 Well, hello. I'm between you and lunch, so let's go. I do want to thank the Ludwig von Mises Institute for inviting me to speak at this tremendous event with so many outstanding scholars. And I also want to thank Bob Tankula for sponsoring my appearance. My talk today is entitled Managing the Influx, meaning what will or might monetary authorities do if there is a sudden influx of dollars into the country because our dollars are no longer held as reserve currency overseas. But before we get to the specific nuts and bolts of that question, I want to take you back to over a decade ago. I want to tell you a story, but not of a man named Brady or a lovely lady. The story I want to tell is about a central banker named Bernanke. Shortly after the financial meltdown of 2008, you may remember that unpleasantness. It was in all the newspapers. Former Fred Chairman and now Nobel laureate, Ben Bernanke, began making the rounds attempting to explain the cause of all the recent unpleasantness. In January of 2010, Bernanke gave the keynote speech entitled Monetary Policy and the Housing Bubble at the American Economic Association meeting. In this speech, he discussed the Fed's monetary policy and examined the relationship between monetary policy and the rise in housing prices in the first half of the 2000s. He concluded that the, quote, direct linkages between monetary policy and the housing bubble at least are weak. So no wonder he got a Nobel Prize. He further asserted that, quote, monetary policy during that period, though certainly accommodative, does not appear to have been inappropriate. I think, oh, really? Now, if that were true, what then does explain the variability in housing price appreciation across countries during that time? Now, he cited capital flows from emerging markets to industrial countries, the so-called savings glut. Now, he had floated this explanation 10 months earlier in March of 2009 to the Council of Foreign Relations. As he put it, quote, the global imbalances were the joint responsibility of the United States and our trading partners. And although the topic was a perennial wanted international conferences, we collectively did not do enough to reduce those imbalances. Now, this, of course, is a tremendous rhetorical move. Blame it on the foreigners. It's blaming on the foreigners. Those pesky foreigners are just saving too much, and they didn't know what to do with all these savings. So what are they going to do? Let's dump it in the American housing market. Yeah, let's do that. Let's dump it in security investments in the United States. Let's do that. It was not us. It was not us. It was them. It was them. Now, this is akin to what the IRS says every time it owes you a tax refund. Think about when you calculate the amount that you've already had removed from your pay. And you compare that with what the IRS says you owe them in taxes. And when that amount that has been extracted is greater than what they say you owe, does it say on the form, this is the amount of which we took too much? No, of course it doesn't say that. This says this amount that you overpaid. You overpaid. You silly milly. You paid too much to the government. Wake up and smell the Maxwell House. You overpaid. We didn't take too much. It's not you, or it's not us, it's you. It's not us, it's you. Now, regarding the supposed foreign savings glut, if that were really the case, I have a simple question I would like to ask. Where, in fact, did all of these US dollars that supposedly were spent by foreigners on US housing and financial investments come from? Foreign central banks cannot create US dollars. Foreign investors cannot print money either. Every US dollar ported the housing market because of foreign savings was created by the Federal Reserve backed US commercial banking system. Now, I would think a similar concern might be on the minds of our monetary authorities if the US dollar ceases to be the dominant global reserve currency. The concern is this. Massive amounts of dollars find their way back to the US, ending up in either cash balances or commercial bank reserves, or both. This would, of course, significantly increase the domestic money supply outright. Moreover, bank reserves could be multiplied through credit expansion and fractured reserve banking, as Dr. Block mentioned. In any way you slice it, there would be significant monetary inflation. Now, what would be the consequences? Well, for one, it would reduce the value of the dollar relative to foreign currencies. The supply of dollars in foreign exchange markets would increase, lowering its value. The prices of imported goods would increase because the dollar could buy lower quantities of imported products. Additionally, there would be increases in prices of consumer and producer goods in the United States. Such monetary inflation also encourages malinvestment, causing the boom bus business cycle, leaving us poorer due to capital consumption. Now, such a scenario is a serious concern. In the year 2000, going back to 2000, 71% of all foreign exchange reserves held by foreign central banks were denominated in US dollars. During the second quarter of 2023, the most recent quarter for which we have published data, total foreign exchange reserves held by all foreign central banks was $12.1 trillion. 54% of these total foreign exchange reserves in foreign central banks were denominated in US dollars. So a drop from 71% in 2000 to 54% in 2023. Now, it's important to note that the bulk of these reserves in dollars were US Treasury securities. So they're not actually money. They are debt instruments. Now, this percentage, the 54%, is a 25-year low, by the way. Now, in addition to dollar-denominated assets, foreign central banks are holding assets and enumerated in a variety of other currencies. In 2022, 20% of all official reserves were denominated in euros. 6% were in Japanese yen. 5% were in British pounds. And 3% were in the Chinese renminbi. The smaller percentage of the total is still a large quantity of money. There are still $6.6 trillion enumerated assets that are held on reserve in foreign central banks. The Federal Reserve estimates that there are at least $2.3 trillion in outstanding federal bank notes held by someone outside our banking system somewhere. Now, these are real dollars, real units of the medium of exchange. Now, it also estimates that over $1 trillion of these bank notes are held by foreigners. So they estimate that at least $1 trillion of the US money supply is held overseas by foreigners. That's roughly half of the total US bank notes outstanding. To put that in perspective, the M1 money supply measure for last month was $18.6 trillion. So about 6% of M1, and we should say at least 6% of M1 was held in the form of US currency by foreigners. The Fed itself says this is probably a low estimate. So it's probably more than that, but it's all somewhat guesswork. Now, suppose for the sake of argument that the dollar, though through a general loss of confidence in its soundness or in a loss in the US economic or political systems for both, loses its accepted status as global currency. What then? Now, if that happens, it is unlikely that if dollar loses its reserve status abroad, it would do so overnight. And even if it does, it is unlikely that all of those dollars held overseas will come back to the United States right away. But what if they did? Suppose foreign central banks and commercial banks no longer have any use for holding dollars, and dollar-denominated debt instruments as reserve assets. On the one hand, foreign central banks might begin to disgorge themselves of US Treasury securities. This would increase the supply of US Treasury bonds, lowering their price, and increasing interest rates. At the same time, large quantities of dollars would find their way back to the United States, ending up in either cash balances or commercial bank reserves. Now, over the past two years, the money multiplier has been running on average about 5.8 over the past two years. That means that due to the Fraction Reserve banking system that we have, for every dollar in commercial bank reserves, $5.8 were created through credit expansion and held by the non-bank public. So if $1.1 trillion would come back to the United States and end up in commercial bank reserves and then be multiplied via credit expansion in our Fraction Reserve system with the money multiplier of 5.8, there would be over $6 trillion of new money created and held outstanding. Now, that would increase the money supply by about a third. And not only would that undo all of the work to lower the official rate of price inflation to the still criminal 2%, it would be, as Yogi Berra put it, deja vu all over again. It might make even the last two years look like the golden age of price stability. It's hard to imagine. But the Fed is great at doing what's hard to imagine. Now, I suspect that not even Janet Yellen prefers hyperinflation. So what might the Fed do to mitigate such a disastrous outcome? On the one hand, if such a transition would occur somewhat gradually, the Fed might be inclined just to let it ride. It has already shown itself to be biased toward inflation rather than unemployment. If they fear that they could only mitigate the inflation by measures that may lead to recession and unemployment, they might be willing to live with significant price inflation. Setting aside the question of whether we should have a central bank, and the short answer to that is no, it is telling that despite the legal mandate to promote stable prices, which we've already learned is not really a goal we want to achieve, but the law says that's what the Fed should be promoting. The Fed explicitly targets a 2% rate of annual price increase. And so in the name of price stability, they mandate ever-increasing prices at a rate of 2%. Now, the Merriam-Webster dictionary defines stable as, quote, not changing or fluctuation, end of quote. Now, it seems to me then that stable prices would be prices that are increasing at 0% a year. But of course, that would be too unorwellian for the lords of easy money. So the Fed might be willing to allow for significant price inflation for a bit. But there are a number of options for the Fed that the Fed has to attempt to mitigate wild monetary inflation. Officially, the Fed could exchange in good old-fashioned job-owning. They could lobby their friends at various foreign central banks to hold on to dollars anyway in order to allow for an orderly retreat from reserve currency status. This would slow the rate of increase in the dollars in the United States, and would slow the sale of US Treasury bonds by foreign central banks. Another thing the Fed could do is raise the interest rates on commercial bank reserves on deposits at the Fed. In October 2008, the Fed began paying interest to commercial banks on reserves on deposit at the Fed, and this was in response to the quantitative easing and infusing of reserves into commercial banks in an effort to stabilize the banking system. The higher the rate of interest the Fed pays on reserves, the less incentive commercial banks have to lend out every last dollar of their reserves. That mitigates to a certain extent the commercial banks' eagerness to inflate the money supply via credit expansion. The Fed could make open market sales. It could sell a significant amount of its Treasury securities and mortgage-backed securities. Now the Fed only holds $7.4 trillion in securities, so soaking up all of the potential dollars from abroad would require open market sales to continue at a rate it signaled it does not really want to continue. This would have a large impact on interest rates. Open market sales would continue to increase the supply of debt, securities in the loanable funds market, prices for Treasury bonds and mortgage-backed securities would fall and interest rates would rise even more. Now the Fed could also think outside the box. They could, for example, reinstate large legal reserve requirements. Legal reserve requirements would have the impact similar to raising interest rates on reserves held at the Fed. Reinstating legal reserve requirements at a relatively high level would legally bind commercial banks to hold more money in their reserve accounts, thereby making it more difficult to engage in wild credit expansion in the form of newly created money. Finally, it seems to me that the Fed could do what modern monetary theorists can said can be done if price inflation rears its head, which it has. You may remember that modern monetary theorists, such as Stephanie Kelton, assert that money is a creation of the state and that government creates demand for it by requiring it in payments for taxes. So if they just require taxes to be paid for in dollars that automatically creates a demand for dollars and so what we create a demand for, the Fed can supply. They further argue, and this is their big insight, that the government cannot become insolvent because it can always print money to pay its debt and finance new spending. They further take a page out of Keynes' playbook by seeing unemployment as due to insufficient government spending. So their main policy conclusions is that the government can and should monetize deficit spending. Now as an aside, this is not exactly a new insight. All Austrian economists that I know of agree that the Fed can monetize new debt. This increased deficit spending would supposedly increase net saving and increase output and employment. But what are the consequences of monetary inflation? What if it results in high price inflation? No problem they say, the government can fix it by increasing taxes to reduce spending. That is indeed something that Fed could encourage to soak up dollars as they come back to the United States. They could lobby the US Congress to raise taxes with the understanding that the US Treasury will hold the revenue in their accounts at the Fed. This would effectively increase the demand to hold dollars with the purpose of offsetting the increased supply of dollars in the United States as dollars make their way to our shores. If the demand to hold money offsets increased supply there would be more dollars in the United States but it would not necessarily generate increased spending because a larger quantity of dollars would be held rather than spent. The increased quantity of money in the United States would not therefore result in increased demand for consumer and producer goods. It would not consequently result in higher overall prices and a lower purchasing power of money. Now what may be more likely is that the Fed will try something we can't even imagine. Fed committees have demonstrated a history of policy entrepreneurship. Think of the plethora of changes that the Fed has instituted in the banking system since 2008. As already noted in 2008 it began paying interest on commercial bank reserves balances at the Fed. During the financial crisis of 2008 the Fed created a plethora of lending facilities. There was the money market investor funding facility, the asset backed commercial paper money market mutual fund liquidity facility, the commercial paper funding facility, the primary debt credit facility, the term securities lending facility, the term auction facility and the term asset backed securities loan facility. All of these were allowed to expire by June of 2010 but the present, the precedent is there and it has been set. A case in point was that the maturity extension program and reinvestment policy which the Fed later created and which was operated from September 2011 through 2012. In 2020 the Fed created another profusion of such contemporary facilities. There was the commercial paper funding facility, the primary dealer credit facility, the money market mutual fund liquidity facility, the primary market corporate credit facility, the second market corporate credit facility, the term asset backed securities loan facility, the paycheck protection program liquidity facility, the municipal liquidity facility and the main street lending program. Now it's interesting to note that is Dr. Newman noted earlier today, one of the great justifications for going to cryptocurrencies to protect us all from money laundering, protect us all from crime. Well these facilities essentially, a good number of the facilities were facilities that set up what we would call a shell corporation so that the Fed could funnel money into them but just as a pass through direct to corporations, direct to companies that they wanted to provide some assistance to. So if we do it, if it's not us, it's you, if we do it, we would be guilty of money laundering. If they do it, it's monetary policy for the common good. Now all of those things that I just mentioned were allowed to expire in April 2021. However some of the Fed programs begun in March 2020 are still with us. They started the central bank liquidity swaps, the Ford and international monetary authorities repo facility and the standing repurchase agreement facility all designed to make it easier for Ford and domestic central banks to inflate as if there were no consequences. All of these programs have the effect of removing market discipline from the actions of bankers. So I would not be surprised that the Fed tries something even more daring in terms of interventions and monetary manipulations if we do come to the end of the international dollar era. Whatever the Fed does do, we can expect that we'll enact policies that give more control of the financial system and economy in general over to banking elites. They will further work to socialize our monetary system with all its inflationary consequences, perhaps even hastening the demise of the very dollar it will try to prop up. Such is the nature of central bank entrepreneurship. One might say that the Fed is the true creative destroyer. After all, economic law is mightier than any number of central bankers. Thank you. And before you go, we have some announcements. I think there's one more. I want you to know that I did not wash my hands. So I'm speaking as one of Lou's oldest family members. I broke bread with Lou, with Murray. Oh, God, I can't remember how many other guys. But I did all that and went to their classes. I didn't learn a goddamn thing. But I had the honor of giving a book award. They called the Cotor Award. I think that's an honor of the Cotor family and my father, George, who was a great writer and of course my mentor and a friend with all these guys. So we've given out some really significant award to people. Patrick Newman, who wrote Conceived in Liberty. Hunter Lewis, Economics in Three Lessons. Ron Paul, one of my favorite, Ron Paul. Swords into plowshares. Now, how many people have read Ron Paul's book? Good, yeah, great. And then Tom Di Lorenzo, Organized Crime. Tom Woods, Meltdown. And another one of my favorites, Judge Napolitano, A Nation of Sheep. So it's with great pleasure that I tell you all that Sean Rittenauer is the next recipient. Let me tell you, when I got a call, they said, well, would you give a book award? And it says, some guy's showing a Rittenauer. And I said, well, I'm really busy, I don't know. And nobody can say anything new about economics because it's already been written, it's already been said, what could possibly be done? So I said, well, can I buy the book? No, but you can download it. So I read it. And I have to tell you, you wrote beautifully. It's new stuff. I said, my God, I thought it all had been written? No, there's more there. So get his book. And I think every student in America ought to read your book. Thank you very much. Thank you. Thank you. So here,