 I'm Jonathan Newman. I'm happy to be here. Thank you so much to the OSU Free Enterprise Society for inviting me if you look at the title of my talk and the The flyer that went with it it would be pretty funny if I came up here and said that the Fed is just okay It's not that big of a deal. It's it's fine I think the flyer is great because it's got this fiery background with the pilot cash in front Good job with the flyer. The only addition that I would make is some some mean magic here. Just add the fiery element but the topic is how the Fed disrupts and corrupts society and I want to start by defining some terms I will define what society is and we'll define what the Fed is and what it does And then we'll talk through the different ways that it disrupts and corrupt society So the way that I like to talk about society is by starting with a ham sandwich So just by show of hands. Who has read eye pencil by Leonard Reed? Anybody okay. Good. So that means what I'm about to show you is new for most of you So I want us to go through this thought experiment where you are going into a deli You're hungry for a ham sandwich You're you're hungry for it and you're ready to order it and you go up to the counter And you ask the person behind the deli to make it for you I want us to go through the thought experiment in which we just think about all of the things that have to happen For that scent that ham sandwich to be produced for you Right right then and there when you're hungry for it So and we could do a little bit of outsourcing here So what are some things that that go into the construction of a ham sandwich? Immediately, so what sort of things have to be there for the ham sandwich to be put together Yes, very good ham and bread Are necessary for making a ham sandwich. It wouldn't be a sandwich without bread. It wouldn't be a ham sandwich without ham. What else? labor yes ketchup condiments I don't about ketchup on a ham sandwich though So mustard and mayo some lettuce See, these are all sorts of things that would go into go into the production of the ham sandwich How many of you would like to just be handed the ham sandwich by the person who's making the the sandwich? It's like no you would you would prefer it for it to be put on a plate or maybe wrapped in something And you would not like to just eat it there at the counter You'd like to go sit at a table in a chair to to consume it So these sort these are also things that have to be there in order for you to go through the act of consuming the ham sandwich And somebody did mention it. You also have to have labor there You have to have a person there who is earning a wage who's willing to To go through these steps for you of just putting together these ingredients to make the ham sandwich But also the the deli itself occupies some space right in economics. We call that land So the the space that the the deli takes up we call land So we need land labor and capital. We need we need some factors of production here to to make this ham sandwich Okay, are we done with this thought experiment? Are we done? Have we have we explained where the ham sandwich comes from if we just list out these ingredients and lands of labor along with it The answer is no because all of these other things All of these things that we've listed also have Have to be explained. We have to say where the ham comes from where the bread comes from and so on So where does the ham come from? Probably a butcher the bread comes from a bakery lettuce comes from farming There's probably some intermediary steps as well, but uh, we're giving an abbreviated version here The tomato also comes from farming Whatever's inside of mayonnaise also comes from farming One thing that's inside of mayonnaise is is eggs and so that we'd have to get from a chicken farm If it's a paper plate then it would have to be supplied by at least the operations of a paper mill the table and chairs it was probably produced at a furniture manufacturer And then we can keep going around the circle and as we as we branch away from the ham sandwich You'll notice that there are some repeat offenders. There are some some things that appear Uh way more often than the others and two of those things are land and labor So land and labor are required at every single step of the production process. So the butcher It's the shop, but also it's the name for the laborer there But the the butcher also requires some land And hopefully it's not the same space as where the sandwich is being put together in the deli And at the butcher you need capital like a refrigerator some knives to cut up the raw ingredients and turn it into a sliced deli ham At the bakery you need some land and labor and you need an oven to convert the flour and other ingredients into bread The flour comes from farming. So now we're seeing some interconnectedness here in the in this structure of production for a ham sandwich The farm requires land and labor The farm has some fencing. I think you see where this is going, right? We can speed this up, right? So what i'm getting at here is this very complex Structure of production where we have a bunch of people who are working together They're all cooperating to produce these capital goods and it's all directed towards the production of a ham sandwich And even this very complex schematic here is is abbreviated So like we we're just sort of touching the high points of what it takes to make a ham sandwich But if we were to take it to its full conclusion here if we were to be very detailed We'd probably get something that looks like this. I did not put this together It's just a I just did a google image search for complex and this came up or something But the idea is that the the way that we interact with each other in our economy The way that our society is set up is is very complex and requires a lot of moving parts and By the way, I go through this exercise with my students on the first day of class sometimes And I see that they're all trying to like keep track They're all trying to take notes and a lot of times their notebook paper just looks like this It just turns into a scribble They didn't realize that the point is not to get every single every single bit down every single note down But but the key takeaways and the key takeaways are as I said production is very complex It uh, it takes time So we can't just go immediately from a chicken farm to a ham sandwich We can't just go from a refrigerator to the ham sandwich But these steps these stages in the production process take time and they're in sequence Production requires the use of real resources. So we talked about The factors of production. So there was land labor and everything else was capital goods with one exception What was the exception? Land labor capital goods, which includes all of the tools and machines and intermediate products But there's one other exception on the screen It was the consumer good. It was the ham sandwich. That's that's not a capital good That's something that we consume for our direct enjoyment and that's what all of it was was geared towards That's what all of it was directed towards One thing that we didn't mention but was very present in that schematic was that entrepreneurship Was the glue entrepreneurship was connecting all of these nodes They were all all of these people who were working for a business The business had an owner the business had somebody who was who was taking a risk They were they were combining these factors of production not knowing what the final outcome would be But they're guessing that there's going to be some consumer who's going to want to to purchase it And we're talking a lot about that later on We talked about how it's all directed at satisfying consumers And my point that I want to make is that society is this division of labor So this structure of production this division of labor that that goes into the production of all the goods that we consume Not just ham sandwiches that is society So society is the division of labor and it represents peaceful cooperation on a massive scale So if you just if we can see all of the cooperation that it takes to make just a ham sandwich But then we multiply it for all of the all of the consumer goods that we enjoy Then you start to realize just how magnificent all of this cooperation is like how how almost miraculous it is that We can all work together doing our tiny little bit of of the Of the production process for some consumer goods somewhere and it's all pointed towards the satisfaction of consumers And so that's that's what the that's what the free market economy is this is how I like to think about what what the economy is and And really the beauty of it there's there's a beauty to the fact that all of these interconnected parts It's very complex, but it's also a bunch of peaceful cooperation and it's all directed towards satisfying consumers What's the result? So if we allow this process to work if we allow entrepreneurs to produce Markets are allowed to flourish then something amazing can happen and we've seen it We've seen snippets of it in our lifetime, but we've seen it especially over the past few centuries Where there has been this explosion in standards of living just an explosion in the types Quantities and qualities of goods that we can enjoy The fact that this room is has central heating and air is something that would make the kings of old jealous The the variety of food that we all have access to is is something that would just That that would make the kings of old, you know Send an army in to try to capture that for themselves So so don't take it for granted that that that's could be one key takeaway from this talk is don't take for granted the the standards of living that we experience today and and enjoy and The way that you can not take it for granted is to appreciate the complexity and the peaceful cooperation of the division of labor We know that this has to do with markets because of the timing of it, but also we can see differences between regions differences between countries in the world and where this lift off This is by the way called the hockey stick of human prosperity where the lift off in Standards of living occurred and when they occurred it had to do with markets being embraced the the idea of of people working for a business and an entrepreneur taking a risk and They themselves reaping the profits or incurring the losses as a result So this this whole thing is is what makes our modern world what it is and it's It is society. Okay, so we define society. What about the fed? What is the fed The fed is the central bank of the united states It's tasked with regulating the banking system doing monetary policy and also being the bank for the u.s. government Congress has given it a so-called dual mandate. It's got two things that it's supposed to do And that those two things are to maintain stable prices and to maximize employment or at least maintain full employment Is how that sometimes is phrased but one thing that i've noticed over its History and we're coming up on its 110th birthday Is that it has taken on some new operations some new goals some new things that it likes to do That are either outside of the bounds of what it was originally intended to do or outside of the bounds of its Congressional mandate so when the fed was founded it was supposed to stabilize the banking system So people were sick and tired of all of these banking panics that were occurring during the 19th century And so they they said well if we had the central bank that can manage all of the increases and decreases and credit all of the All of the banks that have that run out of their reserves And so they have to close their doors if we can have some government quasi government institution that would That would manage this for us then we could we could get rid of the banking panic problem So that was its original intention the idea was that in elastic currencies If we can expand and contract the supply of currency with the so-called needs of trade Then then we could get rid of the banking panic problems. So that was the original intent So they they were tasked with stabilizing the banking system they the idea was to When I said the the needs of trade expanding and contracting the money supply with the needs of trade That's what I mean by steering all economic activity with an elastic money supply In world war one and world world war two they took on an additional role of financing war spending So now another goal of the us federal reserve is to finance government spending especially when The us is going into war In the the 60s and 70s the fed was tasked with maintaining the dollar status and international trade And then the dual mandate came in and that's the balance price inflation and unemployment point there They were also sometimes there's a third part to the dual mandate. So I guess it's a I don't know What's the three version of dual? Yeah, okay a tri mandate so sometimes they are also told to Make moderate long-term interest rates. So interest rates aren't going out of whack wouldn't that be nice so, uh, they Then we had in the 2008 crisis They were tasked with bailing out the so-called too big to fail financial institutions Or at least being a part of a cohort of agencies that were doing that They were told to not just regulate banks, but all financial institutions And uh to use its balance sheet to buy any kind of distressed asset I'm going to talk about this later on in the talk how what the fed is buying what the fed is doing has has grown Both in size, but also in category the sorts of stuff that that it's doing And then finally as we've seen in the most recent crisis another thing that the fed does is it just supplies an unlimited amount of money So if there's any sort of distressed Distress in financial markets and the fed will just dump as much money on it To to fix the problem So this is the reason I go through these things is just to show that the fed is not they're not constrained They they always cite their dual mandate. They always, uh, when they're given their press conferences like after the fomc meets and the fed chair is out there giving it's giving his, uh He's basically just reading this press release They're always citing the dual mandate But my point to you is that the fed has taken on a bunch of new roles over its history and Many new roles just over the past, um, you know, a couple decades. So it's it's not a bounded institution It's not something that has any sort of, uh, constraints on it Okay, so where am I going to go with this? So government control over money and banking, which is what a central bank is and does Uh, is by itself an example of government overreach So we can we can see how money originates on the market How banks can operate on the free market by by being money warehouses or being financial intermediaries And there's no need for the government to come in. There's no need for the government to manage money There's no need for the government to manage banking. And so With the imposition of a, uh, central bank that goes that goes away So it is by itself an example of, uh, government overreach But it's also an enabling cause of the expanding size Scope and power of the state through mainly through cost concealment So we're we're pretty familiar familiar if you've gone to any grocery store in the past three years You're pretty familiar with rising prices, right? So this is this is a form of cost concealment In the old days governments would raise money by sending tax collectors around And they would ask for money at the point of a gun or some other weapon, right? And that's how they would collect their revenues But now we we have a system in which the government can raise its own revenues Through a money printer now they they don't just you know The the u.s. Treasurer doesn't just call up the fed and say hey print me up a a billion dollars for this program that congress has approved What they do a little sort a sort of a shell game where the government issues debt And then the debt is bought by financial institutions and then those financial institutions Eventually sell it to the fed or at least a good portion of it And when the fed purchases the debt the they do it with brand new money They do it with money that didn't exist before so this is a way for the government to acquire resources It's a way for the government to increase its revenues And spend as much as it wants to even in excess of taxation Even in excess of what it can collect collect from the income tax and other forms of taxes so the government The government now is not bounded by taxes either so since the fed is not bounded in its money creation The government is not bounded either because the government is able to benefit as a result of that so And we talk about how democracy allows the government to to be subject to the will of the people Well another thing that allows the government to be subject to the will of the people Is by it being constrained by how much it can collect in taxes So what if what if we told the government? Okay, fine taxes, but you can only spend as much as you collect in taxes But if the fed and the federal government are able to work together to print up new money and finance the government's activities With money printing then that's a way for it to extract resources from us from the private economy Without having to increase taxes and you start to see why it's that's sort of beneficial why that why that would be at least popular Because nobody likes taxes right Nobody like taxes are very unpopular, but the effects of inflation are subtle and complex They're hard to see requires some cause and effect thinking and a lot of it is delayed as well We're going to see how fed manipulation of the money supply and credit results in additional crises where the government can expand even more So this is another effect of the fed That's called the abct there stands for Austrian business cycle theory So this is a theory that the business the business cycle is caused by artificial credit expansion which happens from the federal reserve actions And one other thing if we had time um that we'll talk about is that there are some indirect and and Very pernicious effects of the fed and inflation especially on our culture and our psychology as well So there there are cultural and ideological changes that that encourage the public's acceptance of government intervention But also also we can see increased hedonism decrease reliance on family and other good private social institutions Where the government has taken the central role in managing our lives as opposed to Us figuring out how to how to get along with each other and help each other and support each other in Sort of the old-fashioned way Okay, so before we get into the nitty-gritty details of how the fed does that What's the alternative? Like what if what if we didn't have the fed doing this sort of thing? What what would a free market in money and banking look like? Well, there's these two economists carl manger and ludwig von mesis Uh who talked about where money comes from and they said that money originates on the market So money originates like if you think about gold that that sort of hard commodity money that originates from people Trying to overcome this double coincidence of wants problem in their exchanges So if you think about a barter economy where we're trading goods for goods then It's it would be difficult for me as an economics teacher to go Grocery shopping, right? Because what that what that would mean is I would have to go find a grocer who's willing to give me eggs and milk and All the sorts of things that my kids like to eat and in exchange I had to offer them economics lectures, right? Maybe at the cash register So actually the location is not the hard part the hard part would be finding a Grocer somebody who is willing to sit and listen to economics lectures in exchange for groceries, right? So this that's called the double coincidence of wants problem It would be really hard for me to find somebody who wants what I Deliver except for you find people here, right because you're here you demonstrated a preference for this so um What people realize that they could do in these barter economies is that they could go through an intermediary They could go through a certain commodity commodity that is more saleable. Uh, it's more liquid It's it's something that a bunch of people like and so instead of Going from good to good they go from good to good to good So they use that middle good that medium as a bridge for them to get the sorts of good that they actually want So so what I could do is I could sell my economics lectures In exchange for gold and then I could go take gold and and take that to the grocery store to buy my groceries Right, there's an extra step in the process But it's much easier that way. It's I don't have to go searching around the economy for me to to find Somebody who's willing to accept the one thing that I produce instead I can go through this medium of exchange So the the importance of this it is important Because there's uh, there's some other theories about where money comes from and some people say that money comes from the state Money comes from the government deciding Uh, or the king is says this this coin with my face on it is is money Or these pieces of paper with nice latin phrases on it and old dead presidents on it This is money and this is what you have to use But what manger and mesis show is that that can't be the origins of money money cannot originate that way And money has to originate on the market because people have to figure out a way to value it People have to figure out a way to to to come up with prices for the things that they buy and the things that they sell And if a king just sort of dumps a bunch of pieces of paper on the economy and says hey start using this as money People don't have a system of prices. They don't have this memory of of what they bought and what they sold That would help them figure out. Well, how much should I charge for x? How much should I charge for y? What's a good price for me to buy this this carton of eggs and so on so so the that state or origin Theory of money can't be true It has to be the case that to the extent that the state is involved in money They've co-opted something that was produced by the market in a private unhampered free market economy We can definitely think about banks acting as money warehouses in financial intermediaries So banks offer a service if we have gold as our money It might be sort of clunky to carry around these big gold coins in our pockets for our transactions And so what we might like instead is the ability to To transact these gold coins without having to carry them around and so we can hire The services of this firm that specializes in keeping the gold safe And then we can swipe up plastic card that gives instructions to the bank to To send a certain amount of money from one bank to the to the vendors bank Right, so we can we can certainly have a free market in that But the point is well, we won't get into that they would have to charge a fee for this So the the system that we operate today is a fractional reserve banking system in which They're profiting off of the use of your money by lending it to other people But in a private free market economy, there would have to be a fee charge for this sort of thing But it would work just like any other warehousing service And we could still have financial intermediation where some people specialize in finding people who have savings And people who want to borrow so that they can buy a house or start a business or all sorts of things The important thing is that in this sort of system economic growth would be Caused by the the root cause of economic growth would be saving capital accumulation and entrepreneurship So it would require a setting aside resources for production in order for production to expand So in order for us to have more consumer goods more ham sandwiches and burritos and whatnot We first have to set aside resources You remember the ham sandwich schematic up there First we have to set aside those resources for their use in production before we can Produce anything right? So saving has has to occur and that saving has to be channeled into the production of capital goods We have to accumulate and use capital for production and we have to allow entrepreneurs to do their work We have to allow entrepreneurs to connect the dots and say I I think consumers are going to be willing to spend x amount in year two of this project So i'm going to put some money down today so that So that that can happen So all of that has to occur for economic growth If we had this sort of monetary system this free market monetary system, we would probably see stable deflation So and under the gold standard it was like pretty consistently One to two percent deflation as opposed to what the fed Does they target these days, which is two percent inflation? So and we'll talk a little bit about how does that work or how would that influence what consumers are doing So people would save with money. They wouldn't have to save by risking their wealth in Retirement accounts that are connected to the stock market which goes up and down all the time people would be able to save money and they would be able to Rely on that money actually increasing and purchasing power over time if prices in general are decreasing Loan markets would reflect time preference So loan markets and the availability of credit would reflect people's willingness to save as opposed to the whims of the central bankers And production would only be able to extend in length Based on the availability of resources So if we want to pursue bigger projects more longer term projects Then we would we would be able to do that but only if The supply of savings is there only if consumers have actually said hey, we are willing to wait longer for our consumer goods We're going to set aside resources today for production Okay, so that's the alternative view. I wanted to make sure that I didn't get out of here And without giving you this sort of alternative view of what what the monetary system could look like without a central bank So I stuck this in right here. But what is what is the Fed like today? So it was back back a not the alternative, but what do we have today? So this is a great illustration of Andrew Jackson doing battle with the second bank of the united states And what's interesting is that the political cartoonist his name was Henry Robinson. I think He was actually against Jackson and he was in favor of the central bank. So he was against Jackson When he was drawing this and yet he was trying to lampoon Jackson's battle against the central bank And I guess the idea was he was trying to say that It's sort of a feudal for Jackson to do this like he's definitely going to lose But if he's trying to if he's trying to get the public on his side In favor of a central bank, I don't think I would have drawn it as a monster as this mini-headed hydro And this is this is how I view the the central bank today. I think that it's expanded role all the new powers that it's taken on all the new things that it's doing Which by the way are not approved by congress even though the fed is a creature of congress The fed claims independence and so it can it can choose a new inflation target without it being approved by congress It can it can do all sorts of things It can it buy billions of dollars of mortgage backed securities and none of that has to be run through the Through the the people's house that none of it has to go through congress So the fed is has grown to monstrous proportions That's the point here and I mentioned earlier that the fed has changed a lot recently So here's what happened in 2008. So this is the the fed's total assets This is all of the stuff that that the fed purchases and keeps on its balance sheet And you'll notice that in uh 2008 late 2008 The fed's balance sheet just exploded where nobody could see this coming. Nobody knew that the fed Would do this nobody knew that the fed could do this sort of thing So this was a brand new thing for the fed to do for it for its balance sheet to explode by It was the trillions of dollars billions trillions What does it matter anymore billions trillions quadrillions? But so this was a brand new thing that that sort of took the market by surprise people didn't People didn't know what to expect people didn't know what would happen as a result Of this massive increase in its in its balance sheet But now so this is from 2008 until present day Now these explosions in the fed's balance sheet are just par for the course Now it's just a part of our normal everyday expectation of what the fed might do Especially in a crisis. So you'll notice that there were huge increases in in its in its assets and the the stuff that it owns in uh 2020 In 2009 and you can see the other They call it quantitative easing all the other increases in its assets So in the past the the assets that the fed would purchase were government bonds It would it would only purchase government debt But another new thing that the fed has started doing is that it's it's purchasing a rainbow of assets It's buying all sorts of things notably in the in the 2008 crisis. It started purchasing mortgage-backed securities So now it's not just buying public debt. It's buying private assets It's getting involved in private markets and influencing Uh real estate markets as well So it's it's got all sorts of things these days Again the the main point that I'm trying to make is that the fed is a monster That the fed is is like this shape-shifting monster that nobody can expect what it will do and this is evidence that I think shows that The fed is not bounded. There's no there's no limiting principle for the fed. There's there's no, uh, there's no, uh There's no authority that can tell the fed. You shouldn't have you shouldn't have done that. You shouldn't have increased your Total assets by that amount. You shouldn't have Started buying mortgage-backed securities. You shouldn't have started lending to maiden lane Corporations. You shouldn't have participated in the bailouts. There's no authority that that's doing that sort of thing The fed is just sort of operating on its own Another brand new thing that the fed is doing is losing The this is a a graph of the fed's remittances to the treasury So in a in normal times the fed earns some positive interest spread So it's got a bunch of stuff in its assets It's got some stuff in its liabilities and usually it earns some interest and it pays for its army of phd economists That work for the fed and then it sends the rest As a remittance a remittance to the treasury and so this is a part of the fact that it's like this quasi private slash Public institution, but anything that it has extra By earning interest from mortgage-backed securities or treasury debt. It actually gives back to the treasury until this year So you'll notice this like upside down hockey stick, right? This is the hockey stick of depression the hockey stick of whoa So this is This is new this is strange But people don't really know what to expect People don't really know how to respond to the fed losing all of this money And the way that this has happened is that it I showed you the graph of it Increasing its assets a lot of the stuff that it was purchasing it purchased when interest rates were low So it bought a bunch of mortgages where when interest rates were around like two to three percent And it bought a bunch of treasury debt a bunch of government bonds When interest rates were low, but now interest rates are high And so it the light the liabilities that it has are paying those high interest rates So it has to pay interests on reserves to the member banks And it's got it it's got to do what it can to to increase interest rates through other operations that it does and What that means is it's paying this much and receiving this much And so it's incurring huge losses that nobody has ever seen before Once again, it's something that nobody knew would happen or even could happen And yet it's happening to the Fed Okay, so another thing about the Fed is that everybody's paying attention to it now If you weren't then you're lucky because it's it's a circus Everybody's watching the Fed when it's doing these press conferences You can it's almost like like college football kind of because the The news media will do like play-by-plays of when When Jerome Powell was just sort of like monotone reading his script up there And they're like paying attention to the pauses or paying attention to like there was this one slight textual change From the previous announcement to this one. What could that mean? It's like Like wow, I think there's a little bit too much attention being paid In these announcements Here's one of the funny examples was somebody commented on the color of his tie So it's all over the US economy is in the dumps because his tie is great But but the reason why people are paying attention is because the stakes are so high So the Fed is a powerful institution and what it does two interest rates and what it does to the money supply affect Every corner of the economy and so that's why people are paying attention to it One thing that people look at is the fed's projections They look at they look at the fomc fomc by the way stands for federal open market committee That's the main monetary policy making arm of the of the federal reserve They issue what's called the summary of economic projections the scp. So the fomc does the scp I'll give you a quiz on all this later And what they do is they give a forecast for what they think gdp will be in a few quarters What will the unemployment rate be in a few quarters? What will cpi be in a few quarters? Well, what will the fed's own interest rate be so the fed Sets a target for the federal funds rate And and the fomc gives a projection of what they think their own policy interest rate will be And what's really funny is they're often wrong And that's what this graph shows that so this graph shows their projections of the dashed lines for all the different quarters Where they made the projections and then the solid black line shows what the federal funds rate actually was In that time period where they where they projected it So you'll notice that they were they were way caught off guard by the the 2020 crisis And they were way caught off guard by the extent of price inflation and how much they would raise interest rates In 2022 and also this year So the fed is not very good at even guessing what it will do in the future and yet everybody's paying attention to it Okay, so we've sort of got a glimpse of what the fed does And how bad it is at some things it is good at one thing I thought about this a lot. It's really good at financing government debt. So the if you've looked at federal debt lately It's just exploding and CBO projections, which are usually pretty good Showed that interest payments on the debt are just going to be huge in the future One thing that the fed is very good at is is giving money to the government But let's let's put all this into perspective So Henry Haslett who wrote economics in one lesson. I highly recommend that you read it He said that the art of economics Consists in looking not merely at the immediate but at the longer effects of any actor policy It consists in tracing the consequences of that policy not merely for one group, but for all groups So, um I'm missing a slide here Oh, it's just out of place. Sorry. So here's here's my slide where I'm listing some of the The long run effects and the effects on all groups. So what what sort of things is the fed doing? Um, so one thing that it's definitely causing is inflation So it's expanding the money supply And it's causing the increase in prices and and all of the all the problems that we see there associated with that One thing with inflation is that it really discourages saving So you remember I mentioned that saving is a prerequisite for economic growth in order for us To produce more we have to set aside resources for production But if nobody has an incentive to save because prices keep increasing and increasing And so my my goal is to just consume as much as I can now Well, then I I'm not going to want to save I'm just going to want to consume as much as I can And so production is going to be hampered as a result. There's less capital accumulation as well With inflation we have uninhibited growth of government. So like I said, the Fed is really good at financing government debts We have widespread indebtedness not just with the government but the the public at large Businesses and consumers become highly indebted. So if prices are increasing then Not only do I not have an incentive to save but I have an incentive to borrow Because if I can borrow today and then pay my debts in the future when the dollar is worthless Then those future payments are worth less than they would Then my perspective of them today, right? So if prices are increasing, I would rather pay off my debts with A money that has a lower purchasing power in the future. So this inflation that's caused by the Fed is It's causing widespread indebtedness. We have way more Debt than we otherwise would without it and with that comes financialization So a lot of people talk bad about the financial sector and how much it's growing over the past few years And I think there's something to that Like I'm I'm as capitalist as they come But I do think that there's something to be said about the way that there's this whole this massive multiple trillion dollar sector of the economy that's just moving paper around that they're just Slicing and dicing debt. They're combining it and recombining it in different ways and and packaging it in different ways And that's that's what the whole sector does Now don't don't hear me say I'm not poo-pooing on finance. I'm not poo-pooing on on financial intermediation I think that there's a very important role for that I just I think that there's way more of the paper pushing and the financialization than We would have if we didn't have the Fed We also have exacerbated inequality so When the Fed prints new money when we have new money into our economy it comes in at a particular point So somebody has to has to be the first spender and usually that first spender is the government or somebody closely connected to the government, right? And by the way, this is why people try to counterfeit It's like the reason why counterfeiting is attractive is because it gives you purchasing power that other people don't have If by the act of creating new units of money You actually cause all prices to rise proportionately with the money printing that you did then it wouldn't there would be no payoff There would be no reason to to printing the new money But that's not what happens. What happens is The money is printed somebody spins it and in the process of the money trickling through the economy People increase their demands for goods and services broadly and that's what causes prices to rise in a step-by-step fashion So if you think this through what this means is that there's one group that benefits There's one group whose incomes rise the prices of the things that they sell rise before Other people other people's incomes rise and so They're they're selling prices rise before they're buying prices rise Which means that they're able to benefit as a result of the inflation But then there's this other group. Perhaps they're on a fixed income Or they're just you know On the outskirts of the economy because the money just takes longer to get to them They have to start paying these higher prices before their incomes increase And so what we see is a shifting of wealth and incomes Towards the money printer. So wealth goes towards the money The money printer where the source of the money in the economy And I and I think this exacerbates Wealth and income inequality I'm sure of it that it does that This uh that process that I just described by the way is called canteon effects So if you're interested in that you could look it up So the fact that money comes into the economy through one particular point means that Some people benefit and other people Are harmed It must be true Because if it weren't true then there would be no reason to issue new money So if the first spenders of money were not able to extract resources from Others or from any other corner of the economy then they wouldn't they wouldn't do it in the first place So we have exacerbated inequality. We had the boom bus cycle Which I'll get to in in just one moment. Yeah, that's fine We also have distracted entrepreneurs Entrepreneurs are supposed to be thinking about what consumers want They're supposed to be thinking about how to combine factors of production today Under conditions of uncertainty And one very important part of uncertainty is I'm not sure what consumers are going to want in the future They have to do this and it takes focus. It takes dedication. It takes Discipline to do that to the extent that their attention is diverted towards the Fed because there's so much on the line With what interest rates will be the next quarters or some other question like that It means that they're they're focusing on something that's not productive They're they're focusing on something that's that's not the consumer So you remember the gray tie. That's the sort of thing that I'm talking about All right, so those are I would categorize those things as economic consequences But there are also some cultural and social and psychological consequences of of what the fed does So we have higher rates of time preference. So there's way more living for today I got to spend as much as I can now because I don't have an incentive to save Prices are increasing therefore I'm going to buy what I can now before prices increase So we have higher rates of time preference where people are consuming more and saving less And of course this this encourages or goes along with a lifestyle of hedonism where People are just you know living for today We also have because of the canty on effects that I mentioned before intergenerational and class conflicts So if if we can all agree that exacerbated income and wealth inequality is not very good for social cohesion Then what that means is what the Fed is doing is Causing more of the conflicts between generations I think we're seeing a lot of that today in the the housing market, especially So there's all sorts of headlines where because interest rates are so high It's mainly the older generation that's that's being able to pay cash for houses And and a lot of the people in younger generations are upset about this because it's harder for them to get into their Into their first home One major point that I don't think there's enough discussion about this is that When we have less savings And more indebtedness it means that people are more vulnerable in crises So there's less saving and future preparedness where people don't have They don't have that emergency fund set aside for when they lose their job in a recession Or they they might not even have The the family or other Social network that would protect them in some sort of personal crisis And so when we have a huge economic crisis that hits the whole country It means that we have a bunch of people who are not ready a bunch of people who are hit with this crisis And they have to look around. Oh, who's going to bail me out? Who's going to protect me? Who's going to rescue us from this catastrophe because I I can't do it by myself me and my family We can't protect ourselves because we've never we haven't had the incentive to save we haven't had We haven't had this the free market monetary system that would prepare me for these sorts of Hiccups or larger than hiccups And so I think this leads people to depend on the government I think people look to the government They see that the government has already expanded in size and scope because of the monetary interventions before And they're also left Less prepared for the crises when they come because of those monetary interventions and so it's a perfect storm It's like now the crisis is here. The government already has the scope. They already have the power Uh, and I don't have the ability to rescue myself Or people around me. Therefore, I'm going to look to the government for help and so I'm going to petition my uh My politician I'm going to petition my representative to to vote for this act or for the stimulus package or or what what have you Some other sort of government intervention. So I think we have a cycle of A cycle of interventions that lead to more expansions of government power and the crises themselves that That precipitate it are caused by the expansions of government power in the first place. It's It's Not a happy talk. Is it like this downward spiral of shame And whoa We also have debt slavery. So if we don't have savings if we're not setting aside Money or the future and where we have this future preparedness It means that we go it into debt. It means that we're purchasing all these consumer goods We're purchasing houses with very long term mortgages And it means that we don't have the wherewithal to To decide where to live or at least it's not as easy for us to get up and move when there's a new job offer It makes us less able to make these sorts of decisions for ourselves and for our families When an opportunity arises or when a crisis comes. So if If you get Fired from your job But you have this mortgage because we have this indebted society Then it's harder it's harder for you to To keep going you've got to find some job any job as opposed to one that would suit your interests and suit your skills And so this is what I mean by debt slavery There was a recent talk by george guido holsman Where he went through this and if you're interested in that topic I can send that video to you or show you where it is online Finally, I'll mention that government crowds out private charities. So If we have this expanding scope of government because of all these monetary interventions it means that It means that there's less room for Families to work together. There's less. There's less reason for neighborhoods to Have each other have each other's backs. So like when something happens Instead of looking to my neighbor For help or looking to my family for help I'm looking at the government for help and I think there's a lot of government Crowding out of that sort of thing. And so we just get this all powerful state that's making all of these decisions for us They're the ones who are going to bail everybody out And I think it comes at it at a huge loss of liberty Okay, I wasn't going to go through the details of the boom bus cycle But I wanted there to be just a little bit of time for for q&a. So I'll stop right here I'll put some further reading on the uh, there it is. Oh, that went too fast Further reading on the slide for you to check out And we'll do some q&a. Oh, there we go There we go. Oh now it's backwards Oh, well, it'll work Thank you all by the way so much for attending my lecture Yeah Uh to government's uh subsidies to farmers and how it quote-unquote helps them when like they have a bad year or something like that Like are our subsidies to farmers good or are they bad? So the the question was the our subsidies to farmers good or bad And my my answer is bad I think that that's that's a good example of government crowding out something that should be it could be offered by The free market and one very plausible institution for that would be insurance So if there's uh, if some farmer wanted to be able to ensure himself against some weather catastrophe or something else Uh, then I think that they they could purchase an insurance policy that would that would have that sort of provision Where if there's a bad year or some some sort of weather event like a tornado that wipes out their crops Then I think that's what that's what insurance is for it's it's not it's not the role of government to protect Farmers are really any any business If there's like one particular season or one particular time period where something bad happens. Yeah Good question any other questions Um, do you think 2008 was the catalyst for the government expanding specifically the fed? I I think it was a so the question was do you think uh 2008 was a major catalyst for the expansion of the fed and the government And I think it was huge. I I definitely think that um that the The fed became a new animal in the great recession and the financial crisis of 2008 And I think you can clearly see that in the graphs that I put up so you could see that's where we had the first major Uh explosion in the fed's balance sheet. That's where we had the first major change in what the fed was purchasing Was no longer just government debt, but now uh mortgage back securities and other things That was where we first saw the government Stepping in in an economic crisis and bailing out financial institutions So I I think there were a bunch of brand new things that happened in 2008 And I think that that set the precedent for further expansions by the fed and the federal government and other agencies To expand in other crises and I think we're seeing that today. I think we're just seeing this sort of Um snowball effect of intervention on top of intervention And I think a lot of it got started with with what happened in 2008 I will mention however that if you look at the fed's overall history not just since 2008 But since 1913 when it got started it it has always been growing in size and scope It has always been grabbing new powers a little bit of this a little bit of that Um throughout its entire life. It's just that there are some really glaring examples of that In recent times since 2008. That's a great question So now that the fed is purchasing uh mortgage back securities Do you think that that has an influence in the increase of uh the housing Of like the real estate and housing market. Oh, uh, definitely So the question was uh now that the fed is purchasing mortgage back securities Does that have an effect on real estate in the housing market? And I I definitely think so um, I think A lot of the attention that people Give to the fed these days is because they are thinking about Their mortgage they're thinking about buying homes and real estate In fact, one of the headlines in the wall street journal yesterday was Was all about how commercial real estate is in trouble because of the changes in interest rates So I think a lot of what the fed does Um, especially since the 2008 crisis Uh is affecting real estate not just residential real estate, but commercial real estate And I think the reason for that is because the type of Of bubble that that popped in 2008 and it was a housing bubble. So since it was a bunch of Mortgage back securities that the entire financial sector deemed toxic Uh and the fed decided to buy them. It was like a game of hot potato So like this financial institution didn't want the mortgage back securities because they They thought that they were going to take it value. So they would sell it to this financial institution But that they decided they didn't want it because they thought I was going to take it value And so the the fed was like the person in the room that raised their hands like I'll take the hot potato I'll take the I'll take the the thing that's going to tank in value because I have a I have a black hole for a balance sheet I have a money printer behind me so I can take the hit And so I think that because the fed did that now they have a very outsized influence on on real estate and in the housing market today absolutely Last question I think If you were to speculate, what do you think the future will hold with the fed now having losses? That that's the trillion dollar question. So the question was Um, what's going to happen now that the fed is incurring losses, right? um I I don't know nobody knows so I'm not I'm not just the only one who doesn't know but I I can think I can speculate that there could be some political ramifications for the fed If you think about uh, where congress has been going lately, it's become very vitriolic But there is uh one um There's a group of people in congress who actually do care about Fiscal restraint on the part of the federal government And I think that they are in a prime position to put the fed in the spotlight Because now the fed is costing the taxpayer directly not just indirectly through inflation and the canteon effects that I talked about So it's not it's not just the prices that you pay at the grocery store But now that the fed is incurring these losses. It is now directly impacting the The federal budget it's directly impacting taxpayers. And so since that's what congress is there for Congress has the has the purse strings. There's they have the power of the purse I think that people in congress could step up and they could they could really grill the fed And say well, you're incurring all these losses Uh, you're supposedly privately owned by all these member banks. Why aren't you making them pay up for all of these losses? Why why are you instead putting it on the treasury? And so I think I'm not sure what would happen as a result of that, but you could see some pretty, um Dramatic changes in the structure of the fed if that were to occur They they could lose some of their quasi independence that they have If the congress decides to step up and say hey, you're losing all this money and it's taxpayer money You're gonna have to start to run stuff by me like you're gonna have to Meet before congress before you change the inflation target from two percent to something else Or you're gonna have to Go before congress before you decide to purchase, you know over a hundred billion dollars worth of xyz So I think That's what i'm speculating. I know that's sort of like big picture, but that's that's the best I could say All right. Well, thank you so much for having me. I I really enjoyed being here So quickly, uh, so I want to announce, uh, so we have three events, uh tomorrow with dr. Newman So the first at 10 o'clock he's going to be doing a research presentation looking at at hyperinflation and the societal impacts of that So that's in student union 297. So all all three events will be in student union 297 So the first of the research presentation on hyperinflation at 10 at 11 30 uh to 12 45, uh, we'll have a small group discussion, uh, which will basically be, uh An open-ended discussion on topics related to, uh tonight's talk or or anything else that you might want to ask, uh, dr. Newman then at, uh At one o'clock Also in student union 297, we're gonna have a directed discussion on on this little book, which is The second one and the reading list up there. Uh, what has government done to our money? And we have a dozen or so copies of that, uh here if you're interested you can take one with you and show up at One o'clock tomorrow In union 297 Thank you for coming