 Welcome once again to Mises Weekends. I'm your host Jeff Deist and our returning guest this weekend is Patrick Barron who is a professor of economics both at the University of Wisconsin and at the University of Iowa, the latter at which he's actually taught a specific class on Austrian economics. He's also a geopolitical expert and he's joining us to talk about and do a post-mortem on the Fed's big non-event this week. This announcement that it would not raise interest rates in the face of a still very weak U.S. economy. We're going to get a little bit into the optics and the psychology behind the whole press conference, the psychology and knowledge and the understanding of Janet Yellen herself and whether central bankers actually believe what they say they believe. So if you're interested in the Fed and what's going on behind the scenes, stay tuned for a great interview with Patrick Barron. Patrick Barron, it is great to hear from you and welcome back to Mises Weekends. Thanks Jeff, glad to be here. So we had this unbelievable circus yesterday surrounding Janet Yellen and the Fed's open market committee decision not to raise interest rates. There was a big press conference afterwards. Obviously the financial press has been fixated on this, predicting this, anticipating this for months. Bill Bonner calls it the most anticipated central bank action in human history. So with all this, give me your initial thoughts in the aftermath. Well, I think there's a couple of things that everybody should just keep in mind and that is that money does not create wealth. If anybody thinks that more fiat money creates wealth, then let me print money, you know, because I can print money. I could, you know, take my doll, I could take some money out of my pocket and throw it on my Xerox machine. And if that doesn't create wealth, then why would the government prosecute me? You know, I'm a counterfeiter. So essentially all the Fed is doing is counterfeiting money. Now they're counterfeiting money that we absolutely have to use because of legal tender laws. And this is just criminal in my opinion. I mean, the more I think about this, the more angry I get about it. I think everyone should think about it. If we did not have fiat money, there would really be no such thing as monetary policy because money is whatever the market chooses it to be. Money is a medium of exchange and the market chooses money. It typically is chosen gold and silver, but it's chosen lots of things over. You know, the medium of exchange in prisoner of war camps was cigarettes, you know, and that was chosen by the market. It's a real commodity. It's got to be something that people want to hold. It becomes the most marketable commodity that everyone wants under the circumstances. So in prisoner of war camps, for example, cigarettes were the most marketable commodity under those very adverse circumstances. But if gold were money, if we did not have the government making something else money or telling us all that we had to use certain things as money, then people would choose a commodity, most likely gold and silver. And there would be no such thing as really policy involved in this. It would just be you either have gold and silver to buy things with, or you do not. And if you do not, then you have to actually produce some good or service that people want in order to get the money so you can buy all the things that our wonderful economy produces through specialization of labor. So you can't say, well, what's our monetary policy? Well, there is no policy. Well, let's talk a little bit about the optics and the psychology behind this whole big announcement. As I said, there was so much buildup to it. And then yesterday, the announcement came, Janet Yellen held a press conference, and the visual was really very much of, you know, she is a Politburo member. She's delivering from Mount Olympus on high, and this sort of servile press just has to sit there and take it and ask questions. I mean, I wonder what it says about America and Americans. I wonder what we would think, and especially what so-called conservatives and libertarians would think if we had a federal government official sitting there coming out with a pronouncement about automobile policy or housing policy for the next term. I mean, at what point do we realize that none of this has anything to do with markets? Well, I think maybe I'm a little off the mark on this, but I think an analogy might be the way people used to look at pronouncements by religious leaders. And I think we're, you know, although people are very devout today, I think they do look with a little bit of skepticism on whether some great religious leader has the wisdom to make overall pronouncements about the way they run their lives, you know. And so people, you know, are genuinely skeptic about this, but at one time, you know, whether the, you know, our religious leader said you could or could not get divorced, or you would go to, if you got divorced, you would be kicked out of the church and, you know, you would, the eternal fires of damnation would be visible upon you. You know, those religious leaders were held in trawl at a time. I think we, most of us look back on that as kind of a, you know, that's not really very modernist. I think most people say it's rather foolish to think that anyone has a concept in that regard of how everyone should absolutely behave. But yet we do the same thing, as you say, with this federal remark committee and the spokesman, the chairman, you know, who's now Janet Yellen, you know, as if she has some kind of deity, you know, and hold, well, she does hold a lot of power, but she holds a lot of power only through the police power of the state. You know, because we have to use federal reserve notes, we have to use the dollar to conduct her everyday affair, and she manipulates that. I just think it shows that we are not an independent people if we hold all these people in such high regard. I don't hold them in high regard. I think they're a bunch of buffoons, frankly. And I would hope that people listening to this, you know, would really think about this. You know, if you think that Janet Yellen is some really important, you know, person that really has an insight into the economy and what interest rates should be and how much money should or should not be created, you should really examine, you know, your own thought process and why you think that. Well, when you talk about a gang that doesn't know what it's doing, I'll ask you the same question I asked David Stockman and Jim Grant earlier this year at one of our events. Do you think that Janet Yellen and others at the Fed believe what they say? Do you think they really understand that what they're doing won't work and can't work? Or do you think they're true believers in their personal lives, in their heart of hearts? Well, I have to think that I don't think that they are, you know, too faced about it. I believe that the only people that the political authorities allow to advance in this country to those positions are the Keynesian true believers. I taught a course in Austrian economics in the University of Iowa for a few years. I had wonderful students there, but I had a few of them that, of course, had been indoctrinated in the Keynesian of the rest of the instructors. It was all Keynesian except for my claim. And these kids were just shocked at first of some of the things I would be saying. And you could see how, you know, they were sort of on their way to becoming the Keynesian true believers. I believe that once you have adopted that as you've studied this Keynesianism, you've memorized all the formulas, you know, you worship at the foot of Keynes and you are rewarded for it. Your entire life is tied up in this. And to say that you're wrong would just be a repudiation of everything that you have believed probably since college. You've been taught since college. I think that not only are they not willing to repudiate what they believe, but they have been advanced specifically because they are the true believers in the Keynesian mantra. So there's never going to be an Austrian economist that's going to be appointed to anything on the Federal Reserve. There's never going to be an Austrian economist president of a Federal Reserve Bank or appointed as one of the non-presidents to the Federal Open Market Committee that political authorities just will not allow it. So the whole thing comes down to the fact that the political authority that appoint all the people to the Fed, that appoint all the top monetary officials, and they are going to make sure that this praying press keeps running at full blast. Because this is the way they get to spend all the money. This is the way they confiscate resources for their welfare, state, and for their warfare around the world. And this is the way they keep buying votes from the rest of us. It's a terrible, terrible system and it's going to tear us apart. But I do believe, I do believe that they believe what they're saying otherwise. And because if they didn't, they would never have advanced very far in the bureaucracy of the Federal Reserve or in the banking. Well, I certainly understand the self-interest behind people in the economics, especially the monetary economics profession, how they want to move up, how they want to get jobs. There was a tremendous article written, gosh, several years back now by a gentleman named Ryan Grimm on Huffington Post about how the Federal Reserve really owns and controls the profession of professional economics. But self-interest aside, do you think modern central bankers have even read Austrian stuff? We know that, for instance, Paul Volcker, a long ago Fed chair, has and had read Austrian stuff and understood it. Do you think the Krugmans and the Yellens have just flat out not read Hayek and Mises? Oh, I'm sure they may have. But I have run into a lot of people that I was shocked who said, gee, they've never heard of Austrian economics. And they're very important people. They're people from the Fed or from Moody's or some of the big rating agencies. And I'll say, well, I'm an Austrian economist. What's that? Are you from Austria? No, no, no, I'm an Austrian school economist. But I've never heard of such a thing. They really haven't because that information I think is suppressed at our universities. It's just not taught. And they don't want it to be taught. And so I'm not surprised at all that some people who you think that, if you're called yourself an economist or a central banker, you should be at least aware of what Austrian school of economics is. Well, I will say this. Most Austrians I've run into in life have absolutely read Keynes, have absolutely read Marx, have absolutely read Samuelson. So I will say that I think the Austrian school is robust and it's more robust than the mainstream school and its understanding of opposing arguments. We know for a fact that Ben Bernanke does not understand the causes of the Great Depression if his dissertation is to be believed. Do you think Yellen really understands what zero or even negative interest rate environment might mean in the long run? Do you think she understands, for instance, Japan? No, I don't think she does. No, I don't think they understand her at all. I mean, this is a situation where we could have in effect a zombie central bank and zombie commercial banks, little or no economic growth for decades and decades, all because we don't want to let the air out of the bubble of bad debt to... You know, at some point there's going to be a reckoning. I just have this feeling that the West itself, and I mean Western Europe, the United States, and I would throw Japan in there as Western nations are subservient to Keynes. I'm not so sure about the Chinese and I'm not so sure about the... Those are the two largest population countries in the world, and I don't think that they... I don't think that their leaders, I think they're going along with the fact that they're much weaker than the West is economically, militarily right now, but I don't think that they really buy into the whole West's print money thing, even though the Chinese, unfortunately, have been following a mercantilist policy and now they're starting to reap the whirlwind of bad policy they have, but the Chinese are showing signs, they're accumulating gold, the Indians, but from what I read about the Indians, and even in the Arab world, which is a very large population, as accurate as they really are, monetarily, I think those areas of the world understand money much better than the West, primarily because they have seen money collapse before and they know that paper money can't last. They know gold and silver will always be there, will always be a monetary medium, so I get the feeling that at some point, and it may not be in the distant future, it may be much closer, that the rest of the world is going to say, well, we're not buying U.S. debt anymore. We're not going to take these dollars that we're getting for all the stuff you're buying and just buy treasury bills anymore. We're not going to finance the federal government debt, and at that point, the Fed has one of two options or a combination. They can raise interest rates or they can print money. I think they'll print money and I think at that point, it's all over. I think the dollar will collapse. Well, as Jim Rickards has pointed out, there are still arrows in the Fed's quiver that could keep this whole thing hobbling along for a while. Further, for instance, we could go into negative effective interest rates. We could always have more quantitative easing. What people really want to know, Patrick, as we wrap this up, is how long? How long can this all go on? And if something's going to end it, what do you think that precipitating event might be? It's hard to say how long it can go on. Yeah, friend Philip Boggess says, you know, never answer a question that begins with when. But, you know, I believe that the precipitating event is going to be when our overseas trading partners do not want to buy a federal reserve debt. You know, they don't want to buy treasury bills. And that means somebody else has to buy those treasury bills. And if the Chinese and the Japanese and our other trading partners do not want to buy treasury bills, then who's going to step into the gap? The last gap will be the Fed will just print the money. And I think that is going to be the precipitating event. I mean, that's what I predict for quite a while now is the precipitating event. I think the Chinese are worried. They ought to be worried. I don't think they're stupid at all. I think they know they've kind of gotten themselves into a box by accumulating all these dollar denominated treasury debt. But then they don't want to just dump them overnight because, you know, then they know that they would be worthless. But I think they're very worried and they want to do something about it. I think that what they're doing about it is accumulating bills. They may not know exactly what they're going to do, but I think they are right in that they too accumulate gold and at some point introduce a gold-backed yuan or a fractional reserve gold-backed yuan or something like that. And people say, well, that's, you know, that they have some evil intention to dethrone the United States and overthrow the United States economically. I look at it as purely rational self-interest. If I were a Chinese statesman, I would be a gasp of what the United States is doing. And I would say, what can we do in China to protect ourselves from the coming deluge? And this is what I would do. Well, if nothing else, we know that massive gold holdings will give the Chinese a place at the table when some future negotiation, whether that's with the IMF or otherwise, happens. Patrick Barron, thank you so much for your time this weekend. And ladies and gentlemen, have a great weekend.