 Good afternoon and thank you. It's a pleasure to be here and have the opportunity to address you on the subject of the Fed, more about that in a second. And it is indeed an honor to be on a program that will culminate with the awarding of the Gary G. Schlabbaum Prize for Lifetime Defense of Liberty to my very good friend and colleague Walter Block. I have had the great fortune to have had an office right next to Walters for the past 10 years and this is our 11th. So I consider that just a wonderful thing. Before I get started, I have to tell you a story about something that happened to me just over 20 years ago. I went down to participate in actually two conferences in El Salvador sometime in the fall of, I guess, was 1989. And the first program was a panel that I was on and people ask questions and that kind of stuff. And afterwards, I was sitting next to a fella from the Stanford Institute Alvin Rabushka and he looked at the program, the next program and he saw that I was gonna be on right before him on the next one when we were actually giving talks. And Rabushka turned to me and he said, and we just met that day. And he said, well, what are you gonna say, Bill? And I said, well, it's pretty simple. I'm gonna tell them they need to quit printing money. They need to cut their taxes. They need to free up international trade, get rid of all barriers to international trade. They need to deregulate their economy. As I started to talk, his face got longer and longer and he started to turn white and he says, what am I going to say? So, as I listened to Doug and Tom and Joe and David this morning, I had that same feeling, okay? So, I'm going to get a little bit off the topic. I will talk about what, not counting for the Fed, but I'm gonna get a little bit off of the topic and do some other things on the way. First of all, the Federal Reserve, or excuse me, the National Bureau of Economic Research, the NBEAW, who is the official orbiter of the business cycle in the United States and determines one business cycle, when we're in recovery, when we're in expansion, when we're in contraction, when we're in recession, those types of things, says that we entered into a recession in December of 2007 and we got out of that recession in June, at the end of June in 2009. So, that the recession lasted for about 18 months, a year and a half, and that we have been in recovery ever since then, well, I beg to differ. I understand that the people at the NBEAW have degrees from Harvard and Yale and Princeton and all that, which in some ways makes them suspect to me because I happen to check and Benny, the paper hanger, has his PhD from MIT and so I started looking and a number of these people have their PhDs from MIT, which makes me think that they are, perhaps with respect when it comes to economics, idiots of us in the sense that they're very good at doing mathematics but really don't understand economics. In my opinion, we are in a depression. The main thing that the NBEAW looks at to determine whether we are in a recession or not is two consecutive quarters of negative growth of GDP. Now by GDP, they mean inflation adjusted GDP. In other words, real growth, negative real growth for two consecutive quarters. Unfortunately, GDP is one of these aggregate numbers which in many ways is meaningless and the way it is calculated would scare you if you actually saw what the government does to calculate this. Equally important, someone this morning mentioned John Williams shadow government statistics that he puts out numbers that are in my opinion far more accurate than the official numbers put out by the government. The way you get to real GDP is you calculate nominal GDP. You try and find out the total amount of money that was spent in the economy in a given period of time or newly produced final goods and services. That's what GDP is, that's what they nominal GDP. How do you get from that to real GDP? Well, you use a deflator, a price index of some sort and you adjust it then for inflation. Now I think it was Joe earlier mentioning yes but each of us has our own individual price index, the price index that is relevant to each of us and that's true but when this real GDP numbers come out they use the standard government concepts and in this case they use the gross domestic product deflator, the GDP deflator. I want to tell you that they change the way they calculate this deflator. A few years ago they went from base weights to chain weights. Chain weights are a way to make the inflation rate look like it's not as severe as it is and they do other things to make the inflation rate, the official inflation rate understate the actual rate of inflation. Now if you understate the actual rate of inflation then you necessarily, necessarily overstate the amount of real growth in the economy. So when they tell us that the economy has been in recovery since the middle of 2009 I say they're out of touch with reality. More importantly, looking at GDP doesn't really give us a clue as to the real severity of the economy we're in now. According to John Williams shadow government statistics we have over 20% unemployment right now. By any measure, 20% unemployment is a depression. Even the government, when it puts out its U3 which is the third measure of unemployment, the U3 that it has, that's the one that you hear on the newspapers and newspapers and on the TV, that's the one that this week they said though it was 9.1% last month in September but in October it went down to non percent. Well that's what they say with U3 but if you go look at U6 where U6 takes into account not only those people who are unemployed but those who are underemployed and those who are marginally attached to the economy even the government admits that by U6 roughly one in six people in our economy is unemployed. That's a depression, folks. That's not a recession and it's certainly not recovery, okay? Well, how did we get here, okay? We got here the same way Europe got where it is. We have a welfare warfare state. The government makes war now. Europe's pretty much given up on the warfare part of that but the welfare part they've seen us and raised us. So governments go out and spend money. They can't raise the taxes for it. People will not pay the amount of taxes that the government wants to spend. Whether it's our government or the Greek government or the British government or the German government or the French, it doesn't make any difference. That's why all the nations of Western Europe, the European Union and the United States run budget deficits, can't get enough money. Well, if you can't raise some money through taxes what can you do? You can go out and try to borrow it. Now by this I mean legitimate borrowing and the problem with that is if the government's go out and try to borrow legitimately then interest rates will start to go through the roof and particularly in places like the Eurozone, although we had heard about sovereign debt being, because it was sovereign debt having zero risk, it turns out the people sitting on Greek bonds and Italian bonds and Portuguese bonds, et cetera, they're experiencing real risk. Well, the third way of course to finance the government's deficits is by printing money. Now when I say printing money I'm including the electronic version of that as well. Governments always want control of the money stock. They always want control of the money stock, they want to be in control because politicians, whether they be kings and emperors or presidents or prime ministers or parliamentarians, congressmen, whatever, always want to spend more money than they have. Who wouldn't? They're spending other people's money, OPM. So why wouldn't they want to spend money? Well, they run into a problem, they can't raise as much taxes as they want, they can't borrow the money so they have to print it. And of course the problem on one hand the welfare state but on the other hand the welfare state. And the welfare state part is they have gone out and told us that any problem we have should be solved and it should be solved by the government. And that means we have come as a people to depend on the government more and more. Whether it is to pay for the education of our children, for your social security check, for Medicare, for everything, we have come to depend on the government. We are no longer that self-reliant. There are many self-reliant individuals in the country but the country as a whole is no longer self-reliant. That's been true in Europe for quite some time. So the government has to get its hands on new money, okay? Now let me bring it. Some people think the solution is to go to a gold standard. Well, it depends on what you mean by a gold standard. If by a gold standard you mean a government gold standard such as the gold standards that existed in Europe under the Latin Monetary Union in the latter part of the 19th century and the early part of the 20th century, or whether you mean the gold standard as it existed in Britain and the United States, again in Britain a longer period of time but certainly in the United States from 1880, 1879, actually on until we went off of it in 1933, Britain went off in 1914, that won't work either because as soon as you go to war, as soon as you go to war, people won't pay the taxes. Wars are extremely expensive. Just ships are very, very expensive. The cost of a modern aircraft carrier would scare you and that's without the planes and the planes themselves are all cost tens of billions of dollars and they have at least 80 planes on a modern aircraft carrier. It's very expensive. The government can't get the taxes, okay? So what is the government to do? Gotta print money. But if you're on a gold standard, you can't print money or at least you're limited in the amount because people will take their paper money and come back in and all their bank deposits and say, give me gold. And so what happens invariably when you're on that kind of government gold standard is that eventually the government goes off the gold standard. Okay, whether it was Britain in 1914 and other nations in 1914, whether it was the United States going, how would you describe it? 95%, 98% off the gold standard in 1933 and with Nixon finishing the job in 1971, you know, but you go off the gold standard. So that's not a protection. The only real protection is not so much a gold standard but private money, whatever people agree to use among themselves as a medium of exchange, whatever they agree voluntarily to use. Now most of us in the Austrian economics area sort of assume that what would be used would be gold that people would choose to use gold. But it might be that people would use gold and silver, you know, but not by metallic, not with a fixed ratio of exchange between them but with the ratio varying between them. In point of fact, the fact that we had by metallic system caused us a lot of problems. It started with the, what was it? The act of I guess 1791, but Bob's looking, I mean, it was 1790 Bob, 91. Okay, well, we set up our monetary standards and interestingly enough, by the way, and I'll mention this right now, the gold standard that we were on was unconstitutional. We were on a gold standard and it was unconstitutional. In 1791, we determined that we would have both gold and silver coins. The most common coin in use of any size at that time in the United States was the Spanish milled dollar. By weighing a whole bunch of them and taking the average, they came to the conclusion that the Spanish milled dollar had 371 and a quarter grains of pure silver in it. And they said, ah, that's what a dollar is. And then they said, okay, and we're gonna have some gold coins, but they weren't gold dollars. They were gold eagles and double eagles and half eagles. And they specified the weight of gold in the eagle such that it was a ratio of 15 ounces of silver to one ounce of gold, which got us in trouble because the world market rate at that time was about 15 and a half ounces of silver and one ounce of gold. And of course Gresham's law came into play, which meant that overvalued goods drive undervalued goods of the same type out of the market. So the overvalued silver drove the undervalued gold out of the market. But the people in the United States understood, and I'll come back to this other part in a second, but people in the United States understood that our monetary unit was the silver dollar. And so in the 1830s, when they wanted to make an adjustment, they did make an adjustment, but they didn't change the weight of the silver dollar. They changed the weight of the gold eagle. Why is that? Because if you read the Constitution of the United States, there are some clauses where money is mentioned. And it says, Congress shall have the power to coin money and regulate the value thereof. Coin money, not print money, right? Didn't say anything about that. States were specifically prohibited from printing money. Article one, section 10, no state shall emit bills of credit. Bills of credit was the then current term for paper money. So they said states can't print money. The federal government can coin money. And the reason the federal government couldn't print money was because they had experience with the continental dollars and the expression not worth the continental was very current, right? And so what happened was they didn't give the federal government the power to print paper money. And of course, the 10th Amendment says explicitly that if the federal government hasn't been given an express grant of power to do something, then it can't do it. Only the states or the people can exercise that power. But then you go into the Constitution and you find the dollar mentioned specifically twice in there. Once in article one, I think it's section nine, where it gives Congress the power to restrict the import of slaves. It doesn't use the word slaves, but that's what they're talking about. After the year 1908, in other words, 20 years, you can import slaves, states good, but not after that. But in that same thing, it said the states, the Congress can tax each imported slave no more than $10. And later on in the Sixth Amendment, I think it's the Sixth Amendment, but you know, it says that you have a right to a trial at common law in matters where $20 or more is at stake. Well, now, if they thought that you were gonna be able to print paper money and inflate the value of $20 down to nothing or $10 down to nothing, why would they have bothered mentioning the dollar in there? They thought they were talking about something specific, the Spanish mill dollar, or the dollar then that we created, which had the same silver content as the Spanish mill dollar. Later on in the 19th century, as we went to use more and more gold, still gold eagles and double eagles and that kind of stuff, eventually the government, right at the turn of the century, officially put us on a gold standard. I think that year was 1900 exactly. Well, that's wrong. There's no warrant for that in the Constitution. The warrant in the Constitution is for us to have silver money. It's what it is. Doesn't mean you can't have gold coins, but that can't be your standard. The silver is a standard. Now that doesn't mean that that's the best thing in the world and maybe we should have amended the Constitution, but if you don't like the way things are turning out under the Constitution, then the concept of a living Constitution where a majority of judges happens to be non on the Supreme Court now, it wasn't always that, where a majority of five out of non-judges can decide what the Constitution means, we used to draw the thing away, because those five people can say it means whatever they want it to say. So, all right, enough about that. A little bit of, how much time do I have? All right, well. About, get carried away, sorry about that. About three years ago, four years ago, it became apparent to anybody, I shouldn't say, but it became apparent to some people that the U.S. economy, in a world economy was in pretty bad shape. In my opinion, the downturn actually started in 2006, okay? And, we've been in a downturn ever since then, a depression has just gotten worse and worse. Every now and then serendipity of cars, I was really getting into the events, looking at this, what's going on in the economy, it's turning down, and we're really having a mess. And in the very beginning, January, I guess it was or so, of 2008, I was asked, well, what elective are you going to teach in the fall? And I said, you know, something I've been wanting to teach for a long time, current issues in macroeconomics. And one of the students who was in that class, a very fine student, is with us today. And at any rate, it was just an absolute wonderful, wonderful class because, or absolutely wonderful, because I had not just that wonderful student, but about 12 or 15 really great students. And what we did was we read The Wall Street Journal and we looked at the things in there and we discussed what was going on in there throughout the semester, it was really great. But in preparing for that, I did something which I hadn't normally done. Up until then, I was a typical macroeconomist when looking at the Fed. I said, gee, what's the Fed doing in terms of monetary policy? What are they doing with respect to open market operations? What are they doing with respect to discount rates? What are they doing with respect to the reserve ratio? I didn't really look at their balance sheet. Then I started looking at their balance sheet for this course. And when I started looking at their balance sheet, I realized that there was something terribly wrong there. Okay. And I actually filed a Freedom of Information request, Freedom of Information Act request, which I'll tell you about in just a second. But comes that fall and we're in class and all I could, if I had to describe that class, I think probably the best way to describe it would have been with respect to the Fed, the acronym of the day. Because that's the semester, the term and starting in September of 2008 when they started coming out with the term asset backed securities loan facility called the TALF, the Money Market Investor Funding Facility, MMIFF, the asset backed commercial paper, Money Market Funding Facility, the CPFF, the Primary Dealer Credit Facility, the PDCF, the Term Securities Lending Facility, TSLF, and the Term Auction Facility, the TAF. They're coming up with all these things. It reminds me of what's going on in Europe right now. The fact of the matter is what were they doing? They were looking at all these financial institutions that were up to their ears in debt. They had liabilities over here and some equity. They had these assets at book value that weren't worth anywhere near what they said they were worth. And if they wrote them down, they'd be bankrupt. They wouldn't have any more capital left. So what was the Fed doing? With all these programs, when you get all through, you blow all the smoke away about how long the term was and the amounts and all that kind of stuff, they were doing several simple things. Number one, they were going to the financial institutions and saying, we'll take the junk paper off of your books in exchange for some good paper that we have, Treasury Securities, so we'll take it off, okay? That was one of the big things, just swapping good paper for junk paper. The other thing that they were doing was lending them money with the junk paper for securities. And the third thing they were doing was buying the junk paper. So their balance sheet started the balloon. The balance sheet, which at the end of 1999, the Fed's balance sheet was $670 billion, by the end of 2008 was non-hurt in 20, or excuse me, at the beginning of 2008 was non-hurt 25 billion. So that was up 35% over eight and three quarters years. You'd say, gee, that's real restraint for the Fed. The balance sheet actually shrunk from the beginning of January to the beginning of September of 2008 from non-25 to non-05 billions. It was at that point that Benny and the gang went wild. From the September 3rd of 2008 to October 2nd, it jumped from $9.5 billion to $1.5 trillion a 66% increase in one month, think about that. And then after that, by the end of the year, it had gone up to $2.265 trillion. In other words, they just balloon the Fed's balance sheet to get this junk paper out off of these banks, keep the banks and these other things going on. Anyway, make a long story short, I started looking at this stuff very seriously and I'll give you the current numbers, not the ones from that time. The Fed puts out a release, a statistical, they put out a whole series of statistical releases. Federal Reserve Statistical Release H41 from November 2nd, that's it's past Thursday, shows assets of 2.825 trillion, liabilities of 2.73 trillion means that their capital is 52 billion. That's a leverage rate of 53 to one. Now, if you believe that, you can understand why people panic and say, oh, the Fed could go bankrupt, the Fed, this, the Fed, that, oh man, we ain't troublein' all that. But I tell you the Fed balance sheet is fraudulent. It's fraudulent. The Fed has no liabilities. If you look at the bulk of that 2.77 trillion dollars of liabilities, just over one trillion is Federal Reserve notes. That's that paper money you and I use. How is that a liability to them? What are you gonna do? Take your Federal Reserve notes to the Fed and say, give me something? What are they going to give you? Just new Federal Reserve notes. Then the banks and depository institutions have over 1.6 trillion of deposits at the Fed. If they go to the Fed, they say, we want our deposits, okay, here's paper money. Where does the Fed get the paper money? It's printed by the Bureau of Engraving and Printing of the US Treasury and sold to the Fed for a nickel. Whether it's a $1 note or $100 note, it's sold to the Fed for a nickel the cost of production and delivery. Well, at one time it's true when those things were redeemable in gold, they were liabilities, but they're not liabilities anymore. So I started to wonder about this, how could they be doing this? And so I sent them a request. I said, when a Federal Reserve bank engages in a transaction whereby it acquires, Federal Reserve notes from the Bureau of Engraving and Printing of the US Treasury and is recording the transaction in its accounting journal, which account does it debit and which account does it credit? And for how much? Just tell me that. And then I got back a response. The Federal Reserve pays the Bureau of Engraving and Printing for the production cost of the currency. That's that nickel, as opposed to the face value. They don't give them face value for it. Well, that's where their profit is, right? I mean, wouldn't you love to be able to buy $100 bills for a nickel? My wife would. So would my daughter. I wouldn't. That's because I'm a good guy. And then they say, once currency is delivered to a Federal Reserve bank, transfers it into, out of, or among Reserve banks, they are recorded at face value. Well, where is this jumping value shown on the books? And it's not shown anywhere. And so then I looked at their audited statements and they do have audited statements by it's audited by Deloitte and Touche. And you can find this on the web. It's not the same kind of complete audit, obviously that Ron Paul wants. And it says, accounting principles for entities with the unique powers and responsibilities of a nation's central bank have not been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it considers to be appropriate for the nature and function of a central bank. In other words, they jury-rigged the books to get what they want. The conclusion that I draw is that the Fed, as the US government, is an institution that's corrupt to its core. So I leave you with this. Ron Paul says, end the Fed. In my opinion, he's too soft-hearted. I say, end the Fed and put them all in jail. Thank you.