Swift, uber and robots tell us about money, credit and why we should abolish american central bank. This is live coverage from the book festival in georgia, starting now. Good morning. Woefully everything is working. My name is linda. At the savannah about festival we are blessed to bles post such celebrated authors that has been made possible from the generosity we would like to extend the special thanks to our member and individuals to of made and continue to make saturdays festival free. Immediately following the presentation john will be signing festival book purchased copies of his book is slightly different today he has a short interview with cspan immediately following so you have time to get to the tent before him we have a new policy this year if youre planning for the next of their presentation to stay here please move forward so that then you empties and the eschers can determine how many seats for people coming in. Please take this moment to turn off your cellularse phones and ask you do not use flash photography. For the question and answer portion this year we are passing microphone so there is no lining up in the center aisle like we have in the past. Ve and he is happy to take questions. John tammy is with us today and is the senior fellow of the Reason Foundation the senior Economic Advisor and editor of real clear markets. Com. He frequently writes about the Securities Markets along with trade and Monetary Policy issues that impact those markets for a variety of publications including the wall street journal and investors business daily, a financial times, National Review and the london daily telegraph. Please give a welcome to john tyranny. [applause]. A gracious introduction and thanks to all of you being here today iss passionate people like you that what mead do what i love so i cannot express my gratitude enough. Also to the savannah book festival for including me as a lookout at the other authors to be featured this weekend i cannot believe i am in such good company berger these are authors i have read for years and i am clicking my heels like to be a part of this. Excellent t word kim did all the workd to for me to be here also i believe to somebody moved mountains to get me in the position to be here today quite simply there would not be a book called who needs the fed except what paul knows about banking and credit could fill many books over the last 13 years he taught me enormous amounts and has been so patient in discussions and by email and over the phone aboutut these issues and if i had not discussed this or have learned so much there never would have better reason to write who needs the fed in the first place. First will talk about my background i was born in charleston south carolinaa not too far from here. My dad was in the nuclear deaver navy once he got out of the navy lived in dallas and atlanta uh then boston and then move to los angeles i grew up in it wdena. During grade school i discovered not knowing at that time what i would be doing in terms of writing about economics and Economic Policy there were childrens books in grade school about president s meet George Washington and meet c jefferson i would read them b over and over i would be off to the side reading these books in class and i said i am worried by an untroubled at school i am not participating so the teacher said we are thrilled he is interested in these bookste please have him continue. That probably signaled something ahead. For College University ofhe texas major in Political Science just because it seemed like the most interesting major at the time. I cannot say l. Learned whatmost as their focus is elsewhere that i worked in sales fors years then went to Vanderbilt School of management to get my mba. While there i decided to get into equities with the bull market into a good job at goldman sachs. That is what began my future career took shape so while other people were on the Trading Floor talking about equities five would watch cnbc my focus was on the economist talking about the economy and really had my interest there was a constant stream ofe commentary to say if they t grew too much or if people prospered to much the there is the negative downside. I thought about growing up in the 70s i know inflation. the treasury shrinks the value of the dollar that is something that occurs exclusive when economies are growing investment surges so the prices of everything drop a remember the first mobile phone in the early 80s with a halfhour battery life the size of a brick and i thought now you can get mobile phones for a fraction of the price. Venue for history offersat computer created by i am cost over 1 million in the late nineties. So then i thought that is another example of a persistent drop ofer investment. Looked everything rejected the common view that the fed and the Central Banks have tos plan that. Culdesacs was full of talented people very specific that they secretly started to write for clients to say but you hear on cnbcpers is for a basic economic history and common sense and started to think this is what i really wanted to do but then the stock market started to dive let people to ae wafer to as the internet bubble began to pop. That run up of stocks was beautiful and a sign of economic progress that you need that constant experimentation to get you to a better place. Place to live look at it as a time looket transformetterly transform and the downside to the big drop in equity prices and that it was not as interested in my services as they were a few years ago. [laughter] that was devastating at thee time we start to question him a my doom for failure . So i already cannot an economist i am not a journalist either it would pain me not to be in the field so that forced me to figure out what i really wanted to do as a fundraiser for the Cato Institute paid the bills during the day meeting donors that is hell i met all mcadams to transform how i view the world to be even more determined as the economic commentator but my initial online columns make a possible for me to have a voice nobody wanted to have the association but my reputation was working against or contradicting that wisdom of economics and felt the profession have lost its way about percentages rather than a beautiful story of human action and people dont dislike economics but how has been explained to them if they could understand sports or movies or television or famous people they could understand what they need about economics so my first book Popular Economics you should buy several copies of laughie laugh explain Economic Growth and got rid of the graphs of what is informative and is central the mia today talks about credit and money through things people can understand that economics is fun people take the fun out of it so that led to the book who needs the fed . Would want to stress upfronttitr mrs. Day very optimistic book that was never nearly as powerful or influential and even better that Market Forces so what can to be stressed enough and has the resources it cannot shrink credit that we have already created the fed is large but it is not active in the markets because of there specific skill the central bankers stalled have remember their Central Banks in nigeria, barbados. They are everywhere we have a large one because the American People have the swagger that is not its own. I think they are full of information. The same i think the electric is full of information. Theres a lot of skepticism thin about centralbank. E is some i think its based on aon a mise misperception and iver really misunderstanding that it is not reality. N the misperception is that money and credit is one of the same. In fact, money and credit cannot be more different. If they were the same, haiti and honduras would have every bit as much credit flowing through their economy as we do in the united states. That would mean counterfeiting would not only be legal, but probably encouraged. Credit is a real economicis ream resources. To paraphrase, when you borrow dollars your borrowing access to computers, trucks, tractors, desks, chairs, buildings. T of al most of all labor. We are the credit in the economy, the producers of the resources. That when people seek to borrow dollars theyre tried to obtain. The fed has no private stash of resources that i can release to the economy. We are the creators of it. Now their frustration with the fed is somewhat separate. People read and they watch the pundits on tv. They watch the newspapers, will they tighten credit . Will they keep money easy at zero percent . I think the electric probably looks at that says something is wrong with this picture. That does not reflect the reality that we know. Apple computers must the boat company in the world but it pays 3 to borrow. Anyone who is ever started a Small Business knows i to obtain credit or cost a bit more than zero percent. Its much higher than 3 , higher and higher all of the time. That is the broad points of the first point of my book. While the feds do you cry easy access to credit and easy money, and the real economy we act as though the fed doesnt exist. Thats very positive statement about where we are. Thinking about hollywood. Brian grazer is easily the most talented movie producer in the history of the industry. Ollo 13. Were talking about splash, parenthood, a beautiful nine, apollo 13. Were talking about Television Shows like empire, 24, and arrested development. But as he freely acknowledges, his attempt to fund his movie and tv ideas failed 90 of the time. This person with a nearperfect tract record, hollywood is the land of, no. What is what about silicon valley. At if they said that if you have a startup idea in the valley that money sources will be the path to your door trying to invest with you. As evidenced by the billionaire venture capitalist in silicon valley, we know that credit is expensive out there. If you want to fund your startup idea youll give up a big portion of your business to a venture capitalist. Then you will give up more of it in the form of Stock Options to lure potential employees. E what about Investment Banking . One of the things that offends me the most of modern times is how media members have made wall street the majority of. They create did perception that Investment Bankers are somehow better people. I cannot think of a more important profession than Investment Banking. One of the reasons theyre paid so well has to do with the basid truth that in a real economy the price of credit is expensive. Its one thing to come up with an idea for a business or come up with that idea to expand your business. Its another thing to attain the resources and credit necessary to build on your vision. Investment bankers are paid well, properly so because they could do for businesses what they businesses cannot do for themselves. Many of you remember the name michael malcolm. The media demonized him. He spent time in prison for charges that had never been prosecuted on anyone before. I would argue that he was one of the greatest capitalists who ever lived. His insight back in the 1960s and 70s was that unless you are the blues to the bluechipp business you were largelys shut out of the credit markets. The traditional banks do banks did not regard you as a reasonable credit risk. Se so to his genius come the source of his fortune was the highyield bond. And it was his way of finding more expensive credit for promising businesses, time warner, time warner, cnn, the Golden Nugget hotels, the list is long of the great businesses he attained credit for. The point is his fortune was a function of the fact that while the feds were often never never land he found it for very difficult credit sources. Unless youre bluechip its hard to attain credit in the real economy. This brings us us to our 45th president , donald trump. P. I like to sell books i like to have stories about people who are famous. Ks i feel like that will drive more people to buy it, as all of youl should. Thinking about donald trump and let me stress that this is not a political statement, many of you remember he reached inside is a real estate mogul in the 1980s. Thats when he was viewed as the developer who could do no wrong, the man who had the vision for what the future of Tall Buildings would be. Whats interesting is that as early as 1990 he was already viewed as a major credit risk by u. S. Banks. In 1990 until the story in the book he flew out of los angeles to visit was Security Pacific Bank which was the fifth largest bank at the time. He wanted to borrow 50,000,000 dollars to to fund the revitalization of the ambassador hotel. Largestst as you can imagine for modern times he arrived full of confidence and swagger about his amazing Balance Sheet of assets, full of some of the best properties honor that were easily highly liquid. W he was the best best lending option out there, you should probably give me hundred million dollars. While the bankers had a different view of his assets. They assets. They did not trust them. They looked at them as highly illiquid. That if you ran into difficulty paying off his debt, these were not be easily sold. So they refuse his request for 50,000,000 dollar loan and they ultimately loaned him timely. May they wanted to be associated with his celebrity. Ultimately they live to regret that decision two years later. Y l they wrote down the loan in total. He did not pay a dime back. It has been well known ever since early 90s that u. S. Banks generally have not touched donald trump. He was viewed as toxic. Hit a bad credit reputation. Thats not a political statement. Not a political statement. But it is a statement about credit. H while the fed is once again oves here decreeing zero rates of interest, in the real economy Interest Rates float up and down as low the fed doesnt exist. Inte thats a hugely positive statement about the u. S. And Global Economy that i would add. If the fed were fraction as powerful as a commonly assumed we would not be the richest nation on earth. The fact factct that the fed is not that consequential is a signal that were in a credible rich nation. It doesnt influence the flow of credit as much as people think. Only among academics and economists untouched by reality and by the real world is are such a thing as easy credit. In the real economy the prices set by Market Forces thats a positive thing. So the question becomes, do web, need a Federal Reserve . Do we need a central bank . As you can probably guess, my take is that we dont need one. E that the if the fed were shut down tomorrow, few would would notice. The fed began 100 years ago in 1913 as a lender of last resortu to solvent banks. If you were a well run bank with Excellent Assets on your book and you ran into a nearterm cash crunch, the fed existed at a source of a loan to tide you over until some of the cash came back inches as we have have seen over the last 100 plus years, its unheard of for a solvent bank to go to thev fed for a loan. To do so is an admission of bankruptcy. Because theres nonfat sources of credit always willing to lead to a wellrun bank. What this meant for the bankingg system overall is that the fed existed to weaken it. The fed has become a lender of last resort to insolvent banks that did not rate alone alone in real economy. Si mentioned that silicon valley. Theres always a Central Authority that could bail out your weakest companies. That means that france sure, the globe. Com and etoys would still exist. Silicon valley would be a very run down impoverished place. Its wealth is affection is that bad business is regularly died. The fed has weaken the Banking System by virtue of it propping up over the years the weakest at the expense of the most successful banks. The fed is also a bank regulator. My argument and this will offend at,wi few, what a laughable presumption. If youre working with the fed thats a signal he could not get a job at at the bank in the first place. And if you asking those of lesser talent to place those with much more talent. I would add that with regulators and regulations for asking thehei w impossible. Raskin something that even the smartest bankers in the world could not do. Were asking them to see into the future to detect trouble spots within banks well before problems arise. G billions but they could do that they would be earning billions in private sector and would be the richest investors in the world. Even the the smartest investors in the world fully admit the majority of time there late to a problem. So were asking the impossible meaning is very expensive but it achieves less than nothing. It weakens the Banking System. And the feds famously targets the rate at which banks lend to one another. But you dont need the Federal Reserve for that banks could easily set the price and do on their own. The feds do not said anything. An so my argument is that we should and what serves no useful purpose. If we ended the fed pew would notice. I accept that that my view is a bit on the outside. If you talk to most economists they cannot function without a central bank. We would be in a nonstop depression mode if not for thesi Federal Reserve. I. Out that John D Rockefeller became the richest man of therlo world before the fed but its constantly rejected, the very idea that i would say we dont need a central bank. The arguments are many, the school of economics makes the broad point about the fed that we needed to increase credit in the economy during recession periods to prop up an economyri that is weakening or in in freefall. One, it ca the theory fails in two ways. One, it cannot be forgotten that the recessions are credibly healthy. Zing as they a as a conniving as they are and how much they kill our morale in the near term. O they are the signal of the massive economic boom on the way because this session signal an economy cleansing itself of all the misuses of labor. Of all the bad habits and bad investments in laws and companies that were holding the economy down in the first place. Recessions take old thats the time when you want government to do less than nothing simply because recession, if left alone signal the boom on the way. You dont want to central bank acting and trying to allocate credit. That means the private sector has less credit to allocate these Bad Companies are being propped up at the expense of future growth. The other problem gets back to something more basic. The fed has no credit to increase. Again, it doesnt have some private stash of resources run the country you can release into the economy. The fed can only increase as a rule, the federal any central bank expert to fight a recession what its doing is fighting the recovery. Its instantaneous with misallocated resources that would otherwise be pushed to higher use. Usually usuallybe misallocated to what has alreade failed becomes right detriment. The monitored school of economics has a different view. In fairness to a limited limited view of what the Federal Reserve should do. Monitors argue that the fed should control the money supplyd that should oversee a set increase in the supply of dollars in the circulation onn annual basis. The late Milton Friedman is most associated with this view. My comment in the book is this an example of Milton Friedman promoting central planning. The reason for that is basic. Money supply is never a problem with theres productivity to paraphrase, no nation or individual needs worry worry about having too little money. Weathers enormous amounts of productivity money credit are everywhere. Weathers little productivity money and credit are scarce. Beverly hills never has a money supply problem. Greenwich, connecticut never has a money supply problem. The fed can i keep money supply credit off the island of manhattan hornets best day. Theres too many productive people there. They are a magnet for credit and the money that is used to obtain that credit. Lets imagine a city sufferingea economic problems right now. Lets imagine the fed believes it can stimulate Economic Growth with its monetary policies lets imagine they decide to stimulate baltimore. Ulate ba they proceed to buy upup treasuries from baltimore banks to increase loanable funds. Such a scenario would fail between breakfast and lunch. It would simply be because they cannot stay in business lending to those who lack the means to pay that borrowed back. So any increase in the dollar credit in baltimore would leave baltimore for those banks outside the city and outside marilyn itself. Ate of mar modern time economists look fork new ways to grand ice themselves and its their importance. Theyre looking for solutions when the economy are individuals but when left alone would do fine. Now, by that theyre not talking literally about the fed dropping helicopter money into cities, but their idea as much as produce money will lead technomic growth. That. That does have an air force a lets imagine a drop with the city of baltimore. F lets look at some more realistic that they would pick the dollars up and stand right there. Such a scenario would fail just as much is the increase of money in banks. It would because even if they spent every dollar in baltimore no business is going to expand based on helicopter drop. They bank the windfall and thefa money would be wrapped up outside of baltimore. Actually, say Central Banks focus on countries. Several years so go when greece remits economic trouble they argued that it was for the European Central bank to increase essential supply of euros in great banks. But the same scenario applies. Economic activity increased and not raise credit. Any increase would boomerang back to germany and other more economically productive locales almost instantaneously. Lets reverse the scenario nowst and think about silicon valley, place known for enormous wealth and productivity. In this instance the fed believes, right up to the top that Economic Growth caused inflation. Me say tha this is something im passionate about. The very, very people who are charged with planning our economy and the people charged to actually believe the prosperity is a downside. So they must neuter Economic Growth and put people out of work to slow down. Use infl so the say okay, were to start selling to decrease the supply of money there. Such a scenario would would fail between lunch and dinner, almost instantaneously. Because we reside in a Global Economy. Theres investors run the world desperate for exposers for the most economically appropriate people on earth. It could be made up instantaneously by sabres around the world. The broad point here is that the fed cannot increase money andea credit and locales where theres not a lot of productivity and where they are struggling economically as a result. Much the same, and productive locales theres no need for the feds. Money and credit sources are fighting to have exposer to it. The fed cannot do what its critics and supporters say can do. That brings us to the austrian n school. My book is an exclusive tribute about the theory of money andd credit. But despite that, in the book im very critical about i turn modern austrians. Many have argued that the Major Economic booms of the 20th century were creation of an easy Central Bank Creating excess credit and putting the economy on a sugar high. Co they also argue that chinasguen modern rise was from the central bank in china creating easy credit. My point in in the book is this an example of the austrians embracing the tans in his home that they despise and run away from. They correctly make the point where they said another way to stimulate the economy is for governments to spend i governments can only spend as much as they the negatives for the economy are instantaneous when governments presume to spend because politicians, this is true they can allocate precious resources. Its immediate in terms of its negativity for growth. Ponse is my responses how are Central Banks different. Why are governments can allocatl resources. Why do we think Central Banks can when central bank seeks to direct credit to specific locales or countries they instantaneously enter the economy because once again resources are being allocated and noneconomic fashion. Theres not even a nearterm boom from central bank, as a rule when the acts theres theres less resources for the private sector to allocate in terms of access credit theres no such thing. When you borrow money your borrowing resources. The fed cannot multiply them thats what we create in the real economy. Getting back to my examples from hollywood and Investment Banking, donald trump. Both fine is a happy story. The feds are not that influential despite their efforts to make credit easy in the real economy the price of credit flows at rates that reflect reality. The fed is just not that important. Ch attention we give it so much attention and the influence over the economy is not that great. Now the response i get to all on this is something about quantitative. What what i usually get from people is its an interesting theory you have but what about quantitative from 2008 until 2014, the fed oversaw a Major Program that not only stimulated the u. S. Economy but also stimulated a major stock market boom. My answer is that you need to check your assumption. What you believe is by common sense. Economical that was the fed borrowing 4 trillion from banks and proceeding to buy up u. S. Llion s treasuries and also by not mortgages from housing markets. Lets get 11 thing out of the way. S get on quantitative had nothing to do with Economic Growth. As a rule, it we can the economy. Thats the case because it governments once again cannot spent prosperity. They can only miss allocate when you buy house your purchase doesnt make you more productiv. , doesnt open up foreign markets or lead to cancer cures that elongate life, doesnt lead to Software Innovation that make us more productive or expand time. Housing is consumption that reduces the amount of capital available for entrepreneurs anda businesses to expand. Hich the average point to believe it stimulated the stock market boom you have to believe that the deepest markets in the world populated by the most sophisticated investors in the world were tricked by something th plainly with Economic Growth. Its the very idea that defense what were all about. That these guys could trip the smartest markets in the world, i get all the responses. One of my favorite came from an economist who said youre not an economist, the fed signal to address that we got your back. Will keep us markets propped up. He he added that i learned this for a Nobel Laureate i said okay lazy, great point but if what you say is true can you explain to me japan. Because that is posted no less than 11 since early 1990s with no corresponding stock market. Were utterly confident in ways that japan central bankers do not have a clue. The response you get from that is you dont understand, what the fed did was push down Interest Rates such that people had to get into equities so they could get a reasonable yield. I said thats interesting except i hope youll explain it hass lost Interest Rates for decades but it stock market is half of what it was in 1989. And i said why did the stocks rally in 2,002,001 when the fed rose aggressive did not work there was Alan Greenspan not as skillful as bembenek e . But they said you dont y understand, what happened is th fed in conducting this dropdown yields a bond so much that equities became the only game in yieldi an interesting theory, but if what you say is true there what about a massive correction in bonds from 2008 until 2014 but trumpnever occurred. It only occurred after donald was elected. I dont see her argument. He said youre not getting it. The fed create a 4,000,000,000,000 dollars that had to find its way to the stock market. It had no more go but the stocks market. If you want to believe that, thats fine but to enter the stock market it must exit. The theres only buyers but in the real world for a buyer to express optimism of seller must express an equal amount of pessimism. For an optimist to express that view they must get to express a certain amount of pessimists. For it to be optimistic in the market a bear must show an equal amount of pessimism. At which point we get to the back basic truth about markets themselves. They quite simply do not price in the present. Pl they always price in the futures the feds official program through quantitative easy but ended in 2014. Had telegraphed as early as 2011 if in fact they had been the driver of the stock market they would have cracked it for good long before 2014 to reflect their eventual end of the the eo program. In fact stocks continued to reach new highs. There is quite simply no evidence, despite what were told that the fed created the stock market rally. Lots of people who believe that most economists will say hes not he doesnt notice talkingou. About. Regulate puts up beds and so youre welcome to that point of view. I fully agree but im on the outside on the butt, if you believe the fed despite all what you must then a College Setting creating it the fed robbed us of one that wouldve been quite a bit greater. The reason for that is basic. Recessions are once again healthy. They signaling economy cleansing it spelt for what doesnt work. Economy is great gain strength from their weakness. In much the same way as the samt precious resources to better rur one. It cant precious resources that is robbing us of a much healthier stock market. Book isn its not that important inconsequential. I say and what is an offense to common sense just because we dont need the fed. Nt itll never be ended. No congress will ever and the fed rest assured. Thats the bad news but heres a good news, Market ForcesMarket Forces are ending the fed force. The channel through which to influence the economy in the u. S. Banking system represents 20 and that number is in freefall and it is because banks are being suffocated before eyes by the same federal government to save them. That that number will drop with the decline of banks. Market forces are ending the fed force. We dont need congress to do it. I will leave it there. Thank you very much. [applause] we do not have a lot of time for questions. For that i apologize. I got wrapped up in what he was saying. Se please join me again and thanking john upon exiting this venue, our wonderful volunteers will enthusiastically accept your donation to the savannah book festival. It is because of your generosity that we are able to do this for free. Thank. Thank you for coming and forgive me for no questions. [applause] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] this is book tv on cspan twos five coverage of the tenth annual savannah book festival. You have a few minutes before the next Program Begins now because under king talking about her book hello country heart. In the meantime, we want want to give you a chance to talk about john you just saw talking about his book, who needs the fed. Here the numbers for those of you in the east and central tim zone. And lets get right to calls underscore michael georgetown texas. Hello please listening, please ask your question. Caller basically just wanted to know that if Market Forcesam were going to help eliminate the Federal Reserve, there 4,000,000,000,000 in debt since i have no real resources to create new money, how to set wind down with the economy . Mr. I unfortunately guess were not hearing john, or hes notat hearing what is going on right now. Well get him ready so he is prepared. In the meantime let me tell you whats going to happen throughout the day and savannah were Trinity United Methodist church is on the square ine downtown savannah. Its one of the larger venues and we have a full day of coverage ahead. Cassondra king will be coming up. Shes up. Shes the widow of pat conroy and a novelist in her own right. Her book is a nonfiction book, a low country heart. After thatt Terry Mcdonnell would be talking about the accidental life and what its like to be a writer. We will give you a chance to talk with William Doherty who will be speaking this afternooni the shadow of the ayatollah. Inn the former agent who is at iran in 1979. In nine. In the foxbusiness news will be talking about is not a fourur letter word. And finally dan slater, author of will boys. Hes a professor at the university of chicago. An hour with john of, who needsa the fed. Hes the political economynk, editor forbes and of real clear markets. Com and is associated with the foundation. Michael in texas, go ahead and repeat your question. Caller you said that the free markets will effectively illuminate the Federal Reserve. How would that wind up of 4 trillion in debt that theyve created . Guest thats price by the markets. Markets understand that thatnd would be a wind down and not be instantaneous. The main thing is the feds influence is shrinking because of the influence of banks is shrinking. Thats. Thats the channel through which they wish to influence the economy. That number is going to decline. Its not dynamic lending. All the exciting Economic Activity occurs away from the system. Its not that influential. E congress will end it. But its not very economically consequential. Letter from bernie in newot york. Go ahead. Caller with respect to the unwinding of the 4 trillion, why do they have to unwind it . Why cant they just keep purchasing bonds, whats to stop them from purchasing bonds forever . Thank you. Its a fair argument. Implicit in this need for the fed to conduct open Market Operations is that banks would not have an outlet for their outlet or banks that own treasuries would not have an active liquid market if there to sell treasuries. Treasuries must liquid market the world and if the fed were to remove itself from that there is still be huge demand for u. S. Debt which means banks if there ever demand for loans increase they could sell the assets and make loans with great ease. The fed fed is just not that import