Washington, DC -- (ReleaseWire) -- 02/05/2015 --BENNETT: Logan Albright is the Research Analyst at FreedomWorks, a conservative and libertarian lobbying group based in Washington, Dc and a writer and editor at the Ludwig Von Mises Institute of Canada, which is an acknowledged leader of the Austrian School of economic thought. Logan recently wrote about Obama's State of the Union speech, which he referred to as 'a Study in Bubbles.' Logan, welcome to Financial Myth Busting.
LOGAN ALBRIGHT: Thank you for having me.
BENNETT: At around 18 trillion dollars, our government is in massive debt, our education system is abysmal, and our homes provide very little protection against government intrusion. The world just seems to be upside down.
ALBRIGHT: What I think is striking is the refusal, or inability, to learn from past mistakes. We're just about 7 or 8 years away from the financial collapse in 2007/2008 of the housing bubble, and here you have the president addressing the entire nation and basically claiming credit for implementing the exact same policy that lead to this, that type of bubble. And not just the housing sector this time, but also the manufacturing sector and the education sector.
BENNETT: Obama said that he's going to soak the rich in order to reward the middle class. That reward? Two years of free community college. Is this yet another attempt to foster the same old agenda of robbing the middle class and making them dependent on government handouts and bank loans?
ALBRIGHT: Well, I think it is and I think more and more you see that as they want to destroy the family and want more dependence on government. But more than that, I think it's devaluing our education system by creating these very cheap, very low rate interest student loans, offering free community college, that sort of thing. It's creating this education bubble. There's over a trillion dollars in student loan debt right now. The average student, 25 years old, that has debt is $33,000 in debt. And instead of trying to address that, they keep making the loans cheaper, they keep trying to issue more money to these people and eventually that's going to burst and that's going to create some kind of financial chaos.
BENNETT: It seems to me that when Obama makes these grand proclamations, he never speaks about the details, about the real facts.
ALBRIGHT: Right! I think that's because his policies are not supported by facts. If you look at the history, if you look at the history from a hundred years ago when the Federal Reserve was founded, this Keynesian system of flooding the market with money has resulted—over and over again—has resulted in bubbles, it's resulted in these collapses. And instead of trying to address the fundamentals of the economy, it's easier for the president just to promise 'pretty good' to people and to say that everything is OK, to whitewash the reality of it, instead of addressing the fundamentals of the economy.
BENNETT: In your article, you mention three sectors that are ripe to burst. The student loan credit market seems to be closely mirroring the housing bubble, with the government pushing an overextension of credit. Do you think this might be the first of those sector bubbles to pop?
ALBRIGHT: I think it probably will be. I think it's the largest and it has been going on the longest. But it remains to be seen what's going to happen, because you have all three of those sectors—easy credit, easy money, and prices rising. One of the things the president took credit for was housing prices going back up again. You don't want housing prices to go back up. They were so high in 2007, that's why it went to this collapse, and he's implementing these foreclosure prevention programs and these mortgage refinancing programs, spending billions of dollars on this, and again, you're just pumping up the housing prices. And prices are important signals to investors, to consumers. You don't need to know that there's a frost in Florida to know that the price of oranges has gone up, because signals are there. And when you have the government intervening and pumping up these prices artificially, you are sending the wrong signals to investors, and eventually, that has to catch up to them, and that is why we have financial crises.
BENNETT: In November, President Obama was laying out his vision for new tax hikes on the rich to pay for these new programs for the poor, but didn't the voters reject that?
ALBRIGHT: Yes, I think that's interesting. One of the things in the State of the Union speech you saw was a complete refusal to acknowledge the change in politics, the change in the composition of Congress, the election that just happened. He didn't mention that all. He acts like everything is going on as usual. If you look to the past, when George W. Bush lost Congress, he gave a long, very consolatory speech, acknowledging that the Democrats will now take control of Congress, and saying that he wanted to work with them. You did not see anything like that from the president at all. He just acted as if nothing had changed, and I think he's just out of touch and doesn't realize where the American people are, or he doesn't care.
BENNETT: It's only January 25th, and he's already issued no fewer than 7 veto threats—that's frankly scary. Does he think he's actually going to accomplish anything with this brash style, or to your point, does he just no care?
ALBRIGHT: I don't think he does, I think he comes from the position he had in the past, he's used to people doing what he says. He's not used to having to compromise or work with people, and I think that it's been much more difficult than he realized being president, having to work with Congress, so he's taking this route where he's going to go around Congress and just issue executive orders on everything, and do whatever he wants. And unfortunately, so far, it seems to be working for him. There hasn't seem to be willingness or an ability in Congress or in the judicial system to stop him from just doing whatever he wants.
BENNETT: Why is that?
ALBRIGHT: Because as long as it's working, I don't see the reason why he will stop.
BENNETT: But why aren't they stopping him in Congress? Even his own party has to know that what he is doing is wrong, so why aren't they stopping him, or challenging him, or talking to him?
ALBRIGHT: I think a lot of it has to do with—Congress has been for a number of years just ceding its authority to the executive and the judicial branches, and it makes it easier for representatives to avoid accountability when they're running for office. They can say, 'That wasn't my fault, the president did it, or a regulatory decision did it, or the court did it,' And they don't have to stand up and vote on these things and take accountability for these measures.
BENNETT: He treats them like children. He basically reprimands them, and they just take it. Truthfully, I think children would push back more than most of our representatives have.
ALBRIGHT: It's very strange. And in the last few years, you saw him basically reprimand the Supreme Court. He was sitting right in front of them. That's sort of unheard of, for the president to do that, and mystery to me is why no one seems interested in holding him accountable.
BENNETT: After Clinton lost the House in 1994, he changed course and came to terms with the Republicans on a host of notable issues, which helped him finish his presidency in a very strong way. Obama, on the other hand, just continues to dig in his heels. How should Republicans respond, in your opinion, knowing that the media inevitably is going to paint them as obstructionist for daring to espouse ideas that differ from the president?
ALBRIGHT: I think the best thing for Republicans to do is to just send as many good deals to Obama's desk as they possibly can in this Congress. Pass everything they can, pass an appeal to the Affordable Care Act, Obamacare, pass lower taxes, pass all the stuff that people at the electoral level have demanded and voted for. Send it to the President's desk and then we'll see if he vetos it or not. I mean, if he does, then heading into 2016, the Republicans in the Congress can say, we passed all this key legislation, the Democratic president vetoed it, voting for the Republican you will get the all stuff you wanted.
BENNETT: If gridlock is inevitable for the next 2 years, do you think that Congress has just given up?
ALBRIGHT: I worry that they have, because coming out of the Republican strategy retreat last week, they seem to be willing to make a lot of concessions, but I don't understand why they're making these, or they're not interested in repealing Obamacare anymore. They want to do these small-ball fixes. And I think yes, you're right there's going to be a gridlock right now. It's inevitable because the president's going to veto anything that they send in and because they don't have a veto-proof majority. So they just have to work for what they can do right now. But I think by not attempting the big reforms, by not showing the people that they are willing to really work hard and really come up with solutions to these problems, they're just sabotaging themselves in the future.
BENNETT: Why have they given up on the big reforms? What did you pick up as the reason for them walking away from that?
ALBRIGHT: I'm not quite sure, I don't know why this leadership, Mitch McConnell and John Boehner, are just not interested in doing it. I think John Boehner has very little control over his caucus in Congress and there are still a lot of moderate Republican who don't want to do these things. And a lot of the big reforms that voters are excited about are still very divisive among the Republican party, on surveillance reform for example. People are scared about national security and whereas a lot of more Libertarian Republicans who really want to see surveillance reform so they can stop the NSA from spying on us, we still have the more traditional hawkish Republicans who are afraid and they want to keep these in place because they fear for our National security.
BENNETT: There's a widespread belief that the less Washington does, the better America fairs. Do you think that's what their take is now?
ALBRIGHT: I think there's a lot of truth to that, but I also think that if given the opportunity, given the mandate from the voters, it doesn't make any sense for Congress not to try to act to solve these big problems that are facing America. Yes, there are a lot of cases where they act when there needs to be no action, and they try to solve a problem that doesn't exist because they feel like it's their job to make laws so they better make laws, but in this case, they've been given a mandate from the voters and to ignore that, I think, is suicidal.
BENNETT: I agree. To me, every time Obama gives the State of the Union, or any speech, many people seem to feel he's losing credibility. I wonder if Congress feels like they, too, have lost credibility because they've been unable to get the president to do anything over the last six years.
ALBRIGHT: I think part of the Senate also lost credibility and people have lost a lot of faith in Congress as you can see from their approval ratings. The president's approval ratings seem to have been picking up now, I'm not really sure why. Maybe it's just because of the national security concern.
BENNETT: The dollar's going up, and oil is getting cheaper!
ALBRIGHT: Yes, I think that's what it is. People are not happy with Congress right now, which is why they need to do something to show that they're worthy of their office.
BENNETT: We've been talking this week about the Federal Reserve's decision to embrace Bernanke style money printing.
BENNETT: I know you work for a variety of free market institutions. In order for a free market to properly function, the currency needs to be a dependable measuring stick, not arbitrarily dictated by central planners.
BENNETT: Do you think the issue of money—America's and indeed the world's—receives enough attention, especially as we head into another presidential election?
ALBRIGHT: No, it doesn't and it's one of those issues that's difficult to get the average person to care about. It's complicated and it's financial and it's not something that they really see affecting them on a daily basis. But it is really important because what people need to realize is that money is a substitute for goods and services of real value. It doesn't have value just because it has numbers printed on it. It has value that represents goods and services. And so when you have central banks flooding the markets with this easing money, it's not best for the actual goods and services, that actual production value. So it's meaningless that it causes prices to rise, it causes the devaluation of the currency and I think people don't realize how dangerous that is.
BENNET: Do you think that fiat currency is eventually going away? On the Tonight Show this week, Bill Gates talked with Jimmy Fallon about digital currency and how the underlying principles and makeup of it are here to stay.
ALBRIGHT: I don't see digital currency as a thing. My preference would be to see a variety of competing currencies. So you have a gold backed one, you have a silver backed one, you have a digital one—and we can see what the market decides is the best currency, because then people flee currency that shows signs of instability and be attracted to ones that are very stable and very reliable. I don't know if we're going to see it in the future. The Federal government seems to have no interest in legalizing gold as a medium of exchange. They've made some token efforts to try to crack down on BitCoin. I don't know. It remains to be seen if at any point it's going to successful. I do hope that that's the future.
BENNETT: As do I. But our state seems to have no interest in legalizing gold and silver coins as currency.
ALBRIGHT: Well, I hope they do that in the future for sure.
BENNETT: Also with this de-dollarization that seems to be occurring—for example, Iran, this week completely abandoned the U.S. dollar in foreign trade—do you think this is sending a message to anybody in our government?
ALBRIGHT: I would hope so. And it has to do with the debt as well. As our debt continues to grow and we continue to pay more interest on it, people are going to becoming increasingly wary of the dollar as the reliable means of exchange and people will probable flee it more often. And if there are good alternative out there—gold-backed currencies, digital currencies—people will increasingly move to those. So I think you may see that in the future.
BENNET: With the gold that's being picked up by China and Russia, do you think it's possible that they might be the first to standardize their currency, even if it's a small amount like a 1/16th backing?
ALBRIGHT: It's entirely possible. China has got a number of financial problems to deal with, so they may see moving to gold as a solution to that.
BENNETT: And Russia? Russia just pulled itself out of the petrodollar.
ALBRIGHT: Right. We'll see. It's certainly possible that Russia will move towards gold.
BENNETT: Any other country you're seeing out there? Right now, it seems gold is technically in charge. It broke through $1300, even if it didn't stay up there, and that's a 5 month high. Is this an indication of people paying more attention to non-fiat types of currencies?
ALBRIGHT: Right. Well I think the rise of gold is an indicator that people are not confident in a fiat currency so they're maybe doing something solid. So one thing that's a little worrying to see gold go up so high that it makes you think that the story will be like this, some kind of collapse from it soon. But on the other hand, this is encouraging, when people are moving towards a more reliable currency.
BENNETT: I keep coming back to gold because I think people need to pay attention, even if they don't pick it up. For example, the Bundesbank announced the repatriation of about 120 tons of gold from Paris and New York on Monday. Is that an indication to you that countries are trying to get their gold holdings closer to them in case there's chaos in the currency markets, or from terrorism? Again, is this a move toward non-fiat currency?
ALBRIGHT: Again I think, yes, that's definitely a possibility and I think that movement towards gold is more than anything else a hedge against a possible catastrophe or calamity in the future. So the more uncertain people are about terrorism, about the economy, the more they're going to grab gold, because gold has always been reliable means of exchange if you need it in any emergency. So I think that people gravitating towards gold right now, is probably a sign of global instability and fear more than anything else, but I hope you are right, that we will see people moving away from fiat currency.
BENNETT: From your piece 'Obama's State of the Union: A Study in Bubbles', what is one bubble that we haven't talked about?
ALBRIGHT: I think that the manufacturing sector is something to be concerned about because we like the manufacturing sector, we think 'made in America' is good, we want to support American car companies, but you have the Federal Government issuing bailouts, billions of dollars going to these companies that consumers just are not just that enthusiastic about. And it's like I said before, prices are a signal. And if you are artificially pumping up the prices of these manufacturing goods or manufacturing wages, you're taking that money out of the private economy. Instead of going to the most efficient use, you are going to these industries that people will start getting enthusiastic about. I'm worried that's going to leave them out our investment and another type of bubble that will eventually burst.
BENNETT: When you are talking about consumers, are you saying U.S. consumers or world consumers?
ALBRIGHT: I think both.
BENNETT: Both. So do you think that emerging market consumers are actually slowing down? I know that U.S. consumerism is all but dead, but world consumers are actually what's been keeping the car industry going.
ALBRIGHT: Right, and I think that there's more interest in foreign-made cars than in our own American cars, and I think the fact that they need to issue these billion dollars bailouts to keep these companies afloat shows that they are not economically viable and they should be allowed to adjust properly and restructure if they need to rather than being held up by the government.
BENNETT: Logan Albright's piece, 'Obama's State of the Union: A Study in Bubbles,' can be found at Freedomworks.org. Thank you, Logan.
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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.
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