Scott Horton Show - Just the Interviews - 8/5/26 Robert Murphy on Inflation and the Federal Reserve

Episode Date: August 8, 2026

Scott interviews economist Robert Murphy about inflation, the Austrian school of economics, the Federal Reserve and the state of the economy today. Discussed on the show: The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin  Politically Incorrect Guide to the Great Depression and the New Deal by Robert P. Murphy The Politically Incorrect Guide to Capitalism by Robert 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  Sign up for the Scott Horton Academy of Foreign Policy and Freedom at scotthortonacademy.com 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/43D82oY (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/4eMQblu Fool’s Errand: Time to End the War in Afghanistan https://amzn.to/4a5fKvx 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: Tax Attorney Matt Sercely https://agoristtaxadvice.com; 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; Expat Money https://expatmoney.com/scott; and Crowdhealth https://www.joincrowdhealth.com/ (use promocode Horton) You can also support Scott’s work by making a one-time or recurring donation at https://scotthorton.org/donate/ or https://patreon.com/scotthortonshow 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! Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hey, look, you guys, it's Bob Murphy from the Mises Institute. And all those books that he wrote, which we'll talk about more in a minute. Welcome back to the show, Bob. How are you doing? Thanks for having me, Scott. Doing all right. Good, good. Jack Hughes, I hate inflation.

I think it's terrible, but you're one of them economists. So that means you're going to sit here and rationalize why inflation actually is good, right? No, because I'm a member of the Austrian school, so I won't be doing that for you. Oh, okay. So what makes the Austrians different than the others, Bob? Well, a couple things. So one thing is just even that word inflation, and some people think the Austrians are being real nitpicky

and it was just weird, but they typically stress, and this is something that going back to Lille-Vamese is that the word inflation historically, like in the early 20th century even, meant an expansion of the money supply or possibly they would include like, you know, bank credit in that. And so inflation meant, you know,

there's more money in the system. And then that would tend to call. cause prices to go up. But then over the 20th century, just the meaning morphed such that now when people say inflation, they mean the rising prices. That's what they think the word means. And so as Mises argued, once you're arguing about the symptoms, it's hard to figure out what caused it. So you get this absurdity where the Fed chair gets up talking about fighting inflation when they're the ones causing it. It's like, you know, the arsonist promising to put out the fire. Beyond that, though, it's, yeah, typically like, especially in a Keynesian framework,

they worry about aggregate demand. Like, oh, you got to keep the account. economy home and make sure there's enough spending going on to support full employment. And so from a Keynesian point of view, like gently rising prices is the ideal to make sure there's enough demand there in the system. Whereas Austrians, particularly like in the tradition of Murray Rothbard, are pretty, you know, it's a call them hard money types where it's like, no, the, what money does for society is it enables economic calculation, just take a stockpile of money and that it does its function. You don't need to keep adding to it.

That doesn't make us wealthier. We don't have more farms and tractors and drill presses and scientists just by creating more money per se. So if anything, giving the government the ability to monkey with the money supply, it's just going to be inviting problems from an Austrian point of view. Well, so you Austrians are always saying end the Fed, Bob, but if we end the Fed, then who would be the lender of last resort? Well, it's funny. So on that note, it's, if you think about it, the. historically, the argument for why you need to have the central bank, like you say, is they have this lender of last resort. And yet, since the feds come into existence, the dollars lost,

like at this point, it's like more than 99% of its value, right? Whereas under the classical gold standard era, you could go decades, even, you know, a hundred year stretch, like from an early point in the 1800s to an early point in the 1900s, and prices were basically steady back when the dollar was defined as a certain weight of gold. And so, and in that framework, then you worry about private banks and things like that. And they would issue bank notes. And the concern was, oh, how do we know that they have gold in the vault backing that stuff up? And so the argument was always that, well, if they lend too much and get caught with their pants down, that'll keep them honest.

And so in that context then, and this is like a specifically Austrian point, having a lender of last resort paradoxically or perversely makes the private banks more reckless. Right. In other words, if you know there's this big institution waiting in the wings that if we get caught and, uh-oh, there's a run on the bank or just even more generally if we owe people money, you know, because we structure our investments such that we have a cash flow liquidity issue. How do we come up with the cash? Oh, if there's a lender of last resort, like that's by definition what its job is, is to inject liquidity when the system needs it. But if you think about it, that having that entity waiting in the wings makes the private banks more reckless. So it also just, you could just ask empirically, has the economy been more or less stable since the Fed came on the scene? Well, the Great Depression happened well after the Fed was formed. The Fed, you know, Fed was formed in 1913, great depression.

You know, stock of murder crash 29. The 30s were awful. Clearly that was on the Fed's watch when they'd been up and running for a decade. They should have known what they're doing by then. And the so-called great recession, the great financial crisis. Also, well within the feds, you know, on their tenure. So it's not that they've made the economy more stable. by their very design, a central bank gives private bank's incentives to be more reckless. So I'm not sure why progressives of all people would favor that kind of thing. Well, so, G. Edward Griffin wrote about what he calls the Mandrake Mechanism, which Mandrake was some magician from 100 years ago in the comic books or something. And so Ed Griffin says, well, this is how the government and the banks create money out of nothing. And if I remember, it was the 90s when I read the book, but I read it twice. And basically, I think what he says is that the government and the banks are in this together,

where the government gives a license to the banks that allows them to create money out of nothing. The banks promise to always buy government debt. And in fact, to encourage the government to go into debt so they can buy it all the time because they're getting paid essentially interest on free money. But then, so I was wondering if that's really right and or could you break it down for us and tell us a little bit about how it is that the Fed, that is the national government and the banks work together to create new money? Yeah, sure thing.

And what's funny about that is, yes, again, decades ago, similar to you, that somebody handed me, you know, I'd heard about this thing called the creature from Jekyll Island by this G. G.O. Griffin guy. Like, what a provocative title. And someone gave us. And I had the warning that, yeah, he does some good economics. like, well, watch out. There's some weird stuff in the book. And I'm going through it. And I got to the end.

I said, where's the weird stuff? This is all kind of thing. So I said he wasn't shocking to me at all at that point. But, in fact, let me just say, because it's worth noting. And then I'll show up and you can get back to whatever you want to say. But, you know, the John Birchers and Ed Griffin was the exemplar, right? They have their kind of conspiracy version of the 20th century with a heavy emphasis on the house of Morgan and then the house of Rockefeller as they took over. and through the World Wars and all of that stuff.

And when I first read Murray Rothbard, one of the first things I read by Murray Rothbard was Wall Street, Banks, and American Foreign Policy, which to me read exactly like the Bercher history of the 20th century, only without the kind of weird right-wing stuff. It's Murray Rothbard, so it's flawless. You don't need the Illuminati and whatever. It's just the Rockefellers and the Morgans and all that, like they say.

They got so much of it right. And in fact, in Jekyll Island, I didn't even notice at the time, Bob. But in Jack Lylan, Griffin cites Rothbard over and over and over again. And so, like, there are a lot of kind of populist right-wingers who say, we should have Lincoln Greenbacks or Kennedy Greenbacks, where the government just gives us free money. And, but the birchers were never with them.

The birchers were always Mises and Rothbard guys on money. So that's pretty meaningful. Although I don't know, like, whether he ever graduated from Mises University and whether he got it exactly right. So you tell me about that part. So, yeah, again, from what I remember the time in terms of, yeah, the exposition G. Edward Griffin goes through in his book, yeah, is right. And so here, you know, just let me give the big picture here.

So it's true. And on this, again, you asked earlier about what's the Austrian school, why are they unique? The Austrian libertarian types, you know, like in that traditional, Murray Rothber and so on, they're not pro big business, right? There is this stereotype that, oh, yeah, right-wing libertarian guys, you like, you like whatever the big business does and you want the government to get out of the way, so big business can run rampant. And that's not quite right,

that as you say, in his historical accounts, Murray Rothbard is very critical of some of these big, quote, robber baron families and things like that. He was against the high income tax rates and stuff like that.

But partly because he knew the big families were for the big income tax, because that's once you have your dynasty set up, the way you keep other people from challenging your kids is by having a high marginal income tax rate, right? So there's stuff like that going on.

But as far as the banking per se, right, merely that new money is created by the Federal Reserve. Strictly speaking, if you define money to include bank checking account balances, which most economists, it's called M1, is a pretty low-level monetary, what's called a monetary aggregate, like just to say how many dollars are in existence and there's different things you could include, like what counts as a dollar? So you might just mean $100 bills and, you know, paper currency, federal reserve notes. That's one definition. But then most people also think of if you have $100 in your checking account at Citibank,

well, that's part of the money supply, right? Most Americans right now treat $100 with a major bank that they owe you in a checking account as being roughly interchangeable with $100 bill, right? If you go to the store, they're not going to distinguish between those two. If something costs $100 at the store, you can swipe your debit card or you can give them $100 bill, they think it's the same. So in that sense, then, what banks collectively say they owe their customers in checking accounts is part of the money supply. And so once you go down that path, you realize, oh,

the Federal Reserve doesn't have the power to directly control the money supply. It also depends on how many loans that the private banks issue, right? Because if they give somebody a loan, now that person has it in a checking account that they can go spend, right? So that's the connection. And so the specific, the term for that loose joint is what's called fractional reserve banking, that that's what gives discretion to the private banks is they have, the ability to give more, the people in the community can think they have a billion dollars in their checking accounts, you know, if you added them all up, and the bank might only have $400 million in currency in the vault. Right. So that would be just they have a fraction of the

reserves they need, right? So that's what that term means and that's the connection. And so, so right, that that whole system is very lucrative for the people involved, right? The private bankers, if they can, you know, somebody comes and puts a thousand dollars on deposit, they put $10,00 bills in the vault. If the private bankers now make a loan to somebody else for 900, even if the money's still sitting in the vault, they just, like, on their books, they make the loan and, you know, mark up somebody's account, 900. And they're now earning interest on that $900, right? Because they're not lending the money for free. They're earning interest. And so there's a sense in which, by, you know, pyramiding on other people's deposits that they think, oh, that's

my money in the bank, the bank is now earning. extra interest income, right? So that's why the private banks want to do it. And so what I was saying earlier, you know, time back to the beginning about the lender of last resort, in a totally free market, even if that practice were allowed, but you just, you know, hey, if people show up and they want their money and you don't have it, you go out of business, you know, you promise them that practice would be more constrained because they would know, oh, if we get too aggressive with this practice, if, you know, if too many people want their money at one time and we've already lent out money and mortgages and other long-term investments, we don't have the cash in the vault,

we're in trouble. So they got to be more conservative, but not if there's a central bank, one of which his functions is to be a lender of last resort that, oh, if there's a liquidity crunch, don't worry, we'll create more money and give it to you, right? So that's the connection between all that. So, yeah, Edward Griffin is certainly right. And this isn't like a conspiracy. Like historically, if you go and look at, like, why was the Bank of England formed and stuff like that? It's clearly the government gets into trouble, especially if they're waging war. They need to raise more money than the public's willing to volunteer lend over, you know, normal credit transactions. So they give privileged cartel positions to like one major bank or a group.

And then in exchange, yeah, it's understood that, okay, you guys with your financing now are going to make sure you finance the government as your number one customer. And so in other words, like that famous Greenspan put from the 1990s where he intervened to save that bank, that's the whole Federal Reserve. That's the purpose of the whole thing. is, and I don't know why they call it a put, I don't understand that stuff well enough, but basically they're saying. It's a quick.

Sure. There's Derrida's, there's call options and put options. So a put, like if you own a stock and you're worried about the price going down, instead of just, you know, you might say, oh, so just sell the stock. But I say, no, I kind of want to hang on to it. I think there's just a small chance though it might drop. You can buy a put option. And that gives you the right, but not the obligation,

to sell it at a certain price. So if you got to stock this trade in 120, you could buy a put at 100 that just says, if the thing does collapse, you can sell it for 100. You got to pay for that option. And so the Greenspan put meant everybody knew, don't worry, if the market tanks, Greenspan's going to do something to stop it from tanking too much. So they thought like we, it's like he gave us all put options on our equities. That was the idea.

Right. And then, but then is it right that this is what they came up with at Jekyll Island was the ultimate put, putter on her? Yeah, I mean, there were lots of different commingling factions and interests involved. But, but yes. I mean, so the one issue was there was like the 1907 panic. And famously, you know, there were a bunch of people that got into trouble. And then J.P. Morgan just comes in. Basically, like, there were meetings, people coming into his, you know, meeting him in his private quarters.

And he just decided who went, who survived and who didn't. And so the idea, you know, because he had the capital to, you know, dish out, he would decide, yeah, you're in. in trouble like what it's it you're solvent but illiquid right so that that terminology means it's a healthy business like the assets are worth more than liabilities it's just they owe more money right now than they have coming in the door but if somebody could just give them a bridge loan it's fine as opposed to a business is no your business is bankrupt even if we gave you a loan you're not going to get out of this hole so he would just make those judgments as to who do I want to give a lifeline to because they're profitable you know they win the long run they'll recover and pay me back the loan and so then

the thinking was, hey, that's kind of a lot of power for one guy. And so you can see how a lot of people would resent that. So that's one issue. But yeah, also, again, just, you know, geez, other countries have this and the government realizing if we can form this cartel and, you know, divvy up those favors. And yes, when we want to float our bonds to have this central bank that can buy them on, you know, affordable terms for us and have this engine of inflation. So that's, you know, it wasn't a big coincidence, right? The central bank, it's one. than of the U.S. is in the World War I. And, you know, the Federal Reserve really kicked into action and did a lot to buy government bonds, you know, in that era.

So, so, yes, all these different interests coming together to circumvent the hard money, you know, the market's normal mechanism. As of that point, the dollar was still defined as a certain weight of gold, and you can't do too much with that, right? And so this was a way for them to kind of get around with some of those normal checks and give the government and the bank the ability to create more money than the otherwise would have been able to do. Hey, look you guys, Scott Horton Show swag and Scott Horton Academy swag. Just look right there under the YouTube. Hey, guys, I own LibertyStickers.com again. Isn't that great?

Time is a wonderful thing sometimes. Check it out. Here's some of them. Liberty Stickers.com. Everyone else's stickers suck. I published books, lots of them. 20 so far. Okay, five of them are mine, but 15 of them or not.

And they're all so good. You should go to Libertarian Institute.org slash books and check them out. We got more coming soon, too. I'll blow your mind away. I had breakfast with the Austrian economist Robert Higgs one time. And he explained that, well, Griffin got it mostly right as far as what happened at Jekyll Island, but that it wasn't just Jekyll Island. It was really all around the country.

And that was kind of why they created all the different Federal Reserve banks in San Francisco and St. Louis and I think Dallas came later, whatever. point is that he was saying they had their own Jekyll Island meeting out in San Francisco where they said we need a central bank to bail our asses out and whatever and all of those kind of came together and you know the original Jekyll Island bill failed they kind of had to rewrite it and reintroduce it as the glass something or other

same guy from the Glass Stegel bill that the famous bill from later but um but uh yeah I mean yeah so just yeah to give some more color to that and I you know I think Higgs is right So it's funny, like, why is it called the Federal Reserve? Right? There's a thing we like say, it's neither federal nor in reserve, discuss. But the idea was Americans had been very distrustful of centralized financial power, right?

Like Andrew Jackson famously, you know, killing the second bank of the United States, which is like the predecessor of the Fed. And so Americans more than other people were, you know, recoiling as the idea of a central bank. That's why it was the, you know, the undercover meeting in Jekyll Island. I mean, for people who don't know the story, it's amazing. Like the financiers and the politicians involved and everything, like they boarded trained, like they went to New Jersey, like the guys who were in New York, they got on a train in New Jersey just to not have the press see them.

They just used their first names. They said they were going on a hunting trip and stuff when they went. So, I mean, they were, they knew if the press catches wind about, you know, these guys from England and Washington and New York all meeting to discuss the creation of a central bank, it's going to be, you know, done on arrival so that they had to do it all in secret. partly because they knew. And then again, one of the reasons they called it the Federal Reserve and they had all those branch offices around the country was that just right out of the gate, if they just said we're going to create a central bank and have it either in New York or Washington

and everything flows from there, Americans wouldn't have liked it. And so now it's like, oh, no, it's not like there's one institution. Like, yeah, the New York Fed's kind of the most powerful, but I mean, it's spread all over the place. And even in the original structure, it was more decentralized. it was only in the 30s that they kind of restructured it and concentrated it more with the Board of Governors and stuff in Washington. Like that wasn't in the original bill that passed. So it was more decentralized in the beginning and then got concentrated over time as things tend to do in, you know, U.S. history. I mean, the way I learned it in seventh grade was that the Federal Reserve was part of the New Deal. And it was part of the government's effort to smooth out the boom-bust cycle because the wild excesses of laissez-faire free market capitalism had failed in the 1920s. And so this was just part of the brain trusters regime of making everything okay again,

which somehow didn't quite kick in until the end of World War II, which was much later, but anyway. Well, yeah, so there, I mean, again, the Fed was actually formed in 1913. So, yeah, what they clearly, what they must have had in mind was, yeah, the restructuring that happened under FDR. And that's what I'm saying, where they changed it and there was a, you know, the board of it. So before it was like the head of the New York Fed was the most powerful. and then that kind of got shifted into Washington, right?

And so, which makes sense, right? Like the Roosevelt administration, you know, hostile to big, you know, big business, whatever. And so they would make sense that, you know, they would try to shift the power center. And yeah, obviously all that stuff. Oh, yeah, we had the laissez-faire free market economy. And yet, again, the Fed was created in 1913, was up and running by 1914, ostensibly to fix the crazy wildcat free market laissez-faire monstrosity, and then the Great Depression happens more than a decade later,

and that's somehow still the fault of the free market. Like, their timeline doesn't even make any sense. Yep. And now here's where I'm virtually certain that Griffin and Higgs agree, and I'll test you, I don't remember exactly how you treat this in your excellent book, The Great Depression, the politically incorrect guide to the Great Depression and the New Deal. but I hope I'm paraphrasing, especially Higgs here correctly, which is that there was inflation throughout the 1920s,

but it was massed by the increase in productivity. So prices stayed relatively stable when they should have been dropping, but people kind of didn't notice. But then, and here's where I'm overlapping Griffin with Higgs is, but what happened was the British had a problem with the pound because they'd spent too much on their war in South Africa. And so the head of the Bank of England was a guy named Benjamin, Montague Norman,

and then the head of the New York Fed was a guy named Benjamin Strong, who considered him like a mentor. And Strong then, acting as sort of the current day Fed chairman at that time, inflated a bunch of money in order to prop up the British pound. And that was beginning in 1927, and that was what led to the real. bubble in the stock market that popped in 29 that then was sort of ushered in the Great Depression. And I'll go ahead throwing some Stockman here.

Stockman says the depression was over before FDR was even inaugurated in March of 33, because all the bad deaths have been cleared and everything was already going to be okay again until the damn Democrats came in and prolonged it for another decade. But anyway, those are a lot of different points, but you're real smart. So go ahead. Okay. Yeah, I definitely endorse that that whole timeline. So just to give some more details, again, earlier asking about the Austrian school and then we're, you know, the definition of inflation.

This is why it's important. So yes, in the 1920s, if you just looked at like the consumer price index, it looked like the Fed was doing a bang up job that prices were pretty stable year to year, even in the late 20s. And in fact, Irving Fisher was a, you know, famous Chicago school of commerce. economist, you know, just, I forget the exact phrasing, but kind of gave a clean bill of health, you know, smooth sailing as far as the eye can see kind of thing. I know. We have reached a permanently high plateau. Yeah. Right.

You've stuck about stock prices there, right? Yeah. So, yeah. So there's some like, you know, famous last words kind of, like, when it's last word? You know what I mean? Like famous bad, bad quotations or assessments in history. That's one of them. Whereas you have comments from like Hayek and Mises in the 20s.

like there's a story which you know i'm pretty sure this is true where mises was asked to be like the chief economist at some bank in the 20s and he turned it down and his wife asked him why and he said because there's a great crash coming and i don't want my name associated with this right so like he he knew what was up and uh and hiack also you know has quotes in the in the 20s to the effect of yeah there's a lot of monetary inflation going on and even though prices seem stable so yeah the the short answer is that's why there's this distinction. In the Austrian view, the destabilizing thing is like money getting pumped into the credit markets, making interest rates lower than they otherwise would have been. And even if, you know, the price of wheat doesn't go up too rapidly, that doesn't

mean the Fed's doing a good job. Because another idea is there were productivity improvements. And so had the Fed not been pumping that money in, prices would have been gently falling, right? And so against that counterfactual, there was price inflation. So that, That's partly what's going on. And yet, the stuff with the Bank of England, just a real quick version of what happened. So going into World War I, all the major countries had their currencies tied to gold. And then in World War I, all the major belligerents accepted U.S. formally went off the gold standard. And so, and they all printed a bunch of money to pay for the war.

And so in the wake of the war, the British pound was weaker against gold and hence the dollar than it other way, you know, than it had been before the war. And they all made a pledge that we're going to get our currencies back on pre-war parity. And it takes time. So that right there caused a lot of economic pain, you know, problems with labor unions and stuff. Because now it's like prices in general have to come down. And so if workers don't want to see their wages go down, you know, that leads to problems. Right.

So that's what part of the issue going on in the 20s was. And you're right. It's a certain point. It got really painful. And the British went to the Americans. Like you say, the mid-20s talking about this. And yet strong agreed, we will, to take pressure off the pound, we, you know, because they weren't deflating fast enough, we will inflate our currency, right?

So that there's not this arbitrage set up where people want to dump pounds and buy dollars. So we'll print more dollars. And so, yes, that's what fueled. You can go see the metric. That's like the real estate boom in the U.S. Like they all, you know, the timeline fits pretty well. And it makes perfect sense that right when the U.S. decides to open up the monetary spigots to do a, you know, solid for the British.

that's when the U.S. stock market and real estate start booming. And that's the idea that, you know, you just cause a stock market boom. It's eventually going to crash. It happened to kick in 29. And the other thing, too, yeah, in the standard Austrian story, you know, there's an unsustainable boom. There's a crash. But if the government just gets out of the way and lets the market find its bottom, it'll be over in two years. And historically, that is what happened.

The thing that went wrong in the 30s was that was the one time up to that point in history when the both the Hoover and Roosevelt administrations did more in peacetime than had never been done before to quote, help the economy. And so, geez, we got the worst economic catastrophe in U.S. history right when we had the most interventionist up to that point. And yet somehow everyone says, yeah, that's the free market for you. It's like it's just so nutty. And now is it right what Stockman says that all the bad debts have been cleared and it really was over by the time Roosevelt was even inaugurated? it was time to build the needle by then. I mean, off the top of my head, like, put it this way,

he would have very defensible, like stock, you know, he has receipts to back up the stuff he's claiming. So yes, I'm sure the particular metric, I guess what I would say, though, is it's part of the problem is that, as I'm sure many of your listeners know, there were runs on the banks. And so because they, going back to what we talked about earlier in this episode, Scott, with the Fract Reserve system,

them because there's a sense in that framework, because bank credit can expand the money supply, it can go in reverse too. So if everyone rushes to the banks and pulls their money out because they're afraid, either they just want the cash or they just think their bank is in trouble and they want to get their money out before it closes

and they lose their funds, then that makes the banks call in their loans and that shrinks the money supply. Okay, so the money, like measuring like in terms of like M1 or M2, that money stock fell by a third between 1929 and 1933. Okay. And so there's just,

there's a genuine sense in which the amount of dollars shrunk by a third over that four year stretch. And so that would mean prices in general would have to come down. And that had happened in earlier crises too. And it was fine. Everything just comes down and it's like an accordion effect. And the boom, things expanded and then the crash they contract. But what made this time different was Hoover after the stock market crash

called in labor union, union leaders and big businesses owners and said, I don't want you guys cutting wage rates. And you can see empirically that wages, you know, money wages, like the amount of dollars per hour workers earned fell much more slowly in the early stages of the Great Depression than like in the 1920 and 21 Depression. So that partly explains why unemployment got up to 25 percent. It's because right when prices are collapsing, businesses were not allowed to or were strongly encouraged and there were carrots that the administration gave to keep money wages high.

So workers kept getting artificially more expensive right when the economy. economy's going in the tank. So I'm saying when FDR took over, there was still that mismatch. So yeah, even though the bad debts could have been washed out, like if FDR had come in and said, you know what, Hoover was an idiot, just pay workers, whatever you need to clear the market, that could have worked, but I don't know. But you know, so here's the thing. I was Josh and around at the beginning accusing you of being an inflation guy.

But I wasn't necessarily accusing you of being a progressive or a liberal or a Keynesian. I could have been accusing you of being a Chicago school guy because it was Milton Friedman and then his, not, I don't think direct student, but the guy who read his book and agreed with him, Ben Bernacki, their conclusion was that the Fed should have created a bunch of money when the markets crash. And all this illiquidity was a bad problem. And my history teacher in junior college also said it was a deflationary spiral, Bob, and somebody needed to start printing money. And that, Daniel Hoover, he might have built a damn. but he wouldn't turn the money machine on, and that was what society required at the time. Right.

And this, again, in terms of, you know, Austrians were real big on product differentiation of why, hey, don't love us in with the Chicago school. We're not just all free market economists. There's pretty important distinctions. And yeah, this is a huge one, that both Milton Friedman and Murray Rothbard would say, oh, the reason the Great Depression was so bad

and was so much worse than earlier depressions with a small D in the 30s, had a lot to do with the Fed, but Rothbard would say, oh, it's because the Fed, you know, blew up a bubble in the 20s, and then there was the crash. And if the Fed hadn't done that,

then, you know, wouldn't have been as big of a boom-bust cycle. But Friedman, it's almost like the opposite. He doesn't lament how much the Fed pumped it, you know, following the meeting with Montague in the 20s. Friedman says the problem, as you say, Scott, was that once the process I said a minute ago started happening, once the public started running and pulling their money out of the banks

that caused, M1 to shrink, he said the Fed should have come in and offset that by pumping in more high-powered money from the top, right? So the idea is, once the public is pulling money out of the banks, if the Fed does nothing, the money supply shrinks, the Fed has the ability to offset that if they pump more in from the top, and Friedman thinks they should have done that. And he thinks they would have done it, except, oh, shucks, that guy Benjamin Strong, you mentioned, he died. And so it was like, oh, there was a power vacuum, you know, no adults in the room, nobody with the cahones to do what had to be done. And so Friedman thinks that's what happened.

So he doesn't think it was like a deliberate, you know, policy. He think it was more like they were asleep at the wheel. But nonetheless, yes, Friedman says what happened in the early 30s that made it so bad was that the Fed was too timid in injecting more monetary inflation, which is not at all what the Austrian say. The Austrians say the Fed injected too much inflation in the late 20s. And if they hadn't done that, we wouldn't be having this discussion. Right.

And I guess, I mean, maybe what they say makes sense if you zoom in, further, right? Like, how can Hoover demand that big business keep wages where they are? If he's not going to create a bunch of money and funnel it into their accounts to pay those wages with, you know what I mean? That kind of thing. So, like, if you refuse to zoom out and see the real cause and effect and you're just looking at it on the micro scale, these people needed PPP loans in order to keep going through the thing. Yeah, I mean, so, yes. I mean, one thing is Hoover per se didn't have the authority, right?

Like the Fed did. But yes, in general, all those, you know, power brokers, they were asking contradictory things. And, yeah, it's true, given that you're not going to let money wages fall, it was like the worst of all possible worlds. Yeah, if you're going to say you're not allowed to cut wage rates in terms of money term, and the Fed's not going to pump in more money, then you're going to get 25% unemployment.

That's what's going to happen. But on all that stuff, though, it's like an analogy I use sometimes is to say, you know, like the Corleone family calls me and to give them advice. I say, you know what? I really think you guys just got to stop shooting people and stealing and stuff. Like I think in the long run, the family will do better if you're legitimate

and they could say, are you kidding me? We just went to war with these guys. If we don't shoot them, they're going to kill us. It's kind of like, well, yeah, but it's because you've been doing this for 10. You know what I mean? Like right now switching over is going to be painful, but I'm just telling you this is not a good way. So that's kind of with government intervention,

given the whole they dig themselves into as of 1931 to say, if we just printed some money, wouldn't that get us out of this? crisis and well yeah but you're only here because in the 20s you printed money so right m scott horton flavored coffee i drink this stuff first thing in the morning every morning and then right around two o'clock when the potential siesta starts to kick in no siesta more coffee moondos artisan coffees get it they hate starbucks because starbucks supports the war party well moon do's supports peace just go to scott horton dot org slash coffee scott horton dot org slash coffee okay guys

me here for Matt Sersely, your new tax lawyer, and he's not just an accountant, he's a lawyer, and he knows exactly how to protect your neck. He serves small businesses and high-salary professionals to help you structure your money so that you pay as absolutely little in income tax to the revenues as possible. No gimmicks here. You have to follow the law, but he knows it backwards and forwards, and we'll do a great job for you. Your new tax lawyer, Matt Sersley, at agoristaxadvice.com. All right. Now, so did you see this most surreal conversation interview with Jeffrey Epstein and Steve Bannon?

Yeah. So in this interview, Epstein, who would fit perfectly at the center of any John Birch theory that you've got, in the conversation is talking about how. he had buddyed right up to David Rockefeller, the center of all John Birch theories from like 1962 on, right? And oh yeah, me and David Rockefeller, we got along just great and he appointed me to the trilateral commission, Jeffrey Epstein says.

Oh my God, but then he turns into a bircher. Instead of being Mr. Rockefeller boy sex blackmailer for Israel guy, you know, center of intrigue. Now he's the conspiracy nut, and he starts explaining to Stephen Bannon, check it out, man. Here's how the Federal Reserve creates money out of nothing, dude. And I'm not sure he's got it right. But kind of, it sounded like he'd been reading Jackal Island.

And he starts explaining to Bannon. See, what happens, man, is I get a loan, right? And then I take the money they loan me, and I deposit it into my account, and then they can loan out $9 for every dollar I deposit and on and on like that. And I thought, first of all, what fun. Like, what a world that we live in, that that's the conversation that they're having there. It's just nuts. But then also, I would hate to leave his explanation of how it all works hanging out there.

And I'm, I, I, I'm no good at math, Bob. I don't know, but I did see a tweet by a guy who was a liberal Democrat type, no Austrian, who says, this is completely wrong. It's not that if you deposit a dollar, they can loan out nine. It's that if you deposit $10, they can loan out nine of them, which is a totally different thing as far as the multiplication of new bank credit based on deposits and all of these things. So apparently, this Kuk-Empstein has been listening.

to cooks like you, Bob, or not or what? And how does it really work exactly there? Okay, yeah, great stuff. So what's funny is he was calling it, that whole interview, I did a podcast episode with Adam Heyman on that, we just walked through it. It was fascinating. Like, I could totally see how,

if he's at a cocktail party and talking about, he just comes off like, oh my gosh, this guy knows everything. He knows about quantum physics. He knows about banking. He knows all this stuff and whatever. And if you think, and if you think he's a billionaire and can do, favors for you then, you know, you'd all be all the more interested in his,

in his little nuggets of wisdom. But, um, so one thing is he, his timelines were screwed up, right? So like he's definitely a pathological liar. Like the stuff with, um, when he was going through the play by play of the, of the, the, the crisis in 2008 when he was from jail making phone call. His timeline just didn't work. And it was he was saying things that there's no way he could have been, you know what I mean? Like, he's just making stuff up.

So in any of them, I'm just saying, there were some telltale signs like, wait a minute. this guy is a real slick talker, which is not surprising given what we know about him. But on that stuff, I think he was calling it fractional banking. Does that sound right to you? He was using some weird. So I think like, yeah, he read some stuff somewhere and then was parroting back what didn't fully capture it. But beyond that, on this narrow question that you're saying about somebody gives you a dollar in deposit, what can you do with it? Yes and no. And let me just explain the nuance. So he is right. Like let's say there's a, And this was back in the days when there was a statutory requirement.

The Fed actually got rid of this in COVID. It was kind of a weird, like they got rid of reserve requirements. But back, you know, when I had no reserve requirements at all now? It was funny, Scott. They got rid of it. So yeah, it was right when COVID was going down. And it was a Sunday, right? The Federal Reserve, you know, gave their press release or whatever on a Sunday,

which normally they wouldn't do. And the thing saying they got rid of the reserve requirements wasn't in the main document. It referred to it and some other items. And he had to go to a footnote. then go to a different document where it said explicitly, we've abolished reserve requirements. But yeah, they got rid of them in like March of 2020. So. Okay.

So anyway, I'm sorry. Go ahead. Okay. But in any event, back when, you know, before that, yeah, in the rule, it was about 10, there's nuance. But let's just say 10%. So the idea was if all the, you know, if the bank has a billion dollars of, you know, it's customers, you add up all their checking accounts, balances.

And it's a billion dollars. The bank needs to have at least $100 million in reserves, which can be literal currency in their vaults or deposits with the Fed also satisfies that requirement. Okay. So what Epstein was saying is strictly speaking is true. If somebody comes in and deposits, you know, gives them $100 bills, just put this in my checking account. That per se could support an extra $900 in loans because you've got, you know, the person

thinks they got $100 in their checking plus the 900 in loans. That's $1,000. Oh, you better have $100 in the vault to back that up. And he does. Right. So that's the. the sense in which what Epstein said is not demonstrably false. However, in practice, the banks can't do that because that would be crazy. Because what would happen is when they make loans, people go

spend it. And so then, you know, they give, so, you know, someone gives them $100. That guy still thinks he's got $100 and his checking. They make 900 new loans. Those people go around town spending it. If any of the merchants that they spend that 900 on are not client to that same bank, then some of that 900 ends up in the, you know, checking account of some. somebody who's at a rival bank, and at the end of the week or whenever, when the banks all settle up, they're going to have to send that to the other bank. So that's why in practice, what, you know, you said the liberal progressive guy was saying, in practice, what the banks do to be conservative is they get $100 in new loan or new deposit,

excuse me, they can only make out 90 in new loans because even if all those get, end up with other banks and they have to give 90, you know, to them for them to put in their vault to back it up, they still got 10 in their vault, you know, backing up the, the original 100. So that's, that's the idea that strictly speaking, from the moment of the transactions, yeah, they could lend out nine times and they would be in, you know, they would be in compliance with the law. But over time with transactions and interbank clearing operations, that would get drained pretty fast. So that's why in practice, you wouldn't lend out that much. So that's the way to In other words, they're both saying true things depending on what are you trying to say.

Right. And I guess is it a third different point that if I remember Griffin, right, that a lot of times somebody gets a loan, they're not just going to go spend it. They're going to deposit it right back in the bank. And then even when they do spend it, that guy is going to deposit in his bank. Then they are going to loan it out. So there's a chain all the way down. Yeah, we're doing the thesis, antithesis, and the synthesis.

right. So the way to reconcile those two is from the system as a whole, right? So the first guy puts in 100, the bank only out of concertism only grants 90 new loans. But you say, assume that all ends up in other banks, from that other banks, let's say just one bank. Some guy spends the 90. Now from that other new bank's point of view, oh, we just had 90 and new money come in so we can lend out 81. And then that just keeps happening. And if you go and add it all up, it adds up to 900 in new money creation but the idea is that's the system as a whole

it's not one bank and one transaction does it all right now you know we even had a debate about this on the show I brought on an old left wing friend of mine John Schwartz and you guys had a little old debate there about inflation

hell yeah that's a while ago yeah and so you know I think I probably told you then that the way I learned it in junior college was that inflation is good for the little guy because, for example, they get to own homes that they otherwise would not be able to fork because they can borrow dollars but pay back dimes, meaning by the end of your 30-year note and you're paying off your mortgage, your principal has not grown, right? It's the same contract that you signed way back when, only now you're making way more in wages. And so your

mortgage is a much smaller percentage of your income than it used to be. And so you're essentially getting away with cheating the bank because they're creating so much money out of nothing and devaluing the currency that you end up paying off your house with less valuable dollars. And so that's what makes it good for the consumer and maybe even gives inflation credit for creating the American middle class. Bob Murphy, what do you think about that? Yeah, so there's two things.

One is on its own terms, right, other things equal, it is true, more inflation, particularly if it's unanticipated, has the effect of it. It helps debtors and hurts the creditors, right? Because you're paying back with weaker dollars than you thought when you signed the original contract. Having said that, though, it also just, if there's an anticipated inflation, it hurts people who have like a fixed money income and you know have to buy stuff right so if prices in general go up 10% and people weren't seeing that cut you know they thought it was going to go up 2%

instead of it goes up 10% yeah like working class families are helped to the extent that if they have fixed rate debt not credit card debt because they're you know the APRs adjust but we're talking you know if they got a mortgage or a car note they're paying on or whatever then they get helped in that sense but now if they go to the grocery store it everything's more expensive and their boss doesn't immediately give them a 10% raise, which is pretty standard that there's going to be some lag, then they're hurt. It's not obvious that you're doing them a favor.

And a lot of people probably would say, especially if you're young, struggling people, you don't have a house. Maybe you don't even own a car, then the fact that groceries and diapers and stuff are more expensive isn't really helping you. So there's that element. But then even beyond that,

if people see this coming, right? Like I've been to like a guest speaker, stuff like real estate conferences and stuff, but like real estate conferences and stuff, you know, like where these guys get up and they teach people like, hey, here's how you make money, you know, on the weekends and stuff.

And you're right, they stress that a lot that this is, you know, a 30 year fixed rate mortgage, that's great. You know, you get a property. And if you can get it so that the original mortgage payment, you know, you can rent it out to tenants.

And if you can cash flow that, then that's just, you know, free money because over time, you know, the rents are going to go up because inflation and yet the money you've got to pay to the bank just keeps, you know, stays the same. And so over time,

you're just making money and you keep gaining more and more equity in this property. You don't even care whether it's a good property or not because that's just a money pump. But if everybody, quote, knows that and it's just common sense. What does that do? That means all, you know, capitalists with excess funds, they go into real estate. And when would they stop doing that? When the prices on the houses get bid up so high that even taking into account that mechanism, you're still like, I don't know if I want to buy that house because it's so expensive right now.

Even with the whole 30-year fixed mortgage, the payments in real terms get lower over the decades. And so that's why right now, nobody can buy a house, you know, normal people can't afford a house. So, so yes, if this were just a one shot thing and nobody saw it coming, it would benefit the existing homeowners. But as an ongoing fact of life, that's partly why right now young couples can't buy a house. Yeah, it seems like, um, you know, I'd have to really master all the line graphs and all of that kind of thing. But it seems like it may, I mean, from what I've seen lately, the cost of the average home as a percentage of average income is way, way up. That's the crucial ratio, right?

But it makes sense that obviously the prices are adjusted for inflation, but assuming adjusting that ratio for time, it makes sense that if you bought a house in the early 70s and you paid it off through the 70s, 80s, and 90s, and then, you know, your junior college professor said, yeah, see, you ended up paying off this house. You bought it for $35,000 or $65,000 back in 1971. And then that's nothing in 1990s terms. Like, okay, fine. But after 30, 40, 50, 60 years of this policy, as you're implying there,

now prices are so high that you can't, young people can't get in them at all to take advantage of this supposed inflationary, you know, bonus. welfare payment, the previous generations already got all the benefit of that. Now, young people are, you know, doomed to either rent or live in their car. Right. And again, the mechanism is, or I guess another way of putting it is, let's, you know, say you're wealthy people right now, you got, you got a bunch of funds to do something with. And let's say you are pretty sure at some point in the future. You weren't sure exactly when, but you're looking at the numbers. you're like, man, they can't carry this debt, you know, the federal government,

and they're going to just have to print money. And so you think at some point, yeah, inflation is going to run hot for several years. What would you do with your money? Well, you're not going to buy treasuries, right? You're going to buy things that go up when prices rise, you know, gold and maybe Bitcoin, stuff like that, but also real estate is an obvious candidate. And so, yeah, so even just right now, the prospect that at some point in the not-to-distance future, the Fed might really start printing money again like crazy would make wealthy

people shift into buying homes and then renting them out. So I'm just saying a lot of these trends that people are lamenting like, man, Blackstone, it's not Black Rock by the way. It's Blackstone is getting into all the institutional owning of properties and renting them out. It's kind of like the uberification of housing. And I get why people are alarmed by that. But again, that's not happening in a vacuum.

That's exactly what you would expect to happen in this framework where people think that the dollar is going to be debased in the coming years, that, yeah, you want to own real estate. And so if all the wealthy people are trying to do that, well, there's only so much real estate to go around. So what does that mean? The price gets bid up such that, you know, clears the market. And that's why, yeah, young people with no funds, they're just starting out.

They have no other assets to leverage. They can't compete against that. So they're going to have to be renters, you know, forever. Right. So you can see why from, say, for example, President Donald Trump's point of view, something like the 2008 crash would be the ultimate nightmare to happen on his watch,

the way it did happen on W. Bush's watch. at the end of his second term there. And I'm sure you're probably familiar with this statement. I'm pretty sure it's from like an Oval Office gaggle with reporters. Not exactly positive on the setting there, but it was just a few weeks ago. He was quoted saying that, look, the older people, their equity is like their main wealth. And the prices have been propped up.

And so if the younger people can't afford them, and then he works in because he has to make this excuse. If the younger people who just won't work hard enough can't afford it, well, then that's just too bad. In other words, but then see, I know you're going to go back a step about how come it is that the boomers have all their equity in their house and then nothing else in the first place. But he's, and look, by the way, not every baby boomer is filthy rich, right?

Their equity in their house is all they got. And so if he allowed or first, force this correction in order to help young people be able to afford to get into a house, he would be absolutely screwing the old people because apparently, Bob, the way they have it all set up is that we have to fight a generational war through our national government's monetary policy. Yeah, so, yeah, a lot going on there and you're right. Like, it's interesting to read older treatment, like Meese's, I read a lot of his stuff. And back when he's writing, like in the 40s and 50s, he just states matter of factly that the average,

household saves like in a you know like safe bonds and what their life insurance you know i mean like nowadays the like the idea of people having savings in their life insurance seems like a coin like what are talking and that got destroyed in the 70s right so it was the inflated you know price inflation of the 70s and that was unanticipated that's what made people like standard types of retirement vehicles and stuff like they just they got crushed and so yeah it and then it was the rise of like mutual funds and things like that. So it was not the case that in 195, the average person, you know, their retirement was, oh, yeah, I got a well-diversified portfolio in, you know, the S&P 5 or the Dow Jones. That's not the way they thought. It was like they got a pension. They made a life insurance policy,

you know, maybe some pretty safe blue chip bonds, stuff like that. And so, yeah, but because of the inflation of the 70s, that taught everybody you can't be in that kind of stuff. If you're just in a fixed dollar payment that's going to, you know, going to, you know, going to pay you a certain number of dollars over time, like Social Security, you're going to get crushed. And so you've got to get into assets that respond to inflation. And so, yes, over time getting your house, like you say, became the thing. Oh, yeah, real estate always goes up or even it comes down a little bit. Don't worry, it'll eventually bounce back. People need to live somewhere. Give me a break. And so, and it kind of, like you say, it's a reinforcing cycle where once more and more people do that,

it becomes more and more imperative to make sure that that keeps going up. And so they did get kind of locked into this system. And yeah, it's like no one person designed it or whatever. They kind of just went along and that was conventional wisdom. And when they were doing the retirement planning, that was a smart thing to do. You're going to have your Social Security. You got this. You got your pension.

You got, you know, you got some annuities. And yeah, your house, once you pay that thing off, that's going to keep going up. You can give that, you know, your kids can get that and sell it and blah, blah, blah. So that's pretty standard stuff. And so, yeah, if home prices come down 30%, that's going to be devastating to a lot of people that that was a big part of the retirement plan. Yeah. Health insurance. Who can afford it even with the subsidy? And who wants a subsidy? There's a better way. Crowd health. It's not health insurance. It's a crowdsourcing community. Basically, the way it works is you pay cash, first 500 bucks up front for whatever doctor visits you have, and you crowdsource the rest. And the more you help others, the more they help you. There's a nominal monthly fee. And in fact, you'll save and get a big discount, only $99 for the first three months. If you go to join crowdhealth.com.

Horton. That's join crowdhealth.com slash Horton. Hey, you guys, me here for expat money at expatmoney.com slash Scott. Learn what it takes to get residency, even citizenship, to buy property and protect your neck by building yourself at plan B. Get this free booklet all about how to do it if you just sign up at expatmoney.com slash Scott. Well, I'll tell you, man, I'm not the very best on this, but from And what I can see of younger, you know, Generation Z populace, not necessarily Trump supporters,

they are extremely upset by this, man. And they're upset about a lot of things. But it's so obvious. I mean, obviously this is my bias, but it's my bias because when I first read about it in high school, I understood that like, oh, yeah, this really is crucial. But it kind of is underlying every kind of thing that they say. about how much they hate our society now. And it's monetary inflation.

And one of the biggest ones, which this sometimes does get brought up, is the push by big business. And J.D. Vance, for example, addressed this directly on the Joe Rogan show a few weeks ago. That big business demands not just easy immigration, but illegal immigration because they need that downward pressure on wages. And that's not all business.

but it's big hotels and definitely an agribusiness not just growing plants but like think about Tyson chicken or any of these like major industrial um you know farm concerns and whatever they cannot stand the upward pressure on wages in these inflationary times their overhead for employment is just their most crucial part of their budget and so anything that they can do to bring in competition on the low end against the poorest Americans, agricultural workers, hotel workers, anything they can do to bring in even poorer people than them from the third world or anywhere else

to prevent them from having to give these people a raise. And you talk about people on fixed income, that's almost everybody. I mean, if you look at people who make money by the hour or even on like a medium level salary or something, they don't get a legitimate cost of living increase. actually keeps up with the rate of inflation at all. They're the very last to get a cost of living increase

and really never one that keeps up in terms of real wages, right? Yeah, and that's on that point. Have you seen Scott like these charts where it shows like, oh, since the 70s, you know, productivity has gone up such and such, but real wages have been. And usually that's coming from left-leaning organizations to kind of decry like the Reagan tax cuts and stuff like that and how awful inequality is.

But what's funny is their own charts show, it wasn't during the 80s that divergent happens. It was in the early 70s. And I was it that happened in the early 70s that might explain this fundamental shift and how some, you know, one class is getting wealthier and the others aren't. And it's obviously Richard Nixon going off gold.

Right. And so it's not, to me, it's not a mystery that when you allow for monetary inflation that, yeah, like there's like the wage earners and stuff that they haven't kept pace, that yeah, their paycheck and money terms is higher now than it was in 1978 or something. But you're right, not compared to, the rise in prices of everything else.

And that's exactly what you would expect to see, you know, if there were this financier class, so they can, you know, the Jeffrey Epstein's and whoever, that can adapt better. Like they see stuff coming and they can profit from and know, oh, let's shift our, you know, relicke our portfolio. So they benefit from that infusion of money coming in

because it's not that the Fed when it creates new money, just distributes it uniformly to Americans. And that's not what happens. It comes in through certain channels. Those people benefit the most. and then downstream from them, people benefit. So that's kind of how it works. Yeah.

Well, I mean, in the case, for example, wait, and, you know, it's not just I kind of picked on agricultural sectors and whatever, but it's the same thing for the tech industries where they're bringing in, you know, the most educated Indians from the subcontinent to come in and replace the Americans. They're doing the same thing to truckers who are, you know, consider them, I don't know, low salary or high hourly wage guys or whatever, they're getting, you know, the exact same treatment essentially, the government bringing in all these immigrants to replace them or at the very least make them too afraid to ask for a raise because they might get canned over it.

And, you know, not to be too comy about it, but clearly this is big business using the government to wage a class war against their own. employees. Yeah, I think that's right. And it kind of also underscores, too, like just how phony these numbers are. Right now, the official unemployment rate's like 4.2%. And so this should be a tight labor. You know, workers should have all sorts of flexibility and say, oh, you don't like my terminal.

Screw you. I'm going to go somewhere else because unemployment's so low. And that's clearly like the average worker does not feel real flexible right now. And then, oh, yeah, I have all these options at my disposal. That's clearly not how people feel. And yet, again, if you look over like a 50 year stretch, the unemployment rate now, there's like only a handful of times when it's been this low, also tied into the Fed just recently, you know,

announced their holding rates steady in the last meeting, you know, the late July meeting when unemployment is at historic lows and the Fed's own measures of price inflation are, are hotter than what they say their target is. So how come they're not raising rates? And it's, you know, lots of reasons for that. But my point is that clearly the official numbers don't make sense. Their own behavior doesn't line up with, you know,

what the ostensible indicators are saying. Okay, last question for you, or topic, you know how I do. There are some reports that say that, look, we're essentially in a recession now, except for these AI companies, and a lot of that is circular promises of contracts and things and potentially reminiscent of the dot-com bubble, if not of the housing bubble. But then again, we've got housing problems too, Bob. You know, during the, I think we talked about this before, and I'm not exactly sure if you agreed with me or not,

but I think the way I look at it was sort of we were due for a crash when they did the COVID lockdowns. So even though they didn't raise the interest rates way up, they cranked them way down. It was still, it was almost like they did a Volker and forced the contraction by just closing down everything for a while. And that licked the bubble as it was in 2020. And then they just obviously with massive inflation created a whole new one.

And then so the question is now whether it's already popped or is popping it's just sort of the illusion of the AI thing propping it up. But like, oh, and I was going to say about real estate where I'm from in Austin, there was a huge increase in demand. Don't get me wrong. But it was also based on a lot of funny money during the time, during all the COVID stuff and all that. And if you look at the housing market in Austin, it's not so much a sign wave as it's like a bell. shape where, you know, it went up and then it kind of had a little cap on it. And now we're back down to the bottom of the cap, but we haven't got back down to where it was in 2019, if that makes sense. So I wonder if you think that, well, where on the boom bus cycle are we exactly?

You said they're holding rates the same. They don't dare raise them because they're afraid of popping air out of this bubble, right? But then I don't. I don't know. How big of a bubble is it? How big of a correction do you think we're due? And do you think it's soon and am I completely off base? Or what do you say? Okay, yeah, a lot there. So one particular measure that I like is in terms of a warning of when is a crash coming. It's what's called the inverted yield curve that since World War II, that thing has been spot on. And so, yeah, that thing inverted in 2019. And so I thought a crash was coming. And then COVID happens. And, you know, unemployment goes to the roof and

everything, but because the lockdowns. And so it's, unfortunately, it was like a hard test. In other words, yeah, it seemed like it worked. And so my warnings of a crash were vindicated, but people could just say, you got lucky Murphy that had not been for COVID. We don't know. What would have happened? So that I think, you know, that's fine. We can give a pass. That thing inverted and it was the longest inversion to record and then finally, you know, flipped more recently. And so according to that, yeah, we should, you know, in the next 12 months, there should be a crash. And can you explain that curve to me in a way that? that I can understand in one try?

Yeah. So the, yeah, it's, the yield curve is looking at, like if you take treasury, like government bonds, the yield curve is showing as you go out on an X axis, it's longer and longer durations, like three months, six month, one year, 10 year, 30 year. And then the Y axis is showing what's the yield for that duration. So normally it's upward sloping, meaning that if you lend money to the government for 30 years, you're going to get a higher interest rate than if you lend it to them for three months or whatever. So when the yield curve inverts, what that means is the rate on short rates is higher than on long rates.

And so, again, that's unusual. And so normally, every time since world is true that that has happened, once it goes back to normal, a crash ensues. And so I think that makes sense. I'm not just like, you know, reading charts and saying, well, whatever happened in the past, most continue. To me, that makes logical sense. It ties in with the Austrian business cycle theory that when there's a boom, they're printing money. people have long-term inflation expectations, so you think longer rates are higher to reflect that,

they chicken out, they slam on the brakes, that makes rates shoot up, and the Fed control short rates more than long rates. That's why the short rates would zoom above the long rates. So to me, that's just a signal. It's like the thermometer being over 100. It's not the thermometer makes you sick, but it's catching something underlying that's real.

So that's why I think there's that pattern. So according to that, yeah, there should be a crash coming soon. and with real estate in particular, the K-Shillard National Price Index is at all-time highs, right? Even adjusting for inflation. So it's higher now than it was, you know, in 2006. But it's been flat for a bit.

So to me, like it shows, yeah, there was a big surge in prices. That's starting to back off. Amongst other things, the Fed loaded up on mortgage-backed securities during COVID, they let that unwind, and they're still doing that. So I think, like, the Fed decided

we can either bail out the treasury or real estate, we're going with the treasury. And so the Fed is still holding, you know, treasuries on its balance sheet, but it's letting the mortgage back securities roll off. So I also think in particular, besides the general economy, that, yeah, real estate is in trouble. So that's, I do think the AI thing is real. I don't think that's a hoax or whatever. Like, I think there's genuine major productivity improvements coming from that over the coming

decade. But as far as the other indicators, yeah, for a while, I've been thinking that the U.S., they set us up for a big crash and the stuff going on in the Middle East, like, it's like, what more could they do to cause a global crisis than what they're doing? Yeah. Well, no, correct me if I'm wrong, but if I remember right, I think didn't they start raising the interest rates in the summer of 24? Because I remember being surprised that they would do that to Joe Biden, that they were risking, you know, popping the bubble too soon there. Usually, you know, the Fed is very attuned to, you know, especially national politics. And obviously all of Washington wanted Trump gone. So it seemed to me like pretty risky that they would start raising rates while Biden was still in there. But maybe I remember that wrong. Well, they were raising them. Oh, wait. Wait, one more thing about that is that my real question is, though, that, well, then, and if that's right, that was a couple of years ago, didn't they engineer a soft landing and prove you in Rothbard wrong that if you, once you start raising rates, it's on now.

boy, the bubble's going to pop because here they pulled it off, Bob. Yeah, so if we're looking at the federal funds rate, they were raising them all through 22 and 23. And then they actually started cutting them in, what, September of 24. But that's what caused the inverted yield curve, right? So that's the mechanism. So when they're raising rates, that raises the short rate above the long rate. So that's what makes the yield curve invert. So yes, you're right.

That's why I thought when they started doing it was like, okay, party's over. They pumped in boatloads of money. Now they're raising rates. And they were letting the balance sheet shrink as well. And it peaked in like May of 22. The Fed like blew up its assets like $9 trillion and then started letting them roll off the balance sheet around May of 22. And so I thought, yep, there you go.

This is standard textbook stuff. And you're right. It has taken longer than I thought it would have. So definitely that is true. I'm surprised it's lasted this long. And so does that just mean, well, it was a weird cycle or, you know, Now, the Austrians are totally wrong. I guess that remains to be seen.

But that's why I'm saying, yeah, according to the standard magic, not just the Austrian stuff, but even mainstream people who've looked at the yield curve indicator, if we go another year without a big crash, that will be hard to explain. Well, it doesn't seem like an explanation would be the massive increases of productivity from AI, right? Everything I'm reading about it says, well, we're hoping that'll come someday. But right now, it doesn't seem like anybody can trust these. agents to do anything really important on their own. Because after all, chatbot, it's not all chatbots.

I don't know, but all these agents, they're not really things. They're not really beings, right? They're just algorithms. They don't exist. People imbue them with all these, you know, personifications and whatever, but it's, it's like talking to a tree. I mean, I understand. And I'm a Christian, so I don't think they have souls in that sense.

On the other hand, though, you could say, well, I mean, a worker, it's just a collection of cells. Like, you know, no individual neuron knows. anything. So I'm just saying you could try to deconstruct stuff that way. I'm just saying my personal work, the stuff I'm doing with, like, we use Claude at my company, it just blows me away what they're doing with that. So yeah, you can't just let it run on autopilot and not check its work, but it is enhancing my own productivity. But that doesn't explain why my crash call has been, you know, I have to keep extending it, right? Yeah, that's something else was going on in

terms of like the crash have already been here, according to me, and I can't cite AI as my get out of jail free card. So there's something. I actually have a hard stop, Scott. I think I got to get going here. Okay, good. Well, great to talk to you, Bob. Thank you so much for coming back on the show. Everybody, go to Amazon.com and go to mesas.org and get Bob's books. Thanks for having me, Scott. The Scott Horton show is brought to you by the Scott Horton Academy of Foreign Policy and Freedom, Roberts & Roberts Brokerage, Inc., moon dose artisan coffee, Tom Woods Liberty Classroom,

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