CW 677 - George Gilder - The Scandal of Money, Why Wall Street Recovers But The Economy Never Does, Discovery Institute, Supply Side Economics, Speechwriter for Ronald Reagan

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Welcome, welcome, welcome listeners from 164 countries worldwide. This is your host, Jason Hartman. Thank you for joining me for episode number 677. 677. Our guest today will be a returning guest, and that will be none other than the very famous Mr. George Gilder, talking about his new book, the Scandal of Money. I did this interview, gosh, I want to say a month and a half, two months ago, and I thought we had gotten this into the, into the lineup, but apparently we haven't. So I really wanted to get this one out right away, but scheduling probably meant we needed to put something else in front of it. So here we go. We have our contest winners for the Cincinnati Market area Creating Wealth Seminar and property Tour. And we will announce the actual names on the next episode, but the winners have been notified. So if you entered the contest, please be sure to check your email, check your junk folder, check your social folder, your promotions folder, in case. You know how things get sorted up by computers nowadays, the whole world is being controlled by a bunch of algorithms.

What are we going to do about that? You know, about a year and a half ago, I, I think maybe somewhere around there, I listened to a really interesting audiobook on how algorithms. And by the way, George Gilder coincidentally talks about this kind of stuff as well. He talked about it on the first episode and I can't remember if we touched on it in this one. But algorithms run the world. It is mind boggling. And what's really scary about this stuff is these algorithms are secret formulas, yet they dictate so much of our life. I mean, look at the recent fake book sc. Oh, I meant Facebook, where they were not showing in equal time conservative political news and only serving up bad conservative, negative conservative political news, which generally the media does in general, of course, but Fake Book and Mark Efferberg, as people are calling him now say that. And so you know, that algorithm is secret. Google's algorithm is secret. Bing's algorithm is secret. And all of these algorithms control the world. They control the information we get, the way we're able to spread and share information. It is an amazing time to be alive, as you know, but it's also a pretty scary time and we have to be forever vigilant about this kind of stuff because no matter what side of say I use the example of political talking about Facebook or Fakebook and their recent scandal, but, you know, you could be on the other side of that next time, right? They could be on the other side of it. This is important stuff, folks. And I saw an article about how Zuckerberg invited a bunch of conservative thought leaders to the Facebook headquarters to talk about the issues. And, you know, deny of course, that he was doing this, which I have my doubts, Mark, but listen, I love your product. It's a great product. You've been a great success. But man, censoring the news, that's. That's pretty disgusting. I hope you're not doing that. But he invited them all to Facebook and, you know, it was interesting watching the picture because all of them are sitting there with big Facebook shopping bags, like a big gift bag. So they give them a big gift bag, basically bribe them not to be upset about this, I'm sure, and here we are. So anyway, suffice it to say the whole world is being controlled by an algorithm. On Flashback Friday, the last episode 676, we reran a show with Scott Patterson about high frequency trading. He's a Wall Street Journal reporter and author of the Quants and Dark Pools. That was a fascinating interview, by the way, folks. If you are one of these, there are a couple of people out there just like two of them. So I'm probably not talking to you that admit to sometimes breezing through the Flashback Friday episodes. You should not do that.

Bad, bad, bad.

You must listen to those. There's some really good stuff in there. It's cool to go back into my archives and pick those out for you. I mean, they're hand picked by yours truly, so I hope you at least would appreciate that. Right? Make sure you listen to those Flashback Fridays. There's some good stuff in there, some real gems, and that last one is no exception. And really well the one before that, Monetary Futures and a History with master economist Martin Armstrong. One of our celebrity clients is a huge fan of Martin Armstrong. He follows his work. That guy's super interesting. John Gray, Men are from Mars, Women are from Venus on a 10th episode flashback. So there's some great stuff in there. Do not miss it. Properties. So I am doing another 10:31 exchange. Sometimes I do the refi till you die program, but sometimes the 1031 exchange. And getting two for one program is the better option. And we're going to dive into this in more detail on a future episode, maybe even the next episode, if we can get a little talk together about this, because I think it's really important for you. Many of you of our thousands of clients have the absolute good fortune of meeting us many years ago. And now you've made a lot of money. So congratulations. And it wasn't us. We were just here to help you. It was you because you were willing to make the decision when other people were fearful and jump off the sidelines and buy some properties. And now they've treated you well. You've made a lot of money. They're highly appreciated. So. So the question is, should you refi till you die and get that equity to work that way, extract the wealth from your properties that way, or should you do the two for the two for one program where you exchange one property, you sell it on a 1031 tax deferred exchange. I did two of these last year. One big, huge one with that apartment complex. Big giant deal sold for, I don't know, what do we sell that for, like 8 million bucks. And we bought two properties with that one. Another apartment complex, a bigger one, 136 unit complex and a mobile home park. Two for one. Okay. And I did it with a smaller property. I sold one that was highly appreciated. I think I sold that for, I want to say, like $215,000. I bought two Memphis properties with that one and I'm doing it again. This is a fantastic deal. Cash flow improves by about a third. Almost somewhere in that ballpark, it's a pretty great deal. So go look@jason hartman.com properties jason hartman.com properties and we are going to get a couple new featured markets up there. As soon as Brittany gets to that, we're going to have that page updated for you. But you can see them all on the map. You know, we've got the Quad Cities. We've got. We're doing a lot of business in Cincinnati, generally. Cincinnati between Cincinnati and Dayton Market. We've got our event coming up there. You can register for that@jasonhartman.com events. And if you are a winner, congratulations. We'll announce you on the next episode. But you got your emails on that, so we will look forward to seeing you there. And let's dive in today with our returning guest, Mr. George Gilder.

It's my pleasure to welcome a returning guest and that is Mr. George Gilder. I've been following his work for about 18 years or so. He has a brilliant way of looking at the world. He's co founder and senior fellow at the Discovery Institute, original pillar of supply side economics and former speech writer for our past president Ronald Reagan and author of the classic book on economics, wealth and poverty. He's also author of a new book and you're going to be fascinated by this one. It's entitled the Scandal of why Wall Street Recovers but the Economy Never Does. George, welcome back. How are you?

I'm fine. It's exciting getting a scandal of money underway.

It sure is. Well, as you may recall, I like to say that Wall street is the modern version of organized crime.

And when you combine it with the government, crony capitalists and the Federal Reserve, it probably gets even better. I guess Main street doesn't stand too much chance of getting any of this money trained, does it?

Yeah, well, you know, the Federal Reserve and the Obama administration together I think has accomplished a covert socialist coup and managed to blame the results on capitalism. And it's a real catastrophe and it's got to be reversed. But it won't be reversed unless people identify it for what it is that the Fed has created a kind of closed Loop economy.

62% of all the money it's created and its balance sheet has expanded ninefold in the last seven or eight years. Wow, that's a amazing 62% of the money has just gone back to the government at zero interest rates. And two thirds of the rest has gone to a few Fortune 500 companies who have used it not to invest, but to buy back their own shares or sometimes buy the shares of rivals, thus reducing competition and, and potential growth in the economy. So it's a scandal of money. And it's.

Implemented by a runaway.

Currency trading industry. That's the biggest industry in the world is currency trading. It's 73 times larger than all the trade in goods and services around the globe put together. It's 26 times global GDP. It's hundreds of times larger than all stock market trading. And yet it doesn't create a value for money that's more reliable or More.

Less volatile than the economic activity that it's supposed to measure. It provides no measuring stick. It deprives savers of income with zero interest rates policies, and it fosters centralization all around the world. It allows central banks to essentially nationalize their economies.

This is just unbelievable, the way this works. So, so basically, you know, I've said many times, George, that there's the Main street economy and the Wall street economy, and the two have very little to do with each other. But let me just for a moment.

Please, this has changed. This is a change, and this is what people should recognize that, you know, companies used to go public at valuations well around a billion or well below. Apple was the largest IPO at 1.3 billion, and Microsoft was around a billion. And Qualcomm and Cisco and all these other Silicon Valley companies all were satisfied to go public with market caps well under a billion. Well, today we have, because of Sarbanes Oxley regulations and other restrictions.

Companies don't want to go public anymore. And so we have IPOs at $85 billion, as it was with Facebook.

And 50 some billion dollars for Google. And this means that all the appreciation of the stock is essentially captured by the venture capitalists rather than by the public markets which invest in pensions and really allow Main street to participate in the most creative frontiers of the economy. Today we have hundreds of what are called unicorns, which are private companies that have valuations and in the billions.

And these companies have already.

Many of them, achieved their mature market caps without ever touching Main Street. Main street never participated in any of.

These.

New Uber and Airbnb and Palantir and all these big companies that have essentially remained private. And it's changed the economy. I mean, Microsoft appreciated four or five hundred fold after it went public. All that appreciation enriched Main Street. But Facebook went public at $85 billion, and almost all its appreciation just stayed in Silicon Valley.

Okay, so I want to ask you a few things. So going back to what you were saying earlier, you're a supply sider. You're one of the original pillars of that philosophy. You're a speechwriter for Reagan, my favorite president, et cetera. And I would agree.

But I was more of Reagan's most.

Quoted living author. I wrote some speeches while he was running for president. But wealth and poverty came out, and it did so well that I never joined the White House staff. I did consult with them, but I was not an active speechwriter. My cousin was.

Josh Gilder.

Oh, fantastic. Okay, well, so let me ask you a question. Let's play, devil's advocate, just for a moment, because the supply side idea would say that everything is going to trickle to down. Now examining this a little more closely.

No, no, no, no supply side or said anything about trickle down.

That's a caricature of supply side. None of us ever said trickle down. That's how Democrats discredit supply side economics. We're surge up economics.

I don't think that discredits it. I think that credits it. But go ahead with what you're saying. I mean, you know, when I talked to Arthur Laffer, I mean, I don't know, he didn't object to that term. But why do you object to that term? But I don't want to spend too much time on that because I want to get to my point.

Trickle. It doesn't trickle.

It surges up at supply side.

We cut tax rates across the board. We want low marginal tax rates for everyone and it allows people to rise up. It doesn't trickle down from anything. It enables creativity and growth.

I agree. So your objection is that the trickle implies slow. I got it. Okay, but doesn't I mean how it implies top down?

It doesn't recognize trickle down is socialism. Trickle down is top down run by government and crony capitalists who enrich themselves of the public trough and then allow some trickle down of benefits for the rest of us. That's what we got today. We got trickle down socialism today in Washington.

Well, I say that socialism is trickle up poverty. Okay, so. Yeah, okay, so let me get to the point though. Let's not. This is not.

Listen, I agree with these philosophies, okay? So I just don't want to waste a lot of time on this because there's more important stuff to cover. Okay? So here's the more important thing. How is it possible for them to have this closed loop economy? And here's what I mean by it. So say for example, the money is staying in the Fortune 500 or the Fortune 1000. It's in this circle, this closed loop that you describe, which by the way, I mostly agree with that. And then also in terms of running up the valuation of these stocks before they go public so that the greater public at large investing doesn't have a chance to participate. But that money goes somewhere and that money gets spent. I mean, isn't that the concept of call it a trickle, call it a flood, whatever you want, but it moves. It has to have velocity. Right? That money goes somewhere. It has to reach to all segments to some extent.

Sure, sure.

But the key point of the economics that's expounded in the scandal of money is that wealth is knowledge. You can tell wealth is knowledge, as MIT economist.

Has written, by thinking when as expensive car crashes against a wall, all its value disappears, all its information disappears, even though every molecule and atom is preserved. Value is information, the car is knowledge. And I extend that to all. Wealth is essentially knowledge.

And if wealth is knowledge, growth is learning and measured by all the learning curves across the economy. And these are real things. Knowledge is real, learning is real. A monetary creation is just a symbol of realities and doesn't create wealth. Money isn't wealth. It's merely a conduit that allows exchange to occur efficiently. But unless there's real learning underway.

No growth occurs. And learning depends on entrepreneurial tests of business ideas.

If the government guarantees a project.

Its learning is stifled. It's not an experiment, and it can't yield knowledge and thus it can't produce growth.

So tell us more about how they're keeping this economy as a closed loop, this Wall street economy.

Well.

These are the statistics that the Fed itself releases. That 60% of their money creation just goes back to the government to finance government spending. And two thirds of the rest of the money they create is.

Captured by the.

Standards of S&P 500 companies. And.

What they've been doing with their incremental funds in recent years is to purchase their own shares at a rate of about $30 billion a month. So they've been buying up their own shares.

And buying up rivals. Mas there's been a mild MA boom which has replaced IPOs, which actually create new competition and more economic.

Players and possibilities. They've replaced IPOs with, which used to be seven IPOs for every merger and acquisition, there are now 22 mergers and acquisitions for every IPO.

That's very interesting. So you tell us more about the significance of that. That is fascinating. It's flipped, hasn't it?

It means that the economy is becoming increasingly top decentralized and that the glory of America capitalism, which has been the NASDAQ and the IPO process and venture capital constantly rising up to challenge the existing.

Leviathans, has been replaced by a merger and acquisition.

System where new companies get bought up by their bigger rivals and kind of merged into.

The established crony capitalist.

System. Right, right. So, so you've got. That means less consumer choice and it means more, more monopolistic behavior from these big players, right?

Yeah, the big players are buying up their rivals and.

And that reduces competition. And it really.

Is a depressing aspect of the scandal of money, where we have this kind of closed loop economy between the Fed and the treasury and a few big companies with enough lobbyists and lawyers to get.

To the front of the queue. Because.

When interest rates are near zero, it means money is essentially free. And when anything is free, it has to be distributed by Q. And only the people in the front of the line get any. The people with the advantages and privileges, which in our economy means effective lawyers and lobbyists manage to participate in the system which is trying to replace.

Savings, which is a real process, savings. We forego consumption today in order to initiate an entrepreneurial process that will provide.

Goods and services in the future and allow us to pay back our debts. We've replaced that system with credit.

And you know, credit during the last few years has moved from 41% to 74% of the US GDP. And.

And it's. But you can print money, but you can't print value.

Very good, George. What should people do about this? How should the common man, if you will, react to this situation?

Well, I think Ted Cruz is a good vehicle for reform of the US Government, dismantling this paralyzing regulatory apparatus and reforming the Fed and reducing it to its appropriate role as a lender of last resort in financial crises, rather than this gigantic fourth branch of government that regulates the entire economy from the center and now supervises everything from hedge funds to pawn shops through this new consumer division that it's created.

So I would love to see that, but I think the chances are about nil.

That we're going to control the Fed. Right? Yeah.

I mean, here we're faced with a real challenge. I mean.

Communist China's capitalist sector has been growing so fast over the recent years that government spending in China is now only 17% of GDP. That's about half of what government spending is in the United States. For gdp, the Communist China has become more capitalist than we are. That's an incredible historic turnaround.

Consummated by the Obama administration after declaring it wanted to fundamentally transform America.

I remember when Jim Rogers said that a long time ago, I thought, wow, is that, is that really true? Are we really at that point? And in some ways, yeah, you're right. I mean, it does seem that way, but China doesn't have much of a future, if you ask me. I mean, they've got severe problems, right?

That's what everybody says. I disagree.

Really? Even with the population. Tell us about that. That's interesting.

The population, I mean, that's appalling. And they do have demographic problem but at the same time they're massive.

They've got a massive expansion of venture capital in China. They now have more IPOs, double the number of IPOs that we do. They have, they actually can build, they have shovel ready product checks. I'll tell you that.

They done immense infrastructure construction. Some of it is wasteful and futile, I admit, you know, they, but they're moving ahead and they aren't all sicklied o' er by a pale cast of green goo like American bureaucrats and universities, which is another extended bureaucracy which they managed to finance by imposing debt on the students. It's the most amazing twisted development I've seen in education where the educators expand all their perks and their administrative departments and their useless gender studies divisions and their climate change cult.

Ventures and they stick the costs on the students through the student loan program.

Yeah, it's just obscene what's happened with colleges and I've talked about that extensively, so I'm not going to go on that rant. But you know, but anyway, that's, that's.

That'S what, that's, that's what I talk about in the scandal of money that, that we really have to take back this country because we've had a covert socialist coup and, and.

The people who perpetrated it are trying to blame the entrepreneurs. The technology is sterile now. They're trying to blame the capitalists, they're trying to blame the private bankers, they're trying to blame everybody.

But the essential fraud of.

Of meaningless money.

So let me ask you a question as we wrap up here about, you know, it seems to be that they've created, with, with all this QE that they've created a situation where we've had this asset price inflation. But on the broader scale, if you, you know, let's design our own core rate, right. Let's exclude health care and college and maybe a couple other ridiculous things. But assets have been inflating a lot, certainly real estate, the stocks, I mean, you know, but they don't count these things as inflation directly, of course. And so are we in an inflationary or a deflationary or is it just sort of stable like overall? I mean, it's sort of hard to make. Figure it out.

Well.

We'Re bidding up the value of existing assets and suffocating the creation of new assets. So we bid up the value of existing assets and at some point.

Since the Fed can't countermand the law of gravity, the existing assets collapse and there's a bubble and a crash, but the debt remains. And it is a kind of overhang that.

Suppresses new growth. And so that's the essential problem we're creating. You can't.

Substitute for learning and knowledge and real growth with new money and credit and suppressing. You can't turn money into wealth directly. No king has figured out how to do that.

And then no country anywhere, no central banker anywhere. Yeah, very interesting. Well, George, of course the book is new. It's on Amazon.com and all the usual places. Do you want to give out any other websites?

Maybe gildertech.com it's scandal of Money and Ragnaray and.

Discovery Institute and the American Principles Project are both promoting it.

Fantastic. Good stuff. Well, thank you so much, George Gilder.

Thank you. Good to talk to you. Thank you so much for having me.

Take care.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

Really? Now how is that possible at all?

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