Scott Horton Show - Just the Interviews - 12/11/25 Bob Murphy on How Central Banking Fuels the War State

Episode Date: December 17, 2025

Scott interviews economist Bob Murphy about how the Federal Reserve enables the government to pursue its wars of choice. They also talk about the soundness of Modern Monetary Theory, the prospect of a war with Venezuela, the affordability crisis and more. Discussed on the show: The Creature from Jekyll Island by G. Edward Griffin What Has Government Done to Our Money? by Murray Rothbard Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider Politically Incorrect Guide to the Great Depression and the New Deal by Robert P. Murphy Robert P. Murphy is a Senior Fellow with the Mises Institute. He is the author of numerous books: Contra Krugman: Smashing the Errors of America’s Most Famous Keynesian; Chaos Theory; Lessons for the Young Economist; Choice: Cooperation, Enterprise, and Human Action; The Politically Incorrect Guide to Capitalism; Understanding Bitcoin (with Silas Barta), among others. He is also host of The Human Action Podcast and The Bob Murphy Show. Follow him on X @BobMurphyEcon Audio cleaned up with the Podsworth app:  https://podsworth.com Use code HORTON50 for 50% off your first order at Podsworth.com to clean up your voice recordings, sound like a pro, and also support the Scott Horton Show! For more on Scott’s work: Check out The Libertarian Institute:  https://www.libertarianinstitute.org Check out Scott’s other show, Provoked, with Darryl Cooper https://youtube.com/@Provoked_Show Read Scott’s books: Provoked: How Washington Started the New Cold War with Russia and the Catastrophe in Ukraine https://amzn.to/47jMtg7 (The audiobook of Provoked is being published in sections at https://scotthortonshow.com) Enough Already: Time to End the War on Terrorism: https://amzn.to/3tgMCdw Fool’s Errand: Time to End the War in Afghanistan https://amzn.to/3HRufs0 Follow Scott on X @scotthortonshow And check out Scott’s full interview archives: https://scotthorton.org/all-interviews This episode of the Scott Horton Show is sponsored by: Roberts and Roberts Brokerage Incorporated https://rrbi.co Moon Does Artisan Coffee https://scotthorton.org/coffee; Tom Woods’ Liberty Classroom https://www.libertyclassroom.com/dap/a/?a=1616 and Dissident Media https://dissidentmedia.com You can also support Scott’s work by making a one-time or recurring donation at https://scotthorton.org/donate/https://scotthortonshow.com or https://patreon.com/scotthortonshow Learn more about your ad choices. Visit megaphone.fm/adchoices

You ladies and gentlemen of the press have been less than honest. Reporting to the American people what's going on in this country. Because the babies are making this. We're dealing with Hitler Revisited. This is the Scott Horton Show, Libertarian Foreign Policy, mostly. When the president visit, that means that it is not illegal. We're going to take out seven countries in five years. They don't know what the fuck they're doing.

Negotiate now. End this war. And now, here's your host, Scott Horton. All right, you guys, introducing the great Bob Murphy. He's, of course, an Austrian school economist, scholar, and fellow at the Mises Institute. He's the author of a whole mess of books, including the politically incorrect guide to capitalism and the politically incorrect guide to the Great Depression and the New Deal, which I like so much. and we may have an announcement along those lines for you at some point to discuss,

but we'll sort of pretend that that's mostly a secret still. And then also he wrote lessons for the young economist, Choice, Cooperation, Enterprise and Human Action, the Human Action Study Guide, that is, Meese's book, of course, understanding money mechanics and chaos theory and contra Krugman and the study guide to the theory of money and credit, which is what we're going to be talking about, at least in part today.

A study guide to man economy and state by Murray Rothbard and chaos theory also. And so, yeah, I like this guy. He's also really funny. You should follow him at Twitter. He's Bob Murphy Econ on Twitter. Is it Robert Murphy Econ? No, it's Bob Murphy.

Yeah, Bob Murphy Econ on Twitter. And he'll split your side with the stitches as you laugh at his hilarity on there if you have a sense of humor at all. So thank you for. coming on the show. You're my second Austrian school economists in a row. And what's funny is, I'm actually the director of an institute where I have my own Austrian school economists. I could just interview them. But for whatever reason, I just keep talking to you boys at the

Mises, which is okay too. Good old Mark Thornton, he came on and he humored me, the poor guy for an hour or so. And we had a good old time. And he taught me a lot of stuff, as he always does. But there were some things that I didn't get quite a chance to cover with him that I thought, you know, maybe we could go over. And also just, you know, a little repetition is important on the most important things, right? And so, like I say, when you go to church, it's not like, oh, we're going to talk about this Jesus guy again. Yeah, yeah, exactly. It's like, okay, it's the Scott Horton show.

We're going to talk about the business cycle again. And I can see how maybe for new people that might be confusing. Isn't this the anti-war guy, but that's the whole thing. Central banking and war. War and central banking. It's all one big topic to me. and there are also lots of other aspects to central banking other than imperialism, but that's one of them.

So I kind of want to start with that, man, because obviously we talk a lot about how inflation helps make the wars seem free because they can only tax you so much or you'll start getting really angry and maybe even really, really angry. And then they can only borrow so much because the government of South Korea can only tax their people so much, right? And there's a limit on that. And so then they just, and I swear, this is in the Wall Street Journal yesterday. I thought they were joking, like they're just trying to feed me punch.

lines, the Fed announced they're going to buy $40 billion worth of bad debt in order to funnel, you know, flood the economy with more currency and save whoever's asked, made a bunch of bad loans in this case, whichever it is, whether, you know, if it was just loans to the U.S. government or I know they have license to buy all kinds of bad debt, right, with new money. And then, so they can, we still pay the price in terms of higher costs on our, shelves, which is very meaningfully, very meaningful, but then also we pay the price in our time in the unemployment line when the crash comes after the big boom that's also generated by inflation. So we know that inflation helps pay for the empire and we know that it helps cause

major consequences for people here at home. But I'm interested in, and I don't know if this is your speciality or what, but I know you must know something about, like what exactly then is the role now that we're off the gold standard, I know that, well, you correct me if I'm wrong about this. What I think is that instead of the gold standard, what we have is the IRS will kill you standard, right? So in other words, if you own bonds, what you have in your hand then is a promise from the government that they will tax somebody else to pay you that debt or the interest on that debt and then whenever it matures, whatever, buy that bond back from you kind of thing. And so that's really, instead of the gold standard, it's we have a bunch of IRS goons who are going to go around

and confiscate the real wealth that people earn. And that's what really backs the dollar. But then people say that Nazi at the same time, Henry Kissinger went to the king of Saudi Arabia and said, what we're doing is we're going off the gold standard, we're going to create a petro dollar. And you're going to agree, we'll always defend you in foreign policy, but you're going to agree to always denominate your oil sales

and force all of OPEC to denominate all your oil sales and dollars. And that's going to artificially prop up the dollar by creating artificial demand around the world, On the other hand, I know America, the American dollar has been essentially the backstop global standards since the end of the Second World War anyway, maybe before that. I don't know. So, but then Donald Trump just stole an oil tanker yesterday. And there's this threat of war with Venezuela and people, it's almost like a rock war too,

or people are not even sure why we want to have a war with Venezuela. Is it Exxon versus Chevron, or is it just right-wingers in Florida versus commies in Cuba and Venezuela for ideological reasons and, you know, personal heritage and vendetta type reasons of expats? Or is it, you know, who can suck up to Israel better or their alleged alliance with Iran or whatever? Nobody even really knows, but one idea is that they sit on a bunch of oil, even though at these. these prices is not worth all that much because it's very heavy, dirty crude. But anyway, so I just wonder if you could help enlighten us, Bob, as to your opinion about what role the petro dollar plays and what role, even for that matter, that just political pressure by the U.S. government on other governments around the world that they better do their trade in our

dollars or else. And then, of course, there's the rise of the bricks in response to that. People are other nations or people, other nation states are trying to get around all of that. But I just don't really understand enough about how it works. So I wonder if you do. Okay. That was a long question. I know. I'm going to be quiet now and let you give them.

And, you know, how they give like long things. And then there's a question at the end. Like, I think you beat Diane Feinstein. Oh, but we're only at six and a half minutes in. So you got plenty of time to answer in this case. Okay. You're under oath. And your statements made a lot more sense than Diane Feinstein's, I will say.

Oh, well, thank you. Yeah. That's a pretty high bar. so high praise thanks yeah um okay so a lot there to unpack let me first just say and you're right that you're opening thing about like your anti-war isn't that your stick but hey why are you so anti-fed and i know this is a cliche you know for you at this point and you're a lot of your hardcore fans but i i really do appreciate you doing that and i remember back when you first started interviewing when you were first to my radar and i thought of you as oh

he's this anti-war guy and i was amazed by how you know willing you were to sit there and let me talk about, you know, money and banking and it was clear you didn't have this inbred hostility to capitalism per se and that sort of thing. So I appreciate that. And that link is quite real. I read Michael Island when I was a boy. Yes. Yeah. There you go. So there you go. That, you know, I'll say this, you know, for like the progressive listeners that you may have that think that, you know, we're stretching just because we want to shoehorn the economics into it. But it really is the case. It's just two things. One is even like among standard economists and whatever or whatever, public policy intellectuals,

if you say, you know, what was the problem with the old gold standard? Like, why wouldn't we just tie the dollar back to gold? Like, wasn't, you know, they're less than price inflation and stuff like that? In one of the standard stock responses, and even, I forget where he wrote this, but Milton Friedman actually said this as well,

at some point, you know, in one of his pop pieces, was that, oh, the problem with a rigid tie to gold is that, you know, if there's a genuine national emergency, like a big war breaks out, it ties the government's hands. Okay, so that was always held up as a problem or a flaw, a bug with the thing, whereas from our point of view, no, that's a feature.

That's good. You don't want your public officials to be able to take the nation into war, you know, if the financial system otherwise wouldn't bear it. And so just to elaborate what you said, you're exactly right, that the issue is going into a big war, if the government could rely either on just explicit taxation of the, of the citizenry or even to say, hey, we can't possibly. It's too expensive, but let's borrow money. And they did it the way, you know, a household or a corporation, if you have, you know, big bills coming due that your current income doesn't match. That doesn't mean you can't make the purchase.

It just means, oh, you can put it on debt. But what does that mean that somebody lends you the money and then you pay them back over time? So governments can do that too, even in a hard money, sound money world. But it means, of course, that, you know, the interest rate they have to pay is also going to be commensurate with that because they got to get people to genuinely lend them the money. And so, like, on the eve of World War I, there were a lot of people who thought this thing won't last

very long because it's just too expensive. Right? So, yeah, we're going to have our, they're going to have their fun, you know, shoot off their cannons. Maybe, you know, the guys with the big navies are going to make their ships go around a little bit, but ultimately this can be wrapped up within a year because it's just going to be too expensive, but all the nations went off gold, right?

Another little anecdote along those lines, when I used to teach at the undergrad level, I would make a joke and I would put up a chart of the Fed's balance sheet. And I would say, hey, guys, if you're ever taking a history exam and they expect you to know when the major U.S. wars broke out, you don't have that. Just have a thing of the Fed's balance sheet there. That's the way you can kind of figure out when a war started

because you can see the Fed's balance sheet goes way up. So anyway, I'm just saying that that connection we're making there is quite, both in theory and practice, you know, is quite legitimate. That there is that connection. So, yeah, if you're against war, you should be very much against central banking because that's what makes massive war possible. So as far as the petro dollar stuff, yeah, the, as you said, Scott, the problem was the Bretton Woods era, right? So 1946 to 71, all the major countries had gone off gold, like I said, during World War I.

The U.S. actually somewhat stayed on it. They did some things around the edges like preventing bullion from getting exported out of the country and stuff. But the U.S. actually was pretty good about staying on the gold standard, even in World War I. But all the other belligerents went off, wasn't even close. And so then during the 20s, this was part of the problem that, you know, festering things that ultimately the early 30s came to a head is the nations, like Great Britain, for example, they had printed up a bunch of pounds, you know, to pay for the war effort in the First World War. And then when they went to go back on gold, well, the problem was, you know, there were too many paper pounds floating around. And so prices were a lot higher. And so if they tried to tie the pound back to gold at the pre-war parity, then it was going to require painful deflation.

They were going to basically like suck paper pounds out of the economy in order to get that tied back to based on, you know, the gold they had in the vaults. And that was difficult. That would mean wages would have to come down, right? You're just sucking money out of the economy. And so the labor unions fought that. And so that was part of the issue in the mid-20s. And I think Griffin gets into this in Jekyll Island, that that was part of the issue that great Britain didn't want to deal with that.

Like, there was a prestige matter. Like, they didn't want to just say, you know what? We printed a bunch of pounds. Let's just revalue it and we'll tie the pound back to gold in a lower rate, depreciate it. They didn't want to do that and admit, you know, defeat because London's the financial capital of the world and everything. But also, then the pain of actually doing it properly, they didn't want to deal with. So they talked to the Fed and they helped bail them out and inflate. That's partly what drove the stock market boom in the U.S.

And we know how that turned out in the late 20s. Okay. So there's that element. So ultimately, what ended up happening in the Bretton Woods era, regular people could no longer turn in their currencies for gold. Back as of 1912, anybody, you could go to the Bank of France, you could go to the Bank of England, you know, go to the United States offices and turn in your respective sovereign currencies, dollars, francs, marks, pounds, and get a certain amount of gold. Anybody could do that. In the post-war post-World War II era, only central banks could do that. and gold was $35 an ounce.

So that was the framework, and that could have worked, except the U.S. had all the wars that had to fight, including the so-called war on poverty. So the U.S. government still wanted to spend too much. And so what that, you know, they're effectively printing money.

So that would push up the gold price above $35 an ounce, which was the official rate. And so all these countries around the world that are sitting on growing dollar stockpiles, you know, like treasury bonds and whatever, that the U.S. was telling them, no, no, just hang on to dollars.

They're as good as gold. Because anytime you want you, because you're a privileged government or central bank, you can come to us and we'll give you an ounce of gold in exchange for $35 U.S. dollars. And so after a while, they wanted to do that when like the official market price of gold kept popping up above 35 for the arbitrage. And the U.S. stories like, no, no, no, no, don't. That's going to screw everything up that they will look bad. And that just they couldn't keep doing that. And so that's why Nixon throws in the towel in 1971. So you're right, at that point, things would have been bad. And it's no coincidence that when the U.S. finally severed that last tenuous link between government paper money and gold in 71, what was the 70s like?

Oh, that was the worst time price inflation and peacetime in U.S. history. It's not a coincidence that those two things lined up like that. That once Nixon fully uncuffed the Fed, they flooded the market with money and you saw, you know, massive double-digit price inflation in various years. So one of the things they did, as you say, is cut a deal with the Saudis and, you know, say, just price oil in U.S. dollars. Like in terms of, you know, so people understand when you're making transactions, like someone's going to buy a certain amount of oil, they got to use some unit of account. And so the idea was we want you to price it in U.S. dollars to still solidify the idea that that is, still the global reserve currency. Because before 1971, it was like literally, you know,

everybody was literally stockpiling dollars because that was supposed to be as good as gold. And then the idea was after we go off, we still want other things in place. And so there's that. Now, that element by itself, I'm just about wrapped up here, Scott. In and of itself, I don't know how big a deal that would be in terms of like, why would that make the dollar so much stronger than, you know, other currencies or whatever, because it, like, if somebody's going to buy tons of oil from Saudi Arabia, like a lot of these things, it's not that, you know, there were $100 bills that then they hit on pallets and they, you know, transferred over. And even if it were electronic checks and whatnot, it's not even that the banks, you know, had $100 bills in

the vaults, you know what I mean? So a lot of this stuff, it's, it's not as obvious just that one element per se how big a deal that would be. But I think part of the issue is it wasn't merely that like that was just a one systematic thing. And then as you know, there's a lot of circumstantial evidence that it seems to be regimes around the world. Like what is it that gets you in the crosshairs of the U.S. military machine? It's certainly not violating human rights. That's not the make or break issue for any kind of any regime. It's various things. But among the it's, you know, You can make a very strong case that, yeah, if some leader is railing against the U.S. dollar system and wants to move out of that, that a lot of times bad things happen to that person.

So I think there is that element as a combination of carrots and sticks that, you know, help solidify that the dollar is the global reserve currency. And the last thing I'll say is I think those days are numbered because up until now the number one objection people would bring up when you say, well, what if some other, you know, currency replaces the dollar or like, you know, gold or something? something, is they say, well, that gold is impractical, like, how could you do that? And then what other currency, you know, the Chinese aren't going to do with the, you know, the bricks in general, they're too squabbling and blah, blah, but with the rise of blockchain technology,

and people using like stable coins, if you're familiar with all that stuff, the infrastructure's in place now where in the beginning, all the businesses and governments are going to use US dollar peg stable coins just as a more convenient form backed up by treasuries. But once they have that infrastructure in place, it'll be easy on your computer. you just do a pull-down menu, you can switch to anything else you want, including stable coins backed up by gold and Swiss vaults or something. So I think in a sense, like to reverse the Marxist thing, it's like the tech bros are giving the U.S. government the rope with which it's

eventually going to not, you know, its currency is no longer going to be the reserve one, I think. Interesting. Okay. There's so much there. So one thing is you remind me of what Robert Higgs told me back 15 years ago, if I remember it right, which was, I think essentially what you just said that it doesn't really make sense that it's so important that these other countries to nominate their trade in dollars, that the U.S. government would always be holding a gun to their head and be willing to regime change them on a moment's notice if they dare to change. Because the amount of demand that that provides for the dollar overseas is going to be marginal in any case anyway.

And if the demand is there, it's not going to be just because the empire threatens to kill you all the time. It's going to be because we live in a world where everybody's currency sucks. And usually the U.S. dollars sucks worse, I mean, less, pardon me, than everybody else's, right? I saw a funny tweet about how the Russians had told the Indians that actually, you know what, we do want Chinese one or U.S. dollars or whatever it was. However you say that Chinese currency.

Whatever it was in trade for some weapons or some oil or whatever. And the quip was, oh, yeah, everybody's multilateralist until you're trying to pay your debt with rupees. Right? And then all of us, like, you know, good old Benjamin Franklin. he's going to be worth less next year but he's going to be worth just a little bit less next week so you can more or less count on the U.S. dollar in a way where other currencies are even worse mostly

and that that's where the demand for dollars overseas mainly comes from and again and you skip this part I don't know if it's just because I was so right that there was nothing worth commenting on but that ultimately the dollar is backed up by the IRS's threat to consume the American people until we're just a rotting corpse. Yeah, so let me just talk about a few of the things there. Right.

So, for example, just to kind of buttress your Russia example, sometimes like back in the day, I would have people ask me, you know, I'd go and give a lecture at the Mises Institute, right? We'd be at a conference there. And I remember one time a kid asked, like, oh, does the Mises Institute pay you guys in gold, like, you know, for you to come down? And I said, no. and he was like surprised and I think also possibly outraged like you hit back and I don't say and he said why not and I said well because unless it just so happened that month I was planning on buying that much more gold with US dollars it you know I said my you know I can't pay my rent and gold I can't go the grocery store you know what I mean and so like I got him to see so it's it's more that no I'm embedded in a world where everything I want to buy that the merchants are accepting US dollars and so that's the primary reason like it's not a

lot of times I think even libertarian types will talk about like legal tender laws and stuff like that and I say it's got to be careful the legal tender laws were important like back in the day when there was actual metal content in the coins right and so if somebody owed someone $10 and you can say oh that's a that's a gold eagle right like this coin that has a certain number of grains of gold but then once you know like during the Civil War something when they relieve that obligation and then you try to pay someone with just paper notes you know greenbacks and then the I would say you have to accept this as payment of debt. That's just as good.

So their legal tender matters in terms to like pass debts and you think someone owes me $100 and to say what counts as a dollar. But in terms of the merchant just being able to, like if the dollar's been to base, you know, the legal tender, like the merchant can still say, well, no, because the Fed's been printing money, I'm going to charge you 200 instead of 100 that I did last year, you're allowed to raise your prices. So legal, you know, legal tender doesn't deal with that element. But the thing is, again, it's just if everyone's using it.

So like you're saying, there's plenty of people in other countries who use, like Malay, right, that a lot of people in Argentina already use dollars just because their own currency was so crappy. Like that was the go-to thing. And it's not because they were afraid they would get bombed if they didn't start using U.S. dollars, right? So you do see that element. As far as the IRS and the enforcement, so yes, it is true that the reason the U.S. government can borrow. on such attractive terms, meaning like why they have to pay such a low interest rate, whereas other even blue chip corporations, if they issued a 30-year bond,

would have to pay a higher interest rate, is that, yeah, people know the U.S. government's probably good for this, because ultimately the corporation, even if it's a very safe company, yeah, in theory, something could happen, they could be unprofitable and they wouldn't be able to pay me, whereas the IRS, you know, the U.S. Treasury can either get the IRS to crack down on people or just had the Fed, you know, monetize it. So there is that element. That's why nominal interest rates on government debt are lower than you would think, you know, for a comparable corporation. And so I read a thing that said that the government takes in $5 trillion a year, and they spend seven.

So we got a $2 trillion deficit right now. And then they said on anti-war.com yesterday, the headline was Congress passes a trillion dollar military budget. So there's that right there, the warfare state part of it. And of course, that doesn't include the care and feeding of the nuclear weapons under the energy department or the care and feeding of all the boys in Walter Reed and men in all the military hospitals and all of that veterans care and all of that. So it's much more than a trillion a year. It's Winslow Wheeler said it was 1.7 last year.

So talking about, you know, inflation and spending and all of that. Yeah, so even there, like the mechanics of it, you know, for your listeners who are, like overachievers, strictly speaking, what happens is that legally the Fed can't just directly monetize the Treasury debt. But like the Wall Street Journal thing you alluded to yesterday, now the Fed has announced, oh, we're going to buy $40 billion in T bills. So that the idea is that when the Treasury needs to cover this year's deficit, it floats new bonds, you know, it auctions them off. And technically people in the private sector lend money to the government and say, hey, this is above board. We're not we're not running the printing press.

pair bills, but then the Fed is allowed to go into the market and buy, you know, government securities that other people in the private, you know, primary dealers happen to hold, right? So it's a big shell game, but technically. And so that's partly what keeps interest rates down is because people in the private sector, when they're lending money to the government in exchange for getting, you know, T bills or treasury bonds or notes and whatnot, they know, oh, the Fed also has this buying program if they're, you know, doing a round of QE. And so that, you know, it keeps the price of the bond high, which means the yield stays low. So that's the indirect mechanism by which, and again, that's why this isn't a conspiracy theory that the, or it is a conspiracy theory,

but it's backed up with evidence that if you go and look, I mean, that that's why the function of central banks historically was to be the government's banker, right? So this isn't a mystery that that's partly why certain banks were privileged, even going back to, like, you know, monarchy days is that they had certain prerogatives and that that was the way the King could finance his wars more cheaply, right? So that's part of the official function. In the U.S., it was only, it was called like the Fed Plaza Accords, I think it was in 1951, where after the experience of World War II, where it was quite explicit that the Treasury said to the Fed, you're going to create new money to buy our debt so that we can finance the war effort.

And then in the early 50s, you know, there's. probably a bunch of shenanigans behind the scenes with power brokers and whatever, you know, established and turf. But there, it was, that's where this alleged independence came from. You know what I mean? But even before 51, nobody even pretended that the Fed was independent from the Treasury and that the Fed's decisions were, you know, based on what's good for promoting employment and economic stability. No, it was, yeah, we're here to help finance the government. Right. And then, yeah, and that's the way, speaking of Ed Griffin and Jekyll Island, I mean, that's the way he describes the entire central banking conspiracy, again, is exactly just an agreement.

That was what they agreed was the banks promise, well, first of all, the government promises to allow the banks to create money. And the banks then in turn promise to buy government debt with at least some of that money that they create while they continue to loan out whatever they want to everybody else too. And that's where they get the license to counterfeit it all. Right. And yeah, and so the government gives them certain privileges that are a regular bank in the private sector would not have. I mean, at the very least, if you get caught with your pants down and there's a bank run, normally you would go under.

You know what I mean? Whether we say should it be legal or not for them to practice so-called fractures or banking, clearly in a free market, if that is a legal practice, if all your customers for some reason show up on Tuesday and say, it says right here, I can pull my money out, I want it, and they say we don't have it, then they should, that bank should go out of business, but the government would come in and have, oh, there's a bank holiday. And that, you know, so that was historically what it meant, you know, to be, you know, that banks would have special charters or whatever.

It was a cartel or in some cases a monopoly. I think even says, Bob, that what used to happen was J.P. Morgan would summon New York to his table and say, all right, listen, you give him this much money and you give him this much money and work it out and keep it going. And he had the capital in the force of will to kind of command people to bail each other out and all that. But ultimately, J.P. Morgan doesn't have police power the way the national government does. So what they really needed was instead of having a bank that actually has assets at risk be the ultimate backstop. They had to force the American people to be the ultimate backstop for what was essentially a lot of bad business practices, right? Creating new money, expanding bank credit, and giving out bad loans to people who aren't going to pay them back.

and being worse, they go, well, good old J.P. Morgan's got my back. I guess I can make some bad loans. Well, how about now Uncle Sam's got my back? Now I can make all the bad loans in the world. I got the Greenspan put. I make all the money on this side. And then when it all comes up crackers, they're going to bail my ass out 100% plus a bonus. Yep, that was, yeah, it was the panic of 1907 happened.

And, you know, so the Fed folks is late 1913. And, yeah, as you say, Scott, like if there was a, a liquidity crunch, and then a bunch of people went to, like, J.P. Morgan and other, you know, big power brokers who were, you know, had seen the thing coming and were in a better position. And he had the power, you know, to save some institutions and others. The thing that's interesting, though, and so that was, that was actually a big thing in terms of what the agitation was, like in the popular press and we're leading up to the Federal Reserve Act, as they said, we need a public institution that can act as lender of last resort. That was a phrase they used.

They don't, they didn't use that so much, you know, in the 50s through the, early 2000, you didn't hear that much, but that was the main selling point, that we need an elastic currency, that was another buzz phrase, to be a lender of last resort. And so even on its own terms, you know, that's showing a sort of bolstering Rothbard's point that he was saying the central, the market competition, you know, banks in a genuinely free market can't inflate too much, that if any one of them expands more rapidly than its peers, like its reserves will flow to its peers and, you know, they can't do it in unison even because there could be free entry and someone else will start a bank with a higher reserve ratio.

But what does the central bank do? It's it highly regulates who can open a bank. They put it in the guise of, you know, capital requirements. You got to jump through all these hoops and whatever about for protection of the customer. But it's a cartel. It's hard to, you know, it's hard to open a bank than a piece of shop. And then in case any of them get in trouble and they make a bunch of bad loans, then the Fed is there is the lender of last resort.

So what does that mean? When no one else is willing to lend this bank money, the Fed will. That's what that term means. So it's like on this face of it, they're admitting the function of this is to rescue people when left of their own devices they would have gone under. And so yeah, which is another way of saying it's the way of making the American people virtually all of whom by definition are less wealthy than bankers pay the way of the bankers and force us too, right?

Not when we choose to invest in this bank or that bank, but we bail out the banks on the acts of average people. And now, let me ask you about this, because it's been on my mind for a while. I think we talked about this before, actually. It was something that one of these modern monetary theory people said that made a little bit of sense to me. And it was not, oh, yeah, we could just create money. It'll be fine.

It wasn't that part. It was the part where they said, under our current system, and the way all of this works out is almost maybe a matter of perspective, Bob, feel free to come. completely set me straight and tell me this is commie clap trap and I have no idea what I'm talking about. I'm with you, but just help me understand. But they said, look, under our current system, a lot of this can just be conceived, right? And the way that you look at the categories, it's all some kind of bookkeeping trick. And that one way of looking at it would be that the government spends all of this money into the economy every year by various means. And then on tax day,

What they're really doing is they're sucking up extra money from the people to prevent there from being too much inflation. And so that taxation is the way they put the money in from the top and then they take the money out. I think the MMT people don't emphasize this part. This is like payroll taxes of working people. That then they suck back out of the economy, not that this is the $5 trillion, the IRS take, that really pays the budget

because they pay their budget by creating that money and paying the budget. But this is then taking that money back out of the economy, but it looks to me, Bob, like, yeah, but hitting the poorest people first and on up.

And that's not an argument for progressive income taxation, but just an argument for, like that doesn't seem fair and it seems like they kind of have a point about that, that they're inject, the government's injecting all this money and then they're sucking all this money out,

but it looks to me, by the Cantillon effects that all the richest people, as we're just talking about all the bankers and bail, they get to loan all this money out. They get all the bailouts. It looks like all the money gets created. It goes to the very wealthiest and most connected corporations and powerful people first.

And then when they suck it back out of the economy again, that's work and schmucks payroll taxes that go to all of that and write in horrible inflationary times when people need that money to pay their rent and to buy their children bread to make toast. Yeah, so a lot there. And I like the distinction you're making between like income taxes versus, you know, payroll withholding taxes.

And so even among our circles, Scott, sometimes like these statistics go around saying, I forget what it is now, but like, oh, 43% or maybe he's even 51% of the American people don't pay any federal income tax. tax. Like the Mitt Romney campaign had one of those talking about. And that was, I think, very misleading. That it wasn't saying that, oh, there's half of the adult population who have jobs who don't pay taxes to Washington. It just meant that means narrowly the income tax. You're still getting the money taken out from FICA and everything from your paycheck every week. That's not

part of that. So, and you still pay sales taxes and, you know, all sorts of things. So I think there are very few Americans who on net are not, you know, paying into the federal profits. And I hope I'm clear that I'm not saying rich people should be punished more than poor people. No, I know you are. I'm just saying they shouldn't get more welfare. Right. At the expense of poorer people, that's completely crazy. That's what I'm saying.

So anyway, but yeah, I am just glad that you're making, it's a, because there are sometimes are misleading statistics going around that, yes, the top 1% pay way more of federal income tax, but it's not the case that, you know, people with blue collar jobs aren't also being taxed. So as far as what you're saying on the MMT point, Right. A standard way that they're trying to get their perspective across to people is they'll say when it comes to what they call a monetary sovereign, like, you know, the U.S. government or the Japanese government, you know, these prestigious things with a, you know, a large economy and in particular where they can borrow in their own currency, right? So like the Zimbabwe government, the reason they got in trouble partly was because their debts were denominated, you know, to foreign ones or even Germany, you know, with the Versailles Treaty, part of the reason they got in trouble. trouble is their reparations were ultimately quoted in gold. So that's why when they were printing marks, that wasn't good. Like they had to just keep printing more to stay ahead of the curve. So the issue is, but the U.S. government right now, you know, the public debt, 30 plus trillion,

whatever it is, that is denominate in U.S. dollars. And so the idea is there's no doubt that they can pay. This kind of goes back to what we said a minute ago, Scott. Everyone knows if I have, if the federal government owes me $1,000 in 20 years, they're good for it because if nothing else, print it. And that counts legally. So, of course, they can come up with the money. And so then that, you know, that raises the question then, well, then why do they tax us? And so the standard MMT response to that, as you say, Scott, is to say, oh, it's not that they need to tax us to get money to buy stuff, because they just create money through accounting, you know, bookkeeping operations. If they want to buy fighter jets, they can just credit, you know, the Treasury's

account and they can just pay Lockheed or whatever. It's all electronic, you know, digits on a ledger somewhere. But as you say, if that's all they did, if they didn't tax and just every year, whatever, the government spends $7 trillion and just printed that and everybody knew that was the game, well, then people wouldn't want to hold dollars because they would realize, oh, they're just going to keep flooding it with more and more money. That's just going to push prices up higher and higher. If every year, seven more trillion dollars gets injected into the system that's floating around, prices are going to go up. So it's not just in the long run, but even right now everyone knowing that's what they're doing, they would say, I want to get out of dollars because

I don't trust the system anymore. And then there'd be hyperinflation. The dollar would crash. So in their framework, yeah, the function of taxation is to remove that purchasing power so that you don't see upward pressure on prices as much. And so that's, and yeah, and then given the equity considerations you're talking about, they'll say stuff like that, that maybe we should structure the tax code, you know, to take money away. Like they don't like billionaires. for example, Stephanie Kelton, saying the reason for taxing the ultra-rich is not because we need revenue, it's because we don't want any individual to have too much power in our system. Like, she's openly said stuff like that.

So that's, that is their framework. Now, are you asking me, like, is that basically right? Well, yeah, there's got, there's some truth to that, right? Even the way that you describe it, it sounds right. The government, there's no gold standard, whatever they do, issue checks to whoever they want to. Lockheed or grandma or whoever. And then, I don't know, I'm asking you, is that right?

That then, yeah, they create all this money from the top and they suck it all out from the bottom. And they're just constantly, it is a class war of the rich versus their employees by way of the national government doing this. I mean, she seems to think it's a great idea or whatever. I'm not saying that, but I'm just asking, like,

is she describing the mechanics of this correctly because it kind of sounds like it to me? Okay, so in other words, they're not taxing us $5 trillion in spending that $5 trillion next year, right? They're creating seven and then they're destroying five after the fact, kind of. Okay, all right, great. That is that right? So I actually think if you really drill down into the step by step, I don't think it's actually right. Okay.

For example, right now, according to law, the Treasury, you know, they can't bounce a check, right? the U.S. government, if they try to, you know, if they, so what happens is the Treasury has an account with the Federal Reserve, right? The Treasury doesn't keep an account with Citibank. The Treasury's checking account, if you want to call it that, is with the Federal Reserve. And by law, if the Treasury, you know, tries to send checks out to people and pay them electronically, and then they go and check it. And if, oops, the Treasury only had a billion dollars in its account with the Fed, but it wrote checks for, you know, two billion. And so normally they would be, you know, you know how sometimes you just don't, watch it right and you have a negative balance with your bank, you know, like if it's not too bad, they'll just let it ride. And then, oh, geez, I owe my bank $200 right. I have negative $200 in my account and you can just get a whole with them. Legally, the treasurer's not allowed to do that vis-a-vis the Fed. Okay, so in terms of like the way Stephanie Kelton in her book, for example,

explains how the process works. I don't think is literally correct. That on paper, it does look like they need the money before they can spend it first. What about figure? Yeah. However, you know, given the shell game that I was talking to you about, you know, in practice, that's more for appearances's sake. And Congress could change that law tomorrow. Right. So in other words, there's nothing economically stopping them just from renting a printing press and buying stuff. Certain regimes and history have done that. I'm just saying, but technically right now, the way the MMTers explain, like, here, let me, let me open up the hood and show you how it works. What they're saying is actually not quite right. But I guess I don't like to die on that hill because, Congress could change the rules down the road and then they would be even literally correct. But the thing that I don't like about the spirit of what they're saying besides just the letter being off, I argue, is that, and I've seen people go with it this way, is they'll like,

you know what, like standard right wingers will say something like, hey, this is our money and we don't like them taxing it because it's our money. You know what I mean? That's not the politicians. And I've seen people inspired by MMT push back against that and say, no, all the money you have came from the government. And so they acted like the government's doing us a favor by deficits spending money into existence.

And oh, thank you. Can we have some crumbs? And that if they tax us, they're just taking back what they gave us in the first place. That's what is crazy. In other words, the way that the evil politicians all like back in history used to always talk about it, like, oh, can government afford this tax cut instead of can the American people afford this spending, right? Right.

Where they just sort of speak as though they're presuming that the wealth belongs. to the government in the first place and they're allowing you to keep it. These people are explicit about that. Right. And they confuse, it sounds like the way you explain it anyway. So they confuse money for wealth in the first place. Like, you didn't really earn anything.

Anything that you have is essentially a welfare check, no matter how many hours a week you work. Okay, yes, I agree with everything you're saying, but just to push it a little bit more. So I'm saying even on their own terms, even if it were true, that we were all sitting around using seashells and stuff and then they came along and said,

you like to use Benjamin Franklin's instead? And we said, oh, that'd be awesome. And I said, okay, here, we're going to print some. And then, oh, but why would these have purchasing power? Oh, because every April 15th, you have to turn us, give us some back, or else we'll put you in a cage. And so that's what makes everyone want to work for these green pieces. This is the MMMT story, by the way. Like, I'm not putting words in their mouth.

Like, they think this is a neat little trick. And so I'm saying, even on the face of it, this is horrifying. And then they'll say, oh, you're just mad. You don't like the system. We're just telling you how the world works, dude. Okay. So anyway, that's the way these debates go. But I'm saying even on their own terms, if they say, hey, we want you guys,

unions guys, you know, build a road and then we'll pay you with these green pieces of paper that we can just print up. Okay? Once they did their work and they got paid, now that is their money. The fact that it came from them, like my joke was, if I buy a sale addressing that's got Paul Newman's name and face on it, it's not like he can just come into my house and take it back and say, well, come on. If you look at it, that's actually mine.

no, once I buy it, it's mine. And so likewise, if, you know, Grumman or whoever gives fighter jets to the Pentagon and then they give them a bunch of money, that's their money. And then if the government taxes it and say, oh, actually give us some of that back or we're going to shoot you or put you in a cage,

the analysis in terms of that vis-a-vis libertarian property rights is still the same. Right, so there's that element. But then even beyond that, they're overlooking. It's not the case that U.S. dollars became adopted as money because people were just sitting around using barter and then thank God the authorities came in.

and forced us a gunpoint to start using money that, no, the dollar used to be defined as gold and silver. That's what made the dollar so prominent, you know, and then they took that link to the precious metals away. So the, you know, the MMT origin story of money is just they make that up. And it's hilarious because they always accuse the Austrians of just having an armchair theory

that, you know, doesn't follow the anthropological evidence when their own theory of, yes, the original money was deficit spent into existence. No, that's not true. historically so hey guys scott here you know you've probably noticed when i'm interviewing somebody or somebody's interviewing me i've got this great bust of dr ron paul in the background on my bookshelf here well you can get one like that too they're available again from the great artist rick casally just go to my website scott horton dot org and look in the right hand margin click the link through

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the first to know if you sign up and subscribe at my substack where i am publishing this audio in pieces until i get the whole thing ready together for audible uh eventually so uh sign up at scott horton show dot com that's my substack scott horton show dot com hey you guys should buy my books you know my first one was called fools air and time to end the war and after Afghanistan. It was really good and it all came true too. Watch me predict the end right there in the preface of the thing. Also, enough already time to end the war on terrorism. That's all the wars from Jimmy Carter all the way through the first Donald Trump administration. And then my latest is provoked how Washington started the new Cold War with Russia and the catastrophe

in Ukraine. Tucker Carlson says it's the definitive take. Expandesigns.com. That's my friend Harley Abbott's company. And he is the webmaster for the Scott Horton show, as well as the Libertarian Institute. He is the guy that redesigned the Ron Paul Institute for Peace and Prosperity website. He's done a lot of great work for other friends of mine. And unlike a lot of webmasters and web developers and different guys that I have worked with over the years, the thing is about Harley Abbott and his team is they do what they say they're going to do when they say they're going to do it. and are just extremely reliable and extremely knowledgeable and 100% vouch for the great Harley Abbott over there.

You got a website, you need it fixed up, you need a new one, setting up a business, working on any kind of online project like that, check out expanddesigns.com. Let me ask you this, because I've heard it argued that, yeah, yeah, gold standard, this and that, but it's a single global economy in a world full of national governments with fiat currencies.

And if we have the one sound currency, then all that means is the rest of the world gets all our gold. It's all just going to be a giant funnel out and it won't work. You'd have to somehow make the whole world except a gold standard or something like that. I have no idea what I'm talking about, by the way,

but I'm just setting you up to talk about that. Okay, so I think what you're saying is, you know, like for example, let's go back to like the early 30s when country after country started going off gold like Britain did it I think in 31 and then like it was a domino thing

and then and this is what Keynesian types will use as you know evidence to show the gold standard was tying government's hands in the Great Depression and you see because you can look at like industrial output you know indices of that and that if you line up the countries

in terms of when they went off gold in the 30s you can see oh that's when they're you know the fall in their industrial output, bottomed out, and then it started rising. And so in that context, yes, I have seen people say something like, given that all of the other major powers are going off gold, and by going off gold, folks, what we mean is they originally had promised, hey, anybody who shows up with British pounds and turns it into the authorities, the British government will give you a certain amount of physical gold.

And anybody who goes to the bank up to France and turns in gold, you'll get a certain amount of, or turns in francs, you get a certain amount of gold, that a lot of them just started one after one suspending that and saying, no, we're not doing that deal anymore. And so then the concern is, aren't you a sucker? If you still say, yep, we're honoring that commitment we made, then people, especially in times of economic uncertainty, like in the early 30s, aren't people going to go

and keep turning in your currency to you? And then the gold flows out of your vaults and goes elsewhere and it's not going to flow out of, you know, England's vaults, because the Bank of England's vaults because they said we're not doing that. So two quick things of that. One is that certainly doesn't explain the Great Depression, right? Because all the major powers went off gold in the early 30s. So that's not why we teach in history books.

And so the Great Depression was all wrapped up by 1933, right? No, it lingered. So clearly that was just a temporary thing, which you would expect, allowing governments to print more money that didn't solve the problem. That just, you know, gave us a short-term illusion of relief. So there's that element. But then even beyond that, no, if what you're, if what you care about is the long run strength of your currency, then committing to that rule, you know, that's still valid. So it's true.

Yeah, in times of uncertainty, people might flock and hit you. But I think it's the kind of thing where partly the reason there's a run on, you know, as more and more countries were going off, people got worried that, oh, who's, you know, you want to get your. your gold out before that authority cancels redemption too. But I mean, if you just had this longstanding reputation, everybody just knew, no, those guys are good for it. These other governments are fickle, but no, the U.S. is always, you know, Ron Paul's in charge, he's not going off. There's less incentive to run, if you get what I'm saying.

So I think there's that element too. And ultimately, the last thing I'll say on that, ultimately, if you had a properly administered gold standard where it was backed up 100%, where literally, you know, they had that many gold bars sitting in the vaults backing up the outstanding government currency. Okay, so people demand it and then the outstanding stockpile of dollars

would shrink as the gold outflows and that wouldn't be a problem. So where are you getting to trouble is if you printed way more dollars than you had gold to back it up and you promised everybody. So yeah, it's bad to make promises you can't keep, but that doesn't prove that lying is cool.

It means don't make promises you can't keep. Right. Yeah, just like you said earlier that quote, I forgot who it was that you said, but there was a much cruder version from Jonah Goldberg from the National Review saying, well, that's why we can't have a gold standard. What if there's a war? And so, yeah, that's right. We need a gold standard, but that means, yes, we can't have a warfare, welfare state or regulatory state. We just have to have a free society. And then we could afford to through taxes to pay for the most minimal government possible. And we're not going to get into anarcho-capitalist theory today. But, If you're going to have a limited republic, it's going to be very, it has to be very, very limited if you're going to be able to afford the thing. Right, right. And there, and you can. Have you ever heard this quote, Scott, like, because people were a boat, geez, what if we get invaded or something?

Yeah. That there was a Japanese general, I think, that they were talking about, you know, when they were getting ready to bomb Pearl Harbor, so instead of we could never invade the mainland U.S. because there's a rifle behind every blade of grass. Yeah. You heard that quote, so. Yeah, and I'm trying to remember because I think somebody said that that was fake. But it's still true anyway.

No, it's not fake. Oh, it's not fake? I'm pretty sure I looked that one up. So there have been other ones that were. Yeah. But I think that one's okay. I know. All libertarians got a grudge against Abraham Lincoln,

but he's got the best one of those where he says that all the nations of Europe and Asia combined could not take a drink from the St. Lawrence or make a track on the Blue Ridge in a trial of a thousand years. if American liberty is to be lost, it'll be whatever, I forgot. We'll die by suicide or we'll live forever or die by suicide or something like that. We'll die by the north and invading the south. And we'll die by the north and being the south and turning America into England. Hey, can I ask you one other thing? On Venezuela, I mean, this is perhaps goofy, but yeah, there's oil and all that stuff.

And clearly like, huh, it's funny, they blow up the drug boats, but they don't blow up the oil tankers. I wonder. No, they just take those. There was a funny guy in my Twitter feed. saying, that's black fence, man. They're making, he put a picture of some black licorish. And he's like, you see, this is what they turn. That is at the black, no, just one touch will kill you.

Got to go to work. And then, man, I saw this thing, the clips, they're saying, well, these drugs, they're chemical weapons, Bob. They're weapons of mass destruction. Aha. Come on. All right. But what I was going to ask you, though, is besides all, you know, the real

politic and everything, is it goofy? I mean, Hugo Chavez. I don't know if you remember this, but he would do stuff. Like he, the UN was meeting in New York one time and he came or, well, actually, I don't know that it was New York. I should take that back out. But he, and he was speaking right after George W. Bush spoke. Yeah. And he got up there and he goes, I can still smell the sulfur.

Yeah. So, I mean, he was really sticking it. And I just wonder if a bunch of people are like, we can't stand this guy. We're going to take this country out. Yeah, I mean, yeah, Maduro is his successor, of course, but yes, he, um, there's, you know I really don't know I guess the bottom line is the Florida crew that runs

the Trump government just this is their chance they think and they'll take it if they can I don't know if he's made the decision to allow them how far he's going to let them go but they hate the Cuban regime and they hate the Venezuelan regime and you know communism sucks it's you know

there's plenty of good reason to resent them but these are expats and they got real grudges beyond just disagreement here, you know, they've got real motive. So I have a very half-baked theory that, like, I don't put any stock in, but I don't know. But Chevron has been doing a lot of business with Venezuela for a very long time and getting along just fine. And then Exxon, there's an article in the American Conservative about how Exxon is sponsoring a think tank in Washington that just put out a big study about why we got to do. regime change and I was talking with

our mutual friend Adam Heyman about this and he was saying, yeah, no, me and Bob talked about this on the show months ago that there's this oil field like bordering Venezuelan territory that Exxon wants in on and that the current Venezuelan regime might be a problem for that.

But I had a friend send me a message and said, hey, listen, long time fan. In fact, I recognize the guy's handle on Twitter. You know, he's been around for a long, long time. He goes, longtime fan, I work for Exxon and let me tell you, first of all, Exxon Chevron don't play like that. They don't, that's not how they do business.

They are in agreement on foreign policy, and that is always like hands off, let the government decide don't do anything. They don't want to mess around on anything too specific like that. And especially at these prices, because Venezuelan crude is, you know, speaking of sulfur, is very heavy and polluted oil that can only be refined at a higher cost. And at these prices, it's not very profitable anyway.

And so he was saying, and he was just saying, I guess, like the scuttle butt around the office, they don't have anything to do with this. This is not their agenda that's being implemented here, whatever. So I don't know the guy, but that sounds mostly right. You know, people thought the Iraq war was about oil. But it was clear to me that Houston was like, hey, man, you guys want to do this. That's great.

And we'll come and we'll build army bases and pipelines and we'll do whatever. But they're just as happy to work with Saddam Hussein. And in fact, when Bush wanted to privatize the Iraqi oil and put it in as many hands as possible in order the neocons wanted to try to disrupt OPEC, Bush let James Baker come in there and put the kibosh on that right away. Elliot Cohen's plan was destroyed and they said, no. Iraq is going to have a national oil company and it's going to be in alliance with Saudi Arabia, you know, end of argument.

So it was the neocons war and then the oil guys got to like hang on to what they had or, you know, the way that they would keep it the status quo as long as possible anyway, right? all the things considered. Yeah, just I'll, you know, two quick things on that. Yeah, so I want to clarify that. That was Adam's pet theory. I let him say it on the show, but, you know, I wasn't endorsing. And then so that's right, if he gets overturned.

And all I know about Exxon is years ago, somebody who would know was saying that, yeah, originally Exxon dabbled in funding, you know, what at the time progresses would call like the science deniers about climate change stuff. And then Exxon just flipped. And they actually went the other way. they got invested into like carbon credits natural gas and stuff

with the modest carbon tax actually natural gas would do well and then we're very much oh we're on board we believe in you know what the scientists are telling us and da da da so because presumably because it's public opinion

internally they just decided this is going to be a bad look for us not you know because so the fact you know that would line up if your guys telling me that no they just they know that that's just too risky and we're huge anyway it's not like we let's not risk things

I could see that. And the other thing I would say, too, is I think sometimes libertarian anti-war types think, oh, the reason, when we say oil affects foreign policy, it's because we're going to go and steal all their fields when, no, if you own Texas oil fields and there's just a big war in the Middle East that disrupts Iran's ability to export oil, that helps you too because that puts up to the world parties. That's right.

And in fact, Greg Pallis from the BBC is a friend of mine and sort of a progressive good government guy, but a real expert on global energy markets and this and that. His thing was the Iraq war was about Houston, but it wasn't about stealing Iraqi oil. It was about redlining it and keeping it off the market, where Saddam wanted to go ahead and bring in the French and Chinese and whoever to develop it all. It was about preventing that from happening, which there may very well have been some protection to that. Of course, makes perfect sense.

Now, let me see how much time I got. I don't have much time, but I want to ask you more things. So let me see what I wrote down to ask you about. well okay yeah let's talk about the boom and bust here a little bit well let's see if we can try to fit in some boom and bust in some some some property market type conversation here at the same time so trump says that the affordability crisis is a hoax and you know robbie bernstein made a great point on part of the problem about god dang it one year ago it was called inflation and now they've renamed it, affordability.

Is that because if they Google inflation, they're going to get Bob Murphy, and then we're going to figure out what the hell's going on around here? So I had to rename it some jargon. And then they're going to promise, oh, government, they're going to bring down prices for you. Well, no, they're not either. So Trump is saying, forget your lion eyes,

forget your lion credit card bill. It's fine. And my idea is this, Bob, is that he understands the business, cycle, not because he read Mises, but because he's a property guy. And I've heard him say explicitly, low interest rates are good for a property guy like me. Right. And he understands that in inflationary times, you want them to keep being inflationary times. Because at the end of the inflationary times, because a horrible, God dang, crash correction disaster. And that looks

really bad. So if you think that prices on your shelf for groceries are bad, he knows that, but he knows that he just has to suck that up. He just got new fed people in there and they just lower the federal funds rate, a quarter of a point on his demand or else, more inflation, lower interest rates, buy more treasury bills with new money, keep inflating, prolong the bubble, until after Chelsea Clinton is sworn in or whatever it is till it's not his fault. And he knows that inflation sucks. He knows that people are looking at a loaf of bread and saying, my God, how did this happen? What are we going to do?

And he promised that he was going to somehow solve this. But as far as I understand, the only solutions are either one, a total disaster of a stock market and everything else crash, including property values, which are unnaturally high all over the place. from the bubble that, from the money that they printed in reaction to the COVID crash that they inflicted on us. And, and I'm sorry, I forgot how I started that thought. Anyway, so this is, he's caught in this rock in a hard place, right? He needs, the only solution to the rising prices is a crash.

He's got to prevent that at any cost, but that means he's got to suck up the losses from the high prices too. And this is what's so corrupt. And this is why people hate, quote, unquote, capitalism so much is because it's so unfair. And we suffer these massive dislocations and these massive boom and bus cycles. And somehow the government can always afford a war overseas, but they can never afford the American people. And it's our money that they're taken and destroying all the time and all of this stuff. And the Republicans are going to suffer in the midterms.

And he knows it's the same reason Joe Biden lost a year ago. There's the same reason that one year from now, the Republicans are going to get their asses handed to them. and their only other option is what, to raise interest rates by 6% and cause a recession and say, don't worry, everybody, this is actually,

it's better that we do this now than later. Trust me, you're just going to have to, you know, we're going to go through 08 and 09, but trust me, in two years it'll be 010 again and it'll feel a little bit less,

right? Like, it would suck to be in his position, but it seems like that's the one that he's in. And then, oh, by the way, that also means the American people, are in a terrible position because our prices are just rising and rising and rising and people cannot afford to get into a house. And we're seeing, and you and I talked about this before,

it's in Secrets of the Temple by William Greider, which is the Washington Post version of the creature from Jekyll Island about Volker's term in the 80s and how they talk about at the Fed. They keep all the statistics on bankruptcies, on businesses, but also on marriages and on foster care and on suicides and on everything because they know that's the dial that they're twisting, whether they're inflating or whether they're now raising the rates up in order to lick inflation and prevent it from getting too much worse than causing a crash. They know how much pain they're putting the American people through. And in fact, in Greeter's book, he talks about how they measure their valor and their honor in their willingness to make the American people

suffer because they know it's the right thing to do. It's the only way to go. And they have to do it. And that's what proves what heroes they are, that they're willing to continue to do this to screwing us coming and going in this way. And so I don't know, man, what exactly my question was other than maybe I'll try to leave it with, you know, obviously comment on any of that and tell us where you think we are in the cycle. Can they prevent the next crash? Is it come and do or has he successfully, have they successfully kicked the can down the road another few years with this newly lowered interest rate and the rest? Okay, yeah, a lot there. So that's great.

Robbie's comment there. I hadn't thought of that until you just said that. but you're right. They are trying to rebrand it is affordability. And I don't even think it's so much that, oh, someone will go Google inflation. See, I think just everybody knows, wait a minute, we've just spent all this time complaining about the inflation under Biden. We can't just pivot.

It's sort of like they should have figured out a different thing to call Jeffrey Epstein or something. Like instead of using that same phrase, people just had the muscle memory, like, no, we used to be for the release. You can't just tell me. So likewise here. Or another example would be like now they don't call them UFOs anymore. They call them UAPs. Right.

I think because they just realize there's no way we're going to make discussion of UFOs sound normal and not like we're crazy. Let's call it UAP. For whatever purposes they're trying to restart that discussion, which I don't, you know, that's a weird thing in and of itself. But I think they just decide we have to rebrand this because it's just the other thing, there's too much baggage. So likewise here, yeah, I think by switching it to affordability, there's that just kind of reboots and everyone's starting from scratch so they can kind of try to define, you know, frame the narrative that way with this new term. And the other thing, though, besides just the, you know, the marketing element, the thing that could be somewhat concrete is partly what they're doing. So, yeah, they're, they had been letting the Fed's balance sheet shrinks since like mid-2020. Okay.

So what that means, folks, is the Fed had loaded up on mortgage-backed securities and treasury, you know, debt from the, from the federal government. In the way, you know, they did it in the wake of the 2008 crisis, the rounds of so-called QE. and then during the COVID lockdown, the Fed even did more than what they had done during, you know, after the 08 crisis. But then, as everyone knows, price inflation was just roaring. And so the Fed had to back off. So they jacked up rates, you know, very rapidly by historical standards. And they'd let the, is the bonds would mature. And so people would pay, you know, money to the Federal Reserve because, hey, we own these bonds.

And it says, you know, this particular one, oh, the, you know, the Treasury owes us $1,000 next month. And this one's mortgage-backed securities. when people pay their mortgages, the money flows to the owner of this asset, and that's us. And so when money would flow to the Fed, they would just not roll it over. They wouldn't roll over all of it, all the incoming funds. And so that just meant that money was, you know, getting vacuumed out of the system. And so they were doing that since 2022, just letting that slowly go down. But then in late October, as they're pivoting, not only did they, you know, announce another rate cut.

And then people think there's probably going to be two or three more going forward. but they said we're no longer they were going to roll it up in November and they said as of December 1st any treasury debt that the Fed owns that matures we're just going to roll over and buy more treasuries with it but also the mortgage-backed securities they're still going to let that shrink and any maturing mortgage-back securities we're going to switch over to T-bills right so that kind of goes in with the thing you were saying earlier about them announcing in December we're going to buy 40 billion T-bills worth of T-bills so that's so and my point is the Fed is loosening, but they're still tightening the screws on the mortgage back

security component of what they did. And now they're just kind of switching over to giving money to the government to cover its debt. And so I think what you're going to see is, yes, price inflation pressures are going to resume, but you might see housing go down. And so I think they might be cleverly trying to isolate and be able to show, oh, you know, housing is is cheaper now than it was a year ago. You know, I didn't mean, housing might even crash. Like, I think they blew up a huge bump. If you look at a chart of home prices, it sure looks like it's in bubble territory

right now. So I think that that might be partly why they're trying to isolate it and say, oh, people are worried about things being expensive. Let's try to narrow the discussion. So we're just talking about homes. So that way, if the housing market crashes instead of people being pissed off that, hey, my primary asset just crashed 20%. They can say, oh, now it's more affordable for young people.

See? Trump did what you wanted. Make up your mind. Geez, like, I can't win. Right. Yeah, and which is true, right, that this is a giant welfare program for people who are already older

and property owners at the expense of younger people and working people. And it makes sense to me. I remember the argument when I was a kid that, like, no, this is the key to the middle class is this is how working class people can become middle class people.

is they buy a home and they sign up their mortgage to pay in dimes. Ultimately, whatever, that didn't make sense. They bar in dollars pay back in dimes, right? So by a $50,000 house in 1975, where by the time you're done paying it off, it's appreciated in value, and you've had to pay interest on it, of course, too. But now you're making way more per year than you were then because you've gotten so many cost of living increases. But the price of the house that you agreed to way back years ago stayed the same. So you're paying it back in, you're paying your mortgage off in cheaper dollars

compared to your overall income. And so like, yeah, it makes great, makes perfect sense. If you're leaving the gold standard in 1970 and that's where you start telling your story, right? But then now we're at the point where all these baby boomers are living in houses that used to cost $100,000 and now we're worth $500,000 than nobody else could possibly get into. And a huge part of why they're worth that much is because of just the monetary inflation overall. And then, of course, there's a bunch of other aspects in terms of all the zoning and everything else that they do in order to prop up property prices.

You know, they just pass a new ordinance in Austin. Or now it's legal to build a house for somebody else on the back of your lot where before it was against the law. And man, people came out screened. even know, that's going to hurt my property values, right? Because they would rather prevent people from being able to do what they want with their property and make the cost of living more affordable for the people who don't already own a home here or don't already have a place to rent here so that they can keep their price artificially high through the power of law. And it's crazy

to see the way that it works there. But I would, I know, would suck for a lot of people, but I would certainly welcome a correction. I notice when I look at homes right now, they're around here. They're down by quite a few thousand dollars in many places. There are homes that have been listed for a while and $10,000 off. It's original asking price and, you know, that kind of thing. I don't know if it's going to fall back to where it was in 2020 or not. It's still, it's now where it was, I guess. I saw, I saw a graph that said, you know, it's down from the height of the bubble in 22, I guess about to where it was in 20,

but it's still way above where it was in 19. Yeah, I'm trying to say. Here, in Austin. Yeah. Anyway, I'm sorry, I kept you over one. Can I just say the joke? I just did, you know, at Bob Murphy e-count on Twitter, folks, you can be part of this great humor.

I grabbed a screenshot from, I went to CNBC, and there was a headline that said, home prices are negative for the first time in two years. And I said, young people are belly aching. They pay you now to buy a house. This is amazing. So, of course, they meant the change, you know, like it has gone down based on whatever time for him they were using.

But, but yeah, it does look like in terms of national statistics that, yeah, it does look against, it's now turn the corner. And I mean, there was a thing where when mortgage rates first went up, you know, a few years ago, I was waiting for there to be a crash and it wasn't. And some realtors told me it's a weird thing where normally, you know, you get a job and you got to move to Chicago, you would normally sell your house. But because they got in with a mortgage at like 1%, and now rates are 5% or what, you're not going to sell your house.

You're just going to rent it out. And so there's this weird thing that because mortgage rates went up so rapidly, it withheld supply. But over time, that effect's going to go away and that they feel, yeah, price they're going to come down. Can it keep you another couple of minutes? Sure. Yeah.

Okay. So, yeah, on the housing thing, I saw Dave Ramsey talking about how, you know what they could do is they could, because it's purely like the law. This is, there's nothing natural about this construct. there's an exemption on the capital gains tax on selling a house up to whatever, $50,000 or $100,000 or whatever it is. And he's saying, no, that exemption should be up to a million. Because right now you have people who are essentially,

especially older people whose kids have all left and all that. They would like to downsize and buy a smaller house, but they can't because if they sell their bigger house, they're going to take this huge hit in the capital gains tax. Make it easier for them to give up their bigger house to a younger couple and move into a smaller one, right? And all of this. It's this artificial construct.

And then we have, and I know that this is a new invention of the market in our very corrupt market over the last few years is you have these major hedge funds like Blackstone and whatever coming in. And I don't think around where I live, although maybe. Actually, I did see a thing about that this is happening in Austin too. But certainly like all over the country, they're coming in buying up thousands of thousands of hundreds. homes and even like, you know, because they got the capital, they can swoop in and get them

all, you know, before anybody else and all this, before anybody else knows they're hitting the marketer right when somebody else is closing, they come in and swoop and take it off. And they're trying to turn all of these single family homes into rental homes. You'll own nothing, but you'll be happy, but you'll just be paying rent to these people forever. And this kind of thing is a major change in how this is done here. And I've also read about how there's, what, 16 or whatever it is, millions of homes that are sitting empty across the country. And it reminds me of while there's these artificially high prices and they're just

like keeping them off the market because some giant corporations have decided they can depreciate that and write it off on their taxes and whatever and it's better to keep these homes empty than to let prices of homes go down by putting them on the market and letting people live inside instead of under a goddamn bridge, right? And so you have all of these distortions in the market that are caused by government force and corrupt lobbies, you know, getting their way, again, all of the zoning restrictions and all of that that they do. And it reminds me of like FDR plowing under all of the wheat fields in order to keep the prices

artificially high. Let the price of homes crash to their actual natural level, not to destroy people who've been artificially on, you didn't build that Obama's welfare of free money this whole time and had their price artificially propped up high, but just because it's artificially high, you got to let it fall. And the degree to which it's artificially high, you are artificially using force to punish people

who now cannot afford to live inside or cannot afford to live in the neighborhood that they would like to live in, near their people or near a good school or whatever it is. And so I just wonder like how distorted all of that. Oh, and one more thing on top of that, if you want to work it in, is commercial real estate too.

I've seen this too, where ever since the pandemic and also the riots of 2020, where you have downtowns of major cities across the country that are just empty and the skyscrapers that are just empty. I know they can't just turn them all into housing overnight and all that because of plumbing issues and whatever. It's not that easy. But it seems there that I bet you there's a bunch of weird tax incentives

and discounts and subsidies and things that allow these corporations to sit on these. empty buildings instead of having to grapple with the reality of the falling prices, getting rid of them through bankruptcy court, turning them over to people who think that they can actually make a profit on them. And instead, it's almost like Japan zombie companies propped up by the central government at the expense of the people and that kind of thing. Am I way off base? Do I sound like some kind of commie? Or I'm actually the free market guy and our government is a bunch of commies on behalf of people who already own things. Right. Yeah. So I, the last,

and I'm glad among other things that you said it was Blackstone. A lot of people say Black Rock when it's like, no, you mean Blackstone that are ones that are buying up all the, you know, all the properties and like renting them out to college students or whatnot. So yes. So a lot there, I think your instinct is sound, I mean, it's kind of like in general if somebody said, oh, look at all the, you know, it's these private companies making all these weapons of war and that's why we need socialism.

Then we wouldn't have war anymore. You know, the U and I would say, no, no, don't blame the private sector. yes, in practice, given that the government exists, has a central bank to pay, they happen to turn to private companies that do these evil deeds. But that's really the problem is that the, you know, the state's behind all this stuff in a normal market. That wouldn't happen. So likewise here. I mean, even like the idea of a 30 year mortgage, like that didn't used to be normal. Like, you know, back, like I've talked to older people and they said like, yeah, when I grew up like my parents, they had like a five-year mortgage. I talked, you know,

way back like in the, you know, 20s or something, that, you know, this idea. that you would do that and you're right that's partly driven by you know the the cheap money that's partly like on both both sides like why would somebody agree to take on this contract where you owe this people money for 30 years like you said oh because you're paying and cheaper and cheaper dollars effectively over time but then on the you know on the other side well why is the bank giving you all that money on the front end and it's because of you know all the inflationary abilities and the privilege and the the sense in which they kind of create that money with the act of lending it to you you know what I mean it's not like they got gold coins in the

all that they're handing over in bags. So I think, yeah, that all ties together and the whole system is screwy. I will say that, like, in terms of me, when I was just trying to empirically isolate what's going on, I plotted a chart of like the K. Schiller Home Price Index against the Fed's holdings of mortgage-backed securities. And there was a pretty, you know, decent fit. So I'm saying that among all the distortions, yeah, just on the face of it, if you said, well, gee, why did the Fed after 2008 start loading up?

on mortgage-backed securities and they would say, well, because the housing was going to collapse if we didn't do that. So normally the way these things work, yeah, if there's a bubble, but then the authorities just stay back and let the thing pop, that kind of spanks everybody and it makes them more prudent next time. But if the lesson is make money on the bubble on the way up and then if things blow up, don't worry, you know, the fed's got your back, that's not teaching a good lesson. That means everybody who didn't really go all in as a sucker. So I think you just keep seeing these trends reinforced. And, yeah, I mean, the problem is, like, yes, like Blackstone or whatever coming in

and buying properties and then renting them out, that does other things equal push up the purchase price of a house. But it's not like rents real cheap now either. You know what I mean? Like, in other words, you would think at the very least, at least that's going to lower rents. But there's a problem there too. Like, you know, just you're trying to move apartments or, I mean, it's really expensive

in general. So I think that, you know, there really is something fundamentally screwing. Like you said, you know, they could get rid of zoning things. There's a lot of tax code issues that surely would help in that regard. Yeah. By the way, I screwed up on my train of thought. And I remember one of the things I was going to say earlier when I brought up the Fed and how they keep the charts on how bad that they ruin society.

Was that right now one of the major problems is people are not forming families. Yeah. They're not having kids because they can't get into a house. And, you know, this is Halloween. people were saying, where are all the kids trick-or-treating in the neighborhoods? And the answer is nobody has any kids. And the people who do have kids, they're just living in apartments. There are no neighborhoods full of young families of kids out trick-or-treating,

or at least it's a severely diminished phenomenon compared to when we're growing up. Because, again, this is a government's war against our society in this way. As soon as you said. The unintended consequences, right? They're helping the baby boomers and they're destroying the millennials and the generations. see. Just absolutely ruining them. Yeah, this, where I live, the weather was crappy on Halloween, so I was one of the few people out with, you know, my little one. But you're right, even last year, as I recall,

the weather was fine. And I didn't see a bunch of kids. So, yeah, that is. I mean, COVID, of course, is the root of all recent evils. That just destroyed it. It was hard to reboot. And that's also partly explained with all the office vacancies, like you said, that once that spell was broken and then the companies, you know, once workers were able to work for six months or a year from home, then they said, we don't want to come back. And so, So then it was tough for these offices to rent out back. And not even from home, but from Austin. They all moved here and do their job back

and wherever they're from California or whatever. Oh, and then there was one more thing that was my loss thought too was, I guess I oversimplified this when I said the only choice when Trump's stuck in this rock and hard place. So the only solution to all these inflationary problems that we're talking about is a horrible correction. Oh, yeah. Is it, am I wrong about that?

Is there another avenue? And that would be a total deregulation of business that would allow for productivity to increase so much that, let's say we could raise the reserve ratios and we could somehow lick the amount of new money being created while at the same time really unleash productivity so that, yes, the prices on your shelves are not going down. But your real wages really are,

going to go up, not just your wages, but your real ones in comparison to your costs out there and that it could, we can make up for it on the back end that way. Okay, so, yes, like if, you know, if Rand Paul's running for office or something, he's asking me to do a detailed blueprint or something and I, you know, get guidelines from him, like how, how real list, like, do you want me to show you what would work versus, you know, what you can sell and that kinds of things? But yeah, depending on how much leeway they had, it would be, The laws of economics do not require that Americans, 18 months from now, are going to feel like we live in an awful economy.

That if they did seriously strong measures, there would be a crash. I think that's unavoidable. But, you know, it hit rock bottom, and then they would turn around if they, you know, they could get rid of the IRS. You just, you know, get rid of income taxes. That would totally unleash, you know, like savings rates would go up and there would be a lot of reallocation. And then they would just have to lay people off.

Like, can you imagine? I mean, there's millions of people that work for governments at various levels right now. It's not just that they don't produce, that they, like, siphon, whatever is produced, they siphon. They actively prevent people from producing in various ways. So, I mean, it's amazing to think how much potential is just being left on the table because of our system. So, yeah, if you unleashed all that, that could probably very quickly overwhelm the short-term problem that, yeah, we're in a bubble right now and there does have to be a painful crash. That's unavoidable. But the worst of both worlds is if there is a crash

and then they do all sorts of things that hurt the recovery. So then we just linger along. You know, like they kind of make the crash only 70% as bad as it should have been. But then you just have to sit there and endure it for five years, which is kind of what they normally do. So if you think back during the 2008 crisis,

they all were patting themselves in the back about, yeah, good thing we had Bernanke in here. And otherwise it would have been depression too. It wasn't like the economy was great two years later. Like the economy sucked ever since then. Like there's like labor force participation hasn't recovered. So I mean, everyone just kind of got used to the new normal and they just redefined it as, yep, this is normal now. So I'm saying that even their measures don't really help, but yeah, it might ease the short term pain.

So long way of me saying, yeah, they could, if they slam the brakes on money printing, you know, went back to a hard money standard or something, there would definitely be a crash home prices, stock prices would crash. But yes, people's real wages in the long run, things would be cheaper. at the grocery store. And, you know, yeah, people would get laid off, perhaps. And right now if you're in $100,000, maybe you only get a new job earned an 80, but prices would be more than 20% lower, too. So there is that element for sure.

I remember Lou Rockwell joking that. Okay, look, it could be a problem to lay off all the government workers at once and just flood the market with all this new labor and all of that. But you know what we could do? We could just pay them to all go on vacation to the islands. And this is Lou Rockwell, right? The ultimate anti-government extremist of all is like, no, no, no, it's okay. Keep paying them.

We just pay them to go away from the rest of us and stop telling the rest of us what to do. We will save enough. We will earn enough extra to more than cover their club med packages to just keep them off of these shores, these government employees that will be fun. Anyway, we'll leave it at that. Thank you, Bob, so much for coming on the show. Everybody, check out all of Bob. great books. My favorite one is the politically incorrect guide to the Great Depression and the

New Deal. But you'll have so much fun reading all of his stuff. And again, check out his great Twitter. Oh, and check out his great shows. He has the Bob Murphy Show, which is on all your podcatchers and at Mises. And then he has the crossover with Adam Heyman, where they talk about things together too, both great shows. And so definitely check that out. And again, follow him on Twitter X at Bob Murphy Econ. Thanks, man. Thanks for having me, Scott. Always a pleasure. The Scott Horton show is brought to you by the Scott Horton Academy of Foreign Policy and Freedom, Roberts & Roberts, Brokerage, Inc., Moondos Artisan Coffee, Tom Woods' Liberty Classroom,

and APS Radio News. Subscribe in all the usual places, and check out my books, Fools Air, Enough Already, and my latest, Provoked, how Washington started the new Cold War with Russia and the catastrophe in Ukraine. Find all of the above at Scott Horton.org, and I'm serializing the audiobook of Provoked at Scott Horton Show.com and patreon.com slash Scott Horton Show. Bumpers by Josh Langford of Music, intro and outro videos by dissident media, audio mastering by Podsworth Media. See all next time.