Fast Approaching: A "Crack-up Boom" Of the Fed's Making
"We can't do it, unless we raise taxes." These are words that one hardly ever hears from Washington. How can this be? How can they run a military empire, a humongous welfare state, bailout everyone, and make promises that can never be kept? Well, it's the unconstitutional Federal Reserve that created this fantasy, and all fantasies ultimately crash on the shores of reality. The great economist Ludwig von Mises spoke of the "crack-up boom." You should know what it is, and how to protect yourself before it arrives.
And we're going to talk about one of our favorite subjects, even though it's one of the most dangerous things going on in the world today.
Well, it was dangerous last night listening to the two candidates for president.
So we should remain fearful of that.
But we're going to talk about the Federal Reserve and what has been done and what the final conclusion might be of the policies that we've been following.
And that should scare people.
Not to the point where you go and hide in a corner or hide in the basement, but to the point where we ought to be at least stimulated to try to do something about it.
And we want to talk about the crackup boom.
That phrase has been around for a long time.
Mises coined this, and my guess is since he wrote in the early part of the last century, he probably coined it 100 years ago.
And it's been mentioned off and on.
I know it was talked about a little bit in the 70s when we had inflation rates up to 15%.
And they were wondering whether it would be the crackup.
That is the final conclusion, the final demolition of the monetary system as we know it.
And in current history, that wouldn't mean the dollar system.
Even any time in the last hundred years or so, to have the crackup boom for the whole world would have to involve the dollar.
But we know individually we have seen the crackup boom, like Venezuela and Zimbabwe and several other countries, Germany.
But everybody knows there's something fishy going on right now with our monetary system because the Republicans and the Democrats are getting along pretty well when it comes to spending money.
They disagree a little bit on how fast and how much and where it's going to go.
But the interest in restraining spending is not even entertained.
And obviously, if anybody watched the debates last night, I don't think there was any interest in that subject.
You didn't have the interviewer, the host, asking question, what are you going to do about the deficit?
Do you think the deficit matters?
How about debt?
What is happening?
No, that's old-fashioned now because the world and our people, the Congress, our universities, everybody is conditioned to actually believing that we can contain it.
And they have reason to take that position because they've been doing fairly well, you know, getting away with it.
But there's more and more people joining us, Chris, in being concerned about it because common sense tells us this can't last and something like a crack-up boom is destined to happen.
We want to talk about that and a little bit about the characteristics of that.
And I know you have studied this subject, so let me hear from you.
That's right, Dr. Paul.
It was Ludwig von Mises who coined the term crackup boom.
And he pointed out that inflation, counterfeiting of money, it contains the seeds of its own demise.
Meaning, once you go down that road, the end of the road is already baked in if you don't stop.
And he called it a crack-up boom.
And I'd like to quote him.
He wrote, finally the masses wake up.
They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly.
And he says, a breakdown occurs when they wake up.
The crackup boom appears.
And everybody is anxious to swap his money against real goods, no matter whether he needs them or not, no matter how much money he has to pay for them.
So this is the road that we're on, Dr. Paul, and it doesn't end well.
Yeah, for the theory to work that there won't be a crack-up boom says that wealth comes from just printing money.
And as long as you can print money out of thin air and not work for it and not have real value, that it'll continue.
But most people make common sense.
You know, when I talk to young people, I said, it's sort of like monopoly money.
You can't take monopoly money to the store.
And they sort of understand that, but that's what's happened.
The world is working with monopoly money, and there's a concerted effort to print it and provide.
And it is concerted.
It is a conspiracy to prop up the dollar because everybody's using the dollar.
So they have to go along with it.
And that has been a consequence of the dollar being the reserve currency as an outgrowth of us becoming the issuer of the reserve currency, even beginning with World War I, certainly after World War II with the Bratton Woods Agreement.
But, you know, over the years watching this, something that has impressed me is that it lasts a little bit longer than logic should tell us.
But that just means the bubble is getting bigger.
That doesn't mean that Mises' theories are flawed because they're not flawed and he will be right.
And this means that if you print too much money at Benjamin Hens, then confidence is lost and you have to start paying the bills because you can't pretend that the Federal Reserve creates wealth.
They destroy wealth by transferring wealth from one group to another group and of course aggravating people.
The maldistribution of wealth is a characteristic and it's a taxing authority because you lose the value of your money.
It becomes a becomes a political problem and all these things are distorted, but they have to be resolved because it's out of balance.
And the unit of account is one of the most important things to know what the unit of account is, how you can define it.
That's why the founders define the dollar as a weight of silver.
And that unit of account is key.
And then when you lose it, you know, the economy doesn't function properly.
Matter of fact, the money goes into debt.
Price inflation goes sometimes into stocks and bonds, but not commodity prices and not consumer products.
So all that distortion does is cause that bubble to continue to build, but it sends out these warning signals that something is going to happen.
And I think that's where we are right now.
And I think the cracks are there.
The crack up boom will happen.
But Austrian economics also teaches that if you knew the day of it, the day before that, you could short the market and become a billionaire.
But there's been speculation when it'll occur, and you can't tell.
But right now, things are precarious.
We have an election coming up.
But if you'd happen to have the election be a total failure and nobody knew who won, you know, who knows what that would do.
It's unknown because you've already mentioned there's, Chris, that there's a psychological effect there.
There's the panic factor, but the distortion is there.
But over the years, since 1971, that's when we gave up on defending the dollar and restraining printing of money to a degree, they've been able to manipulate it and get along with it.
And people have trusted it.
And they just print more money.
But of course, gold had to go from $35 an ounce up to $2,000 an ounce.
And so that is limited.
So, yes, they can do it temporarily.
And then you have the factor of the people who benefit from this, the establishment, the bankers, the military-industrial complex, the deep state.
And they have this need to.
So there's a tremendous effort to try to fool the people by saying, oh, no, we're really under the gold standard.
We guaranteed gold at $35 an ounce all the way up until 1971.
But eventually they had to quit.
But they can get away with it for a while.
And what I sense, and a lot of other people are sensing, is we're getting desperately close to that climactic end when this boom collapses and the market is demanding that the corrections be made and you just can't paper it away and print money and eliminate debt that way.
That just makes more and more problems.
And that's what we're facing today.
Yes, Dr. Paul.
And Mises is right about the crackup boom, just like he was right about socialism and communism.
He had it pegged in the 1920s.
He smashed it intellectually.
It's never been refuted.
He didn't live to see the end of communism.
He didn't see the Berlin Wall come down, but he was right 60 years beforehand, pointing out this cannot work.
And it doesn't.
I wanted to also highlight the psychological aspect, which I believe we are in.
You know, towards the end stages of manias, whether it be stock market, I remember everybody I knew was in the stock market back in the late 1990s.
And then during the housing, you would try to get into a lottery to get a house in Florida that you could quickly flip.
So the promises and the delusions get bigger and bigger.
And look at what we're hearing today about great resets and $100 trillion green economies.
These are grand illusions.
And this is what happens at the end stages of this because we're dealing with a government that is $27 trillion in debt.
They have, what, $100, $200 trillion in unfunded liabilities.
They have to bail out everyone, individuals, businesses, states.
They give money to other countries and they're going to reset the world.
That's not going to happen.
So the crackup comes with bigger and bigger grand delusions, and we're in that phase for sure.
You know, you mentioned a little bit about Mises is correct, and he didn't live to recognize all the things that he anticipated.
But I'll tell you a short interesting story.
In 1971, when Bretton Woods broke down, and we still couldn't buy gold in this country, I was at a gold conference talking about the monetary system and money and investing in gold and this sort of thing.
And one of the speakers there was Hans Senholtz.
Hans Sensholt is one of, I think, four or five people who got a PhD under Mises.
And when I had a private conversation with Senholtz, I said, you know, we're seeing this breakdown.
You know, Bretton Woods broke down.
I said, before Mises died, I said, did he really know that he was, was there any doubt in his mind that he was right on the issue?
And Senholtz, who knew him well, he says, no, there was no doubt in his mind.
And of course, it's still unraveling.
So I think we should pay attention to what Mises has said over the years.
But, you know, the situation that the political situation and economic situation that these conditions create, of course, the bust, you know, the crash is the big issue because everything's up for grabs.
People are just buying and a bigger chance for violence.
Most of the time, wars break out under these conditions.
But even now, It invites crony capitalism because we in this country are said to have capitalism and freedom, which we don't.
And yet there are special people who benefit.
And when you look at that, this is getting worse and worse because even with the additional unnecessary dilemma posed to us by the coronavirus, there's a lot of people, especially in the rich category, have gotten a lot richer.
There's been a lot of bailouts.
It makes the bailouts of 08 and 09 look puny.
Trillions and trillions of dollars, and they're getting ready to do more now, and they will do more because that's coming until the crackup boom.
You know, and that is that will come.
But in the meantime, the politics gets pretty desperate because of the crony capitalism that we're putting up with now, which provides fodder for those who would like Marxism and they can use it.
So that is important, but we have to deal with the problem that we have now because we're facing the problem that we don't have many people on our side in important positions.
You know, are the people who believe and understand who Mises was in the government?
I can remember very clearly, I was being interviewed during the presidential campaign by an interviewer who was, you know, he wasn't out to get me.
He was out to try to demystify this thing about Australian economics.
So he asked me a few serious questions, and he was dumbfounded about the whole thing that was going on.
But the people in the media, the people in our universities, the people in our Congress, everybody at the Federal Reserve, they all endorse Keynesian economics.
Now, some of them, some of the people who were on a personal basis decent and you could have a discussion within the Federal Reserve, and they knew about Mises.
Oh, they just, you know, were intellectually in disagreement with this free market and the gold standard.
But most people don't know about it.
And that is what has to change because right now, if you had all the leadership, the intellectual leadership of the country, particularly those who learn economics at the universities, this would be a different story.
We had to get where we are today by the fact that the universities, the professors, and the media and the politicians and the Federal Reserve and people who wield power all endorse this other method.
And although the consequences sometimes are unintended and not understood well, sometimes they're very much intended and a method of control and use of power.
And that's where the real problem is.
But you say, you know, you couldn't do anything in the 70s, and we're chaos.
But you know what?
I think there's more people aware of Austrian economics.
I don't think the person is even in the media now would ask the question, you know, in the major media, say, what's this Australian economics that you're talking about?
So, no, I think there's a lot less of that.
And I think a lot more people now are saying, audit the Fed, audit the Fed.
We even got our current president to say, yeah, the Fed ought to be audited.
Return to Reality00:02:13
So we make slow progress, but we have a long way to go.
But we have to realize that it's going to be an intellectual fight as much as anything.
Yes, Dr. Paul.
That's very good points.
I'll finish, I'll close right now by saying that the crisis that we're talking about, the crackup boom, that really is, even though it's called the crisis, it's the cure.
It's the return to reality from an artificial reality.
And a great analogy is if you're at a bar and you drink a little bit too much, you have to sober up.
You don't prevent yourself from sobering up.
You don't keep funneling drinks, even though you know it's going to be painful to sober up.
You have to.
And you have to get back to reality if you want to live.
If we want civilization, we have to stop this counterfeiting machine.
It's going to stop itself, obviously, and we have to return to sound money.
And when push comes to shove and people see the writing on the wall, they're going to want sound money.
And the sooner the better.
And just one more note.
You know, we've mentioned Mises a lot in this show.
Please go to Mises.org, M-I-S-E-S.org.
You could spend the rest of your life there learning free market economics.
Very, very good, Chris.
Good advice.
I want to make a point, though, as I close, that this mess that we have cannot be a consequence of sound money.
If you have an honest, sound money system where governments can't create it and you don't have a Federal Reserve doing that, and the manipulation of money and credit and manipulation of interrace, if you don't have that, you don't have these kind of problems.
So that's where you have to start.
And that, of course, is where Mises does an excellent job along with Murray Rothball.
You'll find Murray Rothbard at the Mises Institute has written many things as well.
But, you know, so often they do so many things on the short run to try to hide what's happening without saying, well, we have to bite the bullet, you know, to fix this, which is an honest answer.
We have to cut back on spending.
We have to cut back on printing money.
Price Controls and Their Consequences00:02:35
And we have to quit fighting wars that we don't need.
And we have to give up on the welfare state.
That's not going to happen.
What they'd much rather do is print more money, get everybody to agree to it.
Everybody gets more and more.
And the other thing they'll do is say, when the prices go up in the wrong places, and right now the price going up in commodities and consumer goods is going up.
Up until now, it's mostly been in stocks and bonds.
What they'll say is, well, yeah, prices are going up too high.
If people don't have enough money, give them more money.
Raise the minimum wage.
$50 if you need to.
Just give them more money.
It's a shortage of money.
They always say that.
And so what did they do many, many times, even in my lifetime, I think three times, they put on wage and price controls, especially during wartime.
But that's weird.
Why do you put wage and price controls during wartime when there are shortages where the market is the best distributor of commodities, especially if there's a shortage?
That's what you want to have happen.
But when you have hurricanes and emergency, the first thing they do is put on controls and say, if you sell anything more than what it was sold for a month ago, you're going to go to jail.
Not understanding it.
That's what you need.
The prices go up.
Get the incentive to people to come in.
So that's what happens under these conditions and will happen.
There's a lot of price controls already.
And if they keep moving with more government total control of medicine, there will be price controls and more shortages.
That's what will happen.
But the other things that they tend to do to try to compensate will be protectionism.
Oh, it's a problem with trade with China, and we have to protect our industry.
There's a lot more protectionism, put on tariffs and sanctions, which always hurts us as much as anybody.
And also, people will try to compensate because although the dollar is king, the different currencies are weighted.
And if they can make their currency a little bit weaker, they believe that will solve their problem with trade imbalances.
But that doesn't work.
It's just more interference and it usually backfired.
So the many, many things that have been tried and where they will continue to try and they'll continue to keep trying just speeding up the printing presses, the computers, print more money faster.
And if you can't distribute it fast enough by the U.S. Postal Service, we do it by computers.
Time for Sound Money00:01:48
We'll do it with helicopters if necessary.
But we've got to get more money into the hands of people, which doesn't do a thing in increasing wealth.
It hurts the creation of wealth.
And so we're going to have a wonderful opportunity to express ourselves because this is going to get worse and there will be a crackup boom and there will be a chance.
But the big question is, are we going to be able to come to social media to allow our views to be shown?
Well, you have to assume probably not, but there's always going to be some space, some place that you can get the information out.
And if our ideas are worth anything, the ideas will spread.
You can't stop ideas whose time has come.
And believe me, the time has come for people to look for sound money and balanced budget in the promotion of liberty over the authoritarian society.
There is where I become more optimistic about what's going on because we visit with a lot of people on our program here as well as other places.
And there are a lot of young people who are interested in that.
And it will be necessary to do it.
Otherwise, we will deteriorate as the collapse comes.
So yes, I would look at it as an opportunity because the views are expressed.
Chris emphasizes the Mises Institute and there are others who intellectually they have it out there.
They can't go to their university.
Don't expect to go to the schools.
There are a few good ones and there's a few good professors, but basically if you send your kids off to school to a university, you're going to be taught some of the worst social ideas ever.
And it will not be teaching you anything about liberty and it won't be teaching anything about peace.
So the answers are there, so I encourage people to look into it and participate in working toward the policies of peace and prosperity.