Freedom fest is now in session for the trial of the most important subject of our lives, money, and thousand Federal Reserve implements our lives every day. Judge kennedy is presiding at this hearing. All rise. [applause] lets hear it. Hello, everyone. How are you, ladies and gentlemen, members of the jury, we are gathered here in the state of nevada to decide central beng bank federal preserve to provide a healthy economy and Banking System, stable prizes and a lender of last resort or is it responsible for a series of banking crises and lost of purchasing power of the very engine of enflaicion. Inflation. Is this economy more stable or disstable . Did the fed keep it from getting worse. They must decide this are we better off without the fed and if so what shall we replace it with. Shall we go back to the classical Gold Standard. You love gold . Can i hear a little bit of applause for Gold Standard. Representing the reserve, professor, lets hear it. Big fan, big fan. [applause] thats right. Hes a professor at social policy, he was a longtime columnist, of course, for business week and continues to write columns for the New York Times international edition, and the founder of institute. Very impressive, very impressive. Author of ten books including everything for sale, and new york best seller. Debtors prison. Politics versus possibilities, oh, yeah, sell that to them no brief, why dont you. I hope you visit early. Professor kuttner, will you please remain standing . Good, very good. A Monetary Institution and the obama institution since the crisis, have been accused of supporting a Monetary System that failed to monitor and repair a frag fragile Banking System, bailed out wall street with programs, financed the obama administration, ruined deficits so that the National Debt now exceeds 17 trillion. Holy underwear. How do you plea . Not guilty. Ive heard that before. First we will hear Opening Statements. Yes. Its the name of the night, people. [applause] put your hands for robert murphy, author of the book choice, cooperation enterprise and human action. Its my favorite kind of action. I love animal action too. Im a libretarian. I dont judge. Senior economist with the institute for energy research, hes got so much energy he could be his own can of red bull. Has taught economics at hillsdale college. Very serious place. Dr. Murphy is author of seven books, and they include politically incorrect guide to capitalism. Hes been a longtime critic of the fed and each of the attorneys will call two witnesses whob subject to crossexamination. Thats where it gets kinky. Each side is going to make closing statements. We will have time for table tennis. Look at the handsome collection of nevadans. They will rule on the case if the defendant is found guilty. I will impose a very harsh punishment. Let me give you the injury a few instructions, okay . Lets keep it clean. I know it is nevada. You will listen very carefully to the Opening Statements and to the witnesses and at the end of the hearing you will be determined whether theres sufficient evidence beyond a reasonable doubt that professor and the defendants of the fed are guilty of malficient. Is that understood . Very good. You may begin with your Opening Statements. Thank you, your honor. Youre very welcome. Ladies and gentlemen of the jury, distinguished guests, i stand here to bring the case against the Federal Reserve as the judge has outlined. I am going to bring extra witnesses to go step by step what the financial crisis was caused by and how the recovery was repressed by the Federal Reserve. In these opening remarks, i want to step back and just provide a more general argument against the Federal Reserve, lets look at the reserve act in the act was amended say that the feds duty to promote maximum employment, stable prices and moderate longterm Interest Rates. Lets do that. Has the feds fulfilled the duty. I think we can see that the feds have failed in that regard. We know that theres constant Price Inflation but we dont know is the fact of nature, no, its a fact of the Federal Reserves policies. From 1990 to 1913, its hard to accurate determine this, if you had a consumer basket that was priced worth 100 in 1913 that same basket would be 108. So the point is money used to be stable and purchasing power. And the point is since 1913, the dollar has lost 95 to 99 of purchasing power since that time. Now some people will say, yes, of course. When we say stable prizes, we dont mean stable prizes, what we mean is stable fall in the purchasing fall of the dollar, and even in that criteria it has failed. There have been volatile periods and periods of relative moderate inflation. Im sure all of us are familiar with the high inflation in the late 1970s but theres also from 1917 to 1920 each year the Consumer Price index rose 15 1517 . Really the feds have failed in stable pricing or purchasing of the dollar. Has the fed done good job stabilizing the economy, preventing crises . Theres the Great Depression, recession. Happened on the feds watch. Some defenders of the fed will go further okay, if you throw out the Great Depression, if you throw out the Great Depression i love golf. Thank you. [laughter] someone got the joke. If you look at postworld war ii volatility, just on that focus, people will say gnp or gdp was more stabilized but actually theres a 2012page paper, economists, including Cristina Romer has said a lot of the criticism of 1913 era is based on faulty statistics. They were looking at commodities series more generally as if you look output as a whole even focusing on the world war ii period on the u. S. Economy has been less stable than it was thereoneminute warning. This is your oneminute warning. They teach that in law school. They do. Just looking at statistics here, statistics published like cristina say that theres a plausible case that it has been stable than before the Federal Reserve. In terms of two major policy objectives, stable prices and economy the feds have clearly failed. Finally, let me just point out that its ironic that we are arguing do we need Central Planning when it comes to money. If we are picking any other topic, yesterday when there was an economist, when he alluded to the needs of federal government to run health care there was booing, and yet for system reason, the one area where politicians are necessary, the one area where we cant trust the market is money. That doesnt make any sense, i submit to you ladies and gentlemen of the jury. The Federal Reserve is unnecessary institution, my expert witnesses will show that its exacerbating. The feds are guilty. Come here, come here dr. Murphy. Hold on. Im totally impartial. That was impartial hug. Everything is greater from this point. Well done, thank you very much. We are going to hear from defendant robert kuttner. Order, i will have you thrown out of here so fast itll make your head spin like exorcist. Sorry. Ladies and gentlemen of the jury, i am not here to argue that everything that the Federal Reserve is sound policy, only that we are much better off with a central bank than without it. To demonstrate why, let me take you back to the 19th century. A period where we had no central bank, only the Gold Standard and the money supply dictated by the actions of gold discoveries. Gold determined the availability of credit and this was a period when hard money was scarce, banks issued notes of reliability and call in loans just when farmers needed. The quantity and cost of credit for no relationship to the economys needs as roger recounts in new book, americas bank, the economy isolated between credit booms and credit busts. Panics broke out every couple of deck aids decades. Depressions have lasted 45 years, all driven by monetary volatility and credit crunches. It was only after the panic of 1907 that populists, rural interests and Business Leaders and wall street bankers who distrusted and detested each other agreed that some sort of central bank was necessary. For the First Time SinceAndrew Johnson had killed the second bank of the United States, we have to compromise. Central Banking System was based on United States. Markets cannot perform for themselves. Cannot do for themselves to overshoot or undershoot. This was a balancing act to provide credit, when the economy becomes overheated. Secondly and even more importantly the fed functions as a lender of last resort as a crisis such as collapse of 2008 and a lessor crisis such as the flash crash, latin america crisis or the october 1987 stock market crash, it did not do lender of last resort so well after 1929 because it had needed the current tools nor current sophistication, but it has an institutional memory and learns from history. Third ow the fed is one of the federal regulatory agencies that seeks to limit the unfortunate habits and conflicts of interest that often create products for their own enrichment and create bubbles and then crashes. The better the fed does that job of keeping Financial Markets honest, the more it can keep Interest Rates moderate to make capital available that the real economy needs without setting off. Finally since 1978, the fed has also had a dual mandate to try to promote both high employment and price stability. And im happy to report that janet yellen is doing that job better than predecessors. Despite new technologies, money markets cannot regulate themselves. On the contrary financial engineers to create dart pools of supermoney everything from exploding mortgages, products oneminute warning. Used that against that against their country. I say this in full knowledge of the fact that human beings and Public Officials and i have been a critic of the fed, the fed has been too close to wall street. History reports that in a case of money creation the parols are more extreme than the risk of regulatory excess. Thank you so much. If you had to choose from janet yellen and peter as a spouse, who would you choose . I only have to be one of central banker. Its a hypothetical. Thank you. Thank you very much. [applause] thank you. Very good, professor kuttner. Dr. Murphy, please call your first witness. Yes, your honor, i would like to call john allison to the stand. [applause] lets hear you participate. This is not a library. Mr. Allison, please raise your right hand and place in the copy of your favorite room. Do you swear to tell the truth, the whole truth and nothing but the truth so help you and ran. [applause] [laughter] mr. Allison, could you state your occupation and policy . I am recently retired from the caito institute. I was ceo for over 20 years, the longest ceo serving. Perhaps have you written any books that are relevant. I have, i have read on the financial crisis and financial cure which was wall street best seller. Very good. Could you explain a lot of people think that the fed made a good job, they take these crises as given. Would you agree with that and the fed needs to be there to rescue the situation . I do not. I do believe in premarket. I think the cycles are good in the sense that markets have to get rid of foreign companies. Certainly in the last Financial Company fed plays a role. In early 2000, head of fed was called a maestro, he didnt want that to happen and wanted to go in good terms and created negative rates and that was also facilitated by two giant cooperations freddie mac and fan fannie mae. The fed provided the money to create the bubble. By the way, the bubble wasnt just in the housing market, the commodities market, the stock markets, where the money comes from just for the benefit of the jury can you elaborate on that point. Policies encouraging the sub prime lending and banks give mortgages to people that not might otherwise not qualified. The bubble got focused in housing because of freddie mac and fannie mae. The federal government created bubble that was way beyond housing market. There was a bubble in many markets. And that simply math mathically impossible without feds creating money to make that happen. Im sure some defenders are going say, we dont know where the crisis is going to come from, given that housing was overvaluated, would you agree with that . No. Argumently definitely nearly 80 we had worst economy. The rule of law was suspended. The feds the reason they were absolutely unclear to anybody in the market shows to say leihmann and wachovia. When Washington Mutual failed, they decided to pay. We created a housing boom. We needed a correction. A lot was done by the panic that was unnecessary. There was no rule of law and in the beginning it wasnt as bad as the early 80s, by the way, i dont they didnt call it the secondary affect. I wonder if you can comment on the notion that banks deregulated. That might have contributed. Do you agree with that . Absolutely not. Massive increase under george bush. We had the patriotic act. Massive increase in regulation. If you can go count the pages, the massive increase in regulations, banks were misregulated,s no deregulated. A lot of people point and paid no role in the financial crisis. Banks like washington, countrywide had no obligation. Maybe citigroup was a little worst. The industry was not deregulated. It was missregulated. Do you think that the Federal Reserve it was up to her ideal that she expresses in her words . [laughter] no, i would go beyond that. I had the opportunity to talk to ceo. Ive asked him a simple yes, do you believe in price control. In other words, could a group of experts in washington, d. C. Set the right price for an automobile. Absolutely not. Thats crazy. Well isnt the feds setting a price and the group of experts know from the competitors, we set wrong. They had no answer. Well, thank you. I have no further questions for this witness, your honor. Very good. Would you like to crossexamine the witness . You have five minutes. And then turned it into securities. When you say those securities were priced accurately by Financial Markets i would say they were underpriced in general, but primarily because they were marking the market. When you have one competitor, governmentsponsored enterprise that has 5070 market share, they were under pressure to have at least have loan portfolio. They had to keep buying deeper and deeper. So that was bringing down the pricing on the whole market. Would you say they were accurately priced before they collapsed or after the collapse . They were only priced accurately after the crisis was over and the market cleared. When the rule of law was suspended, the price fell over than they would have in a premarket and they were too high because freddie mac and a huge amount of money the fed was creating. So could you describe as a banker what occurs in a credit crunch when one institution is so uncertain of the ability of another institution to pay back its debts that things freeze up . What is that like on a Trading Floor . What actually happens . I have never been through that, certainly didnt have in 2008. It didnt have happen in 2008. And the Bank Deposits went up. You can look at the numbers. What was happen is allowed the institutions getting punished by the markets and getting ready to fail, how much damage would have been done by that is a hard thing to know, but if we hadnt created im fairly confident we would have had a more severe shortterm correction but better off today. I dont really know what the feds should have done. Like a fireman started a fire, they burned down half of the town. [laughter] what a great analogy. Let me understand what youre saying, your testimony is that the collapse of 2008, leaving aside freddie and fannie which i completely agreed with you, were badly run institutions specially after they were privatized. You say that now. Your testimony is that the Federal Reserve created the collapse of 2008 . My testimony is that the feds created the bubble that let to the crash. They were like they took us on a party to the caribbean and encouraged us to drink a lot and then we had a hangover. The reason that it turned into a panic was because of the arbitrary rule of law, markets cant operate when you dont know what the rule of law is, when they paid off the Washington Mutuals depositors. People cant handle that. Maybe once they punch in money, maybe that was okay but it was, again, after they burned half of the town out. What would have happen if there had been no central bank and a panic like this broke out as panics did break out one minute. There was no central bank to provide lick liquidity, what would have happened then . We had stateowned banks and they were regulated in a different insufficient way. Secondly, when they did have panic, they had much more severe reaction. They were very short. I would argue that if we had in canada, there was no banking crashes and they had no Central Banks going through the depression and in scottland they had 100 years with totally private bank that put in money, there was no central bank at all and no serious correction. I would say we wouldnt have had the bubble and we would have had little corrections all along. Market is going to correct, but we are never you cant make that big error without except with thank yo