Stefan Molyneux discusses the origins of banking, bank failures, why banks and governments love inflation, the impact of private bank insurance, why governments provide bailouts and the truth about being to big to fail.
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| Hi everybody, this is Sven Moller from Freedom Aid Radio. | |
| Hope you're doing well. | |
| This is a brief history of banking. | |
| Ooh, let's really poke at the leprosaurs of capitalism or crony capitalism. | |
| And hopefully help you to understand just how banking is just so messed up and predatory and dysfunctional and morally repulsive. | |
| So, I guess the first thing to ask, let's sort of imagine we're in a free market and say, well, what? | |
| What is banking for? | |
| Well, generally, people have two reasons for putting their money in a bank. | |
| One is to keep it secure. | |
| And two is to earn some interest. | |
| Now, Of course, in a free market, keeping your money secure, eh, you know, there's cheaper ways to do it than putting it in a bank vault. | |
| I mean, bank vaults are tricky, right? | |
| Because, I mean, you put it in a bank vault, a safety deposit box, I mean, it's a giant magnet for thieves, right? | |
| You go there and you're all set, right? | |
| And so, from that standpoint, it's not always innately obvious that you should put it in a bank vault. | |
| Of course, you can Get hidden vaults put in under your basement, you know, small ones and so on with biometric scanner. | |
| These days, securing your stuff, not actually that hard, not really necessary. | |
| Now, in the past, one of the main reasons that banks existed was to allow people to pay each other without transporting cash. | |
| Right, so if I had to pay $100 to somebody 100 miles away, I guess I could pay someone to take the money or could take the money myself, but I might get waylaid by highway robbers of the adamant stand-and-deliver persuasion. | |
| So what I'll do is I'll write a piece of paper that says, you know, so-and-so, this guy can cash this check, and I'd send the check, and then only he could cash the check, and that's a way of transporting value without transporting value. | |
| The physical money itself, and that obviously had some value to people. | |
| Of course, this generally came about at a time when governments were in charge of securing people's money in transit. | |
| They were running the police and so on. | |
| And so that really is a government failure, not a market failure, that drove the need for that. | |
| Couldn't find ways to secure it. | |
| That's why there are private companies like Brinks and so on, which will transport your stuff and keep it safe. | |
| Of course, in the modern age with electronic transfers and bitcoins and digital cash and things like biometric scans and passwords on your visa, it becomes sort of not really that necessary to worry about the transportation of physical money. | |
| But that, of course, is one of the reasons why banks sort of flourished. | |
| Now, of course, another reason the banks flourished is They would lend money to people and be paid back over time, right? | |
| Mortgages, you know, what was the historical equivalent of car loans and so on. | |
| And that was helpful and useful to people, so that's another reason why banks would exist. | |
| Banks used to run the old 3-6-3 rule, right? | |
| Borrow at 3%, lend at 6%, go play golf at 3 o'clock in the afternoon because that's your day. | |
| So, one of the ways in which you would get interest from a bank is the bank would lend money to people and the money would be paid back at interest and the bank would provide part of that interest to you, a deposit holder. | |
| So, you'd give them a hundred bucks and they'd pay you two or three percent and part of the reason they'd pay that two or three percent It's because they would take your money or some ratio, right? | |
| It could be 5 to 1 or 3 to 1 historically. | |
| They would lend it out and people would then pay them back at 6% or they'd give you 3% and keep 3% for themselves, that kind of thing, right? | |
| Not bad, you know. | |
| And it's, you know, free market. | |
| Nothing wrong with it, right? | |
| Now, of course, banks tend to lend out This is true even historically before the government got heavily involved. | |
| Banks lend out more than they have in reserve, right? | |
| If a bank has a million dollars, they don't just lend out a million dollars. | |
| They lend out three million or four million on the mathematically fairly certain understanding that people aren't going to show up and want a million dollars all at the same time. | |
| And so cash on demand, which is you can go and withdraw all of your money Cash on demand is essential to banking, and it's kind of at odds with lending money out at ratios, right? | |
| The higher the ratio that's lent out, the less the bank can offer you cash on demand. | |
| That it would be cash on like 30 or 60 days notice or something like that. | |
| So if the bank has a million dollars and it's lending out 10 million dollars, then it may keep some small amount of cash reserves, but not enough if everyone who wants their million dollars comes and gets it, right? | |
| Now, the higher the ratio of what the bank lends out, the higher the risk-reward that is occurring. | |
| So, if the bank has a million dollars and the bank lends out 10 million dollars, And makes 10% a year, then the bank is doubling its deposits every year. | |
| And so it can offer you a significant amount of return. | |
| It's doubling its deposits in the first year and so on. | |
| So that's pretty useful. | |
| And then it can sort of recycle that back into circulation. | |
| Now, a 10 to 1 ratio is actually pretty low relative to what occurred up to the financial crisis where it was 30 to 1 or 40 to 1. | |
| A 30 to 1 is crazy. | |
| My bank is lending out 30 times what it has in deposits. | |
| Because what that means is that if they lose 3.5% on their investments, they're wiped out. | |
| I mean, that's just a crazy ratio. | |
| So, if a bank wants to pay you a high interest, then it has to lend out significant multiples, or it has to take out... | |
| It has to lend out to significantly risky, you know, high... | |
| Risk, high return investment. | |
| And that's something that is, you know, kind of tough for a bank to do and be stable, right? | |
| Now, one of the things that happened in the 19th century was there were, of course, naturally bank failures. | |
| I mean, of course there were. | |
| And people who didn't put their money in banks, who kept their money in gold, didn't care about bank failures. | |
| People who didn't want multiple returns on their investment and so on, they didn't care about bank failures. | |
| People who had a mortgage may actually have welcomed bank failures, because if the bank goes out of business, who do you owe your money to? | |
| Well, maybe someone who picks up the mortgage at some sense on the dollar or something like that, but actually welcome it. | |
| You owe to the bank, right? | |
| I owe money to the mafia. | |
| Guy, the mafia guy, dies and takes all of his secrets with him. | |
| Well, not the end of the world, right? | |
| So, and bank failures occurred... | |
| I mean, because in the 19th century in America, you know, people think it's a free market capitalist paradise and so on. | |
| Governments were all over the place, taxes, regulations. | |
| And there was the little matter of the Civil War, which I would imagine had some economic effect upon the nation. | |
| Insofar as, what, six, seven hundred thousand people were killed, massive amounts of resources were destroyed, and so on. | |
| And that is something that And, of course, then the banks, all wars are funded by borrowing, and so banks orient themselves towards government, realize there's lots of profit in government, develop expertise in dealing with government, and, you know, that changes their relationship to their average investor, right? | |
| And there were huge changes in technology and so on. | |
| And there was, in the 19th century, It's so impossible to imagine now. | |
| There was in the 19th century, of course, deflation. | |
| Deflation, not, you know, the fun post-coital kind, but the actually economically useful kind wherein prices go down every year. | |
| Now, deflation is fundamentally the enemy of banking. | |
| So when there's inflation, 3%, 4%, 5% of your money loses value every year. | |
| So if you put your dollars under your mattress, they dissolve over time. | |
| And 3%, 4%, 5%, that's significant. | |
| That's like your value of your money halves in 7 or 8 years. | |
| I mean, that's terrible. | |
| And so when there is inflation, everybody swarms to the banks and the stock market and anything that they can do to try and avoid their money turning into Zimbabwe slushies, right? | |
| And people have much less interest in banks when deflation is occurring because your money is worth 3%, 4%, 5% more Every year. | |
| So, when your money is increasing in value as a result of additional efficiencies in the free market bringing the price of things down, when your money is gaining in value every year, what the hell do you want to put it in a bank for? | |
| There's no need for defensive strategies against inflation. | |
| Your money is gaining value every single year. | |
| So, you wouldn't care about the interest a bank might pay you. | |
| I mean, it's not like you wouldn't care, but fundamentally, there's no need for defensive strategies. | |
| And that's why banks are always so keen on inflation. | |
| And that's why we have had inflation, you know, since the central banks took over the currency, and particularly since gold was decoupled from dollars under Nixon. | |
| The Republican in 1971. | |
| Remember, banks love inflation, and the stock market loves inflation too, because inflation means that people are going to hand their money over to professionals to avoid it decaying into Klingon shit over time. | |
| Deflation is really the enemy of the financial industry because then you can make money just by doing nothing, just by keeping your money to yourself. | |
| You can make money. | |
| Your money is increasing in value over time. | |
| Like, I don't think if you want to buy a $2,000 computer, you know that 6 or 12 months from now it's going to buy you twice the computer that it does now. | |
| So you don't sit there and say, well, man, I've got to put that money in a bank. | |
| I've got to get some return on these $2,000 I'm saving for a computer. | |
| Because otherwise, it's going to be worthless in terms of buying a computer in 6 or 12 months. | |
| You'll be like, well, no. | |
| My goal is to defer as long as possible buying a computer or buy last year's model if I want to save money because it's worth more. | |
| The longer I put it off, the more computer I can buy. | |
| But you don't have a strategy called, I have to protect the value of my computer money because it's gaining in value relative to What you can buy every day, it seems, sometimes in the computer industry. | |
| So, banks love inflation. | |
| And banks love being able to offer significant multiples of loans relative to their deposits. | |
| As long as bank directors are not personally liable for losses. | |
| It used to be the case. | |
| It used to be the case that if a bank went bankrupt, the first person that you would go after would be the bank directors. | |
| And you would take their houses, and you would take their cars, and you would take their, I guess, horse-drawn carriages at the time. | |
| You would take their savings, you would take their investments, and they would end up as paupers. | |
| Which is entirely right. | |
| If you take other people's money and make stupid, greedy decisions and lose their money, then, of course, you should pay them back with everything you've got and then some. | |
| Now, bank directors, of course, are not particularly keen on that because what that does is it limits the amount of risk that they're willing to take. | |
| So, bank directors love inflation and bank directors love legal shields from accountability for financial mismanagement. | |
| Also known as the corporation. | |
| With the corporation, you get to take money out of the corporation, but any losses are contained within the corporation and you cannot penetrate the corporate shield in order to go after the personal assets of bank directors. | |
| They are immune, right? | |
| They're not immune from taking money out of the bank. | |
| They are immune from having to pay money back into the bank if they lose it or blow it or whatever, right? | |
| So, if you sort of understand what banking is and what bankers want, and the fact that the government has a pathological relationship with bankers, then you can understand how banking shapes up, right? | |
| The government needs banks. | |
| The government needs loans at all times, right? | |
| And the government... | |
| Therefore has a very close, loving, intimate, fetishistic relationship with the banks. | |
| You know, like a bestiality aficionado with a herd of well-greased sheep. | |
| And so banks love inflation governments and central banks provide inflation. | |
| Banks love... | |
| Being able to lend at multiples so government sets wild multiples that the banks can lend at. | |
| Bank directors do not like being personally liable for the money that they lose any more than anybody likes being personally liable for blowing money in Vegas. | |
| They would much rather they keep the winnings and somebody else take the losses, right? | |
| If you go to Vegas and you win $10,000, you get to keep $10,000. | |
| If you lose $10,000, other people have to pay for it. | |
| Well, that's a pretty good deal for you, right? | |
| Of course, casinos can't last like that, and neither can our economy when these ridiculous cross-incentives are put in place. | |
| Now, banks in a free market are partial to insurance, right? | |
| So, if you want to put a million dollars in a bank, you obviously don't want that bank to be gambling on highly speculative derivatives. | |
| And wake up one morning with your million dollars, like now becoming a minus million dollar liability, which means you ain't getting squat, right? | |
| And so banks, like good banks, banks that are righteous in their management of money, they like insurance. | |
| And insurance is, if the bank loses me a million dollars, then I will get a million dollars from the insurance company. | |
| Bank insurance requires that the insurance company thoroughly vet the bank and make sure they're not lending at too high a ratio, make sure they're not getting involved in speculative or risky investments and so on. | |
| Now, you can go to a bank that doesn't have insurance, but that bank is going to have to offer you something in lieu of the insurance, right? | |
| I mean, if there are two banks and they both offer the same interest rate return, On your deposits, and one of them has insurance and one of them doesn't, then the one that doesn't is going to go out of business. | |
| So the one that doesn't have insurance is going to be the one that has to offer you double or triple the return, right? | |
| And we all understand this from gambling. | |
| If it offers a lower ratio of winning, it has to offer higher rewards, right? | |
| If you've got a one in thousand chance of winning, then it offers you... | |
| $10,000. | |
| If it has a 1 in 2 chance of winning, it can offer you $10,000, right? | |
| Like when I was just at the hospital for my treatments today, there was a lottery, tickets or whatever, right? | |
| And I said, top prize, $500, a 1 in 7 chance of winning. | |
| Now, of course, idiots think that I have a 1 in 7 chance of winning $500, which for a $5 ticket seems pretty good. | |
| But, you know, it's a one in seven chance of winning something, and one of the prizes is $500, the top prize, which is, of course, one in however many tickets are sold. | |
| So banks love insurance, but they don't love insurance that vets them. | |
| They want the kind of insurance that has people not worry about their deposits. | |
| Oh, I give a million bucks to the bank, it's got insurance, so I really don't need to worry about it. | |
| They want that. | |
| But they don't want the kind of insurance that actually goes over their books with a fine-tooth comb. | |
| Because that limits their capacity to take risks, to be cool, to be edgy, to be at the forefront of financial instrument wrangling. | |
| Citibank. | |
| They lose six billion bucks recently on some derivative speculation. | |
| Some bank in the US has a speculative market, the prediction of which takes three hours to run on the very fastest computer in the world. | |
| It's clearly not a manageable product anymore. | |
| So banks love insurance. | |
| But they don't like insurance that goes over their books with a fine-tooth comb and makes sure that they're not engaged in anything too risky. | |
| So who do they want to insure their deposits? | |
| They want insurance. | |
| Well, they want the government to insure their deposits. | |
| Because they know that the government has no particular incentive To vet their risk-taking. | |
| Because the government employees are not themselves personally liable for any bank that goes under. | |
| Now, not to put all of the onus on the banks, the voters, they love all this stuff too. | |
| Because they get to wave the magic wand of government at stuff and imagine that the problem has been solved. | |
| So rather than having to figure out the ratings of the banks and having to weigh whether they want to put their money in a higher risk or lower insurance situation, I mean, they just, oh, the government's taking care of it, so I just stick my money in a bank. | |
| I don't have to think about it. | |
| I stick my money in a bank and it's taken care of because the government's insuring things. | |
| In the same way that people are like, oh, there are poor people, that bothers me. | |
| Okay, here's the government, I guess I'll pay my taxes, and ooh, lookity-lookity-split, the problem's taken care of, I got nothing to worry about, let me get back to my TV. So, banks love inflation. | |
| Banks don't like rate competition. | |
| Right? | |
| They don't like rate... | |
| I mean, businesses in general don't like competition. | |
| I mean, what actor is overjoyed to find that there are 500 other people trying for the same part? | |
| They would love it if they were the only person who showed up for that part. | |
| Yay! | |
| I'll have a good shot now, right? | |
| I mean, we all like the fruits of competition because competition brings efficiency. | |
| But we don't like competition ourselves. | |
| We like the fact that competition between computer hardware companies produces cheaper and better computers all the time. | |
| We love that. | |
| But we don't like competition when it comes to applying for a job and somebody else is willing to work longer hours for cheaper. | |
| We don't like that. | |
| We're very ambivalent about competition, like most things. | |
| We love the fruits of it. | |
| In general, we don't like the problems of it, in particular, relative to ourselves. | |
| So banks, they don't like rate competition. | |
| Because if a bank has figured out how to create interest payments that are high without much risk, then that bank's going to take all the business. | |
| They don't want competition on rates. | |
| The other thing, too, is that rates are a clear sign of risk. | |
| The higher the rates, the higher the risk. | |
| And so, a bank that's offering more rates is also clearly signaling that people are taking on more risk by putting their money in that bank. | |
| A bank that's paying 1% or 2% is pretty solid. | |
| A bank that's paying 8% or 10% is a dice roll, right? | |
| And the AMA class of the market can sometimes be quite negative. | |
| So, banks, they don't want competition on rights. | |
| So what do they want? | |
| Well, they want the government to set interest rates. | |
| Yay! | |
| Now we don't have to worry about competing on rates. | |
| And now the more responsible banks are penalized because the rate must be set higher than what they would offer in the free market. | |
| And the less The more responsible banks, the more risky banks. | |
| It's not irresponsible to gamble if you know that you're gambling. | |
| It's not irresponsible to offer 8% or 10% return on investment for guys who give you their money. | |
| It's not irresponsible as long as you're honest about it. | |
| But if you, let's say, a good bank, a safe bank, a secure bank is going to offer 2% and a risky bank is going to offer 8%, the government sets the rate at 5%, right? | |
| Well, that means if you have to pay interest out at 5%, then the bank that can only pay 1% or 2% has to take on more risky stuff, otherwise they're going to go out of business, right? | |
| Because their returns can't provide that. | |
| The bank that's making 8% or 10%, the risk that they're taking is now shielded by the government setting the interest rate at 5%. | |
| So the conservative, stable nature of the bank offering 2% interest is erased, and then that bank is going to lose money, is going to go out of business if they continue to offer, like if they continue to pursue business strategies that can only cough up 2% interest, but they have to pay 5% interest on deposits, well, they're toast. | |
| So they're going to be propelled into being more risky. | |
| Now, the bank that is doing more risky investments and therefore is able to promise maybe 8% or zero, right? | |
| The higher the number goes, the higher the possibility of zero or negatives show up. | |
| But they're shielded now. | |
| Now, the market can no longer... | |
| Like, the person who... | |
| Is looking at rates can now no longer differentiate by looking at rates from a high risk from a low risk bank. | |
| And the incentive for the low risk bank is to become high risk. | |
| And the incentive for the high risk bank is to stay high risk. | |
| Because the price information embedded in interest rates is now shielded from the consumer. | |
| Because the government set the rates. | |
| Price fixing. | |
| Right? | |
| I mean, one of the ways you know you're getting a better car is it costs more money. | |
| If the price of all the cars was the same, it would be harder to tell. | |
| So banks don't want rate competition. | |
| Thank you. | |
| They want the government to set the rates. | |
| And so we can see, like government banks want inflation, central banks provide inflation. | |
| Banks want insurance, it's government, so you get the Federal Deposit Insurance Corporation and all that kind of stuff. | |
| Where banks have to provide money to the FDIC to cover insurance regardless of how risky they are. | |
| So a conservative bank that is safe and secure and plotting has to pay the same amount of money Percentage-wise, they have to pay the same amount of money to the government for insurance than a bank that's highly risky, right? | |
| Which is ridiculous, right? | |
| It's like non-smokers have to pay the same life insurance as smokers, which is a direct subsidy from non-smokers to smokers, a forced subsidy. | |
| So, Banks, and I sort of mean bad banks, but irresponsible banks, banks who want to shield the customer from their irresponsibility. | |
| Those banks, you know, they want inflation, they get inflation. | |
| They want government to control interest rates. | |
| Government controls interest rates. | |
| They want the government to run insurance. | |
| Government runs insurance. | |
| They want high multiples of lending ratios, and they want personal immunity from bad economic management. | |
| And lo and behold, this be what they get from the government. | |
| I don't know if you can hear that. | |
| I'm not hungry, there's just a train going by. | |
| Maybe you can hear it. | |
| That's it. | |
| Roll down the window. | |
| You can hear that? | |
| And so this is what banks have become. | |
| Now, there's one last thing that banks really, really, really, really, really, really, really, really want. | |
| And that is bailouts. . | |
| Bailouts. | |
| When a bank runs out of money, and that can happen shockingly quickly if you're highly leveraged. | |
| And if you're highly leveraged, I mean, a 3% shift downwards in whatever it is that you are invested in wipes you out. | |
| Like, it just, it wipes you out. | |
| It's horrendous. | |
| How quickly you can be wiped out. | |
| I mean, imagine you go to a casino and every dollar you put down is actually $30. | |
| You pay a $10 chip, that's $300. | |
| You pay a $300 chip, that's $9,000. | |
| How long does it take for you to get wiped out if you have a run of bad luck? | |
| Well, it's a whiplash. | |
| It's a whiplash loss. | |
| Cat-of-nine-tails lacerating your balance sheet. | |
| Now, this all started, I mean, as early as 1971, the U.S. government bailed out banks. | |
| And, of course, the reason that governments bail out banks is sort of twofold. | |
| I guess threefold. | |
| So, the first one is because taxpayers get pissed off if their bank goes south. | |
| Now, the average taxpayer is covered by FDIC, and you can just set up a bunch of accounts if you're bigger and get covered to a million or two million dollars if you want. | |
| Most people aren't going to be... | |
| But then, of course, the FDIC has to pay out, and FDIC doesn't have even remotely enough money to bail out even a medium-sized bank that goes tits-up. | |
| I mean, it doesn't even remotely have the money. | |
| It's got about as much money as Social Security, which is a bunch of IOUs, and the spleens of the unborn in a safety deposit box for which nobody has the key. | |
| So the FDIC would be revealed as bankrupt. | |
| If it had to pay out the depositors even of a medium-sized bank. | |
| So people would probably lose money, significant amounts of it, and that's bad. | |
| The general public's perception of the banking industry would be kind of goosed, and people were like, shit, I didn't realize you could actually lose money if your bank goes down. | |
| Maybe I'll switch to something else. | |
| Maybe I'll start holding gold in my basement or something like that, and there may be a withdrawal. | |
| From the banking system as a whole. | |
| Now, if there's a withdrawal from the banking system as a whole, what happens? | |
| Well, because they're operating at 20 or 30 or 40 to 1 ratios of lending to deposits, anybody who tries to get their money, they're like, hey, give me $200. | |
| It's like, well, I can give you $2 now and maybe another $2.50 tomorrow. | |
| And over time, as my loans come back in, then I can get you more. | |
| It would be very quickly revealed that the banking industry was pretty much a scam. | |
| That they were lending out so many multiples of what they had on deposit. | |
| And, of course, just having the magic ability, which I won't get into here, of just creating money. | |
| You borrow money from a bank, the bank just creates the money. | |
| No actual assets there that are deducted from anything. | |
| So the depositors who vote would be upset that they had lost money. | |
| The FDIC would be revealed as fraudulent. | |
| People would freak out about the banking system. | |
| And internationally, people may choose to withdraw money from the US Bank. | |
| This is the domino theory, which is that if a bank fails, it sends a ripple of anxiety through the banking system or the financial system as a whole, and then people begin clamoring for their money. | |
| And it really doesn't take a lot of people Clamoring for their money for the bank to go under, right? | |
| So, let's say only 1% of a bank's customers want to take out their money. | |
| Only 1 out of 100. | |
| Well, if the bank has a ratio of 30 to 1, then it only has 3 cents on the dollar in deposits for everything it's lending out. | |
| And if 1% of its customers Decide they want to go get their money, then their deposits are cut down by a third. | |
| Now, if their deposits are cut down by a third, then the amount they're allowed to lend out is cut down by a third, too, which means 33% of their loans are now technically illegal and invalid. | |
| Do you understand? | |
| Only 1% of the customers take out their money. | |
| Banks have to have a certain ratio of deposits to lending. | |
| And so if only 1% of the bank's customers decide they want to take out their money, the bank's loans have to be cut down by a third, which will collapse the bank. | |
| Because they don't have the capacity to cut their loans down by a third. | |
| Let's say they do. | |
| Oh, yeah, I've got to call in a third of my loans early. | |
| Well, then those people are going to have to go to their banks and take money out to pay off the loans. | |
| Those banks are then going to be... | |
| Like, you understand the domino, right? | |
| Because there's this ridiculous government-enabled government-allowed government-enforced sometimes crazy-ass ratios of deposits to lending. | |
| The whole system's a house of cards, right? | |
| The moment that people wake up to this at all and try and get their money, I mean, that's all very quickly revealed, which is why the government does almost anything it can to avoid having people withdraw it. | |
| Which means you can't have a bank fail. | |
| If the bank fails, people get goose. | |
| They realize their money isn't perfectly secure. | |
| They might take some out. | |
| They might look for alternatives. | |
| And bingo, bango, bongo, the whole system comes down like a house of cards. | |
| Well, not like a house of cards. | |
| There's a house of cards. | |
| Except cards are actually worth something. | |
| You could sell them. | |
| It's a house of fog in a high wind. | |
| So... | |
| If the banking system goes down, who the hell is going to lend to governments? | |
| Who the hell is going to buy government bonds? | |
| And if the government can't borrow, the government can't make its payroll. | |
| The government can't send out all of the funny money that it promises its constituents. | |
| If the bank becomes—and even one medium-sized bank becomes insolvent, the whole thing can come crashing down. | |
| And the moment that the full faith and credit—faith it is, right? | |
| I believe for that reason. | |
| The full faith and credit of the United States government, if it's called into question, even remotely, then you get a run on a government. | |
| And that's... | |
| I mean, that's it. | |
| That's over. | |
| Government can't pass bills. | |
| And so, it's a worst-case scenario, but it's entirely plausible. | |
| It's not way out there. | |
| I mean, it is math to a certain degree. | |
| And so, this is why you need $80 billion of... | |
| There's counterfeit money being used to buy mortgage-backed securities and government bonds and other kinds of crap just to keep... | |
| A ship with a big hole in the bottom needs a big build pump to pump the water out, otherwise it's going to sink, right? | |
| So right now the Federal Reserve is just buying up a whole bunch of junk in order to give money to the government that nobody else will buy. | |
| And it's just a way of keeping the scam going just a little bit longer. | |
| And so everything that risky banks, bad bankers want, the government provides. | |
| Now, a very small bank can be allowed to fail, because the FDIC can cover it, and then you sort of have, you can sort of crow about how the system works and blah-de-blah-de-blah. | |
| And you can pretend you're going to prosecute people who've donated to political campaigns and so on. | |
| So a small bank can be allowed to fail, and it does, but, you know, anything larger than small becomes too big to fail. | |
| Like 30 years ago, the combined wealth of the top US banks was 16% of GDP. Now it's like 61% of GDP. Why is that? | |
| Well, because the moment that a banker realizes that too big to fail is the magic sweet spot of bailout money, then banks will merge to get to that secure high ground of guaranteed bailouts. | |
| Right? | |
| So banks will merge. | |
| They need to get to the too-big-to-fail so they won't be allowed to fail. | |
| So they can start playing around. | |
| It's more fun to gamble than it is to plot along, right? | |
| And so it starts drawing more high-risk people into the banking industry and sector and all that. | |
| And the too-big-to-fail becomes the oasis that everybody wants to get to. | |
| So they'll merge until they're too big to be allowed to fail, at which point they get bailouts. | |
| It certainly is true. | |
| I think Lehman Brothers was allowed to fail because there was animosity between some of the people high up in the government, particularly the Fed chairman and Lehman Brothers, so allowed it to fail because, you know, it's also personal and petty. | |
| But you are not guaranteed a bailout, but you sure as hell can make a great case for a bailout. | |
| And this is why you get $1.4 trillion worth of bailouts going to the big banks. | |
| And so, where we've come to in banking is government controls the money, and thus there is relentless inflation. | |
| There is relentless inflation because it is easier to, politically, it is much better to print money than it is to pay taxes. | |
| Sorry, to raise taxes. | |
| If you raise taxes, then people know where their money is going, and there's no confusion. | |
| You know, oh, you know, my property tax bill went up 10%. | |
| My paycheck is smaller because my income tax went up 5%, and you get mad at the government for raising your taxes. | |
| And there's some degree of causality between all the shit that people want from the government and the fact that the government has no money. | |
| As one guy said on a Phil Donahue show about the SNL, Savings Alone, not Saturday Night Live, the Savings Alone bailouts, half a trillion dollars at least, in the 1980s, Someone in the audience says, well, why doesn't the government pay for the bailout rather than the taxpayers? | |
| Oh, my God, these are the people who vote, right? | |
| But the government can bribe the population with inflated money far easier than it can through tax money. | |
| Because when there's inflation, You blame the shopkeeper. | |
| You blame the gas station owner. | |
| You blame the, quote, capitalist. | |
| You don't blame the government, right? | |
| Because not one in a thousand people can make that connection. | |
| And so inflation is a much better tax than taxes. | |
| And there's usually a lag about 18 months between the inflation of the money supply and the resulting price increase. | |
| Inflation actually refers to the money supply. | |
| And so you give people all these free goodies and then 18 months after the election, prices start to go up. | |
| And people get mad at the shopkeepers. | |
| It's beautiful. | |
| People get mad at the gas station owners. | |
| Why the hell is the price so high? | |
| Because you voted for all this free shit, and the government printed all this money, created all this money out of thin air to pay for it, and so now there's more money chasing fewer goods and services, so inflation, price inflation has happened. | |
| People, I mean, who the hell makes that connection? | |
| It doesn't get taught you in any kind of school. | |
| Certainly the government's never going to teach you about this ancient trick. | |
| I mean, this is a trick that's been going on since the Egyptians. | |
| And the Romans debased the currency to the point where the denarius was only, rather than 100% silver, it was like 3 or 4% silver, and the rest of it was just Junk and satyr pee and all. | |
| Just crap, right? | |
| This is an age-old. | |
| I mean, one of the reasons they put those little serrations around coins is because people would put coins in a bag and dump them up and down, shave off tiny little bits. | |
| So in order to show that that hadn't happened, they put these serrations on the coins. | |
| So, this is something governments love inflation too. | |
| Inflation pushes people's incomes into a higher tax bracket. | |
| Inflation also pushes their property values up, which means that you can charge them higher property taxes and so on. | |
| Governments love inflation. | |
| I mean, the poor are hit the hardest through inflation, but do we care about them when there's an election to be won? | |
| They're hostages, not people. | |
| Now, of course, inflation puts upward pressure on interest rates, but the government doesn't want to increase interest rates because when interest rates increase, then the amount of money that gets paid to the national debt goes up because the interest rate's being charged then the amount of money that gets paid to the national debt goes up because the interest rate's they go up. | |
| So governments want to keep interest rates low rather than pay 30, 40, 50 cents of the dollar on interest rates, interest payments on the debt. | |
| But unfortunately, of course, when you keep interest rates low, you stimulate housing. | |
| And, you know, according to the Austrian theory, keep interest rates low. | |
| And it provides misinformation to capitalists seeking to expand, right? | |
| When interest rates are low, it means that there's, in a free market, when interest rates are low, it means that there's too much saving relative to consumption. | |
| I mean, too much is, I mean, it's kind of a relative term, but there's more saving and therefore interest rates are lower. | |
| Because there's more saving and less to invest in, and therefore less return on investment, and therefore you can't pay as much interest. | |
| So when interest rates are low, the signal is that they're saving. | |
| And what is saving other than deferred spending? | |
| Can't take it with you. | |
| Or you can give it to your kids or whatever. | |
| But saving is deferred spending. | |
| You're saving up to buy a car. | |
| Well, it's deferred spending on a car. | |
| So when interest rates are low, corporations say, industrialists, factory owners say, oh, well, let's ramp up production. | |
| You know, it's cheap tomorrow, interest rates are low, and there's going to be a whole bunch of spending when people stop saving for stuff and actually start buying stuff. | |
| Saving up for a house, saving up for a computer. | |
| Saving is just deferred spending. | |
| But, of course, if the government is artificially keeping the interest rates low, then there is no deferred spending. | |
| The signals are all wrong. | |
| What actually happens when interest rates are low is in a free market it would signal an excess of savings. | |
| But what it does when the government sets the rates low is you get quite the opposite. | |
| What happens is people don't save. | |
| I mean, what's the point? | |
| You get half a percentage point if you put your money in the bank. | |
| Just go buy stuff. | |
| Right? | |
| Plus, my money's going to be worth less next year, and I'm, you know, there's no way putting it in the bank is going to stave off inflation. | |
| The effects of inflation is running 3, 4, 5, 6, 7, 8, 9, 10% these days in America, Canada too. | |
| Getting half a percentage point on my, you know, might get two or three points on a GIC. So I might as well spend now because interest rates are so low. | |
| So rather than interest rates being a signal of deferred spending, interest rates drive excessive consumption in the moment. | |
| Now, none of this, of course, has changed under the most, under the recent, well, it's not that recent anymore, six years into it, Barack Obama's administration, because he got huge amounts of, I mean, Barack Obama's administration, because he got huge amounts of, I mean, the biggest single contributors to his And the reason that he won was the financial industry. | |
| The financial industry loved giving money to politicians because they get preferential legislation and they get bailouts. | |
| And so people say, oh, well, it was Glass-Steagall that's the problem, and so on. | |
| Well, they have to explain why countries that didn't have Glass-Steagall or anything like it, like Canada, didn't have the same economic cracker. | |
| I mean, the economy is random because... | |
| Inflation is random, and also fundamentally because everybody's driving blind. | |
| They don't know what the money supply is going to be. | |
| M1, M2, M3 are closely guarded secrets that can only be divined through some sort of sorcery involving chicken entrails. | |
| Inflation is hidden from view by constantly changing these statistics to hide it. | |
| Unemployment is constantly hidden from view by constantly redefining these statistics to hide it. | |
| You know, you count underemployed people as employed, you count people who have left the workforce as no longer unemployed and so on. | |
| I mean, it's just catastrophic. | |
| But most fundamentally, you know, inflation slash interest rates are politically set, which means absolutely essential information is kept from everyone about how to efficiently allocate resources. | |
| Right? | |
| I mean, when you reduce interest rates, you promote consumption. | |
| It's cheaper to borrow, and you don't You can't save your money from inflation. | |
| Might as well spend now. | |
| Might as well go into debt to spend now. | |
| Right? | |
| Because you get to pay back your debt with If the actual inflation is 6% but the government sets the interest rate at 4%, then you're way better off. | |
| You should go into debt because you're going to be able to pay back your debt with money that's worth less in the future. | |
| Why not? | |
| It's free money. | |
| So you produce consumption in the here and now. | |
| Governments love consumption in the here and now because it drives job creation. | |
| It drives Consumer confidence. | |
| It drives economic activity, which they can then say, yay, look, economic activity is occurring. | |
| What a wise financial manager I am. | |
| But it's all at the expense of the future, because when savings are discouraged, there's less money available for capitalists to invest to improve productivity. | |
| Worker productivity is basically It's the whole basis of wealth in any country. | |
| It's what actually grows wealth. | |
| You don't got factories, you don't got capital improvements, you don't got a rising standard of living. | |
| So banks are so far removed From any kind of free market environment these days. | |
| I mean, they work in federally controlled or influenced money, money supply, interest rates, saving rates, inflation, jobs. | |
| I mean, they work entirely within a government-controlled environment. | |
| And they have been disconnected from the skepticism of Depositors, because the depositors just go around their business assuming that everything's taken care of because the government's involved, which is, you know, quite the opposite. | |
| Government involvement is like heroin for a toothache. | |
| Hey, my tooth feels a lot better and I feel great! | |
| But meanwhile, the rot sets deeper and deeper and deeper and the essential pain of adjustment and change and it all vanishes, right? | |
| So when people talk about banking... | |
| They really are talking about something that has been almost completely absorbed by governments for the sake of serving governments, for the sake of serving government policy, for the sake of shielding politicians from having to raise taxes, for the sake of lending money to governments, They have almost entirely adapted themselves to the public sector. | |
| I mean, government policies drive mortgages like crazy, drive home ownership like crazy. | |
| So even where banks are supposedly lending to private citizens for buying houses, they still are existing in a largely statist environment. | |
| They're like those sharks in Nicaragua that have adapted to fresh water. | |
| They can't go back to the sea. | |
| So banks as they stand are... | |
| Sort of the demonic extension of government power, entirely wrapped up in government power. | |
| And so far, from the original idea of banks, which was security and earning a bit of money, I think both of which would be pretty irrelevant now if we lived in a free market. | |
| Banks, I think, would be largely obsolete. | |
| I mean, you do crowdfunding and microfunding and all that crowdsource funding and so on, right? | |
| Kickstarter and stuff like that. | |
| You can get money for your projects without having to go to a whole bunch of investors and stuff like that. | |
| You know, if I started a software company tomorrow, I bet I could raise a million or two million bucks based upon this show. | |
| I mean, so banks, you know, they wouldn't really be around, I think, if we had a free market right now. | |
| And, I mean, this is one of the reasons why they cleave in such an unholy fashion to the state. | |
| That, I mean, the state freezes things in time, right? | |
| The banks were relevant and important a long time ago. | |
| You know, they would have gone the way of the dodo. | |
| They would have gone the way of the horse-drawn carriage. | |
| And now they get all their money and power by serving the master, right? | |
| Sauron, the Dark Lord. | |
| They are nothing more than the Nazgul, right? | |
| It might as well be 12 banks riding black horses with empty glowing-eyed helmets on. | |
| I mean, they serve the Dark Master of the state. | |
| They lend up money for wars. | |
| They shield it from the consequences of its own incompetence. | |
| They become the front, which allows people to get upset at what they consider to be the free market, which is actually not. | |
| It's tragic to the degree to which people still think that banking has something to do with capitalism or the free market or voluntary association. | |
| I mean, it's drifted so far from it that... | |
| You know, it's like if you plant a piece, like you jam a piece of stick, a stick of wood into the ground next to a sapling, and year after year after year, the sapling will grow. | |
| It will actually grow around and absorb the stick. | |
| And I guess then the stick gives it a minor bit of propping up. | |
| And that's really what's happened. | |
| I mean, there was a stick called banks, which had something to do with the free market in the past. | |
| But now the government has grown rapidly. | |
| All the way around them. | |
| Absorb them completely. | |
| And to mistake that for capitalism is so egregious an error that it can only come from propaganda. | |
| Thank you so much for listening. | |
| I hope this was not too dully technical. | |
| And don't forget to help out the show if you can. | |
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| FDRURL.com forward slash donate. | |
| Thank you, thank you, thank you everybody so much. | |
| What a privilege it is to be able to chat with you. | |
| And don't forget, Wednesdays now, for the foreseeable future, we will be doing a show at 8 p.m. | |
| Eastern Standard Time, a call-in show. | |
| Email Mike, operationsoffreedomainradio.com to have a chat. | |
| Thank you so much. |