JAG and Scott and Richard. This is great. Um, I got a question around, uh, where do we go from here? Uh, e everyone wants to look back and say, how did we get here? Which is an exercise that we need to go through. Um, but, but what do we do now? If, if you are, um, if, if, if, if you're concerned about contagion and if you're concerned that, uh, you know, that the market, uh, you know, whether it's gonna further recede cuz people are afraid to call, call it a recession for whatever reason. Um, my my question for you is that we know that you can make money in an upmarket or a down market. Um, and, and I'm not looking for investing advice, but for people that, that are concerned, whether it's, you know, about their 401k or, or if, if they're, uh, you know, more aggressive in, in, in the market. What, what, what do you do at a time like this, Richard, with, with, uh, with the pressures that we're seeing, uh, you know, against, uh, you know, from the existential threats against the dollar, uh, to, uh, to the self-inflicted wounds that we're seeing from the, the Federal Reserve. Uh, what, what, what advice do you give to middle America on how to safeguard their wealth?
Speaker 1 00:20:36 Well, this is, thanks for the question. This is somewhat of an investment advice question, which I'm reluctant to, cuz each, uh, person's, uh, you know, risk and assets are different, and this will sound very boring, but it's very much true because it stands the test of time. But you have to have a diversified portfolio. So put, uh, note, notice the banks I just referred to, the banks themselves did not, and they failed. So your investment program would fail as a person if you didn't diversify, just like the banks did. Meaning what? You can't have all your money in stocks and or bonds, I wouldn't even say, and, or gold. There'll be certain gold bugs among the Austrians who'll say, put it all in gold. That's not a good ar argument either. There have been periods where gold loses, loses a lot of value, but, uh, if you don't wanna play the markets, which is very difficult to do, I mean time, the markets, I mean, get in and out every week or month, which can be very costly just from the standpoint of, uh, commissions.
Speaker 1 00:21:33 The best thing to do is just have a diversified portfolio. Meaning what that take, literally take a pie chart and say, 25% of my assets will be in equities. That means stocks, 25% will be in bonds, 25% will be in gold. Or you could use commodities as well. There's a G S C I index. Uh, those are hard assets, so to speak. And then, uh, 25% in T-bills, T-bills are just short-term government securities that pay, you know, whatever they're paying now, two or 3%, it's a boring mix. It will do well or ill in certain periods, but over time, you won't lose your shirt if you are all in, in equities and, you know, in any one of those things, you're not fully, uh, exposed. So, you know, after 20 years of that, you would, you would have more capital, you would've more assets than people who pick one of those quadrants and put all their money in it. Uh, I hope that helps. That's a very brief answer, but diversification,
Speaker 0 00:22:34 I was surprised to see, uh, I thought this thing started with, uh, the Silver Gate Bank that was kind of my crypto bank. And then, but then crypto ended up popping, uh, in the middle of all of it.
Speaker 1 00:22:47 So, yes. Yeah. And I, I have done, yeah, there's not really a question in there, but, uh, Bitcoin I keep saying is legitimate. So every time there's one of these crypto crashes, they're not really sound. There's, there's hundreds of them as, you know, crypto's out there, and some of them are very unsound and some of them are mismanaged, not so Bitcoin. But when there's scares like this, uh, Bitcoin itself will, will have a down sweep for a while, but then it comes back. So if you just wanna play around with your money and, and be a contrarian in crypto, buy Bitcoin, and then don't worry about when it falls a bit. Don't put all your eggs in one basket in crypto, but, but don't assume that when there are these ancillary crypto crashes, that it means Bitcoin itself is unstable. I have come to believe that Bitcoin is the real McCoy the real thing that will survive all this. So, um, that's my view of Bitcoin. Yeah.
Speaker 0 00:23:44 Uh, well go to, I think Chad is next.
Speaker 7 00:23:49 Um, I'll, I'll take a pass. I, I need to kind of recollect myself. I had, I had to jump out for a quick second. Um, if, if that's okay? Yeah, absolutely.
Speaker 1 00:23:56 That's fine. Thanks. I,
Speaker 7 00:23:57 I appreciate it. Thank you.
Speaker 0 00:23:58 Go to Lawrence next.
Speaker 8 00:24:02 Alright, thank you. Can you hear me? Well?
Speaker 1 00:24:05 I can. Lawrence? Yes.
Speaker 8 00:24:07 Okay, great. So, uh, my question is about an event that happened a few weeks, uh, almost a month ago now with the whole, uh, train derailment in sort of East Palestine, they're saying. And there was arguments saying, oh, the problem this happened is because of deregulation, which doesn't seem to be the case, but it got my mind really thinking as I understand it, the train industry is pretty heavily regulated in the United States today, <laugh>. And I kinda wanted to get your thoughts on how did that come to pass? Because this sounds like this is something that maybe happened around the turn of the century in the 19 hundreds, but I I don't really know the history of it.
Speaker 1 00:24:44 Well, that's a good question. Of course, each side jumps on it and says, wow, this, uh, tragedy is due to too much freedom, or the other side will say too much regulation. Uh, my take on it, and I'm no specialist on this spill, although it did follow it closely, is very intriguing. Plus, uh, Norfolk Southern had four derailments in Ohio in one month. So the, at some point you have to say there's something wrong with the management of Norfolk Southern. But apart from that, which I can't say about it is interesting, uh, I would put it this way. Um, the more interesting, broader story is the following pipelines and refineries are, are almost impossible to build in the US anymore. Now why is that important? Because they're underground. And by the way, the stuff that spilled, uh, wasn't, uh, oil, and it wasn't gas, but the chemical, um, vinyl chloride, I think it was that spilled can also go in pipelines.
Speaker 1 00:25:39 Now, what does this mean if the, if the US government for environmental reasons, this is regulation, right? This is the greens are preventing pipelines and refineries from being built. Where does the stuff get transported Above ground. Where in trucks, in tankers, and in trains. Now, this is riskier. It's not only costlier by the way, it's riskier because the stuff is, you, you're, you're prone to, uh, you know, Exxon Valdez was a big tanker. You're prone to railroad, uh, derailments. And if there's not enough capital investment, Atlas Shrug told us that, right? The whole story of Atlas Shrug is the whole infrastructure is deteriorating over time, um, because it's a de recapitalization of the, of the system, uh, that, that's, uh, in the background going on in the United States as well. The fact that the whole infrastructure generally is deteriorating and creaky. Um, and, but, but I, I would focus much more on, people should be aware that trucks, uh, big, big, uh, tankers and and railroad transportation of these dangerous chemicals is artificially above ground because the government won't allow for pipelines. So, you know, if if pipelines were completely deregulated and they can build more of them and more refineries, it doesn't mean there wouldn't be another, there would never be another trail derailment, derailment. But you increase enormously the chances of these things happening and then having bad effects when, uh, in effect, it's inflated. There's, there's an inflated volume of stuff going across, uh, above surface, you know, through towns where people live.
Speaker 1 00:27:16 The environmentalists, of course, will use this to ratchet up even more of the restrictions on transporting stuff above ground. So then you won't get any energy at all either through pipelines underground or by transportation overground.
Speaker 0 00:27:32 Great. Uh, good answer. Um, Justin, thanks for, uh, waiting.
Speaker 10 00:27:42 Yes. Hello. Um, uh, thanks you for having me on stage. Um, as a master diesel technician and someone that's involved in, uh, you know, the transportation systems that are in the United States currently, um, do you think that we have subjugated our output of work and our standard to a monetary value? And then when the monetary value doesn't meet our standard or our criteria, we wanna complain that our output of work is not, um, appreciated or anything like that? Do you think that that has a big underlying out, uh, kinda like state and why these things are happening? And then another thing is, is that, you know, depending on what form of information you wanna abide by, is that, you know, we are under attack from, you know, uh, cells in China and we're under attack as far as, you know, the administration and so on and so forth. But when an individual has a skillset as their main commodity to introduce to the world and the economic form, no matter if it's through barter or exchange of fi currency or gold or silver, um, that skillset is the main commodity, not the, the exchange in which it's, uh, um, humans actually perform. It. Would, would you believe that, uh, skill sets are the number one human commodity that we have nowadays?
Speaker 1 00:29:22 Wow, Justin. Um, as I think about what you're asking, I'm not entirely sure what you're asking, but if I, let me just say the, therefore I'll be brief and you tell me if I'm completely off, because you mentioned skillset and money. The, the ultimate human productive resource is, uh, intelligence and ideas, not manual labor. That, that seems like it would be obvious even to you, although it's not obvious to a Marxist or a Marxist professor. But if that's what you mean by skillset, yet the brainiacs of the world in any field, whether they're in engineering or business or even the arts, are the biggest value creators. And, uh, you know, to the extent that's recognized, by the way, the, the controversies over ip, what is intellectual property? I mean, these are brainiacs creating software and a whole bunch of other things. And if those aren't protected, a lot of libertarians will not say IP should be protected.
Speaker 1 00:30:24 Objectives do, uh, another, uh, confirmation of our, our view that intellectual value is, is really important. And, uh, that's part of the skillset. And now you also seem to be, though asking whether that, it's almost like you're asking whether that's monetarily appreciated or something like that. And, and the freer the labor market is, you will find that the brainiacs are paid for their performance. And, uh, I would include by the way, finance, uh, a kind of controversial position, whether financial people, uh, deserve the kind of outsized wealth that they earn. And my answer to that is, yes, they're some of the biggest brainiacs in the country. Finance people, I mean, on wall stream. So I'm gonna stop there though, Justin, because I may be way off the mark in what you care about. Do you want to follow up? Well, one
Speaker 10 00:31:12 Of the things that I wanted to say is that yes, the the output of work
Speaker 1 00:31:17 Yes.
Speaker 10 00:31:17 The worker themselves, the, yeah. Those that are out there, the, there may be a landowner that owns the farm, but the worker that's picking the crop, yeah, may not have the financial, uh, outcome that is currently number one, but they still maintain that skill set of understanding what is a, uh, a proper pick versus what is an improper pick. And I guess we all have mutual, uh, non-violent interactions daily. The only thing that dictates that is a fiat currency or a financial, uh, gain in, in the mindset, the belief system. Hmm. When can we make that a belief system that it's just human cooperation? Hmm.
Speaker 1 00:32:05 I think that's too, I would say that's too abstract a question for me to answer here briefly, but the other thing that, but something you're saying, let me just say quickly, the, the issue of the monetary system with where fiat, for example, which is fraudulent, it is, i, it is really problematic. Um, I would say if this relates to your, that does distort, uh, the ability of people to identify skill sets of the kind you're talking about. It's not impossible, but it's well known that if, for example, in hyperinflations or the higher inflation gets it, it's more volatile. It wrecks prices and relative prices. And to the extent prices are signals to business people than others, how to allocate capital or how, how to hire people and what kind of people and what kind of pay, um, uh, uh, increasingly there is a disconnect between the mind, the literally the mind's ability to assess human ability and productiveness, because the monetary system is out of whack.
Speaker 1 00:33:12 I don't think we're there yet. In the US we, we do have a fiat money system, but we don't have hyperinflation. Hyperinflations do exist elsewhere in the world, and they totally wreck economies. But I think I'll leave it at that. You, you have a really interesting question there, and it could take hours to talk about, but the, the, the real interesting part of your question is how I think, seems to me, how is human ability judged and judged accurately and paid properly, you know, in a free versus a semi free system? I think that's what you're asking. A really good one,
Speaker 0 00:33:44 Richard, you have a very particular set of skills.
Speaker 1 00:33:48 All's Liam, but I'm not as wealthy as Liam. Is that Liam Neon? That's right, you're talking about, okay.
Speaker 0 00:33:56 Yes.
Speaker 1 00:33:56 Right.
Speaker 0 00:33:57 Thank
Speaker 1 00:33:57 You. Those are, those are really great. What are the name of those movies he's in? He's like, done three of them. Those are great movies where someone's goes missing, his daughter goes missing and
Speaker 0 00:34:09 Escaping me at the moment. But I,
Speaker 1 00:34:11 I love those. I love those. I've seen all three of 'em. I love those movies.
Speaker 0 00:34:15 Craig, thanks for, uh, waiting. Are you able to unmute? There's a button in the bottom right, the microphone that you hit. There we go. We go. I
Speaker 11 00:34:27 Wanted to talk about bank runs. Obviously a hundred percent non fractional. Reserve bank can invest its depositor's goal, but it could invest as shareholder's goals. A fractional reserve bank can invest its depositor's goal. And I agree with you, and I think, you know, 30% is the historical average, but I know of a several mechanisms for avoiding bank. The, uh, bank of Scotland, for example, print used to print right on its currency, let's say a pound note. It would say, we, we agree either to pay you a pound on demand, or we agree that we'll pay you a pound on a shilling in 30 days. That will give 'em time to liquidate their loans.
Speaker 1 00:35:08 Yes, they did do that.
Speaker 11 00:35:09 The second one is branch banking, which greatly exacerbated the depression because of the Great Depression in the US because states had laws against branch banking. So each bank stood on its own and it couldn't call on its fellow banks to ship it cash to aver a run or to stop or run. Uh, do you know any other mechanisms besides branch banking and of course, an a central reserve bank and the, the Scott, the Bank of Scotland provision? Is there a third way to
Speaker 1 00:35:37 Do it? Yeah, so yeah, again, a bit technical here, but yes, the, the, the features that a free bank would use without government intervention Exactly. Those kind of things. Well, we may not have your money right now, but we'll give you that in a little more in a month. Yes, that would, uh, lay bank runs. Another one was clearing houses. The banks would clear checks against each other, and the clearing houses themselves acted as kind of centralized reserve, and they would lend, but only that would be like the stock exchange lending to companies. Uh, but only because they, uh, were legit, right? They would submit their financial statements and join the clearing house. So that would be another method. And branching the banks very important. For example, by the way, in Canada, during the Great Depression, uh, they suffered as well a real great depression, and none of their banks failed.
Speaker 1 00:36:24 Why? They had few banks with many, many branches, which, and it's literally like a tree. A tree is not likely to fall over and tip over in a storm if it has a root system, right? That is the equivalent of branches for banks in the US they restricted branching because they had banks chartered at every state, 50 different states. Texas was the worst. You had to have like one office, one office, so all your, your loans would be concentrated in that one area. You, you'd be a bank with one taproot, you would easily fall over in an economic storm. So yeah, those are all good points. Um, Craig, and, um, I'll, I'll leave it at that. The US used to have 30,000 banks when Canada had 12 in the Great Depression. It went from 30,000, I think, down to 20. So 10,000 banks failed in the 1930s, and now I think it's down to 8,000. But that's still a lot. There's 8,000 different banks in the us. There's too many banks, but it's due to regulation, it's due to the government preventing, um, over the years branching and, and mergers and acquisitions and things like that.
Speaker 0 00:37:32 Great. Uh, we are very pleased to have Atlas Society founder David Kelly with us. Um,
Speaker 12 00:37:42 Very quickly, I wanna comment on a previous question, uh, about skillsets and money. One, one of the things that, you know, I I'm an academic, uh, by training and not, I've lived in the academic and nonprofit worlds forever. And, um, I can't, I'd be rich, man, if I could, uh, get a nickel for every time I've heard someone in, in those reals say, why we're smart. How come we get, we get paid, you know, a pitance of what people on Walter would make <laugh>. Aren't we doing something really valuable? <laugh> and
Speaker 12 00:38:17 Iran gave a good answer in that. Um, in capitalism, uh, the initial essay and capitalism, the unknown ideal, which is, you know, the value of, for example, it was the value of an Einstein, uh, in absolute human terms is much greater than the value say of someone producing a new lipstick. But the lipstick maker probably will make, could easily make a lot more money because they're creating value for a larger number of people willing to pay. So it's the social value of what you produce, not not the own, the absolute estimate of what your skillset is, but what, what your skillset, the value that that allows you to produce in the market. So anyway, that's a, that's a point. Um, going back to, to, uh, citing, you know, one of the objectivist mantra, but the question Richard, I wanted to ask is, we've talked about, uh, you talked initially about why the rescue methods for, um, the Silicon Valley failure and the sovereign, uh, sovereign bank, uh, were reflected the F D I C, you know, um, guarantees and so forth. But what I'm seeing in the news all the time is worries about this, uh, the failure of these banks and their, and the Fed rescue, um, to the extent that they did that, uh, having ripple effects across the entire financial sector. The entire stock market, which is down today, has been down, um, a couple days. Um, yes. Can you explain the systemic, uh, spread, uh, of all this, uh, yes. And, and sent to a layman <laugh>?
Speaker 1 00:40:05 Yes, it, there is. Yes. Good question, David. Thank you. And I totally endorse yes, go to Ayn Rand's initial essay on what is Capitalism. She talks about this paradox of, uh, what was it, why Elvis is a millionaire, and Beethoven wasn't, uh, but uh, still a rational, uh, answer. The, the issue on, uh, ripple effects, David, in, in finance, they call it contagion effects, which is interesting. It's taken from public health, the idea of a contagion spreading. Um, the current setup of most financial systems, which is not a capitalist system, is it, is some, to some large degree deliberately fragile. So <laugh> me meaning, well, first of all, it's not on a gold base. There's no foundational sound money as a base. The base of it is fiat paper money, which we know is issued almost without limit by not just the US by all major countries.
Speaker 1 00:41:03 So that alone is a precarious thing. But these, these devices I explained at the beginning, where the government is seen as the buttressing element, it creates widespread reckless banking as well. So when, when the cratering begins, and this is true of all financial crises and bank failures, it's natural for people in today's world to say, ah, ah, here we go. Uh, in 2008, it was Lehman Brothers failed. They immediately go to the idea that there must be other, what do they really mean? Frauds out there soon to be exposed. Yes. Why? Because there isn't real full transparency. It's precisely because people feel, and, and this is, this is accurate, that the whole thing is a kind of daisy chain propped up by the government. And so they expect, and they start losing confidence in institutions and, and start doing all the usual things, pulling out their money.
Speaker 1 00:42:00 But the, but another thing that's going on right now is the US is entering a recession. Uh, now this is an entirely different discussion. How do you forecast recessions? I have a business that that forecasts the business cycle. In my view, part of what's happening here is that we're in the beginnings of a real economic downturn and these, and, and it has to start somewhere. Have the loans start going bad. The last time it was mortgages started going bad. So it's always, it's difficult to pinpoint exactly which sector will start cratering first, but it definitely has this cascade effect because the, the interconnectedness really of the financial system and the banking system. I could say more David, but it would be too long an answer, I would note. By the way, notice that credit, uh, has anyone noticed that credit's suis just got a bailout from the Swiss government? Now, Swiss Swiss banks are fairly conservative. That to me is more consequential than Silicon Valley Bank. Cuz Silicon Valley Bank was lending to tech startups, which are precarious to begin with. Uh, the fact that, um, credit suis a major Swiss bank could not get, what did it need? 54 billion, not a lot, given its size, could not raise the money and turn to the government is a very bad sign. Are you saying
Speaker 7 00:43:17 This is a shift in culture of, of the, like a bailout culture?
Speaker 1 00:43:22 Well, the, the yes in, because in Switzerland they tend not to have bailouts. They tend to have more conservative banks. So that's a shocker to me that even to me, that there would be a Swiss bank turning to the government, uh, for, uh, a bailout. And so that is probably a canary in the coal mine for European banking. Um, I haven't yet studied what, what the credit suis loan problem is, but, um, but David's a a question about contagion. Um, yet we have a, we have an un David David, I would put it this way. We have an unduly precarious financial banking system, but it's due to it being eroded over many, many decades by the government method of financing itself. That, that will sound a little weird, but my, my book about breaking the banks, the subtitle was Central Banking Problems and Free Banking Solutions.
Speaker 1 00:44:16 The theme of the book was breaking the, breaking the banks meant eroding the financial wherewithal of private banks. And the theme of it was, that's what happens when the government gradually takes over the money and banking system. It has the kind of reverse Midas touch instead of things turning to gold, they turn to draws, they turn to me, they turn messy. And they, and the government is basically co-opting the financial system to finance the welfare state. And by co-opting the financial system, they're corrupting it, they're weakening it, they're, uh, pros, uh, prostituting it, if that makes any sense.
Speaker 12 00:44:54 Uh, thank you Richard. That's very illuminating. Oh, I appreciate it. Okay,
Speaker 1 00:44:58 Thanks David.
Speaker 0 00:45:01 Great. Uh, let's go to Agent Malone.
Speaker 13 00:45:04 Whoa, thanks. Um, I, I just had the thought recently. I guess it was prompted a little bit by the, the couple bank failures. But I start, and I'm, I'm someone and thanks for mentioning like gold and sound money and things like this, cuz I fundamentally, you know, come from a place of believing that breaking away from, from some commodity foundation was a very, very bad idea. And that we just have this fake, obviously it's a very fake, it's based on trust, it's based on fiat. But I started to wonder like, well, why, why would they design the system at all? Except that, yeah, you inherited some sys you keep like transforming some existing systems. So it almost evolves rather than is a well designed system. But why don't we just do every, if the fed's just creating money, if the Fed's doing bailouts, if the Fed's setting rates, if the Fed's doing all this, why don't we just do everything with the Fed? All your deposits are just with,
Speaker 13 00:46:05 And we've lived zero interest rates now for, for like 20 years. So it's like, well, you might as well just have it with the Fed. If the Fed wants to give you interest on your savings, they can just give you the interest. Right? And, and then, um, you know, and then you could have other companies, it could be like MoneyGram, it could be have these like, yeah, the same thing that happens now for these poor people that get scammed of like these usy type whatever loans. But that, that, that's fulfilling the real need. And it's like, we can still have organiza companies doing the equivalent of banking, but you can have, uh, hedge funds, you could have private equity and you should open that up to like regular people. But like, you could have some companies that just, you give it money and then you know, you, you know that once I give you that money, I no longer have that money. And maybe someday things go well, they'll give me more money back. But otherwise, the money that I, I want like my checking my super basic savings that should just live with the Fed. And we shouldn't lend out every dollar that is basically out there in the economy. Like, oh, it's just, it makes zero sense to me. Can you, can anyone gimme a decent defense in 2023? Why we should have a banking system like this?
Speaker 1 00:47:25 Wow. Way more money in banking questions than I expected. But, um, how would I answer this one? You're going the other direction, which is very interesting. You're saying why even have any private banking system? I would tell you this much. I I don't want any government involvement in money and banking at all. We've had a system like that in the past. So I'm not just a utopian and uh, but I would say this, whether you endorse it or not, I can't tell whether you do agent. That's not important. We are going in that direction. If you think of money and banking money is basically a medium of exchange and a unit of value. But the lending of it and the allocation of capital and everything is banking. If the government takes over the money, it will eventually take over the banking. It has to, that's what's happening.
Speaker 1 00:48:09 By banking, I mean they become the lender, they become the, well, that's why they got involved in like Fannie and Freddy and mortgages, right? And the whole thing becomes corrupted. Now, if you have a complete nationalized system, the Federal Reserve is not only the monopoly issuer of money, it is where you keep all your deposits. That's the direction we're actually going. The Fed is advocating that there are people at the Fed advocating that there'd be no private banks anymore. So you don't put your money in JP Morgan, you put it at the Fed and it's at the behest of the Fed and the treasury to manipulate your money as you want. They want direct access to your account too. And none of this filing of taxes every April, they wanna debit your account directly for taxes. And for those like BLM and others, they wanna subsidize, they wanna just put the money right in by a, by a digital move.
Speaker 1 00:48:54 So that is where we're going, I think is very troubling. It is totally fascistic, it's totally status, but it's what happened in, I mean, the Soviet banking system, for example, was totally government run and controlled. And by the way, if, if you know that you would lose your privacy completely, the government is already all over your bank accounts knowing where you're spending your money. But if they were the sole banker, not just sole money issuer, sole banker in the country, it would be even worse. So I, I think I don't agree with agents saying I agent, when you're saying, you know, out of efficiency reasons or something, why doesn't the government just run everything? Um, I'm, uh, I'm against it morally and efficiency wise, but that is where we're going, unfortunately.
Speaker 13 00:49:34 Yeah. I just think we have like, I, I'm sort of just saying, yeah, at least if you're gonna have a corrupt system, just at least make it run. Well, <laugh>, I'm not exactly endorsing it either. I mean yeah, hear need two systems. Cause we always have crypto. To me, crypto has solved the problem. I think that some privacy Yeah, maybe
Speaker 1 00:49:55 The
Speaker 13 00:49:55 Details of, of like, is this the best thing to transaction or how do we improve
Speaker 1 00:50:00 It? But just as
Speaker 13 00:50:00 Technology there, right?
Speaker 1 00:50:02 Just as the government. Yeah. I I think we should move on. It's too technical here. Alright.
Speaker 13 00:50:06 Sorry. It's
Speaker 1 00:50:06 Gonna it's gonna up the rest of the time. Yeah,
Speaker 0 00:50:09 Exactly. Uh, Simon, thanks for joining us all. Are you able to unmute with, uh, the mic in the bottom right, Greg?
Speaker 14 00:50:19 Hi. Yeah, sorry. Uh, yeah. Um, I have a moral question regarding, uh, the evil of the initiation of force.
Speaker 1 00:50:26 Yep.
Speaker 14 00:50:28 Yeah. How do you justify, like someone saying like, why is it bad for me to steal?
Speaker 1 00:50:35 How do you justify what?
Speaker 14 00:50:37 Like, uh, like how do you justify to yourself that stealing is immoral?
Speaker 1 00:50:45 Gee, I'm not sure how to approach this. The per, uh, for the person who's not convinced of it, I suppose, um, connecting it to, well, here's something deeper. The, the mind is the source of all human values and force negates the mind, your choice. And now it definitely works on your body, right? The, the, the force is literally constraining you, punching you, hurting you. And, uh, but, but the connection between, I want to do this, but I must take action to do it unless you convince, convince the person that the essence of humanity is this ability to we're uniquely, you know, the rational being, but also the rational being who enacts their lives in, you know, real form. Um, that that's the essence of morality. If the person thinks, no, the essence of morality is some supernatural dimension giving me mandates and commandments, they're not gonna be convinced of it. Or if they think no people's rights really come from whatever society, um, lets them do by permission. I only offer those two for people who will be more inclined to impose their will on others because, um, they're not making this connection between reason and action. David Kelly, you still there? You want to help me here? That's the best answer I can get. Briefly <laugh>, but thank you. I
Speaker 14 00:52:07 Appreciate it.
Speaker 1 00:52:08 Yeah. David? Yeah,
Speaker 12 00:52:09 I would say, um, the issue of why is it wrong to steal, um, is not our primary. We go back to, um, what is theft? Theft is taking someone's property and why do people have property? Well, they have property rights and those are essential to living on earth, um, in accordance with an underlying ethic of sustaining a life by your mind, which involves the control of certain resources over time. And we have a system of property rights, uh, that is, uh, allows that, and those rights are violated by force, including theft. So we, we, we can't ask the question why is it wrong to steal without considering the underlying philosophical background, starting with the idea that people have property rights and there's a, there's an underlying reason for that too. Um, so does one, one of the questions, one of the things about objectivism, it's it's whole philosophy of ethics and politics is integrated.
Speaker 12 00:53:19 And, um, so you can't start with politics. You have to go back to ethics at least. And in my view, uh, back even dual epistemology and the view of human nature that people exist as individuals in society. Yes, but as individuals making their own decisions, the only control they have to get anything done is to exercise their minds. But mines are individual and mines, um, pursue purposes partly by acquiring resources, um, that enable them to do it. That's property. That's why we have property rights. And if we have property rights, then theft is one violation of them involving coercion, the taking against the owner's will, what is his? So that's a very short answer. Um, we could have a whole session on that. Uh, I think we have some material on our website. Um, and I'd be happy to forward it to you, um, if you're interested. Interesting.
Speaker 1 00:54:22 Thanks, David. The, it's interesting because I went, I went at the question from the standpoint of it was almost like convincing a short-term range of the moment person why should, why they should not steal. So David's logical sequencing and, and lineage there was absolutely right. But, uh, I was thinking of it more in terms of, you know, almost like a kid, mommy, why should I not steal this? Uh, you know, it feels good. And, uh, you know, the standard answer, David, remember one, one of 'em was well, well, what if everybody did that <laugh>?
Speaker 12 00:54:52 Yeah, I remember that.
Speaker 1 00:54:53 Well,
Speaker 12 00:54:54 That's a good answer.
Speaker 1 00:54:54 There's a <laugh> not a bad answer, but yeah. Anyway. Okay. Scott, do we have any more? Yeah, we do have
Speaker 0 00:55:01 One more question from Kyle or
Speaker 1 00:55:04 Five minutes here.
Speaker 15 00:55:06 Yeah, yeah. Um, thank you very much, uh, Richard. Uh, truly Appreci. You're welcome it. Thanks.
Speaker 1 00:55:10 Thanks Kyle.
Speaker 15 00:55:11 So, so last time here I was asking, um, uh, kind of, uh, a question that relates to this one, um, about, uh, Saudi Arabia and how they, uh, sell, uh, their oil. Yeah. It's always in US dollars, right? Yeah. Right. And I'm, I'm wondering if that's always gonna stay the case, especially since the new piece deal. Yeah. Um, and, and so, so I'm curious, have you been, uh, monitoring, uh, the Atlantic Council has been talking about this for about a year and a half now, at least. Um, they, they came out with an article shortly after the war in Ukraine about how Russia and China are working, right, uh, towards de dollarization of the American dollar. Right? And so I'm looking at DeSantis, um, recent, uh, idea about cutting funding. Yeah. Um, and I'm wondering if that's actually the best, um, best route forward. I don't think that it is because, um, depending on the outcome and depending on how, um, how it's orchestrated. If, if the war in Ukraine is lost and seated, um, would that eventually, um, through what the bricks nations are doing, end up leading to some outcomes that might, uh, devalue the American dollar?
Speaker 1 00:56:33 Well, okay, thanks Kyle. This is a really good question. Also technical, but a really good question and very interesting to me. Actually, there, there's two questions that you asked, and they're somewhat related. Here's how I would answer it. The US is losing its status as the reserve currency of the world. Uh, if you look up reserve currency of the world, I know you know this Kyle, but others may not. It, it, it means you're the premier currency in the world and other central banks use your money kind of like gold. Like it's, it's so trustworthy. And the British pound was once this until the World War and then British lost that stature. Then the US gained that stature and is losing it though ever since it went off the gold standard in 1971. So the US position for the, the, the value of the reputation of the dollar has been deteriorating ever since 1971 when Nixon went off the gold standard.
Speaker 1 00:57:22 Now Saudi Arabia and others, this is a vestige of the old is eroding and fading away as well. I think. Now what is the alternative? Well, there are all alternatives like the Euro and, but I think much more likely over the, if I were to guess over the next 50 years, what will happen is that China, the won likely to be convertible into gold, believe it or not, will displace the dollar just as the dollar dis displaced. The British pound, the US is shooting itself in the foot and becoming anti-capitalist with every passing decade. China, although one step forward and two steps back, is I think in a trend toward more capitalism. They're not in a current trend like this, but they, they have been since the li liberalization of 1978. And so, um, they're a faster growing economy. They're much more open to, you know, mining and extractive industries.
Speaker 1 00:58:19 They don't have an environmental movement wrecking their economy like we have here. The Ukraine thing is only tangentially related because, um, by isolating Russia and China and India, by the way, the three of them are together on this, uh, Russia, you know, went basically on a semi gold standard the minute, uh, on the rubble. They put the rubble on a semi gold standard right after the US imposed sanction. So that bolstered as it would the ruble. And China, I think is likely moving in the same direction. So tho to the end, whether India joins that or not, I don't know. Brick includes as you know, uh, Brazil. So Brazil, Russia, India, China, that's what brick stands for. You know, Kyle, if those three countries, I don't think Brazil can now cause they're going socialists, but if India, Russia, and China joined together in a currency union, then the dollar would definitely be lost for good.
Speaker 1 00:59:10 And by the way, the inflation rate in the US would just skyrocket because one of the reasons the inflation rate is being held down in the US is that it is a reserve currency. It is wanted and demanded by other central banks. Meaning if the Fed creates a lot of dollars, at least a lot of dollars are demanded. When the reserve currency position of the United States is lost, that means the demand for holding dollars goes down. And that's when you really get a hyperinflation. And for those who don't know, a hyperinflation is something like 10% every month, not 10% a year, but 10, 15, 20% a month, you lose, uh, the purchasing power of your money. A big huge topic, Kyle, uh, but um, de dollarization as you put it, or using, losing the reserve status. It doesn't usually happen overnight. It happens over many years, but it's happened over the last 40 years in the us. Um, uh, globally, it's a big, big issue. It's a big deal. We can talk about it, I think future in future clubhouses maybe.
Speaker 0 01:00:07 Yeah. I love that. Thank you.
Speaker 1 01:00:09 You're welcome.
Speaker 0 01:00:09 This has been a great session. Thank you so much. I know, uh, you've been traveling, uh, you're obviously still keeping up on what's going on as well as, uh, the longer term picture, uh, coming up. Uh, next week, uh, Wednesday, March 22nd, the Atlas Society asks Dr. Andrew Huff. So, uh, that'll be at 3:00 PM Eastern. Looking forward to that. Uh, thank you all so much for joining us, everyone who had a question, and we look forward to seeing you on the next one. Take care, Scott.
Speaker 1 01:00:40 Thank you. Thank you everyone. David Clark, everyone, thank you so much.
