Posted On: 2006-12-06Length: 17:20
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Alright, alright, alright, we'll this is actually a take two of tonight's show. You're listening to Vigilant Investor, this is Johannes Ernharth and we have re-begun our Podcast recording due to a digital glitch on my studio side, we had to bail out about 8 minutes into our recording and now we're back on again. And doing a little recording here. So, all that said, this is Johannes Ernharth, this is Vigilant Investor live weekly and we are on every Wednesday night live 9 PM Eastern time, tune in you can also subscribe to that Podcast as well as our daily Podcast we're on everyday 4:15 usually Eastern time and you can also get that as part of the Podcast subscription we just give a quick 15 minute update on a daily basis. But as I was discussing earlier, the whole, our usual motif of the show is to get in depth a little bit on the economic side of things. And today we thought we'd do a little bit of a different show and back off with some of the heavier details that we have covered in the past couple of weeks. Last week for example I was, prior to the restart of our recording, talking about how we did a little more of an in-depth discussion of the Federal Reserve and central banking with out guest Robert Blumen who is a regular contributor to Mises.org and he was providing an Austrian critique of why the central banks of the world ought to not get into the business of investing their reserves or whatever their money printed out of thin air into the equity markets of the world stock markets. Just a expansion suggested by some people over the summer if we should get into that as an alternative to investing purely in government bonds of the world's governments and as a way to pick up returns and so forth. But, in any event, you know while that sort of stuff is intriguing it can get a little bit technical and it's important to understand that sort of stuff because you know day to day we're all voting, and we're allowing this sort of thing to happen and you know it's important but it can get a little dry. And I'll be the first to admit that economics is the dismal science, and sometimes that can be a little challenging and so forth. So today what we want to do is get a little bit, a little more run of the mill with the conversation. And the subject that we're having today for our show is, what is America, what does that mean? There used to be a real definition of what is freedom, I mean, America, freedom, liberty was all synonymous and that's you know, we think of that, that's pretty much what we're taught in school, America is freedom I mean can you really argue with that? And we like to project ourselves as Americans as people from the United States as if you know, as hand and hand but when you really start digging in to what America has become are we really freedom and liberty anymore? We now have severe restrictions on how you can do business, the barriers to entry for business are so burdened with regulation that a lot of people don't even bother to set up business in the United States any more, they choose Communist China over the U.S. and it's not just because the labor is cheap, it's because they don't have to deal with a lot of the headaches there. Now you can argue on one hand environmental issues and so forth and environmental initiatives might not be a bad thing conceptually but by the same token you know that China doesn't have to deal with that sort of stuff and they're polluting their rivers and so forth, where as the U.S. we're above that. But on the flip side, is the government necessarily the proper way of doing that, our entire inhibitions or prohibitions on freedom and property rights the way to resolve that and so forth. So I posit today that America is not the free country it used to be we're a shadow of our former selves, we're not clearly the country of Jefferson and Adams and Washington and the founding fathers. But by the same token I think if you understand history, it's interesting to know really the struggle for liberty, freedom, individualism in the United States began immediately even before the constitution was drawn up. You already had players lining up thinking a monarchy was maybe a better way to go, you already had banking interests lining up trying to get central banking forced onto people and all sorts of other things going on. And even Washington himself, General Washington, President Washington was responsible for putting down the Whiskey Rebellion or a bunch of Pennsylvanians out here in the Pittsburgh region where I happen to be broadcasting from decided that they did not like the Whiskey tax, and you know here's Mr. Freedom that we all think of him as Washington being this guy of liberty and do as you wish, live and let live and low and behold a lot of Americans, new citizens of this new country, the new colonies were killed in this Whiskey Rebellion over a tariff that was somewhat manipulative if you really look at the reading between the lines of what was going on there and the Western Pennsylvanians felt as if they were being singled out by attacks. So, all that said, we're going to open up some discussion here, just get a conversation rolling here on the subject and see what we can get going. I see Wally you're on there now, whereas before I couldn't hear you, we established before we started recording again I can hear you now. How are you doing this evening?
Wally: Oh just fine Johannes, again always nice to be able to partake in the discussion that I have done here with you on Talk Shoe.
And good to have you on board again as always. Would you agree Wally that America is no longer the land of the free that it used to be, perhaps this is the freest of lands, we could argue that, at least on a lot of fronts but, is it really still the land of the free?
Wally: Good question. Especially in some length I would say, no it's not what it was. A lot of people don't realize is Congress was at one time I think acting or something about aid to a particular area, Congress was very leery way before the civil war of even doing things like that, it's as if something that they just wouldn't have thought doing because that was a states rights issue.
Absolutely, and you think about you know, you look at the constitution and originally, my understanding of what happened post constitution during the constitutional convention, it seemed to be bearing down largely on the state's rights verses the federal rights. Of course you have the federal [...] papers and so forth where that was fought out over a state verses federal and what made more sense, but at the same time you had a largely forgotten central banking war that went on and it's not really taught to people in school anymore, but Jackson, one of our early presidents staked his entire presidency on preventing a central bank from basically being locked into the country and it wasn't until you know nearly 90 years after Jackson that the Federal Reserve finally came into being and now we've been with the Federal Reserve for 90 years. But, a lot of things we take for granted now, I mean constitutionally were just unthinkable. You know even a hundred years ago and we look at things like the you know the commerce clause, how much of government intervention into our daily lives and regulation of our property and day to day activities goes through that commerce clause, it seems really extreme and you know in a lot of ways people are perfectly happy. It seems like, you know really we don't care. It's interesting, we don't care that much about freedom.
Wally: At times it sure seems that way and it's surprising that how much of it has changed, even over the period of times that I've noticed it, it sure seems that way, I can't really...sometimes I wonder why, but I know that it's definitely there. Do I have the same freedoms that my great, great, great grandfather who fought the civil war had? I don't think so.
The civil war's an interesting you know, subject as well, I think that a lot of people look at that, at least were taught in school largely that the civil war was one fought over the issue of slavery. And you know you dig into the civil war, and you start realizing that the civil war was not so much purely about slavery. Slavery was you know, Lincoln started using slavery as a reason for the war after the war had really begun and paid a lot of lip service to it prior. But you start looking at a lot of the reasons why the south wanted to succeed, they are purely economic. Some of the that had to do with the slavery pressure, but a lot of it had to do with tariffs. And I tend to look at the civil war as one of those pivotal points in the United States direction where prior to the civil was it was these United States, after the civil war it was the United States where literally the decision, the right, the freedom for a state to join or to succeed from the union was revoked by Lincoln, but that's sounds benign enough, I mean people can argue well you know it's better for the union to be together, this or that, whereas I would air on the side of freedom of the state to do what they wanted to do. What's missed between the lines of the history and simply is not taught is that you know the northern elite, the northern industrialists were lobbying heavily for tariffs to be placed on goods that were being manufactured abroad, they were trying to affect the ability of southerners who were largely producing raw materials to trade with Britain and then refine the goods in Britain and then return and export them back to the United States. And they were lobbying to have a huge tariff place on anything that was coming back from Britain and thus forcing the southerners to sell to the northerners, their raw materials at a price that wasn't as attractive. And you know really the civil started off as a war over lobbyists influencing Congress and Lincoln picking a side. And you know boy, you look at history through that lens, you look at the civil war through that lens it's hardly as noble a cause and I think Lincoln is one of these very misunderstood characters because you know that's a story that people simply aren't taught. I mean, have you heard that story before?
Wally: No, I haven't but in some ways it does kind of make some sense too.
I've recommended that people take a look at a book by, I think his name is Thomas DeLorenzo, it's called The Real Lincoln. And some months ago I did a show on the, I think it was the top books to take a look at to kind of get a different perspective. One of the things that we always talk about at Vigilant Investor, trying to help people connect the dots, try to expand their views of everything they look at and get a better lay of the land. And I always say that you know even, I mean even tonight's subject is the reason I want to engage this discussion with people and listeners and Podcast subscribers is that these sorts of things that they do in the end affect your finances and you know the name is Vigilant Investor we're not here to talk about you know Krameresque types of things, what's the hot stock, people don't call in to ask me should I be investing in you know Microsoft right now or Google and all that stuff. In my way that's ground that's covered by enough people. But what about the broader things? What about the global macro side of things? What about the historical context, and I think that that is missing largely in understanding and it's cliché-ish as it is, those who don't understand history are doomed to repeat it, is a perfectly valid premise and I think that that needs to be you know perhaps ingrained in you know not just in terms of understanding it but also what does that mean relative to today? But in any event you can pop up that Podcast at your leisure to listen to the books that I would recommend people to take a look at. But, yeah Thomas DeLorenzo's The Real Lincoln covers a lot of things and a lot of myths about Lincoln that you know and it well documented, it's all there and it's kind of, it shakes you up a little bit because you know, you're raised as a kid that Lincoln is a hero, everybody knows the various addresses and you know the fourscore and thinks of him as this you know Honest Abe, but you know boy, Abe was a politician like anybody else and he said a lot of things out of one side of the mouth and did a lot things out of the other side of his mouth. And boy, I think one of his things was that I mean he was for you know on the issue of slavery for example, he was for freeing the slaves in the south but not the northern territories that were aligned with the union. Think about that.
Wally: Oh yeah, you look at it and it's really surprising how much, you look at Lincoln-Douglas Debates by today's standards, I think that probably would be quite shocking to a lot of people.
Yeah, I've talked to a lot of people who then dismiss it as well. He was a man of his day and it's to be expected but you know it's hardly the hard core abolitionist that everybody's raised to believe in, in the U.S. and especially when you totally dissect from the whole you know the north east lobby of industrialists and you know money interests and so forth. And they've always been trying to work their way into the system, and after the civil war, you really get an established you know pipeline in for the who monopolist movement to have a serious hand in the U.S. government from that point going forward. Not to say that it was totally benign prior to that, but you know suddenly Congress is a lot more influenced by rules and regulations that allow, well Congress is now starts to get more involved in actually regulating things that formally were considered to be out of its purview. And you look at the anti trust movement for example, which I think is misunderstood to be purely a series of laws to protect the consumer, but you look at who was behind a lot of the anti trust movement, it was a lot of the very people who were, had the most interest in keeping the monopoly, and that's one of the oldest tricks in the book is if you're trying to prevent legislation from affecting you badly, it's best to jump to the head of the parade and lead the legislation as if it's for the benefit of everybody, but control it and steer it to be in your direction. And that's something that you saw a lot it was very influential even leading up to the creation of the Federal Reserve. If you haven't had a chance to listen to it folks, definitely take a look at our interview with G. Edward Griffin a few weeks back. He's the author of The Creature From Jekyll Island, he explains how the Federal Reserve in The Creature From Jekyll Island, a phenomenal book, how a lot of the banking interests back then, and these people have been trying this for 60, you know 70, 100 years since you know before even the civil or the revolutionary wars fought people were trying to do central banking of one form or another in the United States, but, or in the colonies be as it was. But, they were in getting the Federal Reserve set up doing all sorts of you know just distractions of you know trying to you know having some people who are part of the group on one side arguing one thing and some people on the other side arguing against them. But they were both the same interest and just being very manipulative to get something through Congress so that people thought it was against the trust. They thought is was against the money interest the big bankers, because nobody would have allowed that to happen if they'd known that was exactly what's going on, but they set the stage up so that the parties appeared to be protecting the public when in reality the legislation was functionally written by you know your Rockefellers, your Warbergs, your J.P. Morgans of the banking system in the United States and you know literally enshrined a banking cartel as the central bank of the United States. But that same thing was going on with anti trust, with the railroads, the railroads are having a hard time keeping their trusts, their monopolies together, they kept finding that new entrants were coming on board and existing members of a particular monopoly were on for a little while and they jumped ship, and they couldn't keep them in so they started creating a lot of monopoly legislation, had it passed through as anti monopoly legislation, but really what it did was provided serious barriers to entry. And wind that up to today, you know 100 years later, 100 plus years later, think about how much legislation even in my business investment oriented business the NASD, all these regulations started being [...] big, massive, massive, massive barriers for anybody to get into business, why bother? And you know it's huge hurdles, it protects the existing business interests that have critical mass, and the more legislation that's out there, the harder it is, the smaller players get weeded away and the big players stick around. Again what is America, is that American?
Wally: Good question, it sure doesn't seem that way.
Well, so much to look at with that and we wonder a lot you know people tend to wonder why we lose business abroad and so forth. And on one hand, labor catches the blame a lot, big labor and the unions and so for the but it's only a small part of why people just decide not to do business in U.S. anymore, why we're that inefficient. And you look at the tax code, you know it's thicker than, you know 10 bibles, and we spend I think something in order of 70 billion dollars a year for tax code compliance in the United States, that's probably underestimated I'm pulling that number out of memory but, what good does that serve when you know so much of that is just jumping through hurdles and essentially just making you know CPA's and especially your attorneys, your tax attorneys very rich, it just seems crazy. But, I don't know what it is that people want to have in the U.S. They want to have their cake, they want to eat it too, they want a lot of free lunch programs and they want lots of regulations and then they think that the system can support it all. And you know it's not classic Americanism and I think that we look back to what America was, freedom, liberty, individualism, free markets and we're a long way from that, and it hasn't caused a lot of problems yet, but it definitely you know people wonder why the standard of living is declining in the U.S., why prices have gone up why the purchasing power of the dollar has lost over 95 percent since the Federal Reserve was created. Well, here we are.
Wally: Oh exactly, I think the Federal Reserve created the, gold was what 19 dollars an ounce if I remember right?
Federal Reserve, yeah, I mean it was, the definition of the dollar in the United States was I think 20 dollars to an ounce. And the Federal Reserve came in and that lasted up until 1935, you have the Federal Reserve pretty soon after it's creation, it came into being, I think the law was passed in 1912 or 1913, it's officially rolled out in 1914, and then we're into the WWI and at the conclusion of WWI the British are essentially going bankrupt and they've abused the pound so badly by deficit spending they're up to their necks in debt. You know, great idea to have a huge war and you know they thought it was going to be over fast, now they have to pay the price, well a lot of the banking interests in the United States were tied very closely to the Rothschild banking interest in Britain and so low and behold, the U.S. what does it do? The banking cartel that is the Federal Reserve starts printing lots and lots of dollars in order to prevent the flow of gold from shifting out of the vaults of the central bank of Britain. And, all that money gets circulating around in the U.S. but that ends up causing a, leads to the depression in the United States. And people don't [...] size it out that way, but that's -
Wally: Exactly, it's just because we printed up so much money than in the Vimar Republic, they made it to even a worse degree and you had in the Vimar Republic, people were bringing wheelbarrows just to buy a loaf of bread.
Right, right. And a lot of that was because of the post WWI settlement it was it, when the heck did they have the settlement..?
Versailles, Versailles treaty, you know the agreement there was that the reparations were just so cumbersome and Germany concluded that the best way to handle that was just to devalue the currency and pay a lot of it off with a cheapening market at that point. But, a lot of what they were trying to do a the same time, central bankers didn't understand as well as they probably ought to have is the total collapse of the economy that they were creating. And you know that ends up setting the stage for you know Hitler to get into power in Germany and the times were pretty miserable when literally in the morning prices would change by noon, and then the noon prices would change by you know 5 PM. It was that bad.
Wally: Well, I always to a certain respect, I always blame France for being too greedy at the end of WWI, for part of the problems of WWII.
Yeah, I think that you also have to look at Wilson's agenda. Getting us into WWI and getting the United States, when I say us, into WWI, what was the purpose of that? And the United States really you had no business in WWI other than the banking interests, if you take a look at a lot of the manipulation that went on in the background it was banking related. I mean follow the money if you want to see a really interesting way of looking at history. I think history is best viewed through an economic lens because we talk about this family and this marriage and this kind of stuff. But you know, bottom line is, it comes down to how much gold is left in the vault at the end of the day and what are we going to do to prevent the [...] from coming out. But the interesting thing there is that the ymar is the, or excuse me the you know WWI, and Wilson wanted us to, wanted the U.S. to get into WWI and he'd been, his whole presidency he owed largely to a lot of the banking interests in New York, they supported him through Princeton when he was there and helped the presidency and you know far be it for him not to look out for them when the time came. Hey Stephan, I see that you're online there.
Stephan: Yes I am Johannes, how are you doing?
Doing very well. Having a little discussion tonight, a little bit broader than our usual conversation, figured we'd go with a little more of an open-ended conversation about what is America? What does America mean and is it still really the land of the free or is it just the freest of lands and so forth. And you know keeping it in the context of you know generally the financial side of things, in the end it comes out of our pockets and our hide and it's changing who we are in 2006. But, Wally is on tonight with us, and we have a handful of other listeners out there streaming and tuning in.
Wally: Nice to see you again Stephan, I was wondering where you were at..
Stephan: Wally I was actually working, but anyway I just got back from an appointment, and I haven't had a chance to listen to where you guys have been going on this but you know America when you look at that, the whole creation, the founding fathers and on some sides it seems like it's extremely idyllic the way it was created and there may have been some competitive pressures on one hand that you may not have today or let's say corruptive pressures. But when you really think about it, you know early in America, people were dealing with a lot of the same things that we're dealing with right now, which are printing of money, which cause rampant inflation and subsequent crashes to the point that the revered Robert Morris who we have at a local university named after in effect he ended up in debtors prison because he was involved with one of the first, I believe it was the Bank of Pennsylvania, I cannot remember...
I think it was Bank of Pennsylvania ...
Stephan: The Bank of Pennsylvania
That or Philadelphia...
Stephan: and in effect they ran it into the ground. And it was sort of a precursor of the national banks, which was allowing these banks to create and print a lot of money to cause rampant inflation and subcontracted there after. And that's why you have people way back when and we're never taught in history like your Thomas Jeffersons or even later Andrew Jackson who in effect Jefferson railed against central banks and Jackson killed the Bank of the United States, and the President [?] Nicholas Bittle who came from an extremely wealthy family and I think Bittle is still a name that you hear out there dating back to, think the Mayflower Madam recently was a Bittle. But in a nutshell, Bittle vowed to create a depression so as to have Jackson not reelected. And Jackson, Andrew Jackson to his credit actually tried to destroy the central bank, he did not wait, he did not wait until he was reelected to reveal his hand, but Bittle did create a [inflation] by the Bank of the United States extending massive amounts of credit and then subsequently quickly withdrawing that credit so he caused an artificial expansion and then a very real subsequent depression. But Jackson was, there was an assassination attempt on his life and in effect the bank was destroyed and dismantled and Bittle thought [...] So, Robert Morris, debtors prison, Bittle died in prison, so these guys, there's a pattern out there that central banks are not, not your friend okay? And the latest version of the Federal Reserve was sort of created very, very sneakily because the knew that overtly it would never fly even though there were certain [...] and they were on the ball. But you know in a nutshell, I guess you know in a nutshell we've talked about, boy the history of the country is very poorly taught. Human beings don't change, human nature does not change, you're going to have those that play by the book, but you're also going to have those whether it's in Rome or today that gravitate towards the means of leveraging the system to benefit them.
And I think it's important to you know, when you talk about what Robert Morris was up to and what these people were up to, what they want to do is eventually be able to legally invent money out of thin air, just print it and then loan it into existence and they like to set themselves up by current banking system. And this is you know as I mentioned earlier tonight Stephan, you know we interviewed G. Edward Griffin a few weeks back and his book The Creature From Jekyll Island, but, we talked about some of this but having the ability to loan money that doesn't exist into existence, and you know we have this reserve system, we know that they're supposed to have fractional reserve, so you know for every 10 thousand dollars that we have on we can loan 100 thousand out, for every 100 thousand we can loan out a million as a bank. And that money just snap your fingers there it is. It's in existence and you get to loan it and charge people interest. That's a racket. And you know, you're printing out of thin air and not only that, the purchasing power of those dollars have when you loan them into existence come at the expense of existing dollar holders. And that is simply a fraud, and yet that is our banking system to a tee.
[...] explanations as to why that's good for the economy and you know how can fraud be good for the economy it's just basically rooted in a scam, you know and hey anybody who can go down to the basement and print money it's illegal to do that, you do that fraudulent, you know you do that without the official approval you know it's a monopoly privilege. You or I can't do that, we try to do that without doing, jumping through every hoop and paying the fees to the appropriate people in charge, and even then you know you start your own bank, you have to have all the capitalization to do that to get in the business of being one of the club. But even then if you're a small bank, you're a nobody. The big banks are always the ones that are getting bailed out. When some mega company, the Chryslers this or that, they start going under water, they don't care about the local community, banks, in fact I mean back in the you know leading up to the depression, right after the existence, the creation of the Federal Reserve, one of the first things the Federal Reserve ended up doing was creating a nice, a farm boom and then they did the contraction of credit again, similar to what you were talking about that Bittle had done to try to get Jackson, it worked like a tee and I think that you know that was setting a bunch of people who don't know any better up. And the amazing thing is a lot of people in the banking system don't even understand how this functionally can work to their own detriment and they're just trying to be legitimate business people in banking and so forth. But the bottom line is you create a little mini depression in the farming environment and you knock out a bunch of little banks and you consolidate, that's the way it's done. That's classic monopolies, it's the same thing that the railroad monopolies were trying to do, the banking was no different back then. And yet here they have the privilege and everybody thinks the Federal Reserve is managing the economy and taking care of everybody isn't that great, you know?
Stephan: [...] extending of credit, okay? Extending of credit in certain scenarios to confident people whether individuals or business people, so that's [...] that can really allow growth and the number of [...] repayment of the debt etc.. But you know Jefferson had a great quote and again you know we're talking about economics on one hand and we're talking about you know you have 20th [1st] Century people here wanting to listen to our show and understand you know hey what does this mean to my life and we don't wan to sound like a political let's say or even no matter what your beliefs are, a political think tank etc. But the bottom line is Jefferson, he should not be allowed to [...] he should not be allowed to lend money but he who has money to lend, okay? And in our fractional reserve banking system most people don't understand, without money, without debt there is no money and we've talked about at nauseam and we don't want to drag it out, but if you have a million bucks and you put it in your bank, tomorrow your bank can lend out 9 million, okay as long as [...] have 10 percent of outstanding loans on reserve. And that 9 million is lent out to Joe Smith, he puts it into his bank and the next day they can lend out 81 million, okay etc, etc, etc... What most people don't understand if everybody in this country tries to claim their deposits right now there would be no money. Every bank would go out of business because they keep 10 cents on the dollar on reserves. And that is extremely poorly taught, it's extremely, it's not known, and you know what guys? I don't know that many people care. I mean [...] I've told people, I've talked to people, I've talked to clients about it Johannes and it's like [...] I don't even want to know this stuff [...] what do I do?
Wally: It's sad but true, and one thing is look what happened to the coinage pretty 1964, 64 and earlier, do you see that in circulation? You may see the nickel, you many see the penny, but you sure don't see anything, you sure don't see any dimes, quarters, half dollars and silver dollars in general circulation. Stephan: You don't see silver dollars, and only our country would circulate, still have something in circulation, that silver dollar where you could have the privilege of using it to buy something for a quote "a dollar," when today that you melt that silver down and you can get 13 bucks for it.
Wally: Exactly, every so often as a cashier I run across the dime because they think most people don't look at dimes, people tend to look at quarters and half dollars with the idea of making it from 65 through 70 were 40 percent silver, those things never got, people who any knowledge and knew grabbed them as fast as they could get their hands on them.
Stephan: And what's going to happen, I think the really interesting thing to talk about here guys is we understand what's going on, you know and we can put our commandments on the wall or whatever, the bottom line is there has not been a currency in the history of the world that once it was depegged from gold or silver, did not, just totally degrade and debase itself [...] nothing more worth than the paper that it's printed on. And that's where our dollar is headed. Now, you make a statement, and you can show people examples, but you know what's really intriguing out there, human nature is amazing, most people you know we've got a [...] business where we do investment advisory and it's totally separate, we're not allowed to talk about it on this show, but [...] only people that you're sitting in a one on one business relationship, sometimes you've got to really focus them on it, [...] the average person doesn't even care. And I think what's really interesting to talk about is the fact, what is that about human nature from it's [...] stand for [...] give a damn about the fact that they're getting their [...] their savings and everything they own deflated [inflation]...
It's pretty crazy because what you're dealing with is really an indifference, it's hasn't mattered for so long people have forgotten that it even does matter, you were talking earlier about the currency having value and the silver, anything that's you know has any silver content has largely been removed from circulation. We're reaching the point now where believe it or not the copper content in a lot of, in the penny for example is we were getting very close to the point where it was actually going to be worth more than a penny in terms of the circulation value. That's interesting to think of and that's essentially, you know, here we have the devaluation of the currency, we keep printing it and keep printing it and keep printing it eventually the, you know it's gets worth nothing. I mean the dollar's devalued 95 percent loss since the Fed came into existence. One other point that I want to clarify too Stephan is that you were alluding to, you know, credit, if it's to a good business person and so forth, that's all great. I would agree that you know credit ought to be responsibly lended out, and one of the problems with any kind of inflationary environment is that it generally gets money out of the better stewards' hands, the people who know how to create wealth, and it shifts it over to people who really ready to move that money around and who are maybe less, less competent generally and just you know the further each iteration that we go, each cycle that we go through with inflation you tend to get less and less smart business being done with that money and you get more pure consumption, more reckless spending and all that kind of stuff, that's what we saw with the dot.com, the sock puppets and PE ratios. But it's important, an important point to make here is that with the anything that is being lent, really needs to be backed by something. It should not be getting printed out of thin air, period. And a currency that is stable is not being minted out of thin air is something that is legitimate and it holds wealth, and the only way you can attain that currency is by actually creating something. You have to actually you know bake 15 loaves of bread, you have to make some shoes, you got to go out there and you know farm some land or do something in order to actually produce wealth so that you can exchange it for existing currency. And what we do when we literally print money out of thin air is that we take all that hard work and render it meaningless because all that work is being confiscated, that hard work is confiscated by printing money out of thin air and it's taken from people who have done that work and injected into other people's hands and usually it's the politically connected people, the people right at the front end of the spigot, they're the ones that get it first and it's also, you know into things like housing bubbles. A lot of that money that got into the housing bubble that drove prices up, we've got a great chart on vigilantinvestor.com today in one of our posts, you look at housing chart, I mean, it's gone parabolic, like almost straight up. How does that happen? How do people, how are people, how to borrow so much money where you create a bubble like that? How can a 24 year old like Casey Serin who we interviewed a few weeks back get 2.4 million dollars on eight properties in four states, showing no income and no proof of residency? Only through an inflationary environment.
Stephan: I think, I think that it's not even worth [...] against, because it's inevitable as cycles of nature like Earth, life and death are or forest fires, rejuvenation, you know, you look at times like someone like Jefferson and I just finished reading Chernow's biography on Hamilton and on one hand, the guy is an excellent writer, okay, and excellent researcher but you know he is a you know a Hamiltonian, Hamiltonial style, okay? Now, [...] of Hamilton, I don't think Alexander Hamilton was every really for ridiculous amounts of credit etc... then again, he and Thomas Jefferson were very much against each other and hey,[...] Jefferson and the profit, when Jefferson says paper is poverty it [...] goes to money and not money itself, he's right. Experience has proved to us that the dollar has [...] for every dollar of paper [...]and that's [...] okay? It is a disputed question whether the circulation of paper, rather than an species is a good or an evil. I believe it to be one of those case where mercantile clamor will bear down on reason until it's corrected by [...] He's right, what's going to happen Johannes is that, this is going to happen. This is [...] this is 1819 Jefferson to John Adams after they reconciled, "the evils of this deluge of paper money are not to be removed until our citizens are generally radically instructed in their cause and [...]silence of their authorities, the interest of clamors and [...] of speculating shaving coins and banking is [...]So then, we must consent to return [...] to recur to barter in the exchange of our property for want of a stable common measure of value that's now in use being less fixed than the [...] of a [...] as [...] our citizens, their property and their labor [...] of bankers and [...]" And basically, hey, what's going to happen to this, it's gonna, it's gonna, you know, knowing human nature, you look at the Romans, after Marcus Aurelius, the Romans started shaving their coins, they started [...] their coins where they had 40 percent of any precious metal in them.
Yeah, but you know what, the Roman did that, took them how many hundreds of years to debase their currency? And here we've done it in less than 90, that's pretty crazy.
Stephan: We have computers [...]
Yeah, you can just add a couple of digits and that's the...one danger of people not you know, not using paper currency or even you know, obviously not having anything backed by a metal where it forces fiscal restraint, but moreover now that every transaction is done, I mean people use ATM cards, the whole concept of money is entirely lost. And you add a couple of zero's who is going to even notice, they can't tell the weight, it's not like you can feel the weight of the coin getting lower or see the shaving marks all that kind of stuff. Moving back to the premise of tonight's show, we're pushing up on the ten o'clock hour so I don't want to go too long. But you know the whole, the topic tonight again was, what has the concept of American become? Is it you know, the land of the free, is it still all those things and you know getting into the history, we've hit on that, some of the economic side of it, but maybe we need to just wrap up on a political side of things because I'm reading today that you know Katrina aid is now being investigated, this is for hurricane Katrina and now the taxpayers, it appears to be having funded one billion dollars of basically fraudulent spending. One billion dollars. Only is that possible in an environment where you have a central bank that is simply minting money out of thin air. In an environment, not just that, but in an environment where a government can literally abscond with tax dollars, force everybody to pay into this system and then turn around and inject one billion dollars recklessly like that, on top of how many other billion dollars they spent down there to support that environment and a billion dollars of it is fraud. It's just insane, it boggles the mind. And here we are all made out to be guilty people for saying, you know look I don't think that's a good idea, I'd rather just have people do it contributing through private aid and so forth and you know people say, that's wrong, that's wrong, that's wrong but is this right, a billion dollars of waste? I mean, how many times can a country just burn a billion dollars in the economy and not ultimately pay for that? And pay for that in a negative way.
Stephan: I think that what need to do is jump to the left or the right, this track we're on, there's nothing you can do about it. Okay? There's nothing you, there's nothing I, Wally, there's nothing anybody can do about this. This is the inevitable course of human nature, okay? And once you have the scenario where government is granted the authority to spend money that is not theirs, I mean hey, if I buy you a hundred dollar cheeseburger, you eat it. And once you are able to spend other people's money, you don't watch it like your own money and that's the nature of all governments, that's what's going to happen. And I think that really, is the question turns on where do you go from here? Okay, because we can't change this, there's no way of changing this, I mean you can [...] you can politicize etc.. but certain things are going to happen and until it's fixed everybody [...] dramatically there will be no change. So right now we're on course to the mega trend as you and I have talked about, is the mega trend is [...] massive inflation, alright? Our government is so far in debt, they're going to print money, and I think they're trying to bet on is that the dollar relative to it's value today [...] is absolute [...] and how are you going to hedge that trend? Because it won't be rectified until [...] it's a [...] situation. And the smart people out there, the smart money will make sure that they [...] against that.
I'd agree and I think that you know, if anything you know I wanted this particular Vigilant Investor to touch on was maybe a less of a technical side of things, maybe a little less of the economics and you're getting onto the political a little bit because I think often times the political discussions out there tend not to, and even historical discussions, although those are far and few between, especially in a talk radio or a streamcast, Podcast type of an environment. Rarely are they ever tied into your personal pocketbook. And I think that's again the whole reason why we created vigilantinvestor.com, it's why we're doing the Vigilant Investor Podcasts and streamcasts and so forth is to help people connect those dots better, because it is not benign, when you go to the voting both and I understand what you're saying there Stephan, that you don't want to have necessarily a you know we could belabor the point for days and days and days and get in the political side of, but I also don't want to disconnect the political from the reality and this is what's happening. And people are very prepared, I mean talk radio is you know, boy they're always breaking records on talk radio, and everybody always wants to listen to talk radio and it gave to politics left and right, this and that, and conservative, liberal and the whole election that just happened and is all you know, politics, politics, politics, but very few people are drawing that in. And I want to make sure that if there are listeners out there that are part of that political conversation that maybe we can get them pulled in to engage on a political front why this ultimately comes in and is literally killing your pocketbook. And not only that, it's setting the U.S. up for severe problems and potentially a depression that makes, you know clearly far exceeds anything that we've experienced during the 70's. But, probably you know we can see a situation, conceivably the longer that this is managed to be put off by constant expansion of credit and expansion of money supply by the Federal Reserve and policy makers and so forth, to the point where, you know we can literally see the U.S. you know having some just ugly problems relative to you know depressionary environment in a [...] of our currency system and all that kind of stuff. And I don't want to see that, I think that we're well down that track, and I think that it is somewhat inevitable at this point but, you know when it hits the fan, it would be nice that people understand where the finger of blame belongs to because typically what you're going to see in my expectations what it does is break apart. Now whether that be this year, whether that be 2, 3, 5 10 years from now, I'll guarantee you that there's going to be a lot of people up top in the system that are not going to point the finger at the Fed they're not going to point the finger at Congress, they're going to be looking for scapegoats, and I want to make sure that the political system is as responsible for it as is the fed system and so forth, but in any event, you know we could talk about this stuff for days, week, years an so forth and with that, hey Wally I just wanted to give you a closing comment here, we're wrapping on up here, any final comments, Wally?
Wally: Well, I'll tell you, I'm thinking of doing some changing of my investments just from listening to you guys, and as we discussed earlier on this afternoon after your 15 minute talk is that's like another way to go. [...] But I think you know what that is, get away from cash investments and go into something a little bit more tangible.
Yeah, I think that you know, we'll we don't get into recommendations and so forth, we will say that from an economic standpoint that the dollar is in trouble. And we can watch the dollar do all sorts of gyrations and we can say prices are going up but really I think that's misphrasing the problem. The reality is the dollar is losing purchasing power. Price aren't going up on gold, the dollar is just fading relative to it. The dollar is fading relative to oil, the dollar is fading relative to copper, the dollar is fading relative to coal, etc, etc, etc... And the Dow Jones Industrial valued in dollars, sure it's hitting a new high this year, but you know you adjust it for inflation, you're still well below water from 2000's highs. You adjust it for gold and silver and oil and other hard assets now that the inflationary side of things have begun kicking in, it's you know you're probably getting half the purchasing power you had just 6 years ago. That's a substantial, substantial, substantial problem. And we're not seeing it phrased that way, people are not talking that way, but it's there and people had best watch out because you know the dollar just slipped 3 percent against the euro and that kind of stuff happening and you know you adjust the Dow's performance in other currencies even you're looking at problems, and these are currencies that are being printed as rapidly as the dollar. That's why people compare the dollar verses the yen, verses this or that, that's all nice, and we're going to see some fluctuations there but the real test is going to be the dollar verses hard assets, things that can't just be, you know I just can't snap my fingers and poof there we have it, you know just create it as that's something that is tangible, it's nothing, that's garbage, it's a lie is what it is. Alright anyway moving on probably out to be wrapping up tonight's show and allowing people to get away without having to download five billion minutes of Podcast and so forth. And we do have, I remind all listeners we're on every Wednesday night 9PM, you can tune in, check out what we have to say. And we're going to try to keep the Wednesday night show a lot more conversational with, tune on in you just dial on in, we have a phone number that you can call in from talkshoe.com and that's published every week on our web site vigilantinvestor.com. And come to download the chat interface that Talk Shoe provides, it's great, people are oftentimes and they're talking even if you don't hear them speaking they're typing away and conversing on that level. And of course there is, as Wally just alluded to a few minutes ago, we have our 4:15 PM Eastern time, daily 15 minute update and that's on most days every now and then our schedules preclude us from getting on in there so if you happen to tune in one night, excuse me one afternoon and 4:00, 4:15 we're not there, we do apologize that sometimes we do get pulled away because we are not just broadcasters by career, but we are advisors and consultants, etc, etc, etc... but on that not I want to thank Wally and Stephan, and this is Johannes Ernharth, you're listening to Vigilant Investor and make sure to subscribe to our Podcast, you can do that via iTunes and any other Podcast interface that you might be using and go to talkshoe.com and look up Vigilant Investor or go to vigilantinvestor.com and click on the links to our Podcast and you'll find ways to do that, and subscribe, you can just upload it on your mp3 player, your iPod, whatever you want to do. So with that, take care, we'll talk to you tomorrow, 4:15 and for our weekly listeners, next Wednesday night, Wednesday 9PM we'll see ya.