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Thank you for listening.
Welcome back to Radio Rothbard. I'm Ryan McMakin with the Mises Institute, and with me today is my co-host, though, Bishop.
And also with us is one of our economists, Jonathan Newman. Jonathan's with been with us many times before,
also featured in our new documentary on the Federal Reserve called Playing with Fire.
He's got lots of great insights in that. If you haven't seen that yet, go over to our YouTube channel
and check that out. That's at YouTube, the Mises Media channel, or you can watch that
on our website at Mises.org
fire and
check it out. And I just want to talk a little bit about some of those related issues with Jonathan today. Really, I want to talk about
what how Trump has basically been handed a turd of an economy. I mean, I don't know that there's
any other way to
to say that. That is the technical economics term.
Yeah, I think that really just communicates what what the story is here. Now, I know there's lots of
lots of people who still believe in all the the Biden
myths that have been put out in the past a couple of years about how it's just the most amazing economy of all time and
they count every job that
came back into existence after the government enforced lockdowns destroyed millions of jobs.
And oh, look, look at how much employment has been created since 2020. Of course, that's all just a function of massive intervention on the part of the regime.
So the reality is that what we're seeing is manufacturing indexes very weak. What we're seeing is
total full time private sector job growth. Extremely weak. In fact, this is in the last report. We saw private sector jobs actually decline and then
basically all three
often used measures of price inflation. We're all up in the most recent data. We're looking at the core price inflation stuff.
We're looking at just the regular CPI all inched upward
after the Fed decided that it wasn't
going to let interest rates
stay put anymore and instead kept talking about forcing them down, had a mega cut back in September, and lo and behold, prices inched back up.
And what this means is
affordability problems for regular people. We continue to see more and more data showing that in the past five years the United States has
experienced
immense amounts of
wealth creation
for the upper classes. People who benefit
from
massive Fed-induced inflation, people who already own huge amounts of assets,
they're doing very well. Why? Because money creation leads to asset price inflation.
Now this has been covered
many times by one of our great economists, Brendan Brown, and he's talked about how you can't just look at CPI
inflation. That's one of the last places that you see
evidence of monetary inflation show up. You see it much earlier and much more universally in asset price inflation.
We see it in stock prices, clear correlation rates, stock prices, and
monetary growth. That's a lot of work has been done on that by Thorson Polite on our website, and
also, as Brendan Brown has pointed out, asset price inflation. We see that a lot in home prices.
Heading upward, and that's something we can talk about a little bit today, how in spite of
the Fed's
attempt to force down interest rates again in September,
we haven't seen that play out in terms of longer-term debt and certainly not in 30-year fixed mortgages.
And yet, at the same time, prices have continued to
go up in home prices, or at least have remained stable with
only here and there have we seen any significant evidence of price cuts in
single-family homes, and really just in four purchase homes in general. And what I see
here recently in some data from the National Association of Realtors is that first-time buyers as a share of U.S. housing purchases
is really now at a 40-year low.
It's lower now, even then, where it was back in that initial surge of
interest rates that occurred after the early
1980s. If you talk to some of the old-timers, now in this case, I'm using that term affectionately.
So if you talk to some of the people who remember selling homes or buying homes in the first half of the 1980s,
man, they remember, right, the 12% or higher
mortgage rates that many people were getting. The difference, of course, at the time was that prices reduced significantly to reflect that.
That's not going on right now, what you're seeing is rising interest rates not reflected by any significant cuts, at least not so far,
in prices. And so now you're getting down below 25% of first-time buyers as a share of U.S. housing purchases.
So what this means is that as people who own a lot of assets
continue to get richer, thanks to monetary creation, so
billionaires have gotten massively richer over the last five years. Upper, middle-class people who are earning
200,000, 300,000 and already own two houses, they're doing great. They've already got big stock portfolios, doing fantastically.
However, if you're just some regular person who's trying to save up for a home, good luck. Good luck with that, unless, of course, your parents can help you a lot.
And so we continue to see a decline in real
in real wages for people who aren't already doing quite well, people who don't already own assets.
So thanks to the central bank, we've created an economy where people who own assets will continue to buy more assets, continue to see their
wealth increase significantly. People who don't already own assets, they're largely getting locked out of buying new assets.
Unless, of course, you want to buy like one share of Berkshire Hathaway B-stock or something.
You might be able to put together a few hundred bucks for that.
But that's not going to help you nearly as much as a home purchase in terms of your lifestyle and your future wealth accumulation.
So
this is the economy that Trump is coming into.
And we continue to see also just problems ahead, which is shown in, I think, the bond markets by the fact that longer term interest rates
haven't been going down in spite of attempts by the Fed to get interest rates back down.
And this is most likely reflects fears about ongoing spending in deficit spending,
which is a significant problem because that causes yields to go up because the federal government continues to flood the economy with more and more debt.
And so we look everywhere and where's the good news.
And it seems that mostly what I'm hearing from the dogmatic Trump supporters is that, well, everything will be fine because Trump is Trump.
That Trump loves America and that he's going to fix it somehow.
I mean, this is how simpletons think, of course, is that if you have a positive attitude that everything will be fixed,
what matters is your emotional state.
What matters is how you feel about things.
And I know that a lot of conservatives like to pretend that they're guided strictly by logic and facts, which is, of course, complete nonsense.
Sorry, you're not.
And you can see this back during the Bush administration.
People basically said that if you don't agree with them, then you're in favor of terrorism and you hate America.
I mean, that was a standard stock response among conservatives.
Yes, no emotion there at all.
And so this is, of course, always been a lie that they try to say because all these hopes that they're pinning on the Trump administration,
it's all just pure fantasy and fluff based on Trump will fix it somehow.
Well, you don't just fix things unless you make major changes.
Major changes come from major cuts in spending.
They come from massive cuts in regulation, which to its credit the Trump administration has.
It's one of the few places where they've actually done some of the things they said they were going to do was in cutting regulation.
Almost nowhere else has they ever done any of the things that they say they're going to do like cutting federal spending,
rating in the central bank.
None of that happened in the first term and I don't expect any of it to happen in the second term.
So I just want to look at some of these things that are going on and get Jonathan's perspective because he has a more sophisticated view
as a real economist, a real academic economist.
Whereas my role as an economist when I was at the state of Colorado is really more as a number cruncher and doing some more basic analysis.
But I like to go to Jonathan for some of the more sophisticated stuff on interest rates and where the economy is headed.
So Jonathan, what would you say is your overall opinion of the state of the economy?
When you look out there, what are some of the red flags you see that you think need to be addressed if this economy is not going to continue stagnating
and possibly even slipping into recession in 2025?
One thing that people were talking about earlier in the year but I haven't seen as many headlines lately is the commercial real estate problem.
Now that was a huge red flag and people aren't really talking about it as much now but I think the problem is still there.
There's a ton of empty office space, commercial real estate that's just sitting empty, not being used.
And if it is being used then the businesses that occupy those spaces aren't earning enough revenue to pay their rents.
And so we've seen massive discounts, massive decreases in the prices.
I mean there's some huge headlines where multi-million dollar real estate was sold for pennies on the dollar or something like that.
So there's some really crazy stories out there.
But we haven't seen a crash in that sector.
So that's one red flag.
I mean a lot of the stuff that you were just talking about, it's very difficult for young families especially to buy their first home
because prices are so high and also mortgage rates are high as well compared to where they were before.
And so that makes it really difficult for families to get established.
It makes it difficult for them to save.
All of the price inflation as well makes it difficult for them to save.
And so I mean those are just a couple things like the price inflation is really bad,
especially for young families who don't own a lot of assets like you mentioned.
And I do think that there's a lot of issues in commercial real estate.
Now one thing, you were talking about movements of interest rates.
I do think that inflation expectations are a part of that.
So we've seen interest rates increasing, bond yields increasing even though the Fed is trying to push down interest rates.
But you also see that in the mortgage rates as I mentioned.
And I think while inflation expectations are part of that, another part of that could be default risk.
It could be that lenders are worried about the increasing astronomical indebtedness of the United States population.
Tons and tons of credit card debt, lots of delinquencies and defaults going on.
So there's another red flag for you.
It could be that we're due for a sort of debt crisis in the private sector.
Now a debt crisis for the public sector, that's a different story.
We've got other episodes on that.
But I mean those are the sorts of things that I'm looking at.
Well, yeah, it's a mentioning default risk.
This applies back to our topic of commercial real estate too, right?
Isn't there growing, when we look at what's going on with commercial real estate and the decline in sales prices
and the ability I think to maybe pay off mortgages from sales as interest rates go up
and as revenues from renters continues to go down, that's going to be an issue there too, right?
How does commercial real estate, I just want to back up a step.
Because as just a listener, I want somebody, explain to me like I'm a child, Jonathan,
why commercial real estate is potentially a problem for the business cycle, right?
How could commercial real estate translate into an event that could be truly problematic for the economy at large?
Or isn't that just a problem for commercial real estate?
Why should I care about commercial real estate in regards to the larger economy?
Well, the reason it could spread is because the same lenders in commercial real estate
are also making residential mortgages and doing other financial services for the public.
So if they take a huge hit in their commercial real estate part of their balance sheet,
so like if the stuff that they're owning is decreasing in value,
if the people that they're renting to aren't paying back,
then that means that they have to take those huge losses
and those huge losses could translate into credit completely drying up for other things as well.
So if my balance sheet is deteriorating because of that thing,
then that means I've got to pick up the slack in other parts of my balance sheet
including lending for mortgages, credit cards, auto loans, everything under the sun.
And that's where who owns commercial real estate is also important
because it's not as if every bank has a similar style sort of balance sheet
and so you've got X amount of commercial bank exposure,
you've got X amount of mortgage rates and this is kind of pretty uniform across,
larger bundles for larger banks, whatever.
But regional banks in particular have the largest percentage of their investment portfolio
within commercial real estate itself and so that's where some of these broader sort of structural problems
that have been created particularly in the post-2008 world,
various aspects of the regulatory structure, the Dodd-Frank sort of style requirements,
that pushed regional banks to be one of the heaviest lenders in the commercial real estate market itself
and so if you think about it, if those are the banks that are the most vulnerable
with that kind of particularly toxic form of debt out there,
then that can help skid the ways for even further consolidation within the banking sector,
which has even broader amplifications when you consider the relationship between banks in the state
and et cetera, et cetera, et cetera and that's why that commercial real estate time bomb is kind of,
it's not only that it's bad, it can create a bank crisis,
but it's particular type of bank crisis could even have a different sort of fallout
that has an impact on kind of the day-to-day average American.
One of the most amazing graphs you'll ever see is just a count.
It's a time series, count of the number of banks over time.
So we used to have tons and tons of banks back in the day,
but then you just see that number come down and down,
and the decline becomes steeper with the financial crisis
to the point where it looks like we're trending towards like one bank,
so I wonder what that could mean.
So it looks like exactly what Thoe is mentioning is that there's just further consolidation
and the big banks cobble up the small banks,
and one reason for that is big banks like in 2008-2009 got this nice big bailout,
the smaller banks, not so much.
The smaller banks have to take on these extra risks.
It's more costly for them to follow all of the new guidelines and all the regulations
that many times are actually designed by people from the larger banks.
So that's sort of competitive, using the apparatus of government
to harm your competition by designing regulations that your large firm can follow,
and it's not so costly, but it's incredibly costly for your smaller competitors,
and so that's just another way that we've seen tons and tons of bank consolidation,
means less choices for consumers, it means more control.
It's easier for the federal government, federal reserve to control
a smaller number of banks than a large number.
Yeah, terrible trend that we're seeing there.
Just to piggyback off of that, going on tangent,
I'll bring it back to commercial real estate though,
it's that going back to the way that Ryan started the show,
talking about the extent to which this financial environment that we found ourselves in
that it has been good for billionaires, it's been bad for the working class.
There's an additional element to that by which there's been some fascinating stuff coming out here lately.
It's a problem that we've talked about on Mises.org for quite some time as well,
but I think it's getting more publicity right now with people going on Joe Rogan,
Mark Andreessen had a very good episode on there, talking about the extent to which,
so we've got this financialized economy, it rewards large investors,
it penalizes consumers, but then also who are those billionaire,
what part of that billionaire class has benefited the most from it?
And this is where kind of the regulatory regime has been kind of beating up,
debanking, kind of making threats essentially to certain type of interest groups
that either force them into compliance with the regime
or punish them if they don't fall into compliance.
The crypto industry in particular has been under attack from Gary Ginsler and SEC
and that played, I think there was some political fallback that came in the 2024 election.
So that's where these combination of these things where it is,
we've opened up the spigot, but then where that spigot has been directed,
regional banks have been affected more than big banks because of 2008 regulations, CFPB,
the Consumer Financial Protection Bureau created new weapons,
that kind of guided source stuff, and so it's kind of the worst of both worlds
where we have flooded the markets, we've benefited the top,
but then those in the top that have been the biggest benefactors
have tend to be those that are either loyal to the regime
or have been coerced into being loyal to the regime.
And just one back on the commercial real estate aspect of it is that,
I know at times, we've been talking about that,
we've been raising this red flag for a while,
and why has it still continued going on and on?
I just want to provide one more data point there to that conversation,
which is that at this point, from the Fed's own data,
the latency rates on commercial real estate is at its highest point in 10 years.
Now, if you look at it in a chart, it doesn't look that big compared to where it was in 2008.
But I did see a Financial Times report, and I love this line,
that basically the step that we're in in terms of the banks handling of that
is a process of extending and pretending.
So that is what the banking industry is doing with commercial real estate loans
while we're still dealing with the kind of macro consequences of 10 years,
12 years of back and forth in particular of particularly hostile regulatory environments.
Well, I'm glad you mentioned extend and pretend,
because that brings us back to the issue of if your interest rates are going up,
it's a lot harder to extend and pretend.
And that's something that I think also affects smaller organizations
more than larger for a lot of the reason that Jonathan mentioned.
Also, it's just when you're some huge mega-corp,
it's easier to get loans at a lower interest rate.
But if you're some small local bank extending and pretending
that is getting another loan at a lower interest rate
so you can cover your old debts and avoid bankruptcy, that gets harder and harder.
And it's important to remember if we look at a chart of interest rates over the last 35 years,
it's just been a long march downward.
So it's been real easy for all of these companies that were never really earning much money
and we call them often zombie companies
because really they weren't even doing well based on earnings or revenues.
They were doing well because whenever they failed to meet revenue targets
or failed to pay their bills, they could just refinance
and work on solving the problem later.
But it seems that if the Fed loses control of interest rates,
the Fed never has total control of interest rates.
The Fed is a major player in the markets,
but of course interest rates are determined by huge factors beyond the direct control of the Fed.
And just as a side note, we have detractors out there say that
any time we talk about how the Fed is manipulating interest rates
that the Mises Institute is wrong because the Fed has virtually no effect on interest rates,
to them I always say, okay well then you won't have a problem then
if the Fed just simply dumps all of its assets into the market
and stops participating in interest rate manipulation altogether.
Right?
Well, just get rid of all open market operations of the Fed
since the Fed has no effect on interest rates.
I have yet to get one of those people saying yes, fine,
just get rid of open market operations.
Just let the market, just let interest rates go, whatever.
No, of course they always tacitly admit that they want the Fed involved
in the markets to affect interest rates
because they know it has an effect at some level.
And so that's where we are.
However, the Fed can progressively lose more and more control
of interest rate markets and I think we're seeing some of that now
in how in spite of the Fed's efforts, the 10 year, the 30 year,
they're slowly continuing to march upward
which is very different from what we saw the last 35 years
as it was all just this bull market and bonds
and yields were just going down, down, down as prices increased in bonds.
But if that situation persists, right, Jonathan,
these zombie companies, these companies that were relying heavily
on refinancing, that these smaller companies that need to be able
to get loans to stay afloat, it's going to go right back
to what you were talking about, right?
They're not going to be able to survive
whereas larger banks, larger entities that can rely on bailouts
and such, they'll be okay.
So this will just be another step in the destruction of competition
and the destruction of the entrepreneurial economy.
Or am I reading that wrong?
No, no, that's right.
So there are many, I mean, not just firms but whole industries,
whole sectors that are very dependent on consistently low
interest rates or decreasing interest rates for the very reason
that you just described that if they get into any sort of trouble,
they can refinance, they can borrow more money more cheaply
if interest rates are decreasing.
One little bit of nuance that I can add to the discussion
about the Fed's control over interest rates.
I think the right way to think about it is the Fed is a leader
when they're pushing interest rates down
but they're a follower when interest rates are coming back up.
So like you said, the Fed has, they have a lot of control
over interest rates and they can lose control.
The times where they lose control, it's when, you know,
to use Rothbardian language, it's when the market is reasserting itself.
And what that usually looks like from our perspective
is that inflation has become politically unpopular.
So like everybody's asking or blaming the Fed,
blaming the government for inflation
in the way that the Fed is, you know, somewhat not forced
but the way that they respond to that is they allow interest rates to rise.
The key word allow, right?
So they just let the market go back up to,
we're closer to where interest rates would have been or would be
if they didn't have that manipulation from the central bank.
But obviously, like especially during a crisis,
you see short-term interest rates, you know, plunged.
They go way, way down.
And that's obviously the work of the Fed.
That's the central bank that's, you know, pushing interest rates
down to the floor, like we saw for many years,
close to zero.
Like that's not something that would ever happen on the market.
And so that's clearly a central bank manipulation that's doing that.
Well, and I think this brings us back to the issue then of, right,
there are large things going on in the economy that are not just,
that can't be cured with positive attitudes
and Trump saying nice things about how America is the greatest country ever
and all that stuff.
This does not.
Not with that attitude, Rhymes.
All the bad attitude is on, it seems to be coming from your end.
If you truly love America,
you will never say anything negative about its economy.
And that demonstrates just how truly ignorant people are, right?
They think that economies are determined,
that business cycles are determined by how you feel about the economy,
right, that it's all about just expectations.
If you expect the economy to improve, the economy will improve.
If you expect the economy to do poorly, the economy will do poorly,
as if it has nothing to do with capital investment,
it has nothing to do with spending, it has nothing to do with debt,
none of these things, it has nothing to do with monetary inflation.
But the reality is that these things exist in the real world
and the real determinants of business cycles are not how you feel about them.
And so these, this is what's going on in the economy
and Trump is going to have to face this
and what we've seen, of course, is he, of course, has none of the tools, right?
He doesn't understand how things work
and his response is to use government threats and government power
to assert some sort of, I don't know, control over the economy.
What I'm speaking of is this is reflected in Trump's plan
to get rid of the BRICS efforts to create a new currency
and he basically said, hey, you BRICS countries that are plotting to create a new currency
to compete with the dollar, I'm going to slap 100% tariff on all of you countries
if you persist with your attempts to circumvent the dollar.
Now, first of all, note that, no, I don't think that the BRICS countries
are about to create any sort of currency that will directly compete with the dollar.
These countries are mostly basket cases
and I think BRICS is mostly a geopolitical alliance
in attempt to just draw away and reduce, to some extent,
U.S. hegemonic control in the world.
Okay, fine.
And a part of that I think is just to create some sort of alternative to the dollar
which is unlikely to actually compete with the dollar.
But I think it's kind of funny that Trump is basically saying, yep,
we can't expect people to voluntarily use the dollar.
So we'll just start threatening people with ruinous tariffs
because they talk about not using the dollar.
I mean, what an admission that is.
I don't think the dollar is as weak as Trump maybe fears it is
and it could all just be posturing, I don't know.
But the idea that the United States is going around threatening people
for not using the dollar just shows how absurd the situation has become
in terms of U.S. attempts to impose global control on people
by forcing them to use the dollar.
This has been going on, of course, for years,
especially with the Russia sanctions and things like that.
But the whole thing should be regarded as absurd.
What you should be trying to do is strengthen the dollar,
not threatening other people who don't want to use the dollar.
But that would require reigning and deficit spending and such
and obviously this administration is no interest in that.
Yeah, what you just said is right before you mentioned deficit spending
is exactly what I was going to respond.
So if you try to use force, if you try to use tariffs,
any sort of barrier to trade, economic sanctions,
and your goal is to increase the use of the dollar in international trade,
then you're actually going to get the opposite result.
You're actually going to drive people further away from the dollar.
So if you want more people to use the dollar,
then you don't threaten something that would decrease international trade
using dollars, right?
And like the biggest headlines that people around the world were looking at
when they were, when they're contemplating the future of the dollar
is like, well, look, the U.S. seems comfortable to basically use the dollar as a weapon.
So like we'll remove your ability to use dollars and dollar-denominated assets.
In fact, we'll even confiscate from them if we don't like you.
And so that has actually caused people to, because of that threat,
because if I think that the U.S. might do that against me and my country,
then maybe I'll start using or looking at different currencies besides the dollar.
And so, I mean, it's just a great example of, I guess we'd call it unintended consequence.
But like you said, it could just be posturing.
A lot of people have been talking about tariffs lately.
And it's sort of, it's hard for me to comment on it,
because a lot of the proposals for tariffs and the rationale behind them,
while some of it is economic, a lot of it is not economic.
And really like what economics can say about tariffs is very different
than what political science can say about tariffs or in other arenas.
So like if you're using the threat of a tariff to try to get a country to do a certain thing
and act a certain policy or remove a certain policy,
that's totally different than the economic analysis of tariffs
and you're talking about specialization between countries,
comparative advantage and all that sort of thing.
And so it could be like a similar situation here where you're right,
maybe it is just posturing, maybe Trump is just trying to, you know,
force their hand, but it could be a bluff. Who knows?
Well, and I'm going to kind of push back a little bit on that,
because I think that one of the dynamics of this I think needs to, you know,
it's kind of interesting, right?
Because what essentially, that sort of Trump threat about the BRICS is, right,
is he is calling essentially for normalization of trade relations
with countries that there's been foreign policy escalation, right?
And yet the projection of Trump and he leaned into it heavily on the trail, right?
He's like, oh, there's no better word than the English language than tariffs, right?
Well, like if you actually believe that, right, if that is your economic policy,
then you would have subscribed that to protectionism,
but if you are a protectionist, then why is, you know,
then why are you projecting a desire essentially for more trade with BRICS countries?
And I think this is where kind of that tariff as a negotiation point.
I mean, we saw this with, I think, the, you know, him tweeting about Canada
and Mexico and, right, wanting to get Mexicans,
Mexico's cooperation with immigration policy or if not,
we're going to raise your tariffs, right?
You know, there's definitely a big aspect of it.
We saw this play out in a big time with the Trump first administration, right,
was tariffs essentially as a negotiation ploy,
an escalation for negotiations, sort of tactics that we saw in a number of aspects there.
But I think that's an interesting, you know, there's an interesting tension
between a desire to normalize trade relations with the BRICS
as a way of getting them to abandon dollar rivalries there
and with this notion of Trump as trying to establish a protectionist regime.
And I think if you actually look at, you know, to the extent that personnel's policy
is worth mentioning as well, is that one of the biggest proponents
for protectionist-style policies in Trump's campaign orbit
was Robert Lighthizer, who was part of the Trump campaign first time around.
He's kind of one of the true believers on the tariff side of things
pushing back against, you know, his minutiae and kind of the more status quo
sort of folks that he had.
Goldman Sachs guy was chairman of National Economic Council and things like that, right?
He is not in the administration.
Like, he wanted commerce, he wanted treasury, he got neither of those positions.
Instead, you do have, I can't remember his name at the top of his head,
but you have the transition guy that is at commerce who's a little more aggressive.
He's talked a little bit about the tariff issue more,
but some of the true trade hawks are not in this administration as it stands right now.
You have a little bit more of a status quo, I don't say status quo necessarily,
but kind of conventional wisdom sort of crowd there.
I mean, these are not people that, you know, his chair of National Economic Council
was, you know, a Bush guy, which, you know, kind of, you know,
you can snark at that a little bit.
But I think it's that aspect of international trade normalization
as a goal in trying to extract certain aspects of policy,
whether it's foreign policy angles, right?
Is that a carrot, essentially, for negotiations with Russia and Ukraine and things like that?
I think that has to be acknowledged as an aspect of that equation
because, again, there is an inherent tension between a protectionist Trump
and a, you know, I'm going to threaten your trade, Trump,
as a negotiations tool when it comes to the BRICS.
And when it comes to the spending side of it, though, like, it's,
to me, like, if we're going to measure the long term, you know, the success of Trump in four years,
it's going to come down to the measure that we started the show with, right?
Is it easier to buy a house in 2008 than it was in 2024?
And the Fed can't do that.
It's all going to come down to the spending side of things.
And so basically, the entire success is, is there genuine, you know,
is there an actual concerted effort with political buy-in to cut spending?
Is Doge, is Elon Musk, is Vivek Ramaswamy, is, you know,
Russ Vaughn, the OBM guy, are they successful at cutting spending?
That's the entire equation.
Is the U.S. capable of cutting spending?
And I feel like if we can't do it right now with this political,
if we can't do, if we can't cut spending in the next four years,
our political system is incapable, fundamentally,
systemically incapable of cutting spending.
And that's where everything comes down to is, is there,
is there any ability using every single tool,
these new billionaires that are in the Trump orbit,
all this sort of stuff?
Is that the ability to cut spending in the next four years?
And if we can't, then we're on the road to ruin.
But like that's where everything comes down to,
that's where all these, everything comes down to that single question.
And it's going to be very interesting to see how that project plays out.
Yeah, all the talking about bricks and everything,
it all just strikes so much of what's coming out,
like all this obsession about how we're going to fire federal workers
and all this stuff.
There's more government, there's more federal contractors
than there are federal employees.
That's just kind of dancing around the issue of this,
all this stuff about, oh, we can't,
they're already setting us up for failure.
They're already preparing us for failure by talking about
how it's going to be so hard to fire federal employees.
They could get rid of more federal workers
by just firing all the contractors
and you would be left with a small shell
and none of those people are protected by civil service.
So the whole, so that's just one way to distract away
from the real issue, which is cutting spending.
And the whole bricks thing strikes me,
it's just a distraction from the easy, lazy, fair way
to get more people to use the dollar.
How do you get more people to use the dollar?
Stop inflating the money supply, stop deficit spending.
You don't have to even abolish the Fed or anything, right?
And I think you've talked about this before, Jonathan.
It's right, just stop the Fed's ability to buy assets.
Just have the Fed stop buying up trillions
in mortgage-backed securities,
in government treasuries.
And you better believe that the next time
there's any sort of financial crisis or recession,
the Fed's going to be right back to that.
It's going to be doing it all over again.
And then you're going to have to start to see real doubts
about the dollar again.
So, yeah, I don't know.
My attitude is spare me all of the gestures
about international relations and stuff.
Just stop doing things.
Stop printing money.
Stop engaging in runaway spending.
This isn't rocket science.
And also, all of this other stuff,
talking about what other countries are doing, everything,
that expends capital, political capital as well, right?
There's only so many hours in the day.
You can talk about cutting spending,
or you can talk about making Brazil do what you want.
They have chosen to threaten Brazil
and talk about making Brazil use the dollar, et cetera, et cetera,
as how it's being framed.
That's fine, but they're just trying to distract
from the real issue of cutting spending.
And I completely agree, of course, though,
that if they can't cut spending now,
it ain't going to ever happen.
And I don't think it's going to happen.
I think the United States has locked into a downward spiral
just like the Soviet Union was in the 80s.
With all those attempts at reform,
it all led to the same place.
Ultimate disillusion, political disillusion.
And economic chaos.
And ultimately, hyperinflation,
which is what occurred at the end days of the Soviet Union.
So that's what...
America's just going to split up into smaller pieces.
It's going to go through a period of extreme economic trial
because I just don't see how they're going to be cutting
a trillion dollars.
There's nothing about the Trump administration
that would lead us to believe any willingness
to do any of this.
It was under the Trump administration that we started
to see trillion-dollar peacetime deficits
during an economic expansion.
They were running like 900 billion deficits.
Well, we were told everything was great.
The Fed told us in 2018, 2019,
the economy's great.
It's peacetime, theoretically.
And there's no reason to run deficits that size.
And yet they did.
And then, of course, for 2020,
everything went through the roof in the Trump administration,
right?
He wanted to ram through massive new spending bills during COVID.
That's when he tried to get Thomas Massey thrown out
of the House of Representatives
because Thomas Massey dared give a damn about the U.S. Constitution
and Trump said, screw that.
No, we have no time for the Constitution.
We have to spend a trillion dollars.
And I mean, that's the real dynamic of this administration.
And yeah, I'm predicting no meaningful cuts to spending
and it's just going to continue going where it's going.
I see the Trump administration is kind of the early birth pangs.
These are the early contractions in a process
that brings about a new political system.
But we're so far from any sort of real meaningful reform
because no one's willing to do what it takes to actually change anything.
So it's going to be lots of talk about the administration is going to come up
with a dozen different ways to preserve the U.S. economic system
and the dollar without actually doing the thing that would preserve the dollar
and the American economic system,
which is reducing the role of the U.S. federal government in the economy.
They just have no interest in doing that outside of some deregulation,
which would be great and will help.
But it's just nothing compared to the monetary and the spending issue,
which is so far out of control, so wild, so insane by historical standards
that that's where the real problem lies
and I just don't see any willingness to do anything about that.
Well, Merry Christmas everyone.
If that doesn't put you in a cheery Christmas spirit, then I don't know what will.
But I completely agree.
It looks like there's some political will to decrease regulations.
Like you see Elon and Vivek on Twitter and they're chomping at the bit
to take apart some agencies, take apart some regulations.
But one thing that we haven't mentioned in this episode
is that a huge chunk of government spending is stuff that would be untouchable by the doge,
which is like social security, Medicare, Medicaid.
I mean, they might be able to do something with defense spending,
but even that is a stretch.
I don't think that there's not enough political will to touch the defense side of things.
So, yeah, it's, I mean, to use an overuse analogy,
a lot of it might just be rearranging the deck chairs in the Titanic.
Well, and going to the question of political will,
this is I think the larger issue is that it really doesn't matter what the administration is.
If you were to look back and you look at pre-COVID, COVID being what it is,
if you look at the budgets that the Trump administration put out regularly,
there were spending cuts.
They weren't significant, but there were spending cuts.
The problem is the budget process is controlled by the legislature
and the legislature has no interest in getting rid of studies
studying the cocaine habits of quails in their sex drive, right?
Because somebody, some congressional district, benefits from that money.
And so that's what's going to be interesting is what is the stick that is,
so let's say that Elon and Vivek,
let's say that there's genuine desire within the Trump administration itself,
within the White House to do spending cuts.
Then the question is what tools do they have to browbeat Congress,
to browbeat the legislature into following through?
And that's going to be the interesting question.
And that's where Elon on the board is the most interesting player here,
because his politics is as new-refound as his interest in all of this.
Is this a hobby or is this something he's actually going to dedicate the next couple of years to?
Because this guy is seven times wealthier than George Soros.
And we've seen the ability of George Soros to shake up things,
the little niches that he wants within the political process.
Is he going to go out there and threaten every single Republican congressman
that doesn't go along with spending cuts?
Is there anything procedurally, right?
Like the one area where you actually see government programs shut down
is when they do sort of, when they close down military bases.
And you have to have buy-up up front because you know whenever,
whenever you actually know what bases are going to be shut down,
there's going to be a move to protect it, right?
So you have to get buy-up up front to let the process play out.
And that's where it's kind of small potato-y sort of like C-span level politics, right?
But like, there was an opportunity, very small,
when like the Republican House caucus was like creating their rules,
where like if you vote against, like they could have put it in that,
if you vote against those recommendations and you lose all your perks, right?
You can't go to the gym or something like that, right?
There's little elements in terms of the procedure up front
to force Congress to go along with any proposals that come out from this force.
And so far they haven't done that yet.
Now, are they? Well, we'll see.
But like that's where everything's going to come down to
is can they browbeat Congress into following through on cuts
presuming that the administration is serious about those cuts.
And those are two variables there.
I think the first variable is even a bigger question mark than the second one.
But like that, that's the problem though,
is that it doesn't matter who you elect as president
when the entire system of government is built upon
bringing bacon back home to your district
so you don't lose elections
or even worse, lose the respect of your local Chamber of Commerce
and whatever, you know, specific donors that are unique to you.
And that is the problem, is that we are systemically structurally built
to have the government budget go up and up and up
until something radical changes there, everything else is rhetoric.
Well, on that, there is one thing that the president can do.
I recently, or possibly, I was listening to Rand Paul
he was on Larry Kudlow's show and he had this interesting idea
for Trump to actually renew, propose to renew
all these regulations and programs
and that would actually force a vote on those things in Congress.
So a lot of these programs and regulations are built with
like specific, you know, time horizons where they have to exist
and like you can't vote on it until you actually
like get to the end of one of those time horizons
but the way that Trump can actually force Congress's hand
to actually do some voting on all these things
is counterintuitively to renew them today.
Like basically say, okay, yes, we are going to do this program.
I don't know all the politics of it,
but if he goes in and he renews all of these regulations
and programs and agencies, then that would actually
force Congress to go in and do an up or down vote
on all these things, which, I mean,
that would be a circus I would love to watch.
Well, yeah, God forbid Congress be involved in anything
that actually affects your daily life.
I mean, that's basically the federal government's on autopilot,
right, is they passed all of these new laws
creating regulatory bodies and then it just becomes
the domain of the administrative state,
which determines what all the regulations are.
They have their own internal judge,
their own internal legal system that determines all of that
and some progress has been made on that,
like with the Chevron decision being overturned
and that sort of thing.
And we do have yet to see that play out.
I think maybe there's some good stuff from the administration
on that in terms of the regulatory state
and again, that will help.
That will be a move in the right direction,
but it's not going to fix the business cycle issue.
It's not going to fix the monetary inflation.
It's not really going to make,
it's going to make life marginally more affordable,
but it's not really going to solve any fundamental problems.
One thing that will be interesting too,
and this will be something we can monitor for the next month,
is what does the Biden administration do
to proactively harden some of these aspects
of the administrative state of civil service rules
and things like that.
I already saw that I think it's the Social Security
Administration Union was able to extend their remote work package
going through 2029.
Funny how that day comes up.
There was a project.
I think it was kind of a James O'Keefe's group,
of EPA people talking about just pushing grant money out
into their kind of special NGO classes.
They're basically just looting in the Treasury mode right now,
just taking the gold outside of the actual administration itself
because you don't want Trump people putting it
in the hands of allies right now before getting it done.
I think the next month is going to be very interesting
because for all of our cynicism,
I think that there are people in D.C.
who have gotten rich and fat off these things
that at the very least they recognize the next four years
expands the level of possibilities
than perhaps in the past.
I think they are taking these threats very seriously
and so their kind of proactive attempts to counteract
or to protect against any attempts at serious reform
are themselves going to be very interesting
and telling in its own right.
That's without even getting into the pardon issue
and how many deep state crooks are going to end up getting
pardons before Biden lays office.
But I think that's going to be a very interesting story
for the next six weeks or so until we get to the Trump
inauguration because what is the deep state's reaction
to the possibility of change going forward
is going to be very, very telling
on how they view things going forward.
All right.
Well, we'll go ahead and wrap up with that then
for this episode of Radio Rothbard.
Thank you everyone for listening.
Thank you, Jonathan, for joining us today
and we'll be back next week with more.
We'll see you next time.