Washington, DC -- (ReleaseWire) -- 05/09/2016 --Dawn Bennett, Host of Radio Show "Financial Myth Busting," Interviews George Gilder, Writer and Economist
DAWN BENNETT: George Gilder is the publisher and editor-in-chief of the Gilder Technology Report. In 1986, President Reagan gave Gilder the White House Award for Entrepreneurial Excellence and he was considered Ronald Reagan's most quoted living author. In Gilder's recent book The Scandal of Money: Why Wall Street Recovers but the Economy Never Does, George reveals a radical new explanation of the U.S.'s economic issues as well as exposing the corruption at the Federal Reserve, Washington power brokers and Wall Street's too big to fail mega banks. He details how a small group of elites have manipulated currencies in crises to stifle economic growth and crash the middle class, and that's where I want to start today. George, welcome to Financial Myth Busting.
GEORGE GILDER: Great to be here.
BENNETT: Why does Wall Street recover from recessions, or these types of recessions and Main Street never does?
GILDER: Because of the financialisation of the economy, the futile effort to replace production with finance and savings with credit, and it doesn't work. We've created this closed loop economy where the Fed creates money and, by their own data, 62% of it goes to the banks which in turn use it to purchase government securities and finance the government. And two thirds of the rest goes to the top five hundred corporations which use it not to invest these days but rather to buy back their own shares and then cosmetically improve the stock market. It's a closed loop economy between Washington and Wall Street that leaves out Main Street.
BENNETT: Your book centers around something we've talked a lot about on the show, which is even as the government has literally spent trillions in fiscal stimulus and printed trillions of monetary stimulus, the result is merely creating this illusion of a recovery. Why is this recovery not like a genuine recovery?
GILDER: Because it's based on zero interest rates which zero out the future. Zero interest rates essentially mean that money is free, and whenever you have a free good, it has to be distributed by a queue and only the people on the front of the line get any. And as a result, this is the first recovery on record where small businesses have actually reduced employment. In other words all the gains in employment have come from the biggest companies and there has been no entrepreneurial revival, and as a matter of fact we even discovered that young people now have the lowest levels of entrepreneurial interest in the records of the Pew poll. And many of them are attracted by the socialism of Bernie Sanders. So it's just after decades of suppressing manufacturing, overtaxing corporations, spreading myriad regulations across the economy, we've now reached a point of stagnation and we try to paper it over with interest rate reductions and money printing and money shuffling, and it no longer works.
BENNETT: You mentioned Sanders and socialism here in America, it seems to be growing, or the interest in it. Do you think capitalism is in jeopardy, and if so who do you think can save it, is it small business?
GILDER: Small business is what saves capitalism always. Capitalism is about the future. And the problem is we're using money from the Fed to bet up the assets of the present and deplete the future. But I don't think capitalism is in jeopardy. The private sector in China has grown to such an extent that China's government is now only 17% of GDP, which is about half what our government is. The communists have lower levels of government than we do, and they have fewer regulations on their business and they promote manufacturing rather than punish it.
BENNETT: So you've written that China has managed to avoid America's monetary mistakes by avoiding the so-called monetarism approach whereby money is created ostensibly to stimulate demand. And you also write that China's favorite economist is actually the supply-sider Robert Mendel.
GILDER: That's true.
BENNETT: What can Mendel teach today's Fed about money?
GILDER: Mendel was a supporter of Bretton Woods gold exchange standard and he believes in fixed currencies. And while Donald Trump and others attack China for supposedly manipulating their currency, Hilary and Bernie Sanders also attack China for manipulating their currency. In fact the reason China has done so well is that it refuses to manipulate its currency. It has pegged its currency on the dollar and created a dollar zone where trade could flourish. And this has been the great coup that the Chinese have followed, they followed Mendel, the supply-sider, and that has greatly benefited their economy.
BENNETT: You're known as one of the founders of supply-side economics, which of course Ronald Reagan famously utilized to engineer the 1980s economic boom here in the United States. But the focus on supply-side these days seems to always revolve around cutting marginal tax rates, but equally important is the role of a strong currency, and Reagan himself was a gold bug. Why has gold standard become so far removed from today's conversations about money?
GILDER: Because we've become so dependent on this closed loop between Wall Street and Washington and the Federal Reserve, so we no longer even have money, we don't any longer understand what it is. And economists believe that the gold standard hopelessly failed during the Great Depression and can't be revived. Despite the fact that today new digital technologies have made it possible to have a gold standard effectively, based on the Bitcoin Blockchain which is a new technology that allows us to have a currency on the Internet, a new transactions layer in the internet software stack that would create a new global currency that mimics gold, as the inventor of Bitcoin wanted to do.
BENNETT: George, I know you're a fan of Bitcoin. I'm wondering how actually does this play into this conversation. You talked a little bit about it. Of course, the upside of Bitcoin is there are no central banks arbitrarily adjusting the quantity, but isn't it also not as good as a gold standard since there is no underlying intrinsic value beyond some ones and zeros?
GILDER: This is the belief about gold that somehow gold is money because it's really jewelry. But the fact is that jewelry is valuable because it's really money. And money isn't valuable because it's really jewelry, jewelry is valuable because it's really money. And money is a transactions medium and a store of value and it actually is damaged to the extent that it's used as a commodity. The commodity value of gold is irrelevant to the role of gold as money.
BENNETT: George, one of my favorite quotes in your book, The Scandal of Money, you wrote, "A million paper dollars held since 1913, when the Federal Reserve Bank was created, would be worth $20,000 today, down 98 percent. A million dollars of gold in 1913 would now be worth $62 million." I don't know if the listeners know this, but the average lifespan of a fiat currency is approximately 28 years. So no fiat currency has ever survived much longer, yet today the world seems to only have fiat currencies and everyone seems to be operating around the idea that this is the smart way to manage an economy. When the system is this entrenched how do you even begin a reform?
GILDER: I believe that reform is inevitable, not merely desirable. I think the Chinese will probably lead it. They are the leading importers of gold in the world, the chief of their central bank is sympathetic with gold. They're using it as a reserve as bankers around the world still do, it's the chief reserve currency outside the dollar. And the Internet desperately needs a global currency and a transactions layer and transactions and trust layer, and that's emerging now through Bitcoin which was explicitly designed to mimic gold, that's what Bitcoin does. So if we have a new effective gold standard on the internet which is steadily increasing its share of global commerce and we have the Chinese and other countries gradually basing more and more of their currency value on gold, more and more of their reserves in gold, I think that gold never really went away. It's only the economists who back in 1971 advised Nixon to leave the gold standard who believe that gold would disappear as money as years passed, but rather than gold disappearing I think we're going to discover that currency trading, which is the replacement for gold, has become a scandal of money. It's $5.3 trillion a day of currency trading, and it doesn't even yield a value more stable than the economic activity that it is supposed to measure. So whenever somebody tells you about how bad the gold standard was, despite its sustaining 200 years of economic growth and progress, you should ask them what about currency trading, it has been expanding massively while the global economy goes into what's now called secular stagnation, some permanent slowdown.
BENNETT: George, so many Americans today are so tired of struggling economically, and in your book The Scandal of Money you offer up a solution that goes beyond supply-side economics. Would you dive a little bit deeper into that resolution?
GILDER: It's amazing how powerful is real money. Berner Erhard after WWII went back on the gold standard, and the day after he announced it, the stores began to magically fill up with goods, people were willing to trade and people willing to invest and commit to the future. The problem with fiat money that's changing day by day is that it closes down the horizons of investment. Today we speak about investment by the flash boys in milliseconds. That has nothing to do with a capitalist process of savings and long-term savings directed to the creation of capital goods that produce a yield in the future and actually enrich our future. And so I think solving the money problem will once again unleash entrepreneurs on the frontiers of the American economy.
BENNETT: Do you think that a major crash is coming? We have about a minute left.
GILDER: I don't know. I think there's too much prediction of crash and catastrophe. What we have is stagnation with no growth and no opportunity and people leading slow motion lives. Like Japan for 30 years has been following this policy of relying on money expansions and credit instead of entrepreneurial creativity and progress. So I think it's a scandal of money that closes off our future and if we reform money, create real money again based on Bitcoin and gold, as I outlined in The Scandal of Money, our economy can recover.
BENNETT: George, the listeners can get your book on Amazon?
GILDER: Sure. Or Barnes & Noble. Any bookstore. It's going out to all the bookstores now.
BENNETT: George Gilder, thank you so much for being on Financial Myth Busting.
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Dawn Bennett provides individual investors, corporations and foundations with holistic investment strategies. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.