 This is Mises Weekends with your host, Jeff Dice. Ladies and gentlemen, welcome back. Once again to Mises Weekends. I'm sure you all know our guest, Mark Thornton, longtime senior fellow here at the Mises Institute, professor across the street at Auburn University and our in-house resident expert on booms and bus and business cycles. And that's what we're talking about today, Mark. I'm sure you saw yesterday Janet Yellen made some pronouncements about a fairly dovish Fed policy for the next few months. Although she did say she's going to start to unwind the balance sheet that the feds accumulated since the 0809 crash. And whether these things are related or not, the Dow Jones hit its all-time high of about 21,000 up from its most recent low in 2009 of about 6,600. So the markets apparently responded favorably or at least not disfavorably. Let me ask you something overarching to begin. You know, obviously we're Austrians. We see things in terms of monetary policy, but it feels like there's an ersatz quality to this prosperity. And there's something insubstantial or artificial about the run-up in the equities markets. Oh, absolutely. When Janet Yellen or any chairman of the Fed speaks, it's always a positive spin. And so the markets love that. They love the idea that she's not gonna raise rates very rapidly. So when you look at Washington, DC, you're always gonna see a positive spin on things and Wall Street just loves that. But when you look at the real economy and you look at real employment situations, things are not very good at all and the economy is not growing much at all. And here in Auburn, of course, the ersatz quality is just so patently obvious. We have more construction trucks and equipment moving through town than anything else. It's rather bizarre scene out there with these low interest rates have brought about. Yeah, we don't have a skyscraper index in Auburn because we don't have skyscrapers, but we have cranes. We have cranes everywhere you look in Auburn. It's really quite an amazing phenomenon. Well, they're building the tallest building in Auburn right now. And they've torn down two city blocks to build structures that are as least as tall. So you don't get a world record setting skyscraper here in Auburn, but you do get a local record. Right, and for people who aren't familiar, this is a small little bucolic college town of maybe 60,000 people. So some of the restaurants and condominiums being built here as a lot of the population shifts from the Northeast to the South, it's really changing sort of the tenor of the town. Oh, yes, I mean, it's a sleepy little college town where the tallest building used to be two stories. Now we're talking seven and eight. And like I said, the amount of construction materials and job sites on campus and off campus is just unbelievable. It's unprecedented. Never before in history have I seen anything like this. Well, I'm sure you hear this all the time. I hear a lot of this from our fans and from people who consume our media and come to our events. It's about timing. If we feel like we're in a boom, the boom is followed by a bust, and when is that gonna happen? What should I do? What should I buy? What should I sell? What should I hold? What should I short? I wanna give our listeners a Ludwig von Mises quote where he just says, economics can tell us only that a boom engendered by credit expansion will not last. It cannot tell us after what amount of credit expansion the sum will start or when this event will occur. And that can be pretty unsatisfying for people, right? They wanna know what can I look for? What are the indicators? What are the markers? So how would you respond to the questions about timing? We don't know, and that's the truth. And that's the limit of the analysis that Austrian economics can bring about. But it's a very important truth. So it tells people, it warns people that if you do have a credit induced boom that ultimately things are gonna get ugly in the economy and you're gonna see similar types of results in terms of rising unemployment, bankruptcies, foreclosures, restructuring. All of those things are gonna take place eventually and Austrians are just being open and honest when they say they don't know when it's gonna start. They don't know how significant the bust is gonna be, how tangled up it can get, like with the housing bubble and all the financial engineering that helped bring it about. It was a very tangled mess. And so the financial crisis was very severe. Well, let's talk specifically about real estate for a second. About a year or so ago when we were in Boston, you spoke about some of the things that real estate investors or real estate owners ought to maybe consider or be looking at as signs that we're near a peak or we're near some sort of unreasonable housing market. Well, of course there's all sorts of real estate metrics out there, home sales, home starts, building permits. There's a whole raft of statistics related to real estate and so they paint a very general picture but if you see home starts increasing beyond the average, if you see home sales and home prices, of course housing prices are still twice as high or more than they were 15 years ago. And so the price of all these things, the cost of building new real estate is rising as the industry, as the construction industry gets very tight, of course, they're asking higher prices for their services. And so whereas mainstream economists tend to look at the unemployment rate in GDP, Austrians like to dig down beneath that and look at a whole host of statistical indicators to look at the whole structure of the economy, the structure of an industry and where it is vis-a-vis normal times. Well, when we look back into recent history, we see the tech stock crash of 2000, 2001. Obviously we see the real estate run up in the crash of 2008, which also brought Wall Street down at least in part, Lehman Brothers collapsed. What can those two events maybe tell us about where we are today? I mean, what, have we learned anything? Oh, absolutely not. You know, it was artificially low interest rates that caused those two crises and we've been doing nothing but having ridiculously low interest rates even after the last couple of increases, interest rates are still ridiculously low, especially in inflation-adjusted terms, the financial industry is giving away credit or trying to give it away. Here's something that happened to me yesterday, Jeff. I got an email from my bank that wanted to give me another credit card and was gonna pay me $100 to use it. And then I got an offer in the mail from another credit card that I have that was gonna pay me or give me $200 of discounts over the next three months if I spent a certain amount of money on the card. And then when I left work yesterday, I went to the grocery store and did a self-checkout and when I paid my bill up out of the cash register came an offer for the grocery store credit card and if I spent a certain amount of money, they were gonna give me $75 worth of discounts. All three of those things happened yesterday. Well, these kind of anecdotal incidents. But there are people who have timed markets, shorted markets and gotten very rich. I'm sure a lot of us have seen the big short where Dr. Michael Burry and some of his associates correctly called the housing market. There's also obviously Mark Spitznagle, who's the author of the Dow Capital, runs an hedge fund called Universal. He became very wealthy, shorting certain equities in the 2008 crash, but I wanna read you a quote from him because he's not an academic, he's a trader and a hedge fund manager and a wealthy guy. He's not some theoretical economist like Ludwig von Mises making pronouncements, but he's talking about timing markets and he says, I think it's probably naive to even think we can pinpoint such a thing. If history is any guide, we should expect it sooner rather than later. But history need not be a good guide because we're in this monetary experiment, the likes of which we haven't really seen before. And this is something you touch on in your recent article called the Bernanke Yellen Bubble Depression, which is, we're really in new territory here, that our central banking friends don't really know what's going on. That's absolutely right. Now Mark knows Austrian theory. I've reviewed his book favorably and he certainly knows Mises and Bastia and the Austrian theory of the business cycle. So he's got that basic tool and then he goes about his personal business trying to feel his way through. And that's basically what people have to do is they have to be prepared, certainly knowing that there's a bust coming, but then you have to more or less feel your way through. I remember the article that I wrote about the housing bubble in 2004, in June 2004, it was just a couple anecdotes of things that happened to me and my friends. One friend put a house on the market on a Sunday morning and by Sunday afternoon he had several offers and one of them was for much more than the asking price. So in a matter of hours on a Sunday, so real estate agents were working on Sunday, that's one thing, but then to have multiple offers on a Sunday and then have the house sold in a matter of six hours and getting more than your asking price. Those are the kind of things you wanna be alert for when people start saying crazy things and are house flipping and day trading without any real knowledge or abilities, that's when things are totally out of whack. You know, you talk about in the article at least on paper, economic growth is decent, unemployment's fairly low, but yet interest rates are remaining very low per the machinations of central bankers. I wanna ask your opinion on this, you know, contrast this with the late 70s, early 80s, Paul Volcker was the Fed chair and at this point we had high inflation, we had relatively high unemployment, little or no economic growth, so-called stagflation, but yet, at least for a period, Volcker was able to resist the political pressures of both Carter and Reagan and keep interest rates very high. I mean, here we are today in supposedly a relatively decently growing economy. Have they just decided that forever and ever low interest rates are the road to prosperity? That's the only tool they have. You know, if you're a carpenter, everything looks like a nail and if you're a Fed chairman, everything looks like cutting interest rates and of course, Yellen is a total dove. In other words, she's gonna air on the side of keeping interest rates too low for too long. This has never been attempted in the history of mankind keeping interest rates near zero for seven plus years. And so, we have unprecedented history behind us and that's why I'm very worried about, you know, what's gonna happen as this bubble comes to an end. Well, you even say it ought to be termed the Bernanke Yellen bubble depression. We talk about business cycles and I think the public has this mystical idea that these cycles are just inevitable or they're inherent in man's nature or in the business world. And maybe we ought to really call them central bank cycles, right, because they're engineered, they're created. That's absolutely correct. And I wrote an article on Mises.org a couple of weeks ago where I laid out this proposition that we should name a crisis for who created it, not, you know, the housing bubble. It wasn't housing that got out of whack per se, it wasn't construction companies that got out of whack per se, it was engineered by the Fed. And so the fundamentals, you know, said build more houses, build bigger houses, but those fundamentals were totally falsified by these ultra low interest rates. And so I blame, you know, the housing bubble on Bernanke and Greenspan. I blame the current situation and looming crisis on Bernanke and Yellen because they're the ones that's causing it. Otherwise, if you leave this to journalists and federal reserve chairmen, they'll always blame the market. They'll always blame some irrational phenomenon that's emerging from the social psychology of all things when, in fact, we know the real cause is artificially low interest rates and we know who's pulling the strings, it's the Fed. So Mark, we're almost out of time. I wanna talk here at the end about this mythology surrounding home ownership in the United States and that we've been led to believe it's ever and always an investment rather than just a durable consumer good. Oh yes, home ownership is part of the mythology of American ideology and we've done everything from giving tax breaks and all sorts of subsidies to home ownership. And there's obviously a lot of benefits to owning a home in the current context but actually going forward, I expect home ownership to decline consistently over time because we're a much more mobile society. We need to be more mobile as workers and as entrepreneurs. Right now, there's still people caught in the cobweb of the housing bubble where they can't unload their home to move to an economy where there's more jobs. And so I would like to see and I expect to see home ownership declining and hopefully at some point maybe after this real estate bubble collapses that people will be reluctant to become homeowners and would rather rent and be flexible and to not have some of the hassles that are involved in home ownership and taxes and all the rest. Well, we see in places like Germany and Switzerland where only about 20% of people own homes, about 80% rent. And we've also seen examples in the last crash of people who were stuck in their house because they paid too much for it, it was worth far less. And even though there might have been job opportunities in another part of the country, they felt they couldn't move. So it's an interesting time and hopefully the Mises Institute is doing its part to educate people about these bubbles and about central banking so that more people can understand that these aren't just natural or organic occurrences. So with that, Mark Thornton, thanks so much for your time, great talking to you. Ladies and gentlemen, have a great weekend. Subscribe to Mises Weekends via iTunes U, Stitcher and SoundCloud or listen on Mises.org and YouTube.