Scott Horton Show - Just the Interviews - 10/31/22 Mike Swanson on our Strange and Troubling Economy

Episode Date: November 5, 2022

Scott talks with Mike Swanson about the economic mess we find ourselves in. Swanson helps us understand how we got here and why all the traditional “experts” have been so confused. Swanson argues that what happened in the UK with Liz Truss may indicate that governments are no longer able to rely on stimulus to delay economic pain. Scott and Swanson also look to history to help predict what the American economy will look like in the near future.  Discussed on the show: “Fed Seen Aggressively Hiking to 5%, Triggering Global Recession” (Bloomberg) Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider WallStreetWindow.com Mike Swanson provides investment advice at wallstreetwindow.com and is the author of The War State: The Cold War Origins Of The Military-Industrial Complex And The Power Elite. He also works with the Neopolis Media Group, a group of historians, educators, authors, researchers, and free speech advocates who endeavor to provide original and engaging content, including The Ochelli Effect, and The Lone Gunman Podcast. This episode of the Scott Horton Show is sponsored by: The War State and Why The Vietnam War?, by Mike Swanson; Tom Woods’ Liberty Classroom; ExpandDesigns.com/Scott; and Thc Hemp Spot. Get Scott’s interviews before anyone else! Subscribe to the Substack. Shop Libertarian Institute merch or donate to the show through Patreon, PayPal or Bitcoin: 1DZBZNJrxUhQhEzgDh7k8JXHXRjYu5tZiG. Learn more about your ad choices. Visit megaphone.fm/adchoices

Scott Horton comedy. That's right, I'm doing an event with Robbie the Fire Bernstein here in Austin on the 5th of November as part of Robbie's porch tour. It's kind of an audition, actually. I'm trying to get the job to replace Dave Smith as Rob's sidekick. So show up and pretend to laugh at my awesome, hilarious comedy jokes. Robbie and another dude are also doing stand-up. Then Robbie and I are going to do a live podcast about libertarian themes and Star Wars and things. That's November the 5th.

Go to thefireticks.com to find out all about it. All right, y'all, welcome to the Scott Horton Show. I'm the director of the Libertarian Institute, editorial director of anti-war.com, author of the book, Fool's Aaron, Time to End the War in Afghanistan, and The Brand New, Enough Already, Time to End the War on Terrorism. And I've recorded more than 5,500 interviews since 2000. almost all on foreign policy and all available for you at Scott Horton.4.

You can sign up the podcast feed there and the full interview archive is also available at YouTube.com slash Scott Horton's show. All right you guys, on the line I got my good buddy Mike Swanson from wall streetwindow.com and of course he wrote a bunch

of great books like the war state, which is a great history of the first three presidencies after World War II there. You'll like it, I promise. And, of course, the Vietnam one is escaping me. It's why Vietnam? Why can't I remember the title of the book, Why Vietnam?

By Mike Swanson. Welcome back to the show. How you doing? Oh, it's great to talk with you. Glad to be talking with you today. You know what, man? I'm going to read that Vietnam book. I've been looking forward to it for years, and now I have it,

and I can't find the time to get to it. But as soon as I'm done writing the book that I'm writing now, then I'm going to never write it. another book again, I swear, and then you're going to read your book. I keep promising that. Here, wall streetwindow.com. Here's the thing about Mike Swanson. He's got an Austrian school education, but also he's rich because he's smart and he

was a hedge fund manager on Wall Street there. And he gives investment advice to Porsche Lubbs who are trying to figure out how to keep the government from destroying their money all the time, which is difficult. And so listen, as an economist, I'm a great anti-war guy. But I know enough to know some frame of a question for you, I think. We're in a very weird time right now. We still got real high inflation, but they're raising interest rates. We have crashes in a lot of markets, even though price inflation is like the bubbles are crashing,

but the overall price inflation still seems to be going up. And then you've got, because of the lockdown policies, you have, this insanely high upward pressure on wages because so many people just retired early and just stayed retired and that kind of thing, I guess, I don't know. So you have a policy where, you know, this Bloomberg article put it, they quoted these experts saying, we got to try to force a recession. That's not their exact words, but we want to force, they said, 1.3 million people out of work. If we can get 1.3 million people laid off, that will be good because that will then relieve upward pressure on prices everywhere, you know, because they always blame wage earners for their cost of living increase for causing the inflation, which, of course, it is upward pressure on wages. But anyway, so, and then so you have the raising interest rates, but then also the reserve ratios are essentially non-existent, right? So a lot of people are very confused, including me, about whether in the boom-bust cycle, we're still in the boom or the bust, or we're really got the worst of both worlds right now at the same time.

And then what in the hell is going to happen next, Mike Swanson? Well, you said it in the first couple sentences there. This is a confusing time. Was I close at all with all that crazy nonsense I was just babbling? Well, I mean, it is a confusing time. Okay, well, I got the confusing part right. Okay, go ahead. Well, look, the thing is it's so confusing.

I'm going to try to make it really simple in a moment, but I would like to first say that the experts are confused, the Federal Reserve officials are confused, the stock market gurus are confused. and anyone that's been following the financial news will know this because over the past 20 months, let's say, their predictions and claims of what's going to happen and why things are happening constantly change. So I'll just talk about inflation. In January 2021, we were all told by Jerome Powell, the Federal Reserve Chairman by the Biden administration and the CNBC experts, the Wall Street experts, that inflation was going to come in the spring because of the supply chain

issues, and then it would go away by the fall. And obviously, all that did not happen at all. In fact, if you go back and look at the economic data, the situation we're now in politically too. I think August of last year was a turning point. The Biden poll numbers started to go and decline. The inflation

that they said would go away clearly was not and started to go up and continue to go up for several months and even now, even though the CPI is down a little bit, there's a lot of components inside of it

not really down, just the rate of the increase is lower on an annualized basis, but inside some of the components have made new highs. That's according to the last report. But I'm just trying to suggest that that was a turning point almost a year ago. And then we entered this year, and interest rates started to go up. The Fed began to raise rates. The rates also moved by themselves in long-term bonds and corporate bonds,

and they already were going up starting to before the start of this year and the stock market rolled over. And now, you know, the talk of inflation in March and February when the Ukraine war started was that that's causing it. And now, you know, that people don't really believe that anymore. And I just saw an article this morning about what you were talking about. the debate over is wage increases causing inflation or do wage increases follow inflation? So you can throw in all these complicated factors that may be different now than they were in the

past. And it is really confusing to try to figure it out. So go ahead. Well, just one of the first things you said there was Powell said, yeah, we're going to have some inflation because of the supply chain crisis, which is just conflating. I mean, I know you're kind of paraphrasing them there, so I'll let you clarify too, but was it really that basic that they're just trying to blame essentially prices that are high for a reason and conflate that with inflation, which is caused by the creation of more bank credit and more money? Because, of course, you could have, you know, a winter, a late winter storm wipes out Florida's orange crop and that raises the price of oranges. That's not inflation. That's just a winter storm. So same kind of

thing where they're essentially trying to blame their inflation on things like the lockdown-created supply chain crises and things like upward pressure on wages and all that, right? Yeah, that's exactly what he was doing. in the Biden administration was too in the first half of well really almost all of last year then they started to blame it on Russia exactly you know the Russia Ukraine war

is making all this stuff worse but as you say I mean a lot of it has to do with the printing of money the size of the debt and these are global issues not just issues in you know that have to do with what's happened in the United States

and you know having a background in austrian economics um and i don't i'm not an expert on it but it helps to realize helps you to realize that look federal reserve policy and central bank policy all the world has a big deal to do with this so what i think is the most important thing you know there's so many factors right in talking about this kind of stuff but if you want to make it really simple um and that's the best thing to do that's the best thing to do do, frankly, is if you just go look at 2020 when these lockdowns and shutdowns began in the spring, March, April of that year, the Federal Reserve took interest rates to zero and announced a quantitative easing, unlimited bond buying operation, and central banks around the world did

similar things. And what happened is when bonds, bond funds, bond funds, bond ETFs, they trade opposite to interest rates. So when interest rates go up, the value of bond funds go down, goes down. And right now, for example, there's an exchange rate of fund TLT, which is the most widely owned treasury bond ETF, it's down 33% this year. Well, in 2020, that ETF and all these other bond funds made record highs in their value, in their price, all-time highs, because interest rates went to all-time lows. In fact, I would say that globally, interest rates went to lows never seen before in human history, human financial history, zero.

And as a result, from that moment on in 2020, interest rates had nowhere to go but up. These bond funds had nowhere to go but down. And if there's like one factor more important than any, it's that. And, you know, why, you know, what does it mean? You know, it might take you 20 tries, but try to get me to understand what you just said about why the bonds behave the way they do in these circumstances. Well, a bond goes up in value when the yield on it goes down in value. And when the yield goes up, the bond goes down in value. So the global bond market made a all-time high in 2020, and now it's been going down from

that high, and interest rates are going up. You know, when interest rates went to zero and then you start to have inflation, they've got got to go up. And the sad thing about that is the rate of inflation, the CPI inflation, it's around 7% officially. Well, the Fed fund's rate isn't even at 4% yet. So the interest rates are still way below the inflation rate. Historically, it takes the interest rates going above the inflation rate for inflation to

really go down. And then there's a question of how high can rates go, you know, without causing problems with the cost the government takes to finance debt. So one thing I'm implying in saying this is that the bond market had been in a bull market since Paul Volcker jammed up interest rates around 19. to stop inflation then, ever since that process ended, interest rates had been going down in the United States and globally over that period of time until they went to an all-time low. So that's a huge, really long-term cycle that came to an end. And now we're in a new cycle, and part of it is inflation.

the stock markets in a bear market this year. And it's, frankly, the most difficult investing or trading environment I've ever seen. It's worse, I think, than 2000 and 2008, because during those bare markets and the stock market, bonds went up. So you could have bond funds and, you know, that would help cushion your stock market losses. but now bond funds are even worse than stocks and stocks you know aren't doing well either so it in gold even gold is getting uh that gold and silver aren't trading as well either you know they're not as bad but they did well in their first quarter and now they're trading down to the market so one you know reason that might be happening is that you know actually wrote this today

an update, but when you have a bull market, and we're not in one anymore, but when you're in one, a lot of professional investors, institutions, they'll go on margin to try to beat the market, and that means they borrow money against their accounts to buy more, and they do that to try to beat the market, because it's difficult to do it, just buying stocks. you typically are going to match performance with S&P 500. So they want to try to beat it. So they'll borrow money to buy more than they could otherwise. And then we had record margin debt exactly a year ago.

But then when you have a bear market, they de-leverage themselves. They take the margin debt off. And in fact, it's not even necessary to have any at all when the stock market's falling. you're just trying to beat it. And this isn't to say anything about people who make wild gambles, you know, using margin or buying a lot of call options or doing really risky things, which that happens too. So we're kind of in a de-leveraging, I would put it, a slow de-leveraging in the stock market going on. But it's a tough situation.

And as far as when it might end, you know, I would just suggest this. One thing I look at, and I think I talked about this with you sometime earlier this year, but there's futures that trade for housing prices. There's a housing index, and there's people that buy and sell futures contracts on it. And the projection of that tends to be fairly accurate for the overall path of housing prices. And what they're projecting is a roughly 14% decline from where housing prices are now. They've already come off their highs a little bit, a set a couple months ago. But the troubling thing is they're not showing a bottom in housing prices until the first quarter.

of 2024, which, you know, that's over a year from now. So that's just, we could be in a really drawn-out recession or bear market in the stock market, typically the stock market bottoms about three months before a trough in the economy. So, you know, it seems to me we're in a slowdown of some sorts with inflation that may not end until that, of next year or early 2024. Hey guys, sorry, I don't mean to go all FDR on you or anything, but here's the new deal. All the interviews are now going up first at Scott Horton's show.substack.com. Of course, they'll all be going up at Scott Horton.org the next day, and the archives going back to

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insurance, investments, advice. So, well, a couple things. I'm always trying to make the parallel to 1999 or in 2000 or to 2008, you know, from what I know of these things. And the same and the differences in the circumstances. Can you tell me what's going on with M1, 2, and 3 right now? And what hell are those things in the first place? And is there like a massive contraction in the money supply now? Or no, it's still expanding and expanding because there's still so much new money that they created, plus the interest rates just aren't high enough compared to the rate of price inflation.

So it makes sense just if you're a businessman to take out a loan rather than to save. well I'm looking at it right now since you asked but what M2 money supply is it's the measure of the money supply total including cash checking deposits convertible loans and it goes up you know usually it goes up because the Fed every time you go to the bank and borrow money you're you know you're increasing it and companies do it more than individuals do but when your interest rates go up enough, that process can slow down. So according to the Federal Reserve's data, it peaked out this March and has been coming, you know, it's off the high. But just coming a little bit off the high, it can be very contractionary for the economy. In other words, so it's still 2007 right now in Bear Stearns, the Lehman brothers are in trouble, but we haven't seen the implosion yet.

Yeah. That's one way to put it. However, the thing about it is, I don't know, like in 2007, Bear Stearns blew up. That was in the news. There's a couple of hedge funds that blew up because they're owning these crazy mortgages. I didn't understand really what was going on until January 2008. read some articles where they just someone just laid it all out um now you know usually when there is a bare market cycle like this eventually stuff does blow up um in the 2000 1990 99 peak uh what blew up

or internet stocks but then things like worldcom um andron uh there are all these um internet uh cable companies that were putting cables across the world they blew up i got to tell you now though i i don't really know what's going to blow up but i don't i don't really have any idea of where that's going to happen but it will happen somewhere and that's when you can know oh we're closer to the actual end of this than where we are now seemingly yeah all right so just to wrap that subject up real quick here because i'm sorry we're short on time because i screwed up and i called you first and i'm supposed called Lyle and now I'm in a hurry. But there's this piece from Bloomberg, Fed seen aggressively hiking to 5% triggering global recession.

And the point is, that's what they're trying to do, right, in order to lick the inflation that they caused. Yeah, that's what they're doing. And in July, Jerome Powell, the chairman, he gave a speech. He said this to the Wall Street Journal, that he is willing to raise interest rates and hopes to keep them, you know, at that time he was saying above four, but now it's like five, but hopes to keep them at that level without lowering them for over a year, even if it causes a recession.

So that one other point I want to throw at you. Sure. That's real important. And makes this a different environment than we've ever seen before is what's happened in England. So over the past couple weeks, they had a new prime minister who came in and said, I'm going to lower taxes and give people aid for their rising fuel costs. In other words, increased spending at the same time. Yeah, yeah. Increased spending, cut taxes, stimulate. And in the past, that will normally

create a stock market rally and people get excited. And this time, the opposite happened. happened. Their stock market dropped. Their bond market dropped. And then they had to backtrack on those policies. And that suggests to me it hasn't happened here in the United States yet, but we may be in an environment where when the government or the central bank reacts to try to stimulate, it could fail. The markets may not react positively, which is something we never seen. I don't remember myself at least. Is there a parallel there with, I mean, was she just not supposed to do that? Like, I remember in Secrets of the Temple, they talk about how Volker is jacking up the interest race. He's trying to force this recession. But Reagan is running on tax cuts or ran on them. And then so he's implementing these tax cuts, which is stimulative policy. And it's making the crash take longer before they can start the bubble all over again, basically.

So I wonder if that was what was going on here, was they're trying to deflate. and she had the opposite policy on the fiscal side. Yeah, yeah. That's basically what happened. And then the markets chose the bank over the dipshit. Yeah, basically, basically. Makes sense. Okay, now listen, I don't have enough time to ask you about this.

Well, I guess I do. I got four minutes. Listen, you sent this thing. We will see the return of capital investment on a massive scale, and it's an interview with some guy never heard of who's really rich and smart. And he talks about how globalization is over, and American mass corporate industrial investment in China is over.

We're going to onshore. All of that stuff is coming back. And we're going to see massive inflation from here on out because it's the only way to pay off the national debt is to just debase the currency like Argentina. But at least we're going to put all that new inflationary money into building up the USA and all this crazy stuff. And you highlighted it.

in your morning email. Everybody sign up for Mike's morning email, wall street window.com. And he said, yeah, this is really worth a look. So I did look at that, and it was very interesting. And I wonder, what was your take on what this guy was saying there? Did I, I encapsulate that pretty much sort of goes, right? Yeah, yeah.

Well, he, he's one of the smartest financial people I've followed over the years. Now, it's Russell Napier. Napier, yeah. Napier. Yeah. Now, what he's really arguing in there is that he said this in 2020, articulated this idea, and it is that lowering interest rates, doing these bond buying programs no longer will work. They no longer will stimulate the economy. They basically won't do anything to benefit in a recession. So he thinks that these central banks are pretty much useless now and that what's going to end up happening is that governments are going to sidestep them

by finding ways to inject money straight into corporations or industries that they favor. And in 2020, he was making the argument that these loan programs that the Treasury Department was doing were essentially that. They were giving money to finding ways to give money. directly to companies so in that article he's basically making a repeat of that argument and claiming that you know this is going to be used for man you to stimulate manufacturing or you know whatever it is these programs are going to end up being but of course you know that's crony capitalism when you get down to it yeah and almost always evil corruption and people dead and all kinds

a horror, you know, to come. They point at something like Cylindra, and it's like, oh, that's the G-rated you know, nothing really bad happened version where they just stole a lot of money. I don't think they got anybody's head exploded over that one, but, you know,

they do stuff like that, get people's heads exploded. All right, well, listen, I'm sorry, we're all out of time, but I screwed up, and so we are. But thank you so much for coming on the show. it does help me understand a little bit about what's going on and listen everybody you want to understand what to do with what little money you got left um go to wall street window dot com sign up

for the morning email and follow mike very closely he's great thank you again man really appreciate you oh great talking with you have a good day thanks oh yeah oh yeah and read the book the war state and why vietnam the scott horton show anti-war radio can be heard on kpfk 90.7 fm in l a APSRadio.com, anti-war.com, scothorton.org, and libertarian institute.org.