 And now, questions and answers. Again, the panelists can comment on each other. Questions can be addressed to specific individuals or to the panel as a whole. OK, I have a question in that maybe mainly for Professor Polite, but for the others as well. It was interesting to hear the all-pervasive corruption as a phenomenon from the state. And it seems to me that we as libertarians or Austrians, as long as we don't tackle this corruption, we will be like hamsters in a wheel in effect. So even, as you said, it will lead to hyperinflation. Looking at Germany 23, the hyperinflation didn't stop the corruption. In fact, it just sent it another way. How can we start tackling the corruption? Thank you very much for the question. Yes, indeed, I think last year I put out an article titled Fiat Money and Collective Corruption. And the idea was to identify an explanation why there is a recurrence of the boom and bust cycle. As you may all know, Mises always said, well, people don't understand the workings of the monetary system. So once an inflationary boom goes into a bust, they would consider even more money and even more inflation as a remedy for the malaise. And I was wondering whether this really is the only explanation. And as an economist, you would always think about economic incentives. And so I came across the idea of calling it collective corruption because it's not only the banking or financial industry that gets hooked by a Fiat Money system, but also the users of money and Fiat Money denominated bonds, those who benefit from government handouts, et cetera. And as you rightly say, the problem is really collective corruption. I think at the moment it's really difficult to make a case for the change in the monetary system. The acceptance for change is, I would say, fairly limited at the moment because many people would obviously expect to benefit still from such a system. And to be honest, the back of this explanation, I do not really see that by political means, so to speak, a change can be brought about. I think what Mises said in mind, the ultimate catastrophe of the Fiat Money system is really the driving force for change. I would like to make a quick comment on that question. One of the ways that we can rid ourselves of this whole plutocratic interlocking between the banking system and the government is by dealing in cash, that is, have a movement, start a movement in which people are urged to pull their cash out of the banks. Now already European countries are suppressing the use of cash, Sweden, Italy, and others, because they're dreadfully fearful that any attempt to use cash will undermine the power of the elites. They use the excuses in Italy like, well, this is a way of attacking people who don't pay taxes. And in Sweden, they're stressing the efficiency argument. And in the US, they're stressing the drug war and white collar crime. But there's more to it than that. A mass withdrawal of cash from the system will bring it down. We'll not just bring down the fraction reserve banks, but it will bring down the other firms, the primary dealers, 30 primary privileged dealers in US treasuries. And so the whole thing, this is a way of the grassroots of people on the ground striking back at the elites. And I'm in favor of that. I'd like to make one additional comment to this, too. Yes, of course, that would be a great idea. But that might only make the system continue as it has been going in the past. Again, the big crisis will break out. And how do we solve the crisis then? So more fundamentally, I believe, we have to attack the idea of democracy. Because democracy, of course, leads to corruption of the entire mentality of people. Everybody can vote themselves the property of other people. This is the beginning, or the foundation, of this entire corruption that people have the ability to think, if I vote for this, I can just get the money of somebody else. As long as we do not attack the root of this corruption, I think we will never get rid of it. That might seem a very difficult task to do, but this is what I have set myself up as my personal task to try to delegitimize the idea of mass democracy. That is the root cause of all of this corruption. I have a question here. Question for Thorsten. You said that fiat money tends to lead to hyperinflation. And I think that's the majority of the opinion of us Austrians. But weirdly enough, that hasn't happened in Japan since 1990. The Nikkei was at 39,000. Today it's less than 9,000. They have been printed. They invented Kiwis. Not the New Zealanders, the Japanese invented the Kiwis. And they have been doing this massively over the last 20 years. And nonetheless, we don't see any inflation. Might be the case that the system is delivering at the same time that they are creating new money. The system wants to deliver whatever they created in the past Kiwi or something like that. So I would like to hear your opinion on that. And just one quick comment to Joe. You said that the banks would be foolish to lend 30-year mortgage or whatever. But we have in the private market companies issuing perpetual bonds, for example, in which perpetual bonds, in which the investors don't expect to get their money back just the interest rates. And even worse than that, the perpetual bonds usually are callable. So the issuer can't call the money back, the bond back, if interest rates go lower or against them. So that's just a quick comment. Thank you very much. Your question refers to the situation in Japan. And I would say Japan hasn't been inflating at all. In the last 15 years or so, the money stock M2, as a representative commercial bank money aggregate, grew around about 2% per annum. The base money hasn't been expanded drastically. The balance sheet of the bank of Japan, for instance, has basically remained unchanged since the middle of 2006, where it has tripled in the euro area, for instance. Japan hasn't been pursuing an inflationary policy. And all I could say is they could. They have a fiat money system. They could create hyperinflation in six seconds, but they haven't done so. The Western world is pursuing a completely different strategy at the moment. Japan hasn't joined the effort so far. And let me just, as a final remark, say I very much agree with what Professor Hoppe said. The fiat money system is just a symptom of democracy. And so I think it's very important to stress the fact that the root cause, if you have problems with fiat money, if you think about it, you really end up in majority voting. With respect to Japan, the yen actually appreciated against most other currencies. So that seems to be an indication that whatever inflationary policy they have conducted is less than what we have seen in other countries. Otherwise, we couldn't explain this quite systematic appreciation of the Japanese yen. But they have a QE policy that I think includes not only buying governments, treasuries, or the equivalent in Japan, but they're also buying ETFs and they're buying REITs. So and say what you will about whether the Fed is involved in that market in the United States, if they are at this point clandestinely. But the open policy of the Bank of Japan is buying everything but rusty bicycles. So I mean, they seem to be at least trying to implement quantitative easing, possibly to no effect. So my question is to the panel, but I'm addressing specifically something that Guido brought up in his talk related to the phases of government imposed money. As most of you were probably aware, starting on January 1, 2013, in the United States, gold is going to be reclassified among the US banks as a zero risk asset, equal with cash and US treasuries. Also on that date, the Bank of International Settlements fossil three agreement will kick in, which will recharacterize gold as a tier one asset as opposed to the tier three asset, which means that it goes from a 50% haircut to a zero haircut. What this means is that governments, obviously, and by the way, the reason the OCC, FDIC, and the Federal Reserve issued this memorandum to US banks back in June, was in compliance with a requirement that was made in the Dodd-Frank legislation a couple of years back, which means this has been in process for quite some time. So it appears to me that governments are quite aware that they need to go to this next first phase again of imposing gold as money, but not as a medium of exchange, not as a store of value, but as a bank asset and as a means of collateralization, which is the two ways in which it will be applied. Since 2009, the commodity markets throughout the world have started to accept gold as a zero risk asset, equal with gold, excuse me, cash and treasuries. So as a collateral asset, this has already occurred. But, and it is widely used, but not widely appreciated. Let's put it that way. Now, most US bankers are, as Doug has, I like to say, famously said, can't spell gold. They don't understand gold as anything other than a commodity, and they're very uneducated about it. However, larger banks, I think, are very much educated on it, which points to the greater centralization of banks. That's a separate issue. My question is, since it appears that gold is incrementally starting to become part of government policy again, and it probably will not go to medium of exchange as far as I can see, except in some kind of minor reference to recharacterizing gold. How do you see this development? And do you see this as a significant development? I think the main purpose of these measures is to take some of the pressure of financial intermediaries. More and more citizens, especially wealthy citizens, well, they tend to read articles and analyses that are published on the internet, and you very quickly encounter some Austrian-inspired analysis studies and so on. And even if you're not, if you just have been raised by your grandparents and so on, and they know something about to have some part of your money in gold or something like this, now they see that the gold price has remained by and large stable and even significantly appreciating in the past few years. So they consider this to be a natural hedge against other forms of investment, or as a natural alternative for other forms of investment. Now, that, of course, creates a big problem for financial intermediaries if the customers run away and say, well, I don't want this stuff anymore. I am selling my life insurance. I'm reducing my bank account, and I'm going to gold. Please tell me where I can buy gold now. You can sell me a safe deposit, or a random safety deposit from you, but I don't want to have these investment alternatives anymore. Now, that's a problem for them. And before financial regulation made it impossible for them to offer gold-related gold-based products. So now, they will have the possibility to attract at least a part of the customer base that is running away from them. They are really running and keep them. And as you, I don't think that this is a move toward gold as a medium of exchange, at least not in official policy. And some people have raised this idea very, very cautiously. Robert Zollek, two years ago, was the president of the World Bank, he said, we need to think about ways of giving gold some role in the international monetary system, some role, some mythical, no effective role. So I think for me, this seems to be the main significance of these measures. I don't see anything more. And I don't see that this will really attain the ultimate objective. More will follow. Yeah, there's a key. This is the unintended consequences. The unintended consequences will likely be that people will, in larger numbers, recognize that gold should be held as cash. Even though the central banks do not like that, something like this occurs. But by driving up the price of gold, more people will recognize that might be the way for me to go personally also. So the intended and the unintended consequences are not exactly the same. The unintended consequences, I would think, will go in the opposite direction of what the planners are planning. I think there is, to be somewhat cynical about this, JP Morgan actually advertised 18 months ago or so to be actively taking gold as collateral to make gold loans. If it is reclassified in the way that Michael has suggested in his question, the amount of reserves that banks would have to hold against that loan would come down significantly, making it much, much, much, much more profitable for JP Morgan to lend a significant amount of money against gold. I don't think your average community bank is making any loans against gold. I remember the day when I got a call up at my office from a junior lender downstairs, and she said, I've got somebody who wants a loan against these Kruger ends. And she said, oh, is that what they said Kruger ends? I said, yeah, are they any good? And so I had to talk her through that. But I think JP Morgan has a sophisticated enough and institutional enough business clientele that to go out and advertise that they're making gold loans against gold collateral is significant. And the fact that Jamie Dimon is on the board of one of the Federal Reserve Banks that's going to have a decision making power in instituting this makes me think this is going to help one of his lines of business. Maybe another thought. I think the revolution starts, not in the payment, the market for the means of payment, but it starts in the market for the store value. People will keep fiat monies for doing their day-to-day purchases in the supermarket grocery store, et cetera. But they will move away, increasingly so, from investing the lifetime savings in fiat-denominated bonds. And that is where the revolution has started already. And the second remark I would like to make, the collateralization issue, which has been brought forward. I mean, at current prices, there is a fairly small stock of gold. Consider, for instance, I just have the number. The Deutsche Bundesbank is the second largest holder, so it is said, of gold. It's 3,400 tons at around about 107 million ounces. Current market prices, at current market prices, the value is 120 billion euro. It's very small. And for instance, the total balance sheet of all banks in the euro area is 34 trillion euro. It's nothing at current prices. OK, I'd like to ask Professor Pollard a question, and the rest of the panel, if they want to answer as well. We've had a pure fiat monetary system since 1971. That's more than 40 years. How close do you think we are to flipping into hyperinflation? And how do you think it's going to resolve when it happens? As you know, you're an Austrian. We don't know the timing, which is a pressing issue, and of course, I cannot give you any scientifically-based estimate, but I think we are getting closer. And I would say maybe two, three years, it will be faster than most people expect. When you're... Well, yeah, it's going to be messy. I want to speak to that. What I think will happen is if hyperinflation does threaten to break out, if we get galloping inflation, I think at that point, you will see wage and price controls in the United States or so-called incomes policy in Great Britain. I think they will begin to implement what Nixon did back in the early 1970s, and I'm very fearful of that. I'd rather have open hyperinflation than to have government repressed inflation, as it was called during World War II. And I think that's a very real political possibility in the United States. Okay, my question is directed towards Professor Hülsmann, I guess, since you were talking about the precious metal markets being manipulated by interested parties, I'm a bit skeptical about that because if you look at the mid to long-term picture, say, charts of the last five to 10 years, the bull market is pretty much intact. And as I understand it, in order to really make big moves in, however, narrow or wide a market, you need to actually sell or at least offer for lease physical bullion. And if this scheme should have been going on since, I don't know, conventional wisdom has, it is since the late or 90s or mid 90s, all the gold should have been gone into the investor's hands. Or shouldn't it? You want me to comment on this? Yeah, I agree. So there's never probably any conclusive evidence that you can come up with for gold price manipulation. I think personally that the circumstantial evidence is very, very strong. And especially as far as resulting from central, former central banker pronouncements of the issue, for example, Kevin Walsh, who has been a Federal Reserve Council, governing council board of governors, member has stated in two or three public appearances that some of the main activities between central banks concerned gold swaps and also activities, therefore, with private banks. So why should this, I mean, if you look at the typical manual for, on monetary policy, you will not find this among the policy tools, right? The policy tools are always repurchase operations, buying and selling treasury bonds and stuff like this. It's nowhere gold swap you don't find any mention of this, but that's what they do. What we don't know is the exact quantitative dimension of the whole thing. So we don't know to which extent they've been bearing on the gold price, but we know for sure from such pronouncements and other circumstantial evidence, such as there's no, there's great reluctance to engage in any audit of the Federal Reserve and treasury holdings of gold stocks, that it is very likely that they do this. Again, I think for me the crucial consideration is the one that has recently expressed by Martins and to whom I've already referred to, that he said, well, the central, our central banks are concerned about managing virtually all markets, every single market. To some extent we're living in a centrally planned economy. Why should they not be interested in the gold market? That is absurd to think that they might be interested about bond prices in the whole spectrum, right? From two year bonds to 10 and not interested in the gold price. This is just ridiculous. They've been buying even stocks, right? And so they do all these things and not gold. But again, I might be wrong. I admit this is a logical possibility, but I would say that the probability that I'm wrong is close to zero. I have a complimentary question to Torsten about the situation or the example of Japan. We have the European central bank landing, lots of, I don't know the exact number, but lots of euros to big banks. And after months it came out that banks have deposited it back to their ECB account. Can you comment on that? Yeah, thank you very much, Moran. As you know, in a fraction reserve banking system, banks keep just a fraction of their liabilities in the form of base money. In the past it was 2%, meaning the Euro area bank having a liability in the form of side deposit of 100 euro kept 2 euro as minimum reserves. And these minimum reserves were held with European central bank or the national central bank which is part of the whole thing. Nowadays banks can no longer refinance themselves via restructuring their liabilities which allowed them to keep a very low fractional reserve. The central bank now fills the gap. It basically refinances all the bonds which banks can no longer place in the capital market. So it's a 100% refinancing of their liabilities. The consequence is that the so-called excess reserves increase so drastically. And so it's a matter of fact, so to speak. It's quite natural that under the current monetary policy making banks excess reserves increase so drastically and these bank reserves are being held on accounts with the ECB. So it's, so to speak, of course it's a wrong thing but it's a matter of fact that you have the drastic increase in excess reserves. No, because I thought the banks should land it further to the public but they wouldn't do it. So the general price level in Germany or Europe does not go up as expected. Is that because the banks are afraid of being unsolvent? In textbooks typically you would see if the central bank increased the base, the base money supply, you have a constant multiplier and so banks would automatically churn out ever greater amounts of credit and money. The availability of base money is one necessary condition for banks being able or being in a position to extend loans. The other condition is the equity capital base. And nowadays banks have run into big, big trouble. The equity base is gone. Many banks do no longer have the adequate capital to back up their risky assets. Private investors are no longer willing to recapitalize these banks and so at the moment central banks increase the base but the increase in the base doesn't translate into a higher amount of credit and money and now you think this is gonna end in deflation. Well, there is a different channel through which the central bank can increase the money stock. It can purchase bonds and for instance if it starts purchasing bonds from so-called non-banks like insurance companies, private savers, it sends the newly created funds directly on people's accounts, held with Citibank or other big banks or small banks and you have an immediate increase in the available money stock. You get your inflation. Once people wish to create inflation. During the Great Depression in the 1930s, it was also the case that despite the fact that the money supply was, base money supply was drastically increased, you did not see much inflation taking place because banks were fearful and simply increased their own reserves with the consequence that you got the impression you can increase the money supply and no inflation will result. But this is just a temporary phenomenon as soon as a little bit of confidence returns or as Thorsten just said, as soon as bonds are bought up, then you will see a rapidly increasing inflation. And currently in the US, what Han says also holds, on the one hand, the Fed pays 25 basis points for the excess reserves. And given that, in the face of the fact that we have very, very low returns on safe investments, the banks have no incentive to lend. And when you add that to the fact that the Fed has been keeping asset prices up, so why would that you lend against what are overvalued assets as collateral? But as confidence returns, and I think it can only return if you allow asset prices to fall to market levels, I think this money is gonna begin to flood out into the system. And I may add to just what has been said, you assume or many people assume that these monetary policies are meant to stimulate the economy to create jobs, but maybe you're wrong. Maybe it's a deliberate attempt to debase the currency. Or just to pile on some more, the month that unlimited deposit insurance was put in place in the United States called TAG, that was the same month that the Fed said they would start paying 25 basis points. So suddenly you had big banks who could offer their customers unlimited FDIC insurance if you get no interest, then the bank can turn around and put their excess reserves at the Fed for 25 basis points. That doesn't make sense if there's a lot of loan demand, but it does make sense if the loan to deposit ratio on the banking industry is 70%, which it is now. So it's just a direct subsidy to the banking industry to try to heal themselves and try to play the market until things get better. One more question to Guido. We all well know that the monetary system doesn't matter what the path is going to be, is collapse. And then a new money should be chosen by the market, I hope. And why has it to be gold? Can it be also a free market electronic money like Bitcoin? What's your take on it? I don't think that Bitcoins could become money, right? Now I mean that there's a Bitcoin community. People are very enthusiastic about this idea and there have been no negative experiences with either and they assure us, yes, I mean, it's as good as gold because you have all the advantages of gold and but not the disadvantage, it's not bulky, it's electronics or cost efficient and so on. Well, I'm not quite sure whether it's really cost efficient and I'm not sure whether it's that sure. It's made by human beings. It's anticipated in the system that under some circumstances you can create more units. So somebody is authorized, because if you don't, if you just keep the current supply, then you get very, very strong price deflation as soon as Bitcoin spread. So somebody must be authorized to create more, I suppose. So somebody has the keys to the whole thing. So which reason do we have to trust those key masters more than minters of gold coins? Well, I personally, for me, this is clear, right? But I wish everybody else have good luck. Go ahead, buy Bitcoins and sell me your gold. Go ahead. About Bitcoins, you always get these sorts of questions in emails that people send you. How do you think about this and how do you think about that? You get far more questions than you would ever be able to answer about Bitcoins. I always ask people, can you explain to me quickly what Bitcoins are? And then I typically get such complicated answers that I think who in the world would ever want to hold something that an intelligent, decently intelligent person like myself cannot understand? Yeah, I have a question for Josie Lerner. Whatever else one might say about Paul Krugman, one has to grant him the fact that he's exquisitely skilled at exploiting a serious problem that we layman have with economic theory. And that is that it's very easy to promote economic error with plausible platitudes. But it's very difficult to expose this error. It requires painstaking analysis and the section. And he uses this problem to a very great effect. You mentioned one example in your talk. A more general one is his dismissal of any free market theory as free market fundamentalism, which flies in the face of facts. For example, he describes those who worry about the deficit. It's nothing to worry about. We are just inflationists. We just ignore the fact that none of our predictions have come out right. I mean, there is no inflation. According to us, there should have been inflation. There is no inflation. There's no rise in interest rates. The US government has no problems accessing the capital markets. In fact, there's a flood of capital into the US. My question is, given this disparity, the ease with which one can promote economic nonsense and the difficulty which one has in addressing this nonsense, how can one win this debate? Let me just add to that. Yes, Krugman's just ingenuous. And he speaks out of both sides of his mouth. But he's doing nothing different than, for example, Bernanke did when he first went on television on 60 minutes. I mentioned Krugman because you mentioned him. Yeah. And he sat there and bald-faced and said, no, the Fed doesn't print money. Well, literally, that's true. The Fed does not print the notes. That's the Federal Bureau of Engraving. So they'll use these little tricks. I'm just adding to what you're saying to mislead and disorient the public. Now, as to how to expose them, I think, I mean, the Henry Hazard strategy, I think, is what works. That is, Hazard wrote in a very plain, straightforward way and translated their ideas into everyday English or everyday language. And I think, then, was able to explode or demolish it. And I think that's what we're trying to do at the Mises Institute and here and at many other free market institutes. That is, to render the ideas just clear, clearly. Because you see how silly they really are. That pieces of paper can get an economy going. So what I think where the lack is, is that there's a lack of people doing it. And I think that, or people noticing it. So I think just more education and more free market bloggers. And I think it's a question of quantity at this point and not necessarily quality. I think we have the way of answering their ideas. And I think it is very important in these replies to people like Krugman that we don't get involved in technical details, but ask some questions almost like a child. Explain to me how the increase in paper pieces can possibly make a society richer. If that were the case, explain to me, why is there still poverty in the world? Isn't every central bank in the world capable of printing as much paper as they want? And do you then think the society, the world as a whole, would be richer? I'm sure the guy cannot answer this type of question. Nobody can answer this type of question. But again, we get far too much bogged down in answering technical details of his argument. Instead of always repeating this question, please explain to me how a piece of paper can make society richer. I have a question to the entire panel. And even in Sweden, we have a grassroots movement for against taxation, and as in many countries, people get upset. Taxation is very easy to explain. As we talked about, kids are very smart, and my daughter is understandable. Taxation inflation, when she was five, got very upset, of course. And it's easy to explain taxation when you meet people. You have to learn that it's theft first, of course, but then we talk about inflation. People tend to zoom out. Even we think it's a very easy concept, inflation, but for most people, it's very hard to understand. They don't get too upset. And in Sweden, also the central bank has to present inflation targets, and they write on the homepage, it's no exact science what inflation should be, what level, but the people must be unaware that it's happening. They actually write that. I emailed them and asked what happened if they are aware of it, but they didn't reply. But I think here's maybe a key to if people would be aware of this, because the central bank knows if they would, they wouldn't accept it. So how is more question of strategy? How can we make this grassroots movement happen against inflation in the same way as you can do in taxation? Well, one of the things that I would say is that, and I expressed this, especially if you won the Nobel Prize and you really went on the attack against Keynesians. And he said, look, the reason for inflation is that the short-term benefits are highly visible and the people that receive the new money are wealthier and at the same time you have a lower interest rate so there's more borrowing. And so you do have a false prosperity. The people who have not yet received the new money on the other hand will not feel the pinch of inflation until later on in the cycle, a year, 18 months, whatever the Freedman's Lag so-called is. But at that point the government can say, well, it's really these greedy Arab sheiks that want high oil prices or it's a failure of the food harvest. So there are many excuses to explain the longer-run effects. So you are right, it's very difficult to trace through the effects if you're a non-economist. But again, using the Haslitz strategy, I mean, I think there's a simple way of doing that. Hans's, they print paper and if this paper can buy things the people who get the paper first are going to get more real goods and there's gonna be fewer real goods left. So making those sorts of responses I think is one way to go. In most cases people just don't care, okay? They don't care until either one of two things happen. First thing is the inflation rate becomes substantial. Then people become nervous and sometimes very angry. And then they start looking out for explanations why the hell are you doing this and who's responsible for this and so on, right? So then we have a food already in the door and we can get the message across. The second circumstances and that is what happened in the U.S. and in some European countries is the revolting subsidies and bailouts granted to the financial industries and particular banks. So then people too become upset. It is morally revolting. And so then too we get food into the door and that is why today there is a wrong power movement in the U.S. It was very strongly inspired by Baylor policies in the fall of 2008 which on top of this he had announced and anticipated. And why this also to some extent has happened in Europe especially among people interested in financial questions. I think there's no way getting around explaining what inflation is. I think the problem starts if you accept the mainstream economics definition of inflation. Like rising consumer prices. You have to tell people that inflation is the rise in the stock or the quantity of money. That's number one because if the quantity of money increases the purchasing power of a unit of money will decline compared to a situation where there's no increase in the quantity of money. The second issue is you have to explain that increases and prices are just one symptom, one possible symptom of a rise in the quantity of money. And the second aspect I think which needs to be explained is really the county on effect. Telling people those who receive the newly created money first are the great beneficiaries and those who receive it later or receive nothing from the new money balances are the losers. And so you can refer to the current situation. Ask your friends why for instance just banks get a rise in the quantity of their money balances and not all of them, all people. There must be something to it, a reason. But again I think if you accept the mainstream economic definition of inflation you're gonna lose the battle. And I think simple explanations are always the most effective one and also are the ones that drive home a moral point. So for instance you can explain imagine, you tell your child imagine you could just in your basement print $100 up. Would that be good for you? I think it would be great, I can buy something. And then you would ask the next question is do you think society as a whole gets richer because of this? He would really say no, I will be better off but society will not be better off. I have now more goods and other people have less goods as a consequence of that and he will recognize that that is just fraud, ridiculous thing that is going on and this sort of stuff goes on every day. Hello, I've got a question for the panel. I suppose starting with you Guido. Over the last 30 or 40 or 50 years hyperinflations have become more common and they're normally associated with crumbling political regimes which makes you rather worried about what's going on in Europe and the boom bust cycle seems to have accelerated in the last say 15 years and also grown in magnitude but even so collapses and crashes are relatively rare occurrences and the total and complete purging that many Austrian economists dream of has probably never really happened and it's therefore rather an improbable occurrence. So I suppose what I'm asking you is based on probability is some kind of muddle through not more likely than some kind of collapse? Well, I agree that we're not... Well, first of all, I agree that hyperinflations are relatively rare especially in countries where you have some civil control over the government so it's not completely out of out of control. It's not that rare. I think we had so far with 56 hyperinflations in history and short of three or four all of them were in the 20th century. So in the 20th century it was quite a frequent event especially after World War II again. So far it's true in Western Europe and in Northern America we've been spared this fate because we didn't have banana republics and the question is are we not turning very quickly into banana republics right now and that would increase the likelihood of hyperinflation. It's true, we're not yet there and I don't anticipate hyperinflation for the next few years in either Western Europe or Northern America but it cannot be ruled out because the crucial problem is always the government budget. Can the government balance its budget? Can it handle all those expenses that are being carried on without increasing the money supply? So far we have not been able to do quite without it and to the extent that the governments had to do this they had to increase the money supply. They did this under very favorable circumstances because we were in a general economic crisis and as a consequence there was a flight into was generally considered to be a safe asset that is government bonds. So these were various advantageous circumstances in the first place and in the early stages of hyperinflation there's something else that happens that also dampens the effect of an increase of the base money namely that financial intermediaries shrink typically they shrink because people if they're confronted with the money that is losing its purchasing power very fast they don't keep it on a bank account less and less so. So if less money is held with banks banks can act less and less as financial intermediaries so they have to cut back their activities which means that they are themselves creating less money substitutes. So initially the effect of an increase of the base money supply on the price level is dampened by the negative impact that a rising price level creates on commercial banks. We are in my judgment in the early phases of that movement but then if you look at historical hyperinflation it was always a parabolic movement a hyperbolic movement so eventually it accelerates very fast and it can also it will accelerate if we don't change things fundamentally it will accelerate eventually very fast because government spending programs are not diminished new financial obligations are being taken sometimes in dimensions that we cannot oversee so it can be that the government be forced to for example bail out massively European commercial banks and so on the sums that are involved are in the low double digit trillion euros the total money supply M2 in Europe is around 9 trillion euros or so so this can happen very fast and it's true right it's not a praxeological law that tells us it will happen in February 2014 or something but yeah I think can it be avoided yes if we have the guts to balance the budget but I don't see any political party who has the guts to do this I would like to answer the second part of the question which may have been more implied and that is that Austrian economists do not look forward to any collapse in fact we want the laissez faire our hands off policy precisely because it prevents the collapse precisely because you have the collapse only if government artificially keeps prices and costs from falling and asset prices from falling so for example in 1920 1921 we had a recession depression actually the money supply contracted by one third 33% within a year wholesale prices fell by 50% they fell in half unemployment shot up congress began to talk about in public works by the time the debate even started it was over it took nine or ten months so there was a purgation of these overblown sectors so an Austrian correction isn't a correction like the 1930s where there's mass unemployment and it's pretty permanent certain overblown sectors are forced to contract and when prices relative prices adjust that's what we're looking forward to correction of relative prices and asset prices once that occurs confidence returns pretty quickly entrepreneurs begin to borrow and expand and so on so it also happened in 1837-1838 and there's a number of other what we might call Austrian style depressions I have a question to professor Salerno on the whole panel all central banks claim that they can fight possible hyperinflation by withdrawing additional printed money maybe you can quickly elaborate on the technical capabilities of central banks to withdraw base money or new additional fiat money from the system and then I would like to have your opinion on whether this policy could be a possible strategy for central banks in the situation which we now face this is a so called exit strategy they've been talking about they can certainly sell a lot of the assets they purchased mortgage backed securities and so on but if they did so the market for those would collapse the prices are false that they have those things on their books so these are all false prices the market would collapse the bank in some legal sense though a central bank can never be insolvent the US central bank would be insolvent in some sense the Fed would continue to print money the other thing that they could do is that they could raise reserve requirements tremendously to prevent the lending out of those excess reserves which they now hold I don't see them doing either of those things I think they're just going to muddle along until inflation is tripped and we begin to get this inflation and then as I said before I think we're going to get a pretty strong inflation and with a strong possibility of getting wage and price controls and more centralization of the central control of our economy just a point on Fed selling its assets they took in some of this toxic paper 100 cents on a dollar that's worth a fraction of that they got the law changed prior if they were going to sell those assets they'd have to take a loss but now they can stick it to the their treasury or the taxpayer if you will so they can sell these assets which will create losses and you know the thing that springs to mind is that the Fed balance sheet may not really be as big as it appears to be that will remain to be seen as they try to exit but you know as they say there's nothing such thing as being partly pregnant